-----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, U1mIDfaY/EVaonwRqFomjuR5hR/xmOJ053v2QgE9qGhllcIRY8bAcwgXXPofLdNa CrlV5/PQq2Kv6Xd3Dt0C4A== 0000950149-01-501875.txt : 20020412 0000950149-01-501875.hdr.sgml : 20020412 ACCESSION NUMBER: 0000950149-01-501875 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010901 FILED AS OF DATE: 20011129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ODWALLA INC CENTRAL INDEX KEY: 0000892058 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 770096788 STATE OF INCORPORATION: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23036 FILM NUMBER: 1802677 BUSINESS ADDRESS: STREET 1: 120 STONE PINE ROAD STREET 2: DRAWER O CITY: HALF MOON BAY STATE: CA ZIP: 94019 BUSINESS PHONE: 4157261888 10-K 1 f77494e10-k.txt ODWALLA, INC. FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ODWALLA LOGO] (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 1, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission file number 0-23036 ODWALLA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) California 77-0096788 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
120 Stone Pine Road Half Moon Bay, California 94019 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE) Registrant's telephone number, including area code: (650) 726-1888 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
Title of each class Name of Exchange on which registered ------------------- ------------------------------------ none none
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock (no par value) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] [Cover page 1 of 2 pages] The aggregate market value of voting stock held by non-affiliates of the Registrant, as of November 20, 2001, was approximately $83,595,270 (based on the closing price for shares of the Registrant's common stock as reported by the Nasdaq National Market for the last trading day prior to that date). Shares of common stock held by each executive officer, director, and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. On November 20, 2001 approximately 11,218,023 shares of the Registrant's common stock, no par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE None. [Cover Page 2 of 2 pages] CAUTIONS ABOUT FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K includes forward-looking statements about future financial results, future business changes and other events that haven't yet occurred. For example, statements like "we expect," "we want," "we anticipate" or "we believe" are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations. We will not necessarily update the information in this Form 10-K if any forward-looking statement later turns out to be inaccurate. Details about risks that could affect various aspects of our business are included throughout this Form 10-K. Investors should read all of these risks carefully, and should pay particular attention to risks affecting the following areas: availability and pricing of raw materials (page 7); competition (page 8); our dependence on significant trade partners (page 8); government regulations that may impact our business (page 9); the specific risk factors discussed on pages 9 to 12; legal proceedings (page 13); and commitments and contingencies described in Note 4 to the financial statements. Investors should also refer to other documents that we file from time to time with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS OVERVIEW Odwalla began operations in September 1980 and was incorporated in California in September 1985. When we refer to "we," "Odwalla" or the "Company" in this Form 10-K, we mean our California corporation (Odwalla, Inc.) and our Maine corporation (Fresh Samantha, Inc.), which we acquired on May 2, 2000. When we refer to "Samantha," in this Form 10-K, we mean the branded products of Fresh Samantha, Inc. Odwalla's business is to provide easy access to great tasting nourishment through the marketing and sale of beverage and food products. We are the nation's leading branded super-premium beverage company, delivering great tasting nourishment coast to coast with the Odwalla and Samantha lines of more than 45 all natural juices, smoothies, dairy-free original and chocolate milk, dairy-free shakes, spring water and natural food bars. Our beverage product lines appeal to many consumers because of the superior taste and greater nutritional value of minimally processed beverages compared to juice from concentrate or with artificial flavors or to more highly processed non-dairy products. We seek to accomplish our business objectives by leading the industry in beverage and food knowledge, optimizing quality through sourcing and production, controlling product access and distribution from production through retail, artful presentation, growing through geographic and product line expansion, leveraging our information systems, interacting with consumers and living our vision. Odwalla's sourcing procedures and production methods enable us to create products with high nutritional value and flavor quality. The distribution of our products through both our own and other direct-store-delivery systems allows us to control product quality and presentation, as well as to develop relationships with trade partners. We sell and distribute our products to over 7,500 retail locations, including supermarkets, specialty retailers, natural food stores, warehouse outlets, convenience stores, on-line grocers and food service operators through our direct-store-delivery system. Odwalla is committed to certain values -- nourishing consumers, shareholders and other stakeholder groups; environmental awareness; and support for the communities we serve. We believe that our products reflect these values. Odwalla products are currently sold in almost 40 states. Our nourishing food bars are available in additional states and can also be purchased through our Web site at www.odwalla.com. 2 ACQUISITION BY THE COCA-COLA COMPANY Odwalla has entered into an Agreement and Plan of Merger, dated as of October 29, 2001 (the "Merger Agreement"), with The Coca-Cola Company ("TCCC") and TCCC Acquisition Corp. (formerly known as Perry Phillip Corp., the "Offeror"), a wholly owned subsidiary of TCCC. Pursuant to the Merger Agreement, the Offeror has offered (the "Offer") to purchase all of the outstanding shares of common stock of Odwalla for $15.25 per share, net to the seller in cash, less any required withholding taxes and without interest thereon (the "Offer Price"). The Offer was launched on November 6, 2001. On that date, TCCC and the Offeror filed a Tender Offer Statement on Form TO with the Securities and Exchange Commission (the "SEC"), and Odwalla filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC. The Offeror and TCCC also began distributing the Offer materials, including the Tender Offer Statement and Solicitation/Recommendation Statement, on November 6, 2001. Odwalla shareholders are urged to read the Offer materials carefully. The Merger Agreement, among other things, provides for the Offer, and, upon the terms and subject to the conditions of the Merger Agreement and in accordance with the California General Corporation Law (the "CGCL"), provides that the Offeror will be merged with and into Odwalla (the "Merger") and each share of Odwalla common stock then outstanding (other than shares owned by TCCC, the Offeror, their direct or indirect subsidiaries and dissenting shareholders, if any) will be converted into the right to receive the Offer Price less any required withholding taxes and without interest thereon. Following the Merger, Odwalla will continue as the surviving corporation (the "Surviving Corporation") and become a wholly owned subsidiary of TCCC. The separate corporate existence of the Offeror will cease. The Offer is conditioned upon there being validly tendered and not withdrawn prior to the expiration date of the Offer, which is scheduled to be December 6, 2001, but which may be extended in accordance with the provisions of the Merger Agreement, at least ninety and one-tenth percent (90.1%) of the shares of Odwalla common stock then outstanding, including, for purposes of such calculation, shares that are issuable upon exercise of vested options and outstanding warrants but excluding shares that are issuable upon the exercise of options and warrants of Odwalla that are cancelled pursuant to the Merger Agreement (the foregoing being referred to herein as "Fully Diluted Basis") (the "Minimum Condition"). The Offer is also subject to the expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the satisfaction or waiver of other terms and conditions set forth in the Merger Agreement. The waiting period under the HSR Act expired on November 19, 2001. Concurrently with the execution of the Merger Agreement, and as a condition and inducement to TCCC's and the Offeror's entering into the Merger Agreement, Odwalla entered into a Stock Option Agreement, dated as of October 29, 2001 (the "Option Agreement"), with TCCC and the Offeror. Pursuant to the Option Agreement, Odwalla granted to the Offeror an irrevocable option (the "Top-Up Stock Option") to purchase that number of shares of Odwalla common stock (the "Top-Up Option Shares") equal to the number of shares that, when added to the number of shares owned by TCCC and the Offeror immediately following consummation of the Offer, will constitute 90.1% of the shares of Odwalla common stock then outstanding on a Fully Diluted Basis (assuming the issuance of the Top-Up Option Shares). However, the Top-Up Stock Option will not be exercisable if the number of shares of Odwalla common stock subject to the Top-Up Stock Option exceeds the number of shares available for issuance or the issuance of such shares requires the approval of the Odwalla shareholders under the rules of the National Association of Securities Dealers. If the Minimum Condition is not satisfied on any scheduled expiration date of the Offer, at the request of Odwalla, the Offeror shall, and TCCC shall cause the Offeror to take any of the following actions at the discretion of the Offeror: (x) extend the Offer pursuant to the provisions of the Merger Agreement, (y) amend the Offer in contemplation of exercising the Top-Up Option to reduce the Minimum Condition to that number of shares of Odwalla common stock (the "Option Exercise Minimum Number") equal to the number of shares which, when combined with the number of shares issued upon exercise of the Top-Up Option, equals 90.1% of the shares of Odwalla common stock then outstanding on a Fully Diluted Basis or (z) amend the Offer to provide that, if (i) the Minimum Condition is not satisfied at the next scheduled expiration date of the Offer (after giving effect to the issuance of any shares of Odwalla common stock acquired by TCCC or the Offeror) and (ii) the number of shares of Odwalla common stock tendered pursuant to the Offer and not withdrawn as of such next scheduled expiration date is more than 50% of the then outstanding shares, 3 the Offeror shall waive the Minimum Condition and amend the Offer to reduce the number of shares of Odwalla common stock subject to the Offer to 49.9% of the shares then outstanding (the "Revised Minimum Number") and, subject to the prior satisfaction or waiver of the other conditions of the Offer, purchase, on a pro rata basis, the Revised Minimum Number of shares. Under the CGCL, if TCCC or the Offeror acquires, pursuant to the Offer or otherwise, at least 90% of the shares of Odwalla common stock then outstanding, it will be able to effect the Merger without a vote of the shareholders. In such event, TCCC, the Offeror and Odwalla have agreed in the Merger Agreement to take, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, all necessary and appropriate action to cause the Merger to be effective as soon as practicable after the acceptance for payment and purchase of shares of Odwalla common stock pursuant to the Offer, without a meeting of shareholders of Odwalla, in accordance with the CGCL. Under the CGCL, the merger consideration paid to the shareholders of Odwalla may not be cash if TCCC and the Offeror own, directly or indirectly, more than 50% but less than 90% of the then outstanding, shares of Odwalla common stock, unless either all the shareholders of Odwalla consent to the Merger or the Commissioner of Corporations of the State of California approves, after a hearing, the terms and conditions of the Merger and the fairness thereof. If, pursuant to the Offer, the Option Agreement or otherwise, the Offeror does not acquire shares of Odwalla common stock that, taken together with shares owned by TCCC, represent at least 90.1% of the shares of Odwalla common stock then outstanding on a Fully Diluted Basis as of any scheduled expiration date of the Offer, and the Offeror instead amends the Offer to reduce the number of shares of Odwalla common stock subject to the Offer to the Revised Minimum Number, then the Offeror, together with TCCC, would own 49.9% of the shares then outstanding upon consummation of the Offer, and would thereafter solicit the approval of the Merger and the Merger Agreement by a majority vote of the shareholders of Odwalla. Under such circumstances, a significantly longer period of time will be required to effect the Merger. Concurrently with the execution and delivery of the Merger Agreement, TCCC, entered into Tender Agreements, dated October 29, 2001 (the "Tender Agreements"), with each of the following shareholders: Bain Capital Fund VI, L.P.; BCIP Associates II; BCIP Trust Associates II; BCIP Associates II-B; BCIP Trust Associates II-B; BCIP Associates II-C; PEP Investments Pty. Limited; U.S. Equity Partners, L.P.; U.S. Equity Partners (Offshore), L.P.; Catterton-Simon Partners III, L.P.; D. Stephen C. Williamson; James R. Steichen; Theodore R. Leaman III; Douglas K. Levin; Michael Carter; Julie Carter; and Robert Carter (collectively, the "Tendering Shareholders"). Pursuant to the Tender Agreements, the Tendering Shareholders agreed to tender into the Offer an aggregate of 6,280,594 shares of Odwalla common stock owned by the Tendering Shareholders (the "Committed Shares"). The Committed Shares represent approximately 57% of the total outstanding shares of Odwalla common stock as of October 29, 2001. The Tender Agreements also provide that Bain Capital Fund VI, L.P.; BCIP Associates II; U.S. Equity Partners, L.P.; U.S. Equity Partners (Offshore), L.P.; Catterton-Simon Partners III, L.P.; D. Stephen C. Williamson; Douglas K. Levin; Michael Carter; Julie Carter; and Robert Carter (the "Voting Shareholders"), representing in the aggregate 5,950,650 shares or 54% of the total outstanding shares of Odwalla common stock as of October 29, 2001, irrevocably appoint the Offeror as their proxy to vote their portion of such Committed Shares in connection with the transaction in the following manner: (1) for the adoption and approval of the Merger Agreement and the Merger and (2) in any manner as TCCC, in its sole discretion, may see fit with respect to any extraordinary corporate transaction (other than the Merger), such as a merger, consolidation, business combination, tender or exchange offer, reorganization, recapitalization, liquidation, sale or transfer of a material amount of the assets or securities of Odwalla or any of its subsidiaries (other than pursuant to the Merger) or any other change of control involving Odwalla or any of its subsidiaries, including, but not limited to, any proposal from a third party with respect to a merger, consolidation, share exchange, tender offer or similar transaction involving Odwalla or any subsidiary of Odwalla, or any purchase or other acquisition of 20% or more of the assets of Odwalla or any subsidiary of Odwalla or any purchase or other acquisition of any equity interest in Odwalla or any subsidiary of Odwalla. Notwithstanding the foregoing grant to TCCC of the irrevocable proxy, if TCCC elects not to exercise its rights to vote the shares of Odwalla common stock subject to the Tender Agreements, the Voting Shareholders have agreed, (i) to vote such Voting Shareholder's shares of Odwalla common stock in favor of or give such Voting Shareholder's consent to, as applicable, a proposal to adopt and approve the Merger Agreement and the Merger, or (ii) to vote such Voting Shareholder's shares of Odwalla common stock in the manner directed by TCCC if the issue on which the Voting Shareholder is requested to vote is a matter described in 4 clause (2) of the preceding sentence, in each case at any annual, special or other meeting or action of the shareholders of Odwalla, in lieu of a meeting or otherwise. The Merger Agreement provides that, promptly after the Offeror acquires shares of Odwalla common stock which represent at least the Minimum Condition, the Option Exercise Minimum Number or the Revised Minimum Number, the Offeror will be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of Odwalla (the "Post-Acceptance Board"), subject to compliance with Section 14(f) of the Securities Exchange Act of 1934, as amended, as will make the number of Odwalla's directors designated by the Offeror equal to the product of (1) the total number of available seats on the Board of Directors and (2) the percentage that the number of shares of Odwalla common stock owned by the Offeror and TCCC bears to the total number of shares of Odwalla common stock issued and outstanding, provided that, prior to or upon the purchase by the Offeror of any shares of Odwalla common stock in the Offer, Odwalla shall increase the number of directors on the Board of Directors from seven to eight and shall maintain the number of directors at eight until the effective time of the Merger. Prior to the effective time of the Merger, Odwalla shall use its reasonable best efforts to ensure that the Post-Acceptance Board includes four directors in office as of October 29, 2001 (the "Continuing Directors"). Odwalla shall, at such time, take all actions necessary to cause the Offeror's designees to be so elected by its existing Board of Directors. In addition, Odwalla will use its reasonable best efforts to cause individuals designated by the Offeror to constitute the same percentage as such individuals represented on the Post-Acceptance Board of each committee of such Post-Acceptance Board (other than any committee of such Post-Acceptance Board established to take action under the Merger Agreement). In connection and simultaneously with the Offer, Odwalla has agreed to use its reasonable best efforts to ensure that each holder of outstanding options (whether vested or unvested) to acquire any shares of Odwalla common stock (the Company Options) granted under Odwalla's Stock Option Plan adopted in 1993, Odwalla's 1994 Non-Employee Directors' Stock Option Plan and Odwalla's Amended and Restated 1997 Stock Option/Stock Insurance Plan will execute an agreement to exchange immediately prior to the consummation of the Offer such holder's Company Options to Odwalla for an amount in cash determined by multiplying (A) the excess, if any, of the Offer Price over the applicable exercise price per share of the Company Option (regardless of the exercise price) by (B) the number of shares of Odwalla common stock subject to the Company Options (whether vested or unvested) held by such holder (such amount, the "Option Consideration") less any amounts withheld to satisfy applicable tax obligations. Upon the expiration date of the Offer, each holder of Company Options immediately prior to the consummation of the Offer, who has exchanged such Company Options shall become entitled to the Option Consideration, and all rights of such holder associated with the Company Options shall be terminated and canceled. As of the effective time of the Merger, either (1) each Company Option not so exchanged immediately prior to the consummation of the Offer shall be canceled, and in consideration for such cancellation the holder shall become entitled to receive an amount in cash equal to the Option Consideration, subject to any amounts withheld to satisfy applicable tax obligations, or (2) Odwalla shall use its reasonable best efforts to ensure that each holder of a Company Option shall execute an agreement which provides that such Company Option shall be canceled, and in consideration for such cancellation the holder thereof shall become entitled to receive an amount in cash equal to the product of (x) the number of shares of Odwalla common stock subject to the Company Options, whether vested or unvested, held by such holder and (y) the excess of the consideration paid for shares of common stock in the Offer per share over the per share exercise price of each such Company Option, subject to any amounts withheld to satisfy applicable tax obligations. See the section entitled "Executive Compensation--Employment Agreements" for a discussion of the employment agreements between Odwalla and D. Stephen C. Williamson. Also, see the section entitled "Certain Relationships and Related Transactions--Loans to Odwalla Executives for Exercise of Stock Options" for a discussion of loans that may be made to D. Stephen C. Williamson, James R. Steichen and Theodore R. Leaman III in the event TCCC requires that the Executives exercise their options in connection with the Offer. The Board of Directors of Odwalla has unanimously approved the Offer and the Merger and approved and adopted the Merger Agreement and the Option Agreement and the transactions contemplated thereby, including the Offer, the Option and the Merger, and determined that the terms of the Offer, the Option and the Merger, are fair to and in the best interests of the shareholders of Odwalla, and recommends that all holders of shares of Odwalla common stock accept the Offer and tender their shares pursuant to the Offer. 5 ACQUISITION OF FRESH SAMANTHA On May 2, 2000, we completed our acquisition of Fresh Samantha. We accounted for the acquisition of Fresh Samantha as a purchase for accounting purposes and, accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the acquisition date. Odwalla's financial statements reflect results of Fresh Samantha as a wholly owned subsidiary of Odwalla since the acquisition. Note 2 to the Consolidated Financial Statements provides further information regarding the acquisition. PRODUCTS, DISTRIBUTION AND TRADE PARTNERS Our current product line consists of single-flavor and blended fruit- and vegetable-based juice products, dairy-free original and chocolate milk, all-natural meal replacement and dairy-free shakes, nourishing food bars and natural spring water. All of our juices are currently flash pasteurized and some are produced on a seasonal basis. Odwalla products are currently sold in Alaska, Arizona, British Columbia, California, Colorado, Connecticut, Delaware, Florida, Georgia, Guam, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Massachusetts, Maryland, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington state, Washington, D.C. area, Vermont, and Wisconsin. We use our branded, custom-designed 450 milliliter and 325 milliliter bottles made from recyclable, HDPE plastic for the Odwalla brand. This bottle retains fresh fruit flavor notes better than the bottles commonly used by our competitors. It also has a tamper-resistant, screw-on cap, which allows consumers to easily reseal their beverage while drinking Odwalla on-the-go. The characteristics of Odwalla's proprietary bottle also extend the shelf life of our products. We establish shelf life standards for each product to maintain the flavor and nutritional integrity that consumers associate with freshly produced fruit and vegetable beverages. The shelf life of Odwalla's fruit and vegetable-based products is typically between 10 and 25 days at a retail outlet. Although the cost of the new bottle is approximately 50% greater than the prior bottle, we believe that the ability to extend shelf life and thus our distribution capabilities help offset the increased cost. In November 2001, we introduced a branded, custom-designed 450 milliliter bottle made from recyclable, HDPE plastic for the Samantha brand. Our food bars have a significantly longer shelf life. Our policy is to have all products removed from trade partners' shelves on or before their Odwalla-established expiration date. Because of our "day of production" quality standards, products reflect the seasonal changes in fruit varieties in color and taste. Our production methods are designed to minimize the effect of processing on the fruit juice extracted. Our entire product line varies due to a significant component of seasonal ingredients, seasonal product usage, and the addition and deletion of products. We've trademarked various aspects of our brands, including labels, certain product names, certain phrases and symbols, as we believe that these and other intellectual property that we own are critical to our success. These items help create the Odwalla and Samantha brands and connect in an important way with our consumers. We have taken steps to protect our intellectual property and we intend to continue to protect against imitation of our products and packages and to protect our trademarks and copyrights as necessary. This action could be time-consuming, result in costly litigation and divert management personnel. Furthermore, there can be no assurance that we would be successful in such action. Our products are sold and distributed primarily through our direct-store-delivery system, which is serviced by route sales representatives who sell, deliver and merchandise our products to our trade partners. This direct-store-delivery system is designed to allow us to preserve the integrity of our highly perishable all-natural products, optimally manage delivery schedules, efficiently control product mix, keep store shelves or our own coolers stocked with freshly prepared products and have a greater influence on determining in-store location and merchandising of our products. At most direct-store-delivery accounts, we stock, order and merchandise our products at the point of sale, and we issue credits to the trade partner for unsold product. This full service relationship allows us to avoid paying slotting fees for shelf space, as well as other handling fees, and to maintain control over our product merchandising at the point of sale. 6 We provide a lesser degree of service to certain trade partners who are responsible for stocking, ordering and merchandising Odwalla products. These trade partners do not receive credit for unsold products. Consumers can purchase our products at supermarkets, specialty retail stores, natural food stores, convenience stores, warehouse outlets, on-line grocers and institutional food service trade partners. We also distribute our products through third party distributors. This distribution channel, with merchandising support provided by the distributors' employees and/or our employees, provides opportunities to expand product distribution in selected markets, some of which may be geographically difficult for us to service, and still maintain relationships with trade partners. We sell directly to third party distributors who generally do not receive credit for unsold product. The third party distributors may also have their own direct-store-delivery system or they may deliver product to a trade partner who is then responsible for stocking and merchandising the product. As we increase our penetration in existing markets and grow into new geographic markets, sales through third party distributors will likely increase as a percentage of sales. Our sales to third party distributors are discounted from our standard wholesale pricing. RAW MATERIALS Producing and selling our minimally processed products entails special requirements in ingredient sourcing, production, distribution and sales in order to preserve and maximize the flavor profile and nutritional integrity of the products. We source and select fruits and vegetables to meet a variety of established criteria, including overall quality, flavor profile, variety, ripeness and other factors. Processing of fruit and vegetables is performed in a manner that captures and preserves the various qualities of fresh and consistent flavors. Odwalla has focused on each of these elements in an effort to achieve our goal of providing the safest, best tasting and most nutritious beverages and other products for consumers. Odwalla buys ingredients according to stringent specifications. Fruits and vegetables, in particular, are purchased year-round or seasonally depending on the type of produce. Because various types of fruit and vegetable crops are harvested at different times of the year, we obtain and produce different juices on a seasonal basis. Most of our fruits and vegetables are purchased in the open market on a negotiated basis. Historically, oranges, apples, carrots and tangerines are the largest volume commodities we purchase. We have developed an extensive network of ingredient sourcing relationships over the years and rely on this network as well as new sources for the ingredients we need. On the East Coast, we currently utilize a Florida co-packing arrangement for flash-pasteurized single-strength citrus products for the Samantha brand. We also purchase organic oats as a significant ingredient in our food bars. All of these key ingredients are subject to volatility in supply, price and quality that could seriously harm our business and results of operations. We are subject to the same risks with our other ingredients as well. We also source a number of fruits, including tropical fruits, from foreign suppliers in the form of frozen fruit puree. A puree is whole fruit that has been processed, finely cut, heat treated, packed in a container and frozen. A puree is not a concentrate. Purees are combined with the freshly extracted and flash pasteurized juices of other fruits or ingredients in a number of our products. The purees we purchase are heat treated to increase safety and meet government regulations. Most purees are purchased under annual price contracts. Independent companies produce some of our products, including our water and nourishing food bars, to our specifications and recipes. As with most agricultural products, the supply and price of raw materials we use can be affected by a number of factors beyond our control, including frost, drought, flood, hurricane and other natural disasters. Weather conditions, economic factors affecting growing decisions, various plant diseases and pests will affect the condition and size of the crop. For example, in December 1998, a freeze damaged citrus crops in the San Joaquin Valley and other portions of California. This freeze had a significant negative impact on the cost and yield of fresh citrus products we used until the impact of the freeze ended in the beginning of the third quarter of fiscal 2000. See Management's Discussion and Analysis of Financial Conditions and Results of Operations beginning on page 16 for more information. Adverse weather conditions could negatively affect our business and results of operations. 7 Odwalla is pursuing a no genetically engineered organisms status on our entire product line. However, ingredients that are not genetically modified are at times difficult to source in the required volumes. Genetically modified organisms are the product of splicing or modifying crops to release new organisms to the environment. Crops are genetically modified in order to increase crop yields, to withstand high doses of herbicides or to produce their own insecticides. There are uncertainties about the potential risks genetically modified foods pose to humans and the environment. While we have written and verbal guarantees from our suppliers that the ingredients they supply us do not contain genetically modified organisms, we do not independently test such guarantees. We intend to provide our consumers information about any genetically modified organisms that are used in our products. COMPETITION In a broad sense, our beverages compete with all beverages available to consumers and our food bars compete with all food and energy bars currently available. The natural foods market is highly competitive. It includes national, regional and local producers and distributors; many of them have greater resources than we do, and many of them have shelf-stable products that can be distributed with significantly less cost. We believe our niche is easily accessed nourishing beverages in the refrigerated super premium juice, dairy-free beverages, nourishing food bar and bottled water categories. We believe our direct competition in this market niche is currently from nationally, regionally and locally focused juice producers, certain of which are owned by major beverage producers, nationally branded meal replacement beverage producers, private equity funds, food and energy bar companies, soy product companies and premium bottled water companies. Our direct competitors in the juice business include national brands such as Horizon, Just Squeezed, Tropicana, Minute Maid, Newman's Own and Nantucket Nectars. Our juice products also compete with regional brands, many of which are owned by Ultimate Juice Co., a company owned by North Castle Partners, a private equity fund which has heavily invested in the healthy living and aging consumer goods products. Ultimate Juice Co. brands include Naked Juice, a brand which is present in the Western region, Pacific Northwest, and recently on the East Coast; Saratoga Beverage, in several different regions of the United States; Zeigler, predominantly in the Northeast, Midwest and Southeast regions; and Fantasia in Chicago and the Midwest. Other privately owned regional brands of premium juice also serve as competition to Odwalla, including Rocket Juice in the West and the Midwest. `Smoothie Bars' such as Jamba Juice are also considered as direct competitors. In addition, a number of major supermarkets and other retail outlets squeeze and market their own brand of fresh juices that compete with the our products. A decision by North Castle or any other large company to focus on Odwalla's existing markets or target markets could have a material adverse effect on our business and results of operations. Our food bar products, which entered the market in August 1998, compete with several more established companies, including PowerBar (owned by Nestle), Balance Bar (owned by Kraft Foods, a division of Phillip Morris) and Clif Bar. In March 2001, we introduced dairy-free original and chocolate OdwallaMilk(TM), a blend of organic soy, rice and oat milks. This product will compete with several more established brands and companies, including Silk. Significant competitive pressure from these or other companies could negatively impact our sales and results of operations. While we believe that we compete favorably with our competitors on factors including quality, nutritional integrity, food safety, merchandising, service, sales and distribution, multiple flavor categories, brand name recognition and loyalty, our products are typically sold at prices higher than most other competing beverage and bar products. DEPENDENCE ON ONE OR A FEW MAJOR TRADE PARTNERS Safeway, Inc. is our largest single account and accounted for slightly less than 10% of our fiscal 2001 sales. We spend considerable time to maintain a good relationship with Safeway and other significant accounts, but we can't offer any assurance that sales to significant accounts will not decrease or that these trade partners will not choose to replace our products with those of competitors. The loss of Safeway or other significant accounts or any significant decrease in the volume of products purchased by their customers in the future would seriously harm our business and results of operations. Continuity of trade partner relationships is important, and events that impact our trade partners, including their own internal labor disputes, may have an adverse impact on our results of operations. The acquisition of Fresh Samantha in May 2000 expanded our geographic reach and provided a broader base of sales and account relationships. 8 GOVERNMENT REGULATION The production and sales of beverages are subject to the rules and regulations of various federal, state and local food and health agencies, including the U.S. Food and Drug Administration and the California State Food and Drug, Department of Health Services. In 1998, the FDA regulations for fresh apple juice went into effect. The final regulations for fruit and vegetable juices were enacted in January 2001. The FDA's ruling for citrus was to require all fresh juice processors to show a 5-log reduction in potential pathogenic bacterial loads, which represents a 100,000 fold reduction in the numbers of the most resistant pathogens. The regulation also requires a Hazard Analysis Critical Control Point plan, or HACCP. All Odwalla and Samantha products produced in our Dinuba, California facility are manufactured under a HACCP plan with validated critical control points. This includes pasteurization of the products. By meeting the pasteurization and HACCP requirements, Odwalla and Samantha products meet the FDA Regulations. We are also subject to various federal, state and local environmental laws and regulations that limit the discharge, storage, handling and disposal of a variety of substances and by laws and regulations relating to workplace safety and worker health, principally the Occupational Safety and Health Administration Act, as well as similar state laws and regulations. We believe that we comply in all material respects with these laws and regulations, although we cannot assure that the cost of future compliance with such laws or regulations will not have a material adverse effect on our results of operations or financial condition. We did not incur any significant costs in fiscal 2001 to comply with environmental laws. EMPLOYEES On November 20, 2001, Odwalla had approximately 700 employees, almost all of whom were full-time employees. We do not have any collective bargaining agreements with our employees, and we believe employee relations are generally good. OTHER FACTORS AFFECTING ODWALLA'S BUSINESS RISKS ASSOCIATED WITH PERISHABLE PRODUCTS. Except for our natural spring water and food bars, Odwalla's products are flash pasteurized and heat treated. Our products do not contain any preservatives. As a result, our products have a limited shelf life. In order to maintain our "day-of-production" flavor quality standards, we further restrict the shelf life of our products through early expiration dates. This restricted shelf life means that we do not have any significant finished goods inventory and our operating results are highly dependent on our ability to accurately forecast near term sales in order to adjust fresh fruit and vegetable sourcing and production. In addition, our products are subject to issues such as the fermentation and subsequent bottle bloating due to natural organisms in ingredients. We've historically experienced difficulties in accurately forecasting product demands and expect that challenge to continue. When we do not accurately forecast product demand, we are either unable to meet higher than anticipated demand or we produce excess inventory that cannot be profitably sold. In addition, most of our trade partners have the right to return any products that are not sold by their expiration date. Our inability to meet higher than anticipated demand or excess production or significant amounts of product returns on any of our products could harm our business and results of operations. COST SENSITIVITY. Our profitability is highly sensitive to increases in raw materials, labor and other operating costs. Unfavorable trends or developments related to inflation, raw material supply, labor and employee benefit costs, including increases in hourly wage and minimum unemployment tax rates, rent increases resulting from rent escalation provisions in our leases, the availability of hourly employees and increased price or availability of fuel or other energy costs may also adversely affect our results. We've benefited in prior years from relatively favorable inflation rates and part-time labor supplies in our principal market areas. However, there is no assurance that these conditions will continue or that we will have the ability to control costs in the future. In fiscal 1999 and in the first half of fiscal 2000, for example, the cost for citrus products increased significantly due to the citrus crop freeze in California. Additionally, in some markets, the competition for a skilled labor force requires us to pay salaries higher than we have experienced historically and we expect this trend may continue for some period of time. 9 PRODUCT LIABILITY. Because our products are not irradiated or chemically treated and are flash or gently pasteurized, they are highly perishable and contain certain naturally occurring microorganisms. From time to time we receive complaints from consumers regarding ill effects allegedly caused by our products. As described in Item 7, "Management's Discussion and Analysis of financial condition and Results of Operations -- Recall and Related Costs" and in Note 2 to the Consolidated Financial Statements, Odwalla conducted a product recall in 1996, and we were also the subject of related legal proceedings and claims. These past claims haven't resulted in any material costs to Odwalla to date, but there can be no assurance that we will not have future claims or that any claims associated with the recall in 1996 will not result in adverse publicity or monetary damages, either of which could seriously harm our business and results of operations. Additionally, although we maintain product liability insurance, our coverage may not be sufficient to cover the cost of defense or related damages in the event of a significant product liability claim. ORCHARD PRODUCTION. We depend upon the fruit produced from the trees of large orchards. These trees may become damaged, diseased or destroyed as a result of windstorms, pests, fungal disease or other causes. Additionally, there are types of controllable fungal diseases that can affect fruit production although not fatal to the trees themselves. These types of fungal diseases are generally controllable with fungicides. However, we can't be sure that such control measures will continue to be effective. Any decrease in the supply of fresh fruit as a result of windstorms, pests, fungal disease or other causes could have a material adverse effect on our business and results of operations. GEOGRAPHIC CONCENTRATION. In spite of our Fresh Samantha acquisition which increased our presence in the Northeastern portion of the United States, our wholesale accounts and retail trade partners continue to have their largest concentration in Northern California, with most located in the San Francisco Bay metropolitan area. Due to this concentration, natural disasters, including earthquakes, economic downturns and other conditions affecting Northern California may adversely affect our business and results of operations. CONCENTRATION OF PRODUCTION CAPACITY. All of our juice production capacity is located at our Dinuba, California facility. We currently expect to obtain a Florida facility and to begin operations in late calendar 2002, one year later than we had previously estimated. The delay is primarily due to delays in obtaining the necessary permits to begin construction of the facility and the lower than projected East Coast sales volume growth. We also currently utilize a citrus co-packer in Florida for Samantha brand single-strength citrus products. Because we maintain minimal finished goods inventory at all production locations as part of our "day-of-production" production system, we could be challenged to continue to produce an adequate supply of beverages in the event that production at or transportation from Dinuba were interrupted by fire, earthquakes, floods or other natural disasters, work stoppages, regulatory actions or other causes. Such an interruption at our Dinuba facility would seriously harm our business and results of operations. LACK OF DIVERSIFICATION. Odwalla's business is vertically integrated and centered around essentially one product, all-natural super-premium beverages, sold primarily through our direct-store-delivery system. Although we've added dairy-free shakes, dairy-free original and chocolate milk, meal replacement beverages, spring water, and food bars, and are using more third party distributors, the risks associated with our focus on essentially one product are exemplified by the significant adverse effect on our business and results of operations that resulted from the impact of the California citrus freeze in December 1998. Any significant decrease in the consumption of beverages generally or specifically with respect to our products due to general economic declines, competition or other causes, would have an adverse effect on our business and results of operations. The uncertainty following the September 11, 2001 terrorist attacks in New York and Washington, D.C. and the slow down in the national economy have resulted in sales declines, compared to the prior year, in some parts of the country during the initial weeks of fiscal 2002. RISKS RELATED TO EXPANSION. Continued growth depends in part upon our ability to expand into new geographic areas, either through internal growth or by acquisition. Due to the extent of our operating losses in recent years until the third quarter of fiscal 2000 and the effort to complete the Fresh Samantha integration, we had limited expansion in fiscal 2001 beyond existing markets and do not expect significant expansion at least through the first half of fiscal 2002. There can be no assurance that we will expand into new geographic areas or continue to invest in new markets or if such expansion or investment is undertaken that it will be successful or that such expansion can be accomplished on a profitable basis. Demands on management and working capital costs resulting from the perishable nature of our products 10 and current reliance on the personnel-intensive direct-store-delivery system may limit the ability, or increase the cost of, expansion into new regions. Furthermore, consumer tastes vary by region and there can be no assurance that consumers located in other regions will be receptive to our products. The Fresh Samantha acquisition has presented challenges to management, including the integration of the operations, product lines, technologies and personnel of Odwalla and Fresh Samantha and diversion of management attention. We cannot assure you that the combined businesses will achieve increased sales levels, profitability, efficiencies or synergies or that the integration will be successfully completed. Conversely, the combined company may experience slower rates of growth as compared to historical rates of growth of Odwalla and Samantha independently. We cannot assure you that the companies will realize the anticipated benefits of the merger. In January 2001, we announced that we were closing the Saco, Maine production facility and relocating East Coast production to a new facility to be constructed in southern Florida. We currently expect a Florida facility to begin operations in late calendar 2002, one year later than we had previously estimated. The delay is primarily due to delays in obtaining the necessary permits to begin construction of the facility and the lower than projected East Coast sales volume growth. We have not completed negotiations for an appropriate site in Florida, entered into a construction contract, or completed financing arrangements for the new facility. Difficulties in negotiating a site location or financing acceptable to Odwalla may occur. This could negatively impact the timely completion of construction of the new facility, which could ultimately result in additional costs to us. Acquisitions generally involve a number of special risks, including the diversion of management's resources, issues related to the assimilation of the operations and personnel of the acquired businesses, potential adverse effects on operating results and amortization of acquired intangible assets. In addition, gross margins may be negatively impacted to the extent that gross margins on acquired product lines are lower than Odwalla's average gross margins. If we seek and find attractive acquisition candidates, we may not be able to complete the transaction on acceptable terms, to successfully integrate the acquisition into our operations, or to assure that the acquisition will not have an adverse impact on our operations. Any plans to invest in new markets or to consider additional acquisitions may cause us to seek additional financing that may be dilutive to current investors or result in a higher debt-to-equity ratio than would otherwise be the case. Any financing we obtain may not be on terms favorable to us, or available at all. RISK RELATED TO TERMINATION OF MERGER AGREEMENT. There can be no assurance that the transaction contemplated by the Merger Agreement and the related tender offer described on page 3 will be completed on a timely basis or at all. We expect that our common stock price, which increased following the announcement of the pending transaction with TCCC, could decline if the transaction is not consummated, or is consummated under different terms. The costs we have incurred for professional fees and related transaction costs are significant and would require use of existing working capital to satisfy these obligations. Demands on management time to negotiate the transaction, prepare for the due diligence process, and manage any issues resulting from the termination or delay of the transaction could impact the business negatively. Additionally, although Odwalla and TCCC entered into confidentiality agreements prior to the due diligence process taking place, TCCC has had the opportunity to learn considerable proprietary information regarding our current and future plans. These and other factors could negatively impact our business. QUARTERLY FLUCTUATIONS. Fruits and vegetables we use are purchased in the open market on a negotiated basis, and the price and availability of key ingredients fluctuate on a quarterly basis. Consumers tend to establish certain buying patterns, and a disruption of those buying patterns may result in a decline in sales. Other factors, including expansion into new markets, consummating an acquisition, costs of integrating acquired operations, price promotions of certain products, changes by our competitors, and introduction of new products, can result in fluctuations to sales and costs on a quarterly basis. INTELLECTUAL PROPERTY RIGHTS. We believe our trademarks, trade dress, trade secrets and similar intellectual property are critical to Odwalla's success and we attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to prevent infringement. We've licensed elements of our distinctive trademarks, trade dress and similar proprietary rights to third parties in the past and may continue this 11 practice. While we attempt to ensure that the quality of our brand is maintained by these third party licenses, we cannot ensure that these third parties will not take actions that might seriously harm the value of our proprietary rights or the reputation of our products, either of which could have a material adverse effect on our business. Product package and merchandising design and artwork are important to the success of Odwalla, and we intend to take action to protect against imitation of our products and packages and to protect our trademarks and copyrights as necessary. This action could be time-consuming, result in costly litigation and divert management personnel. Furthermore, there can be no assurance that we would be successful in such action. CONTROL BY OFFICERS AND DIRECTORS. Odwalla's officers, directors and their affiliates beneficially own, in the aggregate, approximately 51% of the outstanding shares of common stock. Through their holdings, these shareholders, acting together, would be able to significantly influence most matters requiring shareholder approval, including the election of a majority of our Board of Directors. This control could have the effect of delaying, deferring or preventing a change of control of the Company. DEPENDENCE ON KEY PERSONNEL. Odwalla's success depends to a significant extent upon the continued service of its senior management, including Stephen Williamson, our Chairman and Chief Executive Officer, and the loss of services from any of such key personnel could have a material adverse effect on our business or results of operations. Furthermore, our continued growth strategy depends on the ability to identify, recruit and retain key management personnel. The competition for such employees is intense, and there can be no assurance we will be successful in such efforts. We are also dependent on our ability to continue to attract, retain and motivate production, distribution, sales, communications and other personnel. VOLATILITY OF STOCK PRICE. Odwalla's common stock price has, at certain times, experienced significant price volatility. Announcements of developments related to our business, fluctuations in operating results, failures to meet securities analysts' expectations, general conditions in the fruit and vegetable industries and the worldwide economy, announcements of innovations, new products or product enhancements by us or our competitors, fluctuations in the level of cooperative development funding, acquisitions, changes in governmental regulations, developments in patents or other intellectual property rights and changes in our relationships with trade partners and suppliers could cause the price of our common stock to fluctuate substantially. In recent years the stock market in general, and the market for small capitalization stocks in particular, has experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Such fluctuations could adversely affect the market price of our common stock. Read "Item 5, Market For Registrant's Common Equity And Related Shareholder Matters." ITEM 2. PROPERTIES Our production facility in Dinuba, California, consists of approximately 100,000 square feet of production, office and cold storage space on an approximately 42 acre parcel of land. We own this property and believe we carry adequate property insurance. Our administrative offices are located in Half Moon Bay, California. We have an East Coast distribution center, consisting of approximately 24,000 square feet of warehouse, cold storage and office space, in Jessup, Maryland. We also have 8 distribution centers throughout California and the following primary locations: Denver, Colorado; Stamford, Connecticut; Pompano Beach, Florida; Saco, Maine; Jessup, Maryland; Woburn and Hadley, Massachusetts; Pennsauken, New Jersey; Albuquerque, New Mexico; Brooklyn, New York; Eugene and Portland, Oregon; Austin, Houston and Dallas, Texas; and Seattle, Washington. We lease all our facilities other than the Dinuba production facility. We believe our facilities and equipment are generally in good operating condition and are adequate for current needs. 12 ITEM 3. LEGAL PROCEEDINGS The following personal injury claims and legal proceedings seek monetary damages and other relief relating to the product recall in 1996, as discussed in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recall and Related Costs" and Note 4 to the Consolidated Financial Statements: 1. The McGregor Case: A personal injury lawsuit filed in Santa Clara County Superior Court, San Jose, California on June 2, 1997 and served on June 16, 1997. A settlement reached on September 6, 2001 received court approval on November 27, 2001. 2. The Nixon Case: A personal injury lawsuit filed in Sacramento County Municipal Court, Sacramento, California on August 15, 1997. No trial date has been set. We maintained commercial general liability insurance totaling $27,000,000 during the period for which the above claims were filed and we promptly notified our insurance carrier of these events. We are unable to determine the potential liability from the remaining legal proceedings and claims. The recall related legal proceedings settled to date were covered under our commercial general liability insurance policy and did not result in any additional costs to us. We are subject to other legal proceedings and claims that arise in the course of our business. We currently believe that the ultimate amount of liability, if any, for any pending actions (either alone or combined) will not materially affect our financial position, results of operations or liquidity. However, the ultimate outcome of any litigation is uncertain, and unfavorable outcomes could have a material negative impact on our results of operations and financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the shareholders during the fourth quarter of fiscal 2001. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Odwalla's common stock began trading on the Nasdaq SmallCap Market in December 1993 at the time of our initial public offering. Since May 18, 1995, our stock has traded on the Nasdaq National Market under the symbol "ODWA." The following table shows the range of high and low sales prices reported on the Nasdaq National Market for the periods indicated. On November 20, 2001, the closing price of Odwalla's common stock was $15.21.
FISCAL YEAR ENDED SEPTEMBER 1, 2001 HIGH LOW ------- ------- Fourth Quarter $ 11.00 $ 7.30 Third Quarter $ 10.59 $ 8.75 Second Quarter $10.625 $ 8.563 First Quarter $ 11.50 $ 6.25
FISCAL YEAR ENDED SEPTEMBER 2, 2000 HIGH LOW ------- ------- Fourth Quarter $ 8.00 $ 5.875 Third Quarter $ 9.125 $ 5.25 Second Quarter $ 9.50 $ 4.625 First Quarter $ 7.625 $ 4.313
As of November 20, 2001, there were approximately 329 holders of record of the Company's common stock. DIVIDEND POLICY We have never paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings for use in our business and not pay any cash dividends for the foreseeable future. 14 ITEM 6. SELECTED FINANCIAL DATA The following table shows selected consolidated financial information for Odwalla for the past five fiscal years. To better understand the information in the table, you should also read "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 16, and the Consolidated Financial Statements and Notes beginning on page 40. The consolidated financial information includes the results of operations of Fresh Samantha since the acquisition on May 2, 2000.
Fiscal Year ------------------------------------------------------------------------- 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: (in thousands, except per share data) Net sales ................................... $ 52,630 $ 59,088 $ 68,042 $ 93,450 $ 128,260 Cost of sales ............................... 27,650 29,236 35,542 47,477 61,723 --------- --------- --------- --------- --------- Gross Profit ................................ 24,980 29,852 32,500 45,973 66,537 Operating expenses: Sales and distribution ..................... 22,465 20,445 24,254 31,815 45,574 Marketing .................................. 2,919 2,696 2,908 2,795 3,672 General and administrative ................. 7,625 6,710 7,449 9,616 11,518 Amortization of intangible assets from Fresh Samantha acquisition ............... -- -- -- 711 2,308 Restructuring and other charges ............ -- -- -- -- 3,490 Recall and related costs ................... 6,518 1,242 250 -- -- --------- --------- --------- --------- --------- Total operating expenses ................ 39,527 31,093 34,861 44,937 66,562 --------- --------- --------- --------- --------- Income (loss) from operations ............... (14,547) (1,241) (2,361) 1,036 (25) Proceeds from insurance settlement, net ..... -- -- -- 5,458 -- Series A preferred stock inducement expense .................................. -- -- -- (1,587) -- Other income (expense), net ................. 210 (163) (40) (112) (211) --------- --------- --------- --------- --------- Income (loss) before income taxes ........... (14,337) (1,404) (2,401) 4,795 (236) Income tax (expense) benefit ................ 1,901 25 359 (1,140) (198) --------- --------- --------- --------- --------- Net income (loss) ........................... (12,436) (1,379) (2,042) 3,655 (434) Preferred stock dividend .................... -- -- (267) (568) -- --------- --------- --------- --------- --------- Net income (loss) applicable to common shareholders ...................... $ (12,436) $ (1,379) $ (2,309) $ 3,087 $ (434) ========= ========= ========= ========= ========= Basic net income (loss) per share applicable to common shareholders .......... $ (2.49) $ (0.27) $ (0.45) $ 0.44 $ (0.04) ========= ========= ========= ========= ========= Diluted net income (loss) per share applicable to common shareholders .......... $ (2.49) $ (0.27) $ (0.45) $ 0.43 $ (0.04) ========= ========= ========= ========= =========
End of Fiscal Year ----------------------------------------------------------- 1997 1998 1999 2000 2001 ------- ------- ------- ------- ------- (in thousands) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments ......... $ 3,225 $ 3,191 $ 7,369 $ 5,392 $ 4,364 Working capital ................. 1,449 1,849 7,674 11,712 12,092 Total assets .................... 31,006 29,350 35,305 89,354 91,085 Long-term liabilities ........... 441 888 688 12,076 13,013 Total shareholders' equity ...... 17,635 16,445 21,954 60,672 60,480
15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTION ABOUT FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes forward-looking statements about future financial results, future business changes and other events that haven't yet occurred. For example, statements like "we expect," "we want," "we anticipate" or "we believe" are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations. We will not necessarily update the information in this Form 10-K if any forward-looking statement later turns out to be inaccurate. Details about risks that could affect various aspects of our business are included throughout this Form 10-K. Investors should read all of these risks carefully, and should pay particular attention to risks affecting the following areas: availability and pricing of raw materials (page 7); competition (page 8); our dependence on significant trade partners (page 8); government regulations that may impact our business (page 9); the specific risk factors discussed on pages 9 to 12; legal proceedings (page 13); and commitments and contingencies described in Note 4 to the financial statements. Investors should also refer to other documents that we file from time to time with the Securities and Exchange Commission in conjunction with the following discussion and analysis. OVERVIEW This section provides information about our operating results and changes in financial position over the past three years and should be read in conjunction with the Consolidated Financial Statements and related Notes beginning on page 40. Fiscal 2001 contained 52 weeks compared to 53 weeks in fiscal 2000 and 52 weeks in fiscal 1999. Our rate of sales growth in fiscal 2001 compared to fiscal 2000 on a comparative 52 week basis was approximately 41% versus 37% due to the additional week of sales in fiscal 2000. Other than the rate of sales growth distinction, we do not consider the impact of the one less week in the fiscal period to be material to overall fiscal 2001 financial performance. The operating results and other financial information discussed below include the results of Fresh Samantha since the acquisition was completed on May 2, 2000. GENERAL BUSINESS Net sales in fiscal 2001 increased to $128.3 million, an increase of 37% from $93.4 million of sales last year, which represents a record sales year for Odwalla. Our net loss for fiscal 2001 was ($434,000) or ($0.04) per basic and diluted share compared to a gain of $3.1 million or $.44 per basic share and $0.43 per diluted share last year. Net income in fiscal 2001, excluding the restructuring and other charges recorded in the second quarter, was $1.7 million or $0.15 per basic and diluted share. Net income in fiscal 2000, excluding, net of tax, the insurance settlement proceeds, the cost of converting Series A preferred stock, and the preferred stock dividend, was $603,000 or $0.09 per basic share and $0.08 per diluted share. Before considering the impact of the Fresh Samantha acquisition, our sales strength this year has come predominantly from continued penetration in existing markets and sales of new products. We believe that continued recognition of the Odwalla and Samantha brand and consumer attraction to our products, new product introductions, better store shelves placement, increased placement of branded in-store coolers, and increased delivery system support has contributed to our sales growth. We experienced a sales growth rate decline in the second half of the fiscal year in some parts of the country due to the slowing of the economy and operational challenges in certain East Coast markets. We experience quarterly fluctuations in sales and costs, particularly in raw materials, which are sometimes significant and we anticipate that these fluctuations will continue in future quarters. Some factors behind the fluctuations include: changes in the price or availability of raw materials, particularly fruit products, due to seasonality, weather and other factors; new product introductions; costs of expansion into new markets, which can continue for many quarters beyond the market entry date; increased competition; sales promotions; buying patterns of consumers; competitor product introductions; overall economic trends influencing consumers. In addition, weather patterns impacting consumers, including unseasonably cool or rainy weather, can result in fewer sales to consumers and ultimately lower sales to trade partners and higher return credits issued if we haven't been able to forecast and adjust for the change in 16 consumer buying patterns. While the direct-store-delivery (DSD) system offers many benefits to us, it is also an expensive and fairly fixed cost distribution system. We have invested significantly in our production facilities and management team; the benefit of this investment will result from higher volume of product through the facilities. Conversely, lower volume than expected will result in higher fixed costs as a percentage of sales. Finally, we may choose to reduce prices or increase spending in response to competition in some markets, which usually has a negative short-term effect on our results of operations. RESULTS OF OPERATIONS The following table sets forth, as a percentage of net sales, certain statements of operations data for fiscal years 1999, 2000 and 2001. These operating results are not necessarily indicative of the results for any future period.
YEAR ENDED ------------------------------- 1999 2000 2001 ----- ----- ----- Net sales ................................... 100.0% 100.0% 100.0% Cost of sales ............................... 52.2 50.8 48.1 ----- ----- ----- Gross margin ................................ 47.8 49.2 51.9 Operating expenses Sales and distribution .................... 35.6 34.0 35.5 Marketing ................................. 4.3 3.0 2.9 General and administrative ................ 10.9 10.3 9.0 Amortization of intangible assets from Fresh Samantha acquisition .............. 0.0 0.8 1.8 Restructuring and other charges ........... 0.0 0.0 2.7 Recall and related costs .................. 0.4 0.0 0.0 ----- ----- ----- Income (loss) from operations ............... (3.5) 1.1 0.0 Insurance settlement ........................ 0.0 5.8 0.0 Series A stock inducement expense ........... 0.0 (1.7) 0.0 Interest and other income (expense), net .... (0.0) (0.1) (0.2) Income tax benefit (expense) ................ 0.5 (1.2) (0.2) ----- ----- ----- Net income (loss) ........................... (3.0)% 3.9% (0.4)% ===== ===== =====
NET SALES. Net sales for fiscal 2001 increased 37% to $128.3 million compared to $93.4 million in fiscal 2000, and increased 37% in fiscal 2000 from $68.0 million in fiscal 1999. After adjusting fiscal year 2000 sales for the additional week, and adjusting fiscal 2001 sales to remove the non-comparable sales impact of the Fresh Samantha acquisition, our sales increased 11% in fiscal 2001. Our 2001 sales increase, excluding the non-comparable sales resulting from the Fresh Samantha acquisition, occurred in all western and midwestern geographic regions. We experienced a sales decline in our eastern region markets. We did not enter any significant new markets in fiscal 2001. After removing the impact of the additional week in fiscal 2000 and the impact of the Fresh Samantha acquisition since May 2, 2000, our sales increased 14% in fiscal 2000 compared to fiscal 1999. Our 2000 sales increase, excluding the sales resulting from the Fresh Samantha acquisition, occurred in all geographic regions and resulted primarily from growth in existing markets and accounts and new products. Our food bar business continues as an important product, although it continues to represent less than 5% of our net sales in both fiscal 2000 and fiscal 2001. Our sales growth this year was higher for our distributor business than for our DSD business. This was primarily due to very strong growth in our midwestern region, which is currently served exclusively by third party distributors, plus the conversion from DSD to third party distributors in selected markets on the East Coast. As a result of these factors, distributor sales increased as a percentage of total sales in fiscal 2001. This had a slightly negative impact on our sales growth rate due to the lower wholesale pricing offered to our third party distributors compared to the retail pricing offered through our DSD business. Our sales growth rate in fiscal 2000, excluding the Fresh Samantha acquisition, was about the same for both our direct-store-delivery and our distributor business. 17 Since September 1, 1999, we have used branded, custom-designed 450 milliliter and 325 milliliter bottles made from recyclable, HDPE plastic for the Odwalla brand. Our new bottle retains fresh fruit flavor notes better than the bottles commonly used by our competitors. It also has a tamper-resistant, screw-on cap, which allows consumers to easily reseal their beverage while drinking Odwalla on-the-go. The characteristics of the new bottle also extend the shelf life of our products. At the same time, we began using a new bottling line designed to accommodate our new bottles. During the first quarter of fiscal 2000, we experienced problems in producing beverage products to meet sales orders during the initial introduction period. We also experienced unexpected issues that caused some products to ferment and, ultimately, caused some bottles to bloat. These issues disrupted a consistent flow of product during the first half of the first quarter of fiscal 2000. We believe that these issues negatively impacted sales in the first quarter of fiscal 2000, but had no impact in fiscal 2001. In 2000, we implemented the guidance in EITF 00-14, Accounting for Certain Sales Incentives, which does not represent a change from our existing accounting policies. Accordingly, any cash sales incentives are classified as a reduction of revenue. COST OF SALES. Cost of sales increased to $61.7 million or 48.1% of net sales in fiscal 2001 compared to $47.5 million or 50.8% of net sales in fiscal 2000. This increase in absolute dollars was mainly due to the acquisition of Fresh Samantha and the growth in Odwalla brand sales. Cost of sales was $35.5 million or 52.2% of net sales in fiscal 1999. Gross margin increased from 49.2% in fiscal 2000 to 51.9% in fiscal 2001 after increasing from 47.8% in fiscal 1999. Gross margin increased primarily due to (a) the better efficiencies in yields from the new bottling line and other investments in the Dinuba production facility, (b) better purchasing practices for key materials for for both brands, and (c) the citrus freeze discussed below which impacted the fiscal 2000 and 1999 margins negatively. Also, in the first quarter of fiscal 2001, we began internally processing some products that had previously been produced at a higher cost by a co-packer. The increased use of third party distributors also negatively affected gross margins. In late December 1998, the San Joaquin Valley in central California experienced a citrus freeze that seriously damaged the navel orange crop. Other parts of California were also affected, but to a significantly lesser extent. The freeze also hurt the California Valencia orange crop and other citrus crops. The impact of the freeze on our business extended throughout calendar year 1999 and into early calendar 2000. The immediate effect of the freeze during this period was to increase the price of the fresh citrus we purchased. We also experienced poorer citrus yields and some delay in fruit maturity. The freeze also caused us to be more reliant on citrus sources farther from our production facility than in prior years, which caused an increase in freight cost. After the Fresh Samantha acquisition in May 2000, we had two production facilities. The impact on cost of sales of the Fresh Samantha facility in Saco, Maine had a slight negative impact in fiscal 2000 and in part of fiscal 2001 due to its higher cost of goods structure relative to the existing Odwalla facility in Dinuba, California. During fiscal 2001, we experienced a return to more favorable pricing and yield for citrus crops. Since the Fresh Samantha acquisition through the end of the third quarter of fiscal 2001, we operated two production facilities. In January 2001, we announced that we would cease production at the facility in Saco, Maine in June 2001 and that we will construct a new production facility in southern Florida to handle our East Coast production requirements. The Saco facility was closed as scheduled, and we continue to develop our plans for construction of a new Florida facility. SALES AND DISTRIBUTION. Sales and distribution expenses were $45.6 million in fiscal 2001 compared to $31.8 million in fiscal 2000, and increased as a percentage of net sales to 35.5% from 34.0% in fiscal 2000. The increase in absolute dollars is due to the Fresh Samantha acquisition in May 2000, increased costs of utilizing a direct-store-delivery system in some of our newer markets, some of which were previously serviced with third party distributors, and increased national and regional labor costs. The increase as a percentage of net sales compared to last year results from a greater percentage of East Coast sales than last year at a higher average distribution cost than our more established West Coast markets, restructuring of the East Coast sales and distribution organization, and investment in our national sales organization. Sales and distribution expenses increased in absolute dollars to $31.8 million in fiscal 2000 from $24.2 million in fiscal 1999. However, sales and distribution expenses as a percentage of net sales declined from 35.6% in fiscal 1999 18 to 34.0% in fiscal 2000. The increase in absolute dollars is due to the Fresh Samantha acquisition in May 2000, increased costs of utilizing a direct-store-delivery system in some of our newer markets, some of which were previously serviced with third party distributors, and increased national and regional labor costs. Future decisions regarding growth and expansion consistent with long-term strategic objectives may increase sales and distribution costs as a percentage of net sales. We continue to look for efficiencies in this part of our business. However, expansion into markets serviced by our direct-store-delivery system will require an investment for some initial period and changes to the Eastern Seaboard direct-store-delivery system may cause a short-term increase in costs as we standardize our national operations. Expenses will also continue to be affected as we seek to find the proper mix in a given market between our own direct-store-delivery system and third party distributors. The perishable nature of most of our products and our stringent service standards can make it difficult to find appropriate distributors in some markets. MARKETING. Marketing expenses were $3.7 million or 2.9% of net sales in fiscal 2001 compared to $2.8 million or 3.0% of net sales in fiscal 2000. Most of the increase in expenses compared to last year is due to additional personnel and marketing programs associated with the Fresh Samantha acquisition. The fiscal 2000 expense represented a decrease from $2.9 million or 4.3% of net sales in fiscal 1999. Most of the decrease in expenses resulted from a change in marketing strategy which resulted in fewer employees, less advertising, and decreased product tastings as we moved to more strategic tastings, both in retail locations and at community events. These reductions were offset by an increase in market research during a portion of fiscal 2000. We expect marketing expenses to trend higher in absolute dollars in fiscal 2002 as we continue to integrate the Odwalla and Samantha brands, increase marketing support for a larger sales organization, and hire a vice president of marketing. GENERAL AND ADMINISTRATIVE. General and administrative expenses were $11.5 million in fiscal 2001 or 9.0% of net sales compared to $9.6 million or 10.3% of net sales in fiscal 2000 and $7.4 million or 10.9% of net sales in fiscal 1999. The change was due primarily to a general increase in expenses resulting from the Fresh Samantha acquisition and from infrastructure expenses, including a new financial software package and information systems that were operational at the beginning of fiscal 2001. General and administrative expenses increased in absolute dollars in fiscal 2000 over fiscal 1999 primarily due to professional fees and a general increase in expenses resulting from the Fresh Samantha acquisition. We expect general and administrative costs to increase in absolute dollars in fiscal 2002 to support a larger, national operating company, but not necessarily to increase as a percentage of net sales. We will also continue to seek opportunities to invest in system infrastructure during fiscal 2002 to allow for sustained profitable growth. AMORTIZATION OF INTANGIBLE ASSETS FROM FRESH SAMANTHA ACQUISITION. The cost of the intangible assets and goodwill acquired with the Fresh Samantha acquisition are being amortized over their estimated useful lives as more fully described in notes to the financial statements beginning on page 45. Due to the significance of this expense, we have included it as a separate line item. PROCEEDS FROM INSURANCE SETTLEMENT. On April 12, 2000, we entered into a Mutual Release and Settlement Agreement with New Hampshire Insurance Company regarding the business interruption insurance claim we filed following the recall in October 1996. Under the Mutual Release and Settlement Agreement, New Hampshire Insurance Company agreed to pay us $6.5 million. In connection with the settlement, we dismissed our lawsuit against the insurance company filed on May 21, 1999 in the United States District Court for the Eastern District of California in Fresno, California. The proceeds from the insurance settlement were recorded net of legal fees of $1.0 million in the third quarter of fiscal 2000. SERIES A PREFERRED STOCK INDUCEMENT EXPENSE. In connection with the Fresh Samantha acquisition and the February 11, 2000 Preferred Stock Conversion Agreement between Odwalla and Catterton-Simon Partners, we issued 1,333,333 shares of Odwalla's common stock to Catterton-Simon Partners in exchange for 1,074,666 shares of 19 Odwalla's Series A Preferred Stock, representing all of the outstanding shares of such stock, held by Catterton-Simon Partners and cancellation of a warrant to purchase 75,000 shares of Odwalla's common stock held by Catterton-Simon Partners. During the third quarter of fiscal 2000, we recorded an expense of $1.6 million to reflect the value of the 258,667 additional shares issued to induce Catterton-Simon to convert the Series A stock that they held and to cancel the outstanding warrant that they held. The inducement shares were valued using the market price for our common stock at the date the shareholders approved the issuance, which was April 25, 2000. RECALL AND RELATED COSTS. On October 30, 1996, Odwalla was notified by the State of Washington Environmental Health Services of an epidemiological link between several cases of E. coli O157:H7 and Odwalla's apple juice products. We immediately implemented a recall of all Odwalla products containing apple juice. We incurred significant direct costs as a result of the recall. Under our arrangement with our insurance company, we pay a portion of the legal fees related to third party claims resulting from the recall and related claims. We originally established a $2.2 million charge to establish a liability for future professional fees related to the recall. The reserve for professional fees is an estimate, and there can be no assurance that the actual reserved liability established will be adequate. In fiscal 1999, we reviewed available information, including recently filed claims, and added $250,000 to this reserve. We reviewed this charge in subsequent years and believe that the remaining balance of the reserve established is reasonable. We will continue to assess this liability and will make appropriate adjustments if circumstances change. Approximately $520,000 of this reserve for professional fees remained at September 1, 2001. INTEREST AND OTHER EXPENSE (INCOME). Odwalla had net interest expense in fiscal 2001 of $352,000 compared to net interest expense of $218,000 in fiscal 2000 and $159,000 in fiscal 1999. Gross interest income of $211,000, $268,000 and $278,000 in fiscal 2001, 2000, and 1999 resulted primarily from the remainder of the proceeds of the May 1996 public offering, the proceeds in 1999 of the January 1999 Series A Preferred Stock offering, and the net proceeds of the private placement in May 2000 in connection with the Fresh Samantha acquisition. Gross interest expense of $563,000, $486,000 and $437,000 in fiscal 2001, 2000, and 1999 resulted primarily from interest on the line of credit, capital lease interest and other debt, including capital leases and debt acquired with the Fresh Samantha acquisition. INCOME TAXES. The $198,000 fiscal 2001 tax expense results from taxes currently due of approximately $87,000 due primarily to alternative minimum taxes plus deferred taxes of approximately $111,000 on temporary differences between book and tax income. The effective tax rate of 84% for the year consists of the statutory tax rate offset by the impact of the permanent difference between the financial accounting basis and the income tax reporting basis of goodwill, as noted below, and the increase in the deferred tax valuation allowance. The $1.1 million tax expense in fiscal 2000 results from taxes currently due of approximately $162,000 due primarily to alternative minimum taxes plus deferred taxes of approximately $2.4 million on temporary differences between book and tax income reduced by a $1.4 million reduction in the deferred tax valuation allowance. The effective tax rate of 24% for the year considers the effective tax rate of 15% applied prior to the Fresh Samantha acquisition which was lower than the statutory tax rate primarily due to the valuation allowance established. The Fresh Samantha acquisition was structured as a tax-free reorganization for income tax purposes. This resulted in intangible and other assets with a basis for accounting purposes, as the acquisition was accounted for using purchase accounting, which does not exist for tax reporting purposes. Because the financial accounting basis will result in future accounting amortization in excess of tax amortization, a deferred tax liability was established to account for that difference. At the same time, most of our deferred tax valuation allowance established prior to the acquisition date was removed and included in the determination of the cost of goodwill in accordance with SFAS 109. The $359,000 income tax benefit for fiscal 1999 results from the tax benefit associated with operating losses. The 15% effective tax rate in 1999 varies from the federal statutory tax rate primarily due to the effect of establishing a deferred tax asset valuation allowance. We recorded a valuation allowance for a portion of the net deferred tax asset due to uncertainty as to the ultimate realization of such assets. As noted above, most of the valuation allowance was released in fiscal 2000. 20 LIQUIDITY AND CAPITAL RESOURCES At September 1, 2001, we had working capital of $12.1 million compared to working capital of $11.7 million at September 2, 2000. The increase resulted primarily from operating activities. At September 1, 2001, the Company had cash, cash equivalents and short term investments of $4.4 million compared to $5.4 million at the end of fiscal 2000. Net cash provided by operating activities in fiscal 2001 was $6.8 million. This consisted of depreciation and amortization, reductions in other non-current assets and an increase in accounts payable and other non-current liabilities, offset by increases in accounts receivable, inventory, prepaid expenses, and deferred taxes and decreases in accrued payroll and other accrued expenses. During fiscal 2001, after further evaluation of the deferred tax asset following completion of the Fresh Samantha corporate tax return, a reclassification of $935,000 between acquired deferred tax asset and goodwill was recorded. The reduction in other non-current assets was due primarily to this reclassification. Accounts payable increased due mainly to higher customer related liabilities. The increase in other non-current liabilities was due to a liability established in the second quarter of fiscal 2001 for the closure of the Saco facility and the restructuring of the East Coast management organization. The increase in accounts receivable was generally due to administrative issues with third party distributors and certain larger grocery store chain accounts. The inventory increase is primarily due to higher Samantha finished goods inventory caused by West Coast sourcing of East Coast production requirements related to the closure of the Saco production facility. Prepaid expenses increased primarily due to timing and amount of health insurance payments, higher computer system maintenance expenses, and increased cooler fleet related prepayments. Deferred taxes increased due to the reclassification from goodwill, as previously noted. Accrued payroll expenses decreased mainly due to a reduction in accrued vacation liability associated with the closure of the Saco production facility and higher than normal vacation time taken in the fourth quarter of fiscal 2001. Accrued expenses, which include the reserve for recall related professional fees, decreased primarily as we paid for previously accrued costs. Net cash used in investing activities for fiscal 2001 was $5.2 million. The decrease consisted primarily of the sale of short-term investments offset by capital expenditures for data processing and computer hardware and software, production equipment at the Dinuba plant, and display coolers, and by proceeds from the sale of assets. Net cash used in financing activities for fiscal 2001 was $0.8 million. This consisted of principal payments under long term-debt and capital leases partially offset by the issuance of common stock due to stock option exercises. Our purchase commitments for the future delivery of raw materials as of September 1, 2001, approximate $5.7 million under contracts expected to be completed by December 2002. We've used, and expect to continue to use, both operating and capital lease financing to obtain refrigeration coolers used in selling our products, computer and communication equipment, and production assets, primarily equipment. If we do not obtain adequate lease or other financing, our inability to obtain needed equipment may negatively impact our operations. At September 1, 2001, we owed $2.6 million for capital lease obligations, primarily related to leasing of production equipment, computer equipment and vehicles. On July 12, 2001, we entered into a Business Loan Agreement providing up to $10.0 million of borrowing capability, including the ability to issue letters of credit up to a certain maximum amount. The first $2.0 million of borrowings do not require separate borrowing base reporting. Borrowings are limited to 75% of eligible accounts receivable, which generally represent all trade accounts receivable less delinquent balances and other balances as defined in the Business Loan Agreement. We are also required to meet certain covenants, including maintenance of certain financial ratios, a fixed charge coverage ratio and certain tangible net worth. The Business Loan Agreement also contains certain business restrictions, including the ability to borrow additional funds, limitations on capital expenditures in excess of certain amounts, restrictions on the payment of cash dividends, sale or purchase of Company stock, ability to encumber or sell Company assets, and limitations on other business transactions without prior approval from the lender. Interest is payable monthly at the prime interest rate plus 0.0% to 0.5% depending on certain financial ratios. The initial rate is prime plus 0.25%. We may also select either a IBOR or LIBOR rate plus 2.75% to 3.5% depending on certain financial ratios. The Business Loan Agreement has a two-year term ending in July 2003. Accounts receivable, inventories and trademarks and other intangible assets provide collateral under the Business Loan Agreement. This 21 facility replaced a prior Credit Agreement. As of September 1, 2001, we were not in compliance with one covenant as we had exceeded the capital asset acquisition limitation included in the Business Loan Agreement. We requested our lender to waive the specific September 1, 2001 covenant violation and, in November 2001, the lender granted the requested waiver. Our prior Credit Agreement provided borrowings under a revolving credit facility up to $10.0 million. We were also required to meet certain covenants, including maintenance of certain financial, leverage, and debt service coverage ratios, and a tangible net worth. The first $2.0 million of borrowings did not require separate borrowing base reporting. Borrowings over $2.0 million and up to $5.0 million were limited to 80% of eligible accounts receivable. Eligible accounts receivable were generally all trade accounts receivable less delinquent balances. The Credit Agreement also contained certain business restrictions, including the ability to borrow additional funds, limitations on capital expenditures in excess of certain amounts, restrictions on the payment of cash dividends, sale or purchase of Company stock, ability to encumber or sell Company assets, and limitations on other business transactions without prior approval from the lender. Interest was payable monthly at either the prime interest rate plus 1% or the Eurodollar rate plus 3.5%. The Credit Agreement had a three-year term ending in April 2003, although the lender had notified us that they would not extend additional credit or renew the agreement upon termination. The increased costs associated with integrating Fresh Samantha, our plans to invest in new products and certain new market areas, and general corporate needs may cause us to seek additional financing that may be dilutive to current investors or result in a higher debt-to-equity ratio than would otherwise be the case. Any financing we obtain may not be on terms favorable to us, even if it is available. Based upon information currently available, we believe that our existing cash and cash equivalents and our current and anticipated borrowing capability will be adequate to meet our obligations as they become due in the next twelve months. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. It is our policy not to enter into derivative financial instruments. We do not currently have any significant foreign currency exposure since we do not transact business in foreign currencies. Due to this, we did not have significant overall currency exposure at September 1, 2001. FOREIGN CURRENCY RATE RISK. As almost all of our sales and expenses are denominated in U.S. dollars, we have experienced only insignificant foreign exchange gains and losses to date, and we do not expect to incur significant gains and losses. We do not engage in foreign currency hedging activities. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated herein by reference to the consolidated financial statements and supplementary data listed in Item 14 of Part IV of this report. All schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information about Odwalla's directors and executive officers as of November 20, 2001 is listed below.
NAME AGE POSITION(s) WITH ODWALLA - ------------------------ -- ------------------------------------------------- D. Stephen C. Williamson 43 Chairman of the Board and Chief Executive Officer Andrew B. Balson (1) 35 Director Richard L. Grubman (1) (2) 39 Director Ellis B. Jones (2) 47 Director Mark E. Nunnelly 42 Director Juan I. Prado 41 Director Craig I. Sakin (1) (2) 41 Director James R. Steichen 51 Senior Vice President, Finance and Chief Financial Officer Michael Cote 46 Senior Vice President, Sales and Operations Linda A. Frelka 40 Vice President, Quality Assurance Theodore R. Leaman III 45 Vice President, Manufacturing Susan M. Kirmayer 43 Vice President, Human Resources
- -------------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. There are no family relationships among the directors or executive officers. There are no material proceedings to which any director or executive officer, or any associate of any such director or executive officer, is a party adverse to Odwalla or any subsidiary of Odwalla or has a material interest adverse to Odwalla or any subsidiary of Odwalla. The following are brief biographies of each director and executive officer of Odwalla (including present principal occupation or employment, and material occupations, positions, offices or employment for the past five years). Under the terms of the Shareholders Rights Agreement, dated as of May 2, 2000, among Odwalla and the shareholders of Odwalla named in the agreement, Catterton-Simon Partners III, L.P. has the right to nominate one director, Bain Capital Funds has the right to nominate two directors, and U.S. Equity Partners, L.P. and U.S. Equity Partners (Offshore), L.P. together have the right to nominate one director. Mr. Sakin is the nominee of Catterton-Simon Partners III, L.P., Mr. Balson and Mr. Nunnelly are the nominees of Bain Capital Funds, and Mr. Jones is the nominee of U.S. Equity Partners, L.P. and U.S. Equity Partners (Offshore), L.P. Each director and officer of Odwalla is a citizen of the United States, except for Mr. Prado who is a citizen of Brazil, and each individual's business address is c/o Odwalla, Inc., 120 Stone Pine Road, Half Moon Bay, California 94019. The term of each director shall expire in 2002.
NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE - ----------------------------- ------------------------------------------------------------ D. Stephen C. Williamson (43) D. Stephen C. Williamson currently serves as Chairman of the Board and as Chief Executive Officer, a position he has held since June 1996. Prior to that time, Mr. Williamson served as Co-Chairman of the Board and Co-Chief Executive Officer from January 1995 to June 1996 and as Chief Financial Officer of Odwalla from March 1991 to August 1996. Mr. Williamson also served as Odwalla's President from May 1992 until January 1995. Mr. Williamson holds a B.A. degree in history from the University of California at Berkeley. He is also Chairman of Avenal Land & Oil Company, a private investment company.
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NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE - ----------------------------- ------------------------------------------------------------ Andrew B. Balson (35)........ Andrew B. Balson has served as a director of Odwalla since May 2000. Mr. Balson has been a Managing Director of Bain Capital since December 2000. Previously, Mr. Balson was a Principal of Bain Capital since June 1998 and had been an Associate at Bain Capital since November 1996. Prior to this, Mr. Balson was a consultant with Bain & Company since August 1994. Mr. Balson is also a director of Domino's Pizza, Inc. and Interpath, Inc. Richard L. Grubman (39)..... Richard L. Grubman has served as a director of Odwalla since August 1997. Mr. Grubman has been a Managing Director of Highfields Capital Management, LP since April 1998. Prior to this, Mr. Grubman was a Managing Director of Development Capital, LLC since January 1997 and a general partner of its affiliate, Corporate Value Partners, LP, since November 1996. Mr. Grubman was also previously President of Sycamore Capital Management, Inc., a position he held since January 1996. From December 1992 to November 1995, Mr. Grubman was a general partner of Lakeview Partners, L.P. During 1992, he was a vice president of Gollust, Tierney and Oliver, Incorporated. Mr. Grubman holds an A.B. degree in Art and Archaeology from Princeton University. Ellis B. Jones (47)......... Ellis B. Jones has served as a director of Odwalla since May 2000. Mr. Jones is Chief Executive Officer of Wasserstein & Co. Formerly, Mr. Jones was a Managing Director of Wasserstein Perella & Co., which he joined in February of 1995. He was a Managing Director in investment banking at Salomon Brothers during the period of 1988 through 1994. Mr. Jones graduated from the Yale School of Management and the University of California at Berkeley. He also serves on the Boards of Directors of Element K Corporation, American Lawyer Media, IMAX Corporation, Phoenix House (a non-profit organization) and The Cate School in Carpinteria, California. Mark E. Nunnelly (42)........ Mark E. Nunnelly has served as a director of Odwalla since May 2000. Mr. Nunnelly has been a Managing Director of Bain Capital since 1990. Prior to that time, Mr. Nunnelly was a partner at Bain & Company and was employed by Procter & Gamble Company Inc. in product management. Mr. Nunnelly serves on the board of directors of several companies, including Domino's Pizza, Modus Media, Eschelon Telecommunications, CTC Communications, Interpath and DoubleClick, Inc. Juan I. Prado (41).......... Juan I. Prado has served as a director of Odwalla since August 2000. Mr. Prado has served as Chairman and CEO of Promisant Ltd., a provider of global transaction processing services since March 1999. Prior to this, Mr. Prado served as a senior officer of the Coca-Cola Company's Latin American Group since 1991. Mr. Prado received an MBA from The Wharton School, an MA in languages and international studies from The University of Pennsylvania, and a B.S. in industrial engineering from Tufts University. Craig H. Sakin (41).......... Craig H. Sakin has served as a director of the Company since February 1999. Mr. Sakin has served as Managing Director and more recently a Managing Partner of Catterton Partners, a group of affiliated private equity funds, since August 1996. From November 1991 to August 1996, Mr. Sakin was Chairman and Chief Executive Officer of Gold Coast Beverage Distributors, a beer distribution company. Mr. Sakin holds a B.S. from St. Lawrence University.
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NAME AND AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE - ----------------------------- ------------------------------------------------------------ James R. Steichen (51)...... James R. Steichen has served as Senior Vice President, Finance since August 1998 and as Chief Financial Officer since September 1996. From May 1996 to August 1996, Mr. Steichen served as Vice President, Finance and had served as a consultant to Odwalla since August 1995. Prior to that, he had been a partner with BDO Seidman, LLP, a public accounting firm, since December 1990. Mr. Steichen is a Certified Public Accountant and holds a B.S. degree from the University of South Dakota. Michael Cote (46)............ Michael Cote has served as Senior Vice President - Sales and Operations since June 2001. Mr. Cote most recently served as Customer Vice President, Growth Channels at Pepperidge Farm, Inc. from May 1999 to May 2001. Prior to that, Mr. Cote served as Customer Vice President, New England Sales at Pepperidge Farm, Inc. from January 1998 to May 1999 and as Director - Northeast Sales from August 1995 to January 1998. Mr. Cote attended Nichols College and Franklin Pierce College, majoring in Business Administration, and the University of Maine, majoring in Criminal Justice. Linda A. Frelka (40)........ Linda A. Frelka has served as Vice President, Quality Assurance since September 1997. From October 1987 to August 1997, Ms. Frelka worked at Redi-Cut Foods, Inc. in several quality assurance roles, most recently as Vice President from 1995 to 1997. Ms. Frelka has a B.S. degree in Biological Sciences, emphasis Microbiology, from Northern Illinois University. Theodore R. Leaman III (45).. Theodore R. Leaman III has served as Vice President, Manufacturing since April 1999. From January 1998 until April 1999, Mr. Leaman was Plant Manager for Stouffer Foods, a subsidiary of Nestle Corporation. From January 1993 until December 1998, Mr. Leaman served as Plant Manger for Contadina, another Nestle Corporation subsidiary. Mr. Leaman received a B.S. in Industrial Management from Carnegie-Mellon University. Susan M. Kirmayer (43)...... Susan M. Kirmayer has served as Vice President, Human Resources since August 1998. From October 1997 until August 1998, Ms. Kirmayer served as Director, Human Resources. From February 1992 to October 1997, Ms. Kirmayer served as Director of Human Resources and Administrative Services for Collagen Corporation. Ms. Kirmayer attended San Jose State University and majored in Business Administration.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities and Exchange Act of 1934 (the Exchange Act) requires Odwalla's directors and executive officers, and persons who own more than 10% of a registered class of Odwalla's equity securities, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Odwalla. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish Odwalla with copies of all Section 16(a) forms they file. To Odwalla's knowledge, based solely on a review of the copies of the reports furnished to Odwalla and written representations that no other reports were required during the fiscal year ended September 1, 2001, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners for fiscal 2001 were complied with on a timely basis. 25 ITEM 11. EXECUTIVE COMPENSATION The following Summary Compensation Table contains information regarding the compensation of Odwalla's Chief Executive Officer, President, and four other most highly compensated officers for the fiscal years ended September 1, 2001, September 2, 2000 and August 28, 1999 (the Named Executive Officers). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES ALL OTHER NAME AND FISCAL ---------------------- UNDERLYING COMPENSATION PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (1) ($) (2) - ------------------------------------- ---- ------- ------- ------- ------------ D. Stephen C. Williamson ............ 2001 394,712 -- 150,000 -- Chairman of the Board and Chief 2000 242,308 30,000 110,000 -- Executive Officer 1999 185,000 -- 160,000 -- James R. Steichen ................... 2001 266,827 -- 50,000 960 Senior Vice President, Finance 2000 193,750 20,000 40,000 772 and Chief Financial Officer 1999 169,577 -- 70,000 1,081 Theodore R. Leaman III .............. 2001 175,685 -- 25,000 673 Vice President, Manufacturing 2000 163,077 15,000 -- 554 1999 64,615 -- 50,000 -- Karen Lucas ......................... 2001 165,000 -- 30,000 18,699 Vice President, East Coast Sales 2000 154,614 15,070 20,000 717 1999 3,217 -- -- -- Susan M. Kirmayer ................... 2001 159,519 -- 25,000 580 Vice President, Human Resources 2000 124,692 15,000 -- 681 1999 103,994 -- 20,000 868
- -------------------- (1) The options listed in the table were granted under the Company's 1997 Stock Option/ Stock Issuance Plan. (2) Represents Odwalla's matching 401(k) plan contribution for all amounts shown except the total shown for Ms. Lucas for fiscal 2001 includes $17,694 for moving and housing allowance. 26 INDIVIDUAL OPTION GRANTS TO EXECUTIVE OFFICERS DURING FISCAL YEAR 2001 The following table sets forth certain information regarding stock options granted in 2001 to the individuals named in the Summary Compensation Table. No stock appreciation rights were granted to those individuals during the fiscal year 2001. INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE AT NUMBER OF PERCENTAGE OF ASSUMED ANNUAL RATES OF SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION UNDERLYING GRANTED TO FOR OPTION TERM (2) OPTIONS EMPLOYEES IN EXERCISE PRICE ----------------------------- NAME GRANTED FISCAL 2001 ($/ SHARE)(1) EXPIRATION DATE 5% 10% - ---------------------- ---------- ------------- -------------- --------------- ---------- ---------- D. Stephen C. Williamson ........... 150,000(3) 37.9% $ 9.938 2/8/11 $ 937,493 $2,375,792 James R. Steichen .... 50,000(3) 12.6% $ 9.938 2/8/11 $ 312,498 $ 791,931 Karen Lucas .......... 30,000(4) 7.6% $ 8.438 10/17/10 $ 159,198 $ 403,440 Theodore R. Leaman III 25,000(4) 6.3% $ 8.438 10/17/10 $ 132,665 $ 336,200 Susan M. Kirmayer .... 25,000(4) 6.3% $ 8.438 10/17/10 $ 132,665 $ 336,200
- -------------------- (1) The exercise price may be paid in cash, in shares of common stock valued at fair market value on the exercise date or through a cashless exercise procedure involving a same-day sale of the purchased shares. The Company may also finance the option exercise by loaning the optionee sufficient funds to pay the exercise price for the purchased shares and the federal and state income and employment tax liability incurred by the optionee in connection with the exercise. (2) There is no assurance provided to the option holder or any other holder of Odwalla's securities that the actual stock price appreciation over the five- or 10-year option term will be at the 5% and 10% assumed annual rates of compounded stock price appreciation. (3) The options were granted under Odwalla's 1997 Stock Option/Stock Issuance Plan on February 8, 2001, with a vesting commencement date of the same date. The options granted have a maximum term of 10 years, all measured from the grant date, subject to earlier termination upon the optionee's cessation of service with Odwalla. All options will vest as to 1/36 of the shares each month. (4) The options were granted under the Company's 1997 Stock Option/Stock Issuance Plan on October 17, 2000, with a vesting commencement date of the same date. The options granted have a maximum term of 10 years, all measured from the grant date, subject to earlier termination upon the optionee's cessation of service with Odwalla. All options will vest as to 1/36 of the shares each month. 27 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth for each of the individuals named in the Summary Compensation Table, certain information concerning the number of shares subject to both exercisable and unexercisable stock options as of September 1, 2001. Also reported are values for "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding options and the fair market value of the Company's common stock as of September 1, 2001. No stock appreciation rights were exercised during fiscal 2001 or were outstanding at the end of fiscal 2001.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN- UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT SHARES OPTIONS AT SEPTEMBER 1, 2001 FISCAL YEAR END (1) ACQUIRED ON VALUE ----------------------------- ----------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------ ------------ --------- ----------- ------------- ----------- ------------- D. Stephen C. Williamson ..... -- $ -- 361,554 233,446 $190,577 $ 80,873 James R. Steichen ............ -- $ -- 127,737 82,363 $ 79,505 $ 40,265 Theodore R. Leaman III ....... -- $ -- 44,721 30,279 $ 69,313 $ 21,047 Karen Lucas .................. -- $ -- 21,667 28,333 $ 9,934 $ 4,966 Susan M. Kirmayer ............ -- $ -- 30,389 23,611 $ 12,567 $ 4,833
- -------------------- (1) Based on the fair market value of the shares at the end of the 2001 fiscal year ($7.87 per share) less the option exercise price payable for those shares. EMPLOYMENT AGREEMENTS On December 21, 1999, D. Stephen C. Williamson, Odwalla's Chief Executive Officer, and James R. Steichen, Odwalla's Senior Vice President, Finance and Chief Financial Officer, entered into employment agreements with Odwalla that are effective until December 21, 2002. Thereafter, these agreements are subject to three consecutive automatic one-year renewals. The agreements generally provide for annual salaries to be paid at the most recently approved salary approved by the Compensation Committee of the Board and the right to participate in and to receive those employee benefits that are generally provided to similarly situated employees at Odwalla. If Mr. Williamson's or Mr. Steichen's employment is terminated due to death, a disability that prevents him from performing his duties for six months, termination for cause, or resignation without good reason, payment of his salary and benefits will cease. If Mr. Williamson or Mr. Steichen is terminated other than for cause or is terminated within 12 months of a change of control or corporate transaction (as those terms are defined in Odwalla's 1997 Stock Option/ Issuance Plan), the terminated employee will receive specified payments that are substantially equivalent to the remaining payments he would have received had he remained employed through the term of his agreement. The terminated employee will also receive reimbursement for the cost of acquiring health benefits through the term of his agreement. All stock options held by the terminated employee will automatically become vested and fully exercisable at the time his termination becomes effective. The total payments or benefits received by Mr. Williamson or Mr. Steichen from Odwalla resulting from termination in connection with a change of control or corporate transaction shall not exceed three times the terminated employee's annualized compensation minus $1.00. If Mr. Williamson or Mr. Steichen resigns for good reason, the resigning employee is entitled to received severance pay equal to his base salary for a period of 12 months. The resigning employee also would be entitled to reimbursement for the cost of acquiring health benefits for a period of 12 months. New Employment Agreement with D. Stephen C. Williamson Concurrently with the execution of the Merger Agreement entered into with TCCC and its subsidiary, Odwalla entered into a new employment agreement with Mr. Williamson (the "New Employment Agreement"). The New Employment Agreement will commence at the effective time of the Merger and will supersede Mr. Williamson's current employment agreement with Odwalla, dated December 21, 1999, which is described above. 28 The initial term of the New Employment Agreement extends through December 31, 2002, and thereafter is subject to automatic annual renewals through December 31, 2005, unless either party provides 60 days written notice to the other party in advance of a renewal period. Under the New Employment Agreement, Mr. Williamson will receive an annual salary of $450,000, subject to annual review by the Board of Directors, and will be eligible for a special performance award of 20,000 TCCC stock options for achieving certain revenue and operating income targets. Odwalla shall also provide Mr. Williamson customary fringe benefits provided to similarly situated employees at Odwalla. Upon expiration of the New Employment Agreement, Odwalla shall pay Mr. Williamson his base salary then in effect for a period of one year following the date of the expiration, offset by any severance payment Mr. Williamson may otherwise receive. Odwalla may terminate the New Employment Agreement with written notice for cause without liability or further obligation. If Mr. Williamson is not terminated for cause or Mr. Williamson terminates the New Employment Agreement for good reason, Odwalla will (1) pay Mr. Williamson his base salary then in effect for a period of one year following the date of the expiration, offset by any severance payment Mr. Williamson may otherwise receive, (2) reimburse Mr. Williamson for the cost of acquiring health benefits for a period of one year, and (3) negotiate with Mr. Williamson the treatment of any special performance award. In the event that Mr. Williamson's severance and other benefits constitute a parachute payment under the Federal tax law and would be subject to an excise tax, then Mr. Williamson's benefits will either be delivered in full or delivered to such lesser extent as to avoid an excise tax, whichever results in Mr. Williamson receiving the greatest amount on an after-tax basis. Under the terms of the New Employment Agreement, Mr. Williamson agreed that he will not, while employed by Odwalla and for a period of two years following the expiration or termination of his employment, solicit, interfere with or endeavor to entice away from TCCC or any of its subsidiaries any other employee of TCCC. Additionally, Mr. Williamson agreed that he will not at any time while employed by Odwalla and for a period of one year following the expiration or termination of his employment engage in the manufacture, sale, or distribution of non-alcoholic beverages in the United States. During the term of the New Employment Agreement and at all times thereafter, Mr. Williamson has agreed to keep in confidence and not publish, use or disclose to others, without Odwalla's prior written consent, any trade secrets or other confidential information related to TCCC or TCCC's business. COMPENSATION OF DIRECTORS Directors who are not employees currently receive $10,000 per year, in addition to reimbursement for some expenses incurred in connection with their attendance at meetings of the Board of Directors and committees. Under the Automatic Option Grant Program of the Company's 1997 Stock Option/Stock Issuance Plan, each individual who first becomes a non-employee director, whether through election by the shareholders or appointment by the Board, is automatically granted, at the time of the initial election or appointment, a non-statutory option to purchase 5,000 shares of common stock, provided the individual was not previously in Odwalla's employment. In addition, on the date of each annual meeting, each individual who is to continue to serve as a non-employee director, whether or not that individual is standing for re-election to the Board at that particular annual meeting, will automatically be granted at that meeting a non-statutory option to purchase 3,000 shares of common stock, provided the individual has served as a non-employee director for at least six months. There is no limit on the number of these 3,000-share option grants any one non-employee director may receive over his or her period of service as a director, and non-employee directors who have previously served in Odwalla's employ will be fully eligible for one or more 3,000-share option grants. Each option granted under the Automatic Option Grant Program is subject to the following terms and conditions: 1. The exercise price per share will be equal to 100% of the fair market value per share of common stock on the automatic grant date; 29 2. Each option will have a maximum term equal to the lesser of (a) 10 years measured from the grant date or (b) 12 months following termination of service as a director; 3. Each option will be immediately exercisable for all the option shares, but any purchased shares will be subject to repurchase by Odwalla, at the exercise price paid per share, upon the optionee's cessation of service as a director prior to vesting in those shares; 4. The shares subject to each initial 5,000 share grant will vest in four successive equal annual installments over the optionee's period of service as a director, with the first installment to vest upon the completion of one year of service as a director, measured from the automatic grant date. All of the shares subject to each annual 3,000 share grant will vest upon the optionee's completion of one year of service as a director, measured from the automatic grant date; 5. The shares subject to each outstanding automatic option grant will immediately vest should the optionee die or become permanently disabled while a director or should any of the following events occur while the optionee continues in service as a director: (a) an acquisition of Odwalla by merger or asset sale; (b) the successful completion of a hostile tender offer for more than 50% of the total combined voting power of Odwalla's outstanding securities; or (c) a change in the majority of the members of the Board of Directors occasioned by one or more contested elections for directors; and 6. Upon the successful completion of a hostile tender offer for securities possessing more than fifty percent (50%) of the total combined voting power of Odwalla's outstanding securities, each outstanding automatic option grant may be surrendered to Odwalla for a cash distribution per surrendered option share in an amount equal to the excess of (a) the greater of (1) the fair market value per share of common stock on the date the option is surrendered to Odwalla in connection with a hostile tender offer or (2) the highest price per share of common stock paid in the hostile tender offer over (b) the exercise price payable per share. Under the Automatic Option Grant Program described above, the following options were granted to non-employee directors under the Company's 1997 Stock Option/Stock Issuance Plan in fiscal 2001: Mr. Balson, Mr. Grubman, Mr. Jones, Mr. Nunnelly and Mr. Sakin, were each granted options to purchase 3,000 shares at an exercise price of $10.00 per share. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationship exists between Odwalla's executive officers, the Board of Directors or compensation committee and any executive officer or member of the Board of Directors or compensation committee of any other company, nor has such interlocking relationship existed in the past. REPORT OF THE COMPENSATION COMMITTEE The following Compensation Committee's Report on Executive Compensation shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulations 14A or 14C of or to the liabilities of Section 18 of the Exchange Act, and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, notwithstanding any general incorporation by reference of this Information Statement into any other document. THE REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors, subject to review by the full Board of Directors, is responsible for the establishment of remuneration arrangements for senior management and the administration of compensation and employee benefit plans. In addition, the Compensation Committee sets the base salary of the Company's executive officers, approves individual bonus programs for executive officers, and administers the Company's stock option plans under which grants may be made to executive officers and other key employees. The following is a summary of policies of the Compensation Committee that affect the compensation paid to executive officers during the fiscal year 2001, as reflected in the tables and text set forth elsewhere in this document. 30 General Compensation Policy The objectives of the Company's executive compensation program are to motivate and retain current executives and to attract future ones. The Company's executive compensation program is designed to: (1) provide a direct and substantial link between the Company's performance and executive pay, (2) consider individual performance and accomplishments and compensate accordingly, and (3) determine the Company's position in the specialty beverage and food labor markets and be competitive in those labor markets. The Company's intent is to position its executive pay levels at the median of U.S. specialty beverage and food companies. The Committee also considers geographic location and companies that may compete with the Company in recruiting executive talent. The principal factors which the Compensation Committee considered in establishing the components of each executive officer's compensation package for fiscal 2001 are summarized below. The Compensation Committee may, however, in its discretion apply entirely different factors in setting executive compensation for future years. Base Salary The base salary for each officer is set on the basis of personal performance, the Compensation Committee's assessment of salary levels in effect for comparable positions with the Company's principal competitors, and internal comparability considerations. The weight given to each of these factors may vary from individual to individual, and the Compensation Committee did not rely upon any specific compensation surveys for comparative compensation purposes. Instead, the Compensation Committee made its decisions as to the appropriate market level of base salary for each executive officer on the basis of its understanding of the salary levels in effect at companies with which Odwalla competes for executive talent. Base salaries will be reviewed on an annual basis, and adjustments will be made in accordance with the factors indicated above. Long-Term Incentive Compensation Long-term incentives are provided through stock option grants. The grants are designed to align the interests of the executive officers with those of the shareholders, and to provide each officer with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. The stock option plan encourages long term retention and provides rewards to executives and other eligible employees commensurate with growth in shareholder value. It is the Committee's practice to grant options to purchase shares at the market price on the date of grant with a term of up to 10 years. The options granted to the Company's executive officers during fiscal 2001 will vest from the date of grant in thirty-six or forty-eight equal monthly installments. Accordingly, the options will provide a return to the executive officer only if he or she remains in the Company's employ and the market price of the underlying shares of common stock appreciates. The number of shares subject to each option grant is set at a level intended to create a meaningful opportunity for stock ownership based on the officer's current position with the Company, the base salary associated with that position, the size of comparable awards made to individuals in similar positions within the industry, the individual's potential for increased responsibility and promotion over the option term, and the individual's personal performance in recent periods. The Committee also takes into account the number of unvested options held by the executive offer in order to maintain an appropriate level of equity incentive for that individual. However, the Committee does not adhere to any specific guidelines as to the relative option holdings of the Company's executive officers. Compensation of Chief Executive Officer The compensation payable to Mr. Williamson, Odwalla's Chief Executive Officer, was determined by the Compensation Committee. Mr. Williamson's base salary was set at a level which the Committee believed would be competitive with the base salary levels in effect for chief executive officers at similarly-sized companies within the industry. For fiscal 2001, Mr. Williamson's compensation package was set by the Compensation Committee on the basis of the compensation policy summarized in this report. 31 Deductibility of Executive Compensation The Compensation Committee has considered the impact of Section 162(m) of the Internal Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which section disallows a deduction for any publicly held corporation for individual compensation exceeding $1 million in any taxable year for the chief executive officer and the four other most highly compensated executive officers, respectively, unless such compensation meets the requirements for the "performance-based" exception to Section 162(m). The compensation paid to the Company's executive officers for fiscal 2001 did not exceed the $1 million limit per officer, and it is not expected that the compensation to the Company's executive officers for fiscal 2002 will exceed that limit. In addition, the Company's 1997 Stock Option/Stock Issuance Plan is structured so that any compensation deemed paid to an executive officer in connection with the exercise of his or her outstanding options under the 1997 Stock Option/Stock Issuance Plan will qualify as performance-based compensation which will not be subject to the $1 million limitation. It is the Compensation Committee's policy to qualify, to the extent reasonable, its executive officers' compensation for deductibility under the applicable tax law. However, we may from time to time pay compensation to our executive officers that may not be deductible. SUBMITTED BY THE COMPENSATION COMMITTEE: RICHARD L. GRUBMAN, BOARD MEMBER AND COMPENSATION COMMITTEE CHAIRMAN ANDREW B. BALSON, BOARD MEMBER AND COMPENSATION COMMITTEE MEMBER CRAIG H. SAKIN, BOARD MEMBER AND COMPENSATION COMMITTEE MEMBER PERFORMANCE GRAPH The following graph compares the cumulative total shareholder return on the Company's common stock with that of the Nasdaq Stock Market (U.S.) Index and the Russell 2000 Index. The comparison for each of the periods assumes that $100 was invested on August 31, 1996 in the Company's common stock including reinvestment of dividends. These indices, which reflect formulas for dividend reinvestment and weighing of individual stocks, do not necessarily reflect returns that could be achieved by individual investors. COMPARISON OF FIVE (5) YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY, THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE RUSSELL 2000 INDEX
Nasdaq Stock Market The Company (U.S.) Russell 2000 ----------- ------------------- ------------ August 1996 100.00 100.00 100.00 August 1997 68.70 139.49 128.95 August 1998 54.96 131.81 103.94 August 1999 43.89 244.89 133.42 August 2000 41.22 374.16 169.65 August 2001 48.24 160.03 149.92
Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act or the Exchange Act that might incorporate future filings, including this proxy statement, in whole or in part, the preceding Compensation Committee Report on Executive Compensation and the preceding Performance Graph shall not be incorporated by reference into any of these filings; nor shall the Report or graph be incorporated by reference into any future filings. 32 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the ownership of the Company's common stock as of November 20, 2001, by (1) each director, (2) the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company, determined for the Company's fiscal year ended September 1, 2001, (3) all those known by the Company to be beneficial owners of more than five percent of its common stock, and (4) all directors and executive officers as a group. Except as otherwise indicated, the address of each of the people in this table is as follows: c/o Odwalla, Inc., 120 Stone Pine Road, Half Moon Bay, California 94019.
COMMON STOCK BENEFICIALLY OWNED (1) (2) ------------------------------------ NUMBER OF SHARES NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS (1) - ----------------------------------------------------------------- ------------------ -------------------- Bain Capital Funds (3) (16) ..................................... 2,774,568 24.73% c/o Bain Capital Partners, LLC 111 Huntington Avenue Boston, MA 02199 Catterton-Simon Partners III, L.P. (16) ......................... 1,493,461 13.31% 7 Greenwich Office Park Greenwich, CT 06830 D. Stephen C. Williamson (4) (16) ............................... 1,042,548 8.95% U.S. Equity Partners, L.P. and U.S. Equity Partners (Offshore), L.P. (5) (16) .................................................. 764,612 6.82% 1999 Avenue of the Stars, Suite 2950 Los Angeles, CA 90067 Richard Grubman (6) ............................................. 60,848 * Craig H. Sakin (7) .............................................. 5,500 * Andrew B. Balson (8) ............................................ 1,250 * Ellis B. Jones (9) .............................................. 1,250 * Mark E. Nunnelly (10) ........................................... 1,250 * Juan I. Prado (11) .............................................. 58,742 * James R. Steichen (12) (16) ..................................... 151,208 1.33% Theodore R. Leaman III (13) (16) ................................ 55,138 * Susan M. Kirmayer (14) .......................................... 36,938 * All directors and executive officers as a group (12 persons) (15) 1,445,595 12.89%
- ---------- * Less than one percent (1%). (1) This table is based upon information supplied by officers, directors and principal shareholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws applicable, the Company believes that each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. (2) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock, subject to options currently exercisable or exercisable within 60 days of November 20, 2001, are deemed outstanding for computing the percentage of the person holding the options, but are not deemed outstanding for computing the percentage of any other person. Percentage of ownership is based on 11,218,023 shares of common stock outstanding on November 20, 2001. 33 (3) Includes (i) 1,971,664 shares of common stock held by Bain Capital Fund VI, L.P. whose sole general partner is Bain Capital Partners VI, L.P., whose sole general partner is Bain Capital Investors, LLC ("BCI"); (ii) 472,960 shares of common stock held by BCIP Associates II, whose managing general partner is BCI; (iii) 92,331 shares of common stock held by BCIP Associates II-B, whose managing general partner is BCI; (iv) 88,166 shares of common stock held by BCIP Associates II-C, whose managing general partner is BCI; (v) 91,430 shares of common stock held by BCIP Trust Associates II, whose managing general partner is BCI; (vi) 51,474 shares of common stock held by BCIP Trust Associates II-B, whose managing general partner is BCI; and (vii) 6,543 shares of common stock held by PEP Investments Pty. Ltd., as to which BCI holds a power of attorney. Mr. Balson and Mr. Nunnelly are managing directors of Bain Capital, LLC and partners of certain of BCI, BCIP Associates II, BCIP Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, and BCIP Trust Associates II-B and accordingly may be deemed to beneficially own shares owned by such funds of which they are partners. Mr. Balson and Mr. Nunnelly disclaim beneficial ownership of any of such shares in which they do not have a pecuniary interest. (4) Includes 41,250 shares of common stock held by Alexandra Bowes, Mr. Williamson's wife, and 194,851 shares held by Willy Juice Partners, a limited partnership of which Mr. Williamson is the general partner. Mr. Williamson disclaims beneficial ownership of shares held by Willy Juice Partners, except to the extent of his pecuniary interest therein. Also includes 424,331 shares of common stock subject to options exercisable within 60 days of November 20, 2001. (5) Includes 601,667 shares of common stock held by U.S. Equity Partners, L.P. and 162,945 shares of common stock held by U.S. Equity Partners (Offshore), L.P. managed by Wasserstein & Co., of which Mr. Jones disclaims beneficial ownership. Mr. Jones is chief executive officer of Wasserstein & Co. (6) Includes 1,000 shares of common stock held by Caroline Mortimer, Mr. Grubman's wife, and 46,000 shares of common stock subject to options exercisable within 60 days of November 20, 2001, plus Mr. Grubman's interest in 1,548 shares of common stock held by Willy Juice Partners. (7) Excludes 1,493,461 shares of common stock held by Catterton-Simon Partners III, L.P., a Delaware limited partnership. Mr. Sakin disclaims beneficial ownership of the shares held by Catterton-Simon Partners III, L.P. Mr. Sakin is a manager of Catterton-Simon Managing Partners III, L.L.C., the general partner of Catterton-Simon Partners III, L.P. Includes 5,500 shares of common stock subject to options exercisable within 60 days of November 20, 2001. (8) Includes 1,250 shares of common stock subject to options exercisable within 60 days of November 20, 2001 and excludes shares of common stock held by BCI, BCIP Associates II, BCIP Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, and BCIP Trust Associates II-B, as discussed in Note 3. (9) Includes 1,250 shares of common stock subject to options exercisable within 60 days of November 20, 2001. (10) Includes 1,250 shares of common stock subject to options exercisable within 60 days of November 20, 2001 and excludes shares of common stock held by BCI, BCIP Associates II, BCIP Associates II-B, BCIP Associates II-C, BCIP Trust Associates II, and BCIP Trust Associates II-B, as discussed in Note 3. (11) Includes 57,492 shares of common stock held by JIP Enterprises, Inc., of which Mr. Prado is the sole stockholder, and 1,250 shares of common stock subject to options exercisable within 60 days of November 20, 2001. (12) Includes 151,208 shares of common stock subject to options exercisable within 60 days of November 20, 2001. (13) Includes 55,138 shares of common stock subject to options exercisable within 60 days of November 20, 2001. (14) Includes 36,938 shares of common stock subject to options exercisable within 60 days of November 20, 2001. 34 (15) Includes 756,286 shares of common stock subject to options exercisable within 60 days of November 20, 2001, and excludes common stock held by entities of which BCI is the sole general partner or holds a power of attorney, Catterton-Simon Partners III, L.P., U.S. Equity Partners, L.P. and U.S. Equity Partners (Offshore), L.P. of which Mr. Balson, Mr. Nunnelly, Mr. Jones and Mr. Sakin disclaims beneficial ownership as discussed in Notes 3, 5, and 7. (16) These parties have entered into Tender Agreements with TCCC in connection with the Merger Agreement among Odwalla, TCCC and the Offeror. See Item 1. "Business - Acquisition by The Coca-Cola Company" for a description of the Tender Agreements. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Termination Agreement with Karen Lucas By letter agreement, dated September 21, 2001, Karen Lucas, Odwalla's Vice President, Marketing and East Coast Sales, agreed with Odwalla to terminate her employment on October 8, 2001. From October 9, 2001 through April 9, 2002, Odwalla agreed to provide Ms. Lucas (1) $82,500 in severance pay, less all applicable withholdings, payable on Odwalla's bi-weekly payroll schedule, (2) payment for continuation of COBRA benefits, (3) outplacement services with a firm and in an amount determined by Odwalla and (4) relocation expenses should Ms. Lucas move to Seattle, Washington. The letter agreement also specified the number of vested stock options Ms. Lucas had as of the termination date and that Ms. Lucas has until January 6, 2002 to exercise any of these vested shares. In consideration for receiving the severance payments, COBRA reimbursement, outplacement and relocation benefits described above, Ms. Lucas waived and released and promised to never to assert any claims or causes of action against Odwalla, its predecessors, successors, or past or present subsidiaries, officers, directors, agents, employees and assigns with respect to any matter arising out of or connected with Ms. Lucas' employment with Odwalla. Under the terms of the letter agreement, for a period ending on April 8, 2003, Ms. Lucas has agreed not to (1) solicit employment of any employee of Odwalla, (2) own, manage, operate, sell, control, participate in the ownership, management, operation, sales or control of any business in the United States that directly competes with Odwalla's business, or (3) solicit Odwalla's customers or suppliers that Ms. Lucas contacted, solicited or became acquainted with during her employment with Odwalla. Douglas K. Levin Separation Agreement and Release On December 14, 2000, Odwalla entered into a separation agreement and release with Douglas K. Levin. As of the date of the agreement, Mr. Levin was deemed to have resigned from all offices and directorships of Odwalla or any affiliate. Odwalla agreed to pay Mr. Levin $654,000 in bi-weekly installment payments, beginning December 29, 2000 through December 31, 2003, also known as the "Severance Term." Under the terms of the agreement, Mr. Levin agreed that all stock option agreements between him and Odwalla were cancelled and void, and Mr. Levin further acknowledged that he had no rights and Odwalla had no obligations under any of these stock option agreements. For the 18 month period following the date of the separation agreement and release, Odwalla agreed to provide Mr. Levin COBRA health benefits, and at the end of this period, Odwalla agreed to reimburse Mr. Levin for the cost of purchasing health care coverage for an additional 18 months. Odwalla also agreed to pay, for the period beginning January 1, 2001 through June 30, 2001, Mr. Levin's housing payments equal to $6,000 per month. Upon receipt of his first severance payment, Mr. Levin agreed to dismiss promptly and with prejudice any and all lawsuits and other actions against Odwalla involving Mr. Levin. Mr. Levin has no obligation to seek alternative employment during the Severance Term and will continue to receive severance payments from Odwalla in the event that Mr. Levin does secure alternative employment. 35 Mr. Levin agreed not to disclose or use any information regarding Odwalla's business, employees or customers, which was produced by any employee of Odwalla in the course of his or her employment, and which is not properly in the public domain. For a period of two-and-one-half years following the date of the separation agreement and release, Mr. Levin agreed not to (1) divert or attempt to divert from Odwalla or any affiliate any business in which it is engaged, (2) employ or recommend for employment any person employed by Odwalla or any affiliate, other than his wife Abby Carter, or (3) engage in any business activity that is competitive with Odwalla or any affiliate in any state where Odwalla conducts its business, unless Mr. Levin can prove that his actions were done without the use of confidential information. In addition, for a period of two-and-one-half years following the date of the separation agreement and release, Mr. Levin agreed not to (1) solicit any customer of Odwalla or any affiliate known to Mr. Levin to have been a customer for the provision of substantially the same products or services as provided by Odwalla, or (2) solicit for employment any person employed by Odwalla or any affiliate, other than his wife Abby Carter. Under the separation agreement and release, Mr. Levin completely released and discharged Odwalla and any affiliate, and its and their present and former shareholders, officers, directors, agents, employees, attorneys, successors and assigns from all claims of every kind, known or unknown, mature or unmatured, which Mr. Levin may now have or in the future arising from any act or omission or condition occurring prior to the date of the agreement. Odwalla and Mr. Levin agreed that the agreement reflects a compromise settlement of disputed claims and that the furnishing of consideration for the agreement was not an admission of liability by Odwalla. Loans to Odwalla Executives for Exercise of Stock Options Under the terms of the Tender Agreements with each of D. Stephen C. Williamson, James R. Steichen and Theodore R. Leaman III (the "Executives"), TCCC may cause immediately prior to the consummation of the Offer such Executive to exercise any of the Executive's vested Company Options. Under the terms of the Merger Agreement, if TCCC requires any of the Executives to exercise Company Options to purchase Shares immediately prior to the consummation of the Offer under the terms of such Executives' Tender Agreement, Odwalla will loan to the Executives such funds as may be necessary to permit such Executives to exercise such Company Options. If Odwalla becomes obligated to advance funds to Executives for the exercise of the Executive's Company Options and Odwalla fails to advance such funds to any Executive, TCCC has agreed to advance such funds to any Executive on commercially reasonable terms. 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: PAGE ---- Report of independent accountants ............................................ 40 Consolidated Balance Sheets, September 2, 2000 and September 1, 2001 ......... 41 Consolidated Statements of Operations, three years in the period ended September 1, 2001 ...................................................... 42 Consolidated Statements of Changes in Shareholders' Equity, three years in the period ended September 1, 2001 .......................................... 43 Consolidated Statements of Cash Flows, three years in the period ended September 1, 2001 ....................................................... 44 Notes to Consolidated Financial Statements ................................... 45
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1* Amended and Restated Articles of Incorporation of the Registrant. 3.2** Amended and Restated Bylaws of the Registrant. 4.1 Warrant to Purchase Common Stock dated February 10, 1999 between the Registrant and Hambrecht & Quist LLC. 4.2 Warrant to Purchase Common Stock dated May 22, 1997 between the Registrant and Sand Hill Capital LLC. 10.1 Form of Indemnification Agreement entered into between the Registrant and its directors and officers. 10.2* Registrant's 1993 Stock Option Plan, as amended (and related stock option grant forms). 10.3* Registrant's 1994 Non-Employee Directors' Stock Option Plan (and related stock option grant forms). 10.4# Registrant's 1997 Stock Option/Stock Issuance Plan (and related stock option grant forms). 10.5 Business Loan Agreement dated July 12, 2001 between the Registrant and Bank of America, N.A. 10.6## Employment Agreement dated December 21, 1999 between Registrant and D. Stephen C. Williamson. 10.7*** Employment Agreement dated October 29, 2001 between Registrant and D. Stephen C. Williamson. 10.8## Employment Agreement dated December 21, 1999 between Registrant and James R. Steichen. 10.9+ Separation Agreement and Release, dated as of December 14, 2000, between Douglas Levin and Registrant. 10.10+ Consulting Agreement, dated as of December 14, 2000, between Douglas Levin and Registrant. 10.11** Stock Purchase Agreement dated February 11, 2000 between Registrant, U.S. Equity Partners, L.P. and Catterton-Simon Partners III, L.P. 10.12** Amendment No. 1 to the Stock Purchase Agreement dated April 25, 2000 between Registrant, U.S. Equity Partners, L.P., U.S. Equity Partners (Offshore), L.P., Catterton-Simon Partners III, L.P., and BancBoston Investments, Inc. 10.13** Shareholders Rights Agreement dated May 2, 2000 among Registrant, Samantha Investors, LLC, and the shareholders of Registrant and other persons named therein. 10.14** Preferred Stock Conversion Agreement dated as of April 24, 2000, between Registrant and Catterton-Simon Partners III, L.P. 10.15** Letter Agreement, dated May 1, 2000, from Bain Capital Fund VI, L.P., to Registrant and Catterton-Simon Partners III, L.P. 10.16## Agreement and Plan of Merger dated February 2, 2000 by and among Registrant, Fresh Samantha, Inc., and Orange Acquisition Sub, Inc.
37
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.17### Agreement and Plan of Merger dated October 29, 2001 by and among The Coca-Cola Company, Perry Phillip Corp. and Registrant. 10.18### Stock Option Agreement dated October 29, 2001 by and among Registrant, The Coca-Cola Company and Perry Phillip Corp. 10.19 Important Notice And Agreement Regarding Treatment Of Vested And Unvested Options In Tender Offer Under The Odwalla, Inc. Stock Option Plan Adopted In 1993, 1994 Non-Employee Directors' Stock Option Plan And Amended And Restated 1997 Stock Option/Stock Issuance Plan of November 9, 2001 to holders of Registrant's common stock options. 21.1 Subsidiaries of the Registrant 23.1 Consent of independent accountants
- ---------- * Incorporated by reference to Registrant's Report on Form 10-KSB for the fiscal year ended August 31, 1994, as filed with the SEC. ** Filed as an exhibit to the Registrant's Current Report on Form 8-K (File No. 0-23036) filed with the Securities and Exchange Commission on May 10, 2000 and incorporated herein by reference. *** Incorporated by reference to Schedule TO filed by The Coca-Cola Company and TCCC Acquisition Corp. (formerly Perry Phillip Corp.) on November 6, 2001. # Filed as an exhibit to the Registrant's filing on Form S-8 filed with the Securities and Exchange Commission on August 21, 1997 and incorporated herein by reference. ## Filed as an exhibit to the Registrant's definitive Proxy Statement (File No. 0-23036) filed with the Securities and Exchange Commission on March 16, 2000 and incorporated herein by reference. ### Filed as an exhibit to the Registrant's Current Report on Form 8-K (File No. 0-23036) filed with the Securities and Exchange Commission on November 2, 2001. + Incorporated by reference to Registrant's Report on Form 10-Q for the fiscal quarter ended December 2, 2000. (b) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K during the quarter ended September 1, 2001. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 27, 2001. ODWALLA, INC. By /s/ D. STEPHEN C. WILLIAMSON --------------------------------------- D. Stephen C. Williamson Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints D. Stephen C. Williamson and James R. Steichen, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ D. STEPHEN C. WILLIAMSON Chairman of the Board and November 27, 2001 - ---------------------------- Chief Executive Officer D. Stephen C. Williamson (Principal Executive Officer) /s/ ANDREW B. BALSON Director November 27, 2001 - ----------------------------- Andrew B. Balson /s/ RICHARD L. GRUBMAN Director November 27, 2001 - ----------------------------- Richard L. Grubman /s/ ELLIS B. JONES Director November 27, 2001 - ----------------------------- Ellis B. Jones /s/ MARK E. NUNNELLY Director November 27, 2001 - ----------------------------- Mark E. Nunnelly /s/ JUAN I. PRADO Director November 27, 2001 - ----------------------------- Juan I. Prado /s/ CRAIG H. SAKIN Director November 27, 2001 - ----------------------------- Craig H. Sakin /s/ JAMES R. STEICHEN Senior Vice President, Finance November 27, 2001 - ----------------------------- and Chief Financial Officer James R. Steichen (Principal Financial and Accounting Officer)
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Odwalla, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Odwalla, Inc. and its subsidiaries at September 1, 2001 and September 2, 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 1, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California November 16, 2001 40 ODWALLA, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Current assets Cash and cash equivalents $ 3,374 $ 4,106 Short term investments 2,018 258 Trade accounts receivable, less allowance for doubtful accounts and product returns of $1,436 and $1,830 11,599 12,605 Inventories 6,705 6,913 Prepaid expenses and other current assets 2,357 3,077 Deferred tax asset, current 2,265 2,725 -------- -------- Total current assets 28,318 29,684 -------- -------- Plant, property and equipment, net 20,011 23,789 -------- -------- Other assets Intangible assets, net 35,091 31,740 Covenants not to compete, net 393 304 Deferred tax asset, non-current 4,864 4,863 Other noncurrent assets 677 705 -------- -------- Total other assets 41,025 37,612 -------- -------- Total assets $ 89,354 $ 91,085 ======== ======== Current liabilities Accounts payable $ 9,139 $ 9,322 Accrued payroll and related items 2,328 2,112 Line of credit 1,950 1,987 Other accruals 2,574 2,517 Income taxes payable 24 22 Current maturities of capital lease obligations 372 1,419 Current maturities of long-term debt 219 213 -------- -------- Total current liabilities 16,606 17,592 Capital lease obligations, less current maturities 735 1,155 Long-term debt, less current maturities 390 276 Deferred tax liability 10,296 9,906 Other 655 1,676 -------- -------- Total liabilities 28,682 30,605 -------- -------- Commitments and contingencies (Note 4) Shareholders' equity Common stock, no par value, shares authorized, 15,000,000; shares issued and outstanding, 11,033,000 and 11,080,000 72,948 73,190 Accumulated deficit (12,276) (12,710) -------- -------- Total shareholders' equity 60,672 60,480 -------- -------- Total liabilities and shareholders' equity $ 89,354 $ 91,085 ======== ========
See accompanying notes to consolidated financial statements. 41 ODWALLA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED ----------------------------------------- 1999 2000 2001 --------- --------- --------- Net sales $ 68,042 $ 93,450 $ 128,260 Cost of sales 35,542 47,477 61,723 --------- --------- --------- Gross profit 32,500 45,973 66,537 --------- --------- --------- Operating expenses Sales and distribution 24,254 31,815 45,574 Marketing 2,908 2,795 3,672 General and administrative 7,449 9,616 11,518 Amortization of intangible assets from Fresh Samantha acquisition -- 711 2,308 Restructuring and other charges -- -- 3,490 Recall and related costs 250 -- -- --------- --------- --------- Total operating expenses 34,861 44,937 66,562 --------- --------- --------- Income (loss) from operations (2,361) 1,036 (25) Proceeds from insurance settlement, net of legal fees -- 5,458 -- Series A preferred stock inducement expense -- (1,587) -- Other (expense) income, net (40) (112) (211) --------- --------- --------- Income (loss) before income taxes (2,401) 4,795 (236) Income tax benefit (expense) 359 (1,140) (198) --------- --------- --------- Net income (loss) (2,042) 3,655 (434) Preferred stock dividend (267) (568) -- --------- --------- --------- Net income (loss) applicable to common shareholders $ (2,309) $ 3,087 $ (434) ========= ========= ========= Basic net income (loss) applicable to common shareholders per share $ (0.45) $ 0.44 $ (0.04) ========= ========= ========= Shares used in per share amounts 5,098 7,074 11,058 ========= ========= ========= Diluted net income (loss) applicable to common shareholders per share $ (0.45) $ 0.43 $ (0.04) ========= ========= ========= Shares used in per share amounts 5,098 7,134 11,058 ========= ========= =========
See accompanying notes to consolidated financial statements. 42 ODWALLA, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
Common Stock ---------------------- Additional Accumulated Shares Amount Paid-in Capital deficit Total -------- -------- -------- -------- -------- Balance, August 30, 1998 5,061 $ 29,499 $(13,054) $ 16,445 Exercise of common stock options 64 251 -- 251 Issuance of stock warrants in connection with preferred stock -- -- $ 62 -- 62 Preferred Stock dividend -- -- -- (267) (267) Net loss for the year -- -- -- (2,042) (2,042) -------- -------- -------- -------- -------- Balance, August 28, 1999 5,125 29,750 62 (15,363) 14,449 Issuance of common stock to holders of Fresh Samantha stock at time of acquisition 3,612 27,475 -- -- 27,475 Conversion of Series A convertible preferred stock in connection with acquisition of Fresh Samantha 1,075 8,073 -- -- 8,073 Issuance of common stock to Series A preferred shareholder as inducement to convert stock 259 1,649 (62) -- 1,587 Issuance of common stock in private placement 961 6,000 -- -- 6,000 Exercise of common stock options 1 1 -- -- 1 Preferred Stock dividend -- -- -- (568) (568) Net income for the year -- -- -- 3,655 3,655 -------- -------- -------- -------- -------- Balance, September 2, 2000 11,033 72,948 -- (12,276) 60,672 Exercise of common stock options and warrant 47 242 -- -- 242 Net loss for the year -- -- -- (434) (434) -------- -------- -------- -------- -------- Balance, September 1, 2001 11,080 $ 73,190 $ -- $(12,710) $ 60,480 ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 43 ODWALLA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED ----------------------------------- 1999 2000 2001 ------- ------- ------- Cash flows from operating activities Net income (loss) $(2,042) $ 3,655 $ (434) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 2,130 3,072 5,482 Amortization 220 933 2,540 Deferred taxes (348) 937 (849) Preferred stock inducement expense -- 1,587 -- Gain on sale of assets (141) (44) (346) Changes in assets and liabilities Trade accounts receivable (581) (2,819) (1,006) Inventories (675) (1,599) (208) Prepaid expenses and other current assets (844) (454) (720) Other noncurrent assets 81 (270) 872 Accounts payable 1,537 (1,668) 183 Accrued payroll and related items 51 345 (216) Other accrued liabilities (837) (1,280) (57) Other noncurrent liabilities -- 644 1,540 Income taxes payable -- 24 (2) ------- ------- ------- Net cash provided by (used in) operating activities (1,449) 3,063 6,779 ------- ------- ------- Cash flows from investing activities Capital expenditures (2,291) (5,344) (7,153) (Purchase) proceeds from short-term investments, net (4,788) 2,770 1,760 Net cash costs of Fresh Samantha acquisition -- (1,239) -- Proceeds from sale of assets 673 146 192 ------- ------- ------- Net cash used in investing activities (6,406) (3,667) (5,201) ------- ------- ------- Cash flows from financing activities Principal payments under long-term debt (457) (294) (120) Net borrowings under line of credit 274 (369) 37 Payments of obligations under capital leases (123) (114) (1,005) Issuance of mandatorily redeemable and convertible preferred stock 7,300 -- -- Payment of debt acquired from Fresh Samantha -- (3,827) -- Sale of common stock 251 6,001 242 ------- ------- ------- Net cash provided by (used in) financing activities 7,245 1,397 (846) ------- ------- ------- Net increase (decrease) in cash and cash equivalents (610) 793 732 Cash and cash equivalents, beginning of period 3,191 2,581 3,374 ------- ------- ------- Cash and cash equivalents, end of period $ 2,581 $ 3,374 $ 4,106 ======= ======= =======
See accompanying notes to consolidated financial statements. 44 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company. Odwalla's business is to provide easy access to great tasting nourishment. We are the nation's leading branded super-premium beverage company, delivering nourishment coast to coast with the Odwalla and Samantha lines of more than 45 all natural juices, smoothies, dairy-free shakes, spring water and natural food bars. Basis of presentation and principles of consolidation. The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries Fresh Samantha, Inc. and Odwalla Canada, Inc. The accounts of Fresh Samantha are included since May 2, 2000, the date of acquisition. We have eliminated all significant intercompany balances and transactions. Beginning September 1, 1997, we changed our annual reporting periods to the 52 or 53 week period ending on the Saturday nearest August 31. The year ended September 1, 2001 contains 52 weeks. The change doesn't materially impact the comparability of information presented in these financial statements. All references to years refer to the Company's fiscal year. In these financial statements, our fiscal years ended August 28, 1999, September 2, 2000, and September 1, 2001. Use of estimates. To comply with generally accepted accounting principles, we make estimates and use assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. Our most significant estimates are related to the collectibility of accounts receivable, reserves for products to be returned, reserves for inventory that may not be useable and reserves for legal fees related to claims and litigation. We also use estimates to determine the carrying value of goodwill and purchased intangibles. Actual results may differ from our estimates. Cash, cash equivalents and short term investments. We consider all investments with an initial maturity of three months or less at the date of purchase to be cash equivalents. Both cash equivalents and short term investments are considered available-for-sale securities and are reported at amortized cost, which approximates fair value. The following schedule summarizes the estimated fair value of our cash, cash equivalents and short-term investments (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Cash and cash equivalents: Cash $2,277 $2,195 Cash equivalents 1,097 1,911 ------ ------ $3,374 $4,106 ====== ====== Short term investments U. S. government securities $ -- $ -- Corporate obligations 2,018 258 ------ ------ $2,018 $ 258 ====== ======
Interest earned on cash, cash equivalents and short-term investments was $268,000 and $211,000 in 2000 and 2001. Inventories. Inventories are valued at the lower of cost (first-in, first-out) or market (net realizable value). Our inventories consist of the following (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Raw materials $4,276 $4,078 Packaging supplies and other 944 1,106 Finished product 1,485 1,729 ------ ------ Total $6,705 $6,913 ====== ======
45 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plant, property, equipment and depreciation. Plant, property and equipment are stated at the lower of cost or, if impaired, the fair value at date of impairment. We calculate depreciation and amortization using the straight-line method over the estimated useful lives of the assets. For leasehold improvements, the amortization period is the shorter of the estimated useful life or the remaining lease term. Amortization of assets under capital leases is based upon the shorter of the lease term or useful life of the leased asset and is included with depreciation expense. Estimated useful lives that we use are generally as follows: Buildings and building improvements .............. 7 to 35 years Leasehold improvements............................ 3 to 15 years Machinery and equipment........................... 3 to 15 years Vehicles.......................................... 5 years Other............................................. 3 to 7 years
Property and equipment consisted of the following (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Land $ 618 $ 618 Buildings and building improvements 7,244 8,016 Leasehold improvements 2,314 2,238 Machinery and equipment 14,018 18,047 Vehicles 997 1,927 Data processing equipment 4,019 7,429 Other 1,619 977 -------- -------- 30,829 39,252 Less accumulated depreciation and amortization (10,818) (15,463) -------- -------- Plant, property and equipment, net $ 20,011 $ 23,789 ======== ========
Intangible assets and covenants not to compete. Working with third parties, we evaluate the fair value of intangible assets that we acquire. We record goodwill when the cost of net assets we acquire exceeds their fair value. Intangible assets and goodwill are amortized on a straight-line basis over their estimated life. We regularly perform reviews to determine if the carrying value of the assets is impaired. The reviews look for the existence of facts or circumstances, either internal or external, which indicate the carrying value of the asset cannot be recovered. No such impairment has been indicated to date. If there is impairment prior to the adoption of SFAS 142, we will measure the amount of the loss based on undiscounted expected future cash flows from the impaired assets. The cash flow calculations would be based on management's best estimates, using appropriate assumptions and projections at the time. We entered into covenants not to compete when we acquired certain businesses. The cost is amortized on a straight-line basis over the life of the agreements. 46 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill and covenants not to compete consisted of the following (in thousands):
SEPTEMBER 2, SEPTEMBER 1, ESTIMATED LIFE 2000 2001 (IN YEARS) ------------ ------------ -------------- Goodwill $ 10,642 $ 9,707 15 - 20 Trade name 21,980 21,980 20 Customer list 3,790 3,790 5 -------- -------- 36,412 35,477 Accumulated amortization (1,321) (3,737) -------- -------- Net $ 35,091 $ 31,740 ======== ======== Covenants not to compete $ 890 $ 890 10 Accumulated amortization (497) (586) -------- -------- Net $ 393 $ 304 ======== ========
Concentration of credit risk. Odwalla operates a multi-faceted business, both manufacturing and distribution. Many circumstances could have an unfavorable impact on our operating results. Examples include unfavorable weather impact on raw materials, changes in government regulations, changes in consumer demands or the emergence of significant competitors. A large portion of our business and our customers are currently concentrated in Northern California. We are also subject to risks related to our significant trade accounts receivable, although our customer base is generally diversified in each of our market areas due to the number of accounts that we service. We perform ongoing evaluations of customer credit to reduce the risk associated with accounts receivable. We maintain reserves for estimated credit losses, based on specific customers, historical trends and other information, and those losses have historically been within our expectations. One customer represented approximately 13% and, 11% of sales in 1999 and 2000. No customer represented more than 10% of net sales in 2001. Revenue recognition. We recognize sales when products are delivered to our customers. Most of our sales are through our own direct-store-delivery system. We usually guarantee that sales through our direct-store-delivery system will be sold to consumers and we record a reserve for products estimated to be returned. Most of our sales to independent distributors are not guaranteed. In 2000, we implemented the guidance in EITF 00-14, Accounting for Certain Sales Incentives, which does not represent a change from our existing accounting policies. Accordingly, any cash sales incentives are classified as a reduction of revenue. Earnings per share. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the shares issuable upon the exercise of stock options and warrants under the treasury stock method. 47 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the computation of basic and diluted earnings per share, in thousands except per share data:
YEAR ENDED ------------------------------------------- 1999 2000 2001 -------- -------- -------- Basic: Weighted average common shares outstanding 5,098 7,074 11,058 Net income (loss) $ (2,042) $ 3,655 $ (434) Net income (loss) attributable to common shareholders $ (2,309) $ 3,087 $ (434) Per share amount, attributable to common shareholders $ (0.45) $ 0.44 $ (0.04) Diluted: Weighted average common shares outstanding 5,098 7,074 11,058 Common equivalent shares -- 60 -- Shares used in per share amounts 5,098 7,134 11,058 Net income (loss) $ (2,042) $ 3,655 $ (434) Net income (loss) attributable to common shareholders $ (2,309) $ 3,087 $ (434) Per share amount, attributable to common shareholders $ (0.45) $ 0.43 $ (0.04)
We had no dilutive common equivalent shares during fiscal 1999 or 2001 due to the reported net loss. Holders of Series A Preferred Stock ("Series A Stock") were entitled to receive an 8% annual dividend which was payable in either cash or additional Series A Stock, at our election. The dividend was payable semi-annually. In 1999 and 2000, we adjusted net income by $267,000 and $568,000 to arrive at net income attributable to common shareholders. In connection with the purchase of Fresh Samantha in May 2000, the Series A Stock was converted into common stock as of the effective date of the Fresh Samantha acquisition. Recent Accounting Pronouncements. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141). This statement requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. Use of the pooling-of-interests method is no longer permitted. Although none are currently anticipated, this will apply to any future acquisitions we make. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). This statement continues to require recognition of goodwill as an asset, but amortization of goodwill as currently required by APB Opinion No. 17, "Intangible Assets", is no longer permitted. In lieu of amortization, goodwill must be tested for impairment using a fair-value-based approach. We are currently assessing the impact that this new pronouncement will have on the recorded amounts of goodwill and other intangibles. Amortization of goodwill and other intangibles totaled $108,000, $625,000 and $1,658,000 for the fiscal years ended in 1999, 2000 and 2001. SFAS 142 is required to be implemented for fiscal years beginning after December 15, 2001. We expect to implement SFAS 142 in the first quarter of fiscal 2003. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Impairment on Disposal of Long-Lived Assets" (SFAS 144). Under the new rules, the criteria required for classifying an asset as held-for-sale have been significantly changed. Assets held-for-sale are stated at the lower of their fair values or carrying amounts, and depreciation is no longer recognized. In addition, more dispositions will qualify for discontinued operations treatment in the statement of operations. SFAS 144 is required to be implemented for fiscal years beginning after December 15, 2001. We are evaluating the impact, if any, of SFAS 144 on our financial statements and have not yet determined if we will adopt the provisions prior to the required date. 48 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. ACQUISITION AND RELATED MATTERS On May 2, 2000, we completed our acquisition of Fresh Samantha. We accounted for the acquisition of Fresh Samantha as a purchase for accounting purposes and, accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the acquisition date. The Statement of Operations includes the results of Fresh Samantha as a wholly owned subsidiary since the acquisition. The total purchase price of approximately $29.0 million consisted of the issuance of 3,612,122 shares of Odwalla common stock with an estimated fair value of $27.5 million plus transaction costs of approximately $1.5 million, consisting principally of professional fees. The purchase price of $29.0 million plus $1.7 million in net assumed liabilities and $3.8 million in acquired deferred tax assets, net of a $10.2 million deferred tax liability and the release of a deferred tax valuation allowance of $2.3 million recorded in accordance with Statement of Financial Accounting Standards No. 109, resulted in total intangible assets related to the Fresh Samantha acquisition of $34.8 million at the time of the acquisition. After evaluating the nature of the intangible assets acquired, the acquisition cost was allocated as shown below (amounts in thousands). During fiscal 2001, after further evaluation of the deferred tax asset following completion of the Fresh Samantha corporate tax return, a reclassification of $935,000 between acquired deferred tax asset and goodwill was recorded.
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Trade name $21,980 $21,980 Customer list 3,790 3,790 Goodwill 9,022 8,087 ------- ------- $34,792 $33,857 ======= =======
The fair value of the common stock issued was determined using the average closing market price of Odwalla's common stock for several days before and after the merger announcement. The following unaudited pro forma financial information shows pro forma net revenue, net loss and net loss per share as if the acquisition had occurred at the beginning of each of the periods presented. The pro forma information includes the amortization of goodwill. The pro forma information is not necessarily indicative of operating results that might have been if the acquisition had taken place as of the beginning of each of the periods presented and may not be indicative of future operating results. The pro forma information for the years ended in 1999 and 2000 is unaudited and is stated in thousands, except per share data.
1999 2000 --------- --------- Revenue $ 100,200 $ 121,472 Net loss (10,550) (462) Loss per share, basic and diluted $ (0.96) $ (0.04) Weighted average shares, basic and diluted 11,004 11,033
We also issued shares of our common stock to three funds managed by Wasserstein Perella Group, Inc. and to Catterton-Simon Partners III, L.P. pursuant to a Stock Purchase Agreement dated as of February 11, 2000, and amended as of April 25, 2000, among Odwalla, U.S. Equity Partners, L.P. (representing the Wasserstein Perella 49 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS funds), and Catterton-Simon Partners. We issued 800,641 shares of our common stock to the Wasserstein Perella funds on May 2, 2000 for an aggregate purchase price of $5.0 million. We also agreed, pursuant to the Stock Purchase Agreement, to issue an additional 160,128 shares of our common stock to Catterton-Simon Partners for an aggregate purchase price of $1.0 million, which was completed in late May 2000. In addition, under a Preferred Stock Conversion Agreement, dated as of February 11, 2000, between Odwalla and Catterton-Simon Partners, we issued 1,333,333 shares of our common stock to Catterton-Simon Partners in exchange for 1,074,666 shares of Odwalla's Series A Preferred Stock, representing all of the outstanding shares of such stock, held by Catterton-Simon Partners and cancellation of a warrant to purchase 75,000 shares of Odwalla's common stock held by Catterton-Simon Partners. The issuance of common stock to Catterton-Simon Partners as an inducement for early conversion was approved by Odwalla's shareholders on April 25, 2000. We recorded an expense of $1.6 million to reflect the value of the 258,667 additional shares issued to induce Catterton-Simon to convert the Series A Stock that they held and to cancel the outstanding warrant that they held. The inducement shares were valued using the closing market price for our common stock at the date the shareholders approved the issuance. 3. DEBT LINE OF CREDIT In September 1999, we entered into a Revolving Credit Agreement ("Credit Agreement") with a lender and paid the balance then outstanding under, and terminated, our then existing credit arrangement. The Credit Agreement provided a revolving credit facility up to $5.0 million. The first $2.0 million of borrowings did not require separate borrowing base reporting. Borrowings over $2.0 million and up to $5.0 million are limited to 80% of eligible accounts receivable. The Credit Agreement defined eligible accounts receivable which generally represents all trade accounts receivable less delinquent balances. Interest was payable monthly at either the prime interest rate plus 1% or the Eurodollar rate plus 3.5%. The interest rate to be incurred was selected by Odwalla at the inception of each loan and could be changed during the period in which the borrowed amount was outstanding in accordance with provisions included in the Credit Agreement. The initial term of the Credit Agreement was for three years. In late April, 2000, the credit facility was increased from $5.0 million to $10.0 million in connection with the close of the Fresh Samantha acquisition. The terms of the amended credit facility, which had a three year term, were substantially the same as the original credit facility. As before, all of our consolidated assets were pledged as collateral under the credit agreement. We were also required to meet certain covenants, including maintenance of certain financial, leverage, and debt service coverage ratios, and certain tangible net worth. The credit agreement also contained certain business restrictions, including restrictions on the ability to borrow additional funds, limitations on capital expenditures in excess of certain amounts, restrictions on the payment of cash dividends, sale or purchase of Company stock, ability to encumber or sell Company assets, and limitations on other business transactions without prior approval from the lender. On July 12, 2001, we entered into a Business Loan Agreement with a new lender providing up to $10.0 million of borrowing capability, including the ability to issue letters of credit up to a certain maximum amount. This facility replaced our prior Credit Agreement. The first $2.0 million of borrowings do not require separate borrowing base reporting. Borrowings are limited to 75% of eligible accounts receivable, which generally represent all trade accounts receivable less delinquent balances and other balances as defined in the Business Loan Agreement. We are also required to meet certain covenants, including maintenance of certain financial ratios, a fixed charge coverage ratio and certain tangible net worth. The Business Loan Agreement also contains certain business restrictions, including restrictions on the ability to borrow additional funds, limitations on capital expenditures in excess of certain amounts, restrictions on the payment of cash dividends, sale or purchase of Company stock, ability to encumber or sell Company assets, and limitations on other business transactions without prior approval from the lender. The restrictions include the transaction described in Note 13 to the financial statements. Interest is payable monthly at the prime interest rate plus 0.0% to 0.5% 50 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS depending on certain financial ratios. The initial rate is prime plus 0.25%. We may also select either a IBOR or LIBOR rate plus 2.75% to 3.5% depending on certain financial ratios. The Business Loan Agreement has a two-year term ending in July 2003. Accounts receivable, inventories and trademarks and other intangible assets provide collateral under the Business Loan Agreement. We wrote off $151,000 in unamortized loan fee costs associated with the former Credit Agreement in the fourth quarter of fiscal 2001. At September 1, 2001, the interest rate applicable to loans under the Business Loan Agreement was 6.75%. In September 2001, we issued a $600,000 letter of credit under the Business Loan Agreement. As of September 1, 2001, we were not in compliance with one covenant of our Business Loan Agreement as we had exceeded the capital asset acquisition limitation. We requested our lender to waive the specific September 1, 2001 covenant violation and, in November 2001, the lender granted the requested waiver. LONG-TERM DEBT As part of our plea agreement with the U.S. government discussed in Note 4, we agreed to pay $1.5 million over a five-year period, without interest. Generally accepted accounting principles require that we impute interest, which means that we record the obligation on a discounted basis and charge the income statement with interest expense (in this situation, at 9.5% per year) over the five-year period. The discounted amount recorded in July 1998 was $1,242,000. The U.S. government may file a lien on all of our assets under the plea agreement but, if they do, has agreed to allow the lender under the Business Loan Agreement to retain priority interest in our assets. The carrying value of debt approximates its fair value except that we carry the value of the U.S. government debt at cost less imputed interest, as discussed above, as there is no reasonable way to evaluate this non-interest bearing obligation. The following summarizes long-term debt (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ U.S. government obligation $ 581 $ 484 Other 28 5 ----- ----- 609 489 Less current portion (219) (213) ----- ----- $ 390 $ 276 ===== =====
4. COMMITMENTS AND CONTINGENCIES OPERATING AND CAPITAL LEASES Odwalla leases office space, branch distribution facilities, equipment and vehicles under various operating leases. These leases expire at various dates through 2011 and many facility leases contain renewal options. Most property leases require us to pay utilities, property taxes and common maintenance costs. Total operating lease rent expense was $5.6 million, $6.2 million, and $7.5 million for the years ended in 1999, 2000, and 2001. Odwalla also leases some furniture, equipment and vehicles under capital leases expiring through 2006. 51 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table lists property under capital leases by major classes (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Machinery and equipment $ 488 $ 894 Vehicles 232 1,094 Computer and data processing 472 1,568 Other 18 20 ------- ------- 1,210 3,576 Less accumulated amortization (124) (1,002) ------- ------- Net leased equipment under capital leases $ 1,086 $ 2,574 ======= =======
Future net minimum lease payments under existing capital and operating leases as of September 1, 2001, are as follows (in thousands):
CAPITAL OPERATING YEAR ENDING IN AUGUST LEASES LEASES - --------------------- ------- --------- 2002 $ 1,627 $ 6,484 2003 982 5,891 2004 198 4,733 2005 78 3,450 2006 8 2,388 Thereafter -- 5,728 -------- -------- 2,893 $ 28,674 ======== Less amount representing interest (319) -------- Present value of net minimum lease payments 2,574 Less current maturities (1,419) -------- Long-term portion $ 1,155 ========
We occasionally sublease all or portions of our leased facilities to third parties under sublease agreements. We earned $26,000, $9,000 and $106,000 under sublease agreements in 1999, 2000 and 2001. RAW MATERIAL CONTRACTS We had purchase commitments for the future delivery of raw materials as of September 1, 2001, approximately $5.7 million of which are under contracts and are expected to be completed by December 2002. RECALL AND RELATED COSTS On October 30, 1996, Odwalla was notified by the State of Washington Environmental Health Services of an epidemiological link between several cases of E. coli O157:H7 and Odwalla's apple juice products. We immediately implemented a recall of all Odwalla products containing apple juice. Thirty-five personal injury claims and legal proceedings have been filed against Odwalla seeking monetary damages and other relief relating to the recall. There was also one legal proceeding alleging fraudulent business acts and practices relating to the recall products. Thirty-four of these claims and proceedings have been settled. In addition, approximately 400 other claims for damages or inquiries resulting from the recall were presented to our insurance carrier and approximately 398 of those claims have been either settled or resolved. We also received two claims in fiscal 1999 and one claim in fiscal 2001 allegedly arising out of product consumption prior to the recall, which have all been settled. Settlement of the personal injury legal proceedings and claims was covered under our insurance policy. At this time, we are unable to determine the potential liability from 52 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the remaining legal proceedings and claims. We believe our insurance coverage is adequate to cover such claims and legal proceedings, but the ultimate outcome of any litigation is uncertain and we cannot be certain that insurance coverage will be adequate. Litigation can also have an adverse impact on a company, regardless of the outcome, due to defense costs, diversion of management resources and other factors. In early 1997, Odwalla was informed that it was the subject of a federal grand jury investigation (Eastern District of California) concerning the E. coli O157:H7 incident and related issues. In July 1998, in connection with the investigation, we entered into a misdemeanor plea agreement with the U.S. government. As part of the plea agreement, Odwalla agreed to pay, over a period of five years, $1.25 million to the U.S. government and $250,000 to three non-profit organizations involved with advancing the cause of food safety. We also agreed, as part of the conditions attached to a five-year term of unsupervised Court probation, to develop and implement a HACCP plan and to undertake other measures related to food safety. Odwalla also incurred significant direct costs as a result of the recall. Under our arrangement with our insurance company, we pay a portion of the legal fees related to third party claims resulting from the recall and related claims. We originally established a $2.2 million charge to establish a liability for future professional fees related to the recall. The reserve for professional fees is an estimate, and there can be no assurance that the actual reserved liability established will be adequate. In fiscal 1999, we reviewed available information, including recently filed claims, and added $250,000 to this reserve. We reviewed this charge in subsequent years and believe that the remaining balance of the reserve established is reasonable. We will continue to assess this liability and will make appropriate adjustments if circumstances change. Approximately $520,000 of this reserve for professional fees remained at September 1, 2001. Odwalla maintains insurance coverage for product recall, product adulteration, lost income and other first party business risks. The claim we submitted to our insurance carriers for product recall costs and for business losses incurred due to the recall was denied for substantially all of the amounts claimed. On May 21, 1999, we filed a lawsuit in United States District Court for the Eastern District of California in Fresno, California, against New Hampshire Insurance Company to seek recovery on our business interruption insurance claim. On April 12, 2000, we entered into a Mutual Release and Settlement Agreement with the insurance company regarding the business interruption insurance claim. Under the Mutual Release and Settlement Agreement, the insurance company agreed to pay us $6.5 million and, in connection with the settlement, we dismissed our lawsuit against the insurance company. The proceeds from the insurance settlement were recorded net of legal fees of $1.0 million. RESTRUCTURING AND OTHER CHARGES Restructuring and other charges in 2001 consist of the following items (in thousands): Separation agreement and severance agreements $ 1,230 Exit from Saco, Maine production facilities 2,260 ------- $ 3,490 =======
Separation agreement and severance agreements. On December 14, 2000, we announced that Doug Levin, Founder and CEO of Fresh Samantha, was leaving the Company after helping to complete the successful merger of Odwalla and Fresh Samantha. In December 2000 and January 2001, management changes were implemented in our East Coast operations. As a result of these actions, we recorded a $1,230,000 charge to operations. 53 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Exit from Saco, Maine production facilities. On January 11, 2001, we announced the closure of the Fresh Samantha production facilities in Saco, Maine. The main components of the cost of this closure are as follows: - The closure included the termination of approximately 60 employees, primarily from the manufacturing operation, and estimated severance payments and related payments of $752,000. All employees were notified of their pending termination in January 2001. - The exit from the Saco facility resulted in excess leased facilities, excess transportation equipment, and certain other assets that have no recoverable value due to the closure. These items total $1,508,000. As of September 1, 2001, the liability for the above charges, net of payments applicable to the year ended September 1, 2001, are included in the following accounts (in thousands): Other accruals $ 897 Other long-term liabilities 1,174
5. MANDATORILY REDEEMABLE AND CONVERTIBLE PREFERRED STOCK Series A Preferred Stock. On January 7, 1999, we signed an agreement with Catterton-Simon Partners III, L.P. to sell 1,000,000 shares of Odwalla Series A Preferred Stock at $8.00 per share. The Series A Stock received an 8% annual dividend which was payable in either cash or additional Series A Stock, at our election. The dividend was payable semi-annually. All Series A Stock was convertible on a one-for-one basis into Odwalla common stock (a) upon a request by Catterton-Simon at any time after July 6, 1999, and (b) automatically upon the earlier of (i) an acquisition of Odwalla by another company, either for cash or publicly traded stock, at a price in excess of $12.00 per share, (ii) the average trading price of Odwalla common stock exceeding $12.00 per share for 20 consecutive trading days, or (iii) January 7, 2002. Holders of Series A Stock were entitled to preferential payment, in the event of any liquidation of Odwalla, in an amount equal to the greater of $8.00 per share, plus any accrued but unpaid dividends, or the amount due each holder of common stock. Catterton-Simon also received a warrant to purchase 75,000 shares of Odwalla common stock at $10.00 per share. The warrant expired in seven years. We also paid fees and issued a warrant to our financial advisor in connection with this transaction. The warrant is for 24,806 shares of common stock at an exercise price approximating $6.45 per share and expires in five years. As previously discussed, under a Preferred Stock Conversion Agreement, dated as of February 11, 2000, between Odwalla and Catterton-Simon, we issued 1,333,333 shares of our common stock to Catterton-Simon on May 2, 2000, in exchange for 1,074,666 shares of Odwalla's Series A Preferred Stock, representing all of the outstanding shares of such stock, held by Catterton-Simon and cancellation of the warrant to purchase 75,000 shares of Odwalla's common stock held by Catterton-Simon. The issuance of common stock to Catterton-Simon as an inducement for early conversion was approved by Odwalla's shareholders on April 25, 2000. We recorded an expense of $1.6 million to reflect the value of the 258,667 additional shares issued to induce Catterton-Simon to convert the Series A Stock that they held and to cancel the outstanding warrant that they held. The inducement shares were valued using the closing market price for our common stock at the date the shareholders approved the issuance. Preferred stock dividends recorded represent dividends declared by our Board of Directors, prior to the conversion, for the Series A shareholder. All dividends were paid in common stock. 54 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. SHAREHOLDERS' EQUITY Warrants. We issued two warrants in connection with the Series A Preferred Stock financing described in Note 5. One warrant, issued for 75,000 shares of common stock at $10.00 per share expiring in February 2006, was cancelled in connection with the conversion of the Series A Preferred Stock at the time of the Fresh Samantha acquisition in May 2000. The other warrant, issued for 24,806 shares of common stock at $6.45 per share, expires in February 2004. In 1997, we also issued a warrant for 7,000 shares of common stock at $12.00 per share, which expires in May 2002, in connection with a loan agreement that has since expired. Stock Option Plans. Under the 1993 Stock Option Plan, incentive stock options could be granted to employees and nonstatutory stock options could be granted to employees, directors or consultants. In December 1994, the Board of Directors adopted the 1994 Non-Employee Directors' Stock Option Plan ("Directors' Plan") and, in January 1995, the shareholders approved this plan. Incentive options may be granted at an exercise price not less than 100% of fair market value on the grant date; nonstatutory options may be granted at an exercise price not less than 85% of fair market value on the grant date. The options generally vest one-sixtieth per month from the grant date, although approximately 85,000 outstanding nonstatutory options vested immediately on the grant date. Directors' Plan options may be granted at an exercise price not less than 100% of fair market value and generally vest quarterly over a five-year period. In general, options terminate ten years from date of grant. In April 1997, Odwalla's shareholders approved the 1997 Stock Incentive Plan ("1997 Plan") which replaced both the Stock Option Plan and the Directors' Plan. The 1997 Plan consists of three programs: (i) a Discretionary Option Grant Program ("Discretionary Program"), (ii) a Stock Issuance Program ("Stock Program"), and (iii) an Automatic Option Grant Program ("Automatic Program"). A total of 1,648,475 shares of common stock are reserved for issuance under the 1997 Plan, which includes all outstanding options under the Stock Option Plan and Directors' Plan. In April 2000, Odwalla's shareholders approved an additional 500,000 shares of common stock to be added to the 1997 Plan. The Discretionary Program allows us to issue both incentive and non-qualified stock options, at an exercise price not less than 100% of fair market value on the grant date, which expire ten years or less from the grant date; vesting is generally in a series of installments measured from the grant date. The Stock Program allows us to issue common stock directly for cash, promissory note or for past services with no cash payment; vesting may be immediate or in one or more installments. The Automatic Program awards 5,000 shares of common stock to each non-employee Board member upon initial election or appointment and 3,000 shares of common stock at each annual shareholders meeting. Awards under the Automatic Program are made at an exercise price equal to the closing fair market value of the Company's common stock on the award date, will have a maximum term of ten years from the grant date and vest in annual installments over a four year period at the 5,000 share award level and after one year for the 3,000 share award level. Under all programs of the 1997 Plan, accelerated vesting provisions apply in certain situations. 55 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The activity under the above plans was as follows:
SHARES AVAILABLE OPTIONS OPTION PRICE WEIGHTED AVERAGE FOR GRANT OUTSTANDING PER SHARE PRICE PER SHARE ---------------- ----------- -------------- ---------------- Balance at August 30, 1998 320,082 1,240,649 $3.33-$13.75 $ 9.18 Options granted (448,750) 448,750 $5.44-$10.06 $ 6.74 Options exercised -- (66,070) $3.33-$3.90 $ 3.89 Options canceled 195,476 (195,476) $3.33-$13.75 $10.42 --------- --------- Balance at August 28, 1999 66,808 1,427,853 $3.33-$13.75 $ 8.56 Additional shares reserved 500,000 -- Options granted (416,111) 416,111 $4.875-$7.125 $ 6.59 Options exercised -- (1,085) $6.375-$7.125 $ 6.66 Options canceled 258,950 (258,950) $3.33-$13.75 $ 9.11 --------- --------- Balance at September 2, 2000 409,647 1,583,929 $3.33-$13.75 $ 7.95 Options granted (410,500) 410,500 $8.438-$10.00 $ 9.29 Options exercised -- (42,370) $3.90-$8.438 $ 5.48 Options canceled 243,980 (243,980) $3.33-$13.75 $ 7.56 --------- --------- Balance at September 1, 2001 243,127 1,708,079 $3.33-$13.75 $ 8.39 ========= =========
We follow Accounting Principles Board Opinion 25 ("APB 25"), "Accounting for Stock Issued to Employees," in accounting for stock-based compensation. Accordingly, we are not required to record compensation expense when stock options are granted to employees, as long as the exercise price is not less than the fair market value of the stock when the option is granted. All options that we have granted were at exercise prices at or above fair market value of the common stock. In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation." Although SFAS 123 allows us to continue to follow the present APB 25 guidelines, we are required to disclose pro forma net income (loss) and net income (loss) per share as if we had adopted the new statement. The pro forma impact of applying SFAS 123 in fiscal 1999, 2000 and 2001 is not likely to be representative of the pro forma impact in future years. We have elected to use the Black-Scholes model to estimate the fair value of options granted. This valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model requires the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect this estimate, we believe the Black-Scholes model does not necessarily provide a reliable single measure of fair value of our employee stock options. Inputs used for the valuation model are as follows for 1999, 2000, and 2001: dividend yield of 0% for all years; expected volatility of 4.5%, 4.8%, and 5.0%; risk-free interest rates of 5.4%, 6.0%, and 5.2%; and expected lives approximating 5 years in 1999 and 2000 and 4 years in 2001. Had the fair value of the options been calculated in accordance with FAS 123, net income (loss) applicable to common shareholders would have been $(2,634,000), $2,736,000, and $(663,000) and basic net income (loss) per share applicable to common shareholders would have been $(0.52), $0.39, and $(0.06) for fiscal 1999, 2000, and 2001. 56 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS There were 790,940, 976,081, and 1,199,118 options exercisable at the end of fiscal 1999, 2000, and 2001. The weighted average exercise price of options exercisable at the end of 1999, 2000, and 2001 was $8.70, $8.42, and $8.348 per share. At September 1, 2001, a total of approximately 2,148,475 shares of common stock have been reserved for issuance under the Company's stock option plans. The following table summarizes information about options outstanding at September 1, 2001:
Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Price Outstanding Life (years) Price Exercisable Price --------------- ----------- ------------ --------- ----------- --------- $ 3.33 - $ 7.00 589,781 6.20 $ 6.30 444,721 $ 6.17 $7.125 - $9.938 742,785 7.88 $ 8.75 406,640 $ 8.46 $10.00 - $13.75 375,513 3.95 $ 10.97 347,757 $ 11.01 --------- --------- 1,708,079 6.44 $ 8.39 1,199,118 $ 8.35 ========= =========
7. EMPLOYEE BENEFIT PLAN Odwalla matches 10% of each employee's contribution to our 401(k) Employee Benefit Plan ("Plan"). Odwalla contributions to the Plan approximated $52,000, $55,000, and $84,000 in 1999, 2000, and 2001. 8. TAXES ON INCOME Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We provide a valuation allowance against certain deferred tax assets due to the uncertainty of whether we will ultimately realize their benefit. Deferred tax assets consist principally of the following (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Reserves and accruals $ 1,938 $ 2,474 Net operating loss carryforward 4,744 4,794 Tax credits 152 197 Property, plant and equipment 386 279 Inventories 75 73 Other 170 165 ------- ------- 7,465 7,982 Less valuation allowance (336) (394) ------- ------- Net deferred tax asset $ 7,129 $ 7,588 ======= =======
Deferred tax liability consist principally of the following (in thousands):
SEPTEMBER 2, SEPTEMBER 1, 2000 2001 ------------ ------------ Basis difference from acquisition $10,173 $ 9,426 Property, plant and equipment 123 480 ------- ------- Net deferred tax liability $10,296 $ 9,906 ======= =======
57 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The basis difference from acquisition results from the Fresh Samantha acquisition in fiscal 2000. The acquisition was structured as a tax-free reorganization for income tax purposes. This results in intangible and other assets with a basis for accounting purposes, as the acquisition was accounted for using the purchase method, that do not exist for tax reporting purposes. Because the financial accounting basis will result in future accounting amortization in excess of tax amortization, a deferred tax liability was established to account for that difference. The Company's effective tax rate differs from the federal statutory rate as follows:
YEAR ENDED ------------------------------ 1999 2000 2001 ---- ---- ---- Federal statutory tax rate (34)% 35% (35)% State income taxes (5) 5 10 Deferred tax asset valuation allowance 25 (30) -- Permanent differences and other (1) 14 109 ---- ---- ---- (15)% 24% 84% ==== ==== ====
The permanent difference in fiscal 2000 results primarily from the Series A preferred stock inducement expense. The permanent difference in fiscal 2001 consists of goodwill with a basis for accounting purposes, as the acquisition was accounted for using the purchase method, that do not exist for tax reporting purposes and, to a lesser extent, certain non-deductible items. Taxes on income consisted of the following (in thousands):
YEAR ENDED ------------------------------------- 1999 2000 2001 ------- ------- ------- Current: Federal $ -- $ 134 $ 73 State -- 28 14 ------- ------- ------- -- 162 87 ------- ------- ------- Deferred: Federal (860) 2,227 334 State (131) 164 (223) ------- ------- ------- (991) 2,391 111 ------- ------- ------- Change in valuation allowance (see below) 632 (1,413) -- ------- ------- ------- $ (359) $ 1,140 $ 198 ======= ======= =======
The valuation allowance in fiscal 2000 was reduced from $4.0 million at the beginning the year to $336,000 at the end of the year. The reduction consists of two components. The first component, shown above, represents the change that impacts taxes on income for fiscal 2000. The second component represents the portion of the valuation allowance, $2.3 million, which was reduced as part of the recording of the Fresh Samantha acquisition. At September 1, 2001, we had federal and state net operating loss carryforwards of $12.1 million and $10.8 million, respectively, which expire between 2002 and 2020. 58 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. RELATED PARTY TRANSACTIONS We retained a board member for consulting services and incurred fees of $9,000 in 1999. The board member resigned in May 2000. 10. OTHER (EXPENSE) INCOME, NET Other (expense) income, net consisted of the following (in thousands):
YEAR ENDED ------------------------------- 1999 2000 2001 ----- ----- ----- Interest income $ 278 $ 268 $ 211 Interest expense (437) (486) (563) Other 119 106 141 ----- ----- ----- $ (40) $(112) $(211) ===== ===== =====
Included in other income for 1999 is a gain of $145,000 on the sale of land adjacent to our administrative offices in Half Moon Bay, California. Included in other income for 2001 is a gain of $347,000 associated with the sale of assets, primarily second generation hand held computer equipment. 11. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND PRODUCT RETURNS The following summarizes activity in the allowance for doubtful accounts and product returns for the years shown (in thousands):
YEAR ENDED ------------------------------------- 1999 2000 2001 ------- ------- ------- Allowance for doubtful accounts and product returns, beginning of year $ 588 $ 631 $ 1,436 Allowance purchased with Fresh Samantha acquisition -- 295 -- Bad debt expense and change in allowance for product returns for the year 360 1,061 945 Accounts receivable written off during the year (317) (551) (551) ------- ------- ------- Allowance for doubtful accounts and product returns, end of year $ 631 $ 1,436 $ 1,830 ======= ======= =======
12. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOW Noncash investing and financing activities: The acquisition of Fresh Samantha in fiscal 2000 resulted from a non-cash transaction as discussed in Note 2 to the financial statements. In 2000, we entered into capital lease obligations and acquired assets valued at $634,000 in addition to the assets valued at $535,000 that we acquired through the Fresh Samantha acquisition. In 2001, we entered into capital lease obligations and acquired assets valued at $2.5 million. Cash paid for interest in 1999, 2000, and 2001 was $437,000, $380,000, and $443,000. Income taxes paid in 1999, 2000, and 2001 were $2,000, $145,000, and $109,000. 59 ODWALLA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. SUBSEQUENT EVENT On October 29, 2001, Odwalla entered into an Agreement and Plan of Merger with The Coca-Cola Company ("TCCC") and its wholly owned subsidiary, TCCC Acquisition Corp. The Merger Agreement provides for the acquisition of Odwalla by TCCC at a cash price of $15.25 per share of our common stock. On November 6, 2001, TCCC commenced a tender offer to purchase all of our outstanding shares. The offer is conditioned upon, among other things, there being validly tendered and not withdrawn a number of shares which equals at least 90.1% of the outstanding shares of Odwalla on a fully diluted basis, as defined. The offer is also subject to the receipt of customary regulatory approvals and the satisfaction or waiver of other closing conditions. The offer is scheduled to expire on December 6, 2001, unless extended. Upon successful completion of the tender offer and closing of the merger, Odwalla would be a wholly owned subsidiary of TCCC. 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands, except per share data)
Net income (loss) Basic and diluted attributable net income (loss) Net Gross Net income to common attributable to common Sales Profit (loss) shareholders shareholders per share -------- -------- -------- ------------- ------------------------ Fully Basic Diluted --------- --------- - 1999 1st Quarter $ 15,332 $ 7,696 $ (479) $ (479) $ (0.09) $ (0.09) 2nd Quarter 16,342 7,333 (817) (817) (0.16) (0.16) 3rd Quarter 19,124 9,048 (279) (279) (0.05) (0.05) 4th Quarter 17,244 8,419 (467) (734) (0.14) (0.14) -------- -------- -------- -------- $ 68,042 $ 32,500 $ (2,042) $ (2,309) $ (0.45) $ (0.45) ======== ======== ======== ======== ======== ======== 2000 1st Quarter $ 16,769 $ 7,813 $ (725) $ (938) $ (0.18) $ (0.18) 2nd Quarter 18,090 8,505 (266) (479) (0.09) (0.09) 3rd Quarter 25,682 12,994 4,112 3,970 0.59 0.58 4th Quarter 32,909 16,661 534 534 0.05 0.05 -------- -------- -------- -------- $ 93,450 $ 45,973 $ 3,655 $ 3,087 $ 0.44 $ 0.43 ======== ======== ======== ======== ======== ======== 2001 1st Quarter $ 31,442 $ 16,585 $ 518 $ 518 $ 0.05 $ 0.05 2nd Quarter 31,693 16,732 (1,552) (1,552) (0.14) (0.14) 3rd Quarter 34,540 17,809 865 865 0.08 0.08 4th Quarter 30,585 15,411 (265) (265) (0.02) (0.02) -------- -------- -------- -------- $128,260 $ 66,537 $ (434) $ (434) $ (0.04) $ (0.04) ======== ======== ======== ======== ======== ========
60 EX-4.1 3 f77494ex4-1.txt WARRANT TO PURCHASE COMMON STOCK, FEB. 10, 1999 EXHIBIT 4.1 THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE IN RELIANCE UPON EXEMPTIONS PROVIDED UNDER THE SECURITIES ACT. ACCORDINGLY, THIS WARRANT MAY NOT BE SOLD, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, THIS WARRANT MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED EXCEPT AS PROVIDED HEREIN. THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO REPURCHASE BY THE COMPANY ON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH HEREIN. ODWALLA, INC. WARRANT TO PURCHASE COMMON STOCK Dated February 10, 1999 ODWALLA, INC. (the "Company") certifies that, for valuable consideration, receipt of which is hereby acknowledged, the Holder is entitled to purchase from the Company a number of shares of the Company's Common Stock set forth in Section 1(f) hereof at the purchase price set forth in Section 1(e) hereof. This Warrant and the Common Stock issuable upon exercise hereof are subject to the terms and conditions hereinafter set forth: 1. Definitions. As used in this Warrant, the following terms shall have the following meanings: (a) "Common Stock": Common Stock of the Company. (b) "Effective Date": February 10, 1999. (c) "Expiration Date": Five (5) years from the Effective Date. (d) "Holder": Hambrecht & Quist LLC or any transferee thereof. (e) "Purchase Price": $6.45 per share, subject to adjustments pursuant to Section 3 hereof. (f) "Shares": up to 24,806 Shares, subject to adjustments pursuant to Section 3 hereof. (g) "Subscription Form": the form attached to this Warrant as Exhibit "A". (h) "Warrant": this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. 2. Exercise. (a) Time of Exercise. This Warrant may be exercised in whole or in part at the office of the Company, at any time, commencing on the Effective Date; provided, however, that this Warrant shall expire and be null and void if not exercised in the manner herein provided by 5:00 p.m., Pacific Standard Time, on the Expiration Date. (b) Manner of Exercise. This Warrant is exercisable at the Purchase Price, payable in cash or by certified check, payable to the order of the Company, subject to adjustment as provided in Section 3 hereof. Upon surrender of this Warrant with the annexed Subscription Form duly executed, together with payment of the Purchase Price for the Shares purchased (and any applicable transfer taxes) at the Company's principal executive offices, the Holder shall be entitled to receive a certificate or certificates for the Shares so purchased. (c) Conversion Right. (i) In lieu of payment of the Purchase Price, the Holder shall have the right (but not the obligation), to require the Company to convert this Warrant, in whole or in part, into Shares as provided for in this subsection (c) (the "Conversion Right"). Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any of the Purchase Price) that number of Shares equal to the quotient obtained by dividing (A) the value of the Warrant at the time of exercise of the Conversion Right (determined by subtracting (x) the aggregate Purchase Price for the Shares from (y) the aggregate Current Market Price (as defined below) in effect on the date of exercise of the Conversion Right) by (B) the Current Market Price of one share of Common Stock in effect on the date of exercise of the Conversion Right. (ii) The Conversion Right may be exercised by the Holder on any business day prior to the Expiration Date by delivering this Warrant with the annexed Subscription Form duly executed, with the conversion section completed, to the Company, exercising the Conversion Right and specifying the total number of Shares the Holder will purchase pursuant to such conversion. (iii) The "Current Market Price" of Common Stock shall be determined as follows: (A) if there then exists an active public trading market for the Company's Common Stock, the Current Market Price shall be the average of the daily market prices of the Common Stock over a period of 20 consecutive trading days prior to the day on which Current Market Price is being determined. The market price for each such trading day shall be the average of the closing prices on such day of the Common Stock on all domestic exchanges on which the Common Stock is then listed, or, if there shall have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of the such day, or, 2 if the Common Stock shall not be so listed, the average of the representative bid and asked prices at the end of such trading day as reported by NASDAQ. (B) if there then does not exist an active public trading market or the Common Stock shall not be listed on any domestic exchange or quoted on NASDAQ, the Current Market Price shall be the Fair Market Value (as defined below) of the Common Stock based upon the Fair Market Value of 100% of the Company if the Company were sold as a going concern and without regard to any discount for lack of liquidity or as to whether the Company is then a public or a private company, or on the basis that the relevant shares of Common Stock do not constitute a majority or controlling interest in the Company and assuming the exercise or conversion of all or warrants, options, convertible securities or other rights to subscribe for or purchase any shares of Common Stock or convertible securities, all as determined by an independent financial expert (the "Expert"), which such Expert shall be mutually agreed upon by the parties. If the parties are unable to agree on an Expert, then each party shall nominate a nationally recognized independent investment firm, which such nominees shall mutually appoint an Expert in their sole discretion. "Fair Market Value" shall mean the value obtainable upon a sale in an arm's length transaction to an unaffiliated third party under usual and normal circumstances, with neither the buyer nor the seller under any compulsion to act, with equity to both. The determination of the Fair Market Value by the Expert shall be final, binding, and conclusive on the Company and the Holder of this Warrant. All costs and expenses of the Expert shall be borne by the Company. (d) Delivery of Stock Certificates. As soon as practicable, but in no event later than 30 days after exercise of this Warrant, the Company, at its expense, shall cause to be issued in the name of the Holder (or upon payment by the Holder of any applicable transfer taxes, the Holder's assigns) a certificate or certificates for the number of fully paid and non-assessable Shares to which the Holder shall be entitled upon such exercise, together with such other stock or securities or property or combination thereof to which the Holder shall be entitled upon such exercise, determined in accordance with Section 3 hereof. (e) Record Date of Transfer of Shares. Irrespective of the date of issuance and delivery of certificates for any stock or securities issuable upon the exercise of this Warrant, each person (including a corporation or partnership) in whose name any such certificate is to be issued shall for all purposes be deemed to have become the holder of record of the stock or other securities represented thereby immediately prior to the close of business on the date on which (i) a duly executed Subscription Form containing notice of exercise of this Warrant, (ii) payment of the Purchase Price, and (iii) the opinion or certificate required by Section 4(a)(ii) of this Warrant is received by the Company. 3. Adjustments. Except as otherwise provided in this Section 3, after each adjustment of the Purchase Price pursuant to this Section 3, the number of shares of Common Stock purchasable upon exercise of this Warrant shall be the number derived by dividing such adjusted Purchase Price into the Purchase Price in effect immediately prior to such adjustment. The Purchase Price shall be subject to adjustment as follows: 3 (a) In the event, prior to the expiration of this Warrant by exercise or by its terms, the Company shall issue any shares of its Common Stock as a share dividend on its outstanding shares of Common Stock or shall subdivide the number of outstanding shares of Common Stock into a greater number of shares, then, in either of such events, the Purchase Price per share of Common Stock purchasable pursuant to this Warrant in effect at the time of such action shall be decreased proportionately and the number of shares purchasable pursuant to this Warrant shall be increased proportionately. Conversely, in the event the Company shall reduce the number of shares of its outstanding Common Stock by combining such shares into a smaller number of shares, then, in such event, the Purchase Price per share purchasable pursuant to this Warrant in effect at the time of such action shall be increased proportionately and the number of shares of Common Stock at that time purchasable pursuant to this Warrant shall be decreased proportionately. Any dividend paid or distributed on the Common Stock in shares of any other class of capital stock of the Company or securities convertible into shares of Common Stock shall be treated as a dividend paid in Common Stock to the extent that shares of Common Stock are issuable on the conversion thereof. (b) In the event, prior to the expiration of this Warrant by exercise or by its terms, the Company merges or consolidates with or into another person or entity in which the Company is not the surviving corporation or entity or sells all or substantially all of its property, or dissolves, liquidates or winds up its affairs, prompt, proportionate, equitable, lawful and adequate provision shall be made as part of the terms of any such merger, consolidation, sale, dissolution, liquidation or winding up such that the Holder of this Warrant may thereafter receive, on exercise thereof, in lieu of each share of Common Stock of the Company which the Holder would have been entitled to receive, the same kind and amount of any shares, securities, or assets as may be issuable, distributable or payable on any such merger, consolidation, sale, dissolution, liquidation or winding up with respect to each share of Common Stock of the Company; provided, however, that, in the event of any such merger, consolidation, sale, dissolution, liquidation or winding up, the right to exercise this Warrant shall terminate on a date fixed by the Company, such date to be not earlier than 5:00 p.m., Pacific Standard Time, on the 30th day next succeeding the date on which notice of such termination of the right to exercise this Warrant has been given by mail to the Holder thereof at such address as may appear on the books of the Company. (c) Notwithstanding the provisions of this Section 3, no adjustment of the Purchase Price shall be made whereby such Purchase Price is adjusted in an amount less than $.01 or until the aggregate of such adjustments shall equal or exceed $.01. 4 (d) In the event, prior to the expiration of this Warrant by exercise or by its terms, the Company shall determine to take a record of the Holders of its Common Stock for the purpose of determining the shareholders entitled to receive any share dividend or other right which will cause any change or adjustment in the number, amount, price or nature of the shares of Common Stock or other securities or assets deliverable on exercise of this Warrant pursuant to the foregoing provisions, the Company shall give to the registered Holder of this Warrant at the address as may appear on the books of the Company at least 15 days' prior written notice to the effect that the Company intends to take such a record. Such notice shall specify (i) the date as of which such record is to be taken, (ii) the purpose for which such record is to be taken, (iii) and the number, amount, price and nature of the Shares or other shares, securities or assets which will be deliverable on exercise of this Warrant after the action for which such record will be taken has been completed. Without limiting the obligation of the Company to provide notice to the registered Holder of this Warrant of any corporate action hereunder, the failure of the Company to give notice shall not invalidate such corporate action of the Company. (e) Before taking any action which would cause an adjustment reducing the Purchase Price below the then par value of the shares of Common Stock issuable upon exercise of this Warrant, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Purchase Price. (f) Upon any adjustment of the Purchase Price required to be made pursuant to this Section 3, the Company, within 30 days thereafter, shall cause to be mailed to the registered Holder of this Warrant written notice of such adjustment setting forth the Purchase Price in effect after such adjustment and the number of Shares or other shares, securities or property issuable upon exercise of this Warrant, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4. Restriction on Transfer. (a) The Holder, by its acceptance hereof, represents, warrants, covenants and agrees that: (i) the Holder has knowledge of the business and affairs of the Company; (ii) this Warrant and the Shares issuable upon the exercise of this Warrant are being acquired for investment and not with a view to the distribution thereof and that, absent an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the disposition of the Shares issued or issuable upon exercise of this Warrant, such Shares will not be sold, transferred, assigned, hypothecated or otherwise disposed of without first providing the Company with an opinion of counsel (which may be counsel for the Company) or other evidence, reasonably acceptable to the Company, to the effect that such sale, transfer, assignment, hypothecation or other disposal will be exempt from the registration and prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable state or foreign securities laws; and 5 (iii) the Holder consents to the making of a notation in the Company's books or giving to any transfer agent of this Warrant or the Shares an order to implement such restrictions on transferability described in subparagraph (ii) above. (b) This Warrant (and any successor or replacement warrant) shall bear the certificate shown on the front page hereof and the Shares issuable upon the exercise of this Warrant shall bear the following legend or a legend of similar import; provided, however, that such legend shall be removed or not placed upon this Warrant or the certificate or other instrument representing the Shares, as the case may be, if such legend is no longer necessary to ensure compliance with the Securities Act: "THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE IN RELIANCE UPON THE EXEMPTION UNDER THE SECURITIES ACT AND EXEMPTIONS FROM REGISTRATION AVAILABLE UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE. ACCORDINGLY, SUCH SHARES MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE." (c) This Warrant (and any successor or replacement Warrant) may not be sold, transferred, assigned or hypothecated except to a wholly owned subsidiary of the Holder or to a parent corporation owning a majority of the outstanding securities of the Holder or to any successor of the Holder in connection with a merger, sale or consolidation of the Holder in which the Holder is not the surviving entity. 5. Payment of Taxes. All Shares issued upon the exercise of this Warrant shall be validly issued, fully paid and non-assessable and the Company shall pay all taxes and other governmental charges (other than income tax) that may be imposed in respect of the issue or delivery thereof. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Shares in any name other than that of the Holder surrendered in connection with the purchase of such Shares, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the Company's satisfaction that no tax or other charge is due. 6. Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the exercise of this Warrant, such number of shares of Common Stock as shall be issuable upon the exercise hereof. The Company covenants and agrees that, upon exercise of this Warrant and payment of the Purchase Price thereof pursuant to Section 2(b) or 2(c) hereof, all Shares of Common Stock issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable. 6 7. No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. 8. No Stockholder Rights. Prior to exercise of this Warrant, the holder shall not be entitled to any rights of a shareholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of shareholder meetings, and such holder shall not be entitled to any notice or other communication concerning the business or affairs of the Company. 9. Rights; Notices. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter or as having any right whatsoever as a shareholder of the Company. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered or mailed by registered or certified mail, postage prepaid, return receipt requested: (a) if to the Holder, to: Hambrecht & Quist LLC One Bush Street San Francisco, California 94104 Attention: Norman Colbert Facsimile: (415) 439-3808 (b) if to the Company, to: Odwalla, Inc. 120 Stone Pine Road Half Moon Bay, California 94019 Attn: Chief Financial Officer Facsimile: (650) 712-5967 10. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (in case of loss, theft or destruction) upon delivery of an indemnity agreement in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of the mutilated Warrant, the Company will execute and deliver, in lieu thereof, a new Warrant of like tenor. 11. Successors. All the covenants, agreements, representations and warranties contained in this Warrant shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, distributees, successors and assigns. 7 12. Amendments; Waivers. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 13. Headings. The section headings in this Warrant are inserted for purposes of convenience only and shall have no substantive effect. 14. Saturdays, Sundays, Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised, except as to the purchase price, on the next succeeding day not a legal holiday. 15. Law Governing. This Warrant shall for all purposes be construed and enforced in accordance with, and governed by, the internal laws of the State of California, without giving effect to principles of conflict of laws. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated as of the date first above written. ODWALLA, INC. By: --------------------------------- Name: James R. Steichen Title: Sr. VP, Chief Financial Officer ACCEPTED AND AGREED: HAMBRECHT & QUIST LLC - ------------------------------------- Name: Title: EXHIBIT A SUBSCRIPTION FORM (To be Executed by the Registered Holder if it Desires to Exercise this Warrant) To Odwalla, Inc.: 1. (a) The undersigned hereby irrevocably elects to exercise the right to purchase ___________ of the Shares covered by this Warrant according to the conditions hereof and herewith makes payment of the Purchase Price in full in accordance with Section 2(b) of the Warrant. (b) The undersigned hereby irrevocably elects to exercise the right to purchase ___________ of the Shares covered by this Warrant pursuant to the cashless exercise right set forth in Section 2(c) of the Warrant. 2. The undersigned requests that certificates for such Shares be issued in the name of: (a) Name and address: ------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- (b) Social Security or Tax Identification Number: --------------- 3. The undersigned hereby represents and warrants that the undersigned is acquiring such shares for its own account for investment purposes only, and not for resale or with a view to distribution of such shares or any part thereof. Dated: Signature: ----------------- -------------------------------------------- NOTICE: The above signature must correspond with the name as written within the Warrant in every particular, without alteration or enlargement or any change whatsoever, and if the certificate representing the Shares is to be registered in a name other than that in which the Warrant is registered, the signature of the Holder hereof must be guaranteed. Signature Guaranteed: SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE. EX-4.2 4 f77494ex4-2.txt WARRANT TO PURCHASE COMMON STOCK, MAY 22, 1997 Exhibit 4.2 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE STOCK Corporation: Odwalla, Inc. Number of Shares: 7,000 Class of Stock: Common Initial Exercise Price: $12.00 per share Issue Date: May 22, 1997 Expiration Date: May 21, 2002 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SAND HILL CAPITAL LLC ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth of this Warrant. ARTICLE 1. EXERCISE. 1.1 Method of Exercise. Holder may exercise this Warrant in whole or in part by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant Section 1.3. 1.3 Fair Market Value. If the Shares are traded in a public market, the Fair Market Value of the Shares shall be the average of the closing bid and asked prices of the Common Stock quoted in the over-the-counter market in which the Common Stock is traded or the closing 1 price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten trading days prior to the date of determination of fair market value. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. 1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.6 Repurchase on Sale, Merger, or Consolidation of the Company. 1.6.1 "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.6.2 Assumption of Warrant. Upon the closing of any Acquisition the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock (or the Shares if the Shares are securities other than common stock) payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, or, if the Shares are securities other than common stock, subdivides the Shares in a transaction that increases the amount of common stock into which the Shares are convertible, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Diluting Issuances. If the Company issues additional shares after the date of this Warrant and the consideration per additional share is less than the Warrant Price in effect immediately before such issue, the Warrant Price in effect immediately before such issue shall be reduced, concurrently with such issue, to a price (calculated to the nearest hundredth of a cent) determined by multiplying the Warrant Price by a fraction: (a) the numerator of which is the amount of common stock outstanding immediately before such issue plus the amount of common stock that the aggregate consideration received by the Company for the additional shares would purchase at the Warrant Price in effect immediately before such issue, and (b) the denominator of which is the amount of common stock outstanding immediately before such issue plus the number of such additional shares. 2.4 No Impairment. The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. 2.5 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. 3 ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the Fair Market Value of the Shares as of the date of this Warrant. (b) All Shares that may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. (c) The authorized and issued capital stock of the Company is as follows:
TYPE AUTHORIZED ISSUED - ---- ---------- ------ Common Stock 15,000,000 Preferred Stock 5,000,000 -0-
All such shares have been duly authorized, validly issued, fully paid and nonassessable. ARTICLE 4. MISCELLANEOUS. 4.1 Term. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. 4.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4 4.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 4.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. 4.5 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.6 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. COMPANY AND HOLDER WAIVE ANY RIGHT TO A JURY TRIAL OUT OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS WARRANT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT AND TORT CLAIMS. 4.7 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. ODWALLA, INC. ------------------------------------ By: --------------------------------- Title: ------------------------------ 5 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase ____________ shares of the Common Stock of Odwalla, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. The undersigned hereby elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised with respect to _____________________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 3. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ------------------------------------ (Name) ------------------------------------ (Address) 4. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. ------------------------------------ (Signature) - -------------------- (Date) 6 EX-10.1 5 f77494ex10-1.txt FORM OF INDEMNIFICATION AGREEMENT Exhibit 10.1 INDEMNIFICATION AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of this ____ day of ___________, 2001, by and between Odwalla, Inc., a California corporation (the "Company"), and _____________________ ("Indemnitee"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Section 12. RECITALS: WHEREAS, Indemnitee performs a valuable service for the Company; WHEREAS, the Board of Directors of the Company has adopted Bylaws (the "Bylaws") providing for the indemnification of the officers and directors of the Company to the maximum extent not prohibited by the California Corporations Code, as amended (the "Code"); WHEREAS, the Bylaws and the Code, by their nonexclusive nature, permit contracts between the Company and the officers or directors of the Company with respect to indemnification of such officers or directors; WHEREAS, the Company's articles of incorporation (the "Articles") expressly authorize rights to indemnification "in excess of that otherwise permitted by Section 317" or "to the fullest extent permissible under California law"; WHEREAS, in accordance with the authorization as provided by the Code, the Company may purchase and maintain a policy or policies of directors' and officers' liability insurance ("D & O Insurance"), covering certain liabilities which may be incurred by its officers or directors in the performance of their obligations to the Company; WHEREAS, this Agreement is a supplement to the provisions of the Articles, the Bylaws and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of the Indemnitee thereunder; and WHEREAS, in recognition of past services and in order to induce Indemnitee to continue to serve as an officer or director of the Company, the Company has determined and agreed to enter into this contract with Indemnitee; NOW, THEREFORE, in consideration of Indemnitee's service as an officer or director after the date hereof, the parties hereto agree as follows: 1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify Indemnitee to the maximum extent not prohibited by the Code, as such may be amended from time to time, the Articles and of the Bylaws, as such may be amended. In furtherance of the foregoing indemnification, and without limiting the generality thereof: (a) Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to or participant (as a witness or otherwise) in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. (b) Proceedings by or in the Right of the Company. (i) Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant (as a witness or otherwise) in any Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and its shareholders. (ii) Notwithstanding the foregoing, no indemnification shall be permitted under this section for any of the following: (A) In respect of any claim, issue or matter as to which Indemnitee shall have been adjudged by a court of competent jurisdiction to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine; (B) Amounts paid in settling or otherwise disposing of a pending action without court approval; or (C) Expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. (c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to or participant and is successful on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, he shall be indemnified to the maximum extent permitted by law against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful on the merits or otherwise as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 2 1(c), and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 2. Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 1, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant (as a witness or otherwise) in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Company's obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful under California law. 3. Limitations on Indemnity. (a) No indemnity pursuant to Section 1 or 2 hereof shall be paid by the Company for any of the following: (i) Any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state or local statutory law; (ii) Any action, claim or proceeding (other than a proceeding referred to in Section 8(a) hereof) initiated by Indemnitee unless such action, claim or proceeding was authorized in the specific case by action of the Board of Directors; (iii) Any solicitation of proxies by Indemnitee, or by a group of which he was or became a member consisting of two or more persons that had agreed (whether formally or informally and whether or not in writing) to act together for the purpose of soliciting proxies, in opposition to any solicitation of proxies approved by the Board of Directors; (iv) Any activities by Indemnitee that constitute a breach of or default under any written agreement between Indemnitee and the Company; (v) Any action, claim or proceeding brought by the Company and approved by a majority of the Board of Directors which alleges willful misappropriation of corporate assets by Indemnitee, disclosure of confidential information in breach of Indemnitee's fiduciary duty or contractual obligations of the Company, or any other willful and deliberate breach in bad faith of Indemnitee's duty to the Company or its shareholders; or (vi) If a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful (and, in this respect, both the Company and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against 3 public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication). (b) No indemnification or advance shall be made under this Agreement, unless a court of competent jurisdiction determines otherwise or unless required pursuant to Section 317(d) of the Code, in the following circumstances: (i) If such indemnification would be inconsistent with a provision of the Articles, the bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the Proceeding which prohibits or otherwise limits indemnification; or (ii) If such indemnification would be inconsistent with any condition expressly imposed by a court in approving a settlement. (c) Notwithstanding any other provision in this Agreement, in the case of an action brought by or in the right of the Company for breach of a director's duty to the Company and its shareholders, the rights to indemnification in this Agreement in excess of those provided by Section 317 of the Code shall be subject to the limitations on indemnification set forth in Section 204(a)(11) of the Code. However, the rights to indemnification in this Agreement shall not be subject to the limitations set forth in such Section 204(a)(11) in the case of, (i) an action brought by or in the right of the Company for a breach of the director's duty to the Company and its shareholders for indemnification not in excess of the rights for indemnification provided by Section 317 of the Code or (ii) an action other than an action by or in the right of the Company for breach of a director's duty to the Company and its shareholders. 4. Contribution in the Event of Joint Liability. (a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee. (b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company other than 4 Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary, and the degree to which their conduct is active or passive. (c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company other than Indemnitee who may be jointly liable with Indemnitee. 5. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. 6. Advancement of Expenses. Notwithstanding any other provision of this Agreement, the Company shall advance any and all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate Status within ten (10) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company. Any advances and undertakings to repay pursuant to this Section 6 shall be unsecured and interest free. Notwithstanding the foregoing, the obligation of the Company to advance Expenses pursuant to this Section 6 shall be subject to the condition that, if, when and to the extent that the Company determines that Indemnitee would not be permitted to be indemnified under applicable law, the Company shall be entitled to be reimbursed, within thirty (30) days of such determination, by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Company that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a 5 final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). 7. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the law and public policy of the State of California. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement: (a) To obtain indemnification (including, but not limited to, the advancement of Expenses and contribution by the Company) under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 7(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of Indemnitee: (1) by a majority vote of a quorum consisting of directors who are not parties to such proceeding, (2) if such quorum is not obtainable, by Independent Counsel in a written opinion, (3) by the shareholders (within the meaning of Section 153 of the Code), with the shares owned by Indemnitee not being entitled to vote thereon or (4) by the court in which the proceeding is, or was pending upon application made by the Company or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the Company. (c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7(b) hereof, the Independent Counsel shall be selected as provided in this Section 7(c). The Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors). Indemnitee or the Company, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 12 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the state courts 6 of the State of California or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7(c), regardless of the manner in which such Independent Counsel was selected or appointed. (d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 7(a) of this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence. (e) Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 7(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence. (f) If the person, persons or entity empowered or selected under Section 7 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such thirty (30) day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 7(g) shall not apply if the determination of entitlement to indemnification is to be made by the shareholders pursuant to Section 7(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors or the 7 Disinterested Directors, if appropriate, resolve to submit such determination to the shareholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of shareholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat. (g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board of Directors, or shareholder of the Company shall act reasonably and in good faith in making a determination under the Agreement of the Indemnitee's entitlement to indemnification. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence. 8. Remedies of Indemnitee. (a) In the event that (i) a determination is made pursuant to Section 7 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 7(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 7 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of California, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 8(a). The Company shall not oppose Indemnitee's right to seek any such adjudication. 8 (b) In the event that a determination shall have been made pursuant to Section 7(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 8 shall be conducted in all respects as a de novo trial, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination under Section 7(b). The Company shall have the burden of proof to show that Indemnitee is not entitled to indemnification hereunder. (c) If a determination shall have been made pursuant to Section 7(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 8, absent a prohibition of such indemnification under applicable law. (d) In the event that Indemnitee, pursuant to this Section 8, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors' and officers' liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 12 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery. (e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 8 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. 9. Non-Exclusivity; Survival of Rights; Insurance; Subrogation. (a) The rights of indemnification as provided by this Agreement (including without limitation the right to advancement of Expenses) shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Articles, the Bylaws, any agreement, a vote of shareholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Code, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. (b) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee. 9 Following receipt of indemnification payments hereunder, as further assurance, Indemnitee shall execute all papers required and take all action reasonably necessary to secure such rights, including execution of such documents as are reasonably necessary to enable the Company to bring suit to enforce such rights. (c) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 10. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other Enterprise) and shall continue thereafter from the later of (i) the date Indemnitee is no longer an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other Enterprise) until Indemnitee shall no longer be subject to any Proceeding (or any proceeding commenced under Section 8 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; or (ii) the third anniversary from the date hereof. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or any other Enterprise at the Company's request. 11. Enforcement. (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. 12. Definitions. For purposes of this Agreement: (a) "Corporate Status" describes the status of a person who is or was a director, officer, employee or other agent or fiduciary of (i) the Company, (ii) any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the express written request of the Company or (iii) a foreign or 10 domestic corporation which was a predecessor corporation of the Company or of another enterprise at the request of the predecessor corporation. (b) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (c) "Enterprise" shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary. (d) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or incurred in connection with any appeal resulting from any Proceeding. (e) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (f) "Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement; and excluding one initiated by an Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under this Agreement. 11 13. Severability. If any provision or provisions of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, illegal or otherwise unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. 14. Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 15. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company. 16. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, to the address set forth below Indemnitee signature hereto. (b) If to the Company, to: Odwalla, Inc. 120 Stone Pine Road Half Moon Bay, California 94019 Attention: Chief Financial Officer or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. 12 17. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. 18. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 19. Governing Code. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California without application of the conflict of laws principles thereof. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless remain effective and shall remain enforceable. 20. Gender. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. ODWALLA, INC. By: --------------------------------- Name: ---------------------------- Title: --------------------------- ------------------------------------ Name: ------------------------------- Address: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- EX-10.5 6 f77494ex10-5.txt BUSINESS LOAN AGREEMENT, JULY 12, 2001 Exhibit 10.5 BUSINESS LOAN AGREEMENT This Agreement, dated as of July 12, 2001, is between Bank of America, N.A. (the "Bank") and Odwalla, Inc., a California corporation ("Odwalla") and Fresh Samantha, Inc., a Maine corporation ("Fresh Samantha") (Odwalla and Fresh Samantha are sometimes referred to collectively as "Borrowers" and individually as a "Borrower"), (the "Borrower"). 1. DEFINITIONS In addition to the terms which are defined elsewhere in this Agreement, the following terms have the meanings indicated for the purposes of this Agreement: 1.1 "Borrowing Base" means 75% of the balance due on Acceptable Receivables, minus the amount of the Reserves. 1.2 "Acceptable Receivable" means an account receivable which satisfies the following requirements: (a) The account has resulted from the sale of goods by any Borrower in the ordinary course of such Borrower's business and without any further obligation on the part of such Borrower to service, repair, or maintain any such goods sold other than pursuant to any applicable warranty. (b) There are no conditions which must be satisfied before a Borrower is entitled to receive payment of the account. Accounts arising from COD sales, consignments or guaranteed sales are not acceptable. (c) To the extent the debtor upon the account claims any defense to payment of the account, whether well founded or otherwise, the account balance does not include the amount of such claim. (d) The account balance does not include the amount of any counterclaims or offsets which have been or may be asserted against the Borrowers by the account debtor (including offsets for any "contra accounts" owed by the Borrowers to the account debtor for goods purchased by the Borrowers or for services performed for the Borrowers). To the extent any counterclaims, offsets, or contra accounts exist in favor of the debtor, such amounts shall be deducted from the account balance. (e) The account represents a genuine obligation of the debtor for goods sold to and accepted by the debtor. To the extent any credit balances exist in favor of the debtor, such credit balances shall be deducted from the account balance. (f) A Borrower has invoiced the debtor in the amount of the account. (g) A Borrower is not prohibited by the laws of the state where the account debtor is located from bringing an action in the courts of that state to enforce the debtor's obligation to pay the account. Such Borrower has taken all appropriate actions to ensure -1- access to the courts of the state where the account debtor is located, including, where necessary, the filing of a Notice of Business Activities Report or other similar filing with the applicable state agency or the qualification by such Borrower as a foreign corporation authorized to transact business in such state. (h) The account is owned by such Borrower free of any title defects or any liens or interests of others except the security interest in favor of the Bank. (i) The debtor upon the account is not any of the following: (i) an employee or Affiliate of any Borrower, to the extent the amount owed by the account debtor exceeds $50,000.00. (ii) the U.S. government or any agency or department of the U.S. government unless the Bank accepts the obligation and such Borrower complies with the procedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C. Section 15) with respect to the obligation. (iii) any person or entity located in a foreign country unless (A) the account is supported by an irrevocable letter of credit issued by a bank acceptable to the Bank, and, if requested by the Bank, the original of such letter of credit and/or any usance drafts drawn under such letter of credit and accepted by the issuing or confirming bank have been delivered to the Bank, or (B) the account is covered by foreign credit insurance acceptable to the Bank and the account is otherwise an Acceptable Receivable; provided that accounts from persons and entities located in Canada may be included as Acceptable Receivables to the extent the aggregate amount of such accounts do not at any time exceed $150,000.00. (j) The account is not in default. An account will be considered in default if any of the following occur: (i) The account is not paid within 45 days from its invoice date; (ii) The debtor obligated upon the account suspends business, makes a general assignment for the benefit of creditors, or fails to pay its debts generally as they come due; or (iii) Any petition is filed by or against the debtor obligated upon the account under any bankruptcy law or any other law or laws for the relief of debtors. (k) The account is not the obligation of a debtor who is in default (as defined above) on 25% or more of the accounts upon which such debtor is obligated. (l) The account does not arise from the sale of goods which remain in any Borrower's possession or under any Borrower's control. -2- (m) The account is not evidenced by a promissory note or chattel paper, nor is the account debtor obligated to any Borrower under any other obligation which is evidenced by a promissory note. (n) The account is otherwise acceptable to the Bank, in its exercise of reasonable business judgment. In addition to the foregoing limitations, the dollar amount of accounts included as Acceptable Receivables which are the obligations of a single debtor shall not exceed the concentration limit established for that debtor. To the extent the total of such accounts exceeds a debtor's concentration limit, the amount of any such excess shall be excluded. The concentration limit for each debtor shall be equal to 10% of the total amount of the Borrowers' Acceptable Receivables at that time. It is provided, however, that if the debtor obligated upon an account is one of the debtors listed below, the concentration limit applicable to each such debtor will be increased to the percentage set forth below: Debtor Concentration Limit ------ ------------------- Safeway 20% Kroger 20%
1.3 "Affiliate" means, as to any person, any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such person or which owns, directly or indirectly, ten percent (10%) or more of the outstanding voting interest of such person. A person shall be deemed to control another person if the controlling person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other person, whether through the ownership of voting securities, by contract, or otherwise. 1.4 "ACH Transactions" means any cash management or related services including the automatic clearing house transfer of funds by the Bank for the account of the Borrower pursuant to agreement or overdrafts. 1.5 "Bank Products" means any one or more of the following types of services or facilities extended to the Borrowers by the Bank or any affiliate of the Bank in reliance on Bank's agreement to indemnify such affiliate: (i) credit cards; (ii) ACH Transactions; (iii) cash management, including controlled disbursement services; and (iv) Hedge Agreements. 1.6 "Bank Product Reserves" means all reserves which the Bank from time to time establishes in its reasonable discretion for the Bank Products then provided or outstanding. 1.7 "Credit Limit" means the amount of Ten Million and no/100 Dollars ($10,000,000.00). -3- 1.8 "Dilution Reserve" means the reserve established by Bank in its reasonable judgment to reflect the amount of receivables which are not collected. On the date of this Agreement the Dilution Reserve shall be $350,000, which shall be subject to adjustment from time to time by the Bank in its reasonable judgment to reflect historical receivable dilution as determined by the Bank in its reasonable judgment. 1.9 "Grower Payables" means, as of any date of determination, all amounts then payable by any Borrower to growers of agricultural products which such Borrower has purchased, whether for processing, for use in producing inventory or otherwise. 1.10 "Hedge Agreement" means any and all transactions, agreements or documents now existing or hereafter entered into, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination or option with respect to, these or similar transactions, for the purpose of hedging the Borrowers' exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. 1.11 "PACA" means the Perishable Agricultural Commodities Act, 7 U.S.C. Section 499 et seq., as amended or replaced and as in effect from time to time. 1.12 "Plea Agreement" means the agreement set forth in that certain Memorandum of Plea Agreement Pursuant to Rule 11(e) of the Federal Rules of Criminal Procedure, dated July 23, 1998, United States of America v. Odwalla, Inc., United States District Court for the Eastern District of California; CR. F. No. 98 5261-SMS. 1.13 "Plea Agreement Reserve" means the amount of any payments due or to become due from Odwalla to the United States of America (the "Government") or any other entities in accordance with the Plea Agreement in the event the Government takes any action which the Bank, in its reasonable discretion, determines is likely to result in a lien in favor of the Government on any of Borrower's assets which is prior to the Bank's lien. 1.14 "Reserves" means the amount established by the Bank from time to time in the Bank's reasonable judgment as a reserve against the Borrowing Base. Without limiting the generality of the foregoing and the right of the Bank to establish additional reserves in its reasonable judgment, Reserves shall include, without limitation, the sum of (a) Bank Product Reserves, (b) the amount of Grower Payables (i) which is subject to the trust established in favor of growers by PACA or otherwise or (ii) which has a lien priority on the Collateral senior to the lien granted to the Bank, (c) the Dilution Reserve, and (d) the Plea Agreement Reserve. 2. LINE OF CREDIT: AMOUNT AND TERMS 2.1 Line of Credit Amount. (a) During the availability period described below, the Bank will provide a line of credit to the Borrowers. The amount of the line of credit (the "Commitment") is equal to the lesser of (i) the Credit Limit or (ii) the Borrowing Base as determined by the Bank from time to time in accordance with this Agreement. -4- (b) This is a revolving line of credit providing for cash advances and letters of credit. During the availability period, the Borrowers may repay principal amounts and reborrow them. (c) The Borrowers agree not to permit the outstanding principal balance of advances under the line of credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, to exceed the Commitment. If the Borrowers exceed this limit, the Borrowers will immediately pay the excess to the Bank upon the Bank's demand. The Bank may apply payments received from the Borrowers under this paragraph to the obligations of the Borrowers to the Bank in the order and the manner as the Bank, in its discretion, may determine. 2.2 Availability Period. The line of credit is available between the date of this Agreement and July 1, 2003, or such earlier date as the availability may terminate as provided in this Agreement (the "Expiration Date"). 2.3 Conditions to Availability of Credit. In addition to the items required to be delivered to the Bank under the paragraph entitled "Financial Information" in the "Covenants" section of this Agreement and subject to Section 9.2, the Borrowers will promptly deliver the following to the Bank at such times as may be requested by the Bank: (a) a Borrowing Base certificate, in form and detail satisfactory to the Bank, summarizing the Borrowers' accounts receivable on which the requested extension of credit is to be based, together with all supporting documentation required by the Bank in order to calculate the Borrowing Base. (b) copies of the record of invoices from each Borrower's sales journal for such accounts receivable. (c) copies of the purchase orders, shipping instructions, bills of lading and other documentation pertaining to such accounts receivable. (d) copies of the cash receipts journal pertaining to the Borrowing Base certificate. 2.4 Calculation of Borrowing Base. The Borrowing Base will be calculated by the Bank upon receipt of the Borrowing Base certificate and all supporting documentation required under this Agreement. The Bank will provide a borrowing base calculation to the Borrowers setting forth its determination of the Borrowing Base, which calculation will be conclusive and binding in the absence of manifest error. The Borrowing Base as determined by the Bank will become effective upon calculation by the Bank and will remain in effect until a new Borrowing Base is calculated by the Bank in accordance with this Agreement. 2.5 Interest Rate. (a) Unless the Borrowers elect an optional interest rate as described below, the interest rate is a rate per year equal to the Bank's Prime Rate plus the Applicable Margin as defined below. -5- (b) The Prime Rate is the rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Prime Rate. 2.6 Repayment Terms. (a) The Borrowers will pay interest on August 1, 2001, and then monthly thereafter on the first banking day of each month until payment in full of any principal outstanding under this line of credit. (b) The Borrowers will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than the Expiration Date. Any interest period for an optional interest rate (as described below) shall expire no later than the Expiration Date. (c) The Borrowers may prepay the loan in full or in part at any time. 2.7 Optional Interest Rates. Instead of the interest rate based on the Bank's Prime Rate, the Borrowers may elect the optional interest rates listed below during interest periods agreed to by the Bank and the Borrowers. The optional interest rates shall be subject to the terms and conditions described later in this Agreement. Any principal amount bearing interest at an optional rate under this Agreement is referred to as a "Portion." The following optional interest rates are available: (a) the IBOR Rate plus the Applicable Margin as defined below. (b) the LIBOR Rate plus the Applicable Margin as defined below. 2.8 Applicable Margin. The Applicable Margin shall be the following amounts per annum, based upon the ratio of total liabilities to tangible net worth (as defined in the "Covenants" section of this Agreement), as set forth in the most recent compliance certificate received by the Bank as required in the Covenants section; provided, however, that, until the Bank receives the first compliance certificate, such amounts shall be those indicated for pricing level 2 set forth below:
Applicable Margin (in basis points per annum) ----------------------------------------------------- Total Liabilities/ Pricing Level Tangible Net Worth Prime + IBOR or LIBOR + - ------------------ ---------------------------------- ----------------------- ----------------------------- 1 X < .90 00 275 2 .90 -6- The Applicable Margin shall be in effect from the date the most recent compliance certificate is received by the Bank until the date the next compliance certificate is received; provided, however, that if the Borrowers fail to timely deliver the next compliance certificate, the Applicable Margin from the date such compliance certificate was due until the date such compliance certificate is received by the Bank shall be the highest pricing level set forth above. 2.9 Letters of Credit. (a) This line of credit may be used for financing: (i) commercial letters of credit with a maximum maturity not to extend more than 90 days beyond the Expiration Date. Each commercial letter of credit will require drafts payable at sight. (ii) standby letters of credit with a maximum maturity not to extend more than 90 days beyond the Expiration Date. The standby letters of credit may not include a provision providing that the maturity date will be automatically extended each year. (iii) The amount of the combined commercial and standby letters of credit outstanding at any one time (including amounts drawn on the letters of credit and not yet reimbursed) may not exceed Five Million and no/100 Dollars ($5,000,000.00). (b) Each Borrower agrees: (i) any sum drawn under a letter of credit or outstanding may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement. (ii) if there is an event of default under this Agreement and the Bank has accelerated Borrowers' obligations hereunder, to immediately arrange for any letters of credit outstanding to be cancelled and to deposit with the Bank cash collateral equal to the face amount of such letters of credit, to the extent not so cancelled. (iii) the issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank's written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank. (iv) to sign the Bank's form Application and Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit, as applicable. (v) to pay any issuance and/or other fees that the Bank notifies the Borrowers will be charged for issuing and processing letters of credit for the Borrowers. -7- (vi) to allow the Bank to automatically charge the Designated Account for applicable fees, discounts, and other charges. 3. OPTIONAL INTEREST RATES 3.1 Optional Rates. Each optional interest rate is a rate per year. Interest will be paid on the last day of each interest period, and on the first day of each month during the interest period. At the end of any interest period, the interest rate will revert to the rate based on the Prime Rate, unless the Borrowers have designated another optional interest rate for the Portion. No Portion will be converted to a different interest rate during the applicable interest period. Upon the occurrence and during the continuation of an event of default under this Agreement, the Bank may terminate the availability of optional interest rates for interest periods commencing after such event of default occurs. 3.2 IBOR Rate. The election of IBOR Rates shall be subject to the following terms and requirements: (a) The interest period during which the IBOR Rate will be in effect will be no shorter than 30 days and no longer than one year. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market. (b) Each IBOR Rate Portion will be for an amount not less than One Million and no/100 Dollars ($1,000,000.00). (c) The "IBOR Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) IBOR Rate = IBOR Base Rate -------------------- (1.00 - Reserve Percentage) Where, (i) "IBOR Base Rate" means the interest rate at which the Bank's Grand Cayman Banking Center, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. -8- (d) Each prepayment of an IBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee as described below. A "prepayment" is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement. (e) The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. The Borrowers shall also pay any customary administrative fees charged by the Bank in connection with the foregoing. For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded. (f) The Bank will have no obligation to accept an election for an IBOR Rate Portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of an IBOR Rate Portion are not available in the offshore dollar inter-bank market; or (ii) the IBOR Rate does not accurately reflect the cost of an IBOR Rate Portion. 3.3 LIBOR Rate. The election of LIBOR Rates shall be subject to the following terms and requirements: (a) The interest period during which the LIBOR Rate will be in effect will be one, two, three, four, five, six, seven, eight, nine, ten, eleven or twelve months. The first day of the interest period must be a day other than a Saturday or a Sunday on which the Bank is open for business in New York and London and dealing in offshore dollars (a "LIBOR Banking Day"). The last day of the interest period and the actual number of days during the interest period will be determined by the Bank using the practices of the London inter-bank market. (b) Each LIBOR Rate Portion will be for an amount not less than One Million and no/100 Dollars ($1,000,000.00). (c) The "LIBOR Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) LIBOR Rate = London Inter-Bank Offered Rate ------------------------------ (1.00 - Reserve Percentage) Where, -9- (i) "London Inter-Bank Offered Rate" means the average per annum interest rate at which U.S. dollar deposits would be offered for the applicable interest period by major banks in the London inter-bank market, as shown on the Telerate Page 3750 (or such other page as may replace it) at approximately 11:00 a.m. London time two (2) London Banking Days before the commencement of the interest period. If such rate does not appear on the Telerate Page 3750 (or such other page that may replace it), the rate for that interest period will be determined by such alternate method as reasonably selected by Bank. A "London Banking Day" is a day on which the Bank's London Banking Center is open for business and dealing in offshore dollars. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrowers shall irrevocably request a LIBOR Rate Portion no later than 12:00 noon Pacific time on the LIBOR Banking Day preceding the day on which the London Inter-Bank Offered Rate will be set, as specified above. For example, if there are no intervening holidays or weekend days in any of the relevant locations, the request must be made at least three days before the LIBOR Rate takes effect. (e) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a prepayment fee as described below. A "prepayment" is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement. (f) The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. The Borrowers shall also pay any customary administrative fees charged by the Bank in connection with the foregoing. For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded. (g) The Bank will have no obligation to accept an election for a LIBOR Rate Portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of a LIBOR Rate Portion are not available in the London inter-bank market; or -10- (ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate Portion. 4. FEES AND EXPENSES 4.1 Fees. (a) Loan fee. The Borrowers agree to pay a loan fee in the amount of Thirty-Five Thousand and no/100 Dollars ($35,000.00). This fee is due on or before the date of this Agreement. (b) Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, the Borrowers will, at the Bank's option, pay the Bank a fee for each waiver or amendment in an amount advised by the Bank at the time the Borrowers request the waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrowers. The Bank may impose additional requirements as a condition to any waiver or amendment. 4.2 Expenses. The Borrowers agree to repay the Bank within five business days after demand for expenses that include, but are not limited to, filing, recording and search fees, appraisal fees, title report fees, documentation fees, and audit costs. 4.3 Reimbursement Costs. (a) The Borrowers agree to reimburse the Bank within five business days after demand for any reasonable expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys' fees, including any allocated costs of the Bank's in-house counsel, and audit costs, including any allocated costs of the Bank's in-house auditors. (b) The Borrowers agree to reimburse the Bank within five business days after demand for the cost of periodic audits of the personal property collateral securing this Agreement, at such intervals as the Bank may reasonably require, provided that so long as no event of default exists, such audits, for which the Borrowers shall be charged, shall be limited to two (2) in any one fiscal year of Borrowers. The audits may be performed by employees of the Bank or by independent auditors. (c) The Borrowers agree to reimburse Bank within five business days after demand for the cost of any appraisal of the personal property collateral securing this Agreement which may be conducted by the Bank after the occurrence of an event of default. The appraisals may be performed by employees of the Bank or by independent appraisers. 5. COLLATERAL 5.1 Personal Property. The Borrowers' obligations to the Bank under this Agreement will be secured by personal property the Borrowers now own or will own in the future as listed below. The collateral is further defined in security agreement(s) executed by the Borrowers. In -11- addition, all personal property collateral securing this Agreement shall also secure all other present and future obligations of the Borrowers or any one of them to the Bank (including Bank Products but excluding any consumer credit covered by the federal Truth in Lending law, unless the Borrowers has otherwise agreed in writing). All personal property collateral securing any other present or future obligations of the Borrowers or any one of them to the Bank shall also secure this Agreement. (a) Inventory. (b) Receivables. (c) Patents, trademarks and other general intangibles. 6. DISBURSEMENTS, PAYMENTS AND COSTS 6.1 Disbursements and Payments. (a) Each payment by the Borrowers will be made at the Bank's banking center (or other location) selected by the Bank from time to time as designated in writing to any Borrower; and will be made in immediately available funds, or such other type of funds selected by the Bank. (b) Each disbursement by the Bank and each payment by the Borrowers will be evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrowers to sign one or more promissory notes. 6.2 Telephone and Telefax Authorization. (a) The Bank may honor telephone or telefax instructions for advances or repayments or for the designation of optional interest rates and telefax requests for the issuance of letters of credit given, or purported to be given, by any one of the individuals authorized to sign agreements and instruments on behalf of each Borrower entered into in connection with this Agreement, or any other individual designated by any one of such authorized signers. (b) Advances will be deposited in and repayments will be withdrawn from Odwalla's account number 14759-00130, or such other accounts with the Bank as designated in writing by the Borrowers. (c) The Borrowers will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank reasonably believes are made by any individual authorized by the Borrowers to give such instructions. This paragraph will survive this Agreement's termination, and will benefit the Bank and its officers, employees, and agents. -12- 6.3 Direct Debit (Pre-Billing). (a) The Borrowers agree that the Bank will debit Odwalla's account number 14759-00130, or such other of the Borrowers' accounts with the Bank as designated in writing by the Borrowers (the "Designated Account") on the date each payment of interest and any fees from the Borrowers becomes due (the "Due Date"). (b) Approximately 7 days prior to each Due Date, the Bank will mail to the Borrowers a statement of the amounts that will be due on that Due Date (the "Billed Amount"). The calculation will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate. (c) The Bank will debit the Designated Account for the Billed Amount, regardless of the actual amount due on that date (the "Accrued Amount"). If the Billed Amount debited to the Designated Account differs from the Accrued Amount, the discrepancy will be treated as follows: (i) If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrowers will not be in default by reason of any such discrepancy. (ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy. Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank will not pay the Borrowers interest on any overpayment. (d) The Borrowers will maintain sufficient funds in the Designated Account to cover each debit. If there are insufficient funds in the Designated Account on the date the Bank enters any debit authorized by this Agreement, the Bank may reverse the debit. 6.4 Banking Days. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday, Sunday or other day on which commercial banks are authorized to close, or are in fact closed, in the state where the Bank's lending office is located. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day. 6.5 Taxes. (a) If any payments to the Bank under this Agreement are made from outside the United States, the Borrowers will not deduct any foreign taxes from any payments they make to the Bank. If any such taxes are imposed on any payments made by the Borrowers (including payments under this paragraph), the Borrowers will pay the taxes -13- and will also pay to the Bank, at the time interest is paid, any additional amount which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such taxes had not been imposed. The Borrowers will confirm that they have paid the taxes by giving the Bank official tax receipts (or notarized copies) within 30 days after the due date. (b) Payments made by the Borrowers to the Bank will be made without deduction of United States withholding or similar taxes. If any Borrower is required to pay U.S. withholding taxes, the Borrowers will pay such taxes in addition to the amounts due to the Bank under this Agreement. If the Borrowers fail to make such tax payments when due, each Borrower indemnifies the Bank against any liability for such taxes, as well as for any related interest, expenses, additions to tax, or penalties asserted against or suffered by the Bank with respect to such taxes. 6.6 Additional Costs. The Borrowers will pay the Bank, within five business days after demand, for the Bank's costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency which is applicable to all national banks or a class of all national banks of which the Bank is a party. The costs and losses will be allocated to the loan in a manner determined by the Bank, using any reasonable method. The costs include the following: (a) any reserve or deposit requirements; and (b) any capital requirements relating to the Bank's assets and commitments for credit. 6.7 Interest Calculation. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. 6.8 Default Rate. Upon the occurrence and during the continuance of any event of default under this Agreement, principal amounts outstanding under this Agreement will at the option of the Bank bear interest at a rate which is two (2) percentage points higher than the rate of interest otherwise provided under this Agreement. This will not constitute a waiver of any default. 6.9 Interest Compounding. At the Bank's sole option in each instance, any interest, fees or costs which are not paid when due under this Agreement shall bear interest from the due date at the rate of interest otherwise provided under this Agreement. This may result in compounding of interest. 6.10 Overdrafts. At the Bank's sole option in each instance, the Bank may do one of the following: (a) The Bank may make advances under this Agreement to prevent or cover an overdraft on any account of any Borrower with the Bank. Each such advance will accrue interest from the date of the advance or the date on which the account is overdrawn, whichever occurs first, at the interest rate described in this Agreement. -14- (b) The Bank may reduce the amount of credit otherwise available under this Agreement by the amount of any overdraft on any account of any Borrower with the Bank. This paragraph shall not be deemed to authorize the Borrowers to create overdrafts on any of the Borrowers' accounts with the Bank. 6.11 Payments in Kind. If the Bank requires delivery in kind of the proceeds of collection of the Borrowers' accounts receivable as provided in any security agreement required under this Agreement, such proceeds shall be credited to interest, principal, and other sums owed to the Bank under this Agreement in the order and proportion determined by the Bank in its sole discretion. All such credits will be conditioned upon collection and any returned items may, at the Bank's option, be charged to the Borrowers. 7. CONDITIONS The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any initial credit to the Borrowers under this Agreement: 7.1 Authorizations. Evidence that the execution, delivery and performance by each Borrower of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. 7.2 Governing Documents. A copy of each Borrower's articles of incorporation. 7.3 Security Agreements. Signed original security agreements and assignments which the Bank requires. 7.4 Perfection and Evidence of Priority. Except as provided in Section 9.26 hereof, financing statements and fixture filings (and any collateral in which the Bank requires a possessory security interest), together with evidence that the security interests and liens in favor of the Bank are valid and enforceable. 7.5 Landlord's Waiver. Except as provided in Section 9.27 hereof, a Consent to Removal from the owner of the real property located at 120 Stone Pine Road, Half Moon Bay, California for the removal of any personal property collateral located on the real property. 7.6 Insurance. Evidence of insurance coverage, as required in the "Covenants" section of this Agreement. 7.7 Legal Opinion. A written opinion from the Borrowers' legal counsel, covering such matters as the Bank may require. The legal counsel and the terms of the opinion must be acceptable to the Bank. 7.8 Good Standing. Certificates of good standing for each Borrower from its state of formation. -15- 7.9 Payment of Fees. Payment of all accrued and unpaid expenses then due incurred by the Bank as required by the paragraph entitled "Reimbursement Costs." 7.10 Other Items. Any other items that the Bank reasonably requires. 8. REPRESENTATIONS AND WARRANTIES When the Borrowers sign this Agreement, and until the Bank is repaid in full, each Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewal of these representations and warranties as of the date of the request: 8.1 Organization of Borrower. Each Borrower is a corporation duly formed and existing under the laws of the state where organized. 8.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are within each Borrower's powers, have been duly authorized, and do not conflict with any of its organizational papers. 8.3 Enforceable Agreement. This Agreement is a legal, valid and binding agreement of each Borrower, enforceable against each Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable. 8.4 Good Standing. As of the date of this Agreement each Borrower is qualified to do business in those states listed on Schedule 8.4, and after the date of this Agreement each Borrower is qualified to do business and in good standing in all states where the nature of its business makes such qualification necessary except where the failure to be so qualified and in good standing would not have any material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of Borrowers, taken as a whole, or on any Borrower's ability to repay the credit ("Material Adverse Effect"). 8.5 No Conflicts. This Agreement does not conflict with any material law, agreement, or obligation by which any Borrower is bound. 8.6 Financial Information. All financial and other information that has been or will be supplied to the Bank presents fairly Odwalla's financial condition on a consolidated basis, including all material contingent liabilities. Since the date of the most recent financial statement provided to the Bank, there has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrowers, taken as a whole. 8.7 Lawsuits. Except as set forth in Schedule 8.7, there is no lawsuit, tax claim or other dispute pending or to Borrower's knowledge threatened against the Borrowers or any one of them which, if lost, would have a Material Adverse Effect. 8.8 Collateral. All collateral required in this Agreement is owned by the grantor of the security interest free of any title defects or any liens or interests of others other than liens in favor of the Bank and the Growers' Liens (as hereinafter defined). -16- 8.9 Permits, Franchises. Except where such failure would not have a Material Adverse Effect, each Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged. 8.10 Other Obligations. No Borrower is in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. 8.11 Tax Matters. No Borrower is subject to limitations on its entitlement to deduct interest for federal income tax purposes under Section 163(j) of the Internal Revenue Code of 1986 (known as the "earnings stripping" provisions) and has no knowledge of any pending assessments or adjustments of its income tax for any year and all taxes due in excess of $50,000.00 have been paid except taxes which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with generally accepted accounting principles, consistently applied, are being maintained. 8.12 No Tax Avoidance Plan. The Borrowers' obtaining of credit from the Bank under this Agreement does not have as a principal purpose the avoidance of U.S. withholding taxes. 8.13 No Event of Default. There is no event which is, or with notice or lapse of time or both would be, an event of default under this Agreement. 8.14 Insurance. The Borrowers have obtained, and maintained in effect, the insurance coverage required in the "Covenants" section of this Agreement. 8.15 ERISA Plans. (a) Each Plan (other than a multiemployer plan) is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan has received a favorable determination letter from the IRS and to the best knowledge of the Borrowers, nothing has occurred which would cause the loss of such qualification. Each Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan, and has not incurred any liability with respect to any Plan under Title IV of ERISA. (b) There are no claims, lawsuits or actions (including by any governmental authority), and there has been no prohibited transaction or violation of the fiduciary responsibility rules, with respect to any Plan which has resulted or could reasonably be expected to result in a material adverse effect. (c) With respect to any Plan subject to Title IV of ERISA: (i) No reportable event has occurred under Section 4043(c) of ERISA for which the PBGC requires 30-day notice. -17- (ii) No action by any Borrower or any ERISA Affiliate to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA. (iii) No termination proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding. (d) The following terms have the meanings indicated for purposes of this Agreement: (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (ii) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. (iii) "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with any Borrower within the meaning of Section 414(b) or (c) of the Code. (iv) "PBGC" means the Pension Benefit Guaranty Corporation. (v) "Plan" means a pension, profit-sharing, or stock bonus plan intended to qualify under Section 401(a) of the Code, maintained or contributed to by any Borrower or any ERISA Affiliate, including any multiemployer plan within the meaning of Section 4001(a)(3) of ERISA. 8.16 Location of Borrower. Odwalla's place of business (or, if Odwalla has more than one place of business, its chief executive office) is located at the address listed under the Odwalla's signature on this Agreement and Fresh Samantha's place of business (or if Fresh Samantha has more than one place of business, its chief executive office) is located at the address listed under Fresh Samantha's signature on this Agreement. 8.17 Plea Agreement. Except for payments of $124,998.00 due on each of September 1, 2001, March 1, 2002, September 1, 2002 and March 1, 2003 and a payment of $49,998.00 due on September 1, 2003, Odwalla has no current or future financial obligations under the Plea Agreement. Odwalla is in compliance with all provisions of the Plea Agreement, and the lien, if any, on Odwalla's assets in favor of the Government has been subordinated to the lien on Borrowers' assets in favor of the Bank. 9. COVENANTS The Borrowers agree, so long as credit is available under this Agreement and until the Bank is repaid in full: -18- 9.1 Use of Proceeds. To use the proceeds of the credit only for short term working capital, repayment of existing indebtedness, general corporate purposes and the issuance of letters of credit in the normal course of business. 9.2 Financial Information. To provide the following financial information and statements in form and content acceptable to the Bank, and such additional information as requested by the Bank from time to time: (a) Within 95 days of the Borrowers' fiscal year end, the Odwalla's annual financial statements. These financial statements must be audited (with an unqualified opinion) by a Certified Public Accountant acceptable to the Bank. The statements shall be prepared on a consolidated basis. (b) Within 45 days of the period's end (60 days in the case of the last period in each fiscal year), the Odwalla's quarterly financial statements, certified and dated by an authorized financial officer. These financial statements may be Borrower prepared. The statements shall be prepared on a consolidated basis. (c) Promptly, upon sending or receipts, copies of any management letters sent or received by any Borrower to or from such Borrower's auditor. (d) Copies of Odwalla's Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report within 5 days after the date of filing with the Securities and Exchange Commission. (e) Within the period(s) provided in (a) and (b) above, a compliance certificate signed by an authorized financial officer of Odwalla setting forth (i) the information and computations (in sufficient detail) to establish that Odwalla, on a consolidated basis, is in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished and (ii) to the knowledge of such person, whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default or event of default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrowers are taking and proposes to take with respect thereto. (f) A Borrowing Base certificate summarizing the Borrowers' accounts receivable and Grower Payables as of the last day of each month within 30 days after month end and, upon the Bank's request, copies of the record of invoices from each Borrower's sales journal for such accounts, copies of the purchase orders, shipping instructions, bills of lading and other documentation pertaining to such accounts, and copies of the cash receipts journal pertaining to the collateral certificate. (g) A detailed aging by invoice and a summary aging by account debtor of the combined receivables of Borrowers within thirty (30) days after the end of each month. (h) A summary aging by vendor of accounts payable, including Grower Payables, within thirty (30) days after the end of each month. -19- (i) If the Bank requires the Borrowers to deliver the proceeds of accounts receivable to the Bank upon collection by the Borrowers, a schedule of the amounts so collected and delivered to the Bank. (j) A listing of the names and addresses of all debtors obligated upon each Borrower's accounts receivable within thirty (30) days after the end of each of Borrowers' fiscal years. (k) Copies of all letters of credit issued in support of the Borrowers' accounts receivable. (l) Promptly upon the Bank's request, such other books, records, statements, lists of property and accounts, budgets, forecasts or reports as to the Borrowers and as to each guarantor of the Borrowers' obligations to the Bank as the Bank may reasonably request. Notwithstanding the foregoing, so long as the aggregate of outstanding advances and letters of credit is at no time greater than $2,000,000.00, Borrowers shall only be obligated to deliver the items described in clauses (f), (g) and (h) above on or before the date forty-five (45) days after the end of each fiscal quarter of the Borrowers, provided, however, that at such time Borrowers shall deliver the items described in clauses (f), (g) and (h) for the current month and each of the two (2) previous months. 9.3 Quick Ratio. Odwalla must maintain on a consolidated basis a ratio of quick assets to current liabilities of at least .70:1.0 as of the last day of each of Borrowers' fiscal quarters: "Quick assets" means cash, short-term cash investments in non-affiliated entities, net trade receivables and marketable securities not classified as long-term investments. "Current liabilities" shall include all obligations classified as current liabilities under generally accepted accounting principles, plus all principal amounts outstanding under revolving lines of credit, whether classified as current or long-term, which are not already included above. 9.4 Total Liabilities to Tangible Net Worth. Odwalla must maintain on a consolidated basis a ratio of total liabilities to tangible net worth not exceeding 1.25:1.0 as of the last day of each of Borrowers' fiscal quarters: "Total liabilities" means the sum of current liabilities plus long term liabilities. "Tangible net worth" means the gross book value of the Borrowers' assets (excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, deferred receivables, and other like intangibles, and monies due from Affiliates in excess of $50,000.00, and monies due from officers or directors of the Borrowers less total liabilities, including but not limited to accrued and deferred income taxes, and any reserves against assets. 9.5 Fixed Charge Coverage Ratio. Odwalla must maintain on a consolidated basis a Fixed Charge Coverage Ratio of at least 1.50:1.0. -20- "Fixed Charge Coverage Ratio" means the ratio of (a) the sum of EBITDA, minus capital expenditures incurred during such period which are not financed by third party financiers, to (b) the sum of the current portion of long term debt (including the current portion of capital leases) plus interest expense plus cash taxes paid. "EBITDA" means the sum of net income (or net loss) before taxes, plus interest expense (less interest income), plus depreciation plus amortization (excluding restructuring charges in the fiscal quarter ended March 3, 2001 and charges related to the closing of the Borrowers' facility in Saco, Maine, not to exceed $3,500,000.00). This ratio will be calculated at the end of each fiscal quarter, using the results of that quarter and each of the 3 immediately preceding quarters. 9.6 Limitation on Losses. Not incur on a consolidated basis a net loss before taxes and extraordinary items in any 2 consecutive quarterly accounting periods after the quarterly accounting period ending December 2, 2000. 9.7 Other Debts. Not to have outstanding or incur any direct or contingent indebtedness (other than those to the Bank), or become liable for the indebtedness of others, without the Bank's written consent. This does not prohibit: (a) Acquiring goods, supplies, or merchandise on normal trade credit and other trade payables incurred in the ordinary course of business. (b) Endorsing negotiable instruments received in the usual course of business. (c) Obtaining surety bonds in the usual course of business. (d) Indebtedness existing on the date of this Agreement and listed on Schedule 9.7 and any renewals, extensions or replacements thereof. (e) Purchase money indebtedness (including capital leases) in equipment and other fixed assets acquired after the date of this Agreement in an aggregate amount not greater than $ 2,000,000.00 and any renewals, extensions or replacements thereof. 9.8 Other Liens. Not to create, assume, or allow any security interest or lien (including judicial liens) on property any Borrower now or later owns, except the following ("Permitted Liens"): (a) Liens and security interests in favor of the Bank. (b) Liens for taxes not yet due or which are being contested by any Borrower in good faith by appropriate proceedings for which adequate reserves in accordance with generally accepted accounting principles, consistently applied, are being maintained provided no such lien shall be prior to the Bank's lien provided by this Agreement. (c) Purchase money security interests in equipment and other fixed assets existing on the date of this Agreement and listed in Schedule 9.8 and any renewals, extensions or replacements thereof. -21- (d) Additional purchase money security interests in equipment or other personal property fixed assets acquired after the date of this Agreement to secure the indebtedness permitted by Section 9.7(e), provided such liens may only secure the property being acquired and any renewals, extensions or replacements thereof. (e) Liens of carriers', warehousemen's, materialmen's and mechanics' and other similar liens imposed by law arising in ordinary course of business which are not delinquent or which are being contested by any Borrower in good faith by appropriate proceedings for which adequate reserves in accordance with generally accepted accounting principles, consistently applied, are being maintained provided no such lien shall be prior to the Bank's lien provided by this Agreement. (f) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security legislation. (g) Liens arising by operation of law and in the ordinary course of the Borrowers' business securing amounts the Borrowers owe to growers of agricultural products purchased by Borrowers for resale, processing or use in producing Borrowers' inventory, provided such obligations are not past due ("Growers' Liens"). 9.9 Capital Expenditures. Not to spend in Capital Expenditures more than $6,500,000.00 in Borrowers' fiscal year 2001 or more than $7,500,000.00 in Borrowers' fiscal year 2002, excluding any capital amounts spent by Borrowers to expand their facility in Loxahatchee, Florida. "Capital Expenditures" means capital expenditures as reported in the Statement of Cash Flows in Odwalla's annual financial statements audited (with an unqualified opinion) by a Certified Public Accountant acceptable to Bank and prepared in accordance with generally accepted accounting principles, consistently applied. 9.10 Dividends. Not to declare or pay any dividends on any of the Borrowers' shares except dividends payable in capital stock of Odwalla, and except as Borrowers may be obligated on the date of this Agreement, not to purchase, redeem or otherwise acquire for value any of the Borrowers' shares, or create any sinking fund in relation thereto except (a) in exchange for or upon conversion of any warrants, options or other rights to purchase capital stock and (b) any purchase of any shares from directors, officers or employees, the total of (a) and (b) not to exceed $100,000.00 in any one fiscal year. 9.11 Loans and Investments. Not to have any existing, or make any new, loans or other extensions of credit to, or investments in, any individual or entity, or make any capital contributions or other transfers of assets to, any individual or entity, except for: (a) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business. (b) investments in any of the following: (i) certificates of deposit; -22- (ii) U.S. treasury bills and other obligations of the federal government. (c) advances between Odwalla and Fresh Samantha. (d) investments in the form of loans or advances to officers, employees and agents in the ordinary course of business and consistent with Borrower's usual and customary practice for travel expenses, entertainment expenses, relocation expenses and other similar business-related expenses, in no case to exceed $250,000.00 in the aggregate. (e) investments outstanding on the date of this Agreement disclosed in writing to the Bank on Schedule 9.11. (f) other investments not otherwise described above provided that the aggregate amount of all such investments made from time to time after the date of this Agreement shall not exceed $500,000.00. 9.12 Change of Ownership. Not to cause, permit, or suffer any person not a shareholder on the date of this Agreement to own, directly or indirectly, in excess of 15% of Odwalla's capital ownership and not to cause, permit or suffer any shareholder on the date of this Agreement to acquire, directly or indirectly, in excess of an additional 15% of Odwalla's capital ownership. 9.13 Notices to Bank. To promptly notify the Bank in writing of: (a) any lawsuit over Five Hundred Thousand and no/100 Dollars ($500,000.00) against the Borrowers (or any guarantor) that could reasonably be expected to have a Material Adverse Effect. (b) any substantial dispute between any Borrower and any government authority that could reasonably be expected to have a Material Adverse Effect. (c) any event of default under this Agreement, or any event which, with notice or lapse of time or both, would constitute an event of default. (d) any material adverse change in the Borrowers', taken as a whole, business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit. (e) any change in any Borrower's name, legal structure, place of business, or chief executive office if such Borrower has more than one place of business. (f) any actual contingent liabilities of any Borrower, and any such contingent liabilities which are reasonably foreseeable, where such liabilities are in excess of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) in the aggregate. 9.14 Books and Records. To maintain adequate books and records. -23- 9.15 Audits. To allow the Bank and its agents to inspect the Borrowers' properties and examine, audit, and make copies of books and records at any reasonable time. If any of the Borrowers' properties, books or records are in the possession of a third party, the Borrowers authorize that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank's requests for information concerning such properties, books and records. 9.16 Compliance with Laws. To comply with the laws (including any fictitious name statute), regulations, and orders of any government body with authority over each Borrower's business except to the extent such failure to comply would have a Material Adverse Effect. 9.17 Preservation of Rights. To maintain and preserve all rights, privileges, and franchises each Borrower now has unless any such Borrower determines in its reasonable business judgment that any such rights, privileges or franchises are no longer needed. 9.18 Maintenance of Properties. To make any repairs, renewals, or replacements to keep each Borrower's properties in good working condition. 9.19 Perfection of Liens. To help the Bank perfect and protect its security interests and liens, and reimburse it for related costs it incurs to protect its security interests and liens. 9.20 Cooperation. To take any action reasonably requested by the Bank to carry out the intent of this Agreement. 9.21 Insurance. (a) Insurance Covering Collateral. To maintain all risk property damage insurance policies covering the tangible property comprising the collateral. Each insurance policy must be in an amount acceptable to the Bank. The insurance must be issued by an insurance company with an A.M. Best's rating of "A+" or better and must include a lender's loss payable endorsement in favor of the Bank in a form acceptable to the Bank. (b) General Business Insurance. To maintain insurance as is usual for the business it is in with the Bank named as an additional loss payee. (c) Business Interruption Insurance. To maintain a business interruption insurance policy for at least Fifty Million and no/100 Dollars ($50,000,000.00) with an insurer with an A.M. Best's rating of "A+" or better, and with the Bank named as an additional loss payee. (d) Evidence of Insurance. Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force. 9.22 Additional Negative Covenants. Not to, without the Bank's written consent: -24- (a) engage in any business activities substantially different from the Borrowers' or any Borrower's present business or reasonably related ancillary or complementary thereto. (b) liquidate or dissolve the Borrowers' or any Borrower's business. (c) enter into any consolidation, merger, or other combination, or become a partner in a partnership, a member of a joint venture, or a member of a limited liability company. (d) sell, assign, lease, transfer or otherwise dispose of any accounts receivable or enter into any agreement to do so or sell, assign, lease transfer or otherwise dispose of any inventory (except in the ordinary course of business) or any part of the Borrowers' or any Borrower's business or the Borrowers' or any Borrower's assets (except in the ordinary course of business), or enter into any agreement to do so, or sell, assign, lease, transfer or otherwise dispose of assets for less than fair market value, or enter into any agreement to do so, other than any disposition of (i) assets that are obsolete, worn-out or no longer useful in such business and (ii) any disposition in connection with the closing of the Borrowers' facility in Saco, Maine. (e) enter into any sale and leaseback agreement covering any of its fixed assets. (f) acquire or purchase a business or its assets or acquire any subsidiaries. (g) voluntarily suspend its business for more than 7 days in any 365 day period. (h) transfer any of the Borrowers' assets to a trust. 9.23 Bank as Principal Depository. On or before the date that is 30 days after the date of this Agreement, to maintain the Bank as the Borrowers' principal depository bank, including for the maintenance of business, cash management, operating and administrative deposit accounts. 9.24 ERISA Plans. With respect to a Plan subject to Title IV of ERISA, to give prompt written notice to the Bank of: (a) The occurrence of any reportable event under Section 4043(c) of ERISA for which the PBGC requires 30-day notice. (b) Any action by any Borrower or any ERISA Affiliate to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. -25- 9.25 Consignments. Prior to placement of any inventory on consignment with any person ("Consignee"): (a) To provide the Bank with all consignment agreements and other documents to be used in connection with such consignment, all of which must be acceptable to the Bank; (b) To file appropriate financing statements with respect to the consigned inventory showing the Consignee as debtor, the Borrower(s) as secured party, and the Bank as assignee of secured party; (c) To file appropriate financing statements with respect to the consigned inventory showing the Borrower(s) as debtor and the Bank as secured party; (d) After all financing statements referred to above have been filed, to conduct a search of all filings made against the Consignee in all jurisdictions in which the consigned inventory is to be located, and deliver to the Bank copies of the results of all such searches; (e) To notify, in writing, all creditors of the Consignee which are or may be holders of security interests in the inventory to be consigned that the Borrower(s) expect(s) to deliver certain inventory to the Consignee, all of which inventory shall be described in such notice by item or type. 9.26 Patent and Trademark Filings. On or before the date which is 90 days after the date of this Agreement, Borrowers shall duly execute and deliver to Bank all security agreements, in form and substance satisfactory to Bank, granting Bank a security interest in all of Borrowers' patents and trademarks and Borrowers shall cause to be filed, at Borrowers' expense, all patent and trademark filings, in form and substance satisfactory to Bank, required to perfect Bank's first priority lien in such patents and trademarks and shall furnish Bank with evidence satisfactory to Bank thereof. Borrowers shall promptly reimburse Bank within five business days after demand for all expenses incurred by Bank in connection with such filings. 9.27 Landlord's Waiver. On or before the date which is 30 days after the date of this Agreement, Borrowers shall cause to be executed and delivered to Bank by the owner of the real property at 120 Stone Pine Road, Half Moon Bay, California, a consent for the removal of any personal property collateral located on such real property, in form and substance satisfactory to Bank. 10. HAZARDOUS SUBSTANCES 10.1 Site Visits, Observations and Testing. The Bank and its agents and representatives will have the right at any reasonable time, after giving reasonable notice to the Borrowers, to enter and visit any locations where the collateral securing this Agreement (the "Collateral") is located for the purposes of observing the Collateral, taking and removing environmental samples, and conducting tests. The Bank will make reasonable efforts during any site visit, observation or testing conducted pursuant this paragraph to avoid interfering with the Borrowers' use of the Collateral. The Bank is under no duty to observe the Collateral or to -26- conduct tests, and any such acts by the Bank will be solely for the purposes of protecting the Bank's security and preserving the Bank's rights under this Agreement. No site visit, observation or testing or any report or findings made as a result thereof ("Environmental Report") (i) will result in a waiver of any default of the Borrowers; (ii) impose any liability on the Bank; or (iii) be a representation or warranty of any kind regarding the Collateral (including its condition or value or compliance with any laws) or the Environmental Report (including its accuracy or completeness). In the event the Bank has a duty or obligation under applicable laws, regulations or other requirements to disclose an Environmental Report to the Borrowers or any other party, the Borrowers authorize the Bank to make such a disclosure. The Borrowers further understands and agree that any Environmental Report or other information regarding a site visit, observation or testing that is disclosed to the Borrowers by the Bank or its agents and representatives is to be evaluated (including any reporting or other disclosure obligations of the Borrowers) by the Borrowers without advice or assistance from the Bank. 10.2 Definition of Hazardous Substances. "Hazardous substances" means any substance, material or waste that is or becomes designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or regulation under any federal, state or local law (whether under common law, statute, regulation or otherwise) or judicial or administrative interpretation of such, including without limitation petroleum or natural gas. This indemnity will survive repayment of the Borrowers' obligations to the Bank. 11. DEFAULT If any of the following events (each an "event of default") occurs, the Bank may do one or more of the following: declare the Borrowers in default, stop making any additional credit available to the Borrowers, and require the Borrowers to repay their entire debt immediately and without prior notice. If an event of default occurs under the paragraph entitled "Bankruptcy," below, with respect to any Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately. 11.1 Failure to Pay. Any Borrower fails to make a payment under this Agreement when due. 11.2 Lien Priority. The Bank fails to have an enforceable first lien (except for any Growers' Liens) on or security interest in any property given as security for this Agreement (or any guaranty). 11.3 False Information. Any Borrower has given the Bank materially false or misleading information or representations. 11.4 Bankruptcy. Any Borrower or any general partner of any Borrower files a bankruptcy petition, a bankruptcy petition is filed against any Borrower or any general partner of any Borrower which is not discharged within 60 days of filing, or any Borrower or any general partner of any Borrower makes a general assignment for the benefit of creditors. 11.5 Receivers. A receiver or similar official is appointed for a substantial portion of any Borrower's business, or the business is terminated. -27- 11.6 Lawsuits. Any lawsuit or lawsuits are filed against any one or more of the Borrowers which in the reasonable judgment of the Borrowers would result in a judgment in excess of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) or more in excess of any insurance coverage. 11.7 Judgments. Any final judgments or arbitration awards are entered against any one or more of the Borrowers, or any one or more of the Borrowers enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) or more in excess of any insurance coverage, which is not dismissed, discharged, satisfied, stayed or bonded pending appeal within 30 days thereof, provided, however, that any judgment, arbitration award, or settlement with respect thereto which creates a lien on the collateral granted to the Bank under this Agreement shall be an event of default. 11.8 Government Action. Any government authority takes action that the Bank believes materially adversely affects Borrowers' financial condition, taken as a whole, or ability to repay. 11.9 Material Adverse Change. A material adverse change occurs in Borrowers' business condition (financial or otherwise), operations, properties or prospects, taken as a whole, or ability to repay the credit. 11.10 Cross-default. Any default occurs by any Borrower under any agreement in connection with any credit any Borrower has obtained from anyone else, or which any Borrower has guaranteed which would permit the creditor thereunder to accelerate any obligation or obligations in an aggregate amount exceeding $250,000.00, or any default occurs by Odwalla under the Plea Agreement. 11.11 Other Bank Agreements. Any Borrower fails to meet the conditions of, or fails to perform any obligation under any other agreement any Borrower has with the Bank or any affiliate of the Bank. If, in the Bank's opinion, the breach is capable of being remedied, the breach, unless such breach is a failure to make any payment when due, will not be considered an event of default under this Agreement for a period of ten (10) days after the date on which the Bank gives written notice of the breach to the Borrowers; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrowers during that period. 11.12 ERISA Plans. Any one or more of the following events occurs with respect to a Plan of any Borrower subject to Title IV of ERISA, provided such event or events could reasonably be expected, in the reasonable judgment of the Bank, to subject such Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of such Borrower: (a) A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan. (b) Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by such Borrower or any ERISA Affiliate. -28- 11.13 Other Breach Under Agreement. Any Borrower fails to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to in this Article or any default occurs under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement or any such document is no longer in effect, or any guarantor purports to revoke or disavow the guaranty. This includes any failure by any Borrower to comply with any financial covenants set forth in this Agreement, whether such failure is evidenced by financial statements delivered to the Bank or is otherwise known to any Borrower or the Bank. If the breach is capable of being remedied, the breach will not be considered an event of default under this Agreement for a period of ten (10) days after the date on which the Bank gives written notice of the breach to such Borrower; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrowers during that period. 12. ENFORCING THIS AGREEMENT; MISCELLANEOUS 12.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied. 12.2 California Law. This Agreement is governed by California law. 12.3 Successors and Assigns. This Agreement is binding on the Borrower's and the Bank's successors and assignees. The Borrower agrees that it may not assign this Agreement without the Bank's prior consent. 12.4 Arbitration and Waiver of Jury Trial. (a) This paragraph concerns the resolution of any controversies or claims between one or more of the Borrowers and the Bank, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this Agreement (including any renewals, extensions or modifications); or (ii) any document related to this Agreement (collectively a "Claim"). (b) At the request of any Borrower or the Bank, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U. S. Code) (the "Act"). The Act will apply even though this Agreement provides that it is governed by the law of a specified state. (c) Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof ("JAMS"), and the terms of this paragraph. In the event of any inconsistency, the terms of this paragraph shall control. (d) The arbitration shall be administered by JAMS and conducted in any U. S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in California. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall -29- commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced. (e) The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement. (f) This paragraph does not limit the right of the Borrowers or the Bank to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or nonjudicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies. (g) The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property. In this case, both the Borrowers and the Bank must consent to submission of the Claim to arbitration. If both parties do not consent to arbitration, the Claim will be resolved as follows: The Borrowers and the Bank will designate a referee (or a panel of referees) selected under the auspices of JAMS in the same manner as arbitrators are selected in JAMS administered proceedings. The designated referee(s) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections. The referee (or the presiding referee of the panel) will be an active attorney or a retired judge. The award that results from the decision of the referee(s) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. (h) The filing of a court action is not intended to constitute a waiver of the right of the Borrowers or the Bank, including the suing party, thereafter to require submittal of the Claim to arbitration. (i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this Agreement. -30- 12.5 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing. 12.6 Administration Costs. The Borrowers shall pay the Bank for all reasonable costs incurred by the Bank in connection with administering this Agreement. 12.7 Attorneys' Fees. The Borrowers shall reimburse the Bank for any reasonable costs and attorneys' fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and in connection with any amendment, waiver, "workout" or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys' fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against any of the Borrowers under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys' fees incurred by the Bank related to the preservation, protection, or enforcement of any rights of the Bank in such a case. As used in this paragraph, "attorneys' fees" includes the allocated costs of the Bank's in-house counsel. 12.8 Joint and Several Liability. (a) Each Borrower agrees that it is jointly and severally liable to the Bank for the payment of all obligations arising under this Agreement, and that such liability is independent of the obligations of the other Borrower(s). The Bank may bring an action against any Borrower, whether an action is brought against the other Borrower(s). (b) Each Borrower agrees that any release which may be given by the Bank to the other Borrower(s) or any guarantor will not release such Borrower from its obligations under this Agreement. (c) Each Borrower waives any right to assert against the Bank any defense, setoff, counterclaim, or claims which such Borrower may have against the other Borrower(s) or any other party liable to the Bank for the obligations of the Borrowers under this Agreement. (d) Each Borrower waives any defense by reason of any other Borrower's or any other person's defense, disability, or release from liability. The Bank can exercise its rights against each Borrower even if any other Borrower or any other person no longer is liable because of a statute of limitations or for other reasons. (e) Each Borrower agrees that it is solely responsible for keeping itself informed as to the financial condition of the other Borrower(s) and of all circumstances which bear upon the risk of nonpayment. Each Borrower waives any right it may have to require the Bank to disclose to such Borrower any information which the Bank may now or hereafter acquire concerning the financial condition of the other Borrower(s). -31- (f) Each Borrower waives all rights to notices of default or nonperformance by any other Borrower under this Agreement. Each Borrower further waives all rights to notices of the existence or the creation of new indebtedness by any other Borrower and all rights to any other notices to any party liable on any of the credit extended under this Agreement. (g) The Borrowers represent and warrant to the Bank that each will derive benefit, directly and indirectly, from the collective administration and availability of credit under this Agreement. The Borrowers agree that the Bank will not be required to inquire as to the disposition by any Borrower of funds disbursed in accordance with the terms of this Agreement. (h) Until all obligations of the Borrowers to the Bank under this Agreement have been paid in full and any commitments of the Bank or facilities provided by the Bank under this Agreement have been terminated, each Borrower (a) waives any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory or otherwise), including without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11, United States Code) or any successor statute, which such Borrower may now or hereafter have against any other Borrower with respect to the indebtedness incurred under this Agreement; (b) waives any right to enforce any remedy which the Bank now has or may hereafter have against any other Borrower, and waives any benefit of, and any right to participate in, any security now or hereafter held by the Bank. (i) Each Borrower waives any right to require the Bank to proceed against any other Borrower or any other person; proceed against or exhaust any security; or pursue any other remedy. Further, each Borrower consents to the taking of, or failure to take, any action with respect to any other Borrower which might in any manner or to any extent vary the risks of the Borrower under this Agreement or which, but for this provision, might operate as a discharge of the Borrower. 12.9 One Agreement. This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between the Bank and the Borrowers concerning this credit; (b) replace any prior oral or written agreements between the Bank and the Borrowers concerning this credit; and (c) are intended by the Bank and the Borrowers as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. 12.10 Disposition of Schedules, Reports, Etc. Delivered by Borrowers. The Bank will not be obligated to return any schedules, invoices, statements, budgets, forecasts, reports or other -32- papers delivered by the Borrowers. The Bank will destroy or otherwise dispose of such materials at such time as the Bank, in its discretion, deems appropriate. 12.11 Returned Merchandise. Until the Bank exercises its rights to collect the accounts receivable as provided under any security agreement required under this Agreement, the Borrowers may continue their present policies for returned merchandise and adjustments. Credit adjustments with respect to returned merchandise shall be made immediately upon receipt of the merchandise by the Borrowers or upon such other disposition of the merchandise by the debtor in accordance with the Borrowers' instructions. If a credit adjustment is made with respect to any Acceptable Receivable, the amount of such adjustment shall no longer be included in the amount of such Acceptable Receivable in computing the Borrowing Base. 12.12 Verification of Receivables. The Bank may at any time, either orally or in writing, request confirmation from any debtor of the current amount and status of the accounts receivable upon which such debtor is obligated. 12.13 Waiver of Confidentiality. The Borrowers authorize the Bank to discuss the Borrowers' financial affairs and business operations with any accountants, auditors, business consultants, or other professional advisors employed by the Borrowers, and authorizes such parties to disclose to the Bank such financial and business information or reports (including management letters) concerning the Borrowers as the Bank may request. 12.14 Indemnification. Each Borrower will indemnify and hold the Bank harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed by the Bank to the Borrowers hereunder, (c) any claim, whether well-founded or otherwise, that there has been a failure to comply with any law regulating the Borrowers' sales or leases to or performance of services for debtors obligated upon the Borrowers' accounts receivable and disclosures in connection therewith, and (d) any litigation or proceeding related to or arising out of this Agreement, any such document, any such credit, or any such claim; provided that the Borrowers shall have no obligation to any indemnified person for any loss, liability, damages, judgments or costs resulting from such person's fraud, gross negligence or willful misconduct or breach of their obligations under this Agreement or any other agreement or instrument entered into in connection with this Agreement. This indemnity includes but is not limited to attorneys' fees (including the allocated cost of in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys, and assigns. This indemnity will survive repayment of the Borrowers' obligations to the Bank. All sums due to the Bank hereunder shall be obligations of the Borrowers, due and payable immediately without demand. 12.15 Notices. Unless otherwise provided in this Agreement or in another agreement between the Bank and the Borrowers, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Agreement, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as the Bank and the Borrowers may specify from time to time in writing. Notices and other communications sent by (a) first class mail shall be deemed delivered on the earlier of actual receipt or on the fourth business day after deposit in -33- the U.S. mail, postage prepaid, (b) overnight courier shall be deemed delivered on the next business day, and (c) telecopy shall be deemed delivered when transmitted. The parties acknowledge and agree that all notices (including requests for advances), certificates, consents, elections, requests and other communications from Borrowers to Bank under this Agreement or any agreements entered into in connection with this Agreement, may be made solely by Odwalla, acting on behalf of itself and Fresh Samantha. 12.16 Bank Products. The Borrowers may request and the Bank may, in its sole and absolute discretion, arrange for the Borrowers to obtain from the Bank or the Bank's affiliates Bank Products although the Borrowers are not required to do so. If Bank Products are provided by an affiliate of the Bank, each Borrower agrees to indemnify and hold the Bank harmless from any and all costs and obligations now or hereafter incurred by the Bank which arise from any indemnity given by the Bank to its affiliates related to such Bank Products; provided, however, nothing contained herein is intended to limit any Borrower's rights, with respect to the Bank or its affiliates, if any, which arise as a result of the execution of documents by and between any Borrower and the Bank or any of its affiliates which relate to Bank Products. The agreement contained in this Section shall survive termination of this Agreement. Each Borrower acknowledges and agrees that the obtaining of Bank Products from the Bank or the Bank's affiliates (a) is in the sole and absolute discretion of the Bank or the Bank's affiliates, and (b) is subject to all rules and regulations of the Bank or the Bank's affiliates. 12.17 Headings. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement. 12.18 Counterparts. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. -34- This Agreement is executed as of the date stated at the top of the first page. Bank of America, N.A. Odwalla, Inc., a California corporation By By --------------------------------- --------------------------------- Typed Name: John C. Plecque Typed Name: James R. Steichen Title: Senior Vice President Title: Chief Financial Officer By Fresh Samantha, Inc., --------------------------------- a Maine corporation Typed Name: Chris P. Giannotti Title: Senior Vice President By ---------------------------------- Typed Name: ------------------------- Title: ------------------------------ Address where notices to Address where notices to the Bank are to be sent: the Borrowers are to be sent: 125 South Market Street 120 Stone Pine Road San Jose, California 95113-2250 Half Moon Bay, California 94019-1791 Facsimile: (408) 277-7087 Facsimile: (650) 712-5967 -35- EX-10.19 7 f77494ex10-19.txt IMPORTANT NOTICE AND AGREEMENT Exhibit 10.19 ODWALLA, INC. IMPORTANT NOTICE AND AGREEMENT REGARDING TREATMENT OF VESTED AND UNVESTED OPTIONS IN TENDER OFFER UNDER THE ODWALLA, INC. STOCK OPTION PLAN ADOPTED IN 1993, 1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN AND AMENDED AND RESTATED 1997 STOCK OPTION/STOCK ISSUANCE PLAN 1. Attached as Exhibit A is a summary prepared by our stock plan administrator, which specifies all outstanding options you have been granted (the "Options") to acquire shares of Odwalla, Inc. ("Odwalla") common stock in accordance with an Option Agreement(s) under the Odwalla Stock Option Plan adopted in 1993, the Odwalla 1994 Non-Employee Directors' Stock Option Plan and/or the Odwalla Amended and Restated 1997 Stock Option/Stock Issuance Plan (as applicable, collectively and individually, the "Plan"). This Notice and Agreement explains the effect on your Options of the tender offer by The Coca-Cola Company ("TCCC") to purchase all outstanding Odwalla common stock in exchange for a cash payment at a price of $15.25 per share (the "Offer"), and the subsequent merger of a subsidiary of TCCC with and into Odwalla resulting in Odwalla becoming a wholly-owned subsidiary of TCCC (the "Merger"). PLEASE READ THROUGH THIS NOTICE AND AGREEMENT CAREFULLY, AS IT PROVIDES INSTRUCTIONS FOR WHAT YOU MUST DO TO OBTAIN A CASH PAYMENT FOR YOUR OPTIONS. 2. On October 29, 2001 the Odwalla Board of Directors, by entering into the Agreement and Plan of Merger among TCCC, TCCC Acquisition Corp. (formerly known as Perry Phillip Corp.) and Odwalla dated October 29, 2001 (the "Merger Agreement") resolved to automatically accelerate and fully vest all outstanding options under the Plan upon the completion of the Offer (the "Expiration Date") for each option holder who executes and returns to Odwalla this Notice and Agreement. Accordingly, all of your Options that are not vested immediately prior to the Expiration Date will automatically accelerate and become fully exercisable upon the Expiration Date, subject to the conditions that you timely execute and return this Notice and Agreement to Odwalla and the successful completion of the Offer in accordance with the terms of the Merger Agreement. The Expiration Date is currently scheduled for December 6, 2001, although it is possible it could be extended in accordance with the terms of the Offer. 3. Pursuant to the terms of the Merger Agreement, the Plan and all your Options thereunder will be cancelled and terminated in connection with the Offer and Merger. If the Offer is completed, you will be entitled to receive a cash payment in exchange for the cancellation and termination of your Options in an aggregate amount equal to (A) the product of (1) the number of shares of Odwalla common stock subject to your unexercised Options (both vested and unvested shares) and (2) the excess, if any, of the $15.25 per share Offer price over the applicable exercise price per share for the purchase of Odwalla common stock of your Options, minus (B) all applicable federal, state and local taxes required to be withheld in respect of such payment (such aggregate amount, the "Cash-Out"). Your right to a Cash-Out is limited by and subject to the terms and conditions (including forfeiture) of your Options as set forth in your Option Agreement and the Plan. 4. When you receive the Cash-Out depends upon whether you properly execute this Notice and Agreement. If you execute and return this Notice and Agreement in the enclosed envelope at any time prior to the Expiration Date, your Cash-Out will be paid to you in a lump sum as soon as administratively practical after the Expiration Date. However, if you do not execute and return this Notice and Agreement before the Expiration Date, you will not be entitled to receive your Cash-Out until the Merger is completed. It is possible that the completion of the Merger will not occur until several months after the Expiration Date. THUS, IN ORDER FOR YOU TO RECEIVE YOUR CASH-OUT AS SOON AS POSSIBLE, YOU MUST EXECUTE AND RETURN THIS NOTICE AND AGREEMENT BEFORE THE EXPIRATION DATE. 5. If you are an employee or former employee, the Internal Revenue Service will consider your Cash-Out as the payment of wages for tax purposes, and you will be taxed at ordinary income rates. As with regular wages or supplemental wage payments, Odwalla will be required to withhold from your Cash-Out an amount based on the ordinary income you will recognize. This paragraph pertaining to the federal income tax consequences resulting from your receipt of a Cash-Out does not purport to be complete and you should refer to the applicable provisions of the Code. The tax rules relating to Options are complex and subject to change, and your personal situation may be such that some variation of the described consequences applies. Furthermore, the summary does not address other taxes that may affect you such as state and local income taxes, state estate, inheritance and gift taxes and foreign taxes. You are strongly urged to consult with your own tax advisors before participating in the Cash-Out, exercising any vested Options or disposing of any shares acquired upon the exercise of your Option. 6. Again, by executing and returning this Notice and Agreement to Odwalla, you are agreeing to the cancellation and termination of your Options in exchange for the right to receive a Cash-Out following the Expiration Date, subject to the completion of the Offer. After returning this Notice and Agreement, you will have no further rights to acquire the Odwalla common stock represented by your Options if the Offer is completed. Regardless of whether or not you execute this Notice and Agreement, any unexercised Options will automatically expire upon the closing of the Merger and you will be paid the Cash-Out as soon as administratively practical after either the Expiration Date (if you execute and return this Notice and Agreement before the Expiration Date) or the closing of the Merger (if you do not). 7. Any questions about this Notice and Agreement or the effect of the Offer and Merger on your Options should be directed to Jim Steichen, Chief Financial Officer, 650-712-5517 or jsteiche@odwalla.com. Odwalla, Inc., a California corporation By: James R. Steichen Its: Chief Financial Officer I acknowledge receipt of a copy of this Notice and Agreement, and represent that I am familiar with the terms and provisions hereof. I have reviewed this Notice and Agreement in its entirety, have had an opportunity to obtain the advice of counsel prior to executing this Notice and Agreement, and fully understand all provisions of this Notice and Agreement. I hereby accept this Notice and Agreement subject to all of the terms and provisions hereof, and hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Odwalla stock plan administrator upon any questions arising under this Notice and Agreement. I further agree to notify Odwalla upon any change in my residence address indicated in this Notice and Agreement if such change should occur prior to my receipt of the Cash-Out. Dated: Signed: ----------------------------- ----------------------------- Optionee PRINT NAME: ------------------------------------- EXHIBIT A SUMMARY OF OUTSTANDING OPTIONS TO PURCHASE ODWALLA COMMON STOCK:
Applicable Name of Optionee Outstanding Options Option Plan(1) Exercise Price - ------------------------------------------ -------------------------- ------------------- -------------------- - ------------------------------------------ -------------------------- ------------------- --------------------
- -------- (1) The Odwalla, Inc. Stock Option Plan adopted in 1993 is referred to as "Plan 1." The Odwalla, Inc. 1994 Non-Employee Directors' Stock Option Plan is referred to as "Plan 2." The Odwalla, Inc. Amended and Restated 1997 Stock Option/Stock Issuance Plan is referred to as "Plan 3." EX-21.1 8 f77494ex21-1.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT Odwalla Canada, Inc., a corporation formed in British Columbia, Canada. Fresh Samantha, Inc., a Maine corporation EX-23.1 9 f77494ex23-1.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-78752, 33-90162, 333-03426 and 333-34117) of Odwalla, Inc. of our report dated November 16, 2001 relating to the financial statements appearing on page 40 of this Form 10-K. PricewaterhouseCoopers LLP San Francisco, California November 16, 2001 -----END PRIVACY-ENHANCED MESSAGE-----