<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ODWALLA LOGO]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 28, 1998
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
incorporation or organization) Identification No.)
120 Stone Pine Road, Half Moon Bay, CA 94019
(Address and zip code of principal executive offices)
(650) 726-1888
(Registrant's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check [X] 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, no par value 5,060,651 shares
(Class) (Outstanding at January 6, 1999)
<PAGE> 2
[ODWALLA LOGO]
ODWALLA, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 28, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of August 29, 1998
and November 28, 1998......................................... 3
Consolidated Statements of Operations for the thirteen week
periods ended November 29, 1997 and November 28, 1998......... 4
Consolidated Statements of Cash Flows for the thirteen week
periods ended November 29, 1997 and November 28, 1998......... 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
Part II. Other Information
Item 1. Legal Proceedings....................................... 18
Item 6. Exhibits and Reports on Form 8-K........................ 19
</TABLE>
2
<PAGE> 3
[ODWALLA LOGO]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ODWALLA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 29, NOVEMBER 28,
1998 1998
---------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,191 $ 2,738
Trade accounts receivable, less allowance for doubtful
accounts of $588 and $666 5,491 5,386
Inventories 3,044 3,188
Prepaid expenses and other 796 900
Deferred tax assets 1,164 1,238
-------- --------
Total current assets 13,686 13,450
-------- --------
Plant, property and equipment, net 13,135 12,909
-------- --------
Other assets
Excess of cost over net assets acquired, net 1,225 1,198
Covenants not to compete, net 606 579
Deferred tax assets 366 377
Other 332 318
-------- --------
Total other assets 2,529 2,472
-------- --------
Total assets $ 29,350 $ 28,831
======== ========
Current liabilities
Accounts payable $ 5,339 $ 5,593
Accrued payroll and related items 1,091 1,441
Line of credit 2,044 1,987
Other accruals 2,963 2,544
Current maturities of capital lease obligations 159 112
Current maturities of long-term debt 421 388
-------- --------
Total current liabilities 12,017 12,065
Long-term debt, less current maturities 888 800
-------- --------
Total liabilities 12,905 12,865
-------- --------
Shareholders' equity (Note 6)
Preferred stock, no par value, shares authorized, 5,000,000;
no shares issued and outstanding
Common stock, no par value, shares authorized, 15,000,000;
shares issued and outstanding, 5,061,000 and 5,061,000 29,499 29,499
Retained earnings (deficit) (13,054) (13,533)
-------- --------
Total shareholders' equity 16,445 15,966
-------- --------
Total liabilities and shareholders' equity $ 29,350 $ 28,831
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
[ODWALLA LOGO]
ODWALLA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS WEEKS
ENDED ENDED
NOVEMBER 29, NOVEMBER 28,
1997 1998
------------ ------------
<S> <C> <C>
Net sales $ 14,150 $ 15,332
Cost of sales 7,111 7,636
-------- --------
Gross profit 7,039 7,696
-------- --------
Operating expenses
Sales and distribution 4,849 5,563
Marketing 575 796
General and administrative 1,740 1,827
-------- --------
Total operating expenses 7,164 8,186
-------- --------
Loss from operations (125) (490)
Other income (expense)
Interest income (expense), net (15) (69)
Other (61) (4)
-------- --------
Loss before income taxes (201) (563)
Income tax benefit (26) (84)
-------- --------
Net loss $ (175) $ (479)
======== ========
Net loss per common share $ (0.03) $ (0.09)
======== ========
Weighted average common shares
outstanding 5,033 5,062
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
[ODWALLA LOGO]
ODWALLA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS WEEKS
ENDED ENDED
NOVEMBER 29, NOVEMBER 28,
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (175) $ (479)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 577 579
Deferred taxes (26) (86)
Loss from disposal of assets -- 83
Changes in assets and liabilities
Trade accounts receivable (343) 106
Inventories 119 (145)
Refundable income taxes 660 --
Prepaid expenses and other current assets (161) (104)
Other noncurrent assets -- 13
Accounts payable (264) 254
Accrued payroll and related items 245 351
Other accrued liabilities (508) (420)
------- -------
Net cash provided by operating activities 124 152
------- -------
Cash flows from investing activities
Capital expenditures (194) (378)
Proceeds from short-term investments, net 1,008 --
------- -------
Net cash provided by (used in) investing activities 2,523 (378)
------- -------
Cash flows from financing activities
Principal payments under long-term debt (14) (115)
Net borrowings under line of credit 56 (58)
Payments of obligations under capital leases (50) (54)
Sale of common stock 130 --
------- -------
Net cash provided by (used in) financing activities 122 (227)
------- -------
Net increase (decrease) in cash and cash equivalents 1,060 (453)
Cash and cash equivalents, beginning of period 2,217 3,191
------- -------
Cash and cash equivalents, end of period $ 3,277 $ 2,738
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation. The accompanying consolidated balance sheet of
Odwalla, Inc. and its subsidiary ("Odwalla" or "Company") at November 28, 1998
and the related consolidated statements of operations and of cash flows for each
of the thirteen-week periods ended November 29, 1997 and November 28, 1998 have
not been audited by independent accountants. However, in management's opinion,
they include all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position and the results of
operations for the periods presented. The statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosure normally included in
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The operating results for the interim periods are not necessarily
indicative of results to be expected for an entire year. The aforementioned
statements should be read in conjunction with the consolidated financial
statements for the year ended August 29, 1998 appearing in Odwalla's 1998 Annual
Report on Form 10-K.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
August 29, November 28,
1998 1998
--------- ------------
<S> <C> <C>
Raw materials $ 1,755 $ 1,796
Packaging supplies and other 485 597
Inventory deposits 223 223
Finished product 581 572
-------- ---------
Total $ 3,044 $ 3,188
======== =========
</TABLE>
3. PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
August 29, November 28,
1998 1998
--------- ------------
<S> <C> <C>
Land $ 1,046 $ 1,046
Buildings and building improvements 7,205 7,205
Leasehold improvements 2,490 1,310
Machinery and equipment 7,054 7,200
Vehicles 538 520
Other 3,179 3,177
-------- ---------
21,512 20,458
Less accumulated depreciation and
amortization (8,377) (7,549)
-------- ---------
Plant, property and equipment, net $ 13,135 $ 12,909
======== =========
</TABLE>
6
<PAGE> 7
ODWALLA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EARNINGS PER COMMON 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. We had no dilutive common equivalent shares
during either of the quarters presented due to the reported net loss.
5. RECLASSIFICATION
To conform with fiscal 1999 financial statement presentation, we
reclassified certain fiscal 1998 expenses to be comparable to the new
classification. The main reclassification was a $93,000 increase in fiscal 1998
sales and distribution costs and a corresponding decrease in general and
administrative expenses.
6. SUBSEQUENT EVENT
On January 7, 1999, we signed an agreement with Catterton-Simon Partners
III, L.P. ("Catterton-Simon"), a Delaware limited partnership, to sell 1,000,000
shares of Odwalla Series A Preferred Stock ("Series A Stock") at $8.00 per
share. The Series A Stock will receive an 8% annual dividend which is payable in
either cash or additional Series A Stock, at our discretion. The dividend is
payable semi-annually. All Series A Stock is 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 are 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 dividend, 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
expires in seven years.
We will also pay fees and issue 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. We expect the funding under this agreement to take place on or about
January 27, 1999. Total costs of the transaction are not yet determined, but we
estimate costs of approximately $700,000, including the financial advisor fees,
reimbursement of certain costs of Catterton-Simon and other transaction costs.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-Q 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 "anticipate" or we
"believe" are forward-looking statements. Investors should be aware that actual
results may differ materially from our expressed expectations because of risks
and uncertainties about the future. We will not necessarily update the
information in this Form 10-Q if any forward-looking statement later turns out
to be inaccurate. Details about risks affecting various aspects of our business
are discussed throughout this Form 10-Q. Investors should read all of these
risks carefully. Investors should also refer to Odwalla's Form 10-K for the year
ended August 29, 1998, including our financial statements and related notes
included in that Form 10-K, and other documents that we file from time to time
with the Securities and Exchange Commission in conjunction with the following
discussion and analysis.
OVERVIEW
Odwalla's business is to provide easy access to great tasting
nourishment. We are the leading branded fresh juice and beverage company in the
country, serving selected markets in the western, mid-west and mid-Atlantic
regions of the United States. Odwalla's complete product line consists of more
than 25 fresh-squeezed and nutritionally fortified juices and smoothies,
all-natural meal replacement beverages, geothermal natural spring water and
all-natural food bars. Our beverage product line appeals to many consumers
because of its superior taste of fresh and minimally processed beverages and
greater nutritional value compared to juice from concentrate or with artificial
flavors.
We want to be the leading nourishment company in our existing and future
markets. We seek to achieve this objective by leading the industry in beverage
and other 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.
Our current product line consists of single-flavor and blended fruit and
vegetable based juice products, meal replacement beverages, wholesome food bars
and natural spring water. Except for our 100% fresh squeezed citrus line, all
juices are minimally processed (some produced on a seasonal basis). These
products are currently sold in California, Washington, Oregon, Colorado, New
Mexico, Nevada, Texas, Illinois, Wisconsin, Arizona, Michigan, Minnesota,
Pennsylvania, Maryland and the Washington, D.C. area.
Odwalla's sourcing procedures and production methods enable us to create
products with high nutritional and flavor quality. The distribution of our
products through both our own and other direct-store-delivery ("DSD") systems
allows us to control product quality and presentation, as well as to develop
relationships with trade partners. Odwalla sells and distributes our products to
almost 3,000 retail locations, including supermarkets, specialty retailers,
natural food stores, warehouse outlets, convenience stores and food service
operators through our DSD 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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
PRODUCT RECALL
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 (the "Recall") of all Odwalla products containing apple
juice. We experienced a significant decline in sales immediately following the
Recall and we weren't able to immediately and significantly modify certain
on-going production, distribution and other costs.
Twenty-two 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. Eighteen of these claims and
proceedings have been settled. Settlement of the personal injury legal
proceedings and other Recall damage claims was covered under our insurance
policy. At this time, we are unable to determine the potential liability from
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.
Odwalla maintains insurance coverage for product recall, product
adulteration, lost income and other first party business risks. We submitted a
claim to our insurance carriers for product recall costs and for business losses
incurred due to the Recall. The amount and timing of proceeds, if any, from the
claims and any future insurance claims cannot be presently determined.
RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED NOVEMBER 29, 1998 COMPARED TO
THIRTEEN WEEKS ENDED NOVEMBER 29, 1997
The following table presents, as a percentage of net sales, certain
statements of operations data for the thirteen-week periods ended November 29,
1997 and November 28, 1998. These periods represent the first quarter of each
fiscal year. These operating results are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS WEEKS
ENDED ENDED
NOVEMBER 29, NOVEMBER 28,
1997 1998
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 50.3 49.8
----- -----
Gross margin 49.7 50.2
----- -----
Operating expenses
Sales and distribution 34.3 36.3
Marketing 4.1 5.2
General and administrative 12.3 11.9
----- -----
Loss from operations (0.9) (3.2)
Interest and other income (expense), net (0.5)
(0.5)
Income tax benefit 0.2 0.6
----- -----
Net loss) (1.2)% (3.1)%
===== =====
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
NET SALES. Net sales for the first quarter of fiscal 1999 increased 8.4%
to $15.3 million compared to $14.2 million in the first quarter of fiscal 1998.
We experienced most of that growth in our DSD business in all market categories,
and particularly in our newest markets. We also experienced growth in our
distributor business, both in existing markets and in our expansion markets
(Arizona, Chicago, Detroit, Minneapolis and Philadelphia) where our volume was
minimal in the first quarter of fiscal 1998. Because we sell product to
distributors at a wholesale price lower than the price to retail trade partners,
our increased use of distributors will not produce the same net sales growth
that would occur if the same number of products were sold to retail trade
partners. Our food bar business, which was introduced at the very end of fiscal
1998, was also an important factor this quarter although food bar sales
represented less than 5% of our net sales. We did not enter any new geographic
markets in the first quarter of fiscal 1999.
COST OF SALES. Cost of sales increased to $7.6 million in the first
quarter of fiscal 1999 compared to $7.1 million for the same period during
fiscal 1998. Gross margin as a percentage of net sales was 50.2% in the first
quarter of fiscal 1999, an increase from 49.7% when compared to the first
quarter of fiscal 1998. Gross margin increased primarily due to (a) favorable
pricing and yield for fruit and other beverage ingredients and (b) decreases in
product returns, offset to some extent by (c) introductory margins on new
product, and (d) increases in labor and co-packing costs. The continued use of
third party distributors also negatively affected gross margins.
As we have previously mentioned, we don't expect fruit pricing to be as
favorable in the second quarter of fiscal 1999 as previous winter quarters due
to weather conditions affecting Florida oranges. In late December, 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 impact on the California Valencia crop,
much of which is produced in the San Joaquin valley, isn't yet known. The
immediate affect of the freeze was to raise the price of the fresh oranges we
purchase and, to a lesser extent, tangerines. Although we don't use California
navel oranges extensively during this time of year, the overall supply of fresh
citrus was reduced, resulting in increased prices.
As a result of the citrus freeze, we may now be more dependent upon
alternative and more expensive sources of fresh supply than in prior years. We
will continue to use our extensive network of grower contacts to seek to obtain
a continual supply of fresh ingredients. The affect on orange ingredient costs
to Odwalla is not yet fully determined, but we may experience higher orange
costs for the remainder of the fiscal year and possibly into the early fall. We
expect that the impact of the freeze on second quarter financial results will
result in an operating loss.
In an attempt to offset the increased costs, we are implementing a price
increase on many of our beverage products, although the price impact won't
become effective until the latter part of the second quarter of fiscal 1999. At
this time, we aren't able to determine either the extent to which consumers will
accept the price increase or the degree by which the price increase will offset
the expected costs of increased raw materials. The overall freeze impact may
cause an operating loss beyond the second quarter and for fiscal 1999.
SALES AND DISTRIBUTION. Sales and distribution expenses were $5.6
million in the first quarter of fiscal 1999 compared to $4.8 million in the
first quarter of fiscal 1998, and increased as a percentage of net sales to
36.3% from 34.3% last year. The increase, in both absolute dollars and as a
percentage of net sales, results from an increase in our expansion efforts
compared to last year and some increase in both sales and operations support
structured for a higher sales volume than we achieved this quarter. Future
decisions regarding growth and expansion consistent with long-term strategic
objectives may increase sales and distribution costs as a percentage of net
sales as compared to their pre-Recall levels. In both the sales and cost of
sales discussions above, we mentioned the impact that the expanded use of third
party distributors would have on each line item. We continue to look for
efficiencies in this part of our business. However, expansion into markets
serviced by our DSD system, such as the Washington, D.C. area, will require an
investment for some initial
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
period. Expenses will also be affected as we experiment to find the proper mix
between third party distributors and our DSD system in a given market. The
perishable nature of most of our products and the stringent service standards
established can make it difficult to find responsible distributors in some
markets.
In late December 1998, Mr. Doug Hrdlicka joined Odwalla as Senior Vice
President, Sales and Operations. Mr. Hrdlicka has many years of sales and
operations experience, including DSD and other distributor operations. After
completing his review of our current organizational structure, Mr. Hrdlicka may
suggest changes which could result in initial additional costs.
MARKETING. Marketing expenses increased to $796,000 in the first quarter
of fiscal 1999 compared to $575,000 in the first quarter of fiscal 1998, and
increased as a percentage of net sales. Most of the change from last year
results from increased product tastings, both in retail stores and at community
events. We expect marketing expenses to increase in both dollars and as a
percentage of net sales.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased to $1.8 million in the first quarter of fiscal 1999 from $1.7 million
in the first quarter of fiscal 1998, and decreased as a percentage of net sales
to 11.9% from 12.3% last year. The change was primarily due to an increase in
payroll as several open positions were not filled until later in fiscal 1998. We
don't expect general and administrative costs for the remainder of fiscal 1999
to increase significantly in absolute dollars when compared to the prior year.
However, there can be no assurance that general and administrative costs will
not increase significantly in absolute dollars. We will continue to invest in
infrastructure, particularly in information systems and research and
development, to provide for sustainable growth.
INTEREST AND OTHER EXPENSE. Odwalla had net interest and other expense
of $73,000 in the first quarter of fiscal 1999 compared to $76,000 in the first
quarter last year. The net interest expense results primarily from borrowings
under the line of credit and other existing debt.
INCOME TAX BENEFIT. The $84,000 and $26,000 income tax benefit for the
first quarters of 1999 and 1998 results from the tax benefit associated with the
loss following the Recall. The 15% effective tax rate in 1999 and the 13%
effective tax benefit rate in 1998 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. We
will continue to assess the valuation allowance as additional information
regarding the impact of the Recall on our future profitability is available.
LIQUIDITY AND CAPITAL RESOURCES
At November 28, 1998, we had working capital of $1.4 million compared to
working capital of $1.7 million at August 29, 1998. The decrease resulted
primarily from cash provided from operations offset by capital asset purchases
and normal debt payments. At November 28, 1998, we had cash and cash equivalents
of $2.7 million, compared to $3.2 million August 29, 1998.
Net cash provided by operating activities in the first quarter of fiscal
1999 was $152,000. This consisted of the net loss plus depreciation and
amortization, a reduction in trade accounts receivable, and the increase in
accounts payable, offset by decreases in payroll and other accrued expenses. Net
cash used in investing activities in the first quarter of fiscal 1999 was
$378,000, consisting primarily of capital expenditures for production equipment
at the Dinuba plant and, to a lesser extent, computer equipment. Net cash used
in financing activities in the first quarter of fiscal 1999 was $227,000,
consisting of scheduled debt and capital lease payments.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
We've used, and expect to continue to use, both operating and capital
lease financing to obtain coolers used in selling our products, computer and
communication equipment, and production assets, primarily equipment. We are
currently discussing additional lease lines with several companies, although we
haven't completed a transaction with a leasing company and there can be no
assurance that we will finalize the proposed transaction. If we don't obtain
adequate lease or other financing, our ability to obtain needed equipment may
negatively affect our operations.
On January 7, 1999, we signed an agreement with Catterton-Simon Partners
III, L.P. ("Catterton-Simon"), a Delaware limited partnership, to sell 1,000,000
shares of Odwalla Series A Preferred Stock ("Series A Stock") at $8.00 per
share. The Series A Stock will receive an 8% annual dividend which is payable in
either cash or additional Series A Stock, at our discretion. The dividend is
payable semi-annually. All Series A Stock is 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 are 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 dividend, 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
expires in five years. We will also pay fees and issue 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 seven years. We expect the funding under this agreement to take place
on or about January 27, 1999. Total costs of the transaction are not yet
determined, but we estimate costs of approximately $700,000, including the
financial advisor fees, reimbursement of certain costs of Catterton-Simon and
other transaction costs.
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 its obligations as they become due in the next twelve
months.
YEAR 2000
Many existing computer systems use only the last two digits to identify
a year. Consequently, as the year 2000 approaches, many systems do not yet
recognize the difference in a year that begins with "20" instead of "19." This,
as well as other date related processing issues, may cause systems to fail or
malfunction unless corrected.
We are currently taking steps to identify and address our internal Year
2000 issues. Our team, which has executive sponsorship, consists of both
internal and external personnel. We have reviewed certain systems, including
information systems, handheld computer systems, production systems and
non-information systems such as phones. We have modified certain systems and
have scheduled modifications on other systems. We have not yet addressed the
readiness of third parties with which we have relationships other than to
initiate inquiries with financial institutions. While we may obtain assurances
from third parties regarding their Year 2000 readiness, we do not have any plans
to otherwise assess their readiness and do not expect to perform such an
assessment.
While Year 2000 costs incurred to date have not been material, we will
incur additional costs as we complete our readiness. We don't believe that the
additional costs will be material, but we have not completed our assessment and
can't offer assurance regarding the additional costs. We believe we are
dedicating adequate resources toward attaining Year 2000 readiness, but there is
no assurance that we will be successful in our efforts to address all Year 2000
issues. As with all companies, we also rely on other more widely used entities
such as government agencies, public utilities and other external forces common
to business and
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
industry. Consequently, if such entities were to experience Year 2000 failures,
this could disrupt our ability to conduct ongoing operations.
We have not developed a contingency plan in the event we experience
potential failures. We intend to assess the need for contingency plans, but
can't offer any assurance that we will successfully develop such plans for areas
that might result in significant exposure.
The above discussion regarding costs, risks and estimated completion
dates for the Year 2000 is based on our best estimates given information that is
currently available, and is subject to change. As we continue to study this
issue, we may discover that actual results will differ materially from the
estimates noted above.
OTHER FACTORS AFFECTING ODWALLA'S BUSINESS
PRODUCTS, DISTRIBUTION AND TRADE PARTNERS. Our current product line
consists of single-flavor and blended fruit- and vegetable-based juice products,
meal replacement beverages, wholesome food bars and natural spring water. Except
for our 100% fresh squeezed citrus line, all juices are minimally processed
(some produced on a seasonal basis). We strive for consistent
"day-of-production" quality in all 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. Our
policy is to have all products removed from trade partners' shelves on or before
their Odwalla-established expiration date. In addition, 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.
At most DSD accounts, we are responsible to 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. We provide
a lesser degree of service to certain trade partners who are responsible for
stocking, ordering and merchandising Odwalla products. These trade partners
don't receive credit for unsold products. We also distribute our products
through third party distributors. Although we have used distributors to some
extent for several years (primarily in geographic regions outside of our then
base geographic markets and to comply with certain trade partner requests), we
began actively exploring this channel at the very end of fiscal 1997. This
distribution channel, with merchandising support provided by our employees,
provides an opportunity to expand product distribution, increase DSD efficiency,
and still maintain relationships with trade partners. During fiscal 1998, we
began using third party distributors primarily in the Chicago, Detroit,
Philadelphia, Minneapolis and Phoenix markets. We sell directly to the third
party distributors and they generally don't receive credit for unsold product.
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 products freshness and flavor
quality. 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 the fruit and vegetables is performed
in a manner to capture and preserve various qualities of fresh flavors and
consistency. Odwalla has focused on each of these elements in an effort to
achieve our goal of providing the safest, best tasting and most nutritious
beverage 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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
Historically, oranges, apples and carrots 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 and new sources for the
ingredients we need. We farm a small orange ranch in a part of California to
have access to local fresh fruit in the early winter months. Recently, we began
purchasing 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 materially and adversely affect our business and results of
operations. We are subject to the same issues with our other ingredients as
well. We also source a number of fruits, such as tropical fruits, from foreign
suppliers in the form of frozen fruit puree.
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, such
as 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. The heavy rains and
flooding that occurred in California in the first and second quarters of fiscal
1995 resulted in higher costs of fruit and lower yields from the California
orange crop in the last quarter of fiscal 1995 and the first quarter of fiscal
1996. We understand that the El Nino conditions and other weather patterns in
the winter of 1997-1998 caused temporary shortages of certain tropical products.
Weather conditions reduced the Florida projected orange harvest for the
1998-1999 season. The La Nina weather pattern expected in the western part of
North and Central America in the 1998-1999 winter season may have an adverse
effect on the prices and availability of fruits and vegetables in addition to
the impact of the citrus freeze during December 1998 previously discussed.
RISKS ASSOCIATED WITH PERISHABLE PRODUCTS. Except for geothermal spring
water, meal replacement beverages and food bars, Odwalla's products are fresh,
flash pasteurized or heat treated and don't contain any preservatives. They have
a limited shelf life because of this. In order to maintain our
"day-of-production" quality standards, we further restrict the shelf life of
products through early expiration dates. The restricted shelf life means that we
don't 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. We've
historically experienced difficulties in accurately forecasting product demands
and expect that challenge to continue. When we don't 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 have a material negative effect on 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 concerning factors such as inflation, raw material supply, labor
and employee benefit costs (including increases in hourly wage and minimum
unemployment tax rates), rent increases resulting from the rent escalation
provisions in our leases, and the availability of hourly employees 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 in recent years. However, there is no assurance that these conditions will
continue or that we will have the ability to control costs in the future.
DEPENDENCE ON ONE OR A FEW MAJOR TRADE PARTNERS. Safeway, Inc.
("Safeway") is our largest single account and accounted for 13% of our fiscal
1998 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 materially and
adversely affect our business and results of operations. Continuity of trade
partner relationships is important, and events that impact our trade partners,
such as labor disputes, may have an adverse impact on our results of operations.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
COMPETITION. In a broad sense, our beverages compete with all beverages
available to consumers and our food bars compete with all food 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 super premium juice, emerging meal
replacement beverage, all-natural 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, food and energy bar companies and premium bottled waters. Our direct
competitors in the juice business are national brands such as Just Squeezed,
Tropicana, Minute Maid and Nantucket Nectars. Our juice products compete with
regional brands such as Naked Juice (owned by Chiquita Brands International,
Inc. ("Chiquita")) in Southern California and Colorado, Fresh Samantha's in the
Northeastern United States and Fantasia in the Chicago area. Juice and smoothie
bars such as Jamba Juice are also 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 Company's products. A decision by Chiquita 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.
We are just beginning the introduction of food bars. Our food bar products will
compete with several more established companies, such as PowerBar, Balance Bar
or Clif Bar. While we believe that we compete favorably with our competitors on
factors such as 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. Significant competitive pressure
from these or other companies could negatively impact our sales and results of
operations.
PRODUCT LIABILITY. Because our 100% fresh-squeezed citrus products and
certain other citrus-based products are not pasteurized or chemically treated,
they are highly perishable and contain certain naturally occurring
microorganisms. In addition to the Recall (see "Item 1. Legal Proceedings" on
page 18) associated with the E. coli O157:H7 bacteria in 1996, from time to time
we receive complaints from consumers regarding ill effects allegedly caused by
our products. These past claims haven't resulted in any material liability to
date, but there can be no assurance that we won't 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 materially and adversely affect our
business and results of operations. We currently maintain $52,000,000 in product
liability insurance, which may not be sufficient to cover the cost of defense or
related damages in the event of a significant product liability claim.
ORCHARD PRODUCTION. Historically, we've depended upon the fruit produced
from the trees of large orchards. These trees may become damaged, diseased or
destroyed as a result of windstorms, pests or fungal disease. 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 efficacious. Any decrease in the supply of
fresh fruit as a result of windstorms, pests or fungal disease could have a
material adverse effect on our business and results of operations.
GEOGRAPHIC CONCENTRATION. Our wholesale accounts and retail trade
partners have their largest concentration in Northern California, with most
located in the metropolitan areas surrounding the San Francisco Bay. Due to this
concentration, natural occurrences, economic downturns and other conditions
affecting Northern California may adversely affect our business and results of
operations.
CONCENTRATION OF PRODUCTION CAPACITY. Virtually all of our juice
production capacity is located at our Dinuba, California facility. Because we
maintain minimal finished goods inventory as part of our "day-of-production"
production system, we could be unable to continue to produce fresh beverages in
the event that
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
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 would materially and adversely
affect our business and results of operations. Separate companies produce our
meal replacement beverages, water and food bars.
LACK OF DIVERSIFICATION. Odwalla business is vertically integrated and
centered around essentially one product, fresh beverages, sold primarily through
our DSD system. Although we've added meal replacement beverages, water and food
bars and are using more third party distributors, the risks associated with
focus on essentially one product are exemplified by the material adverse effect
on our business and results of operations that resulted from the Recall in
October 1996. Any significant decrease in the consumption of beverages generally
or specifically with respect to our products would have an adverse effect on our
business and results of operations.
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. Following the 1996 Recall, management attention was primarily
focused on restoring production and sales in our then-existing markets and
dealing with legal and other company issues. This diverted our plans for
expansion, for the most part, until fiscal 1998. There can be no assurance that
we will expand into new geographic areas or continue to invest in newer 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 associated with the Recall as well as the
perishability of our products 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, perceptions of the Recall and consumer
tastes vary by region and there can be no assurance that consumers located in
other regions will be receptive to our products.
We've expanded into certain new markets, such as the Pacific Northwest
and Colorado, through acquisitions of local juice manufacturers. Acquisitions
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 affected 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 won't have an adverse impact on our
operations.
Any plans to invest in new markets or to consider 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, even if it is
available.
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 ("FDA"). On September
8, 1998, the FDA regulations for fresh apple juice went into effect. The
regulations for fresh-squeezed citrus juices are scheduled to go into effect in
May 1999. The FDA's guidelines for fresh juice require producers to achieve at
least a 5-log reduction in potential pathogens (99.999% barrier). Pasteurization
is one way for juice producers to meet the requirement. We currently Flash
Pasteurize our apple juice and are in compliance with the FDA regulations. For
juice producers who choose not to use pasteurization, the FDA has mandated
either a HACCP plan that achieves the required 5-log reduction or a warning
label on the bottle to alert consumers of the presence of unprocessed produce.
Because all products produced in our Dinuba, California production facility are
manufactured under a HACCP plan with validated critical control points, we are
already in compliance with the new FDA regulations and will not need to use
warning labels on unpasteurized juice products. For our 100% fresh-squeezed
citrus juices (orange, grapefruit, tangerine, lemon and lime), we've designed a
process that has
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued:
been scientifically validated to achieve the FDA-required 5-log reduction
without pasteurizing. Because our process meets the FDA's new requirements, and
our own quality assurance standards, Odwalla continues to offer our 100%
fresh-squeezed, unpasteurized citrus juice without a warning label. We don't
anticipate significant additional costs to comply with current FDA regulations.
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, failure 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 addition, 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.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The following personal injury claims and legal proceedings seeking
monetary damages and other relief relating to the Recall are pending against
Odwalla, as discussed in Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations":
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. There is no trial date set.
2. The Sawchuk Case: A personal injury lawsuit filed in the United
States District Court for the Northern District of California and
served on or about October 10, 1997. The case is set for trial on
June 14, 1999.
3. The Jackson Case: A personal injury lawsuit filed in King County
Superior Court, Seattle, Washington, and served on or about June 8,
1998. The case is set for trial on October 25, 1999.
4. The Nixon Case: A personal injury lawsuit filed in Sacramento County
Municipal Court, Sacramento, California on August 15, 1997. There is
no trial date set.
The Company has one additional proceeding allegedly arising out of
product consumption prior to the Recall:
1. The Fujita Case: A personal injury lawsuit filed in Alameda Superior
Court. The case has no trial date and discovery has commenced.
The following personal injury claims and legal proceedings have been
settled:
1. The Shaffer Case: A personal injury lawsuit filed in King County
Superior Court, Seattle, Washington, and served on or about October
13, 1997. The case was settled on December 17, 1998.
We maintained commercial general liability insurance totaling
$27,000,000 during the period including the Recall. We have notified our
insurance carrier of these events. At this time, 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.
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, we entered into a misdemeanor
plea agreement with the United States, concerning 16 shipments in October 1996
of unpasteurized apple juice from a single contaminated batch. 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.
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.
18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.14 Stock and Warrant Purchase Agreement dated January 7, 1999,
together with certain exhibits thereto.
27.1 Financial Data Schedule
</TABLE>
B. REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended November 28, 1998.
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ODWALLA, INC.
(Registrant)
Date: January 11, 1999 By: /s/ D. STEPHEN C. WILLIAMSON
---------------------------------
D. Stephen C. Williamson
Chief Executive Officer
(Principal Executive Officer)
Date: January 11, 1999 By: /s/ JAMES R. STEICHEN
---------------------------------
James R. Steichen
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.14 Stock and Warrant Purchase Agreement dated January 7, 1999, together
with certain exhibits thereto.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.14
ODWALLA, INC.
STOCK AND WARRANT PURCHASE AGREEMENT
JANUARY 7, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Purchase and Sale of Stock and Warrant...............................................1
1.1. Sale and Issuance of Stock and Warrant........................................1
1.2. Closing.......................................................................1
1.3. Fees and Expenses.............................................................1
2. Representations and Warranties of the Company........................................2
2.1. Organization; Good Standing; Qualification....................................2
2.2. Capitalization................................................................2
2.3. Subsidiaries..................................................................3
2.4. Authorization.................................................................3
2.5. Valid Issuance of the Stock...................................................3
2.6. Private Placement.............................................................4
2.7. Governmental and Third-Party Consents........................................4
2.8. SEC Filings; Financial Statements.............................................4
2.9. No Changes....................................................................5
2.10. Compliance with Laws..........................................................5
2.11. Stockholders Consent..........................................................5
2.12. Compliance with Other Instruments; No Conflict................................5
2.13. Litigation....................................................................6
2.14. Tax Returns and Payments......................................................6
2.15. Financial Advisor.............................................................7
2.16. Rights of Registration........................................................7
2.17. Voting Rights.................................................................7
2.18. Labor Relations and Employee Matters..........................................7
2.19. No Other Agreements to Sell the Assets or Capital Stock of the Company........7
3. Representations and Warranties of the Investor.......................................8
3.1. Authorization.................................................................8
3.2. Purchase Entirely for Own Account.............................................8
3.3. Reliance Upon the Investor's Representations..................................8
3.4. Receipt of Information........................................................8
3.5. Investment Experience.........................................................8
3.6. Restricted Stock..............................................................9
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
3.7. Legends.......................................................................9
4. Conditions of the Investor's Obligations at Closing..................................9
4.1. Representations and Warranties; Performance of Obligations....................9
4.2. Compliance Certificate........................................................9
4.3. Opinion of Company's Counsel..................................................9
4.4. Qualifications...............................................................10
4.5. Investors' Rights Agreement..................................................10
4.6. Warrant......................................................................10
4.7. Certificate of Determination.................................................10
4.8. Proceedings and Documents....................................................10
4.9. Catterton Director...........................................................10
5. Conditions of the Company's Obligations at Closing..................................10
5.1. Representations and Warranties; Performance of Obligations...................10
5.2. Qualifications...............................................................10
5.3. Termination..................................................................11
5.4. Effect of Termination........................................................11
6. Miscellaneous.......................................................................11
6.1. Entire Agreement.............................................................11
6.2. Survival of Warranties.......................................................11
6.3. Successors and Assigns.......................................................11
6.4. Governing Law................................................................11
6.5. Counterparts.................................................................11
6.6. Titles and Subtitles.........................................................12
6.7. Notices......................................................................12
6.8. Finder's Fees................................................................12
6.9. California Corporate Stock Law...............................................13
6.10. Attorneys Fees...............................................................13
6.11. Amendments and Waivers.......................................................13
6.12. Confidentiality..............................................................13
6.13. Severability.................................................................13
</TABLE>
ii
<PAGE> 4
Exhibit A Form of Certificate of Determination
Exhibit B Form of Warrant Agreement
Exhibit C Company Disclosure Schedule
Exhibit D Form of Investors' Rights Agreement
iii
<PAGE> 5
ODWALLA, INC.
STOCK AND WARRANT PURCHASE AGREEMENT
THIS STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
made as of the 7th day of January, 1999, by and between Odwalla, Inc., a
California corporation (the "Company"), and Catterton-Simon Partners III, L.P.,
a Delaware limited partnership, which is herein referred to as the "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock and Warrant.
1.1. Sale and Issuance of Stock and Warrant. Subject to the terms and
conditions of this Agreement, the Investor agrees to purchase at the Closing,
and the Company agrees to sell and issue to the Investor at the Closing, (1)
1,000,000 shares of the Company's Series A Preferred Stock (the "Stock") with
rights, privileges and preferences as stated in the Certificate of Determination
attached hereto as Exhibit A (the "Certificate of Determination") at a price of
$8.00 per share and (2) a warrant to purchase 75,000 shares of the Company's
Common Stock (the "Warrant") in substantially the form attached hereto as
Exhibit B.
1.2. Closing. The closing of the purchase and sale of the Stock and the
Warrant shall take place at the offices of Brobeck, Phleger & Harrison LLP, San
Francisco, at 10:00 A.M. on January 27, 1999 or at such other time and place as
the Company and the Investor mutually agree upon, orally or in writing (which
time and place are designated as the "Closing").
At the Closing, the Company shall deliver to the Investor (1)
certificates representing the Stock that such Investor is purchasing and (2) the
Warrant, against payment of the purchase price therefor by check or wire
transfer.
1.3. Fees and Expenses. If the transactions contemplated by this
Agreement are consummated, the Company shall reimburse the Investor for any and
all out-of-pocket expenses ("Transaction Expenses"), up to a maximum of One
Hundred Seventy Five thousand dollars ($175,000), reasonably incurred by the
Investor in connection with (i) the legal and financial due diligence review of
the assets, financial condition, business, properties, results of operations and
prospects of the Company conducted by the Investor, (ii) the negotiation and
preparation of this Agreement, the Investors' Rights Agreement (as defined
below), the Warrant and all Ancillary Agreements (as defined below), (iii) the
consummation of the transactions contemplated hereby and thereby and (iv)
preparation for any of the foregoing (including, without limitation, travel
expenses, fees, charges and disbursements of counsel and any similar or related
costs and expenses). The Company shall pay the Transaction Expenses at the
Closing out of the proceeds of the sale of the Stock and Warrant hereunder,
which payment shall be made by wire transfer of immediately available funds to
an account or accounts designated by the Investor.
<PAGE> 6
2. Representations and Warranties of the Company. Except as set forth in
the Company Disclosure Schedule attached hereto as Exhibit C, the Company hereby
represents and warrants to the Investor as follows:
2.1. Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and authority
to own and operate its properties and assets, to lease the property or assets it
operates as lessee and to carry on its business as described in the SEC Reports
(defined below), to execute and deliver this Agreement, the Investors' Rights
Agreement, the form of which is attached hereto as Exhibit D (the "Investors'
Rights Agreement"), the Warrant and any other agreement to which the Company is
a party the execution and delivery of which is contemplated hereby (the
"Ancillary Agreements"), to issue and sell the Stock and the Warrant and issue
the Common Stock upon conversion of the Stock or upon exercise of the Warrant,
and to carry out the provisions of this Agreement, the Investors' Rights
Agreement, the Warrant, the Certificate of Determination and any Ancillary
Agreement. The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified would
not have or could not reasonably be expected to have a material adverse effect,
or change in the condition (financial or otherwise), business, properties or
results of operations of the Company as presently conducted or proposed to be
conducted) (a "Material Adverse Effect").
2.2. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 15,000,000 shares of Common Stock, of which 5,060,651
shares are issued and outstanding and 1,393,463 shares are reserved for issuance
upon the exercise of outstanding options, and 5,000,000 shares of Preferred
Stock, none of which are issued and outstanding. Immediately following the
Closing (i) 5,060,651 shares of Common Stock will be issued and outstanding; and
(ii) 2,758,588 shares of Common Stock will be reserved for issuance upon (a) the
exercise of outstanding options to purchase such shares, (b) the conversion of
Stock, (c) the payment of dividends on stock, (d) the exercise of the Warrant
and (e) the exercise of the warrant issued to Hambrecht & Quist, LLC in
connection with the transactions contemplated by this Agreement. The outstanding
shares of Common Stock have been duly authorized and validly issued in
compliance with applicable federal and state securities laws, are fully paid and
nonassessable, conform to the description thereof in the SEC Reports, and were
not issued in violation of or subject to (i) any preemptive rights or other
rights to subscribe for or to purchase securities or (ii) any liens,
preferential rights, priorities, claims, options, charges or other encumbrances
or restrictions, other than those created by the Certificate of Determination,
the Investors' Rights Agreement and the Warrant. The Company has designated and
reserved 1,265,319 shares of Series A Preferred all of which will be sold
pursuant to this Agreement. In addition, except for options to purchase
1,393,463 shares of Common Stock granted under the Company's stock option plan,
there are no outstanding securities convertible into or exchangeable for capital
stock of the Company or any options, warrants, rights (including conversion or
preemptive rights, rights of first refusal, "tag along" rights, rights of
co-sale or any similar right with respect to the issuance of the Stock
contemplated hereby), agreements or contracts for the purchase, subscription to
or acquisition of any shares of its capital stock from
2
<PAGE> 7
the Company, or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any such holder of capital
stock is a party relating to the issuance of any capital stock of the Company,
any such convertible or exchangeable securities or any such options, warrants or
rights. The Company has reserved up to 1,648,475 shares of its Common Stock for
purchase upon exercise of options granted to its employees, consultants and
non-employee directors pursuant to the Company's Stock Option/Stock Issuance
Plan.
2.3. Subsidiaries. Except as set forth on Section 2.3 of the Company
Disclosure Schedule, the Company does not currently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.4. Authorization. The Company has the requisite corporate power and
authority to enter into this Agreement, the Investors' Rights Agreement, the
Warrant and any Ancillary Agreements and to perform its obligations hereunder.
The execution and delivery of this Agreement, the Investors' Rights Agreement,
the Warrant and any Ancillary Agreements and the consummation by the Company of
the transactions contemplated hereby and thereby, including without limitation,
the issuance of the Stock and the Common Stock issuable upon conversion of the
Stock or upon exercise of the Warrant have been duly authorized by all necessary
corporate action on the part of the Company, including shareholder action,
necessary for the authorization, execution and delivery of this Agreement, the
Investors' Rights Agreement, the Warrant and any Ancillary Agreement, the
performance of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, issuance (or reservation for issuance), sale, and
delivery of the Stock being sold hereunder and the Warrant and the Common Stock
issuable upon conversion of the Stock or upon exercise of the Warrant has been
taken or will be taken prior to the Closing. This Agreement, the Investors'
Rights Agreement, the Warrant and any Ancillary Agreement constitute valid and
legally binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
2.5. Valid Issuance of the Stock. The Stock that are being purchased by
the Investor hereunder, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid, and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement, the
Investors' Rights Agreement, and under applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Series A Preferred Stock
purchased under this Agreement or upon exercise of the Warrant has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Certificate of Determination or the Warrant, as applicable, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement, the
Investors' Rights Agreement, the Warrant and under applicable state and federal
securities laws.
3
<PAGE> 8
2.6. Private Placement. The offer, sale and issuance of the Stock and
the Warrant, as contemplated by this Agreement is exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and state securities "blue sky" laws, and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemptions.
2.7. Governmental and Third-Party Consents. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority or approval or consent of any third-party is
required on the part of the Company in connection with the Company's execution,
delivery, or performance of this Agreement, the offer, sale or issuance of the
Stock or the Warrant by the Company or the issuance of Common Stock upon
conversion of the Stock or upon exercise of the Warrant, except that any notices
of sale required to be filed with the Securities and Exchange Commission under
Regulation D of the Securities, or such post-closing filings as may be required
under applicable state securities laws, which will be timely filed within the
applicable periods therefor.
2.8. SEC Filings; Financial Statements. The Company has timely filed
with the Securities and Exchange Commission (the "SEC") and made available to
the Investor or its representatives all forms, reports and documents required to
be filed by the Company with the SEC since January 1, 1997 (collectively, the
"SEC Reports"). The SEC Reports (i) at the time filed, complied with the
applicable requirements of the Securities Act of 1933, as amended, (the
"Securities Act"), and the rules thereunder, and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules thereunder, as the case may
be, and (ii) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. To the Company's best knowledge, the SEC has not issued an order
preventing or suspending the use of any SEC Report, nor instituted proceedings
for that purpose. The Company meets the eligibility requirements set forth in
Section I.A. of the General Instructions for the Use of Form S-3 under the
Securities Act.
Each of the financial statements (including, in each case, any
related notes and schedules) contained in the SEC Reports, including any such
SEC Report filed after the date of this Agreement until the Closing, complied as
to form with the applicable published rules and regulations of the SEC with
respect thereto, was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly presented
the financial position of the Company at the respective dates and the results of
operations and cash flows of the Company for the periods indicated, and all
adjustments necessary for a fair presentation of results for such periods have
been made, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount.
4
<PAGE> 9
2.9. No Changes. Except as set forth on Section 2.9 of the Company
Disclosure Schedule, since November 28, 1998:
(a) there has not been any change in the business, properties and
other assets, liabilities, financial condition or operating results of
the Company, from that reflected in the Company's financial statements
contained in the Company's Annual Report on form 10-K for the fiscal
year ending August 29, 1998, except changes in the ordinary course of
business that have not had a Material Adverse Effect on the Company;
(b) there has not been any damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting the assets,
properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is proposed
to be conducted);
(c) the Company has not entered into any material transaction not
referred to in the SEC Reports; and
(d) the Company has no liabilities or obligations (whether known
or unknown, whether absolute, accrued, contingent or otherwise) except
for liabilities reflected in the SEC Reports or incurred in the ordinary
course of business consistent with past practices.
2.10. Compliance with Laws. The Company now holds all licenses,
certificates, permits, franchises, or other governmental authorization,
registration, acceptance or approval from state, federal and other regulatory
authorities which are necessary for the conduct of its business ("Governmental
Authorizations"). The Company has complied with, is not in violation of and has
not received any notices of violation or noncompliance and, to the best
knowledge of the Company, has no reason to believe that any presently existing
circumstances would result in any violation with respect to, any federal, state
or local statute, law, ordinance, governmental rule or regulation or court
decree to which the Company may be subject, including but not limited to
statutes, laws, ordinances, governmental rules or regulations or court decrees
relating to the protection of the environment or concerning the handling,
storage, disposal or discharge of toxic materials (collectively, "Environmental
Laws"), nor has the Company failed to obtain any Governmental Authorization
necessary to the ownership, leasing or operation of its property or to the
conduct of its business as it is presently being carried on and as described in
the SEC Reports, except for such noncompliance, violations or failures to obtain
such Governmental Authorization which would not have a Material Adverse Effect
on the Company.
2.11. Stockholders Consent. No consent or approval of the stockholders
of the Company is required or necessary for the Company to enter into this
Agreement or to consummate the transactions contemplated hereby and thereby.
2.12. Compliance with Other Instruments; No Conflict. The Company is not
in violation of any provision of its Articles of Incorporation or Bylaws or in
default of the performance or observance of or breach under or with respect to
any provision of any obligation, agreement, covenant or condition contained in
any bond, debenture, note or other evidence of
5
<PAGE> 10
indebtedness or in any mortgage, indenture, deed of trust, lease of real or
personal property, undertaking, agreement, instrument, contract, joint venture
or other agreement or instrument to which it is a party or by which it or any of
its property is bound ("Contractual Obligation") or, to the best of its
knowledge, of any federal or state judgment, order, writ, decree, statute, rule
or regulation applicable to the Company of any court, regulatory body or
administrative agency or other governmental body ("Requirement of Law"), except
for such violations, defaults or breaches that would not have a Material Adverse
Effect on the Company. The Company has not received notice that any party to any
such Contractual Obligation intends to cancel, amend or terminate any such
agreement. The execution, delivery and performance by the Company of this
Agreement, the Investors' Rights Agreement, the Warrant and any Ancillary
Agreement, the filing of the Certificate of Determination, the consummation of
the transactions contemplated hereby and thereby and the fulfillment of the
terms hereof and thereof does not and will not (i) violate, conflict with or
contravene the terms of the Articles of Incorporation or the Bylaws of the
Company, or any amendment thereof; (ii) violate, conflict with or result in any
material breach or contravention or constitute a default under (a) any
Contractual Obligation or (B) any Requirement of Law or (iii) constitute, with
or without the passage of time or giving of notice, an event that results in the
creation of any lien, charge or encumbrance upon any assets of the Company or
the suspension, revocation, impairment, forfeiture, or nonrenewal of any permit,
license, authorization, or approval applicable to the Company, its business or
operations, or any of its assets or properties.
2.13. Litigation. Except as otherwise disclosed in the SEC Reports, and
Section 2.13 of the Company Disclosure Schedule, (i) there is no private or
governmental action, suit, proceeding, claim, arbitration or investigation
(collectively, "Actions") pending or, to the knowledge of the Company,
threatened against the Company or any of its properties before any agency, court
or tribunal, foreign or domestic, (A) affecting the transactions required to be
performed under this Agreement or by the Investors' Rights Agreement, the
Warrant or any Ancillary Agreement or (B) which, if determined adversely to the
Company, would have a Material Adverse Effect on the Company, and (ii) the
Company is not a party, subject to the provisions of, or in default with respect
to, any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality, and there are no unsatisfied judgments against the
Company.
2.14. Tax Returns and Payments. The Company has timely filed all
federal, state and foreign tax returns and reports as required by law. These
returns and reports are true, complete and correct in all material respects. The
Company has paid all federal, state, local, foreign income, alternative, add-on,
gross receipts, franchise, payroll, F.I.C.A., unemployment, withholding, real
property, personal property, admissions, gains, replacements, sales, excise,
disability and other assessments for all taxable periods ended on or prior to
the Closing, except where the failure to make such payment would not have a
Material Adverse Effect on the Company. The Company has not been advised (a)
that any of its returns, federal, state or other, have been or are being audited
as of the date hereof or (b) of any deficiency in assessment or proposed
judgment to its state or other taxes. The Company is not aware of any tax
liability to be imposed upon its properties or assets as of the date of this
Agreement that would have a Material Adverse Effect upon the Company. There are
no matters under discussion with any
6
<PAGE> 11
governmental authorities with respect to taxes that in the reasonable judgment
of the Company are likely to result in a material additional liability to the
Company for taxes.
2.15. Financial Advisor. The Company has engaged Hambrecht & Quist, LLC
("H&Q") to act as its financial advisor for this transaction pursuant to that
certain Engagement Letter between the Company and H&Q dated May 15, 1998 and is
obligated to pay H&Q for certain fees and expenses as disclosed on Section 2.15
of the Company Disclosure Schedule.
2.16. Rights of Registration. Except as contemplated in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, or other material rights to any
person or entity, (i) the provision or performance of which would render the
provision or performance (including, without limitation, the issuance of the
Stock and the issuance of the Common Stock upon the conversion of the Stock or
upon exercise of the Warrant) of the material rights to be granted to the
Investor by the Company in this Agreement, the Investors' Rights Agreement, the
Warrant or any Ancillary Agreements, impracticable or (ii) for or relating to
the registration of any shares of capital stock of the Company that are
currently outstanding.
2.17. Voting Rights. Except as contemplated in the Investors' Rights
Agreement, neither the Company, nor to the Company's knowledge, the stockholders
of the Company, have entered into any agreements with respect to the voting of
capital shares of the Company for the election of Directors of the Company or
otherwise.
2.18. Labor Relations and Employee Matters.
(a) The Company is not engaged in any unfair labor practice. There
is (i) no unfair labor practice complaint pending or, to the best knowledge of
the Company, threatened against the Company before the National Labor Relations
Board, and no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is so pending or, to the best knowledge of the
Company, threatened against the Company, (ii) no strike, labor dispute, slowdown
or stoppage pending or, to the best knowledge of the Company, threatened against
the Company, and (iii) no union representation question existing with respect to
the employees of the Company and, to the knowledge of the Company, no union
organizing activities are taking place.
(b) Except as disclosed in the SEC Reports, the Company is not a
party to any employment agreement (other than "at will" employment
relationships), collective bargaining agreement or covenant not to compete.
2.19. No Other Agreements to Sell the Assets or Capital Stock of the
Company. The Company does not have any legal obligation, absolute or contingent,
other than the obligations of the Company under this Agreement, the Investors'
Rights Agreement, the Warrant and the Ancillary Agreements, to any person or
firm to (i) sell the assets other than in the ordinary course of business
consistent with past practices, (ii) sell any capital stock of the Company
(other than as set forth in Section 1.5) or effect any merger, consolidation or
other reorganization of the Company or (iii) enter into any agreement with
respect any of the foregoing.
7
<PAGE> 12
3. Representations and Warranties of the Investor.
The Investor hereby represents and warrants that:
3.1. Authorization. The Investor represents that it has full power and
authority to execute and deliver this Agreement and to perform its respective
obligations hereunder, and all necessary actions for the due authorization,
execution, delivery, and performance of this Agreement by the Investor have been
taken. The Investor further represents that this Agreement constitutes a valid
and legally binding obligation of the Investor and that the Investor's
authorization, execution, delivery and performance of this Agreement does not
conflict with any agreement or arrangement to which such Investor is a party or
to which such Investor is bound, and no consents or approvals by any
governmental authority or third party are required for the execution, delivery
or performance by such Investor of this Agreement.
3.2. Purchase Entirely for Own Account. This Agreement is made with the
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Stock and the Warrant to be purchased by such Investor and the Common
Stock issuable upon conversion of the Stock or upon exercise of the Warrant will
be acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Stock or the Warrant to be purchased by such Investor and
the common stock issuable upon conversion of the Stock or upon exercise of the
Warrant. The Investor has not been formed for the specific purpose of acquiring
the Stock or the Warrant.
3.3. Reliance Upon the Investor's Representations. The Investor
understands that the Stock and the Warrant are not, and any Common Stock
acquired on conversion of the Stock or upon exercise of the Warrant at the time
of issuance may not be, registered under the Securities Act.
3.4. Receipt of Information. The Investor represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of Stock and the Warrant and the business,
properties, prospects and financial condition of the Company.
3.5. Investment Experience. The Investor is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. The Investor is able to bear
the economic risk of this investment, and has such knowledge and experience in
financial and business matters that such Investor is capable of evaluating the
merits and risks of the investment in the securities to be purchased hereunder.
The Investor is purchasing the Stock and the Warrant pursuant to this Agreement
for investment purposes for its own account and not with a view to, or for
resale in connection with, any distribution thereof, within the meaning of
Section 2(11) of the Securities Act.
8
<PAGE> 13
3.6. Restricted Stock. The Investor understands that the Stock and the
Warrant and any Common Stock issued upon conversion of the Stock or upon
exercise of the Warrant are characterized as "restricted securities" under
applicable U.S. federal and state securities laws. The Investor understands that
the Stock and the Warrant and Common Stock issuable upon conversion of the Stock
or upon exercise of the Warrant may not be sold except in compliance with the
Securities Act and applicable state securities laws.
3.7. Legends. The Investor understands that the Stock and the Warrant,
and any securities issued in respect thereof or exchange therefor, may bear one
or all of the following legends.
A. "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH THE FEDERAL AND STATE
SECURITIES LAWS.
B. Any legend required pursuant to the terms of the Investors'
Rights Agreement of even date herewith between the Company and the
Investor.
C. Any legend required by the blue sky laws of any state to the
extent such laws are applicable to the shares represented by the
certificate so legended.
4. Conditions of the Investor's Obligations at Closing.
The obligations of the Investor to the Company under this Agreement
are subject to the fulfillment, on or before the Closing, of each of the
following conditions:
4.1. Representations and Warranties; Performance of Obligations. The
representations and warranties of the Company in Section 1 hereof shall be true
and correct when made, and shall be true and correct on the Closing with the
same force and effect as if they had been made on and as of such date, subject
to changes contemplated by this Agreement; and the Company shall have performed
all obligations and conditions herein required to be performed or observed by it
on or prior to the Closing.
4.2. Compliance Certificate. The President of the Company shall deliver
to the Investor at the Closing a certificate certifying that the conditions
specified in Section 3.1 have been fulfilled and stating that there shall have
been no material adverse change in the business, results of operations, or
financial condition of the Company since the date of this Agreement.
4.3. Opinion of Company's Counsel. The Investor shall have received from
Brobeck, Phleger and Harrison LLP, counsel to the Company, an opinion addressed
to the Investor, dated the Closing, in a form reasonably acceptable to the
Investor.
9
<PAGE> 14
4.4. Qualifications. The offer and sale of the Stock and the Warrant to
the Investor pursuant to this Agreement shall be exempt from registration or
qualification under federal and state securities laws. Each approval, consent,
order, authorization, designation, permit, declaration or filing by or with any
third-party or any regulatory, administrative or other governmental body
necessary in connection with (i) the execution and delivery by the Company to
this Agreement, the Investors' Rights Agreement, the Warrant and any Ancillary
Agreements, (ii) the consummation of the transactions contemplated hereby and
thereby and (iii) the lawful issuance and sale of the Stock and the Warrant
shall have been duly obtained or made and be in full force and effect on and as
of the Closing.
4.5. Investors' Rights Agreement. The Company and the Investor have
executed and delivered the Investors' Rights Agreement, substantially in the
form of Exhibit D attached hereto.
4.6. Warrant. The Company has executed and delivered the Warrant.
4.7. Certificate of Determination. The Company shall have filed the
Certificate of Determination with the Secretary of State of California on or
prior to Closing.
4.8. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor, which shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
4.9. Catterton Director. The Board of Directors of the Company shall (i)
increase the authorized number of directors from five to six and (ii) fill the
new vacancy on the Board of Directors with a director designated by the Investor
as provided in the Investors' Rights Agreement.
5. Conditions of the Company's Obligations at Closing.
The obligations of the Company to the Investor under this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions by the Investor:
5.1. Representations and Warranties; Performance of Obligations. The
representations and warranties of the Investor in Section 3 hereof shall be true
and correct when made, and shall be true and correct on the Closing with the
same force and effect as if they had been made on and as of such date, subject
to changes contemplated by this Agreement; and the Investor shall have performed
all obligations and conditions herein required to be performed or observed by it
on or prior to the Closing.
5.2. Qualifications. The offer and sale of the Stock and the Warrant to
the Investor pursuant to this Agreement shall be exempt from registration or
qualification under federal and state securities laws. Each approval, consent,
order, authorization, designation, permit, declaration or filing by or with any
third-party or any regulatory, administrative or other governmental body
necessary in connection with (i) the execution and delivery by the Company
10
<PAGE> 15
to this Agreement, the Investors' Rights Agreement, the Warrant and any
Ancillary Agreements, (ii) the consummation of the transactions contemplated
hereby and thereby and (iii) the lawful issuance and sale of the Stock and the
Warrant shall have been duly obtained or made and be in full force and effect on
and as of the Closing.
5.3. Termination. This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing:
(a) by mutual written consent of the Investor and the Company; or
(b) by either the Investor or the Company if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before February 10, 1999.
5.4. Effect of Termination. In the event of the termination of this
Agreement as provided above, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto; provided further,
that this Section 4.4 is not intended to limit any cause of action that any
party may have for any breach of this Agreement that results in a termination of
this Agreement.
6. Miscellaneous.
6.1. Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, covenants, agreements or understandings, whether written or
oral, except as specifically set forth herein or therein.
6.2. Survival of Warranties. The representations, warranties and
covenants of the Company contained in or made pursuant to this Agreement shall
expire one (1) year after the Closing.
6.3. Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.4. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.5. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11
<PAGE> 16
6.6. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.7. Notices. Every notice or other communication required or
contemplated by this Agreement by either party shall be delivered either by (i)
personal delivery, (ii) postage prepaid return receipt requested registered or
certified mail or the equivalent of registered or certified mail under the laws
of the country where mailed, (iii) nationally recognized overnight courier, such
as Federal Express or UPS, or (iv) facsimile with a confirmation copy sent
simultaneously by postage prepaid, return receipt requested, registered or
certified mail, in each case addressed to the Company or the Investor as the
case may be at the following address or at such other address as the intended
recipient previously shall have designated by written notice to the other party
:
To the Company: Odwalla, Inc.
120 Stone Pine Road
Half Moon Bay, CA 94019
Attn: Chief Financial Officer
Facsimile: (650) 712-5967
With a copy to: Brobeck, Phleger & Harrison LLP
Spear Street Tower, One Market
San Francisco, CA 94105
Attn: Scott D. Lester, Esq.
Facsimile: (415) 442-1010
To the Investor: Catterton Simon Partners
Greenwich Office Park
Greenwich, CT 06830
Attn: Craig Sakin
Facsimile: (203) 629-4903
With a copy to: Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Washington, D.C.
Attn.: Eric A. Stern, Esq.
Facsimile: (202) 637-2201
6.8. Finder's Fees. Except as otherwise provided herein, each party
represents that it neither is nor will be obligated for any finders' fee or
commission in connection with this transaction. The Investor agrees to indemnify
and to hold harmless the Company from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Investor
or any of its officers, partners, employees, or representatives is responsible.
The Company agrees to
12
<PAGE> 17
indemnify and hold harmless the Investor from any liability for any commission
or compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
6.9. California Corporate Stock Law.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100,
25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
6.10. Attorneys Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
6.11. Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor. Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities, and the Company.
6.12. Confidentiality. Each party hereto agrees that, except with the
prior written permission of the other party, and except as required by law, it
shall at all times keep confidential and not divulge, furnish or make accessible
to anyone any confidential information, knowledge or data concerning or relating
to the business or financial affairs of the other parties to which such party
has been or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of its obligations
hereunder or the ownership of Stock purchased hereunder. The provisions of this
Section 6.12 shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by the parties
hereto with respect to the transactions contemplated hereby.
6.13. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
13
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
ODWALLA, INC.
By: /s/ D. STEPHEN C. WILLIAMSON
-------------------------------
Name: D. Stephen C. Williamson
Title: Chairman and CEO
INVESTOR:
CATTERTON-SIMON PARTNERS III, L.P.
By: Catterton-Simon Managing Partner III, L.L.C.,
its General Partner
By: /s/ CRAIG H. SAKIN
-------------------------------
Craig H. Sakin
Authorized Person
14
<PAGE> 19
EXHIBIT A
FORM OF CERTIFICATE OF DETERMINATION
<PAGE> 20
CERTIFICATE OF DETERMINATION OF PREFERENCE
AND RIGHTS OF SERIES A PREFERRED STOCK
OF ODWALLA, INC.,
a California corporation
The undersigned, D. Stephen C. Williamson and Katherin Barr
Hogen, hereby certify that:
They are the duly elected and acting President and Secretary of
ODWALLA, INC., a California corporation (the "Corporation").
Pursuant to authority given by the Corporation's Articles of
Incorporation, the Board of Directors of the Corporation has duly adopted the
following recitals and resolutions:
WHEREAS, the Board of Directors of the Corporation is authorized
by the Articles of Incorporation to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of California, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does
hereby establish a series of Preferred Stock as follows:
1. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
Section 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
"Annual Per Share Cash Dividend Amount" shall mean an amount per
share of Series A Preferred Stock (adjusted for stock splits, subdivisions,
combinations or other similar transactions) equal to eight percent (8%) of the
Original Series A Issue Price.
"Annual Per Share PIK Dividend Amount" shall mean a fraction of
one share of Series A Preferred Stock equal to eight percent (8%) per annum of
one share of the Series A Preferred Stock.
"Business Day" shall mean a day other than a Saturday, a Sunday
or any other day on which banking institutions in San Francisco, California are
authorized or obligated by law to close.
"Original Series A Issue Price" shall mean an amount per share of
the Series A Preferred Stock equal to $8.00.
"PIK Dividends" shall mean the "paid-in-kind" dividends as set
forth in subparagraph 4(a) below.
"PIK Dividend Payment Date" shall mean June 30 and December 31,
of each year during the PIK Dividend Payment Period.
<PAGE> 21
"PIK Dividend Payment Period" shall mean the period from, and
including, the date hereof to and including the third anniversary date of the
date hereof.
"PIK Dividend Period" shall mean the period from, and including,
the date hereof, to, but not including, the first PIK Dividend Payment Date and,
thereafter, each semi-annual period, including any PIK Dividend Payment Date to,
but not including, the next PIK Dividend Payment Date.
"PIK Record Date" shall mean the date that is ten (10) Business
Days prior to any PIK Dividend Payment Date.
"Subordinate Stock" shall mean the Common Stock and any class or
series of capital stock of the Corporation, however designated, which is not
entitled to receive (i) any dividends unless all dividends required to have been
paid or declared and set apart for payment on the Series A Preferred Stock
pursuant to Section 4 shall have been so paid or declared and set apart for
payment and (ii) any assets upon liquidation, dissolution or winding up of the
affairs of the Corporation until the Series A Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
2. Designation. A series of Preferred Stock, designated Series A
Preferred Stock, is hereby provided for, which series shall have the rights,
privileges and preferences set forth below.
3. Authorized Number. The number of shares constituting the
Series A Preferred Stock shall be One Million Two Hundred Sixty Five Thousand
Three Hundred Nineteen (1,265,319) shares.
4. Dividend Provisions.
(a) The record holders of Series A Preferred Stock on each PIK
Record Date shall receive on each PIK Dividend Payment Date during the PIK
Dividend Payment Period per share dividends in additional fully paid and
nonassessable shares of Series A Preferred Stock legally available for such
purpose (such dividends being herein called "PIK Dividends"). PIK Dividends
shall be paid by delivering to the record holders of Series A Preferred Stock a
number of shares of Series A Preferred Stock equal to (i) the number of shares
of Series A Preferred Stock held by such holder on the applicable PIK Record
Date, multiplied by (ii) fifty percent (50%) of the Annual Per Share PIK
Dividend Amount. Except as set forth in paragraph 4(b) below, the Corporation
shall not issue fractional shares of Series A Preferred Stock to which holders
may become entitled pursuant to this subparagraph, but in lieu thereof, the
Corporation shall at the option of the holder either (i) deliver its check in an
amount equal to the applicable fraction of one (1) share of Series A Preferred
Stock multiplied by the Original Series A Issue Price (adjusted for stock
splits, subdivisions, combinations or other similar transactions) (the "PIK Cash
Dividend Payment") or (ii) defer delivery of the fractional PIK Cash Dividend
Payment to the holder and apply such amount to PIK Dividends issued to such
holder on the subsequent PIK Dividend Payment Date. Any additional shares of
Series A Preferred Stock issued pursuant to this paragraph shall be governed by
this resolution and shall be subject in all respects, except as to the date of
issuance and date from which PIK Dividends accrue and cumulate as set forth
below, to the same terms as the shares of Series A Preferred Stock originally
issued hereunder.
(b) Prior to each PIK Record Date immediately preceding each PIK
Dividend Payment Date, the Board of Directors of the Corporation shall declare
PIK Dividends on the Series A Preferred Stock in accordance with subparagraph
4(a) above, payable on the next PIK Dividend Payment Date. PIK Dividends (which
shall include, for purposes of this subparagraph, any PIK Cash Dividend
2
<PAGE> 22
Payment due pursuant to subparagraph 4(a)) on shares of Series A Preferred Stock
shall accrue and be cumulative from the date of issuance of such shares. PIK
Dividends shall be payable in arrears during the PIK Dividend Payment Period on
each PIK Dividend Payment Date, commencing on the first PIK Dividend Payment
Date subsequent to the Initial Issue Date, and for shares issued as PIK
Dividends, commencing on the first PIK Dividend Payment Date after such shares
are issued. If any PIK Dividend Payment Date occurs on a day that is not a
business day, any accrued PIK Dividends otherwise payable on such PIK Dividend
Payment Date shall be paid on the next succeeding Business Day. PIK Dividends
shall be paid to the holders of record of the Series A Preferred Stock on each
PIK Dividend Payment Date as their names shall appear on the share register of
the Corporation on the PIK Record Date immediately preceding such PIK Dividend
Payment Date. If a PIK Cash Dividend Payment on account of PIK Dividends that
would otherwise be issued as fractional shares may not legally be paid in the
full amount to which shares of Series A Preferred Stock are entitled with
respect to any PIK Dividend Period, dividends in the full preferential amount
hereby provided shall be, to the extent legally and contractually permissible,
declared and paid as PIK Dividends in the form of shares of Series A Preferred
Stock (including fractional shares thereof). PIK Dividends on account of arrears
for any past PIK Dividend Periods may be declared and paid at any time to
holders of record on the PIK Record Date therefor.
(c) Notwithstanding anything contained herein to the contrary, at
the option of and upon the approval of the board of directors, the board of
directors may declare that on any PIK Dividend Payment Date during the PIK
Dividend Payment Period, the record holders of Series A Preferred Stock on the
PIK Record Date shall receive per share dividends in cash (such dividends being
hereinafter called "Preferred Cash Dividends") in lieu of the PIK Dividends.
Preferred Cash Dividends shall be paid by delivering to the record holders of
Series A Preferred Stock a cash dividend equal to (i) the number of shares of
Series A Preferred Stock held by such holder on the applicable PIK Record Date,
multiplied by (ii) fifty percent (50%) of the Annual Per Share Cash Dividend
Amount.
(d) In addition to the PIK Dividends, the PIK Cash Dividend
Payments referred to in subparagraph 4(a) hereof and the Preferred Cash
Dividends, before the Corporation pays dividends ("Common Dividends"), when and
if declared by the Board of Directors of the Corporation, on its Common Stock,
in cash or in kind, the holders of record on the record date of outstanding
Series A Preferred Stock shall be entitled to receive dividends ("Equivalent
Dividends") in such an amount as they would be entitled to receive as a result
of such declaration if, as of the record date, their shares of Series A
Preferred Stock had been converted into shares of Common Stock pursuant to
Section 6 hereof. No Common Dividend shall be paid or set aside for payment to
the holders of Common Stock until and unless all PIK Dividends, PIK Cash
Dividend Payments, Preferred Cash Dividends and Equivalent Dividends then
payable to the holders of the Series A Preferred Stock shall have been paid, or
declared and set aside for payment, in full.
(e) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for payment on
any Subordinate Stock any dividends or distributions whatsoever, whether in
cash, property or otherwise, nor shall any Subordinate Stock be purchased,
redeemed or otherwise acquired by the Corporation, nor shall any monies be paid
or made available for a sinking fund for the purchase or redemption of any
Subordinate Stock, without the prior written consent of the holders of a
majority of the outstanding shares of Series A Preferred Stock and unless all
PIK Dividends, PIK Cash Dividend Payments, Preferred Cash Dividends and
Equivalent Dividends to which the holders of Series A Preferred Stock shall have
been entitled pursuant to Section 4(d) shall have been (i) paid or (ii) declared
and a sum of money, in the case of dividends payable in cash, sufficient for the
payment thereof has been set apart.
3
<PAGE> 23
(f) In the event that PIK Dividends, PIK Cash Dividend Payments,
Preferred Cash Dividends and Equivalent Dividends are not paid or made available
to the holders of all outstanding shares of Series A Preferred Stock and funds
available for payment of dividends shall be insufficient to permit payment in
full to holders of all such stock of the full preferential amounts to which they
are then entitled, then the entire amount available for payment of PIK
Dividends, PIK Cash Dividend Payments, Preferred Cash Dividends and Equivalent
Dividends shall be distributed ratably among all such holders of Series A
Preferred Stock in proportion to the full amount to which they would otherwise
be respectively entitled.
(g) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Preferred Stock shall be declared by the Board
of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.
5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence, the
holders of the Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock or Subordinate Stock by reason of their ownership
thereof, the greater of: (i) the Original Series A Issue Price for each
outstanding share of Series A Preferred Stock; and (ii) such amount per share of
Series A Preferred Stock as would have been payable had each such share been
converted into Common Stock immediately prior to such liquidation, dissolution
or winding up. Immediately preceding such liquidation, dissolution or other
winding up, adjustment shall be made for accrued but unpaid dividends payable on
the Series A Preferred Stock (including without limitation PIK Dividends). If,
upon occurrence of such event, the assets and funds thus distributed among
holders of the Series A Preferred Stock shall be insufficient to permit payment
to such holders of the full aforesaid preferential amount, then, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of Series A
Preferred Stock in proportion to the amount of such stock owned by each holder.
(b) Upon the completion of the distribution required by
subsection (a) of this Section 5 and any other distribution which may be
required with respect to series of Preferred Stock which may from time to time
come into existence, if assets remain in the Corporation, the holders of the
Common Stock of the Corporation shall receive all of the remaining assets of the
Corporation.
(c) For purposes of this Section 5, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, or to
include, (i) the acquisition of the Corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation), or (ii) a sale of all or substantially all of the assets of the
Corporation, unless, in either case, the Corporation's stockholders of record as
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Corporation's acquisition or sale or otherwise) hold greater than 50% of
the voting power of the surviving or acquiring entity in approximately the same
relative percentages after such acquisition or sale as before such acquisition
or sale (an "Acquisition Transaction"). Notwithstanding the above, in the event
of an Acquisition Transaction, each holder of
4
<PAGE> 24
shares of Series A Preferred Stock shall receive the greater of (1) an amount
per share equal to 150% of the Conversion Price for each outstanding share of
Series A Preferred Stock; or (2) such amount per share of Series A Preferred
Stock as would have been payable had each such share been converted into Common
Stock immediately prior to such Acquisition Transaction.
(d) In any of the events specified in (c) above, if the
consideration received by the Corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(i) If traded on a securities exchange or the Nasdaq National
Market System, the value shall be deemed to be the average of the closing prices
of the securities on such exchange over the thirty-day period ending three (3)
days prior to the closing;
(ii) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(iii) If there is no active public market, the value shall be
the fair market value thereof, as determined in good faith by the Board of
Directors of the Corporation.
6. Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows:
(a) Optional Conversion. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after a
date that is 180 days from the date hereof, at the office of the Corporation or
any transfer agent for the Series A Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price by the Conversion Price at the time in effect for
such share of Series A Preferred Stock. The initial Conversion Price per share
of shares of Series A Preferred Stock shall be the Original Series A Issue
Price; provided, however, that the Conversion Price of the Series A Preferred
Stock shall be subject to adjustment as set forth in subsection 6(d).
(b) Automatic Conversion. Each share of Series A Preferred Stock
shall automatically be converted into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price by the Conversion Price at the time in effect upon the
earlier of (i) any Acquisition Transaction either (1) for a consideration paid
in cash in an amount per share equal to or greater than 150% of the Conversion
Price or (2) for a consideration paid in stock of a company that is listed on
the Nasdaq National Market or any other major United States securities exchange
in an amount per share equal to or greater than 150% of the Conversion Price
(subject to the adjustments set forth in Section 6(d) hereof) (a "Qualifying
Sale"), (ii) on the day after which the Corporation's Common Stock has a Value
equal to or in excess of 150% of the Conversion Price (the "Base Price"), or
(iii) the third anniversary date of the date hereof. "Value" with respect to
each share of Common Stock shall mean the volume weighted average of the Daily
Prices per share for a period of twenty (20) consecutive trading days. "Daily
Price" shall mean the last reported sales price on such day as reported by the
Nasdaq National Market System or other national securities exchange on which the
Corporation's Common Stock is traded.
(c) Mechanics of Conversion.
5
<PAGE> 25
(i) Mechanics of Optional Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into shares of
Common Stock pursuant to Section 6(a) hereof, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The date on which the holder satisfies the
foregoing requirements shall be the "Conversion Date." The Corporation shall, as
soon as practicable thereafter (but in no event later than five (5) Business
Days of the Conversion Date), issue and deliver at to such holder of Series A
Preferred Stock, or to the nominee or nominees of such holder, (1) a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled; (2) a check for the amount payable in respect of any
fractional share and (3) a new certificate representing the unconverted portion,
if any, of the shares of Series A Preferred Stock represented by the certificate
or certificates surrendered for conversion.
(ii) Mechanics of Automatic Conversion. Promptly following
the automatic conversion of the shares of Series A Preferred Stock pursuant to
Section 6(b) hereof, the Corporation shall provide to all holders of record of
shares of Series A Preferred Stock a written notice of the actual date of such
conversion. Each holder of shares of Series A Preferred Stock shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock, and shall
thereafter receive certificates for the number of shares of Common Stock or
other securities to which such holder is entitled. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the duly executed by the registered holder or the holder's
attorney duly authorized in writing. All certificates evidencing shares of
Series A Preferred Stock which are converted in accordance with the provisions
hereof shall, from and after the date of conversion, be deemed to have been
retired and cancelled and the shares of Series A Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates. As soon
as practicable after the date of such automatic conversion and the surrender of
the certificate or certificates for Series A Preferred Stock as aforesaid (but
in no event later than five (5) Business Days after such date), the Corporation
shall cause to be issued and delivered to such holder, or such holder's written
order, a certificate or certificates for the number of full shares of Common
Stock or other securities issuable on such conversion in accordance with the
provisions hereof.
(iii) Certain Matters With Respect to Conversion. Any
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date. The
person in whose name the Common Stock certificate is registered shall be treated
as the stockholder of record on and after the Conversion Date. Adjustment (or
cash payment, if applicable) shall be made for accrued and unpaid dividends, as
of the date of conversion, on converted shares of Series A Preferred Stock. The
Corporation will not issue a fractional share of Common Stock upon conversion of
Series A Preferred Stock. Instead the Corporation will deliver its check in an
amount equal to the applicable fraction multiplied by the fair market value of
the Common Stock (subject to adjustment for stock splits, subdivisions,
combinations or other similar transactions). The Corporation shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion.
6
<PAGE> 26
(d) Conversion Price Adjustments of Series A Preferred Stock. The
Conversion Price of the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) Stock Dividends and Subdivisions. In the event the
Corporation should, at any time or from time to time after the date upon which
any shares of Series A Preferred Stock were first issued (the "Original Issue
Date"), fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), then an appropriate and proportionate adjustment shall
be made to the Conversion Price and the number of shares into which each share
of Series A Preferred Stock is convertible so that immediately after the
occurrence of such event the holders of Series A Preferred Stock shall be
entitled to receive the same percentage of the issued and outstanding Common
Stock upon conversion of the Series A Preferred Stock as such holders would have
received if converted immediately prior to such dividend, distribution,
subdivision, combination or reclassification. The adjustment shall become
effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date of a subdivision or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) Upon Combinations. If the number of shares of Common
Stock outstanding at any time after the Original Issue Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, then an appropriate and proportionate
adjustment shall be made to the Conversion Price and the number of shares into
which each share of Series A Preferred Stock is convertible so that immediately
after the occurrence of such event the holders of Series A Preferred Stock shall
be entitled to receive the same percentage of the issued and outstanding Common
Stock upon conversion of the Series A Preferred Stock as such holders would have
received if converted immediately prior to such combination.
(e) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 5(d)(i), then, in
each such case for the purpose of this subsection 6(e), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) No Impairment. The Corporation will not, without the consent
of the holders of the outstanding Series A Preferred Stock as required under
Section 8, by amendment of its Articles of Incorporation or through any
reorganization, recapitalization, 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 hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of Series A Preferred Stock against
impairment.
7
<PAGE> 27
(g) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision or
combination provided for elsewhere in this Section 6) provision shall be made so
that the holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock the number of shares of
stock or other securities or property of the Company or otherwise, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 6 with respect to the rights
of the holders of the Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 6 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
as nearly equivalent as may be practicable.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of
the Series A Preferred Stock. No adjustment in the number of shares of Common
Stock into which each share of Series A Preferred Stock is convertible need be
made unless the adjustment would require an increase or decrease of at least
one-half of one percent (0.5%) in the number of shares of Common Stock into
which each share of Series A Preferred Stock is convertible. Any adjustments
that are not made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 6 shall be made to
the nearest cent or to the nearest 1/100th of a share, as the case may be.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this Section 6,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock, at least thirty (30) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
If: (i) the Corporation takes any action that would require an
adjustment pursuant to this Section 6; (ii) the Corporation consolidates or
merges with, or transfers all or substantially all of its assets to, another
corporation, and stockholders of the Corporation must approve the transaction;
or (iii) there is a dissolution or liquidation of the Corporation; a holder of
Series A Preferred Stock may want to convert such stock into shares of Common
Stock prior to the record date for or the effective date of the transaction so
that it may receive the rights, warrants, securities or assets which a holder of
shares of Common Stock on that date may receive. Therefore, the Corporation
shall mail to such holders, first
8
<PAGE> 28
class, postage prepaid, a notice stating the proposed record or effective date,
as the case may be. The Corporation shall mail the notice at least thirty (30)
days before such date
(j) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(k) Notices. Any notice required by the provisions of this
Section 6 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
7. Voting Rights.
(a) The holder of each share of Series A Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which each share of Series A Preferred Stock could be converted on the
record date for the vote or consent of shareholders and, except as otherwise
required by law, shall have voting rights and powers equal to the voting rights
and powers of the Common Stock. The holder of each share of Series A Preferred
Stock shall be entitled to notice of any shareholders' meeting in accordance
with the bylaws of the Corporation and shall vote with holders of the Common
Stock upon the election of directors and upon any other matter submitted to a
vote of shareholders, except those matters required by law to be submitted to a
class vote. Fractional votes shall not, however, be permitted and any fractional
voting rights resulting from the above formula shall be rounded to the nearest
whole number (with one-half rounded upward to one).
(b) The holders of Series A Preferred Stock, voting as a single
class, shall have the right to designate one (1) member of the Board of
Directors of the Corporation. The member of the Board of Directors designated by
the holders of the Series A Preferred Stock shall receive appropriate notice of
and be entitled to attend all meetings of the Audit Committee and the
Compensation Committee of the Board of Directors of the Corporation.
8. Protective Provisions. So long as any shares of Series A
Preferred Stock shall be outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by applicable
law) of a majority of the voting power of the then outstanding shares of Series
A Preferred Stock:
(i) amend the Corporation's Articles of Incorporation or
bylaws to change the authorized number of shares of Series A Preferred Stock or
in a manner adverse to the rights of the holders of Series A Preferred Stock;
(ii) alter or change the rights, preferences or privileges of
the Series A Preferred Stock so as to affect adversely the shares of Series A
Preferred Stock
9
<PAGE> 29
(iii) create any new class of shares having preferences over
or being on parity with the Series A Preferred Stock;
(iv) declare or pay any dividends on or declare or make any
other distribution, directly or indirectly, through subsidiaries or otherwise,
on account of any Subordinate Stock or the setting apart of any sum for any such
purpose except as set forth herein; or
(v) enter into any agreement to do any of the foregoing.
9. Status of Converted Stock. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 6, the shares so
converted shall be retired and shall resume the status of authorized and
unissued shares of Preferred Stock.
10. The authorized number of shares of Preferred Stock of the
Corporation is 5,000,000 shares, and the number of shares constituting Series A
Preferred Stock, none of which has been issued, is 1,265,319 shares. The
foregoing recitals and resolutions have not been modified, altered or amended
and are presently in full force and effect.
The undersigned declares under penalty of perjury under the laws
of the State of California that the matters set forth in this certificate are
true and correct of his own knowledge.
Executed at San Francisco, California, on January 7, 1999.
- -------------------------------------
D. Stephen C. Williamson, President
- -------------------------------------
Katherin Barr Hogen, Secretary
10
<PAGE> 30
EXHIBIT B
FORM OF WARRANT AGREEMENT
<PAGE> 31
WARRANT AGREEMENT
AMONG
ODWALLA, INC.
AND
CATTERTON-SIMON PARTNERS III, L.P.;
---------------------------------------------
DATED AS OF JANUARY 7, 1999
---------------------------------------------
<PAGE> 32
WARRANT AGREEMENT dated as of January 7, 1999 among Odwalla,
Inc., a California corporation (the "Company") and CATTERTON-SIMON PARTNERS III,
L.P., a Delaware limited partnership (together with its successors and assigns,
the "Purchaser").
WHEREAS, the Company proposes to issue Warrants (the "Warrants"),
to the Purchaser to purchase such number of shares of the Company's common stock
(the "Common Stock") set forth on the face of the Warrant Certificate (as
defined below) issued to such Purchaser upon the terms and subject to the
conditions set forth below (the Common Stock issuable on exercise of the
Warrants being referred to herein as the "Warrant Shares").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement
shall be substantially in the form set forth in Exhibit A attached hereto.
SECTION 2. Execution of Warrant Certificates. Warrant
Certificates shall be signed on behalf of the Company by its President or Chief
Executive Officer or a Vice President and by its Secretary or an Assistant
Secretary under its corporate seal. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the present or any
future President, Chief Executive Officer, Vice President, Secretary or
Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been President, Chief Executive Officer,
Vice President, Secretary or Assistant Secretary, notwithstanding the fact that
at the time the Warrant Certificates shall be delivered or disposed of such
officer shall have ceased to hold such office. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by Company, such Warrant
Certificates nevertheless may be delivered or disposed of as though such person
had not ceased to be such officer of the Company; and any Warrant Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the execution
of this Warrant Agreement any such person was not such officer.
SECTION 3. Registration. The Company shall number and register
the Warrant Certificates in a register as they are issued. The Company may deem
and treat the registered holder(s) of the Warrant Certificates as the absolute
owner(s) thereof (notwithstanding any notation of ownership or other writing
thereon made by anyone) for all purposes and shall not be affected by any notice
to the contrary.
SECTION 4. Registration of Transfers and Exchanges. The Company
shall from time to time register the transfer of any outstanding Warrant
Certificates in a Warrant register to be maintained by the Company upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Company, duly executed by the registered holder or
holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney. Upon any such
<PAGE> 33
registration of transfer, a new Warrant Certificate shall be issued to the
transferee(s) and the surrendered Warrant Certificate shall be canceled and
disposed of by the Company.
If any transfer of Warrants is not made pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
the Warrant holder will deliver to the Company an agreement by such transferee
to be bound by the provisions of this Agreement.
The Warrant holders agree that each Warrant Certificate and each
certificate representing Warrant Shares will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED OR SOLD
UNLESS THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Warrant Certificates may be exchanged at the option of the
holder(s) thereof, when surrendered to the Company at its office for another
Warrant Certificate or other Warrant Certificates of like tenor and representing
in the aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled and disposed of by the Company.
SECTION 5. Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, each Warrant holder
shall have the right to receive from the Company such number of fully paid and
nonassessable Warrant Shares which the holder may at the time be entitled to
receive on exercise of such Warrants (or any portion thereof) and payment of the
exercise price (the "Exercise Price"), which is set forth in the Warrant
Certificate for such Warrant Shares; provided,however, that the Warrants 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 date which is seven (7) years from
the date hereof.
(b) A Warrant may be exercised upon surrender to the Company at
its office designated for such purpose (the address of which is set forth in
Section 12 hereof) of the certificate or certificates evidencing the Warrants to
be exercised with the form of election to purchase attached thereto duly filled
in and signed, which signature shall be guaranteed by a bank or trust company
having an office or correspondent in the United States or a broker or dealer
which is a member of a registered securities exchange or the National
Association of Securities Dealers, Inc., and upon payment to the Company of the
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are then exercised. Payment of the aggregate Exercise Price may be
made, at the option of the Purchaser, (i) in cash or by certified or official
bank check payable to the order of the Company, (ii) by wire transfer of
immediately-available federal funds to an account designated in writing by the
Company, (iii) through the surrender of shares of Common Stock then issuable
upon exercise of the Warrant (valued at the ten-day average closing price of
such securities ending five trading days prior to the date of exercise, or if
such securities are not traded on a securities exchange, at such value as may be
determined by the respective Boards of Directors of the Company and the
Purchaser exercising such Warrant in good faith) equal to the aggregate Exercise
Price of the Warrant or exercised portion thereof or (iv) any combination
thereof. Such forms of election may be effective upon a future date specified
therein and may be rescinded by notice by the exercising holder to the Company
prior to the stated exercise date.
2
<PAGE> 34
(c) Subject to the provisions of Section 6 hereof, upon such
surrender of Warrants and payment of the Exercise Price the Company shall, as
soon as possible, but in any event not later than two business days thereafter,
issue and cause to be delivered to or upon the written order of the holder and
in such name or names as the Warrant holder may designate, a certificate or
certificates for the number of full Warrant Shares issuable upon the exercise of
such Warrants together with cash for fractional Warrant Shares as provided in
Section 10. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such Warrant Shares as of the date of the surrender of
such Warrants and payment of the Exercise Price.
(d) The Warrants shall be exercisable, at the election of the
holders thereof, either in full or in part and, in the event that a certificate
evidencing Warrants is exercised in respect of fewer than all of the Warrant
Shares issuable on such exercise at any time prior to the date of expiration of
the Warrants, a new certificate evidencing the remaining Warrant or Warrants
will be issued and delivered pursuant to the provisions of this Section and of
Section 2 hereof.
(e) All Warrant Certificates surrendered upon exercise of
Warrants shall be canceled and disposed of by the Company. The Company shall
keep copies of this Agreement and any notices given or received hereunder
available for inspection by the holders during normal business hours at its
office.
SECTION 6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants and payment of the Exercise Price; provided, however, that
the Company shall not be required to pay any tax or taxes which may be payable
in respect of any transfer involved in the issue of any Warrant Certificates or
any certificates for Warrant Shares in a name other than that of the registered
holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and
the Company shall not be required to issue or deliver such Warrant Certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 7. Mutilated or Missing Warrant Certificates. In case any
of the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like
tenor and representing an equivalent number of Warrants.
SECTION 8. Reservation of Warrant Shares. The Company will at all
times reserve and keep available, out of the aggregate of its authorized but
unissued Common Stock, for the purpose of enabling it to satisfy any obligation
to issue Warrant Shares upon exercise of Warrants, the maximum number of shares
of Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.
The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer
3
<PAGE> 35
agent for any shares of the Company's capital stock issuable upon the exercise
of the rights of purchase represented by the Warrants. The Company will furnish
such Transfer Agent a copy of all notices of adjustments and certificates
related thereto, transmitted to each holder pursuant to Section 11 hereof.
The Company covenants that all Warrant Shares which may be issued
upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free
from all taxes, liens, charges and security interests with respect to the issue
thereof.
SECTION 9. Adjustment of Exercise Price and Number of Warrant
Shares Issuable. The Exercise Price and the number of Warrant Shares issuable
upon the exercise of each Warrant are subject to adjustment from time to time
upon the occurrence of the events enumerated in this Section 9. For purposes of
this Section 9, "Common Stock" means shares now or hereafter authorized of any
class of common stock of the Company and any other stock of the Company, however
designated, that has the right to participate in any distribution of the assets
or earnings of the Company without limit as to per share amount.
(a) Adjustment for Change in Capital Stock
If the Company:
(1) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of
its capital stock;
then the Exercise Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of it
may receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Exercise Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
4
<PAGE> 36
Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Adjustment for Rights Issue
If the Company distributes any rights, options or warrants to all
holders of its Common Stock entitling them for a period expiring within 60 days
after the record date mentioned below to purchase shares of Common Stock at a
price per share less than the current market price per share on that record
date, the Exercise Price shall be adjusted in accordance with the formula:
O + N x P
-------
E' = E x M
-----------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on
the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on
the record date.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exercise Price shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
(b) Adjustment for Other Distributions
If the Company distributes to all holders of its Common Stock any
of its assets (including but not limited to cash), debt securities, or any
rights or warrants to purchase debt securities, assets or other securities of
the Company, the Exercise Price shall be adjusted in accordance with the
formula:
E' = E x M - F
------------
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the current market price per share of Common Stock on
the record date mentioned below.
5
<PAGE> 37
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share
of Common Stock, which shall be determined by the Board
of Directors of the Company in its reasonable judgment
exercised in good faith.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants
referred to in subsection (b) of this Section 9.
(d) Current Market Price.
In subsections (b) and (c) of this Section 9 the current market
price per share of Common Stock on any date is the average of the Quoted Prices
of the Common Stock for 30 consecutive trading days commencing 45 trading days
before the date in question. The "Quoted Price" of the Common Stock is the last
reported sales price of the Common Stock as reported by the Nasdaq National
Market System, or if the Common Stock is listed on a securities exchange, the
last reported sales prices of the Common Stock on such exchange (which shall be
for consolidated trading if applicable to such exchange), or if neither so
reported or listed, the last reported bid price of the Common Stock. In the
absence of one or more such quotations, the current market price shall be
determined by the Board of Directors of the Company in its reasonable judgment
exercised in good faith.
(e) When De Minimis Adjustment May Be Deferred
No adjustment in the Exercise Price need be made unless the
adjustment would require an increase or decrease of at least 1% in the Exercise
Price. Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this Section 9 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(f) When No Adjustment Required
No adjustment need be made for a transaction referred to in
subsections (a), (b), or (c) of this Section 9 if Warrant holders are to
participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction.
No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no
par value of the Common Stock.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
6
<PAGE> 38
(g) Notice of Adjustment
Whenever the Exercise Price is adjusted, the Company shall
provide the notices required by Section 11 hereof.
(h) Voluntary Reduction
The Company from time to time may reduce the Exercise Price by
any amount for any period of time (including, without limitation, permanently)
if the period is at least 20 days and if the reduction is irrevocable during the
period; provided, however, that in no event may the Exercise Price be less than
the par value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period it will be in
effect.
A reduction of the Exercise Price under this Subsection (k)
(other than a permanent reduction) does not change or adjust the Exercise Price
otherwise in effect for purposes of subsections (a), (b) and (c)of this Section
9.
(i) Notice of Certain Transactions
If:
(1) the Company takes any action that would require an adjustment
in the Exercise Price pursuant to subsections (a), (b) and (c) of this
Section 9;
(2) the Company takes any action that would require a
supplemental Warrant Agreement pursuant to this Section 9; or
(3) there is a liquidation or dissolution of the Company,
the Company shall mail to Warrant holders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(j) When Issuance or Payment May Be Deferred
In any case in which this Section 9 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the holder of any Warrant exercised after such record date
the Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
and (ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Section 10; provided, however, that the Company shall deliver to
such holder a due bill
7
<PAGE> 39
or other appropriate instrument evidencing such holder's right to receive such
additional Warrant Shares, other capital stock and cash upon the occurrence of
the event requiring such adjustment.
(k) Adjustment in Number of Shares
Upon each adjustment of the Exercise Price pursuant to this
Section 9, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment of
the adjusted Exercise Price that number of shares of Common Stock (calculated to
the nearest hundredth) obtained from the following formula:
N' = N x E
E'
where:
N' = the adjusted number of Warrant Shares issuable upon
exercise of a Warrant by payment of the adjusted Exercise
Price.
N = the number of Warrant Shares previously issuable upon
exercise of a Warrant by payment of the Exercise Price
prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(l) Form of Warrants
Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
SECTION 10. Fractional Interests. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 10,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the Exercise Price on the day
immediately preceding the date the Warrant is presented for exercise, multiplied
by such fraction.
SECTION 11. Notices to Warrant Holders. Upon any adjustment of
the Exercise Price pursuant to Section 9 hereof, the Company shall promptly
thereafter (i) cause to be filed with the Company a certificate of the Chief
Financial Officer of the Company (who may be the regular auditors of the
Company) setting forth the Exercise Price after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, and (ii) cause
to be given to each of the registered holders of the Warrant Certificates at his
address appearing on the Warrant register written notice of such adjustments by
first-class mail, postage prepaid. Where appropriate, such notice may be
8
<PAGE> 40
given in advance and included as a part of the notice required to be mailed
under the other provisions of this Section 11.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights
or warrants; or
(b) the Company shall authorize the distribution to all holders
of shares of Common Stock of evidences of its indebtedness or assets; or
(c) of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is
required, or of the conveyance or transfer of the properties and assets
of the Company substantially as an entirety, or of any reclassification
or change of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at his address appearing on the Warrant register, at
least 30 days (or 20 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter specified, or promptly in the
case of events for which there is no record date, by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of record
of shares of Common Stock to be entitled to receive any such rights, options,
warrants or distribution are to be determined, or (ii) the initial expiration
date set forth in any tender offer or exchange offer for shares of Common Stock,
or (iii) the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up. The failure to give the notice required by this Section 11 or any defect
therein shall not affect the legality or validity of any distribution, right,
option, warrant, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
Except as set forth in the following sentence, nothing contained
in this Agreement or in any of the Warrant Certificates shall be construed as
conferring upon the holders thereof the right to vote or to consent or to
receive notice as shareholders in respect of the meetings of shareholders or the
election of Directors of Company or any other matter, or any rights whatsoever
as shareholders of Company.
SECTION 12. Notices to the Company and Warrant Holder. Any notice
or demand authorized by this Agreement to be given or made by the registered
holder of any Warrant Certificate to or on the Company shall be sufficiently
given or made when received at the office of the Company
9
<PAGE> 41
expressly designated by the Company at its office for purposes of this Agreement
(until the Warrant holders are otherwise notified in accordance with this
Section by the Company), as follows:
ODWALLA, INC.
120 Stone Pine Road
Half Moon Bay, CA 94019
Attn: Chief Financial Officer
Fax: 650-712-5967
with a copy to:
Brobeck, Phleger & Harrison LLP
Spear Street Tower, One Market
San Francisco, CA 94105
Attn: Scott Lester
Fax: 415-442-1010
Any notice pursuant to this Agreement to be given by the Company to the
registered holder(s) of any Warrant Certificate shall be sufficiently given when
received (until the Company is otherwise notified in accordance with this
Section by such holder) by such holder at the address appearing on the Warrant
register of the Company.
SECTION 13. Supplements and Amendments. The Company may from time
to time supplement or amend this Agreement without the approval of any holders
of Warrant Certificates in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company may deem necessary or
desirable and which shall not in any way adversely affect the interests of the
holders of Warrant Certificates.
SECTION 14. Assignment; Successors. The rights and obligations of
the Purchasers hereunder may be assigned without the prior consent of the
Company, subject to restrictions imposed by the Securities Act of 1933, as
amended, and by that certain Shareholders Agreement of even date herewith by and
among the Company and the investors named on the signature pages thereof. All
the covenants and provisions of this Agreement by or for the benefit of the
Company shall bind and inure to the benefit of its respective successors and
assigns hereunder.
SECTION 15. Termination. This Agreement shall terminate if all
Warrants have been exercised pursuant to this Agreement.
SECTION 16. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the internal laws of said State.
SECTION 17. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the registered holders of the Warrant Certificates any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of Company and the registered holders of the Warrant
Certificates.
10
<PAGE> 42
SECTION 18. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 19. Waiver. No provision of this Agreement may be waived
except by an instrument in writing signed by the party sought to be bound;
provided that any waiver sought from the Warrant holders of any provision of
this Agreement which affects Warrant holders generally shall be given by holders
of at least seventy-five percent (75%) of the Warrants outstanding and any
waiver so given shall be binding on all Warrant holders. No failure or delay by
any party in exercising any right or remedy hereunder shall operate as a waiver
thereof, and a waiver of a particular right or remedy on one occasion shall not
be deemed a waiver of any other right or remedy or a waiver of the same right or
remedy on any subsequent occasion.
11
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed, as of the day and year first above written.
ODWALLA, INC.
By: __________________________________________
[Seal] Name:
Title:
Attest:_____________________
Secretary
CATTERTON-SIMON PARTNERS III, L.P.
By: Catterton-Simon Managing Partner III,
L.L.C., its general partner
By:______________________________________
Craig Sakin
Authorized Person
[Seal]
Attest:_____________________
Secretary
12
<PAGE> 44
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED OR SOLD UNLESS THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
No.
Warrant Certificate
ODWALLA, INC.
This Warrant Certificate certifies that CATTERTON-SIMON PARTNERS
III, L.P., or registered assigns, is the registered holder of Warrants (the
"Warrants") to purchase 75,000 fully paid and nonassessable shares (each a
"Warrant Share") of Common Stock (as defined in the Warrant Agreement (as
defined below)) of ODWALLA, INC., a California corporation (the "Company"). This
Warrant Certificate entitles the holder upon exercise to receive from the
Company 75,000 fully paid and nonassessable Warrant Shares (as adjusted pursuant
to the Warrant Agreement), at the exercise price (the "Exercise Price") of
$10.00 per share (as adjusted pursuant to the Warrant Agreement), upon surrender
of this Warrant Certificate and payment of the Exercise Price at the office of
the Company designated for such purpose. This Warrant Certificate 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 date which is seven (7) years from the date
hereof.
The Warrants evidenced by this Warrant Certificate are issued
pursuant to a Warrant Agreement dated as of January 1, 1999 (the "Warrant
Agreement"), duly executed and delivered by the Company, which Warrant Agreement
is hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the
holder hereof upon written request to Company.
Warrants may be exercised in accordance with the Warrant
Agreement. The holder of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon properly completed and executed, together
with payment of the Exercise Price as provided in Section 5 of the Warrant
Agreement, at the office of the Company designated for such purpose. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment shall
be made for any dividends on any Common Stock issuable upon exercise of this
Warrant.
A-1
<PAGE> 45
Warrant Certificates, when surrendered at the office of the
Company by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this
Warrant Certificate at the office of the Company a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary. Neither the Warrants nor this Warrant Certificate entitles any holder
hereof to any rights of a stockholder of the Company.
IN WITNESS WHEREOF, ODWALLA, INC. has caused this Warrant
Certificate to be signed by its President (or Chief Executive Officer) and by
its Secretary and has caused its corporate seal to be affixed hereunto or
imprinted hereon.
Dated: January 7, 1999 ODWALLA, INC.
By: _______________________________
President
By: _______________________________
Secretary
A-2
<PAGE> 46
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby [irrevocably] elects to exercise as of
____________ [date] the right, represented by this Warrant Certificate, to
receive ___________ shares of Common Stock and herewith tenders payment for such
shares to the order of ODWALLA, INC. in the amount of $___________ in accordance
with the terms hereof. The undersigned requests that a certificate for such
shares be registered in the name of _____________________, whose address is
_______________________________________, and that such shares be delivered to
____________________, whose address is ________________________________________.
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
_______________________, whose address is ___________________________, and that
such Warrant Certificate be delivered to ______________________, whose address
is ________________________________.
Signature:
Date: _____________________
Signature Guaranteed:
A-3
<PAGE> 47
EXHIBIT D
FORM OF INVESTORS' RIGHTS AGREEMENT
<PAGE> 48
ODWALLA, INC.
INVESTORS' RIGHTS AGREEMENT
January 7, 1999
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions..........................................................................1
2. Registration Rights..................................................................2
3. Obligations of the Company...........................................................4
4. Furnish Information..................................................................6
5. Expenses of Registration.............................................................6
6. Underwriting Requirements............................................................7
7. Delay of Registration................................................................8
8. Indemnification......................................................................8
9. Reports Under Securities Exchange Act of 1934.......................................10
10. Assignment of Registration Rights...................................................10
11. Termination of Registration Rights..................................................11
12. "Market Stand-Off" Agreement........................................................11
13. Right to Designate Director.........................................................11
14. Standstill Agreement................................................................11
15. Other Registration Rights...........................................................12
16. Actions Affecting Restricted Securities.............................................12
17. Preemptive Rights...................................................................12
18. Protective Provisions...............................................................13
19. Information Rights..................................................................13
20. Miscellaneous.......................................................................13
SCHEDULE A - List of Investors and Amounts Purchased
</TABLE>
i
<PAGE> 50
ODWALLA, INC.,
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT ("Agreement") is made as of the
7th day of January, 1999, by and between Odwalla, Inc., a California corporation
(the "Company"), and Catterton-Simon Partners III, L.P., a Delaware limited
partnership (the "Investor").
RECITALS
WHEREAS, the Company and the Investor are parties to a Stock and
Warrant Purchase Agreement of even date herewith (the "Stock Purchase
Agreement");
WHEREAS, in order to induce the Company to enter into the Stock
Purchase Agreement and to induce the Investor to invest funds in the Company
pursuant to the Stock Purchase Agreement, the Investor and the Company hereby
agree that this Agreement shall govern the rights of the Investor to cause the
Company to register shares of Common Stock issuable upon conversion of the
Series A Preferred Stock or upon exercise of the Warrant (as defined in the
Stock Purchase Agreement) and certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions.
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.11 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock or upon
exercise of the Warrant, and (ii) any Common Stock of the Company issued or
issuable as a dividend, other distribution, with respect to or in exchange for
or in replacement of, the shares referred to in clause (i), excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which such person's rights under this Agreement are not assigned. As to any
particular Registrable Securities, such securities will cease to be Registrable
Securities when they have been distributed to the public pursuant to an offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance
<PAGE> 51
with any exemption under the Securities Act, including, without limitation, Rule
144 promulgated by the SEC (as defined below) under the Securities Act (or any
similar rule then in force).
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
(i) The term "Series A Preferred Stock" means the Series A
Preferred Stock, no par value per share, of the Company as described in the
Certificate of Determination in respect thereof.
2. Registration Rights. The Company covenants and agrees as
follows:
2.1. Request for Registration.
(a) If the Company shall receive at any time after six (6) months
after the date of this Agreement, but not more often than once in any six (6)
month period, a written request from the Holders of a majority of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Act covering the registration of
at least thirty (30%) of the Registrable Securities then outstanding, then the
Company shall:
(i) within ten (10) days of receipt of such a
request give written notice of such request to all Holders; and
(ii) as soon as practicable, and in any event
within 90 days of the receipt of such request, effect such registration under
the Act (including, without limitation, the execution in the applicable
registration statement of an undertaking to file required post-effective
amendments, appropriate qualification under the applicable blue sky or other
state securities laws and appropriate compliance with exemptive regulations
issued under the Securities Act and any other governmental requirements or
regulations), as may be so requested and, subject to the limitations of
subsection 2.1(b), as would permit or facilitate the sale and distribution of
all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining, in such request as are specified in a written notice
received by the Company within twenty (20) days of the mailing of such notice by
the Company in accordance with Section 20.5.
Subject to the foregoing provisions, the Company will file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, but in any event within ninety (90) days,
after receipt of the request or requests of the initiating holders, and shall
use its best efforts to cause such Registration Statement and prospectus through
which such registration pursuant to this Section 2 is effected to remain
effective until all Registrable Securities are sold.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
subsection 2.1(a) and the Company shall include such information in the written
notice referred to in subsection 2.1(a). The underwriter will be selected by the
Company and shall be reasonably acceptable to a majority in interest of the
Initiating Holders. In such event, the right of any Holder to include
Registrable Securities in such registration shall be conditioned upon such
Holder's
2
<PAGE> 52
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
3(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 2, if the underwriter advises the Initiating
Holders in writing that in their opinion the Registrable Securities requested to
be included in such offering is sufficiently large so as to materially and
adversely affect to success of the offering, then the Company shall so advise
all Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares of Registrable Securities that may be
included in the underwriting without any such material effect shall be allocated
among all Holders thereof, including the Initiating Holders, in proportion (as
nearly as practicable) to the amount of Registrable Securities of the Company
requested to be included in such offering by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to the Initiating Holders, a certificate signed by the Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company such registration would be substantially detrimental to the
Company and its stockholders for such registration statement to be filed and it
is therefore necessary to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period. Upon receipt of such
certificate, the Initiating Holders may, upon written notice to the Company
withdraw such request for registration.
(d) Subject to Section 2(e), the Company shall not be obligated
to effect, or to take any action to effect, any registration pursuant to this
Section 2:
(i) After the Company has effected two
registrations pursuant to this Section 2 and such registrations have been
declared or ordered effective; or
(ii) During the period starting with the date of an
organizational meeting held for the purpose of a effecting a registration,
subject to Section 2.2 hereof, and ending on a date one hundred eighty (180)
days after the effective date of such a registration; provided that the Company
is actively employing in good faith all reasonable efforts to cause such
registration to become effective.
(e) A registration of Registrable Securities will not count as a
registration until it has become effective and all Registrable Securities
included in such registration have been sold pursuant thereto.
2.2. Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other equity securities under the Act in connection with the public
offering of such equity securities solely for cash (other than a registration
relating solely to the sale of equity securities to participants in a Company
stock plan, a registration on any form which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall:
3
<PAGE> 53
(a) promptly give to each holder of Registrable Securities
written notice thereof (which will include, to the extent known at the time, a
list of the jurisdictions in which the Company intends to qualify such
securities under the applicable blue sky or other state securities laws, the
proposed offering price or price range, and the plan of distribution);
(b) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within forty-five (45) days after such written notice from the
Company, by holders of Registrable Securities; and
(c) use its best efforts to cause the managing underwriter or
underwriters of such proposed Underwritten Offering to permit the Registrable
Securities requested to be included in the registration statement for such
offering to be included on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing, if
the managing underwriter or underwriters of such offering deliver a written
opinion to the Company and the holders of such Registrable Securities that that
in their opinion the Registrable Securities requested to be included in such
offering is sufficiently large so as to materially and adversely affect to
success of the offering, then the number of shares of Registrable Securities
that may be included in the underwriting without any such material effect shall
be allocated among all Holders thereof in proportion (as nearly as practicable)
to the amount of Registrable Securities of the Company requested to be included
in such offering by each Holder.
3. Obligations of the Company. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as soon as reasonably practicable:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective until the distribution contemplated
in the Registration Statement has been completed.
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement and
the prospectus used in connection with such registration statement as may be
reasonably requested by any holders of a majority of Registrable Securities
covered by the registration statement or any managing underwriter of Registrable
Securities or as may be required by the rules, regulations or instructions
applicable to the registration form utilized by the Company or by the Securities
Act or otherwise necessary to keep such registration statement effective for the
applicable period and cause the prospectus as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement or supplement to the prospectus.
(c) Prior to filing a registration statement or prospectus or any
amendment or supplement thereto, furnish to each participating Holder and each
Underwriter, if any, of the Registrable Securities covered by such registration
statement, copies of such registration statement as proposed to be filed,
together with exhibits thereto, and thereafter furnish to such Holder and
Underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included
4
<PAGE> 54
in such registration statement (including each preliminary prospectus) and such
other documents as such Holder or Underwriter may reasonably request without
charge in order to facilitate the disposition of the Registrable Securities
owned by such Holder, and the Company will not file any registration statement
or amendment thereto or any prospectus or any supplement thereto to which the
holders of a majority in number of the Registrable Securities covered by such
registration statement or the underwriters, if any, shall reasonably object.
(d) At the request of any selling holder of Registrable
Securities, furnish to such selling holder of Registrable Securities and each
managing underwriter, without charge, such number of conformed copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference) as such
holder may reasonable request.
(e) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(f) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any of the following
events:
(i) when the prospectus or any prospectus
supplement or post-effective amendment has been filed, and, with respect to the
registration statement or any post-effective amendment, when the same has become
effective,
(ii) of any request by the Securities and Exchange
Commission for amendments or supplements to the registration statement or the
prospectus or for additional information,
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose,
(iv) if at any time the representations and
warranties of the Company included in any underwriting agreement of which the
Company is a party cease to be true and correct,
(v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and
(vi) of the existence of any fact which results in
the registration statement, the prospectus or any document incorporated therein
by reference containing an untrue statement of material fact or omitting to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
5
<PAGE> 55
(h) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(i) Provide a transfer agent and registrar for the Registrable
Securities not later than the effective date of such registration.
(j) enter into agreements (including underwriting agreements) in
a form reasonably satisfactory to the Company and take all other appropriate and
reasonable actions in order to expedite or facilitate the disposition of such
Registrable Securities and in such connection, but only if an underwriting
agreement is entered into and the registration is an underwritten registration:
(i) make such representations and warranties to the
holders of such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings, in a manner reasonably satisfactory to the
Company;
(ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters, if any, and the counsel
to the holders of Registrable Securities being sold) addressed to each selling
holder and the underwriters, if any, covering the matters customarily covered in
opinions requested in underwritten offerings, in a manner reasonably
satisfactory to the Company;
(iii) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public accountants addressed to
the selling holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters to underwriters in connection with primary
underwritten offerings; and
(iv) deliver such documents and certificates as may
be reasonably requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to evidence
compliance with paragraph (k) above and with any customary conditions contained
in the underwriting agreement or other agreement entered into by the Company.
The actions set forth in the above paragraph (j) shall be done at
the effectiveness of such Registration Statement, each closing under any
underwriting or similar agreement as and to the extent required thereunder and
from time to time as may reasonably be requested by any selling holder in
connection with the disposition of Registrable Securities pursuant to such
Registration Statement, all in a manner consistent with customary industry
practice.
4. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
5. Expenses of Registration.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be paid by the Company including without
limitation: (i) all registration and filing fees (including, without limitation,
with respect to filings required to be made with the NASD); (ii) fees
6
<PAGE> 56
and expenses of compliance with securities or blue sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or selling
holders in connection with blue sky qualifications of the Registrable Securities
and determination of their eligibility for investment under the laws of such
jurisdictions as the managing underwriters or holders of a majority of the
Registrable Securities being sold may designate); (iii) printing (including,
without limitation, expenses of printing or engraving certificates for the
Registrable Securities in a form eligible for deposit with Depository Trust
Company and of printing prospectuses), messenger, telephone and delivery
expenses; (iv) fees and disbursements of counsel for the Company, the
underwriters and for the selling holders of the Registrable Securities; (v) fees
and disbursements of all independent certified public accountants of the Company
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance); (vi) fees and
disbursements of underwriters as reasonably approved by the Company (excluding
(x) discounts, commissions or fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals relating to the
distribution of the Registrable Securities or (y) legal expenses of any Person
other than the Company, the underwriters and the selling holders); (vii)
securities acts liability insurance if the Company so desires, and in such
event, coverage for, the underwriters or selling holders of Registrable
Securities should they so request; (viii) fees and expenses associated of other
Persons retained by the Company; and (ix) fees and expenses associated with any
NASD filing required to be made in connection with the Registration Statement,
including, if applicable, the fees and expenses of any "qualified independent
underwriter" (and its counsel) that is required to be retained in accordance
with the rules and regulations of the NASD (all such expenses being herein
called "Registration Expenses").
The Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any person, including special experts, retained by the
Company.
(b) In connection with each registration statement required
hereunder, the Company will reimburse the holders of Registrable Securities
being registered (together with the holders of all other securities being
registered) pursuant to such registration statement for the reasonable fees and
disbursements of not more than one counsel (or more than one counsel if a
conflict exists among such selling holders in the exercise of the reasonable
judgment of counsel for the selling holders and counsel for the Company) chosen
by the holders of a majority of such Registrable Securities and such other
securities being registered under such registration statement.
6. Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock under Section
2.2, the Company shall not be required to include any of the Holders' securities
in such underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by other
persons entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their opinion will not, materially and adversely
affect the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their opinion will
not materially and adversely affect the success of the offering (the securities
so included will be apportioned pro rata among the selling
7
<PAGE> 57
stockholders according to the total amount of securities entitled to be included
therein owned by each selling stockholder or in such other proportions as shall
mutually be agreed to by such selling stockholders) but in no event shall any
shares being sold by a stockholder exercising a demand registration right
similar to that granted in Section 2.1 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder", and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder", as defined in this sentence.
7. Delay of Registration. No holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any registration
of shares by the Company with the SEC pursuant to Section 2.2 hereof as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
8. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, its officers, directors, employees and agents,
any underwriter (as defined in the Act) for such Holder and each person, if any,
who controls such Holder or underwriter within the meaning of the Act or the
1934 Act, against any losses, claims, damages, liabilities (joint or several) or
expenses (including reasonable costs of investigation and legal expenses)
insofar as such losses, claims, damages, liabilities, or expenses (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; provided, however, that the Company will not be
liable to the extent such losses, claims, damages, or liabilities arise from and
are based on an untrue statement or omission or alleged untrue statement or
omission of a material fact in a registration statement or prospectus which is
made in reliance on and in conformity with written information furnished to the
Company by or on behalf of such Holders for inclusion in such registration
statement, and the Company will pay to each such Holder, its officers,
directors, employees and agents, underwriter or controlling person, as incurred,
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration
8
<PAGE> 58
statement, each person, if any, who controls the Company within the meaning of
the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation listed in (i) or (ii) of Section 8(a) (but not (iii)),
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information relating to such
Holder and furnished by such Holder expressly for use in such registration
statement; provided, however, that the indemnity agreement contained in this
subsection 8(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 8(b)
exceed the proceeds from the offering received by such Holder (net of payment of
all expenses and underwriting discounts and commissions), except in the case of
willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
8, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 8.
(d) If the indemnification provided for in this Section 8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. The Company and the Holders agree that it would not be
just and equitable if contribution pursuant to this Section 8 were determined
solely by pro rata allocation (even if the Holders were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this subsection.
Notwithstanding the provisions of this subsection (d), the contribution of an
indemnifying party which is a selling Holder of Registrable Securities shall
9
<PAGE> 59
not be greater in amount than the dollar amount of the proceeds (net of payment
of all expenses and underwriting discounts and commissions) received by such
Holder upon the sale of the Registrable Securities giving rise to such
contribution obligation. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Each selling Holder's obligations to contribute pursuant to
this subsection (d) are several and not joint.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control only with respect to the relationship between the
Company and the Holders on the one hand, and the Underwriters on the other, but
not with respect to the relationship between the Company on the one hand, and
the Holders on the other.
(f) The obligations of the Company and Holders under this Section
8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 8, and otherwise.
9. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144 at all times for so long as the
Company remains subject to the periodic reporting requirements under Section 13
or 15(d) of the Exchange Act;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, promptly upon written request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule
144, the Act and the 1934 Act, or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
10. Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Agreement may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least One Hundred Thousand (100,000) shares of such Registrable
Securities (as adjusted for stock splits, dividends, recapitalizations and the
like), provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and (b) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of this
Agreement, including, without limitation, the provisions of Section 12 and
Section 14 below; provided, however, that notwithstanding the foregoing, the
rights provided in Section 13 hereof may not be assigned or transferred under
any circumstance or condition.
10
<PAGE> 60
11. Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in Section 2 hereof after the
earlier of: (i) five (5) years following the Closing (as defined in the Stock
Purchase Agreement), or (ii) such time as Rule 144 or another similar exemption
under the Act is available for the sale of all of such Holder's shares during a
three (3) month period without registration.
12. "Market Stand-Off" Agreement. The Investor hereby agrees
that, during the period of duration (up to, but not exceeding, 90 days)
specified by an underwriter of Common Stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by such underwriter,
directly or indirectly sell, offer to sell, contract to sell, including, without
limitation, any short sale, grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration.
In order to enforce the foregoing covenant, the Company may
impose stop transfer instructions with respect to the Registrable Securities of
the Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 12 shall not apply to a registration relating solely to employee benefit
plans on Form S-l or Form S-8 or similar forms which may be promulgated in the
future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
13. Right to Designate Director. The Investor shall have the
right to designate one member of the Board of Directors of the Company
("Designation Right"). Pursuant to the Designation Right, immediately following
the Company's Annual Shareholder Meeting to be held on February 1, 1999, Craig
Sakin shall be appointed to the Board of Directors. Investor's Designation Right
and the Company's obligations under this Section 13 shall expire at such time
when Investor beneficially owns less than 25% of Original Purchase shares of
Series A Preferred Stock. The member of the Board of Directors designated by the
Investor shall receive appropriate notice of and be entitled to attend all
meetings of the Audit Committee and the Compensation Committee of the Board of
Directors of the Corporation.
14. Standstill Agreement. Commencing with the date of this
Agreement, neither Investor nor any of its affiliates shall, without the prior
written consent of the Board of Directors of the Company:
(a) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any additional shares of Common Stock or
other voting securities or direct or indirect rights to acquire any additional
shares of Common Stock or other voting securities of Company or any subsidiary
of Company, or of any successor to or person in control of Company, or any
assets of Company or any subsidiary or division of Company or of any such
successor or controlling person;
(b) make, or in any way participate, directly or indirectly, in
any "solicitation" of "proxies" to vote (as such terms are used in the rules of
the Securities and Exchange Commission ("SEC"), or seek to advise or influence
any person or entity with respect to the voting of any voting securities of
Company; or
11
<PAGE> 61
(c) make any unsolicited offer or proposal to acquire the Company
or shares of Common Stock or other voting securities of Company.
15. Other Registration Rights. The Company represents and
warrants that there is no outstanding agreement, arrangement or understanding
with respect to its securities which is inconsistent or otherwise interferes
with the rights granted to the holders of Registrable Securities under this
Agreement, and covenants and agrees not to hereafter enter into any agreement,
arrangement or understanding with respect to its securities which is
inconsistent or otherwise interferes with the rights granted to the holders of
Registrable Securities under this Agreement.
16. Actions Affecting Restricted Securities. The Company agrees
to act in good faith with respect to its obligations hereunder and the Company
shall not take any action, or fail to take such action, which has the primary
effect of adversely affecting the rights of holders of Registrable Securities
hereunder.
17. Preemptive Rights. In the event that the Company desires to
issue any securities in an offering that is not required to be registered under
the Securities Act or any applicable state securities law (a "Private
Offering"), the Company must first offer to sell the securities proposed to be
issued in such Private Offering to the Investors in accordance with this Section
17 on the same terms and conditions as the sale of securities or other
securities in such proposed Private Offering.
The offer (the "Preemptive Right Notice") by the Company to the
Investors shall be dated, shall be in writing and shall set forth the full
details of the proposed Private Offering, including, but not limited to, the
consideration to be paid, and all other details, terms and conditions related to
the proposed Private Offering.
From and after the time that the Investors receive the Preemptive Right
Notice, each Investor shall have the right, exercisable by giving written notice
to the Company of such Investor's intent to exercise such right within thirty
(30) Business Days of the Preemptive Right Notice, to subscribe for and purchase
a number of securities subject to the Preemptive Right Notice, on the terms set
forth in the Preemptive Right Notice, such that, after giving effect to the
issuance of securities subject to the Preemptive Right Notice and the exercise
of the rights of each Investor set forth in this Section 17 (including, for the
purpose of this calculation, the issuance of Common Stock upon conversion,
exchange or exercise of any securities convertible, exchangeable or exercisable
into shares of Common Stock to be issued in such Private Offering), the shares
of Common Stock owned by such Investor (after giving effect to the conversion of
any securities held by such Investor convertible into Common Stock) shall
represent the same percentage of the outstanding shares of Common Stock owned by
such Investor prior to the consummation of such Private Offering (after giving
effect to the conversion of any securities held by such Investor convertible
into Common Stock, provided, however, that all warrants and options shall not be
included in the calculation of the ownership percentage of each Investor). If
any Investor fails to give written notice of such Investor's election to
exercise the rights of such Investor set forth in this Section 17 within thirty
(30) Business Days of the date of the Preemptive Right Notice, such Investor
shall be deemed to have waived the rights granted to such Investor under this
Section 17 with respect to the securities so offered under such Preemptive Right
Notice.
Each Investor that has exercised its right to purchase securities
pursuant to this Section 17 shall, within sixty (60) calendar days from the date
of the Preemptive Right Notice, purchase the securities or other securities
subject to the Preemptive Right Notice in accordance with the terms of this
Section 17.
12
<PAGE> 62
Notwithstanding the foregoing, the rights provided for in this
Section 17 shall not apply to any issuance to employees or directors of the
Company of Common Stock or non-transferable options to purchase Common Stock
under a bona fide employee benefits plan adopted by the Board of Directors of
the Company.
18. Protective Provisions. So long as any shares of Series A
Preferred Stock shall be outstanding, the Company shall not without first
obtaining the approval (by vote or written consent, as provided by applicable
law) of a majority of the voting power of the then outstanding shares of Series
A Preferred Stock:
(i) amend the Corporation's Articles of
Incorporation or bylaws to change the authorized number of shares of Series A
Preferred Stock or in a manner adverse to the rights of the shares of Series A
Preferred Stock;
(ii) Alter or change the rights, preferences or
privileges of the Series A Preferred Stock so as to affect adversely the shares
of Series A Preferred Stock;
(iii) Create any new class of shares having
preference over or being on parity with the Series A Preferred Stock;
(iv) declare or pay any dividends on or declare or
make any other distribution, directly or indirectly, through subsidiaries or
otherwise, on account of any Subordinate Stock or the setting apart of any sum
for any such purpose except as set forth herein; or
(v) enter into any agreement to do any of the
foregoing.
19. Information Rights. So long as the Investor beneficially owns
no less than twenty-five percent (25%) of the Registrable Securities then
outstanding, the Company covenants and agrees to deliver to the Investor,
promptly following delivery to the Company's Board of Directors, a copy of (i)
each unaudited balance sheet of the Company and its subsidiaries and each
unaudited statement of income of the Company and its subsidiaries, in each case
prepared in accordance with GAAP (subject to normal year-end adjustments and
without footnote disclosure) (collectively, "Financial Statements"), and (ii)
any budgets which forecast operations ahead the Company's projected costs,
revenues, income, balance sheet and cash flow or capital requirements
(collectively, "Budgets") that the Company delivers to its Board of Directors.
20. Miscellaneous.
20.1. Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including, without limitation, transferees of any securities of the Company).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. Notwithstanding the
foregoing, the rights granted by Sections 13 and 19 of this Agreement may not be
assigned without the prior written consent of the Company.
20.2. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
13
<PAGE> 63
20.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20.4. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
20.5. Notices. All notices or other communications permitted or
required under this Agreement shall be in writing and shall be sufficiently
given if and when hand delivered to the persons set forth below, or if sent by
documented overnight delivery service or registered or certified mail, postage
prepaid, return receipt requested, or by telegram, telex or telecopy, receipt
acknowledged, addressed as set forth below or to such other person or persons
and/or at such other address or addresses as shall be furnished in writing by
any party hereto to the others. Any such notice or communication shall be deemed
to have been given as of the date received, in the case of personal delivery, on
the date mailed or on the date shown on the receipt or confirmation therefor in
all other cases.
If to Odwalla, Inc.
the Company: 120 Stone Pine Road
Half Moon Bay, CA 94019
Attn: Chief Financial Officer
Facsimile: (650) 712-5967
With a copy to: Brobeck, Phleger & Harrison LLP
One Market Plaza, Spear Street Tower
San Francisco, CA 94105
Attention: Scott D. Lester
Facsimile: (415) 442-1010
To the Investor: Catterton Simon Partners L.P.
Greenwich Office Park
Greenwich, CT 06830
Attn: Craig Sakin
Facsimile: 203-629-4903
With a copy to: Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Washington, D.C.
Attn: Eric A. Stern, Esq.
Facsimile: 202-637-2201
20.6. Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
14
<PAGE> 64
20.7. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
20.8. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
20.9. Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
15
<PAGE> 65
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
ODWALLA, INC.
By: /s/ D. STEPHEN C. WILLIAMSON
------------------------------------
Name: D. Stephen C. Williamson
Title: Chairman and Chief Executive
Officer
INVESTOR:
CATTERTON-SIMON PARTNERS III, L.P.
By: Catterton-Simon Managing Partner
III, L.L.C., its General Partner
By: /s/ CRAIG SAKIN
------------------------------------
Craig Sakin
Authorized Person
16
<PAGE> 66
SCHEDULE A
LIST OF INVESTORS AND AMOUNTS PURCHASED
<TABLE>
<CAPTION>
Name of Investor Number of shares
---------------- ----------------
<S> <C>
Catterton-Simon Partners III, L.P. 1,000,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ODWALLA,
INC.'S FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED NOVEMBER 28, 1998 AS
FILED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FILING
ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-28-1999
<PERIOD-START> AUG-30-1998
<PERIOD-END> NOV-28-1998
<CASH> 2,738
<SECURITIES> 0
<RECEIVABLES> 6,052
<ALLOWANCES> 666
<INVENTORY> 3,188
<CURRENT-ASSETS> 13,450
<PP&E> 20,458
<DEPRECIATION> 7,549
<TOTAL-ASSETS> 28,831
<CURRENT-LIABILITIES> 12,065
<BONDS> 800
0
0
<COMMON> 29,499
<OTHER-SE> (13,533)
<TOTAL-LIABILITY-AND-EQUITY> 28,831
<SALES> 15,332
<TOTAL-REVENUES> 15,332
<CGS> 7,636
<TOTAL-COSTS> 7,636
<OTHER-EXPENSES> 8,186
<LOSS-PROVISION> 58
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> (563)
<INCOME-TAX> (84)
<INCOME-CONTINUING> (479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (479)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
