Harvard Business School 9-898-171 Rev. December 11, 2000

Nantucket Nectars

Well, we knew we were in an interesting position. We had five companies express interest in acquiring a portion of the company. Sometimes you have to laugh about how things occur. Tropicana (Seagram) and Ocean Spray became interested in us after reading an article in Brandweek magazine that erroneously reported that Triarc was in negotiations to buy us. (See Exhibit 1 for a copy of this article.) At the time, we hadn’t even met with Triarc, although we knew their senior people from industry conferences. We have no idea how this rumor began. Within weeks Triarc and Pepsi contacted us. We told no one about these on-going negotiations and held all the meetings away from our offices so that no Nectars employee would become concerned. It was quite a frenetic time.

The most memorable day was just a few days ago actually. Firsty and I were in an extended meeting with Ocean Spray, making us late for our second round meeting with Pepsi. Ultimately, Tom and I split up: Firsty stayed with Ocean Spray and I met with Pepsi. Ocean Spray never knew about the Pepsi meeting. Tom and I have learned under fire throughout our Nectars experience, but this experience was a new one for us.

—Tom Scott, co-founder of Nantucket Nectars

Research Associate Jon M. Biotti prepared this case under the supervision of Professors Joseph B. Lassiter III and William A. Sahlman as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1998 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

1 898-171 Nantucket Nectars

It was certainly exciting to have some companies interested in acquiring Nantucket Nectars. But, should the founders sell at this time? They had originally planned to take the company public. The company was doing great, better than they had ever imagined. See Exhibit 2 for historical financials and Exhibit 3 for recent valuations of initial public offerings. But, many people, particularly company founders who were running their newly public companies, were telling them that going public wasn’t a completely positive experience. They wondered whether the company was even ready to go public. Regardless of their decision about going public, should they continue negotiating with potential buyers to find out the market value of their company? Ultimately, they needed to decide whether to sell the company or begin the initial public offering process. Of course, operating Nantucket Nectars as a stand alone company was always an option.

Background

Tom Scott and Tom First met while students at Brown University. (See Exhibit 4 for their résumés.) During their summers, the two created Allserve, a floating convenience store serving boats in the Nantucket Harbor. The founders decided to return to Nantucket after graduation to continue this service business. At the time, they sold ice, beer, soda, cigarettes and newspapers and performed services such as pumping waste and delivering groceries and laundry for boats in the Harbor. The founders did not even sell juice at that time. As First recalled, “we started what was basically a floating 7-Eleven.”1

During the winter of 1990, First recreated a peach fruit juice drink that he had discovered during a trip to Spain. The drink inspired the two founders to start a side-business of making fresh juices. In the spring of 1990, the founders decided to hand bottle their new creation and sell them off their Allserve boat. “We started by making it in blenders and selling it in cups off the boat. But we also put it in milk cartons and wine bottles—there was a wine guy on the island—basically anything that we could find. 2” Everyone loved the product, prompting the founders to open the Allserve General Store on Nantucket’s Straight Wharf. Soon thereafter, other Nantucket stores started carrying the product. In its first year, Nantucket Allserve sold 8,000 cases of its renamed juice, Nantucket Nectars, and 20,000 the following year.

Financing

In the first two years, the two founders invested their collective life savings, about $17,000, in the company to contract an outside bottler and finance inventory. For the next two years, Nantucket Nectars operated in an undercapitalized state on a small bank loan. Tom Scott recalled the situation:

We were scraping along. Everything was going back into the company. By early 1993, our few employees hadn’t been paid in a year, never mind that Tom and I hadn’t paid ourselves in three and a half years. But we worked all sorts of odd jobs on the side, especially during the winter. It was especially tough because we could see the juice really taking off.

Ultimately, the two founders and Ned Desmond, who would later become the Regional Director of Sales and Marketing, persuaded Mike Egan to invest $600,000 in Nantucket Nectars in exchange for 50% of the company. The founders originally met Mike Egan while serving his boat in Nantucket Harbor during the early days of Allserve. Mike Egan was the founder and former CEO of Alamo Car Rentals and still maintained 93% of that company’s stock. While the founders were

1 Beverage Aisle, February 1996. 2 Beverage Aisle, February 1996. 2 Nantucket Nectars 898-171 concerned about ceding a controlling share to an outsider, they needed the money and had no other options.

Egan performed the function of trusted advisor while not meddling in the day-to-day operations of the business. As Egan explained, “I really made the investment because it makes me wake up in the morning and feel like I’m twenty-five again, trying to grow another company.”

The founders used the capital to improve distribution and increase inventory. First, they secured better, independent bottlers. Given their lack of credit history and Snapple’s fantastic growth, which utilized the majority of good bottler capacity, Nantucket Nectars previously had difficulty finding quality bottlers at an affordable price. Secondly, they built their own distribution arm with the equity capital. The founders needed to decide how to distribute their beverages in the early days, deciding between three options: • implement a large advertising campaign to build brand awareness while moving their product through an independent distributor channel which would carry multiple brands at the same time; • contact retailers directly to create trade promotions; or, • distribute the product yourself. Given that Nantucket Nectars could not afford the first two strategies, the founders created a unique private distribution strategy where they themselves sold, delivered, and stocked the product. Ned Desmond explained:

We were doing it all. We leased some warehouse space, bought an old van, and went up and down the street selling Nantucket Nectars and our passion to make the brand succeed. The retailers immediately loved our story and enjoyed seeing us stock the shelves ourselves. Becoming our own distributor allowed us to control the positioning of the product. We often rearranged the shelves to ensure that Nantucket Nectars was better positioned than Snapple.

In order to speed up their growth, the founders obtained the exclusive rights to distribute Arizona Iced Tea in Massachusetts. Boston was one of the top 5 New Age beverage markets in the United States and Arizona Ice Tea needed a strong Boston position in its own race with Snapple. While hoping to harness the "on-the-street, upstart energy" of the Nantucket Nectars team, Arizona Iced Tea was more than prepared to cancel the contract if Nantucket Nectars did not perform.

The founders wanted to piggyback off the strong brand and higher volumes of Arizona Iced Tea to build their own distribution arm and to get more outlets for their own products in the market. Within three months the distribution division grew from seven to one hundred employees and from 2,000 to 30,000 cases sold per month. At the same time, the founders repackaged and reformulated their own product while convincing small stores to carry Nantucket Nectars along side the red-hot Arizona Iced Tea. By the end of 1994, revenues surpassed $8 million.

Marketing and the Creation of a Brand

Most New Age3 beverage companies must have clear differentiation because under- capitalization did not allow traditional, expensive advertising strategies and slotting charges for garnering shelf space. Nantucket Nectars relied on creative packaging, rapid and original product introductions, word-of-mouth and a memorable story line. Achieving this combination of low-priced but effective marketing was extremely difficult. Knowing this difficulty, the founders decided to focus on a simple vision without the help of any outside agencies: create a high quality product and

3 Term given to trendy, more healthy beverages such as ready-to-drink teas, sports drinks and juices. 3 898-171 Nantucket Nectars sell a persona. The result was the creation of a unique brand personality based on the start of the company on Nantucket. In the early days, Nantucket Nectars focused on creative but mundane ways of creating name recognition at a minimal cost. The company set up samplings, giveaways, sponsorship for road races and summer sports leagues which usually required only donation of product. In addition, the company set up publicity stunts including salespeople dressed up as fruits.

With the increased capital raised from Egan, the founders segued into radio ads as a means to push the Nantucket “story.” The founders described early mishaps in radio ads and placed messages underneath their bottle caps in order to attract consumer interest. See Exhibit 5, Exhibit 6 and Exhibit 7. For example, an early radio ad described how Ned Desmond, on the first sales trip to Boston, crashed the Nantucket Nectars van on Storrow Drive destroying all the juice. Another radio ad explained how early employee Larry Perez accidentally dropped the proceeds from the first sale into the harbor.

Growth

The early days were extremely frustrating for the two founders. While customers clearly liked the product, Nantucket Nectars only had three flavors—Cranberry Grapefruit, Lemonade and Peach Orange—and the founders were completely unsure of how to grow the business. Tom Scott explained: “The frustrations that we dealt with were immense. We didn’t know what point-of-sale was, we didn’t know what promotion was, we didn’t know what margin we should be making.4”

Product development As a means to differentiate, Nantucket Nectars committed to creating high quality, all natural juice beverages without regard for the margins; the quality of the product came first. This strategy translated into replacing high fructose corn syrup with only pure cane sugar. The founders believed that using pure cane sugar would improve the taste without leaving the consumer thirsty like other sweetened beverages. Furthermore, the founders used four times the juice of other major brands to improve on their mantra of quality and taste. The founders also differentiated their product by introducing a proprietary 17.5 ounce bottle to complement their existing 12 ounce line as compared to competitors’ standard 16 ounce bottle. From the original three juice flavors, Nantucket Nectars developed 27 flavors across three product lines during the first three years: 100% fruit juices, juice cocktails and ice teas/lemonades.

Sales and distribution Having started out as a "floating 7-Eleven," the founders had been distributors long before they had been suppliers and marketers of juice. At first, the founders structured their in-house distribution arm to target delis, sandwich shops, small markets, gourmet food shops, convenience stores and food service cafeterias. The Arizona Iced Tea contract and their own self-confidence lead them to launch a broader distribution business with the hopes of carrying multiple brands and higher volumes at lower costs into the New England market. This new business allowed them to penetrate even more of the small outlets and to begin building up a presence in the larger stores and chains. They learned the "ins and outs" of the distribution business and forged relationships with many independent distributors around the country. Unfortunately, they also learned that the economics of the distribution business really required one of the "big brands" or you just could not carry the overhead. Having "made every mistake in the book," the founders gained a new respect for the talent and time it took to scale up a business. In 1995, the founders sold their distribution arm after losing $2 million in the previous year. They believed that their brand was firmly entrenched on the shelves and were confident that any adverse effects on revenue growth caused by selling the distribution business would be small. The founders concentrated on marketing their own product and developing the Nantucket Nectars brand name. The priority at Nantucket Nectars was “moving the juice.”

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The company switched the distribution of Nantucket Nectars to a combination of in-house salesforce and outside distributors. The company granted exclusive rights to sell Nantucket Nectars products within a defined territory while allowing those distributors to carry other beverage products as well. The company wrote multi-year agreements with most of its distributors. When an order was placed at company headquarters from the outside distributor, the company selected an outside trucking source to pick up the products from the bottler of the beverage to deliver to the appropriate distributors. The distributors then sold and delivered the product to retail outlets from their warehouses using their own salespeople and delivery drivers. The company initiated incentive programs aimed at distributors and their salespeople to promote Nantucket Nectars through stocking, merchandising and retail sales deals. These programs, which were budgeted individually by territory, were meant to gain shelf space and visibility.

With the direct salesforce, Nantucket Nectars called the store accounts to sell the product. The salesforce also employed the strategy of visiting all small retailers to make sure that the product was displayed well, “eye to thigh” and also to check the distributor’s work. The strategy was to build steadily a sustainable organization through strong relations with either the best distributors or individual vendors. As Tom Scott explained, “we were not trying to build a house of cards, we wanted solid long-term growth.”

Consumer Tastes and Preferences

Nantucket Nectars was fortunate to have caught a new wave emerging in the beverage industry, the “New Age” segment, including ready-to-drink teas, water, juices and sports drinks. Tremendous growth occurred in this segment from 1992 through 1995:

Table A Three Year Compound Annual Growth Rate for New Age Beverage Segments

Category Three Year CAGR (1992-1995)

Ready-to-Drink Teas 24% Water 34% Juices 32% Sports Drinks 12%

Driving this strong growth were trendy young consumers pursuing healthier lifestyles yet faced with fast-paced lifestyles and shortened lunches. For these reasons, they appreciated large, single-serve packaging of New Age beverages and the “gulpability” of lighter, non-carbonated, natural fruit juices.

Competition

Competition surfaced in three major ways in the New Age beverage world. First, a competitor might simply undercut in pricing to flood the market while also offering a high quality or innovative product. The second way of competing involved image and brand strength: brand advertising, packaging, trade and consumer promotions. Lastly, brands competed, especially the large players in the beverage industry, by blocking the smaller, less powerful players from the retailer shelf space. At Christy’s in Harvard Square, the New Age beverages held over 75% of the chilled beverage space with the remainder controlled by traditional carbonated beverages. The proliferation of brands and flavors confused and distracted even the most loyal juice drinker. Promotions, new flavors and even new brands tempted the consumer to try new products. See Exhibit 8 for a list of New Age beverages at the Harvard Square Christy’s. So far, more than 100 companies from traditional beverage companies like Coca Cola to regional start-ups like Arizona launched New Age beverages hoping to capture shifting consumer tastes. Product innovation was a critical element of

5 898-171 Nantucket Nectars competitiveness and created an incredibly fierce battle for shelf space, especially among regional companies focused on differentiating themselves through flavors, packaging and image. Commenting on this competition, Tom First stated:

If we had known how unattractive the industry dynamics were before we started our business, we probably would not have started Nantucket Nectars. However, now that we’re in the business, we think that the odds of someone replicating what we did are very slim. The industry dynamics and the fast-paced changes within the industry really decrease the probabilities of an early entrant’s success.

Many industry analysts believed that competition would increase as New Age beverages became the latest battle ground in the Cola Wars. Coke, Pepsi and Seagrams were all fighting to become the best “total beverage company” to serve the masses while also responding to new beverage trends. New Age beverages were an opportunity to bolster flattening cola and alcohol businesses with short-term profits, and to improve their competencies at serving niche markets. These firms supported a portfolio of beverage brands with expensive marketing and sophisticated distribution skills. Their access to supermarkets through controlling shelf space, vending machines, convenience stores and fountain distribution channels combined with mass marketing and brand awareness provided them with distinct advantages in developing brands even though their procedures and image inhibit their ability to exploit non-traditional, rapidly changing market opportunities. Furthermore, scale lowered a beverage company’s cost structure by decreasing the cost of per unit ingredients and distribution.

Meanwhile, the customer clearly had many substitutes from which to choose (water, carbonated sodas, alcoholic beverages, sports drinks, and other fruit juices and ready-to-drink teas) and had no switching costs. Furthermore, some people questioned the sustainability of any New Age beverage brand given the “fad” status of this segment.

Profitability and Cost Management

Fiscal year 1995 represented the first year of profitability for the company. The company’s margins were among the lowest in the New Age beverage category given the founders’ emphasis on quality. Unfortunately, high sales growth forced the founders to focus on increasing production to meet high demand, rather than delivering quality at a favorable cost. Their lower margins were a result of higher quality ingredients in the juices and limited futures contracts in commodity procurement. All natural juice beverages depended on commodities for their raw inputs, placing their margins at risk to the markets. Furthermore, Nantucket Nectars juice cocktails were made with real cane sugar which was more expensive than the high fructose corn syrup used in most competitive products. The company also used four times more fruit juice in its products instead of relying on water and artificial flavorings. Lastly, unlike many competitors, the company offered a full line of 100% unsweetened juices. The company’s rapid growth and emphasis on quality ingredients accentuated its competitive disadvantages in raw material procurement and plant scheduling. Because of difficulty in predicting growth, the founders were unable to institutionalize future contracts on ingredients. As a consequence, the company was heavily dependent on the harvests as competitors were more likely to secure products if there were a shortage. For example, due to the poor 1995 cranberry harvest, Nantucket Nectars got no cranberries because Ocean Spray controlled all the supplies. This competitive disadvantage in procurement had an even greater impact on Nantucket Nectar’s margins because of the higher fruit content in their products.

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Nantucket Nectars’ Strategy

In August 1997, responding to the launch of competitors’ new product lines, Nantucket Nectars launched a new line of beverages, called Super Nectars, which were herbally enhanced and pasteurized fruit juices and teas. Four of the six new flavors were made from no less than 80% real fruit juice while the remaining two were naturally steeped from green tea and flavored with real fruit juice and honey. Each Super Nectar was created with a concern for both great taste and good health.

Table B List of Super Nectars

Product Name Description

Chi’I Green Tea green tea and ginseng mix flavored with white clover honey, lemon, gardenia; offered the health benefits of traditional green tea and the revitalizing powers of ginseng. Protein Smoothie combined the power of natural soy protein with the great tasting juices of strawberries, bananas, oranges, and coconuts. Super Nectars Protein Smoothie offered the nine essential amino acids that the body cannot manufacture on its own.

Vital-C 100% real fruit juice made primarily from the acerola berry, a fruit native to the West Indies and known as a vitamin C powerhouse. Acerola was blended with the juices of other fruits including strawberries, kiwifruits, and oranges to offer 140% of the recommended daily allowance of vitamin C. Ginkgo Mango blended with 100% orange and mango juices, offered the health benefits of ginkgo, an ancient Chinese medicinal herb derived from the ginkgo biloba tree. The medicinal uses of ginkgo can be traced back to ancient healing practices where it was valued for its ability to benefit the brain. Green Angel combined the valued herbs of spirulina, echinacea, wheat grass, and angelica with the juices of white grapes, bananas, and pineapple. Echinacea was an herb known to enhance the immune system and spirulina was one of nature’s richest protein foods. Wheat grass was a natural vitamin supplement that offered minerals, amino acids, and enzymes, and angelica was valued for its ability to promote healing and balance. Red Guarana Tea an herbal tea mixed with white clover honey, cranberry juice, and guarana nut berry, a plant native to the Amazon region. Guarana was naturally high in caffeine and a valuable source of energy.

Furthermore, there was evidence to suggest that Nantucket Nectars should maintain their growth for at least the next five years: Table C Projected U.S. Retail Sales of New Age Beverages, by Product Category from 1991 to 2000 (in millions)5

Category 1991 1995 2000 CAGR (1991-2000) Alternative Fruit Drinks $236.8 $857.0 $1,328.8 21.1% Gourmet/Natural Sodas 371.9 627.7 697.5 7.2 Flavor-essenced Waters 304.1 329.7 259.2 (1.8) Juice Sparklers 232.9 238.4 231.2 (0.1) Total $1,145.7 $2,052.8 $2,516.7 9.1%

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Table D Location of All New Age Beverages Sold, 19966

Location Percentage Sold

Supermarkets 55% Convenience Stores and Smaller Mass-Volume Stores 35% Health/Natural Food and Gourmet Stores 10%

Total 100%

As one compares the channel location of all New Age beverages sold with Nantucket Nectar’s current sales, one sees the tremendous upside with supermarket distribution:

Table E Sales Location (Channels) for Nantucket Nectars, 1996

Location Percentage Sales

Supermarket Channel 1% Convenience Chains 6% All Others (delis, educational institutions, etc.) 93% Total 100%

This apparent growth potential was also demonstrated by the potential geographic expansion capabilities of the Nantucket Nectars brand. The following table represented the current geographic sales of the brand:

Table F Current Geographic Sales Percentages

Location Sales Percentage

Northeast US 38% Mid Atlantic/Southeast US 29% Midwest 9% West 9% International 15% Total 100%

Based on these growth opportunities, the founders wondered whether a buyer would possibly pay an appropriate price given the negative publicity associated with the Snapple transaction, a previous high growth beverage company.

The founders were also aware that their success to date was accomplished through the more fragmented channels like convenience stores, delis, educational institutions and health and gourmet stores which demanded single-serve product. They also wanted to market their product through the supermarket channel which demanded multi-serve product.

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The Snapple deal Outside of macro-economic conditions and the stock market jitters of October 1997, the Snapple deal profoundly affected the New Age beverage market. In November, 1994, Quaker Oats purchased Snapple from Thomas Lee for $1.7 billion. By 1997, Quaker Oats conceded its defeat, selling Snapple to Triarc for $300 million, while firing their chief executive officer, William Smithburg. Industry experts blamed Snapple’s decline on Quaker’s problems with Snapple’s distributors as well as a new marketing strategy. Quaker Oats replaced Howard Stern and “Wendy the Snapple Lady” with the corporate “Threedom is Freedom” advertising campaign. Quaker Oats also attempted to take away the most profitable distribution business from the distributors in order to utilize its own Gatorade distribution arm. Due to expensive legal agreements called “Take or Pay” contracts, Quaker Oats was forced to keep their old distributors or pay exorbitant fees to break away from them. Ultimately, they decided to stay with the old distribution system. However, the old distributors by that time had relegated Snapple to secondary status causing Snapple sales to decline precipitously. Quaker’s strategy to drop their old distribution network became known as Snappleization within the distribution industry: a distributor lost its distribution contract after a beverage company was acquired by a bigger player. The acquirer moved distribution either in-house or simply to larger distributors after the first distribution network helped build the market for the beverage.

Corporate Strategy

The founders wondered what to do with the company. They wanted to grow the company but were worried about the associated risks. Given their growth needs, they needed to decide whether to sell a part or all of the company, operate under status quo, or undergo an IPO. Mark Hellendrung, Nantucket Nectars CFO, described the consensus of senior management: “The decision was difficult because we felt comfortable operating our company independently with our current capital structure, under an IPO scenario, or with a strategic partner making an investment in our company.”

If they decided to proceed with a sale, they wondered how to handle the negotiations in order to maximize the price. How could they hold all the meetings so that their employees would not find out prematurely about the transaction? The founders also worried about whether the ownership structure of the company helped or hindered the negotiation process. By the time of the case, Mike Egan, the individual investor, had aggregated 55% of the company due to follow-on investments which permitted early operating losses.

With all these issues, Tom and Tom wondered if they needed advisors to help them with the process? If so, should they hire a local investment banker from Boston or a large investment bank from New York? Should they organize a full blown auction of Nantucket Nectars? Would there be any adverse effects if, after a high profile auction, the founders decided not to sell? Should they pick two strategic players and ask them for a preemptive offer for the company? Or should they identify six or so potential bidders and contact them to assess their interest in entering a bidding process. See Exhibit 9 for descriptions of major potential bidders. Also, how should the founders handle the beginning of a negotiation: should they specify a minimum bid or force the buyers to submit their first bids?

Lastly, Tom Scott and Tom First wondered how to structure the potential transaction. They both believed strongly in the upside potential of their company but were also concerned about holding the stock of a different company. Should they negotiate the best cash deal possible without a long-term management responsibility or should they negotiate for acquirer stock in order to participate in the company’s continued upside? How would the chosen strategy affect the valued employees who had helped build the company? With all these issues swirling around in their minds, Tom Scott and Tom First turned their attention to the potential valuation of their company.

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Valuation Analysis

Beyond the numbers and the marketplace, the founders wondered what significant assets and skills within Nantucket Nectars drove their corporate value. The founders decided to hold internal brainstorming sessions to analyze why Nantucket Nectars succeeded and therefore deserved a premium for the brand. The founders came up with the following list of value drivers:

• Great product: great tasting, all natural product • Ability to exploit small, rapidly changing market • Current management team opportunities • Value of the brand: quirky, eccentric and • A more appealing story than any other juice memorable beverage company (great material for a company with a large marketing budget and more • Geographic expansion capabilities: current sales distribution power); base and future sales base • A stabilizing cost structure • Management’s knowledge of and experience with the single-serve business: ability to add • Access to 18-34 market value to large player rolling out new single- • Last good access to single-serve distribution in serve products the New Age beverage market • Guerrilla marketing skills • Best vehicle for juice companies to expand into juice cocktail category without risking their own brand equity

The founders wondered how all these assets were reflected in the pro formas and the actual valuation of the company. They decided to analyze the valuation in three different ways: discounted cash flow, comparable acquisitions and comparable trading. They wondered if these analyses prepared them for the potential negotiations with the buyers. As Tom First described the situation, “this kind of analysis tells us nothing about what certain buyers can do for Nantucket Nectars concerning improved cost structure or increased sales through wider distribution. The difficult question is how do we figure out what the value of Nantucket Nectars is to someone else, not just us.” The founders believed that most acquirers would provide scale economies on costs of goods sold decreasing costs approximately 10% to 20% depending on the acquirer. See Exhibit 10 for comparable trading, Exhibit 11 for comparable operating statistics and Exhibit 12 for comparable acquisitions. Exhibit 13 shows a basic discounted cash flow based on company pro formas. Furthermore, Nantucket Nectars had rolled out a larger-sized bottle (36 ounce bottle) for the supermarkets but the company was having difficulty securing shelf space in the larger supermarket chains.

Sales Aftermath

The founders were also very concerned with the outcome after a sale. Nantucket Nectars currently has 100 employees of which there were 15 accountants, 20 marketers, 57 salespeople, 5 sales administrators and 3 quality control people. Depending on the structure of the potential transaction, what would happen to these people?

Another major concern was that the culture of the firm would change drastically depending on whether a transaction was consummated and with whom. Nantucket Nectars still maintained a non-formal dress code; it was very uncommon to see anyone dressed in business attire. The organization of the firm was still non-hierarchical with all employees able to approach the two Toms. See Exhibit 14. Tom First described this concern: “Destroying the entrepreneurial spirit that has made the company special is one of my biggest fears. Once you start departmentalizing, you lose that. It is essential that we maintain our culture so that work is still fun.”

The founders were also concerned about the management involvement of any potential strategic partner. Both founders wanted to continue to run the company if possible. Lastly, the founders did not want to have their effective sales and marketing story negatively affected because of ownership issues. Would consumers continue to enjoy the Nantucket Nectars story if the company were actually owned by a large public company?

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Exhibit 1 Brandweek Article on Potential Transaction

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Exhibit 2 Historical Financials of Nantucket Nectars ($000s)

December 31 of each year 1991 1992 1993 1994 1995 1996

Total Revenue $233 $379 $978 $8,345 $15,335 $29,493

Cost of Sales 172 317 765 6,831 11,024 20,511

Gross Profit 61 62 213 1,514 4,311 8,982

Marketing and Advertising 0 0 0 320 875 2,581

General and Administrative 82 62 90 3,290 3,344 5,432

Total Expenses 82 62 90 3,610 4,219 8,013

EBITDA -21 0 123 -2,096 91 969

Amortization and Depreciation 0 4 0 104 137 247

EBIT -21 -4 123 -2,199 -45 722

Interest Expense 0 5 7 53 139 301

Earnings before Taxes -21 -9 116 -2,252 -184 421

Income Tax Expense 0 0 0 0 16 52

Net Income (Loss) -21 -9 116 -2,252 -200 369

Exhibit 3 IPO Data from SDC

Market FYEa FYE EBIT LTMb Current Shares Value at Sales in in IPO Sales at LTM EBIT Market Proceeds Offer Offered IPO IPO Year Year IPO at IPO Value Company Description IPO Date (millions) Price (millions) (millions) (millions) (Millions) (millions) (millions) (millions)

Saratoga Bottled 6/23/93 6.00 $5.00 1.20 10.4 6.2 -2.5 NA NA 6.3 Beverage Spring Water

Panamerican Bottles 9/21/93 293.3 $25.5 11.5 854.6 1110.8 122.0 1060.5 NA 3249.2 Beverages Spring Water 0

Odwalla Juice 12/15/93 6.3 $9.00 .700 13.5 12.6 -.16 17.1 NA 38.3

Redhook Ale Specialty 8/16/95 38.3 $17.0 2.25 114.3 25.9 5.4 19.9 NA 49.0 Brewery Beer 0

Pete’s Specialty 11/06/95 62.1 $18.0 3.45 248.9 59.2 2.8 51.5 1.9 52.5 Brewing Beer 0

Boston Beer Specialty 11/20/95 71.3 $20.0 3.56 491.5 151.3 10.6 142.1 NA 153.2 Beer 0

Lion Brewery Specialty 5/02/96 11.3 $6.00 1.88 21.9 26.4 3.1 25.2 NA 14.6 Beer

American Specialty 9/11/96 10.0 $5.50 1.82 18.9 0.43 -.36 .42 -.10 4.6 Craft Brewing Beer

Independenc Specialty 2/11/97 4.5 $5.00 .900 12.1 0.51 -.85 .51 -0.9 1.5 e Brewing Beer aFYE stands for Fiscal Year Ending. bLTM stands for Last Twelve Months.

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Exhibit 4 Résumés of Tom Scott and Tom First

Tom Scott

Born in Alexandria, VA in 1966, Tom spent his childhood in Chevy Chase, MD. He attended Landon School in Bethesda, MD where he lettered in football, basketball and lacrosse. He continued his education at Brown University in providence, RI. Brown offered Tom the opportunity to pursue his various interests including Varsity Football, theater and outdoor leadership programs. While garnering accomplishments in these areas, Tom also managed to earn a degree in American Civilization and start a business during his summers on Nantucket Island.

In the summer of 1988, Tom founded Nantucket Allserve, a boat business which serviced boats in Nantucket Harbor; he was soon joined by his current partner, and college friend, Tom First. From this first business, grew their second venture and most notable accomplishment to date, Nantucket Nectars.

Tom currently lives in Boston and Nantucket and is accompanied at all times by his dog, Becky.

Tom First

Tom first was born in Boston in 1966 and raised in Weston, MA. He attended Concord Academy and played soccer, basketball and baseball. He continued his education at Brown University in providence, RI where he met his current partner and close friend, Tom Scott. While earning a degree in American History at Brown, Tom spent some of his time at the neighboring art institute, Rhode Island School of Design, aspiring to continue on to architecture school. In addition to these academic endeavors, Tom First enjoyed playing lacrosse and sailing for Brown. During the summer between his junior and senior year, Tom First joined Tom Scott in Nantucket and helped get their then fledgling business, Allserve, up and running. After graduating from Brown in 1989, the two Toms moved to Nantucket and concentrated on strengthening their boat business. Tom First is credited with the initial Nantucket Nectars inspiration. Driven by a passion for cooking, he was determined to recreate the taste of a peach nectar that he had sampled during his travels in Spain. After mixing fruits in a blender, both Toms were thrilled with the results. With no business experience to speak of, the two embarked on a true adventure which has now developed into a company that boasts ever increasing sales and national as well as international distribution. Tom resides in Cambridge and Nantucket with his wife Kristan and dog, Pete.

13 898-171 Nantucket Nectars

Exhibit 5 Nantucket Nectar Sales Credo

14 Nantucket Nectars 898-171

Exhibit 6 Nantucket Nectars Collateral

Exhibit 7 Nantucket Nectars Typical Bottle Cap

15 898-171 Nantucket Nectars

Exhibit 8 New Age Beverage Product Selection, Christy's of Harvard Square

Product Selection at Christy’s, New Age Beverages

Apple Quenchers (Very Fine line extension) Arizona Iced Tea Boku Crystal Light Chillers (Very Fine line extension) Evian Fruitopia Gatorade Jones Soda Lipton Minute Maid Mistic Nestea Ocean Spray Orangina Poland Springs Powerade Snapple Tropicana Season’s Best Very Fine

16 Nantucket Nectars 898-171

Exhibit 9 List of Potential Buyers and Strategic Match

Potential Bidder Strategic Match Seagram Tropicana maintains the strongest distribution in the grocery segment for juices which (Tropicana) should provide Nantucket Nectars with a strong platform to expand. Furthermore, Tropicana’s strength in the Northeast US (70% market share) matches Nantucket Nectar’s business perfectly. Given Tropicana’s strategic push into the single-serve business, the company should have interest in exploring an acquisition of Nantucket Nectars. From Tropicana’s 1996 annual report: “Strategic direction is to continue growing its North American market share in chilled juices, broaden its product mix, expand its presence in attractive global markets and diversify into new distribution channels.” Tropicana has also made a strong international push with the acquisition of Dole as almost 20% of revenues come from abroad with increased cheaper production capabilities overseas (China). Furthermore, Tropicana has restructured its operations since its purchase of Dole in 1995. This cost improvement makes Tropicana perhaps the best platform to wring big savings out of Nantucket Nectars. Tropicana also could help the cost structure of Nantucket Nectars by having the strongest buyer power in the juice business (e.g. 25% of FLA. orange crop each year). Ocean Spray The founders knew the Ocean Spray senior management from industry conferences and believed that there was a good match of culture. Ocean Spray was private which would allow Nantucket Nectars to operate in a similar fashion: less disclosure, less hassle, and less short-term pressure to hit earnings. The founders also knew that Ocean Spray generated a good internal cash flow which could be used to fund Nantucket Nectar growth. They also knew that Nantucket Nectars might be able to exploit Ocean Spray’s loss of Pepsi distribution which might cause them to bid aggressively. Ocean Spray is the world’s largest purchaser of non-orange fruit juice, especially berries, tropicals and other exotics. Lastly, Ocean Spray maintained a network of five captive bottling plants plus several long term arrangements with bottlers giving secure, national manufacturing coverage at advantageous cost and quality control. The founders were worried by the loss of Pepsi distribution. Industry experts believed that the distribution agreement would terminate in May, 1998 with 50% of current single- serve distribution handled by Pepsi-owned bottlers (approx. $100MM) with another $100MM handled by Pepsi franchisees. 7 Thus, Ocean Spray could lose as much as $200 million in sales (from a base of $1.05 billion) if they could not find a good distributor or could not distribute effectively themselves. Ocean Spray, however, maintained strong power on the grocery shelves, especially in the Northeast. Pepsi Pepsi seems more prepared to take risks with new products in the New Age segment. Pepsi recently terminated its distribution arrangement with Ocean Spray which will take effect sometime in early 1998. Many industry insiders believe that Pepsi entered into this distribution arrangement to learn as much as possible about single serve New Age beverages before entering the market themselves. Skip Carpenter, a Donaldson, Lufkin & Jenrette equity analyst, described the action as a “move that clearly signals a bold new way in which PepsiCo will compete in the juice segment going forward.”8 In late 1996, Pepsi launched a cold, ready-to-drink sparkling coffee drink with Starbucks coffee called Mazagran. In 1995, Pepsi also launched Aquafina, a bottled water drink. One major concern for the founders was that Pepsi has a history of downscaling the quality of products, such as Lipton Brisk Tea, in order to achieve higher volume.

7 DLJ Research report, July 14, 1997. 8 Donaldson, Lufkin & Jenrette Beverage Industry Report; Skip Carpenter; July 14, 1997. 17 898-171 Nantucket Nectars

Potential Bidder Strategic Match Triarc (Snapple The founders believed that Triarc provided the best platform to grow the Nantucket and Mistic) Nectars business the most over the next two years. Through ownership of Snapple, RC Cola and Mistic, Triarc has immediate access to a national single-serve () network to push the Nantucket Nectar product. One concern was that Triarc would want to replace many of Nantucket Nectar’s distributors because of redundancy. While the written contracts with the distributors were favorable concerning termination without too much cost, Nantucket Nectars worried about reprise from distributors (similar to what happened to Quaker Oats after they bought Snapple, which created the term “Snappleization”). Cadbury Cadbury owns Schweppes Ginger Ale, 7 Up and Dr. Pepper. The firm has come under (Schweppes pressure in the past two years to improve its management team, set up a succession Ginger Ale) plan and to reduce its dependence on the Cadbury family. Stagnant sales in the carbonated soda segments, a vulnerable production structure and perceived lack of direction have created takeover rumors. The sheer size of Cadbury makes a takeover unlikely. The production strategy is to use an assorted group of independent bottlers as well as long-term agreements with Coke and Pepsi. While there have been no public indications to date, Cadbury might have plans to diversify its beverage portfolio away from slow-growing carbonated sodas toward the faster growing New Age beverage segments. While Cadbury has deep pockets to operate a New Age beverage company appropriately and for strategic reasons might decide to bid aggressively for Nantucket, there current company strategy does not create much operating improvements or increased distribution strength. Starbucks Nantucket Nectars had recently consummated an agreement with Starbucks calling for all Starbucks coffee shops to carry the Nantucket Nectar product. While Starbucks was clearly not in the New Age beverage business, Howard Schultz was considered to understand the tastes and trends of the new generation. Throughout the negotiations with Starbucks, Schultz expressed that he very much liked the Nantucket Nectars brand and that maybe there was something more which could be done between these two companies. Welch’s Welch’s was very similar to Ocean Spray, private with a cooperative of grape farmers as the parent. Founded in 1868, the company maintained sales in the $600 million range, with grape frozen concentrate as the company’s main product. Welch’s rolled out new product lines in 1997: a shelf-stable concentrate that did not require freezing and a full complement of single-serve, 16-ounce product. Flavors included white grape peach, apple cranberry, guava peach, apple, watermelon strawberry, strawberry kiwi, fruit punch, pink grapefruit, tropical punch, apple orange pineapple and white grape raspberry. Concerning product innovation, Welch’s has maintained a strong philosophy of reacting to the marketplace. CEO Dan Dillon described corporate strategy: “The whole industry seemed to be going in one direction, with faddish kinds of products. We have gone in a different direction, by giving the consumer products that have got substance to them. With our grape-based items, that means providing a very distinct, robust-tasting product.” Coca-Cola The Nantucket Nectars founders were uncertain about Coca Cola’s interest in the New Age beverage market given their lack of success with the Fruitopia product. Coca Cola spent $180 million developing Fruitopia of which $60 million was spent on the 1994 product launch. Coca Cola has demonstrated strong concern in the past about acquiring businesses with smaller margins than their core carbonated soda business.

18 898-171 -19-

Exhibit 10 Latest Twelve Months Trading Statistics for Selected Comparable Companies ($MM)

As of 7/31/97: Earnings per Share P/E Multiples Market Market

Price (1997-98) 1998 Cap/LTM Cap/ per Shares Market Growth P/E to Net Book Company Share Outstanding Cap CY1997E CY1998E CY1997E CY1998E Rate Growth Revenue ROE Value

Food and Beverage Growth Brands

Ben & Jerry’s $12.88 6.4 $ 82 $0.50 $0.65 26 x 20 x 30% 0.70 x 0.5 X 2% 1.1 X

Boston Beer 9.38 16.2 152 0.35 0.40 27 23 14 1.60 0.8 10 2.9

Celestial Seasonings 12.00 8.1 97 1.44 1.65 17 15 15 1.00 1.2 13 2.3

Cott Corp. 10.00 63.9 639 0.54 0.73 19 14 35 0.40 0.6 13 1.8

Dreyers Ice Cream 21.13 26.8 566 0.60 1.42 NM 30 NM NM 0.6 1 5.8

Robert Mondavi 46.75 7.5 349 2.02 2.36 23 20 17 1.20 1.2 13 3.5

Starbucks 20.47 156.7 3,208 0.80 1.10 51 37 38 1.00 3.9 8 7.5

Weider Nutrition 18.50 8.2 152 0.74 0.95 25 19 28 0.70 0.7 21 5.7

Mean 26.9 x 22.5 x 25% 0.9 x 1.2 x 10.1% 3.8 x 898-171 -20-

Exhibit 11 Latest Twelve Months Operating Statistics for Selected Comparable Companies ($MM)

Latest Debt/ Twelve Latest Twelve Months Margins Enterprise Enterprise Value/LTM A/R Inv. Mkt. Company Months Revenue EBITDA EBIT Net Gross EBITDA EBIT Net Value Revs. EBITDA EBIT DSO Turns Cap.

Food and Beverage Growth Brands

Ben & Jerry’s 3/97 $165 $11 $3 $2 30% 7% 2% 1% $94 0.57 x 8.7 x 27.6 x 34 6.9 x 34%

Boston Beer 6/97 186 13 10 6 50 7 5 3 168 0.90 12.7 17.1 41 7.0 6

Celestial Seasonings 6/97 78 12 10 6 62 16 12 7 101 1.29 8.2 10.5 46 4.2 7

Cott Corp. 4/97 1,015 95 59 47 16 9 6 5 851 0.84 8.9 14.4 45 NA 39

Dreyers Ice Cream 6/97 886 51 22 1 22 6 2 0 857 0.97 16.9 39.8 36 15.4 44

Robert Mondavi 6/97 301 67 55 28 45 22 18 9 912 3.03 13.6 16.6 60 1 24

Starbucks 3/97 827 117 60 41 53 14 8 5 3,593 4.34 30.7 52.3 9 5.1 5

Weider Nutrition 5/97 219 37 30 17 37 17 14 8 508 2.32 13.7 17.0 58 3.6 11

Wholesome and Hearty Foods 3/97 40 2 1 1 49 4 2 2 57 1.43 37.3 71.4 36 NA 0

Mean: 40.4% 11.3% 7.7 4.4% 1.7 x 16.7 29.6 x 40.6 6.2 x 18.9%

Source: Hambrecht & Quist 898-171 -21-

Exhibit 12 Selected Food and Beverage M&A Transactions

Value of Net Sales Value/ LTM Value/ Date Transaction LTM LTM EBIT LTM Announced Name Acquirer Name Business Description ($ mil.) ($ mil.) Sales ($ mil.) EBIT 08/11/92 Lincoln Snack (Sandoz Nutrition) Investor Group Produce, whole pre-popped popcorn $ 12 $ 30 0.4 x -- NM x 08/31/92 Stella D’Oro Biscuit Co. Nabisco Foods Group Produce breakfast treats 100 65 1.5 -- NM 09/17/92 Famous Amos Chocolate Chip President Banking Co. Produce cookies 61 75 0.8 -- NM 11/16/92 RJR Nabisco Holdings-Ready-to-Eat Kraft General Foods Ready-to-eat cereal business 450 230 2.0 -- NM 11/23/92 Isaly Klondike Co. Thomas J. Lipton Inc. Produce ice cream 155 101 1.5 -- NM 03/08/93 Per Inc.-Whitman’s Chocolates Russell Stover Candies Inc. Produce and whole chocolate 35 85 0.4 -- NM 03/25/93 M. Polaner Inc. American Home Products Corp. Produce fruit spreads, spices 70 65 1.1 -- NM 07/26/93 Mother’s Cake & Cookies, 7 Other Specialty Foods (Specialty) Produce cookies, cake, bread 1,100 2,100 0.5 -- NM 07/23/93 Italgel SpA Nestle SA Produce ice cream 715 489 1.5 -- NM 09/08/93 Kraft General Foods-Ice Cream Unilever U.S. Inc. Produce ice cream 300 500 0.6 -- NM 09/28/93 Freia Marabou Jacobs Suchard (KGF) Produce candy and chocolate 1,374 905 1.5 -- NM 10/08/93 Hillside Coffee of California Gourmet Coffee of America Inc. Produce coffee 42 28 1.5 6 7.0 11/01/93 Kraft General Foods-Birds Eye Dean Foods Co. Produce frozen vegetables 140 250 0.6 -- NM 04/18/94 Universal Foods-Frozen Foods ConAgra Inc. Produce frozen foods 202 239 0.8 - NM 05/23/94 Gerber Products Co. Sandoz AG Manufacture baby foods and products 3,823 1,203 3.2 184 20.8 07/19/94 Martha White foods (Windmill) Pillsbury Co. (Grand Met PLC) Produce flour and cake mixes 170 137 1.2 -- NM 08/29/94 Brock Candy Co. Brach Acquisition Co. Produce candy 140 145 1.0 8 17.5 09/12/94 Borden Inc. Kohlberg Kravis Roberts & Co. Produce dairy prods. snacks 3,606 4,000 0.9 115 31.4 10/18/94 Fantastic Foods Inc. Trefoil Investors II LP Manufacture instant soups, grain prod. -- 30 NM -- NM 11/02/94 Snapple Beverage Corp. Quaker Oats Co. Produce, wholesale soft drinks 1,703 700 2.4 127 13.4 11/28/94 Pace Foods Campbell Soup Co. Produce pickled vegetables 1,115 220 5.1 42 26.5 01/01/95 Pet Inc. Pillsbury Co. (Grand Met PLC) Dairy products, canned foods 3,225 1,573 2.1 217 14.9 01/04/95 Dole Food Co-Juice Business Seagram Co. Ltd. Produce, wholesale juice beverages 285 325 0.9 -- NM 01/06/95 Continental Baking (Wonder, etc.) Interstate Bakeries Produce bakery products 1,021 2,000 0.5 -- NM 06/27/95 Mistic Beverage Co. Triarc Cos. Inc. Produce soft drinks 94 150 0.6 -- NM 11/22/95 Wine World Estates (Nestle S.A.) Investor Group Produce wine 350 210 1.7 40 8.8 12/01/95 Millstone Coffee Inc. Procter & Gamble Co. Wholesale coffee products -- 90 NM -- NM 02/15/96 Earth’s Best Inc. H.J. Heinz Co. Produce baby food 40 28 1.4 - NM 04/08/96 Koala Springs International Nestle Beverage (Nestle USA) Produce beverages, spring water -- -- NM -- NM 05/06/96 Eagle Snacks Inc. Procter & Gamble Co. Produce nuts, potato chips -- -- NM -- NM 06/05/96 Sunshine Biscuits Keebler (United Biscuits PLC) Produce biscuits and snacks -- -- NM -- NM 07/29/96 Cascadian Farms Trefoil natural Foods Produce grapes -- -- NM -- NM 08/14/96 Ralcorp Holdings-Branded Cereal General Mills Inc. Produce cereals and snack food 570 300 1.9 -- NM 09/19/96 Hansen Juices Inc. Fresh Juice Co. Inc. Produce, wholesale juices 8 11 0.7 -- NM 11/18/96 Lenders Bagel Bakery Inc. Kellogg Co. Produce, wholesale bagels 455 275 1.7 -- NM 12/04/96 Mother’s Cake & Cookie Co. President International Inc. Cookies and crackers 130 -- NM -- NM 03/27/96 Snapple Beverage Corp. Triarc Cos. Inc. Produce, wholesale soft drinks 300 550 0.5 -- NM 05/02/97 Bumble Bee Seafoods Inc. International Home Foods Inc. Manufacture canned seafood products 203 -- NM -- NM 05/07/97 Campbell Soup-Marie’s Salad Dean Foods Co. Produce salad dressings -- 35 NM -- NM 05/12/97 Kraft Foods-Log Cabin Aurora Foods Inc. Manufacture maple-flavored syrup 220 100 2.2 -- NM Average 1.4 x 17.5 x Median: 1.2 x 16.2 x Range: 0.4-5.1 x 7.0-31.4 x 898-171 -22-

Exhibit 13 Discounted cash Flow Analysis under Standalone Scenario

1997 1998 1999 2000 2001 2002 Revenues $50,026 $69,717 $93,700 $122,981 $148,499 $174,635 Growth 94.1% 30.0% 28.0% 25.0% 15.0% 12.0% Gross Profit 17,246 26,634 35,796 46,982 56,730 66,715 Gross Margin 34.5% 38.2% 38.2% 38.2% 38.2% 38.2%

EBITDA 2,234 4,610 7,459 11,344 15,461 20,139 EBITDA Margin 4.5% 6.6% 8.0% 9.2% 10.4% 11.5%

Valuation Valuation EBIT Discount Rate Exit Multiple Discount Rate Terminal Growth Rate 9.0 x 10.0 x 11.0 x 4.0% 6.0% 8.0% Equity Value Equity Value 12.0% $106,877 $117,767 $128,658 12.0% $74,634 $98,243 $145,460 14.0% $97,646 $107,614 $117,581 14.0% $56,094 $69,291 $91,286 16.0% $89,323 $98,461 $107,598 16.0% $43,874 $52,081 $64,391 18.0% $81,806 $90,195 $98,584 18.0% $35,255 $40,730 $48,394 Sales Discount Rate Exit Multiple 1.0 x 1.4 x 1.8 Equity Value

12.0% $107,960 $153,666 $193,303 14.0% $104,706 $140,986 $177,266 16.0% $96,301 $129,559 $162,818 18.0% $88,709 $119,243 $149,777 898-171 -23-

Exhibit 13 (continued) Income Statement (000s)

Historical Fiscal Years Ended December 31, Projected Years Ending December 31, 1994 1995 1996 1997 1998 1999 2000 2001 2002

Total Revenue 8,345 15,335 29,493 50,026 69,717 93,700 122,981 148,499 174,635

Cost of Sales 6,831 11,024 20,511 32,780 43,083 57,904 75,999 91,769 107,920 Other Expenses/Adjustments - - - - - 0 0 0 0 Total Cost of Sales 6,831 11,024 20,511 32,780 43,083 57,904 75,999 91,769 107,920

Gross Profit 1,514 4,311 8,982 17,246 26,634 35,796 46,982 56,730 66,715

Marketing & Advertising 320 875 2,581 5,601 9,238 11,529 14,069 15,819 17,345 General & Administrative 3,290 3,344 5,432 9,410 12,785 16,808 21,569 25,450 29,231

EBITDA (2,096) 91 969 2,234 4,610 7,459 11,344 15,461 20,139

Amortization and Depreciation 104 137 247 209 331 495 710 763 947

EBIT (2,199) (45) 722 2,025 4,279 6,964 10,633 14,698 19,192

Interest Expense Notes Payable 8.5% 0 0 0 337 323 323 323 323 323 Current Maturities 8.5% 0 0 000000 0 Interest Income (Excess Cash) 5.0% 0 0 0 (34) (95) (187) (345) (601) (996) Subordinated Debt 9.0% 0 0 0 102 204 204 204 204 204

Total Interest Expense/(Income) 53 139 301 405 432 340 182 (74) (469)

Earnings Before Taxes (2,252) (184) 421 1,620 3,847 6,624 10,451 14,772 19,661

Income Tax Expense 39.6% - 16 52 641 1,523 2,623 4,139 5,850 7,786

Net Income (Loss) (2,252) (200) 369 978 2,324 4,001 $6,312 $8,922 $11,875 898-171 -24-

Exhibit 13 (continued) Balance Sheet (000s)

ASSETS Historical Fiscal Years Ended December 31, Projected Fiscal Years Ended December 31, Current Assets 1994 1995 1996 1997 1998 1999 2000 2001 2002 Cash $109 $38 $2 $100 $139 $187 $246 $297 $349 Excess Cash (Plug) $0 $0 $0 $1,346 $2,455 $5,025 $8,769 $15,260 $24,590 Inventories 1,139 1,328 4,754 5,409 6,032 6,948 9,120 11,012 12,950 Accounts Receivable 772 1,356 2,063 4,382 6,106 8,207 10,772 13,007 15,296 Prepaid Expenses 145 105 145 200 209 281 307 297 349 Other Current Assets 71 115 335 500 697 937 1,230 1,485 1,746 Total Current Assets 2,235 2,942 7,300 11,937 15,639 21,586 30,444 41,358 55,281

Property, Plant & Equipment, gross 322 332 680 1,030 1,518 2,174 3,035 4,075 5,297 Accumulated Depreciation (99) (137) (204) (410) (739) (1,232) (1,940) (2,701) (3,645) Property, Plant & Equipment, net 223 195 477 620 779 943 1,096 1,374 1,652

Other Assets 99 49 85 100 139 187 123 148 175 Goodwill & Intangibles 0 77 92 89 87 85 82 80 78 $2,557 $3,263 $7,953 $12,747 $16,644 $22,801 $31,745 $42,961 $57,186 LIABILITIES & EQUITY Current Liabilities Notes Payable 1,303 1,438 4,130 3,800 3,800 3,800 3,800 3,800 3,800 Accounts Payable 667 1,078 2,157 3,442 4,524 6,080 7,980 9,636 11,332 Accrued Expenses 270 382 428 950 1,325 1,780 2,337 2,821 3,318 Current Maturities 0 0 0 0 0000 0 Capital Lease Obligations 0 16 47 0 0000 0 Total Current Liabilities 2,240 2,914 6,762 8,192 9,648 11,660 14,116 16,257 18,449 Capital Lease Obligation 51 0 0 0 0000 0 Other Debt 0 0 0 176 176 176 176 176 176 Subordinated Debt 0 0 0 2,094 2,094 2,094 2,094 2,094 2,094

Total Long Term Debt 51 0 0 2,270 2,270 2,270 2,270 2,270 2,270

Other Long Term Liabilities 0 22 184 300 418 562 738 891 1,048 Excess Debt (Plug) 0 0 0 0 0000 0 Total Liabilities 2,292 2,935 6,946 10,762 12,336 14,492 17,124 19,417 21,767 Shareholders’ Equity Common Stock 1 1 1 1 1111 1 Additional Paid-In Capital 2,282 2,282 2,282 2,282 2,282 2,282 2,282 2,282 2,282 Retained Earnings (2,019) (1,956) (1,277) (299) 2,025 6,025 12,338 21,260 33,135 Total Shareholders’ Equity 265 328 1,006 1,985 4,308 8,309 14,622 23,544 35,419 Total Liabilities & Equity $2,557 $3,263 $7,953 $12,747 $16,644 $22,801 $31,745 $42,961 $57,186 898-171 -25-

Exhibit 13 (continued) Statement of Cash Flows (000s)

Fiscal Year Ended Projected Years Ending December 31, 1994 1995 1996 1997 1998 1999 2000 2001 2002

Cash Flow from operating activities Net income (loss) (2,252) (200) 369 978 2,324 4,001 6,312 8,922 11,875

Adjustments made to reconcile net income (loss) to net cash used by operating activities Depreciation and amortization 104 137 247 209 331 495 710 763 947 Deferred Taxes 0 0 0 0 0 0 0 0 0 Changes in operating assets and liabilities: Net assets available for sale 0 0 0 0 0 0 0 0 Accounts Receivable (584) (707) (2319) (1725) (2101) (2565) (2235) (2289) Inventory (189) (3426) (655) (623) (917) (2171) (1892) (1938) Prepaid expenses 40 (41) (55) (9) (72) (26) 10 (52) Other current assets (45) (220) (165) (197) (240) (293) (255) (261) Accounts Payable 411 1079 1285 1082 1556 1900 1656 1696 Accrued Expenses 112 46 522 374 456 556 485 497 Other Non-Current Liabilities 22 162 116 118 144 176 153 157 Net cash used by operations (298) (2490) (83) 1675 3322 4599 7607 10631 Cash flows from investing activities Net additions to property and equipment (10) (348) (350) (488) (656) (861) (1039) (1222) Proceeds from extraordinary items 0 0 0 0 0 0 0 0 Net additions (payments) on capital lease obligations (36) 31 (47) 0 0 0 0 0 Net additions on LT Assets 51 (36) (15) (39) (48) 64 (26) (26) 5 (353) (412) (527) (704) (796) (1065) (1249) Cash flows from financing activities Increase in notes payable 135 2692 (330) 0 0 0 0 0 Increase in working capital facility 0 0 (0) 0 0 0 0 0 Increase in other debt 0 0 176 0 0 0 0 0 Increase in subordinated debt 0 0 2094 0 0 0 0 0 Dividend Payments 0 0 0 0 0 0 0 0 Stock Repurchases 0 0 0 0 0 0 0 0 Proceeds from issuance of common stock 87 115 0 0 0 0 0 0 Net cash (used) supplied by financing activities 222 2807 1939 0 0 0 0 0

1995 1996 1997 1998 1999 2000 2001 2002 Total change in cash (71) (36) 1444 1148 2618 3803 6542 9382

Cash at the begining of period 109 38 2 1446 2594 5213 9015 15557

Cash at end of period 38 2 1446 2594 5213 9015 15557 24939 898-171 -26-

Exhibit 13 (continued) Discounted Cash Flows (000s)

CASH FLOW FORECASTS Historical Projected Years Ending 1995 1996 1997 1998 1999 2000 2001 2002 Total Revenues 15,335$ 29,493$ 50,026$ 69,717$ 93,700$ 122,981$ 148,499$ 174,635$ EBITA (45) 722 2,025 4,279 6,964 10,633 14,698 19,192

Income Taxes (Benefit) on Unlevered Income (18) 286 802 1,695 2,758 4,211 5,820 7,600

Unlevered Net Income (EBIAT) (27) 436 1,223 2,585 4,206 6,423 8,878 11,592

Depreciation 137 247 209 331 495 710 763 947 Working Capital Requirements (185) (3,232) (1,484) (1,137) (1,365) (2,658) (2,283) (2,401) Capital Expenditures (295) (315) (350) (488) (656) (861) (1,039) (1,222) Free Operating Cash Flow (371) (2,864) (402) 1,291 2,680 3,614 6,319 8,916

Tax Rate 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% 39.6% Nantucket Nectars 898-171

Exhibit 14 Boston Globe Article on Nantucket Nectar Culture

Reprinted courtesy of The Boston Globe, © 1996

27 898-171 Nantucket Nectars

Exhibit 14 (continued) Boston Globe Article on Nantucket Nectar Culture

28