Exhibit 10.39

NOTICE OF GRANT OF PERFORMANCE SHARE UNIT AWARD

ANNIE’S, INC.

OMNIBUS INCENTIVE PLAN

FOR GOOD AND VALUABLE CONSIDERATION, Annie’s, Inc. (the “Company”) has granted
on the Grant Date (set forth below), pursuant to the provisions of the Company’s
Omnibus Incentive Plan, as may be amended from time to time (the “Plan”), to the
Participant designated in this Notice of Grant of Performance Share Unit Award
(the “Notice”), the number of Performance Share Units set forth in the Notice
representing the right to receive shares of Common Stock, subject to terms and
conditions as outlined below in this Notice and the additional provisions set
forth in the attached Terms and Conditions of Performance Share Unit Award (the
“Terms and Conditions”; the Notice and the Terms and Conditions referred to
collectively as the “Agreement”).

Participant:

Grant Date:

Performance Period:

Target Number of Performance Share Units (“Units”):

Performance Measure: The Units shall be earned or forfeited based upon the
Company’s level of achievement of the cumulative compounded Adjusted Diluted EPS
growth rate during the Performance Period (as set forth above) (the “Cumulative
Compounded Adjusted Diluted EPS Growth Rate”), as determined by the Committee
and as set forth in the table below. For purposes of calculating the Cumulative
Compounded Adjusted Diluted EPS Growth Rate, “Adjusted Diluted EPS” shall be the
adjusted diluted earnings per share that is generally reported by the Company’s
external analysts and by independent services that publish financial results
such as Reuters, First Call and FactSet. This measure will be diluted net income
per share adjusted under the Plan in a manner that disregards and excludes
one-time non-recurring events that do not reflect core operating results, the
effects of extraordinary items as set forth in Accounting Standards Codification
225-20 (and any successor provision) or the effects of any other unusual or
infrequently occurring events and transactions, including, without limitation,
the effects of changes in tax laws and regulations, accounting principles and
interpretations or other laws or provisions affecting reported financial results
or the financial effects of any unbudgeted acquisition, start-up operation, new
joint venture, disposition of any asset, or unbudgeted disposal of a business
segment, division or operating unit.

 

Cumulative Compounded

Adjusted Diluted EPS

Growth Rate

   Units Earned as a
Percent of Target   Units Earned    150% (maximum)      100% (target)     
50% (threshold)      0%   0

The level of achievement of the Cumulative Compounded Adjusted Diluted EPS
Growth Rate between threshold and target or between target and maximum shall
result in a corresponding interpolated vesting percentage on a straight-line
basis as determined by the Committee. The level of achievement of the Cumulative
Compounded Adjusted Diluted EPS Growth Rate shall be determined in writing by
the Committee as provided in the Terms and Conditions. Except as provided in the
Terms and Conditions, the Participant must not incur a Termination of Service
prior to completion of the Performance Period in order to be entitled to receive
a payment upon settlement of the Units (as provided in Section 1(e) of the Terms
and Conditions).

Accelerated Vesting: The Units shall be subject to accelerated vesting in
accordance with the terms of Section 4 of the Terms and Conditions.

Dividend Units: Prior to settlement of the Units, the Units shall accrue
Dividend Units in accordance with Section 1(c) of the Terms and Conditions.

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By signing below, the Participant agrees that this Performance Share Unit Award
is granted under and governed by the terms and conditions of the Plan and the
Agreement.

 

[Participant Name]    Annie’s, Inc.

 

      By:             Title:     Date:  

 

      Date:    

 

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TERMS AND CONDITIONS OF PERFORMANCE SHARE UNIT AWARD

These Terms and Conditions of Performance Share Unit Award (these “Terms and
Conditions”) relate to the Notice of Grant of Performance Share Unit Award
attached hereto (the “Notice”, and together with these Terms and Conditions, the
“Agreement”), by and between Annie’s, Inc. (the “Company”), and the person
identified in the Notice as the Participant (the “Participant”).

The Committee has approved an award to the Participant under the Company’s
Omnibus Incentive Plan, as may be amended from time to time (the “Plan”) equal
to the number of Performance Share Units set forth in the Notice representing
the right to receive shares of Common Stock, subject to the terms and conditions
of the Plan and as outlined in the Notice and below in these Terms and
Conditions. For purposes of the Notice and these Terms and Conditions, any
reference to the Company shall include a reference to any Subsidiary or
Affiliate.

1. Grant of Performance Share Units.

(a) As of the Grant Date set forth in the Notice, the Company has granted to the
Participant the number of target Performance Share Units set forth in the Notice
(the “Units”), which represent a corresponding number of shares of the Company’s
Common Stock (“Shares”), a percentage of which may be awarded to the Participant
upon settlement of the Units following the completion of the Performance Period
set forth in the Notice (the “Performance Period”) based on the Committee’s
determination of the extent to which the target Performance Measure(s) set forth
in the Notice of Grant have been met. The Units are subject to the restrictions
set forth in these Terms and Conditions (including without limitation Section 2
hereof) and the applicable provisions of the Notice and the Plan.

(b) The Units granted under this Agreement shall be reflected in a bookkeeping
account maintained by the Company during the Performance Period. Unless
otherwise determined by the Committee, following satisfaction of the vesting
conditions (as determined in writing by the Committee based on the level of
achievement of the applicable Performance Measure(s) set forth in the Notice),
the number of Units that become earned and vested (and any related Dividend
Units described in Section 1(c) below) shall be settled in Shares (or in a
combination of Shares and cash) as provided in Section 1(e) of these Terms and
Conditions and otherwise in accordance with the Plan.

(c) With respect to each Unit, whether or not vested, that has not been
forfeited (but only to the extent such award of Units has not been settled), the
Company shall, with respect to any cash dividends paid on the Shares during the
Performance Period (as defined below), accrue and credit to the Participant’s
bookkeeping account a number of additional performance share units having a Fair
Market Value as of the date such dividend is paid equal to the cash dividends
that would have been paid with respect to such Unit if it were an outstanding
Share (the “Dividend Units”). These Dividend Units thereafter shall (i) be
treated as Units for purposes of future dividend accruals pursuant to this
Section 1(c) and (ii) will either vest and be settled (rounded down to the
nearest whole unit) or be immediately forfeited at the same time the Units to
which such Dividend Units relate become vested and settled or forfeited (as the
case may be). Any dividends or distributions on Shares paid other than in cash
shall accrue in the Participant’s bookkeeping account and shall vest and be
settled at the same time as the Units in respect of which they are made (in each
case in the same form, based on the same record date and at the same time, as
such dividend or other distribution is paid on such Share), or forfeited to the
extent the Unit with respect to which such Dividend Units were received is
forfeited.

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(d) The Company’s obligations under this Agreement (with respect to both the
Units and the Dividend Units, if any) shall be unfunded and unsecured, and no
special or separate fund shall be established and no other segregation of assets
shall be made. The rights of Participant under this Agreement shall be no
greater than those of a general unsecured creditor of the Company. In addition,
the Units shall be subject to such restrictions as the Company may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which Shares are then listed,
any Company policy and any applicable federal or state securities law.

(e) Settlement of any Units to the Participant shall either be solely in Shares
based on the Fair Market Value of the Shares (determined as of the business day
immediately preceding the date of payment), or in a combination of Shares and
cash, as determined by the Committee in its sole discretion.

2. Restrictions.

(a) The Participant shall have no rights as a stockholder of the Company by
virtue of any Unit unless and until such Units vest and resulting Shares are
issued to the Participant upon settlement of such Units.

(b) None of the Units may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of at any time, except as may be permitted by the Plan or
as otherwise permitted by the Committee in its sole discretion or pursuant to
rules adopted by the Committee in accordance with the Plan.

(c) Any attempt to dispose of the Units or any interest in the Units in a manner
contrary to the restrictions set forth in this Agreement shall be void and of no
effect.

3. Performance Period/ Settlement. At the close of the Performance Period, the
Committee shall certify the level of achievement of the Performance Measure(s)
that has been achieved in connection with the completion of the Company’s
audited financial statements for the Company’s fiscal year ending on the last
day of the Performance Period, but in no event later than 10 business days
following the filing of the Form 10-K for such fiscal year (such date of
certification, the “Certification Date”). On the Certification Date, the
Committee shall authorize the vesting and settlement of the applicable number of
Units, and such Units shall be settled to the extent such Units become issuable
or payable as a result of such performance. Notwithstanding the foregoing, in no
event will the Units be settled or any payment or issuance thereunder occur
later than the December 31st of the Company’s last fiscal year occurring during
the Performance Period. The Committee’s determination of the number of Units
payable hereunder shall be final and binding on the Participant.

4. Termination/ Change in Control.

(a) If during the Performance Period (i) the Participant incurs a Termination of
Service with the Company for any reason other than as described in Sections 4(b)
or 4(d), (ii) there occurs a material breach of these Terms and Conditions by
the Participant, or (iii) the Participant fails to meet the tax withholding
obligations described in Section 5(a) hereof, all rights of the Participant to
the Units that have not vested in accordance with the terms of this Agreement as
of the date of such event shall terminate immediately and be forfeited in their
entirety.

 

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(b) In the event of the Participant’s Termination of Service during the
Performance Period due to the Participant’s death or disability, the target
number of Units set forth in the Notice shall be deemed immediately vested, no
longer subject to forfeiture and settled on the Certification Date.

(c) In the event of the Participant’s Termination of Service following the
Performance Period and prior to the Certification Date for any reason other than
for Cause, the Participant will be issued the applicable number of Shares in
respect of Units (or a combination of Shares and cash) that become settled on
the Certification Date. In the event of the Participant’s Termination of Service
for Cause following the Performance Period and prior to the Certification Date,
all of the Participant’s Units will be forfeited.

(d) Notwithstanding the foregoing, the following provisions shall apply in the
event of a Change in Control:

(i) If the Units are assumed or replaced by the successor entity in connection
with such Change in Control, then the Units will be converted to shares of
time-based restricted stock without pro-ration for any portion of the
Performance Period that has elapsed following the Grant Date, as follows: (x) if
such Change in Control occurs prior to the 18th month anniversary of the first
day of Performance Period, then the Units will be converted into a number of
shares of restricted stock equal to the number of Shares that would be payable
upon settlement of the Units upon achievement of the performance goal at target
level, and any Units not subject to conversion will be forfeited, and (y) if
such Change in Control occurs after the 18th month anniversary of the first day
of Performance Period, then the Units will be converted into a number of shares
of restricted stock equal to the number of Shares that would be payable upon
settlement of the Units upon achievement of the performance goal based on actual
performance through the date of the Change in Control, and any Units not subject
to conversion will be forfeited.

(ii) Any shares of restricted stock issued as a result of conversion under
sub-section (i) shall vest in full upon the first to occur of: (x) subject to
the Participant delivering a fully effective release of claims in a form
provided by the Committee, the Participant’s Termination of Service without
Cause occurring within 24 months following the Change in Control; (y) subject to
the Participant or his estate, as applicable, delivering a fully effective
release of claim in a form provided by the Committee, the Participant’s
Termination of Service due to death or disability at any time following the
Change in Control; and (z) the last day of the Performance Period, subject to
the Participant’s not having incurred a Termination of Service prior to such
date. Any shares of restricted stock that do not become vested in accordance
with the prior sentence shall be forfeited upon the Participant’s Termination of
Service.

(iii) If the Units are not assumed or replaced by the successor entity in
connection with such Change in Control, then the Units will vest and be payable
upon such Change in Control without pro-ration for any portion of the
Performance Period that has elapsed following the Grant Date, as follows: (x) if
such Change in Control occurs prior to the 18th month anniversary of the first
day of Performance Period, then the Units will vest based upon achievement of
the performance goal at target level, and (y) if such Change in Control occurs
after the 18th month anniversary of the first day of Performance Period, then
the Units will vest based upon achievement of the performance goal based on
actual performance through the date of the Change in Control, and any Units not
vested in accordance with the foregoing will be forfeited.

 

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(d) The remainder of any Units that have not or do not become vested or
converted to restricted stock in accordance with the terms of Section 3 or this
Section 4 shall terminate immediately and be forfeited in their entirety.

5. Withholding.

(a) The Committee shall determine the amount of any withholding or other tax
required by law to be withheld or paid by the Company with respect to any income
recognized by the Participant with respect to the Units. The Participant shall
be required to meet any applicable tax withholding obligation in accordance with
the provisions of the Plan.

(b) Subject to any rules prescribed by the Committee, the Participant shall have
the right to elect to meet any withholding requirement (i) by having withheld
from this Award at the appropriate time that number of whole Shares whose Fair
Market Value is equal to the amount of any taxes required to be withheld with
respect to such Award, (ii) by direct payment to the Company in cash of the
amount of any taxes required to be withheld with respect to such Award or
(iii) by a combination of Shares and cash.

6. Committee’s Discretion. Notwithstanding any provision of this Agreement to
the contrary, the Committee shall have discretion to waive any forfeiture of the
Units as set forth in Section 4 hereof, the Performance Period and any other
conditions set forth in this Agreement.

7. Covenants and Conditions on Awards and Recovery.

(a) Covenants. As a condition for participation in the Plan and the receipt of
any benefits under this Agreement, the Participant agrees and covenants that at
any time during the Participant’s service with the Company and for a period of
twenty-four (24) months following the Participant’s Termination of Service for
any reason, the Participant shall not, directly or indirectly, (1) disclose or
use any confidential information pertaining to the Company, its Affiliates or
its Subsidiaries other than in the proper performance of the Participant’s
duties or responsibilities with respect to the Company; (2) attempt, directly or
indirectly, to induce any employee of the Company, its Affiliates or its
Subsidiaries to be employed or perform services elsewhere; or (3) disparage the
Company, its Affiliates or its Subsidiaries or any of their respective officers
or directors. The determination of whether any conduct, action or failure to act
falls within the scope of activities contemplated by this Section shall be made
by the Committee, in its discretion, and shall be final and binding upon the
Participant. A determination that any particular conduct, action or failure
falls outside the scope of activities contemplated by this Section shall not
imply that, or be determinative of whether, such conduct, action or failure is
otherwise lawful or appropriate.

(b) Recovery of Award Upon Violation of Covenants. In the event that the
Committee determines that the Participant has violated any of the covenants
contained in Section 7(a), then:

(i) all of the Participant’s unvested Units shall be forfeited immediately and
all rights of the Participant with respect to such Units shall terminate; and

(ii) to the extent that the Participant has received cash in settlement of any
Units upon vesting of such Units, the Participant upon notice from the Company
of the Participant’s obligations under this Section 7(b)(ii), shall immediately
deliver to the Company an amount in cash equal to the payment previously
received by the Participant in settlement of the vested Units.

 

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The notice described in subsection (ii) above may be given at any time within
twelve months after the expiration of the applicable covenant period under
Section 7(a).

(c) Recovery of Compensation in Connection with Financial Restatement.
Notwithstanding any other provision of this Agreement, if the Board determines
that the Company is required to restate its financial statements due to material
noncompliance with any financial reporting requirement under the law within a
period of three (3) years following the original issuance of such financial
statements (or such longer period as may be required under applicable law),
whether such noncompliance is the result of misconduct or other circumstances,
the Participant shall be required to reimburse the Company for any amounts
earned or payable with respect to this Award to the extent the Board reasonably
determines that the amount earned by or paid to the Participant exceeds the
amount earned or payable based on the restated financial statements, or
otherwise to the extent required by and in accordance with applicable law and
any Company policies.

(d) Retention of Settled Shares in Compliance with Company Share Ownership and
Retention Policies. The Units and any Shares acquired upon settlement of any
vested Units shall be subject to compliance with any applicable share ownership
or retention policies adopted from time to time by the Company.

8. Defined Terms. Capitalized terms used but not defined in this Agreement shall
have the meanings set forth in the Plan.

9. Nonassignability. The Units may not be sold, assigned, transferred (other
than by will or the laws of descent and distribution, or to an inter vivos trust
with respect to which the Participant is treated as the owner under Sections 671
through 677 of the Code), pledged, hypothecated, or otherwise encumbered or
disposed of until the restrictions on such Units, as set forth in this
Agreement, have lapsed or been removed.

10. Participant Representations. The Participant hereby represents to the
Company that the Participant has read and fully understands the provisions of
the Notice, these Terms and Conditions and the Plan and the Participant’s
decision to participate in the Plan is completely voluntary. Further, the
Participant acknowledges that the Participant is relying solely on his or her
own advisors with respect to the tax consequences of this award.

11. Regulatory Restrictions on the Units. Notwithstanding any other provision of
the Plan, the obligation of the Company to issue Shares in connection with this
Award under the Plan shall be subject to all applicable laws, rules and
regulations (including without limitation the requirements of any national
securities exchange) and such approval by any regulatory body as may be
required. The Company reserves the right to restrict, in whole or in part, the
delivery of Shares pursuant to this Agreement prior to the satisfaction of all
legal requirements relating to the issuance of such shares, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.

 

12. Miscellaneous.

 

  12.1

Notices. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under these Terms and
Conditions shall be in

 

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  writing and shall be either delivered personally or sent by registered or
certified mail, or by private courier, return receipt requested, postage prepaid
to the parties at their respective addresses set forth herein, or to such other
address as either shall have specified by notice in writing to the other. Notice
shall be deemed duly given hereunder when delivered or mailed as provided
herein.

 

  12.2 Waiver. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.

 

  12.3 Entire Agreement. These Terms and Conditions, the Notice and the Plan
constitute the entire agreement between the parties with respect to the subject
matter hereof.

 

  12.4 Binding Effect; Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and to the extent not prohibited herein,
their respective heirs, successors, assigns and representatives. Nothing in this
Agreement, express or implied, is intended to confer on any person other than
the parties hereto and as provided above, their respective heirs, successors,
assigns and representatives any rights, remedies, obligations or liabilities.

 

  12.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

 

  12.6 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of these Terms and
Conditions.

 

  12.7 Conflicts; Amendment. The provisions of the Plan are incorporated in this
Agreement in their entirety. In the event of any conflict between the provisions
of this Agreement and the Plan, the provisions of the Plan shall control. The
Agreement may be amended at any time by written agreement of the parties hereto.

 

  12.8 No Right to Continued Employment. Nothing in this Agreement shall confer
upon the Participant any right to continue in the employ or service of the
Company or affect the right of the Company to terminate the Participant’s
employment or service at any time.

 

  12.9 Further Assurances. The Participant agrees, upon demand of the Company or
the Committee, to do all acts and execute, deliver and perform all additional
documents, instruments and agreements which may be reasonably required by the
Company or the Committee, as the case may be, to implement the provisions and
purposes of the Notice and these Terms and Conditions and the Plan.

 

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