<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998
REGISTRATION NO. 333-49651
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BALANCE BAR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5149 77-0306617
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1015 MARK AVENUE
CARPINTERIA, CALIFORNIA 93013
(805) 566-0234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES A. WOLFE
1015 MARK AVENUE
CARPINTERIA, CALIFORNIA 93013
(805) 566-0234
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
KENT V. GRAHAM THOMAS A. BEVILACQUA
O'MELVENY & MYERS LLP TIMOTHY R. CURRY
1999 AVENUE OF THE STARS BROBECK, PHLEGER & HARRISON LLP
SUITE 700 TWO EMBARCADERO PLACE
LOS ANGELES, CALIFORNIA 90067-6035 2200 GENG ROAD
(310) 246-6820 PALO ALTO, CA 94303-0913
(650) 424-0160
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
<TABLE>
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<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED(1) REGISTERED(1) PER SHARE PRICE(2)(3) FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$0.01 par value. 2,760,000 $12.00 $33,120,000 $0(4)
- --------------------------------------------------------------------------------
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</TABLE>
(1) Includes 360,000 shares that the Underwriters have the option to purchase
from the Selling Stockholders to cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(o).
(3) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(4) In connection with the original filing of the Registration Statement on
April 8, 1998, the Company paid $10,397 in registration fees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 8, 1998
PROSPECTUS
- ----------
2,400,000 SHARES
[LOGO OF BALANCE BAR COMPANY]
COMMON STOCK
Of the 2,400,000 shares of Common Stock offered hereby, 1,003,372 shares are
being sold by Balance Bar Company ("Balance Bar Company" or the "Company") and
1,396,628 shares are being sold by the Selling Stockholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $10.00 and $12.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol BBAR.
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
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- -----------------------------------------------------------------------------------------
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- -----------------------------------------------------------------------------------------
Total (3)..................... $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company and the Selling
Stockholders estimated at $700,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to 360,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount, and Proceeds to Selling Stockholders will
be $ , $ , and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST ADAMS, HARKNESS & HILL, INC.
, 1998.
<PAGE>
[Picture showing Company Products]
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors for each
fiscal year and will make available copies of quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
"BALANCE, THE COMPLETE NUTRITIONAL FOOD"(R) bar is a registered trademark of
the Company. "40-30-30 BALANCE"(TM), is a trademark of the Company. The
prospectus also includes tradenames and trademarks of companies other than the
Company which are the property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
THE COMPANY
Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations that appeal to a
broad consumer base. The Company has targeted its products, the Balance bar and
the 40-30-30 Balance powdered drink mix, at the healthy snack and meal
replacement market and believes that by marketing its products as "nutritious
snacks that taste great" it is highlighting their benefits over typical snacks
and meal replacements. In addition, the Company has targeted other markets
consisting of consumers with specific dietary or nutritional requirements,
including the fitness, weight management and diabetic markets. In order to make
its products available wherever people shop, the Company sells its products
through multiple distribution channels, including natural foods, mass
merchandise, club, grocery, convenience, health and fitness, and drug stores.
Balance Bar Company has experienced significant growth as sales have grown from
$1.3 million in 1995 to $39.6 million in 1997.
Consumers have become increasingly health conscious over the last decade, as
reflected in the surge of activities aimed at maintaining and improving health,
including exercising, dieting and quitting smoking. Despite this concern for
health and nutrition, today's consumers find themselves with less time for
three nutritious meals a day and are seeking healthy snacks and meal
substitutes that can be consumed at any time or place. In response to these
trends, many new food and beverage products have been introduced to satisfy
consumer demand for nutritious snacks and meal replacements and have achieved
increasingly broad distribution. The Company believes that the consumer trends
towards health and nutrition will continue to drive the broad distribution of
convenient, healthy snacks and meal replacements.
The Company has differentiated its brand from other snack products and meal
replacements by focusing on the combination of nutrition, good taste and
convenience. The Company's current product lines are based on balanced
proportions of 40% carbohydrates, 30% protein and 30% dietary fat, a
formulation designed to sustain energy and satisfy hunger. The Company
currently sells ten flavors of Balance bars in two sizes and five flavors of
powdered drinks in canisters or single serving envelopes. Although the
Company's current products are based upon the 40-30-30 concept, a Company
survey indicates that the popularity of its products extends to a much broader
consumer base.
The Balance bar has significantly penetrated the natural foods channel with
approximately 69% of the Company's 1997 sales in this channel. According to
SPINS data from Spence Information Services, the Balance bar was the number one
selling brand of nutrition bar in the natural foods channel, achieving a 31.0%
share in 1997 and a 34.6% share in the January/February 1998 reporting period.
In 1997 and the first quarter of 1998, the Company expanded its strategic focus
to the wider mass market, including mass merchandise, club, grocery,
convenience, health and fitness and drug stores. The Company had the top two
selling nutrition bar flavors per point of distribution in grocery stores for
the November/December 1997 reporting period and the top selling nutrition bar
flavor per point of distribution in grocery stores for the January/February
1998 reporting period. In addition the leading Balance bar flavor outsold the
nearest competitor flavor per point of distribution in grocery stores by 56.6%
in December 1997 and by 40.0% in February 1998. According to ACNielsen Scan
Track: SPINS Natural Track, the Balance bar market share in the energy bars
category of grocery store natural products increased from 2% in the
November/December 1996 reporting period to 16% in the November/December 1997
reporting period and to 17% in the January/February 1998 reporting period. The
Company believes that expanding distribution within the mass market represents
a significant growth opportunity.
The Company's goal is to become a recognized leader in providing nutritious,
good tasting and convenient snack and meal replacement products for a wide
variety of consumer needs. In order to achieve its goal, the Company's strategy
is to: (i) continue positioning Balance products as good tasting, nutritious
snacks and meal replacements; (ii) expand the Company's consumer base and brand
awareness through increased advertising and promotional activities; (iii)
expand existing and new channels of distribution; (iv) focus on in-store
promotion and marketing; (v) continue to promote the nutritional qualities of
Balance products; (vi) introduce new products and product line extensions; and
(vii) acquire complimentary companies or product lines.
The Company's principal executive office is located at 1015 Mark Avenue,
Carpinteria, California 93013. Its telephone number is (805) 566-0234.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................. 1,003,372 shares
Common Stock offered by the Selling Stockholders.... 1,396,628 shares
Common Stock to be outstanding after the offering... 10,687,174 shares (1)
Use of proceeds..................................... To retire short and long-term
debt and for working capital and
other general corporate purposes
(which could include the
acquisition of companies or
product lines).
Proposed Nasdaq National Market symbol.............. BBAR
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS YEAR ENDED THREE MONTHS
MAY 31, ENDED DECEMBER 31, ENDED MARCH 31,
--------------- DECEMBER 31, ----------------------- ---------------
1993 1994 1994 1995 1996 1997 1997 1998
------- ------ ------------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................. $ 481 $ 692 $ 576 $1,262 $10,544 $39,634 $ 6,136 $17,457
Income (loss) before
income taxes.......... (1,262) (312) 7 (84) 1,840 2,876 775 2,176
Net income (loss)...... (1,263) (313) 6 (85) 1,615 1,660 447 1,284
Earnings (loss) per
diluted share (2)..... (0.22) (0.04) -- (0.01) 0.17 0.15 0.04 0.11
Weighted average number
of shares outstanding
(2)................... 5,828 7,670 7,713 7,800 9,343 11,043 11,434 11,683
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................... $ 89 $ 6,712
Working capital........................................ 4,122 14,331
Total assets........................................... 14,694 20,880
Long-term debt, net of current portion................. 202 10
Total shareholders' equity............................. 5,561 15,525
</TABLE>
- --------
(1) Based on the number of shares outstanding at March 31, 1998. Excludes (i)
1,800,000 shares of Common Stock reserved for issuance under the Company's
1998 Performance Award Plan (the "1998 Plan"), of which no shares were
subject to outstanding options as of March 31, 1998, and (ii) 2,615,502
shares of Common Stock issuable upon the exercise of options outstanding at
March 31, 1998 at a weighted average exercise price of $0.74 per share. See
"Capitalization," "Management--Stock Options and Stock Plans" and Note 8 of
Notes to Financial Statements.
(2) See Note 3 of Notes to Financial Statements for an explanation of the
determination of shares used in computing earnings (loss) per diluted
share.
(3) Adjusted to reflect the sale of 1,003,372 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $11.00
per share, the receipt of the estimated net proceeds therefrom, and the
retirement of $3.7 million of outstanding debt. See "Use of Proceeds" and
"Capitalization."
----------------
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the underwriters' over-allotment option and gives effect to (i) the
conversion of all shares of Series A Preferred Stock into Common Stock, and
(ii) the six for one stock split effected in May 1998 (the "Stock Split"). See
"Description of Capital Stock," "Underwriting" and Notes to Financial
Statements.
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. These statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "intends," "plans," "may,"
"will," "should," or "anticipation" or the negative thereof or other
variations thereon or comparable terminology. Actual results could differ
materially from those discussed in the forward-looking statements as a result
of certain factors, including those set forth below and elsewhere in this
Prospectus. The following risk factors should be considered carefully in
addition to the other information in this Prospectus before purchasing the
shares of Common Stock offered hereby.
Trade and Consumer Acceptance in New Distribution Channels. Until recently,
virtually all of the Company's sales were made in natural food stores. In 1997
and the three months ended March 31, 1998, sales to natural food stores
accounted for approximately 69% and 59%, respectively, of the Company's sales.
The Company's growth will depend on its ability to expand other channels of
distribution, including mass merchandise, club, grocery, convenience, and drug
stores, without significant impact on current channels. As of December 31,
1997, the Company had four of its ten Balance bar flavors in approximately 40%
of mass merchandise stores, 25% of club stores (based on Company estimates),
13% of grocery stores, 10% of convenience stores (in honey peanut flavor
only), and 9% of drug stores in the United States. These new channels of
distribution have presented, and will continue to present, competitive and
marketing challenges, risks, and marketing and distribution costs that are
different from those faced by the Company in the natural foods channel. In
addition, the Company's expansion in these new channels of distribution will
require it to attract and retain consumers in broader demographic and
geographic markets. Although the Company has initiated distribution through
new nationwide distribution channels, there can be no assurance that the
Company will achieve the same success with consumers in other demographic and
geographic markets. The inability to obtain consumer acceptance in new markets
could have a material adverse effect on the Company's business, results of
operations, and financial condition. See "Business--Growth Strategy" and "--
Sales and Distribution."
Potential Sales and Earnings Volatility. The Company has experienced, and
will continue to experience, period-to-period fluctuations in its operating
results as a result of a variety of factors, including: (i) fluctuations in
promotional, advertising, and marketing expenditures; (ii) the introduction of
new products or delays in such introductions; (iii) the introduction or
announcement of new products by the Company's competitors; (iv) customer
acceptance of new products; (v) shipment delays; (vi) consumer perceptions of
the Company's products and operations, including the 40-30-30 nutritional
concept; (vii) competitive pricing pressures; (viii) the adverse effect of
distributors', suppliers', or the Company's failure, and allegations of their
failure, to comply with applicable regulations; (ix) the availability and cost
of raw materials; (x) economic conditions in general and in the food industry
in particular; (xi) the negative effect of changes in or interpretations of
regulations that may limit or restrict the sale of certain of the Company's
products; (xii) the expansion of its operations into new markets; (xiii) the
introduction of its products into each such market; (xiv) the mix of products
sold; and (xv) unanticipated changes in the timing of customer promotions, any
of which could have a material adverse effect on the Company's business,
results of operations, and financial condition. The Company has a limited
operating history, and therefore it is difficult to predict the Company's
future sales or its ability to identify and adapt its products successfully to
meet changing dietary trends and other elements that affect the Company's
results of operations.
The Company has increased its expense levels to support its recent growth,
particularly expenses associated with advertising, marketing, promotions, and
employees. The Company expects to continue to increase its operating expenses
in these areas. If the Company does not achieve increased levels of sales
commensurate with these increased operating expenses, or if the Company's
revenues decrease or do not meet the Company's expectations for a particular
period, the Company's business, results of operations, and financial condition
may be materially and adversely affected.
Dependence on Third Party Manufacturers. The Company does not own or operate
any manufacturing facilities and is, therefore, dependent on third parties for
the manufacture of its products. The Company
5
<PAGE>
currently relies and expects to continue to rely on two contract manufacturers
to produce all of its products. These contract manufacturers also produce
products for some of the Company's competitors, and the Company competes with
these and other companies for production capacity. If either of the Company's
contract manufacturers were unable or unwilling to produce and ship the
Company's products in a timely manner or to produce sufficient quantities to
support the Company's growth, if any, the Company would have to identify and
qualify new contract manufacturers. However, a limited number of contract
manufacturers have the ability to produce a high volume of the Company's
products, and it could take a significant period of time to locate and qualify
such alternative production sources. There can be no assurance that the
Company would be able to identify and qualify new contract manufacturers in a
timely manner or that such manufacturers would allocate sufficient capacity to
the Company in order to meet its requirements, which could adversely affect
the Company's ability to make timely deliveries of its products. In addition,
there can be no assurance that the capacity of the Company's current contract
manufacturers will be sufficient to fulfill the Company's orders, and any
supply shortfall could materially and adversely affect the Company's business,
results of operations, and financial condition. The Company's contract
manufacturers each store the Company's products in a warehouse prior to
shipment to distributors. Shipments to and from the warehouses could be
delayed for a variety of reasons including weather conditions, strikes, and
shipping delays. Any significant delay in shipments of the Company's products
would have a material adverse effect on the Company's business, results of
operations, and financial condition. The Company has from time to time
experienced, and may in the future experience, delays in the production and
delivery of its products.
In addition, the contract manufacturers are contractually required to
maintain the quality of the Company's products and to comply with applicable
laws and regulations relating to the production of food products. There can be
no assurance that the Company's contract manufacturers will continue to
produce products that are consistent with the Company's standards. The Company
has occasionally received, and might from time to time receive, shipments of
products that fail to conform to the Company's standards. The failure of any
contract manufacturer to produce products that conform to the Company's
standards could materially and adversely affect the Company's reputation in
the marketplace and result in product recalls, product liability claims, and
severe economic loss. See "--Government Regulation" and "Business--Contract
Manufacturers and Quality Assurance."
Changes in Dietary Trends. The snack food industry in general and the
nutritional food industry in particular are subject to changing consumer
trends, demands, and preferences. Trends within the nutritional food industry
change often, and the failure of the Company to anticipate, identify or react
to changes in these trends could lead, among other things, to reduced demand
and price reductions, and could have a material adverse effect on the
Company's business, results of operations, and financial condition. These
changes might include consumer demand for new products or formulations that
include health promoting ingredients such as nutraceuticals. The Company's
success depends, in part, on its ability to anticipate the tastes and dietary
habits of consumers and to offer products that appeal to their preferences on
a timely and affordable basis. The Company believes that its growth to date
has been due, to some extent, to the popularity of the "40-30-30" nutritional
concept, which was popularized in 1995 in a nationally best selling book, The
Zone, and has attracted significant media attention and scientific
controversy. All of the Company's current and planned future products are
based on a 40-30-30 ratio, and the ratio is mentioned on all of the Company's
packaging and in most of its advertising and promotional materials. Although
the 40-30-30 concept has achieved a measure of popularity in some consumer
groups, it has also received significant criticism from certain portions of
the scientific and nutritional communities. Although the Company's surveys
indicate that a majority of its products are purchased by consumers for
reasons other than adherence to the 40-30-30 concept, there can be no
assurance that the popularity of the Company's products will continue to grow
or remain at current levels if the 40-30-30 concept declines in popularity, or
that the Company's products will continue to receive the same level of
acceptance in consumer groups that are making purchasing decisions for reasons
other than the 40-30-30 concept. See "Business--Consumer Trends" and "--
Industry Overview."
Risk of Adverse Publicity. The Company is highly dependent upon consumers'
perception of the safety, quality, and possible dietary benefits of its
products. As a result, substantial negative publicity concerning the
6
<PAGE>
40-30-30 concept, one or more of the Company's products, or other nutritional
foods similar to the Company's products could lead to a loss of consumer
confidence in the Company's products, removal of the Company's products from
retailers' shelves and reduced sales and prices of the Company's products. Any
of these events could have a material adverse effect on the Company's
business, results of operations, and financial condition.
Narrow Product Line; Dependence on New Products. The Company currently has
only two product lines: nutrition bars (in ten flavors and two sizes) and
powdered drink mixes (in five flavors and two sizes), both of which are based
on a 40-30-30 formulation. In 1997, Balance bars accounted for approximately
92% of sales and powdered drink mixes accounted for approximately 8% of sales
and approximately 90% and 10%, respectively, of sales in the three months
ended March 31, 1998. There can be no assurance that the Company's existing
products will continue to achieve market acceptance. Any such failure could
have a material adverse effect on the Company's business, results of
operations, and financial condition. The Company believes its ability to
increase sales is partially dependent upon its ability to introduce new and
innovative products into its existing markets. The success of new products
depends on a number of factors, including the Company's ability to develop
products that appeal to consumers and that are priced competitively. There can
be no assurance that the Company's efforts to develop new products will be
successful, that consumers will accept new products, or that the Company's
competitors will not introduce products that achieve greater market acceptance
than the Company's products. See "Business--Growth Strategy" and "--
Competition."
Dependence on Significant Retail Customers and Distributors. A limited
number of distributors and retail customers have historically accounted, and
are likely to continue to account in the future, for a substantial portion of
the Company's revenues. Most of the Company's sales are made to distributors
(with the assistance of commissioned brokers) that resell to retail customers.
The Company's two largest retail customers in 1997 were Trader Joe's and
General Nutrition Companies ("GNC") and two largest distributor customers were
Tree of Life and United Natural Foods. Trader Joe's and GNC accounted for
approximately 25% and 7%, respectively, of the Company's sales in 1997 and 21%
and 7%, respectively, of the Company's sales in the three months ended March
31, 1998. In addition, sales to Costco in the three months ended March 31,
1998 accounted for approximately 16% of the Company's sales in that period.
United Natural Foods acquired one of the Company's other natural foods
distributors in October 1997. Including sales to the acquired distributor as
if it had been owned for all of 1997, sales to United Natural Foods accounted
for approximately 14% of the Company's sales in 1997. Tree of Life accounted
for approximately 9% of the Company's sales in 1997. Sales to United Natural
Foods and Tree of Life accounted for approximately 13% and 5%, respectively,
of the Company's sales in the three months ended March 31, 1998. The Company's
distributors and retail customers typically purchase the Company's products
with standard purchase orders and, in general, are not bound by long-term
contracts. There can be no assurance that Trader Joe's, GNC, Costco, Tree of
Life or United Natural Foods will continue their relationships with the
Company. The loss of Trader Joe's, GNC, or Costco as a retail customer or the
loss of a significant number of other major customers, the loss of major
distributors such as Tree of Life or United Natural Foods, or a significant
reduction in purchase volume by or financial difficulty of such customers or
distributors could have a material adverse effect on the Company's business,
results of operations, and financial condition. See "Business--Sales and
Distribution," and "--Marketing."
Competition. The Company competes across a number of markets with a variety
of competitors, including other makers of nutrition bars and beverages, both
powdered and ready-to-drinks, and many other snacks and meal substitutes. Many
of the Company's competitors are large, multinational companies with well
established, branded products, and significantly greater financial,
distribution, and marketing resources and greater market share than the
Company, including large advertising and promotion budgets. These competitors
may also have a significantly greater ability to influence or control product
placement in retail stores. In addition, those of the Company's competitors
selling products containing less than 3 grams of fat per serving are permitted
by FDA regulations to use the term "low fat" in connection with their products
and competitors' products meeting FDA requirements may use the term "healthy"
in connection with their products. These competitors may have a competitive
advantage in marketing to certain consumer markets.
7
<PAGE>
Several companies with strong brand names and substantially greater financial
resources than the Company have announced plans to launch or have launched
directly competitive nutrition bar and powdered drink mix products during the
past several months. All of these competitors also compete for shelf space in
all distribution channels and for suppliers and contract manufacturers.
Increased competition from such companies could have a material adverse effect
on the Company's business, results of operations, and financial condition. See
"Business--Competition."
Product Liability; Other Potential Liabilities and Insurance. The Company,
like any marketer, distributor or manufacturer of products that are designed
to be ingested, faces an inherent risk of exposure to product liability claims
if the use of its products results, or is alleged to result, in injury or
death. With respect to product liability claims, the Company has $1.0 million
per occurrence and $2.0 million in aggregate liability insurance. The Company
has excess umbrella liability insurance of up to $8.0 million. There can be no
assurance that such insurance will continue to be available at a reasonable
cost, or, if available, will be adequate to cover the Company's liabilities.
In addition, the Company is heavily dependent on its contract manufacturers
for compliance with sound and lawful production of its products. The Company's
contract manufacturers are required to indemnify the Company for product
liability claims, arising out of the manufacturing of the Company's products,
and the Company must indemnify the manufacturers for claims arising out of the
labeling and packaging of its products. Although the Company has contractual
indemnification from its contract manufacturers, and is included as a named
insured on each of their product liability insurance policies, any such
indemnification is limited as a practical matter to the creditworthiness of
the indemnifying party, the availability of such insurance, and such
manufacturers' continued maintenance of such insurance. Therefore, if the
Company does not have adequate insurance or contractual indemnification,
product liabilities relating to defective products could have a material
adverse effect on the Company's business, results of operations, and financial
condition. See "--Dependence on Third Party Manufacturers," "--Government
Regulation," and "Business--Legal Proceedings."
In August 1997, the Company, together with one of its contract manufacturers
and a retailer of its products, was named in a lawsuit, filed but not served
on the Company, for a death allegedly resulting from the ingestion of a
Balance bar that allegedly contained nuts. Although the Company believes that
damages from such lawsuit, if served and adversely determined, would not have
a material adverse effect on the Company's business, results of operations, or
financial condition, no assurance can be given that such lawsuit will not be
served on the Company and, if served, no assurance can be given that any
outcome adverse to the Company would not have a material adverse effect on the
business, results of operations, and financial condition of the Company. See
"Business--Legal Proceedings."
The Company maintains general liability (including claims based on the
Company's advertising and packaging), inland marine, director and officer, and
excess liability insurance. There can be no assurance, however, that an
existing or future claim or claims will not exceed the limits of the Company's
insurance coverage, or that such coverage will be available with sufficient
limits and at a reasonable cost, or at all, to insure adequately and
economically the Company's operations in the future. A judgment against the
Company that exceeds its insurance coverage or is not covered by insurance
could have a material adverse effect on the Company's business, results of
operation, and financial condition.
Risks Associated with Advertising. The Company's advertising is subject to
regulation by the Federal Trade Commission (the "FTC") under the Federal Trade
Commission Act, which prohibits dissemination of false or misleading
advertising. In addition, the National Advertising Division of the Council of
Better Business Bureaus, Inc. ("NAD") administers a self-regulatory program of
the advertising industry to ensure truth and accuracy in national advertising.
NAD both monitors national advertising and entertains inquiries and challenges
from competing companies and consumers.
In October 1997, the Company received a letter from NAD inquiring about the
accuracy of and support for certain advertising claims regarding the health
benefits of the Company's Balance bars. This inquiry was prompted by a
complaint by two of the Company's competitors, including PowerBar, Inc.
("PowerBar"). In
8
<PAGE>
February 1998, NAD found a reasonable basis for certain claims and recommended
that other claims be discontinued. At NAD's request, the Company issued a
statement that the Company has voluntarily modified or discontinued certain of
its advertisements either before the determination or for reasons unrelated to
it, and that although it disagreed with other findings, the Company would
consider NAD's recommendation in its future advertising.
Although the Company does not believe that the changes to its advertising
have had or will have an adverse effect on its marketing success, any future
changes to the Company's advertising resulting from compliance with an adverse
NAD determination or any FTC action or fines or penalties assessed in
connection therewith, or from lawsuits alleging false advertising, could
materially or adversely affect the Company's product marketing efforts. There
can be no assurance that any required changes in advertising would not have a
material adverse effect on the Company's business, results of operation, and
financial condition. See "--Litigation by Competitor" and "Business--
Government Regulation."
Television advertising is relatively expensive compared to other forms of
advertising in terms of dollar outlays, and the Company's increased emphasis
and reliance on this medium could adversely affect its business, results of
operations, and financial condition if its advertisements are not successful.
See "Business--Marketing."
Litigation by Competitor. On April 8, 1998, the day the Company filed the
initial registration statement relating to this offering, PowerBar filed a
complaint against the Company and its Senior Vice President of Sales in U.S.
District Court for the Northern District of California. The complaint alleges
in general that the Company engaged in false advertising, unfair competition,
and, with its Senior Vice President of Sales who previously worked for
PowerBar, misappropriated trade secrets. PowerBar also alleges that the sales
executive tortiously interfered with PowerBar's business relationships by
inducing distributors, brokers, athletes, and sponsors to terminate their
business relationships with PowerBar. The factual allegations against the
Company's advertising are similar to those already reviewed by NAD at
PowerBar's request. See "--Risks Associated with Advertising."
PowerBar seeks, among other things, injunctive relief prohibiting the
allegedly false advertising, corrective advertising in various print media,
compensatory damages in an unspecified amount, disgorgement of the Company's
profits, treble and punitive damages as to certain claims, attorneys' fees,
and restitution of revenues obtained from the sale of Balance bars. The
Company intends to vigorously contest PowerBar's claims. On April 30, 1998,
the Company and the sales executive answered the allegations in PowerBar's
complaint. In addition, the Company moved the court to dismiss PowerBar's
claim for relief under California's common law of unfair competition, on the
ground that PowerBar had failed as a matter of law to make out such a claim.
However, the Company cannot predict the ultimate outcome of this litigation,
and no assurance can be given that this lawsuit will not be determined
adversely to the Company. An outcome adverse to the Company, costs associated
with defending the lawsuit, payment of damages and costs associated with any
indemnification of its sales executive, the significant diversion of
management's time and resources to defend the lawsuit, a substantial
settlement or award of damages, to the extent in excess of any insurance
coverage, or negative publicity resulting from the lawsuit could have a
material adverse effect on the Company's business, results of operations, and
financial condition. See "--Risk of Adverse Publicity" and "Business--Legal
Proceedings."
Intellectual Property Protection. The Company relies on a combination of
common law trademark rights, U.S. federal registration rights, and trade
secret laws to protect its proprietary rights. The Company uses the word
"balance" in its corporate name and in each of its two current product line
names. The term "balance" and variations thereof are widely used for many food
products other than those sold by the Company. Such widespread use may weaken
the Company's trademark rights and may dilute any unique, distinctive
significance the word "balance" may have as a means of identifying the
Company's products. In addition, the Company uses "40-30-30" on all of its
product packaging and in advertising and promotional materials. There can be
no assurance that the Company will be able to enforce its trademark rights for
current products or
9
<PAGE>
register trademarks or obtain common law trademark rights using "balance" or
"40-30-30" for any new product lines it may introduce. Such inability to have
exclusive use of the word "balance" or "40-30-30" in new product names could
weaken the Company's ability to create a strong "balance" brand in existing
and new product categories.
In addition, the Company only has one federally registered trademark,
"BALANCE, THE COMPLETE NUTRITIONAL FOOD" and 18 applications for federal
registration of marks in the United States. Common law trademark rights do not
provide the Company with the same level of protection as afforded by a United
States federal registration of a trademark. In addition, common law trademark
rights are limited to the geographic area in which the trademark is actually
used plus a reasonable zone of future expansion, while U.S. federal
registration on the Principal Register gives the registrant superior rights
throughout the United States, subject to certain exceptions. The Company has
registered its trademarks in certain foreign jurisdictions where the Company's
products are or will be sold. The protection available in such jurisdictions
may not be as extensive as the protection available to the Company in the
United States.
The Company and one of its largest distributors, Tree of Life, which uses
"Balanced--The Total Nutritional Drink" for an existing beverage, have agreed
to limit their use of the term "balance," "balanced" and variations thereof.
Under the contract, the Company and Tree of Life may continue to use the
current names for their respective products. However, the Company may not use
the trademark or tradename "balanced" in connection with any goods or services
or the term "balance" at the beginning of any name of a nutritional drink
product or certain processed foods and meals produced by Tree of Life. Tree of
Life may not use the trademark or tradename "balance" in connection with any
goods or services or the term "balanced" in connection with nutritional bar
products. These restrictions could adversely affect the Company's ability to
successfully expand into new product categories or strengthen its brand name.
Although the Company's formula for its products is a trade secret, it may be
independently developed or duplicated. In addition, the Company does not have
any proprietary rights in the 40-30-30 nutritional concept. The Company
protects its proprietary formula and processes, in part, by confidentiality
agreements with its employees and contract manufacturers. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets or
those of its contract manufacturers will not otherwise become known or
discovered independently by competitors. The Company owns the formula for the
products produced by its two contract manufacturers, Bariatrix International,
Inc. ("Bariatrix") and Nellson Nutraceutical, Inc. ("Nellson"). However,
pursuant to the terms of the Company's agreement with Nellson, Nellson will
obtain all rights to the nutritional bar formula if the Company does not meet
certain minimum purchase volumes. However, the Company's current purchase
volumes significantly exceed these minimum guaranteed purchase volumes. If the
Company fails to meet the purchase requirements, it has an option to buy out
any remaining purchase requirements to maintain ownership of the formula.
Although the Company believes that it will meet these purchase volumes or be
able to buy out any remaining purchase requirements, there can be no assurance
that the Company will retain ownership of this formula. If the Company were to
lose ownership of this formula or lose its relationships with Bariatrix and
Nellson, it could have a material adverse effect on the Company's business,
results of operations, and financial condition.
Managing and Maintaining Growth. The Company is currently experiencing a
period of rapid growth and expansion that has placed, and could continue to
place, a significant strain on the Company's management, customer and consumer
service and support, operations, sales and administrative personnel, and other
resources. To serve the needs of its existing and future customers and
consumers, the Company has substantially increased and will continue to
increase its work force, which requires the Company to attract, train,
motivate, and manage a substantially larger number of qualified employees.
Additionally, to effectively manage currently anticipated levels of future
demand, the Company may be required to continue to expand its existing, or
implement new, operating procedures and operating, management, information,
and financial systems, all of which may significantly increase its operating
expenses and cause disruptions in the Company's operations while the Company
implements such systems. The Company is currently implementing an
10
<PAGE>
inventory control system. Until such system is fully operational, the Company
will continue on a monthly basis to reconcile its inventory records to actual
quantities owned. There can no assurance that the Company will be able to
achieve its growth as planned, increase its work force, or successfully
implement new systems to manage its anticipated growth, and any failure to do
so could have a material adverse effect on the Company's business, results of
operations, and financial condition. See "Business--Growth Strategy."
Possible Acquisitions. To date, the Company has not had significant
discussions about or evaluated the potential acquisition of companies due
largely to inadequate financial resources. In the future, the Company may
consider making an investment in or acquiring companies or product lines that
complement its existing business. The Company is not able to predict when a
prospective acquisition candidate might become available, if ever, the terms
of the financing of any transaction or when any transaction might be closed.
Future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities, and amortization expenses related to goodwill and other
intangible assets, which could materially adversely affect Company
profitability. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, products, and employees of
the acquired companies, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has no or
limited direct prior experience, and the potential loss of key employees of
the acquired company. If any such acquisition occurs, there can be no
assurance as to the effect thereof on the Company's business, results of
operations, and financial condition. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Availability and Cost of Raw Materials. Most of the key ingredients used in
the Company's products are obtained by its contract manufacturers from third
party suppliers. As with most food products, the availability and cost of raw
materials used in the Company's products can be affected by a number of
factors beyond its control, such as general economic conditions affecting
growing decisions, weather conditions such as frosts, drought, and floods, and
plant diseases, pests, and other acts of nature. Because the Company does not
control the production of raw materials, it is also subject to delays caused
by interruption in production of materials based on conditions not within its
control. Such conditions include job actions or strikes by employees of
suppliers, weather, crop conditions, transportation interruptions, natural
disasters or other catastrophic events. There can be no assurance that the
Company's contract manufacturers will be able to obtain alternative sources of
raw materials at favorable prices, or at all, if either of them experience
supply shortages. The inability of the Company's contract manufacturers to
obtain adequate supplies of raw materials for its products at favorable
prices, or at all, as a result of any of the foregoing factors or otherwise
could cause an increase in the Company's cost of sales and a corresponding
decrease in gross margin and could have a material adverse effect on the
Company's business, results of operations, and financial condition.
Dependence on Key Personnel. The success of the Company is significantly
dependent on the personal efforts, performance, abilities, and continued
service of a small number of key managerial and marketing personnel. The loss
of service of any such key personnel could have a material adverse effect on
the Company's business, results of operations, and financial condition. The
Company has not and does not presently intend to enter into employment
agreements with any of its employees. In addition, the future success of the
Company depends upon its ability to attract and retain highly qualified
personnel in the future. Competition for such personnel is intense and there
can be no assurance that the Company will be able to attract and retain such
qualified personnel. A failure to do so could have a material adverse effect
on the Company's business, results of operations, and financial condition. See
"Management."
Government Regulation. The manufacturing, packaging, labeling, advertising,
distribution, and sale of the Company's products are subject to regulation by
various governmental agencies, principally the Food and Drug Administration
(the "FDA"). The FDA regulates the Company's products under the Federal Food,
Drug, and Cosmetic Act (the "FDCA"), and related regulations. The Company's
products are also subject to regulation by the FTC, as well as various
agencies of the states, localities, and foreign countries to which the Company
distributes its products and in which the Company's products are sold. The
Company believes that it presently complies in all material respects with the
foregoing laws and regulations. There can be no
11
<PAGE>
assurance that future compliance with such laws or regulations, or failure to
comply, will not have a material adverse effect on the Company's business,
results of operations, and financial condition. See "Business--Government
Regulation."
In September 1996, pursuant to a complaint related to a product safety issue
concerning Balance bars and at the FDA's request, the Company voluntarily
withheld product shipments temporarily. Upon completion of government
inspection of facilities of the Company and one of its contract manufacturers,
and sampling and testing of products, product shipments were resumed. However,
there can be no assurance that the FDA will not again request that the Company
cease product shipment due to any future regulatory matter, causing a loss of
sales and potentially severe damage to the Company's reputation. Any
withholding of product could have a material adverse effect on the Company's
business, results of operations, and financial condition. See "--Product
Liability; Other Potential Liabilities and Insurance."
The Company might be subject to additional laws or regulations administered
by the FDA or other federal, state or foreign regulatory authorities or more
stringent interpretations of current laws or regulations from time to time in
the future. The Company is unable to predict the nature of such future laws,
regulations, interpretations or applications, nor can it predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, the
recall or discontinuance of certain products that cannot be reformulated,
imposition of additional record-keeping requirements, expanded documentation
of the properties of certain products, expanded or different labeling, and
scientific substantiation. Any or all of such requirements could have a
material adverse effect on the Company's business, results of operations, and
financial condition.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales might prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation, of certain of
the Company's products. Compliance with such foreign governmental regulations
is generally controlled by the Company's distributors for those countries.
These distributors are independent contractors over which the Company has
limited control. See "Business--Government Regulation."
Risks Associated with International Markets. In 1997 and the three months
ended March 31, 1998, 2.9% and 0.7%, respectively, of the Company's sales were
in markets outside of the United States. Although the Company intends to
continue to focus primarily on the domestic market in the near term, it also
intends to continue to test its products in foreign markets. The Company might
experience difficulty entering new international markets due to greater
regulatory barriers, the necessity of adapting to new regulatory systems, and
problems related to entering new markets with different dietary habits,
cultural bases, and political systems. In addition, the Company has been and
will be required to re-formulate its products to comply with foreign
regulatory standards. Operating in international markets exposes the Company
to certain risks, including, among other things: (i) changes in or
interpretations of foreign regulations that might limit the Company's ability
to sell certain products or repatriate profits to the United States; (ii)
exposure to currency fluctuations; (iii) the potential imposition of trade or
foreign exchange restrictions or increased taxes or tariffs; and (iv)
political instability. As the Company continues to expand its international
operations, these and other risks associated with international operations
will increase. See "Business--Growth Strategy" and "--Government Regulation."
No Prior Public Market; Possible Volatility of Stock Price. Before this
offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active trading market will develop as a
result of the offering or, if a trading market does develop, that it will be
sustained or that the shares of Common Stock can be resold at or above the
initial public offering price. The initial public offering price of the Common
Stock offered hereby will be determined through negotiations between the
Company and the several Underwriters based on factors described in this
Prospectus under "Underwriting" and may not be indicative of the price at
which the Common Stock will actually trade after the offering. The Company has
applied to have the Common Stock approved for quotation on the Nasdaq National
Market, which has experienced, and is likely to continue to experience,
significant price and volume fluctuations which could
12
<PAGE>
adversely effect the market price of the Common Stock without regard to the
operating performance of the Company. In addition, the market price for shares
of common stock issued in initial public offerings have historically been
volatile as have shares of natural food companies. The market price of the
Common Stock could be subject to significant variation due to fluctuations in
the Company's operating results, changes in earnings estimates by securities
analysts, the degree of success the Company achieves in implementing its
business strategy, changes in business or regulatory conditions affecting the
Company, its customers, or its competitors, and other factors.
Control by Principal Stockholders. Following completion of the offering, the
Chairman of the Company will beneficially own approximately 45% of the
outstanding shares of the Company's Common Stock, and he, together with other
directors and executive officers, will control 56% of the shares of the
Company's Common Stock. Accordingly, the Chairman, together with directors and
executive officers, will have 56% of the voting power of the Company (61%
assuming the exercise of all stock options) and will be able to elect all of
the directors and exercise significant control over the business, policies,
and affairs of the Company and determine the disposition of practically all
matters submitted to a vote of the Company's stockholders, including mergers,
going private transactions and other extraordinary corporate transactions and
the terms thereof. Further, these stockholders will be in a position to
prevent a takeover of the Company by one or more third parties, or sell or
otherwise transfer their stock to a third party, which could deprive the
Company's stockholders of a control premium that might otherwise be realized
by them in connection with an acquisition of the Company. See "Principal and
Selling Stockholders."
Possible Anti-Takeover Effect of Certain Charter Provisions. The Company's
Amended and Restated Bylaws (the "Bylaws") require that stockholders give
advance notice to the Company's Secretary of any nominations of directors made
or other business to be brought by stockholders at any stockholders' meeting.
The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") requires the approval of 75% of the Company's voting stock to
amend certain of its provisions. The Company's Board of Directors has the
authority to issue shares of Preferred Stock in one or more series and to
determine the price, rights, preferences, and privileges of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of Preferred Stock that may be issued in the future.
The concentration of ownership by the Board of Directors and management, the
issuance of Preferred Stock, and other charter provisions may discourage
certain types of transactions involving an actual or potential change in
control of the Company, including transactions in which the stockholders might
otherwise receive a premium for their shares over then current market prices,
and may limit the ability of the stockholders to approve transactions that
they may deem to be in their best interests. See "Description of Capital
Stock."
In addition, the Company's Board of Directors is divided into three classes
of directors serving staggered terms. One class of directors will be elected
at each annual meeting of stockholders for a three-year term. At least two
annual meetings of stockholders, instead of one, could be required to change
the majority of the Company's Board of Directors, so it is more difficult for
the stockholders of the Company to change the management of the Company than
if the Board of Directors were not classified. In addition, the presence of a
classified Board of Directors could make it more difficult for a third party
to acquire, or could discourage a third party from attempting to acquire,
control of the Company and, therefore, may limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.
See "Description of Capital Stock--Possible Anti-Takeover Effect of Certain
Charter Provisions."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the offering or the anticipation of such
sales could have a material adverse effect on then-prevailing market prices.
See "Description of Capital Stock" and "Shares Eligible for Future Sale."
13
<PAGE>
Immediate and Substantial Dilution. Investors participating in this offering
will incur immediate and substantial dilution of $9.55 per share based on an
estimated public offering price of $11.00 per share and net tangible book
value before this offering of $0.53 per share. To the extent outstanding
options to purchase Common Stock are exercised, there will be further
dilution. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, in less than three years, computer systems and software used by many
companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists concerning the potential effects
associated with such compliance. The Company is currently implementing a new
sales, inventory and accounting system that the software vendor has
represented to be Year 2000 compliant. Any Year 2000 compliance problem of
either the Company or its customers could result in a material adverse effect
on the Company's business, operating results, and financial condition.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,003,372 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $11.00 per share are estimated to be $10.0 million. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The Company intends to use the net proceeds to retire a revolving line of
credit in the amount of $3.4 million and a term loan in the amount of $278,000
(at March 31, 1998), for general corporate purposes, including working capital
to increase marketing and advertising, and to add personnel and other
resources to accommodate its anticipated growth. The Company may also use the
net proceeds from this offering to acquire companies or product lines that
complement the Company's existing product lines. To date, however, the Company
has not had significant discussions about or evaluated the potential
acquisition of any such companies or product lines. At March 31, 1998, the
line of credit and the term loan each bore interest at prime plus 3/4%. The
line of credit matures in April 2000 and the term loan matures in installments
through 2001.
DIVIDEND POLICY
The Company has neither declared nor paid any cash dividends on its capital
stock. The Company intends to retain its earnings for use in its business and
does not plan to pay any cash dividends in the foreseeable future.
Furthermore, the Company's line of credit contains certain covenants that,
among other things, preclude the payment of cash dividends by the Company.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an actual basis, (ii) as adjusted to give effect to the sale
by the Company of the 1,003,372 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $11.00 per share, the
application of the estimated net proceeds therefrom, and the retirement of
$3.7 million of outstanding debt. This table should be read in conjunction
with the Financial Statements of the Company and Notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.......................... $ 88 $ 2
Short-term borrowings...................................... 3,400 --
Long-term debt, less current portion....................... 202 10
------- -------
Shareholders' equity:
Common Stock, $0.01 par value, 24,000,000 shares
authorized, 9,683,802 shares issued and outstanding and
10,687,174 shares issued and outstanding as adjusted
(1)..................................................... 97 107
Additional paid-in capital............................... 2,593 12,547
Retained earnings........................................ 2,871 2,871
------- -------
Total shareholders' equity............................. 5,561 15,525
------- -------
Total capitalization.................................. $ 9,251 $15,537
======= =======
</TABLE>
- --------
(1) Excludes (i) 1,800,000 shares of Common Stock reserved for issuance under
the Company's 1998 Plan, of which no shares were subject to outstanding
options as of March 31, 1998, and (ii) 2,615,502 shares of Common Stock
issuable upon exercise of options outstanding at March 31, 1998 at a
weighted average exercise price of $0.74 per share. See "Management--Stock
Options and Stock Plans" and Note 8 of Notes to Financial Statements.
16
<PAGE>
DILUTION
As of March 31, 1998, the Company had a net tangible book value of
approximately $5.1 million or $0.53 per share of Common Stock. Net tangible
book value represents the amount of total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding.
Without taking into account any other changes in the net tangible book value
after March 31, 1998, other than to give effect to the receipt by the Company
of the net proceeds from the sale of the 1,003,372 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$11.00 per share, the pro forma net tangible book value of the Company as of
March 31, 1998 would have been approximately $15.5 million or $1.45 per share.
This represents an immediate increase in net tangible book value of $0.92 per
share to existing stockholders and an immediate dilution of $9.55 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Net tangible book value per share before the offering........... $0.53
Increase per share attributable to new investors................ 0.92
-----
Pro forma net tangible book value per share after the offering.... 1.45
------
Dilution per share to new investors............................... $ 9.55
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 9,683,802 90.6% $ 1,957,000 15.1% $ 0.20
New investors (1)....... 1,003,372 9.4 11,037,092 84.9 11.00
---------- ----- ----------- -----
Total.................. 10,687,174 100.0% $12,994,092 100.0%
========== ===== =========== =====
</TABLE>
Other than as noted above, the foregoing computations assume the exercise of
no stock options after March 31, 1998. As of March 31, 1998, options to
purchase 2,615,502 shares of Common Stock were outstanding, with a weighted
average exercise price of $0.74 per share. To the extent these options are
exercised, there will be further dilution to new investors. See "Management--
Stock Plans" and Note 8 of Notes to Financial Statements.
- --------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares of Common Stock held by existing stockholders to 8,287,174 or
approximately 77.5% (7,927,174 shares or approximately 74.2% if the
Underwriters' over-allotment option is exercised in full) and will
increase the number of shares held by new investors to 2,400,000 or
approximately 22.5% (2,760,000 shares or approximately 25.8% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after this offering. See
"Principal and Selling Stockholders."
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected statements of operations data for each of the three
years in the period ended December 31, 1997, and the balance sheet data as of
December 31, 1996 and 1997, are derived from the financial statements and
notes thereto included elsewhere herein audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report also included
elsewhere herein. The balance sheet data as of December 31, 1995, are derived
from financial statements audited by Arthur Andersen LLP not included herein.
The selected statements of operations data for the years ended May 31, 1993
and 1994 and the seven months ended December 31, 1994, and the balance sheet
data as of May 31, 1993 and 1994 and as of December 31, 1994, are derived from
unaudited financial statements of the Company, not included herein. The
statements of operations data for the three months ended March 31, 1997 and
1998 have been derived from the unaudited interim financial statements of the
Company included elsewhere in this Prospectus. The unaudited financial
statements were prepared on the same basis as the audited financial statements
and, in the opinion of management, include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the
Company's financial position and results of operations. The results of
operations for any interim period are not necessarily indicative of results to
be expected for a full year. The following data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements of the Company and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS YEAR ENDED THREE MONTHS
MAY 31, ENDED DECEMBER 31, ENDED MARCH 31,
--------------- DECEMBER 31, ----------------------- ----------------
1993 1994 1994 1995 1996 1997 1997 1998
------- ------ ------------ ------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $ 481 $ 692 $ 576 $1,262 $10,544 $39,634 $ 6,136 $17,457
Cost of Sales........... 141 217 219 593 5,272 19,801 2,970 9,014
------- ------ ----- ------ ------- ------- ------- -------
Gross profit......... 340 475 357 669 5,272 19,833 3,166 8,443
------- ------ ----- ------ ------- ------- ------- -------
Expenses:
Advertising............ 134 47 87 157 1,083 7,481 849 1,630
Selling and marketing.. 587 295 109 355 1,536 7,204 1,130 3,522
General and
administrative........ 881 444 154 237 797 2,299 417 1,057
Interest (income)
expense............... -- 1 -- 4 16 (27) (5) 58
------- ------ ----- ------ ------- ------- ------- -------
Total expenses....... 1,602 787 350 753 3,432 16,957 2,391 6,267
------- ------ ----- ------ ------- ------- ------- -------
Income (loss) before
income taxes........ (1,262) (312) 7 (84) 1,840 2,876 775 2,176
Income Taxes............ 1 1 1 1 225 1,216 328 892
------- ------ ----- ------ ------- ------- ------- -------
Net income (loss).... $(1,263) $ (313) $ 6 $ (85) $ 1,615 $ 1,660 $ 447 $ 1,284
======= ====== ===== ====== ======= ======= ======= =======
Earnings (loss) per
share:
Basic................ $ (0.22) $(0.04) -- $(0.01) $ 0.19 $ 0.18 $ 0.05 $ 0.13
======= ====== ===== ====== ======= ======= ======= =======
Diluted.............. $ (0.22) $(0.04) -- $(0.01) $ 0.17 $ 0.15 $ 0.04 $ 0.11
======= ====== ===== ====== ======= ======= ======= =======
Weighted average number
of shares outstanding:
Basic................ 5,828 7,670 7,713 7,800 8,410 9,302 9,268 9,599
======= ====== ===== ====== ======= ======= ======= =======
Diluted.............. 5,828 7,670 7,713 7,800 9,343 11,043 11,434 11,683
======= ====== ===== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
--------- --------------------------
MARCH 31,
1993 1994 1994 1995 1996 1997 1998
---- ---- ---- ---- ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $238 $ 11 $ 12 $ 34 $1,119 $ 89 $ 89
Working capital (deficit)..... 107 (44) (50) (39) 2,087 2,974 4,122
Total assets.................. 453 161 139 185 3,374 10,796 14,694
Long-term debt, net of current
portion...................... 5 9 5 -- -- 228 202
Total shareholders' equity.... 265 35 16 3 2,162 4,104 5,561
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains
certain forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
These statements can be identified by the use of forward-looking terminology
such as "believes," "expects," "intends," "plans," "may," "will," "should," or
"anticipation" or the negative thereof or other variations thereon or
comparable terminology. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
OVERVIEW
Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations. The Company's
current and planned product lines are targeted to a broad consumer base in the
healthy food and beverage market. The Company markets its products to
consumers for a wide variety of uses, including snacking, meal replacement,
fitness, weight management and diabetic nutrition. The Company sells its
products in natural foods, mass merchandise, club, grocery, convenience,
health and fitness, and drug stores. The Company's existing product lines, the
Balance bar and the 40-30-30 Balance powdered drink mix, accounted for
approximately 92% and 8%, respectively, of the Company's 1997 sales and
approximately 90% and 10%, respectively, of sales in the three months ended
March 31, 1998. The United States accounted for approximately 97% of 1997
sales and approximately 99% of sales in the three months ended March 31, 1998.
The Company currently sells ten flavors of Balance bars (in two sizes) and
five flavors of powdered drinks (in canisters and single serving envelopes).
The Company was founded in 1992 to market a 40-30-30 nutrition bar to the
weight loss and sports performance market. From 1992 to 1995, the Company
relied heavily on direct sales to consumers through network marketing and
direct response advertising. In July 1995, the Balance bar won the People's
Choice Award presented by the National Nutritional Foods Association at the
annual natural foods trade show. Shortly thereafter, the Company obtained its
first major wholesale customer, Tree of Life, a national natural foods
distributor. By the end of 1996, the Company had developed a nationwide
network of natural foods brokers and distributors and was selling its
products, through distributors and direct to retailers, to a broad consumer
base. In 1997 and 1998, as a result of a strategic decision to broaden
distribution, the Company expanded its broker network and distribution into
mass merchandise, club, grocery, convenience, health and fitness, and drug
stores.
According to SPINS(/1/) data from Spence Information Services, the Balance
bar was the number one selling nutrition bar in the natural foods channel
achieving a 31.0% market share in 1997 and a 34.6% market share in the
January/February 1998 reporting period. In addition, the Balance Bar accounted
for five of the top ten selling nutrition bar flavors in the natural foods
channel in the November/December 1997 reporting period and six of the top ten
flavors in the same channel during the January/February 1998 reporting period.
According to ACNielsen ScanTrack: SPINS Natural Track(/2/), the Balance bar
market share in the energ y bars category of grocery store natural
products increased from 2% in the November/December 1996
- --------
(1) SPINS data is based on actual sales from seven significant natural foods
distributor warehouses (primarily United Natural Foods warehouses), but
does not include sales from one of the Company's significant natural foods
distributors, Tree of Life.
(2) ACNielsen Scan Track: SPINS Natural Track data is based on actual sales in
two-month reporting periods from a sample of grocery stores across the
United States.
19
<PAGE>
reporting period to 16% in the November/December 1997 reporting period and to
17% in the January/February 1998 reporting period. In addition, the Company
had the top two selling nutrition bar flavors per point of distribution(/1/)
in grocery stores for the November/December 1997 reporting period and the top
selling nutrition bar flavor per point of distribution in grocery stores for
the January/February 1998 reporting period. The leading Balance bar flavor
outsold the nearest competitor flavor per point of distribution in grocery
stores by 56.6% in December 1997 and 40.0% in February 1998.
In 1997, the natural foods channel accounted for approximately 69% of the
Company's sales. For the three months ended March 31, 1998, the natural foods
channel accounted for approximately 59% of the Company's sales. The Company
expects this percentage to continue to decline in 1998 as the Company expands
sales at mass merchandise, club, grocery, convenience, and drug stores. By
December 31, 1997, the Company had up to four of its ten Balance bar flavors
in approximately 40% of mass merchandise stores, 25% of club stores, 13% of
grocery stores, 10% of convenience stores (represents penetration of honey
peanut flavor only), and 9% of drug stores in the United States.(/2/) The
Company's goal is to continue to expand its nationwide distribution by
increasing the number of Balance bar flavors in each store and further
penetrating each distribution channel.
Sales increased 736% in 1996 and 276% in 1997. The Company believes that its
rapid sales growth is the result of a number of factors, including increased
consumer awareness and trial of Balance products and increased consumer
awareness of the role a healthy diet plays in their lives, expanded
distribution channels, increased advertising, marketing and promotional
efforts, improved packaging graphics, the products' good taste and broad
consumer appeal, introduction of new products and product line extensions, and
the rapid growth of the nutrition bar category. As awareness of the Company's
brand has increased, the Company has continued to add major customers across a
number of distribution channels. The following is a list of selected retailers
and distributor customers who now carry the Company's products and the year
they became customers.
<TABLE>
<CAPTION>
1998
1995 1996 1997 (THROUGH MARCH)
------------ ----------------------- ----------- ---------------
<S> <C> <C> <C>
Tree of Life GNC Albertson's Sam's Club
Fred Meyer Circle-K Walgreens
Stow Mills Kroger American Stores
(United Natural Foods) Costco
Trader Joe's Ralph's
Whole Foods Safeway
Wild Oats 7-Eleven
Vons
Wal-Mart
</TABLE>
The Company believes that increasing consumer awareness and trial of Balance
products will continue to be a major factor in its ability to grow.
Accordingly, the Company has increased selling, marketing, and advertising
expenditures significantly in each year since 1995. The Company anticipates
that its 1998 advertising and marketing expenditures will increase
significantly over 1997 advertising and marketing expenditures.
COMPONENTS OF SALES AND EXPENSES
Sales consists of invoiced sales less promotional discounts and estimated
returns and allowances. The Company sells its products both directly to retail
customers and to distributors who then resell the products to retailers. The
Company uses commissioned brokers to provide sales support at customer
headquarters and at retail locations. Backlog is not significant as the
Company ships its products against binding purchase orders that are filled
within a short period after the order.
- --------
(1) Sales per point of distribution is defined as dollar sales per flavor per
grocery store selling that flavor.
(2) The mass merchandise, grocery, convenience, and drug store data was
provided by Information Resources, Inc., and is based on actual sales from
a sample of mass merchandise, grocery, convenience, and drug stores. The
club store data is estimated by the Company.
20
<PAGE>
Cost of sales consists of product costs and freight and are recognized as
the related revenues are recorded. The Company does not own or operate any
manufacturing facilities, and sources its products through third-party
contract manufacturers. The Company believes that outsourcing allows the
Company to enhance production flexibility and capacity, while substantially
reducing capital expenditures and avoiding the costs of managing a production
work force. Outsourcing also enables the Company to leverage working capital,
transfer risk and focus resources on advertising, marketing, and sales.
However, because the Company uses third party contract manufacturers, the
Company does not expect to benefit from the economies of scale typically
experienced by manufacturers.
Expenses consist of advertising costs, selling and marketing costs, general
and administrative costs, and interest income and expense. Advertising costs
consist of television, radio and print expenses and are recognized when the
advertising takes place. Selling and marketing costs consist of payroll
expenses, brokers' commissions, slotting allowances, public relations costs,
special events, product sampling costs and other promotional items. Special
events and product sampling costs are recognized when promotional events are
held and promotional materials are distributed. General and administrative
costs consist of payroll expenses, facility rentals, stock option and common
stock expense and other overhead costs. Stock option and common stock expense
consists of the excess of the fair market value over the exercise price of
stock options and the issue price of common stock. This expense is recognized
over the period stock options vest or in the period the common stock was
issued.
The Company has experienced, and will continue to experience, period-to-
period fluctuations in its operating results as a result of a variety of
factors, including: (i) fluctuations in promotional, advertising, and
marketing expenditures; (ii) the introduction of new products or delays in
such introductions; (iii) the introduction or announcement of new products by
the Company's competitors; (iv) customer acceptance of new products; (v)
shipment delays; (vi) consumer perceptions of the Company's products and
operations, including the 40-30-30 nutritional concept; (vii) competitive
pricing pressures; (viii) the adverse effect of distributors', suppliers', or
the Company's failure, and allegations of their failure, to comply with
applicable regulations; (ix) the availability and cost of raw materials; (x)
economic conditions in general and in the food industry in particular; (xi)
the negative effect of changes in or interpretations of regulations that may
limit or restrict the sale of certain of the Company's products; (xii) the
expansion of its operations into new markets, (xiii) the introduction of its
products into each such market; (xiv) mix of products sold; and (xv)
unanticipated changes in the timing of customer promotions, any of which could
have a material adverse effect on the Company's business, results of
operations, and financial condition.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to
sales:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
----------------------------------
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................ 47.0 50.0 50.0 48.4 51.6
----- ----- ----- ----- -----
Gross profit......................... 53.0 50.0 50.0 51.6 48.4
Expenses:
Advertising............................ 12.5 10.3 18.9 13.9 9.3
Selling and marketing.................. 28.1 14.6 18.1 18.4 20.2
General and administrative............. 18.8 7.5 5.8 6.8 6.1
Interest (income) expense.............. 0.3 0.1 (0.1) (0.1) 0.3
----- ----- ----- ----- -----
Total expenses....................... 59.7 32.5 42.7 39.0 35.9
----- ----- ----- ----- -----
Income (loss) before income taxes.... (6.7) 17.5 7.3 12.6 12.5
Income Taxes............................. -- 2.2 3.1 5.3 5.1
----- ----- ----- ----- -----
Net income (loss).................... (6.7)% 15.3% 4.2% 7.3% 7.4%
===== ===== ===== ===== =====
</TABLE>
21
<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1998
Sales. Sales increased 185% from $6.1 million in the first quarter of 1997
to $17.5 million in the first quarter of 1998. The increase was primarily
attributable to increased sales at mass merchandise, club and grocery stores.
Sales also increased in 1998 at natural foods stores. Four significant
customers ran special sales promotions in the first quarter of 1998 and
approximately $2.8 million of the increase was due to increased sales to those
customers. The introduction of a powdered drink mix during the 1997 quarter
and the addition of three new Balance bar flavors in December 1997 also
favorably impacted sales in the first quarter of 1998.
Gross Profit. Gross profit dollars increased from $3.2 million in the first
quarter of 1997 to $8.4 million in the first quarter of 1998. Gross profit
margin declined from 51.6% in the first quarter of 1997 to 48.4% in the first
quarter of 1998 due primarily to a change in product and channel mix. The
Company's gross profit margin has fluctuated between approximately 48% and 52%
over the last eight quarters due to changes in product and channel mix.
Advertising. Advertising expenses increased from $849,000 in the first
quarter of 1997 to $1.6 million in the first quarter of 1998. This increase
was due to the Company's strategic decision to build brand awareness and
increase sales through substantial increases in radio and print advertising
and the addition of television advertising.
Selling and Marketing. Selling and marketing expenses increased from $1.1
million in the first quarter of 1997 to $3.5 million in the first quarter of
1998. The increase was due to higher personnel-related costs as the Company
built its sales organization and higher broker commissions related to the
increase in sales. The increase was also due to increases in special events
and product sampling to build customer awareness of the Company's products.
Selling and marketing expenses as a percentage of sales increased from 18.4%
of sales in the first quarter of 1997 to 20.2% in the first quarter of 1998.
General and Administrative. General and administrative expenses increased
from $417,000 in the first quarter of 1997 to $1.1 million in the first
quarter of 1998. As a percentage of sales, general and administrative expenses
decreased to 6.1% in the first quarter of 1998 from 6.8% in the first quarter
of 1997. The dollar increase in 1998 was due to increased payroll and facility
rentals to support the Company's increased sales.
Interest (income) expense. Interest (income) expense increased from $5,000
of interest income in the first quarter of 1997 to $58,000 of interest expense
in the first quarter of 1998. The interest expense in the first quarter of
1998 was due to borrowings under the Company's line of credit and term loan
agreements.
Provision for Income Taxes. The effective tax rate in the first quarter of
1997 was 42.3% and the effective tax rate in the first quarter of 1998 was
41.0%. The decline in the effective tax rate was due to lower non-deductible
expenses projected for 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1997
Sales. Sales increased 276% from $10.5 million in 1996 to $39.6 million in
1997. The increase was primarily attributable to increased sales at natural
foods and mass merchandise stores and to a lesser extent at club and grocery
stores. Sales also increased in 1997 as the Company gained more retail shelf
space and increased the number of flavors sold to existing customers. In
addition, the introduction of a powdered nutritional drink in 1997 accounted
for approximately $2.6 million of the increase. The addition of three new
Balance bar flavors in December 1997 did not have a significant effect on
sales in 1997.
Gross Profit. Gross profit dollars increased from $5.3 million in 1996 to
$19.8 million in 1997. Gross profit margin was 50.0% in both 1996 and 1997,
and, therefore, gross profit dollars increased as sales increased.
Advertising. Advertising expenses increased from $1.1 million in 1996 to
$7.5 million in 1997. This increase was due to the Company's strategic
decision to build brand awareness and increase sales through substantial
increases in radio and print advertising and the introduction of television
advertising.
22
<PAGE>
Selling and Marketing. Selling and marketing expenses increased from
$1.5 million in 1996 to $7.2 million in 1997. The increase was due to higher
personnel-related costs as the Company built its sales organization, higher
broker commissions related to increased sales and additional expenditures for
slotting allowances as products were introduced to grocery stores. The
increase was also due to increases in special events and product sampling to
build customer awareness of the Company's products. Selling and marketing
expenses as a percentage of sales increased from 14.6% of sales in 1996 to
18.1% in 1997.
General and Administrative. General and administrative expenses increased
from $797,000 in 1996 to $2.3 million in 1997. As a percentage of sales,
general and administrative expenses decreased to 5.8% in 1997 from 7.5% in
1996. The dollar increase in 1997 was due to higher personnel-related costs
and facility rentals to support the increased sales.
Provision for Income Taxes. The Company's effective tax rate in 1996 was
12.2% due to the utilization of net operating loss carryforwards incurred from
1992 to 1995. As of December 31, 1996 the Company had fully utilized its net
operating loss carryforwards. In 1997, the Company's effective tax rate was
42.3%.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1996
Sales. Sales increased 736% from $1.3 million in 1995 to $10.5 million in
1996, due primarily to a change in marketing strategy to nationwide retail
distribution from that of network marketing and direct response marketing. The
addition of several major natural foods customers including Trader Joe's in
late 1996 and Tree of Life beginning in late 1995 accounted for most of the
increase.
Gross Profit. Gross profit dollars increased from $669,000 in 1995 to $5.3
million in 1996. Gross profit margin decreased from 53.0% in 1995 to 50.0% in
1996. This decrease in gross profit margin was primarily attributable to the
change in marketing strategy to that of retail distribution through
distributors and direct to retail customers requiring wholesale pricing and
promotional discounts.
Advertising. Advertising expenses increased from $157,000 in 1995 to $1.1
million in 1996. This increase was due to efforts to build brand awareness and
increase sales through substantially higher levels of radio and print
advertising.
Selling and Marketing. Selling and marketing expenses increased from
$355,000 in 1995 to $1.5 million in 1996. The increase was due to higher
personnel-related costs as the Company built its sales organization and higher
broker commissions related to increased sales. The increase was also due to
increases in special events and product sampling to build customer awareness
of the Company's products. As a percentage of sales, selling and marketing
expenses decreased from 28.1% in 1995 to 14.6% in 1996.
General and Administrative. General and administrative expenses increased
from $237,000 in 1995 to $797,000 in 1996. As a percentage of sales, general
and administrative expenses decreased to 7.5% in 1996 from 18.8% in 1995. The
dollar increase in 1996 was due primarily to $342,000 of additional stock
option and common stock expense and increased payroll costs as additional
personnel were hired to support expanded operations.
Provision for Income Taxes. Because of the Company's loss in 1995, the
provision for income taxes consisted solely of the California minimum tax. The
effective tax rate in 1996 was 12.2% due to the utilization of net operating
loss carryforwards created from 1992 to 1995.
The Company believes that inflation has not had a significant effect on the
Company's results of operations in 1995, 1996, 1997 or the first quarter of
1998.
23
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table presents selected financial information for the last
eight quarters. This information has been derived from unaudited quarterly
financial statements that, in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present this information and is presented on the same basis as the
audited financial statements appearing elsewhere herein. This information
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Prospectus. The results of operations in any
quarter are not necessarily indicative of results to be expected in any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1997 1997 1997 1997 1998
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $1,813 $2,346 $5,693 $6,136 $11,095 $10,134 $12,269 $17,457
Cost of Sales........... 901 1,126 2,928 2,970 5,499 5,180 6,152 9,014
------ ------ ------ ------ ------- ------- ------- -------
Gross profit......... 912 1,220 2,765 3,166 5,596 4,954 6,117 8,443
------ ------ ------ ------ ------- ------- ------- -------
Expenses:
Advertising............ 158 273 555 849 1,627 2,650 2,355 1,630
Selling and
marketing............. 342 423 594 1,130 1,906 2,052 2,116 3,522
General and
administrative........ 109 270 310 417 554 596 732 1,057
Interest (income)
expense............... 4 5 3 (5) (9) (17) 4 58
------ ------ ------ ------ ------- ------- ------- -------
Total expenses....... 613 971 1,462 2,391 4,078 5,281 5,207 6,267
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before
income taxes........ 299 249 1,303 775 1,518 (327) 910 2,176
Income Taxes............ 37 30 157 328 641 (138) 385 892
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss).... $ 262 $ 219 $1,146 $ 447 $ 877 $ (189) $ 525 $ 1,284
====== ====== ====== ====== ======= ======= ======= =======
Earnings (Loss) Per
Share:
Basic................ $ 0.03 $ 0.03 $ 0.14 $ 0.05 $ 0.09 $ (0.02) $ 0.06 $ 0.13
====== ====== ====== ====== ======= ======= ======= =======
Diluted.............. $ 0.03 $ 0.02 $ 0.11 $ 0.04 $ 0.08 $ (0.02) $ 0.05 $ 0.11
====== ====== ====== ====== ======= ======= ======= =======
Weighted average number
of shares outstanding:
Basic................ 8,414 8,418 8,434 9,268 9,294 9,306 9,340 9,599
====== ====== ====== ====== ======= ======= ======= =======
Diluted.............. 8,575 9,809 10,580 11,434 11,660 9,306 11,774 11,683
====== ====== ====== ====== ======= ======= ======= =======
<CAPTION>
PERCENTAGE OF SALES
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0% 100.0 %
Cost of Sales........... 49.7 48.0 51.4 48.4 49.6 51.1 50.1 51.6
------ ------ ------ ------ ------- ------- ------- -------
Gross profit......... 50.3 52.0 48.6 51.6 50.4 48.9 49.9 48.4
------ ------ ------ ------ ------- ------- ------- -------
Expenses:
Advertising............ 8.7 11.7 9.8 13.9 14.6 26.2 19.2 9.3
Selling and
marketing............. 18.9 18.0 10.4 18.4 17.2 20.2 17.3 20.2
General and
administrative........ 6.0 11.5 5.4 6.8 5.0 5.9 6.0 6.1
Interest (income)
expense............... 0.2 0.2 0.1 (0.1) (0.1) (0.2) -- 0.3
------ ------ ------ ------ ------- ------- ------- -------
Total expenses....... 33.8 41.4 25.7 39.0 36.7 52.1 42.5 35.9
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before
income taxes........ 16.5 10.6 22.9 12.6 13.7 (3.2) 7.4 12.5
Income Taxes............ 2.0 1.3 2.8 5.3 5.8 (1.3) 3.1 5.1
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss).... 14.5 % 9.3 % 20.1 % 7.3 % 7.9 % (1.9)% 4.3 % 7.4%
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
24
<PAGE>
Sales. Sales increased sequentially each quarter of 1996 and 1997, except
for the third quarter of 1997. The decline in the third quarter of 1997 was
caused by unusually high sales to two significant natural foods customers near
the end of the second quarter of 1997. Reduced sales to these two customers in
the third quarter of 1997 were partially offset by a significant increase in
sales to one mass merchandise customer. In addition, sales increased in the
fourth quarter due to a significant increase in sales to another mass
merchandise customer.
The Company has not observed seasonality in sales in 1995, 1996 or 1997 due
to the significant expansion of distribution and resulting sales increases
during this period. The Company believes that there may be some seasonally
reduced sales in the fourth quarter due to retailers' emphasis on holiday
merchandise in that quarter.
Gross Profit. The Company's gross profit margin has fluctuated between
approximately 48% and 52% over the last eight quarters due to changes in
product and channel mix and was 50% in years 1996 and 1997. The Company
expects that gross profit will continue to fluctuate in future periods.
Expenses. Expenses increased as sales increased in each quarter of 1996 and
1997, except for the fourth quarter of 1997. Advertising expenses were reduced
in the fourth quarter of 1997 to bring them in line with annual objectives.
Advertising and selling and marketing expenses as a percentage of sales were
higher in the third quarter of 1997 than other quarters due to the
unanticipated decline in sales from the second to the third quarter of 1997.
Advertising and selling and marketing expenses as a percentage of sales
fluctuate from quarter to quarter because substantially all advertising
expenses and a significant part of marketing expenses are not directly related
to the level of sales in the current quarter. These expenses have fluctuated
and are expected to continue to fluctuate depending on the level of
investments that are made each quarter to build customer awareness of the
Company's products and increase future sales.
Future purchase commitments of certain advertising and marketing expenses
are made based on expectations about future sales levels. If actual sales vary
from expectations then the percentage relationship of these expenses to sales
will vary and the period to period variances could be material. See "Risk
Factors--Potential Sales and Earnings Volatility."
LIQUIDITY AND CAPITAL RESOURCES
Prior to this offering, the Company's operations and capital requirements
were financed through private sales of common and preferred stock and
convertible bonds, internally generated funds, and borrowings under various
credit agreements.
Since late 1995, the Company has experienced substantial growth. Prior to
1995, the Company had insignificant amounts of working capital and cash. Since
1995, the Company's operations have improved significantly and the Company has
achieved increases in annual net income. In 1996, cash generated from
operations was largely used to fund increases in accounts receivable,
inventory and prepaid advertising expenses. In 1997 and the first quarter of
1998, cash generated from operations was not sufficient to fund increases in
accounts receivable and inventory, prepaid advertising expenses and the
purchase of property and equipment. The Company entered into two credit
agreements in 1997 that were used to finance working capital and capital
investment needs in 1997 and the first quarter of 1998.
The increase in inventory and receivables in 1996 of $1.9 million was offset
by an increase in accounts payable of $505,000. The increase in accounts
receivable, inventory and prepaid advertising expenses of $6.2 million in 1997
was offset by increased accounts payable of $3.6 million. The increase in
accounts receivable, inventory and prepaid advertising expenses of $1.3
million and $4.2 million in the three months ended March 31, 1997 and 1998,
respectively, was offset in 1997 by an increase in accounts payable of
$679,000 and was increased in 1998 by a decrease in accounts payable of
$377,000. Cash flow from (used in) operating activities was $(41,000) in 1995,
$935,000 in 1996 and $(1.2) million in 1997 and $104,000 and $(1.8) million in
the three months ended March 31, 1997 and 1998, respectively.
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Cash used in investing activities was for the purchase of property and
equipment. Purchases of property and equipment in 1995, 1996 and 1997 were,
$3,000, $51,000 and $1.1 million, respectively and $78,000 and $310,000 in the
three months ended March 31, 1997 and 1998, respectively. The higher level of
expenditures in 1997 reflects the Company's 1997 facility and personnel
expansion to support higher sales volume. The 1997 capital investments were
for computer hardware and software, office furniture and equipment, warehouse
leasehold improvements and packaging design plates and drums. The capital
investments in the first quarter of 1998 were for leasehold improvements to
complete its Santa Barbara County warehouse and office facilities, and for
additional furniture and fixtures and computer hardware and software as new
personnel were hired.
Cash provided by financing activities was $66,000, $201,000 and $1.3 million
for 1995, 1996 and 1997, respectively, and $0 and $2.2 million in the three
months ended March 31, 1997 and 1998, respectively. The primary source of
funds in all periods was borrowings by the Company. The 1995 and 1996
financing sources were from the issuance of convertible bonds. These bonds
were converted to common stock in the year they were sold. The 1997 sources
were from a line of credit and term loan (each described below) under which a
total of $1.4 million was borrowed, net of $159,000 of costs related to the
Company's initial public offering. The 1998 sources were from a line of credit
under which $2.3 million was borrowed, net of $174,000 of costs related to the
Company's initial public offering. The Company expects to need to continue
borrowing through the closing of this offering to fund increases in accounts
receivable, inventory, prepaid advertising expenses and to purchase property
and equipment.
As of March 31, 1998, the Company had a $9.0 million revolving line of
credit, of which $4.4 million was available (based upon 75 percent of the
Company's eligible accounts receivable), and $3.4 million of which was
outstanding. The line of credit is secured by all of the Company's assets. At
March 31, 1998, the line of credit, which expires in April 2000, bore interest
at the bank's prime rate (8.5% at March 31, 1998) plus 3/4%. The Company also
has a $300,000 three year term loan of which $278,000 was outstanding at March
31, 1998. The term loan is secured by all of the Company's assets and bears
interest at the bank's prime rate plus 1.0%. The term loan is due in the
following installments: $82,000 in 1998, $99,000 in 1999, $109,000 in 2000 and
$10,000 in 2001.
To date, the Company has not had significant discussions about or evaluated
the potential acquisition of companies due largely to inadequate financial
resources. In the future, the Company may consider making an investment in or
acquiring companies or product lines that complement the Company's existing
product lines. The Company is not able to predict when a prospective
acquisition candidate might become available, the terms of the financing, or
when any transaction might be closed or the effect of any acquisition on the
Company's business, results of operation or financial condition. See "Risk
Factors--Possible Acquisitions."
The Company believes that following the consummation of the offering, the
Company will have adequate capital resources and liquidity to meet anticipated
cash needs for working capital and capital expenditures for at least the next
12 months.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" (SFAS 130) and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 130 and SFAS 131 are
effective in 1998. The Company does not have any items of other comprehensive
income and, accordingly, SFAS 130 does not have any effect on the Company's
financial reporting. The adoption of SFAS 131 in the first quarter of 1998 did
not have a material effect on the Company's financial reporting.
EXPENSES ASSOCIATED WITH YEAR 2000 COMPLIANCE
The Company is currently implementing a new sales, inventory and accounting
system that the software vendor has represented to be Year 2000 compliant. The
Company does not anticipate any significant expenses associated with Year 2000
compliance problems. See "Risk Factors--Year 2000 Compliance."
26
<PAGE>
BUSINESS
COMPANY OVERVIEW
Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations. The Company's
current and planned product lines are targeted to a broad consumer base in the
healthy food and beverage market. The Company markets its products to consumers
for a wide variety of uses, including snacking, meal replacement, fitness,
weight management and diabetic nutrition. The Company sells its products in
natural foods, mass merchandise, club, grocery, convenience, health and
fitness, and drug stores. The Company's existing product lines, the Balance bar
and the 40-30-30 Balance powdered drink mix, are based on balanced proportions
of 40% carbohydrates, 30% protein and 30% dietary fat, a formulation designed
to sustain energy and satisfy hunger. The Company currently sells ten flavors
of Balance bars (in two sizes) and five flavors of powdered drinks (in
canisters and single serving envelopes).
The Balance bar has significantly penetrated the natural foods channel, and
approximately 69% of the Company's 1997 total sales were to this channel.
According to SPINS data from Spence Information Services, the Balance bar was
the number one selling brand of nutrition bar in the natural foods channel,
achieving a 31.0% share in 1997 and a 34.6% share in the January/February 1998
reporting period. In 1997 and the first quarter of 1998, the Company expanded
its strategic focus to the mass market and expanded its broker network and
distribution into mass merchandise, club, grocery, convenience, health and
fitness, and drug stores. The Company had the top two selling nutrition bar
flavors per point of distribution in grocery stores for the November/December
1997 reporting period and the top selling nutrition bar flavor per point of
distribution in grocery stores for the January/February 1998 reporting period.
In addition, the leading Balance bar flavor outsold the nearest competitor
flavor per point of distribution in grocery stores by 56.6% in December 1997
and by 40.0% in February 1998. According to ACNielsen Scan Track: SPINS Natural
Track, the Balance bar market share in the energy bars category of grocery
store natural products increased from 2% in the November/December 1996
reporting period to 16% in the November/December 1997 reporting period and to
17% in the January/February 1998 reporting period.
The Company's sales have grown from $1.3 million in 1995 to $10.5 million in
1996 and $39.6 million in 1997. Sales of the Company's Balance bar and 40-30-30
powdered drink mix represented approximately 92% and 8%, respectively, of 1997
sales, and approximately 90% and 10%, respectively, of sales in the three
months ended March 31, 1998.
CONSUMER TRENDS
Consumers have become increasingly health conscious over the last decade, as
reflected in the surge of activities aimed at maintaining and improving health,
including exercising, dieting, and quitting smoking. Consumers have also become
more aware of the nutritional content of the foods they eat. A 1997 study by
the Food Marketing Institute indicated that 54% of grocery shoppers "almost
always read the nutrition label before buying a product for the first time."
Next to taste, nutrition is the second most important reason a shopper selects
food products, according to a 1997 Company survey. In addition, a 1997 survey
indicated that 79% of Americans believe nutrition affects their health. The
Company believes that this consumer interest has resulted in significant
changes in the food industry and is the cause of the substantial growth of the
healthy food and beverage market. The Company also believes that as members of
the Baby Boom generation age, their increased interest in prolonging life and
improving their quality of life is resulting in growth in consumer knowledge of
nutrition and interest in healthy foods and beverages.
Despite this concern for health and nutrition, today's consumers find
themselves with less time for three nutritious meals a day. A 1997 survey found
that the number of people who skip a meal "very often" or "quite a bit"
increased from 21% in 1995 to 28% in 1997, and that 21% of Americans view time
as a major barrier to achieving a healthful eating style. The Company believes
that today's lifestyle demands have led to an increasing need for convenient,
nutritious snacks and meal replacements that can be consumed by consumers at
any time or place.
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<PAGE>
INDUSTRY OVERVIEW
Because of their many uses, Balance products compete with a diverse group of
food products across a number of sizable markets, some of which overlap,
including natural foods, healthy foods, nutraceuticals and snacks in general.
According to Nutrition Business Journal, retail sales of natural foods to
natural food stores, health chains and mass merchandise stores reached $6.9
billion in 1996 and were projected to grow annually at a rate of 8% to 12%
from 1997 to 2000. A recent market report by Packaged Facts projects retail
sales of certain processed healthy foods, defined to include granola and grain
based snacks, fruit snacks, and nutrition bars, to reach approximately $3.8
billion in 1998. The snack and meal replacement segment of the nutraceutical
market, which includes products that contain health promoting ingredients or
omit unhealthy ingredients, totaled $49 billion in 1997. The Company believes
that these markets for natural and healthy foods will continue to grow as more
health conscious consumers seek nutritious snacks and meal replacements. In
addition, the Company believes that the traditional snack market represents a
substantial opportunity for penetration by healthy snacks. In 1996, consumers
spent approximately $60 billion on salted snacks, baked snacks, candy and
other specialty snacks, and approximately 5% of total dollars spent by
consumers in U.S. grocery stores was spent on snacks.
As consumers have become increasingly health conscious, new food and
beverage products have been introduced to satisfy the demand for nutritious
snacks and meal replacements. For example, reduced fat and salt versions of
existing products have been introduced, including low- or no-fat, lower sodium
and lower cholesterol cookies and crackers, potato chips and candy bars. New
types of granola and grain-based snacks, rice cakes, and nutrition bars have
also been introduced, as have new powdered drinks and ready-to-drink
beverages. These beverage products are typically formulated based on consumer
dietary or nutritional requirements such as weight management. The Company
believes that demand for healthy snack and meal replacement products will
continue to increase, and the Company and other companies will continue to
introduce new products to satisfy growing consumer demand.
Initially, healthy foods and beverages were sold primarily in natural food
stores and certain specialty retailers such as GNC. The Company believes that
the continued growth in consumer demand for convenient, healthy foods has
resulted in the introduction of these products, which include energy bars,
into mass merchandise, club, grocery, convenience and drug stores. Data from
Information Resources, Inc., indicates that dollar sales of nutrition bars by
mass merchandise, grocery and drug stores increased approximately 252%, 47%
and 50%, respectively, from 1996 to 1997. The Company believes that consumer
trends towards health and nutrition will continue to drive the broad
distribution of convenient, healthy snacks and meal replacements.
BALANCE BAR ADVANTAGE
Balance Bar Company develops and markets branded food and beverage products
in convenient, good-tasting, balanced nutritional formulations that appeal to
a broad consumer base. The Company has targeted its products at the healthy
snack and meal replacement market and believes that by marketing its products
as "nutritious snacks that taste great," it is highlighting their benefits
over typical snacks and meal replacements. In addition, the Company has
targeted other markets consisting of consumers with specific dietary or
nutritional requirements, including the fitness, weight management and
diabetic markets. In order to make its products available wherever people
shop, the Company sells its products through multiple distribution channels,
including natural foods, mass merchandise, club, grocery, convenience, health
and fitness, and drug stores.
The Company has differentiated its brand from other meal replacement and
snack products by offering products based on balanced proportions of 40%
carbohydrates, 30% protein, and 30% dietary fat. This concept, which has been
promoted by recent articles and books, such as the best selling book The Zone,
is based on the theory that the rise in blood sugar after a 40-30-30 snack or
meal can be moderated by the presence of balanced proportions of dietary fat
and protein, resulting in sustained energy and hunger
28
<PAGE>
satisfaction. A 1997 Company consumer survey shows that, although consumers
that are familiar with the 40-30-30 concept are an important component of the
Company's current consumer base, the popularity of its products extends to a
much broader market.
The Balance bar has significantly penetrated the natural foods channel and
approximately 69% of the Company's 1997 sales were to that channel. According
to SPINS data from Spence Information Services, the Balance bar was the number
one selling brand of nutrition bar in the natural foods channel, achieving a
31.0% share in 1997 and a 34.6% share in the January/February 1998 reporting
period. In addition, the Balance bar accounted for five of the ten top selling
nutrition bar flavors in the natural foods channel in the November/December
1997 reporting period and six of the top ten flavors in the same channel
during the January/February 1998 reporting period.
The Company expects sales in 1998 outside of the natural foods channel to
increase as a percentage of the Company's total sales. Higher sales to mass
merchandise, club, grocery, convenience and drug stores are expected to
account for the increase. By December 31, 1997, the Company had one to four of
its ten Balance bar flavors in approximately 40% of mass merchandise stores,
25% of club stores (based on Company estimates), 13% of grocery stores, 10% of
convenience stores (represents penetration of honey peanut flavor only), and
9% of drug stores in the United States. The Company's goal is to continue to
expand nationwide distribution by increasing the number of Balance bar flavors
in each store and further penetrating each distribution channel. According to
ACNielsen Scan Track: SPINS Natural Track, the Balance bar market share in the
energy bars category of grocery store natural products increased from 2% in
November/December 1996 reporting period to 16% in the November/December 1997
reporting period and to 17% in the January/February 1998 reporting period.
GROWTH STRATEGY
The Company's goal is to become a recognized leader in providing nutritious,
good tasting and convenient snack and meal replacement products for a wide
variety of consumer needs. Its growth strategy is to:
Position Balance Products as Good Tasting, Nutritious Snacks and Meal
Replacements. The Company's products are already well known among natural
foods consumers for balanced nutrition, convenience, and good taste. To
further penetrate the much larger snack and meal replacement market, the
Company is positioning its products as the "nutritious snack that tastes
great," highlighting their differences from typical snacks and meal
replacements. This message is being communicated to a broad audience of health
conscious consumers of all ages through advertising, marketing and product
sampling.
Expand Consumer Base and Brand Awareness Through Increased Advertising and
Promotional Activities. The Company intends to further increase consumer
awareness of and demand for its products by increasing its advertising and
promotional activities in conjunction with the Company's further penetration
of new distribution channels. The Company anticipates that its 1998
advertising and marketing expenditures will significantly increase over 1997
expenditures, primarily due to the Company's increased emphasis on television
advertising. In addition, the Company believes that one of its most effective
marketing tools is product sampling combined with the dissemination of
educational information explaining the nutritional qualities of its products.
Accordingly, the Company intends to increase its sponsorship of sporting
events and tours, and its participation in musical events, festivals, health
fairs, and charitable events.
Expand Distribution. The Company's goal is to increase the number of Balance
bar flavors in each store and further penetrate each distribution channel. To
make its products available wherever people shop, the Company expects to also
expand into new channels of distribution, such as vending and food service.
Although the Company intends to continue to focus primarily on the domestic
market in the near term, it also intends to continue to test its products in
foreign markets by establishing relationships with leading overseas
distributors.
Focus on In-store Promotion and Marketing. The Company, through its brokers
and internal sales force, works with each distributor and retail customer to
ensure that the Company's products are effectively promoted. The Company
employs periodic in-store promotions that can include informational materials
about
29
<PAGE>
its products, sale pricing, product sampling, store advertising and special
product displays to generate consumer interest in its products. The Company
also works to ensure that enough product is available on each retailer's shelf
and that the presentation is attractive to customers.
Continue to Promote the Nutritional Qualities of Balance Products. The
nutritional qualities of Balance products are important to significant
consumer segments including the fitness, weight management and diabetic
markets. The Company intends to continue to advertise in health and fitness
magazines, in American Diabetes Association publications and in various other
magazines with wider circulation to promote consumer interest within these
markets. The Company will continue to distribute educational materials that
promote interest in the Company's brand, its products and the 40-30-30
nutritional concept.
Introduce New Products and Product Line Extensions. The Company initially
focused on nutrition bars, followed by its introduction of powdered drink
mixes in 1997. The Company intends to introduce further extensions of its most
popular bar and drink products, such as its recently introduced new Balance
bar flavors Almond Butter Crunch, Chocolate Raspberry Fudge and Yogurt Honey
Peanut and its new Balance mini-bars. The Company also intends to introduce
related new products.
Acquire Complimentary Companies or Product Lines. To grow sales outside of
existing product lines and related products, the Company will consider
strategic acquisitions. The Company intends to focus on acquisitions of
product lines or companies with product lines that are marketed to the natural
foods or broader healthy food and beverage markets. The Company may also
consider possible acquisitions of or investments in manufacturers of healthy
foods and beverages.
30
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PRODUCTS
The Company's current products, each based on the 40-30-30 balanced
nutrition concept, are vitamin and mineral fortified and are made of high
quality ingredients and contain no artificial colors, flavors or
preservatives. The Company develops its nutritional bar and beverage flavors
in conjunction with its contract manufacturers. The Company from time to time
hires outside consultants and intends to hire in-house product development
personnel to develop future products.
BALANCE BAR COMPANY BRANDED PRODUCTS
<TABLE>
- -----------------------------------------------------------------------------------------------
ESTIMATED RETAIL
PRODUCT FLAVORS DESCRIPTION PRICE RANGE (1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BARS
Balance Bar Honey Peanut, 1.76 ounces; sold both $.99 to $1.99 per
Chocolate, Yogurt individually and in bar
Honey Peanut, 15 bar packs
Almond Brownie, Toasted
Crunch, Chocolate
Raspberry Fudge, Almond
Butter Crunch, Mocha,
Banana Coconut and
Cranberry
Balance Mini-Bar Honey Peanut, Chocolate, Half the size of a $.59 to $1.19 per
and Almond Brownie Balance Bar; designed bar
as a snack or child's
serving; sold both
individually and in
15 bar packs
Club Store Honey Peanut and 15 bars in a shrink- $12.99 for 15 bar
Display Chocolate wrapped pack pack
Pack Balance Bars
DRINKS
Canister of Chocolate, Strawberry, 15 serving canisters of $10.95 to $19.95
40-30-30 Vanilla, Banana Coconut powdered drink mix to per canister
Balance Powdered and Mocha be blended with milk or
Drink Mix water
Single Serving Chocolate, Strawberry, Single serving; $1.29 to $1.69
Envelope of Vanilla and Banana sold in individual per envelope,
40-30-30 Coconut envelopes and $5.79 to $11.99
Balance Powdered six pack box per box
Drink Mix
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The retail price varies depending on the nature of the retail outlet
selling the product.
In addition to its branded products, the Company sells full size bars under
a private label to one of its significant customers.
The recommended maximum shelf life of Balance bars generally is nine months,
although factors such as exposure to heat during transportation or storage can
cause a deterioration in the taste or quality of the Balance bars. To date,
the Company has not experienced any significant complaints with respect to
product quality or shelf life.
SALES AND DISTRIBUTION
The Company sells its products directly to certain large retail customers
and to distributors who then resell the products to retailers. The Company
uses commissioned brokers to provide sales support at customer headquarters
and at retail locations. As of March 31, 1998, the Company had 11 brokers in
the natural foods
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channel and 16 brokers to support its expansion into new distribution
channels. These 27 brokers have approximately 45 offices across the United
States.
As of March 31, 1998, the Company's internal sales force and sales support
staff consisted of 18 employees responsible for direct selling efforts to its
retail customers and for supervising and assisting its commissioned brokers
and distributors in sales activities. The Company plans to increase its sales
force and sales support staff to continue to support its strategy of expanding
distribution.
Natural Foods Channel. In July 1995, the Balance bar won the People's Choice
Award presented by the National Nutritional Foods Association at the annual
natural foods trade show. Shortly thereafter, the Company obtained its first
major customer, Tree of Life, a national natural foods distributor. According
to SPINS data, in the natural foods channel, the Balance bar was the number
one selling nutrition bar, achieving a 31.0% share in 1997 and a 34.6% market
share in the January/February 1998 reporting period. In addition, the Balance
bar accounted for five of the top ten selling nutrition bar flavors in the
natural food channel in 1997 and six of the top ten flavors in the same
channel in the January/February 1998 reporting period. In 1997, the Company
increased its sales to this channel by increasing the number of natural food
stores carrying its products, gaining more retail shelf space, and adding
additional flavors of its products.
The Company's primary direct natural foods customers are Trader Joe's, Tree
of Life, GNC and United Natural Foods. Trader Joe's accounted for
approximately 25% of the Company's sales in 1997 and was the only retail
customer that accounted for more than 10% of sales in 1997 and the first three
months of 1998. Sales to Trader Joe's in the first three months of 1998
accounted for approximately 21% of the Company's sales. In February 1998, the
Company entered into a two-year exclusive supply agreement with Trader Joe's.
The agreement guarantees product pricing and supply availability for the term
of the agreement. Whole Foods and Wild Oats, important natural foods retailers
of the Company's products, purchase the Company's products through
distributors. The Company's two largest natural foods distributors in 1997
were United Natural Foods and Tree of Life, which accounted for approximately
14% and 9%, respectively, of the Company's 1997 sales and approximately 13%
and 5%, respectively, of the Company's sales in the first quarter of 1998. See
"Risk Factors--Dependence on Significant Retail Customers and Distributors."
New Distribution Channels. In 1997 and 1998, as part of an aggressive
strategy to broaden its markets, the Company began entering new distribution
channels, including mass merchandise, club, grocery, convenience, health and
fitness, and drug stores. The Company's principal customers within these new
distribution channels include grocery stores (Fred Meyer, Albertson's, and
Kroger), mass merchandisers and club stores (Costco, Sam's Club, and Wal-Mart)
and convenience stores (Circle-K and 7-Eleven). Sales to Costco in the first
three months of 1998 accounted for approximately 16% of the Company's sales in
that period. See "Risk Factors--Trade and Consumer Acceptance in New
Distribution Channels."
According to ACNielsen ScanTrack: SPINS Natural Track, the Balance bar
market share in the energy bars category of grocery store natural products
increased from 2% in the November/December 1996 reporting period to 16% in the
November/December 1997 reporting period and 17% in the January/February 1998
reporting period. In addition, the Company had the top two selling nutrition
bar flavors per point of distribution in grocery stores for the
November/December 1997 reporting period and the top selling nutrition bar
flavor per point of distribution in grocery stores for the January/February
1998 reporting period. The leading Balance bar flavor outsold the nearest
competitor flavor per point of distribution in grocery stores by 56.6% in
December 1997 and by 40.0% in February 1998.
THE COMPANY'S TARGET CONSUMER
The Company targets people of all ages who seek a meal replacement for
breakfast, lunch, or dinner, a convenient, nutritious snack, an energy
enhancement before or after exercise, or a convenient means of helping to
manage their weight.
The following tables, based on Company surveys, demonstrate the broad usage
patterns for Balance bars.
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Balance Bar Product Usage (/1/)(/2/)
(Percentage of Consumers Polled)
[PIE CHART DEPICTING THE WAYS IN WHICH CONSUMERS USE THE BARS
AND BAR GRAPH DEPICTING THE TIMES WHEN CONSUMERS EAT THE BAR]
- -----------------
(1) Based on responses to a 1997 Company survey of approximately 1,100 heads
of household who either sent in wrappers for a rebate or requested a
sample pack.
(2) Consumers could respond more than once to the survey question regarding
the time they eat Balance bars.
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<PAGE>
MARKETING
The Company markets its products as "nutritious snacks that taste great."
Its marketing and advertising efforts are designed to increase consumer
awareness of and demand for its products. The Company's marketing strategy has
the following three main components.
Advertising. The Company intends to increase significantly its 1998
advertising expenditures to create greater awareness of the convenience,
taste, and nutritional attributes of its products. The Company plans to use a
combination of television, print, and radio advertising, with primary emphasis
on television to reach a larger number of target consumers. However, the
Company will continue to spend a significant portion of its advertising budget
on print advertising as print ads enable the Company to reach target audiences
in a cost-effective manner. In addition to advertising in magazines with wide
circulation, the Company also places advertisements in special interest
publications targeted to groups such as health food consumers, athletes and
diabetics. The Company intends to use radio advertising primarily to support
its event marketing. The Company has advertised on television programs such as
Baywatch, CNN Headline News, ESPN SportsCenter, and Entertainment Tonight, in
magazines such as Prevention, Readers' Digest, People, Sports Illustrated,
U.S. News & World Report and Glamour, and on radio shows such as The Howard
Stern Show. See "Risk Factors--Risks Associated with Advertising."
Promotions and Sponsorships. The Company believes that one of its most
effective marketing tools is product sampling combined with the on-site
dissemination of information explaining the nutritional attributes of its
products. The Company participates in numerous trade shows targeted at buyers
in the health and fitness, food, and sports markets, in addition to consumer
health fairs. The Company also purchases sponsorships and samples its products
at sporting events and tours, musical events, health conferences, festivals,
and charitable events. The Company has been a sponsor of golf and tennis
tournaments, including the Nuveen senior men's tennis tour, and will be the
presenting sponsor for the 1998 Los Angeles Open Tennis Tournament. It also
sponsors the Associated Volleyball Players tour. In addition, the Company
utilizes endorsements of its products from highly visible sports and
entertainment personalities and actively markets to their personal fitness
trainers and professional sports teams.
Customer and Consumer Service. The Company is committed to providing
superior service to its customers and consumers. Its sales and marketing team
continually gathers information and feedback from consumers and retailers to
enable the Company to better tailor its consumer support to meet changing
consumer needs. The Company provides access to nutritionists and consumer
service representatives through its toll free number to answer questions and
educate consumers on balanced nutrition, new products and developments. In
addition, the Company maintains an informational web site.
CONTRACT MANUFACTURERS AND QUALITY ASSURANCE
Contract Manufacturers. The Company does not own or operate any
manufacturing facilities, and sources its products through third-party
contract manufacturers. Outsourcing is designed to allow the Company to
enhance production flexibility and capacity, leverage working capital,
transfer risk, and focus its energy and resources on marketing and sales,
while substantially reducing capital expenditures and avoiding the costs of
managing a production work force. Because the Company has two third-party
contract manufacturers, one on each coast of North America, the Company can
deliver its products quickly with lower freight costs.
Bariatrix supplies the Company with Balance bars and 40-30-30 Balance
powdered drink mixes from a facility in Quebec, Canada. Bariatrix produces the
Company's products under formulations that the Company owns. Bariatrix may not
produce products for any other customers using these formulas. In addition,
Bariatrix is contractually prohibited from producing products based on the 40-
30-30 concept for any other customer, with limited exceptions for two existing
customers and Canadian medical centers. The Company's contract with Bariatrix
expires December 31, 2002, subject to automatic annual extensions during each
year the contract remains in effect. Most Balance bars produced by Bariatrix
are shipped to locations east of the Mississippi River while drinks are
distributed nationwide.
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<PAGE>
Nellson supplies the Company with Balance bars from a facility in Irwindale,
California. Nellson uses formulations owned by the Company, subject to
reversion to Nellson at any time before January 1, 2001, if the Company fails
to meet certain minimum volume purchase requirements that are significantly
below current purchase levels. If the Company fails to meet the purchase
requirements, it has an option to buy out any remaining requirements to
maintain ownership of the formulations. A reversion of ownership of the
formulations would not change Nellson's obligations to produce 40-30-30 bars
exclusively for the Company subject to an exception for one small customer.
Nellson is contractually prohibited from producing nutritional food products
based on the 40-30-30 concept for any other customer through December 31,
2002. The contract with Nellson expires December 31, 2002 subject to automatic
annual extensions during each year the contract remains in effect. Most of the
Balance bars produced by Nellson are shipped to locations west of the
Mississippi River. See "Risk Factors--Intellectual Property Protection."
The Company's manufacturers supply the Company's products at a fixed price
per unit. The prices are subject to increase upon 75 days notice by Nellson
and 90 days notice by Bariatrix if raw material prices, labor rates or
exchange rates rise. The Company provides no raw materials, but provides all
packaging materials. Under each contract, the Company is indemnified against
product liability relating to the manufacture and shipment of the products and
has indemnified the manufacturer against product liability arising from the
labeling and packaging of the products and from the use of the formulas. Both
manufacturers are required to comply with all legal requirements applicable to
the production of food products. See "Risk Factors--Government Regulation" and
"--Product Liability; Other Potential Liabilities and Insurance."
The Company believes that its contract manufacturers have the capacity to
fulfill the Company's planned production needs for at least the next nine
months. In addition, the Company believes that these manufacturers are willing
to increase capacity to meet the Company's additional production needs. If the
Company's growth exceeds the production capacity of its contract
manufacturers, or if either of them was unable or unwilling to continue
production, the Company believes it could locate and qualify other contract
manufacturers to meet its production needs. However, a limited number of
contract manufacturers have the ability to produce a high volume of the
Company's products, and it could take a significant period of time to locate
and qualify such alternative production sources. See "Risk Factors--Dependence
on Third Party Manufacturers."
Quality Assurance. The Company's contract manufacturers produce and package
the Company's products in accordance with the Standard Operating Procedures
for Good Manufacturing Practice by the FDA. All raw materials are purchased
from approved suppliers and inspected by the contract manufacturer as they are
received into the production facilities. Raw materials are then labeled to
indicate their source of supply, lot number, and date of receipt, and samples
of the raw materials are kept for two years from the date received. The
ingredients are mixed into batches under the supervision of two quality
assurance contract manufacturer employees to verify adherence to the Company's
formulations and ensure taste consistency. The finished products are passed
through metal detectors, weighed, wrapped, and date coded. After each
production run, samples are analyzed to test the product for micro-impurities
and to ensure accurate labeling.
COMPETITION
Although the Company competes across a number of markets with a variety of
competitors, it competes primarily with other makers of nutritional bars and
beverages. The Company's principal competitors in the nutrition bar category
are PowerBar, ClifBar, Inc., and Met-Rx, none of which currently produces
products formulated on a 40-30-30 basis, as well as PR Nutrition and Prozone,
each of which produce products on a 40-30-30 basis. The Company believes that
it is differentiated from its nutrition bar competitors by the broad consumer
appeal of its products and by its commitment to brand building through
strategic, consumer-focused marketing.
The Company's drink products also compete with a wide variety of other
powdered and ready-to-drink beverages. The Company's principal competitors in
the nutritional drink market are Met-Rx, Slim Fast
35
<PAGE>
Nutritional Foods International (Slim Fast), Abbot Laboratories Ross Products
Division (Ensure), and Nestle U.S.A., Inc. (Nestle Sweet Success), none of
which currently produce products formulated on a 40-30-30 basis. The success
of another nutrition bar or beverage based on the 40-30-30 concept could
create significant additional competition in the Company's existing and target
markets.
The Company's products also compete with many other snacks and meal
substitutes, including salty snacks, candy, fruits, and fast food. For
instance, candy and snack manufacturers are placing greater emphasis on
marketing low calorie and low fat products as healthy snacks.
Competition in the diverse consumer markets in which the Company competes is
based on a wide variety of factors, including taste, perceived nutritional
benefits, convenience, quality, brand recognition, and price. Many of the
Company's competitors are large, multinational companies with well
established, branded products, and significantly greater financial,
distribution, and marketing resources and greater market share than the
Company, including large advertising and promotion budgets. These competitors
may also have a significantly greater ability to influence or control product
placement in retail stores. In each retail outlet, many products compete for
limited shelf space. The Company's continued success will depend in part upon
its ability to provide competitive promotional discounts, slotting allowances,
and point-of-purchase displays, as well as the quality of its packaging. See
"Risk Factors--Competition."
PROPRIETARY RIGHTS
The Company's primary intellectual property rights are its trademarks, trade
names, and formulas for the Balance bar and 40-30-30 powdered drink mix.
Trademarks and TradeNames. The names of the Company's current products are
"Balance, The Complete Nutritional Food" bar, and "40-30-30 Balance" powdered
drink mix. As of March 31, 1998, the Company held one federally registered
trademark "Balance, The Complete Nutritional Food" and had 18 trademark
applications pending at the United States Patent and Trademark Office. In
addition, the Company has two trademark registrations as well as pending
applications in certain foreign countries. The Company intends to vigorously
protect its trademarks against infringement through cease and desist letters
and, if necessary, litigation. Such litigation, even if the Company is
successful, could be costly and could significantly divert the time and
efforts of the Company's management.
The Company does not have any proprietary rights in either the "balance"
name or "40-30-30" name alone, although the Company has filed for various
trademarks using each of these words in combination with other words. There
can be no assurance that the Company will be able to obtain trademark rights
using "balance" or "40-30-30" for any new products or product lines it may
introduce.
The Company and its largest distributor, Tree of Life, have agreed to limit
their use of the term "balance," "balanced" and variations thereof. Under the
contract, both the Company and Tree of Life may continue to use the current
names for their respective products. However, the Company may not use the
trademark or tradename "balanced" in connection with any goods or services or
the term "balance" at the beginning of any name of a nutritional drink product
or certain processed foods and meals produced by Tree of Life. Tree of Life
may not use the trademark or tradename "balance" in connection with any goods
or services or the term "balanced" in connection with nutritional bar
products. These restrictions could adversely affect the Company's ability to
successfully expand into new product categories or strengthen its brand name.
Formulas. The Company, working with its contract manufacturers, developed a
proprietary formula for Balance bars and a proprietary formula for the 40-30-
30 Balance powdered drink mix. The Company owns the Nellson formula subject to
reversion to Nellson at any time before January 1, 2001, if the Company fails
to meet certain minimum volume purchase requirements that are significantly
below current production levels. The Company considers its formulas as
proprietary trade secrets. In its efforts to maintain the
36
<PAGE>
confidentiality and ownership of trade secrets, the Company requires its
manufacturers, employees, brokers and consultants to execute confidentiality
agreements. However, there can be no assurance that these agreements will
provide meaningful protection for the Company's trade secrets in the event of
an unauthorized use or disclosure of such information or that a third party
will not independently develop a similarly tasting product using a similar
formula. See "Risk Factors--Intellectual Property Protection."
MIS SYSTEMS
The Company is committed to using technology to enhance its efficiency,
productivity, and competitive position. The Company implemented an electronic
data interchange ("EDI") system for key customers in the first quarter of
1998. The EDI system will enable distributors and certain high volume
retailers who purchase directly from the Company to place purchase orders
electronically through a value added network. Additionally, the Company has
recently installed a fully integrated sales and accounting system. The Company
also recently installed and is currently implementing an inventory control
system. The Company expects its inventory, sales and accounting systems to be
integrated with its EDI system in the second quarter of 1998. See "Risk
Factors--Managing and Maintaining Growth."
EMPLOYEES
As of March 31, 1998, the Company had a total of 62 employees, including 13
who are temporary-to- hire staff. None of the Company's employees is covered
by a collective bargaining agreement, and the Company believes that its
relationship with its employees is good.
FACILITIES
The Company is headquartered in Santa Barbara County, California, where it
leases an aggregate of approximately 30,000 square feet of space in two
buildings. These leases expire on January 31, 2000 and January 31, 2001,
respectively. However, the Company may extend each lease to January 31, 2002.
The Company believes that its current space adequately meets its needs in the
near term and it does not expect difficulties in obtaining additional space on
reasonable terms as the need arises. The Company uses independent contract
warehousing services for the storage of its products pending shipment to
retailers or distributors.
LEGAL PROCEEDINGS
On April 8, 1998, the day the Company filed the initial registration
statement relating to this offering, PowerBar filed a complaint against the
Company and its Senior Vice President of Sales in the U.S. District Court for
the Northern District of California. The complaint alleges in general that the
Company engaged in false advertising, unfair competition, and, with its Senior
Vice President of Sales who previously worked for PowerBar, misappropriated
trade secrets. PowerBar also alleges that the sales executive tortiously
interfered with PowerBar's business relationships by inducing distributors,
brokers, athletes, and sponsors to terminate their business relationships with
PowerBar. The factual allegations against the Company's advertising are
similar to those already reviewed by NAD at PowerBar's request. See "Risk
Factors--Risks Associated with Advertising."
PowerBar seeks, among other things, injunctive relief prohibiting the
allegedly false advertising, corrective advertising in various print media,
compensatory damages in an unspecified amount, disgorgement of the Company's
profits, treble damages as to certain claims, and restitution of revenues
obtained from the sales of Balance bars. The Company intends to vigorously
contest PowerBar's claims. On April 30, 1998, the Company and the sales
executive answered the allegations in PowerBar's complaint. In addition, the
Company moved the court to dismiss PowerBar's claim for relief under
California's common law of unfair competition, on the ground that PowerBar had
failed as a matter of law to make out such a claim. However, the Company
cannot predict the ultimate outcome of this litigation, and no assurance can
be given that this lawsuit will not
37
<PAGE>
be determined adversely to the Company. The Company has general, director and
officer, and excess liability insurance, but because the lawsuit was recently
filed, the Company has not yet received confirmation from either of its
insurers regarding their defense or acceptance of the Company's insurance
claims, and no provision in the Company's financial statements has been made
for any loss that may result from this action. An outcome adverse to the
Company, costs associated with defending the lawsuit, payment of damages and
costs associated with any indemnification of its sales executive, the
significant diversion of management's time and resources to defend the
lawsuit, a substantial settlement or award of damages, to the extent in excess
of any insurance coverage, or negative publicity resulting from the lawsuit
could have a material adverse effect on the Company's business, results of
operations, and financial condition. See "Risk Factors--Risk of Adverse
Publicity" and "--Litigation by Competitor."
In October 1997, the Company received a letter, prompted by two of the
Company's competitors, from NAD, a self-regulatory program by the advertising
industry, questioning certain claims made in the Company's advertisements. The
Company has addressed such challenges by either providing support for its
claims or changing its advertisements. There can be no assurance that future
inquiries or changes in advertising would not have a material adverse effect
on the Company's business, results of operations, and financial condition. See
"Risk Factors--Government Regulation," "--Risks Associated with Advertising,"
and "--Government Regulation."
The Company does not manufacture any products, and is contractually
indemnified by its contract manufacturers for product liability arising from
the manufacture of its products. However, the Company faces the risk that it
will be the subject of lawsuits based on the use of its products and formulas,
the labeling and packaging of its products (for which it has indemnified its
contract manufacturers), and the risk that its contract manufacturers will not
maintain sufficient insurance or have the financial ability to pay their
contractual indemnification obligations.
The Company has inspection rights and quality assurance programs with its
contract manufacturers. With respect to product liability claims in the United
States, the Company maintains $1.0 million per occurrence and $2.0 million in
aggregate product liability insurance as well as $8.0 million of excess
umbrella liability insurance. In addition, the Company requires its contact
manufacturers to include the Company as a named insured on their product
liability policies. Nellson maintains $12.0 million of product liability
coverage and Bariatrix maintains $C 10.0 million ($7.1 million U.S.) of
product liability coverage. However, there can be no assurance that such
insurance will continue to be available or will continue to be maintained by
either manufacturer, or if available and maintained, will be adequate to cover
potential liabilities.
The Company, together with one of its contract manufacturers and a retailer
of its products, was named in a lawsuit, filed on August 12, 1997, but not
served on the Company, seeking compensatory and punitive damages in an
unspecified amount for a death allegedly resulting from the ingestion of a
Balance Bar that allegedly contained nuts. The Company does not believe that
this suit, even if adversely determined, will have a material adverse effect
on the Company's business, results of operations, or financial condition.
However, there can be no assurance that such lawsuit will not be served on the
Company or that, if served, it would not have a material adverse effect on the
Company's business, results of operation, and financial condition. See "Risk
Factors--Product Liability."
GOVERNMENT REGULATION
The manufacturing, packaging, labeling, advertising, distribution, and sale
of the Company's products are subject to regulation by various government
agencies, principally the FDA. The FDA regulates the Company's products
pursuant to the Federal Food, Drug, and Cosmetic Act ("FDCA") and the Fair
Packaging and Labeling Act ("FPLA") and regulations thereunder. The FDCA is
intended, among other things, to ensure that foods are wholesome, safe to eat,
and produced under sanitary conditions, and that food labeling is truthful and
not deceptive. The FPLA provides requirements for the contents and placement
of information required on consumer packages to ensure that labeling is useful
and informative. The Company's products
38
<PAGE>
are generally classified and regulated as food under the FDCA and are,
therefore, not subject to premarket approval by the FDA. However, the
Company's products are subject to the comprehensive labeling and safety
regulations of the FDA, the violation of which could result in product seizure
and condemnation, injunction of business activities, or criminal or civil
penalties. Furthermore, if the FDA determines, on the basis of labeling,
promotional claims, or marketing by the Company, that the intended use of any
of the Company's products is for the diagnosis, cure, mitigation, treatment,
or prevention of disease, it could regulate those products as drugs and
require, among other things, premarket approval for safety and efficacy. The
Company believes that it presently complies in all material respects with the
foregoing laws and regulations. However, there can be no assurance that non-
compliance, or the cost of future compliance, with such laws or regulations
will not have a material adverse effect on the Company's business, results of
operations or financial condition.
In September 1996, pursuant to a complaint related to a product safety issue
concerning Balance bars, and at the FDA's request, the Company voluntarily
temporarily withheld product shipments. Upon completion of government
inspection of facilities of the Company and one of its contract manufacturers,
and sampling and testing of products, the product shipments were resumed.
However, there can be no assurance that the FDA will not again request that
the Company cease any product shipment or require product recalls due to any
future regulatory matter. Any withholding or recall of products could have a
material adverse effect on the Company's business, results of operations, and
financial condition. See "--Legal Proceedings."
The Company's advertising is subject to regulation by the FTC, pursuant to
the Federal Trade Commission Act ("FTCA") which prohibits unfair or deceptive
acts or practices including the dissemination of false or misleading
advertising. Violations of the FTCA may result in a cease and desist order,
injunction, or civil or criminal penalties. The FTC monitors advertising and
entertains inquiries and complaints from competing companies and consumers. It
also reviews referrals from industry self-regulatory organizations, including
the NAD. The NAD of the Council of Better Business Bureaus, Inc. administers a
voluntary self-regulatory, alternative dispute resolution process that is
supported by the advertising industry and serves the business community and
the public by fostering truthful and accurate advertising. Certain advertising
claims made by the Company have been challenged through the NAD in the past.
The Company has addressed such challenges by either providing support for its
claims or changing its advertisements. Although the Company does not believe
that such changes have adversely affected its marketing success, any future
NAD inquiries or FTC actions that result in modifications to the Company's
advertising or the imposition of fines or penalties could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Risk Factors--Risks Associated With Advertising."
The Company's activities are also regulated by various agencies of the
states, localities, and foreign countries in which the Company's products are
sold. In addition, the Company has been and will be required to re-formulate
its products to comply with foreign regulatory standards. The Company believes
that it presently complies in all material respects with the foregoing laws
and regulations. There can be no assurance, however, that future compliance
with such laws or regulations will not have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company may be subject to additional laws or regulations administered by
the FDA or other federal, state, or foreign regulatory authorities, the repeal
of laws or regulations, or more stringent interpretations of current laws or
regulations, from time to time in the future. The Company cannot predict the
nature of such future laws, regulations, interpretations, or applications, nor
can it predict what affect additional government regulations or administrative
orders, when and if promulgated, would have on its business in the future.
Such laws could, however, require the reformulation of products, the recall,
withholding or discontinuance of products, the imposition of additional
recordkeeping requirements, the revision of labeling, advertising, or other
promotional materials, and changes in the level of scientific substantiation
needed to support claims. Any or all such government actions could have a
material adverse effect on the Company's business, results of operation and
financial condition.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES
Executive officers, directors, and key employees of the Company and their
ages as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas R. Davidson(2)(3)............ 58 Chairman of the Board of Directors
James A. Wolfe(3)................... 56 President, Chief Executive Officer and Director
Richard G. Lamb..................... 51 Executive Vice President, Secretary and Director
Thomas J. Flahie.................... 40 Senior Vice President of Finance and Administration
Patrick J. Lee...................... 31 Senior Vice President of Sales
Kristina M. Eriksen................. 39 Vice President of Finance
Lara Jackle......................... 28 Vice President of Marketing
Eileen E. Fox....................... 32 Vice President of Operations
Mark Fox............................ 45 Vice President of Event Marketing
Michael Sanchez..................... 38 Vice President of Western Sales
Adelle M. Demko(1)(3)............... 51 Director
Barry D. Goss(2).................... 58 Director
John Hale(2)........................ 48 Director
Dennis Ryan McCarthy(1)(2).......... 47 Director
George F. Raymond(1)(3)............. 61 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Corporate Development Committee.
Thomas R. Davidson co-founded the Company in February 1992 and has served as
Chairman since that time. He served as Chief Executive Officer from February
1992 until January 1994 and as Secretary from February 1992 to July 1997. He co-
founded (1968) and serves as Chairman of Datatel, Inc.; co-founded (1979) and
served as a Director of National Information Systems until its sale in 1994; co-
founded (1980) and served as a Director of V-Mark; and co-founded and served as
Chairman of Envision Medical Corporation from 1991 until its sale in 1996.
James A. Wolfe joined the Board of Directors in May 1993. He has served as
Chief Executive Officer since December 1995 and as President since November
1997. From December 1995 to December 1996, he was a consultant to the Company.
From January 1985 to December 1995, he was a self-employed business consultant
with clients such as Cadbury Schweppes, Welch's, Quaker Oats and Celestial
Seasonings. Prior to that time, he was an executive with 7-Up Foods, Coca-Cola
USA and Welch's.
Richard G. Lamb co-founded the Company in February 1992 and has served as a
Director since that time, as Executive Vice President since November 1997, and
as Secretary since July 1997. He served as Executive Vice President and Chief
Operating Officer from February 1992 until January 1994, and as President from
January 1994 to November 1997. Prior to joining the Company, Mr. Lamb was the
co-founder and President of Windsurfing Hawaii, Inc., a sporting goods
manufacturing company and prior to that served as Vice President, International
Operations, for Windsurfing International, Inc., a sporting goods manufacturing
company.
Thomas J. Flahie joined the Company in February 1998 and has served as Senior
Vice President of Finance and Administration since that time. From December 1978
to February 1998, he held various positions with Andersen Worldwide, an
international accounting and consulting firm. He was a partner with Andersen
Worldwide for the last seven years.
Patrick J. Lee joined the Company in January 1997 and has served as Senior
Vice President of Sales since that time. From October 1995 to December 1996, he
was the Western Division Manager of PowerBar, Inc.
40
<PAGE>
(formerly Power Food, Inc.) where he directed sales and marketing activities
for the Western United States. From 1988 to 1994, he worked for Dial
Corporation where he served as District Sales Manager in 1994, Trade Marketing
Manager from 1993 to 1994 and as Key Account Executive from 1990 to 1993.
Kristina M. Eriksen joined the Company in January 1997 and has served as
Vice President of Finance since that time. She also served as Chief Financial
Officer from January 1997 to February 1998. From November 1991 until January
1997 she was the Chief Financial Officer and Corporate Controller for Envision
Medical Corporation, a medical device company. From 1983 to 1990, she worked
for General Motors/Electronic Data Systems.
Lara Jackle joined the Company in September 1997 and has served as Vice
President of Marketing since that time. From August 1994 until September 1997,
Ms. Jackle was a project manager with Reckitt & Colman, an U.K. consumer
products marketing company. From 1992 to 1994 Ms. Jackle was a student at
Cornell University where she earned her M.B.A.
Eileen E. Fox joined the Company in February 1996 and has served as Vice
President of Operations since April 1998. From June 1993 to December 1995, she
held a product development position with Wheeler Springs Resorts, Inc., a spa
resort company. From December 1990 to January 1992, Ms. Fox worked for
Blackburn & Company, a radio and television station property broker and from
June 1988 to July 1989 with Metro Advertising, an advertising agency. Mark Fox
is Eileen Fox's husband.
Mark Fox joined the Company in January 1997 and has served as Vice President
of Event Marketing since December 1997. From 1994 until January 1997, Mr. Fox
was owner and founder of Mark Edward Promotional Design, a promotional and
event marketing firm. From 1990 to 1992 Mr. Fox was in the residential real
estate business. Eileen Fox is Mark Fox's wife.
Michael Sanchez joined the Company in June 1992 and has served as Vice
President of Western Sales since January 1997. He also served as Vice
President of Sales from January 1994 to January 1997 and held several sales
executive positions from June 1992 to January 1994. From February 1989 to June
1992, he served as a store manager for Circuit City, an electronics appliance
retailer.
Adelle M. Demko joined the Board of Directors in April 1997. From 1994 to
the present, Ms. Demko has been a management consultant and board advisor to
various companies. In July 1992 she joined Earthshell Container Corporation
and served as its President and Chief Operating Officer. In September 1989 she
founded Demko Baer & Associates, a financial consulting and database firm, and
served as principal from 1989 to 1992. From 1986 to 1989 she was an investment
banker at Wedbush Morgan Securities and a Limited Partner of Wedbush Capital
Partners, an equity buyout fund. Prior to that she was a financial and
strategy consultant at Xerox Corporation and a corporate and business attorney
in New York City. Ms. Demko serves as a director of Planet Earth Science and
as a member of the Advisory Board of Beam Technologies.
Barry D. Goss joined the Board of Directors in April 1993. He has been the
President and Chief Executive Officer of Intelligent Solutions Inc. since
1995. From 1989 to September 1994 Mr. Goss was the Vice President and Chief
Information Officer at Applied Magnetics Corporation, a manufacturer of
magnetic recording heads for the computer industry.
John Hale joined the Board of Directors in April 1997. Since November 1997,
Mr. Hale has been Executive Vice President and Chief Operating Officer for
Doctors' Choice, LLC a subsidiary of Age Wave, LLC, a health and nutrition
solutions business targeted to the mature adult population. From May 1992 to
November 1997, he was Senior Vice President of Operations at Celestial
Seasonings, Inc., the leading specialty tea company in the United States.
Prior to that, he has held various executive positions at Frito Lay, Inc. from
June 1987 through May 1992 and The Quaker Oats Company from November 1973
through June 1987.
Dennis Ryan McCarthy joined the Board of Directors in 1993. From February
1993 to May 1994 he served as Vice President of Finance of the Company. From
1982 to the present, Mr. McCarthy has served as
41
<PAGE>
a consultant on financial, investment banking and valuation issues for various
companies. Prior to that, he was the Secretary-Treasurer of the Newhall Land
and Farming Company, a publicly held company.
George F. Raymond, a Certified Public Accountant, joined the Board of
Directors in April 1997. Mr. Raymond founded Automatic Business Centers, a
payroll processing service in 1972 and served as its President and Chairman
from 1972 until 1989. Since 1987, Mr. Raymond served as a director of BMC
Software, a publicly held computer software company. Mr. Raymond also serves
as a director of DocuCorp International, a publicly held data imaging software
company.
All directors hold office until the third annual meeting of stockholders
after they were elected and until their successors have been elected and
qualified. However, directors first elected to Class I will hold office until
the 1999 annual meeting of stockholders; directors first elected to Class II
will hold office until the 2000 annual meeting of stockholders; and directors
first elected to Class III will hold office until the 2001 annual meeting of
stockholders. The officers of the Company are appointed annually and serve at
the discretion of the Board of Directors.
BOARD OF DIRECTORS COMMITTEES
The Audit Committee was established in July 1996 by the Board of Directors
to make recommendations concerning the engagement of independent public
accountants, review the plans and results of the audit engagement with the
independent public accountants, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees, and review
the adequacy of the Company's internal accounting controls. The Audit
Committee is currently comprised of Adelle Demko (Chairperson), George
Raymond, and Dennis McCarthy.
The Compensation Committee was established in May 1993 by the Board of
Directors to review and approve the compensation and benefits for the
Company's executive officers and administer the Company's stock incentive
plans, and the Company's management incentive plans, described below. The
Compensation Committee is currently comprised of John Hale (Chairperson),
Thomas Davidson, Barry Goss, and Dennis McCarthy.
The Corporate Development Committee was established in July 1997 by the
Board of Directors to create a strategic plan for the Company's corporate
growth and development, review financing alternatives, consider potential
acquisitions of companies, and make recommendations concerning the corporate
structure of the Company. The Corporate Development Committee is currently
comprised of Thomas Davidson (Chairperson), Adelle Demko, George Raymond, and
James Wolfe.
DIRECTOR COMPENSATION
The Company does not pay and does not expect to pay its directors who are
employees of the Company for their services as directors. For services
rendered between January 1, 1994 and October 1997, non-employee directors of
the Company received fully vested options to purchase 1,200 shares of Common
Stock per meeting and, from October 1997 through the consummation of the
offering, cash compensation of $1,500 per meeting. In addition, each non-
employee director who joined the Board in 1997 received an option to purchase
6,000 shares of Common Stock that vests in April 1998. Upon consummation of
the offering, the Company expects to pay its non-employee directors cash
compensation of $1,500 per meeting for all meetings in excess of the four
regular Board of Director meetings. The Company will also reimburse reasonable
out-of-pocket expenses. The Company also expects to make automatic, annual
stock option grants under the 1998 Plan. See "Management--Stock Options and
Stock Plans."
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee was an officer or employee of the
Company during 1997. No member of the Compensation Committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board
of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded to, earned by,
or paid to the Company's Chief Executive Officer and to the Company's other
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ---------------------
OTHER
NAME AND PRINCIPAL ANNUAL SECURITIES UNDERLYING
POSITION SALARY $ BONUS $(1) COMPENSATION $(2) OPTIONS (#)(3)
- ------------------ -------- ---------- ----------------- ---------------------
<S> <C> <C> <C> <C>
James A. Wolfe, Chief
Executive Officer and
President.............. $124,333 $49,733 $11,077 --
Richard G. Lamb, Execu-
tive Vice President.... 107,500 37,625 10,274 --
Patrick Lee, Senior Vice
President of Sales..... 91,750 27,525 9,550 --
</TABLE>
- -----------------
(1) Bonuses for 1997 were determined in accordance with the 1997 Management
Incentive Plan.
(2) Consists of $6,250 of auto allowance and Company match of employee 401(k)
plan contributions.
(3) See "--1993 and 1997 Stock Incentive Plans."
BONUS PROGRAMS
In January 1998, the Compensation Committee adopted the Company's 1998
Employee Incentive Program for all employees. Under the program, cash bonuses
will be awarded based upon individual and Company target sales and profit
goals set for 1998 ("1998 Goals"). For all sales personnel other than the
Senior Vice President of Sales, 1998 Goals include both regional and overall
Company targets. For all other employees, 1998 Goals include only overall
Company targets. To be eligible, the employee must be employed by July 1, 1998
and must also be an employee on December 31, 1998. The Company has set target
bonuses for each level of employee at a specified percentage of an eligible
employee's salary (the "Target Bonus"). Target Bonuses range from 5% to 40% of
an employee's salary, depending upon level of seniority. If 108% of 1998 Goals
are achieved, 100% of Target Bonuses will be paid. To the extent the Company
exceeds 108% of its 1998 Goals, each eligible employee will receive an
increasing percentage of their Target Bonus up to 200% of such bonus.
The Company's 1997 Employee Incentive Program was identical to the 1998
Employee Incentive Program except that (i) management and outside sales
managers received bonuses based upon overall Company target sales and profit
goals set by the Compensation Committee for 1997, (ii) if 100% of 1997 goals
were achieved, 33% of 1997 target bonuses would be paid, and (iii) for every
percentage point above the 1997 goals, eligible employees would receive an
increasing percentage of their 1997 target bonus up to 100% of such bonus.
401(k) PLAN
The Company adopted a retirement savings plan (the "401(k) Plan") in 1997
that permits participation by all employees over age 21 with at least 3 months
of service. Employees can elect to contribute up to 15%
43
<PAGE>
of total eligible compensation into the 401(k) Plan. Contributions were
limited to $9,500 in 1997. The 401(k) Plan provides that the Company may make
matching contributions up to 100% of the first 5% of elective contributions.
STOCK OPTIONS AND STOCK PLANS
No stock options were granted to the Named Executive Officers during the
year ended December 31, 1997.
The following table sets forth information with respect to the ownership and
value of stock options as of December 31, 1997 held by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1997
AND OPTION VALUES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER
DECEMBER 31, 1997 31, 1997(1)
--------------------------------- ---------------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- ---- --------------- --------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
James A. Wolfe......... -- -- 694,644 199,998 $3,707,320 $1,066,656
Richard G. Lamb........ -- -- 647,430 199,998 3,457,960 1,066,656
Patrick Lee............ 3,900 $19,825 56,100 60,000 285,175 305,000
</TABLE>
- -------
(1) There was no public trading market for the Company's Common Stock at
December 31, 1997. These values were calculated based on the difference
between the $5.50 fair market value of the Common Stock, as determined by
the Company's Board of Directors, and the stock option exercise price.
1998 PERFORMANCE AWARD PLAN
In April 1998, the Company adopted the 1998 Performance Award Plan (the
"1998 Plan") to provide a means to attract, reward and retain talented and
experienced officers, non-employee directors, other key employees and certain
other eligible persons (collectively, "Eligible Persons") who may be granted
awards from time to time by the Company's Board of Directors or, if
authorized, the Compensation Committee (such administrators, the "Committee"),
or, for non-employee directors, under a formula provided in the 1998 Plan. The
maximum number of shares reserved for issuance is 1,800,000 subject to
adjustment for certain changes in the Company's capital structure and other
extraordinary events. Shares subject to awards that are not paid for or
exercised before they expire or are terminated are available for other grants
under the 1998 Plan to the extent permitted by law.
Awards under the 1998 Plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights ("SAR's"), limited SAR's,
restricted stock, performance shares, stock bonuses, or cash bonuses based on
performance. Awards may be granted singly or in combination with other awards.
Any cash bonuses and other performance awards under the 1998 Plan will depend
upon the extent to which performance goals set by the Board of Directors or
the Committee are met during the performance period. Awards under the 1998
Plan generally will be nontransferable by the holder of the award (a "Holder")
(other than by will or the laws of descent and distribution). During the
Holder's lifetime, rights under the 1998 Plan generally will be exercisable
only by the Holder, subject to such exceptions as may be authorized by the
Committee in accordance with the 1998 Plan. No incentive stock option may be
granted at a price that is less than the fair market value of the Common Stock
(110% of fair market value of the Common Stock for certain participants) on
the date of grant. Nonqualified stock options and other awards may be granted
at prices below the fair market value of the Common Stock on the date of
grant. Restricted stock awards can be issued for nominal or the minimum lawful
consideration. Typically, the participant may vote restricted stock, but any
dividend on restricted shares will be held in escrow subject to forfeiture
until the shares have vested. No more than 450,000 shares will be available
for restricted stock awards, subject to exceptions for restricted stock awards
based on past service, deferred compensation and performance awards.
The maximum number of shares subject to awards (either performance or
otherwise) that may be granted to an individual in the aggregate in any one
calendar year is 150,000. No non-employee may receive awards in respect
44
<PAGE>
of more than 24,000 shares in the aggregate in any one calendar year. With
respect to cash-based performance awards, no more than $500,000 per year per
performance cycle may be awarded to any one individual. No more than one
performance cycle may begin in any one year with respect to cash-based
performance awards.
Section 162(m) Performance-Based Awards. In addition to options and SARs
granted under other provisions of the Plan, performance-based awards payable
in cash or shares within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended ("Performance-Based Awards"), which depend on the
achievement of pre-established financial performance goals, may be granted
under the Plan. The specific performance goals will be set by a qualified
committee of the Board created for these purposes and the specific targets
will be set by the Committee when their attainment is substantially uncertain.
The permitted performance goals under the Plan may include any one or more of
the following: revenue growth, net earnings (before or after taxes or before
or after taxes, interest, depreciation, and/or amortization), cash flow,
return on equity, return on assets or return on net investment, or cost
containment or reduction. The applicable performance cycle may not be less
than one nor more than 10 years (5 years in respect of such awards payable
only in cash).
Administration. The 1998 Plan will be administered by the Board of Directors
or the Committee. The Committee will have broad authority to (i) designate
recipients of discretionary awards, (ii) determine or modify (subject to any
required consent) the terms and provisions of awards, including the price,
vesting provisions, terms of exercise and expiration dates, (iii) approve the
form of award agreements, (iv) determine specific objectives and performance
criteria with respect to performance awards, and (v) construe and interpret
the 1998 Plan. The Committee will have the discretion to accelerate and extend
the exercisability or term and establish the events of termination or
reversion of outstanding awards.
Change in Control. Upon a Change in Control Event, each option and SAR will
become immediately exercisable; restricted stock will immediately vest free of
restrictions; and the number of shares, cash or other property covered by each
performance share award will be issued to the Holder, unless the Committee
determines to the contrary. A "Change in Control Event" is defined generally
to include (i) certain changes in a majority of the membership of the Board of
Directors over a period of two years or less, (ii) the acquisition of more
than 50% of the outstanding voting securities of the Company by any person
other than the Company, any Company benefit plan, Thomas Davidson, James
Wolfe, or Richard Lamb, or one of their affiliates, successors, heirs,
relatives or certain donees, or certain other affiliates, or (iii) stockholder
approval of a transfer of substantially all of the Company's assets, the
dissolution or liquidation of the Company, or a merger, consolidation or
reorganization (other than with an affiliate) whereby stockholders immediately
prior to such event own less than 50% of the outstanding voting securities of
the surviving entity after such event. In addition, if any participant's
employment is terminated by the Company for any reason other than for cause
either in anticipation of and within three months before (and in anticipation
of), or within one year after, the Change in Control Event, then all awards
held by that participant will vest in full immediately before his or her
termination date, unless the Committee otherwise determines before the Change
in Control Event.
The Committee may also provide for alternative settlements (including cash
payments), the assumption or substitution of awards or other adjustments in
the Change in Control context or in the context of any other reorganization of
the Company.
Plan Amendment; Termination and Term. The Company's Board of Directors has
the authority to amend, suspend or discontinue the 1998 Plan at any time, but
no such action will affect any outstanding award in any manner materially
adverse to a participant without the consent of the participant. The 1998 Plan
may be amended by the Board of Directors without stockholder approval unless
such approval is required by applicable law.
The 1998 Plan will remain in existence as to all outstanding awards until
such awards are exercised or terminated. The maximum term of options, SAR's
and other rights to acquire Common Stock under the 1998 Plan is ten years
after the initial date of award, subject to provisions for further deferred
payment in certain circumstances. No award can be made after April 6, 2007.
Awards may remain exercisable for a period of
45
<PAGE>
time determined by the Committee after termination of employment for certain
reasons, after which, to the extent not exercised, such awards terminate.
Automatic Grants to Non-Employee Directors. Under the 1998 Plan, each
director who is not an officer or employee (each a "Non-Employee Director")
and who is or thereafter becomes a director of the Company after this offering
will be automatically granted a nonqualified stock option to purchase 6,000
shares of Common Stock when the person takes office, at an exercise price
equal to the market price of the Common Stock at the close of trading on that
date (or, with respect to the Company's current directors, on the tenth
trading day after completion of the offering). In addition, on the day of the
annual stockholders meeting in each calendar year beginning in 1999 and
continuing for each subsequent year during the term of the 1998 Plan, each
then-continuing Non-Employee Director will be granted a nonqualified stock
option to purchase 6,000 shares of Common Stock at an exercise price equal to
the market price of the Common Stock at the close of trading on that date.
Non-Employee Directors may also be granted discretionary awards. All
automatically granted Non-Employee Director stock options will have a 10-year
term and will be immediately exercisable. If a Non-Employee Director's
services are terminated for any reason, any automatically granted stock
options held by such Non-Employee Director that are exercisable will remain
exercisable for twelve months after such termination of service or until the
expiration of the option term, whichever occurs first. Automatically-granted
options are subject to the same adjustment, change in control, and
acceleration provisions that apply to awards generally, except that any
changes or Board or Committee actions (1) will be effected through a
stockholder approved reorganization agreement or will be consistent with the
effect on Options held by other than executive officers and (2) will be
consistent in respect of the underlying shares with the effect on stockholders
generally. Any outstanding automatic option grant that is not exercised prior
to a Change in Control Event in which the Company is not to survive will
terminate, unless such option is assumed or replaced by the surviving
corporation.
Payment for Shares. The exercise price of options and other awards may be
paid in cash, broker exercise, promissory note, or (subject to certain
restrictions) shares of Common Stock. The Company may finance the exercise or
purchase and (subject to any applicable legal limits) offset shares to cover
the exercise or purchase price and withholding taxes.
Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the 1998 Plan follow certain basic patterns.
Generally, awards under the 1998 Plan that are includable in income of the
recipient at the time of award or exercise (such as nonqualified stock
options, SARs, restricted stock and performance awards) are deductible by the
Company, and awards that are not required to be included in income of the
recipient at such times (such as incentive stock options) are not deductible
by the Company.
Non-Exclusive Plan. The Plan is not exclusive. The Board, under Delaware
law, may grant stock and performance incentives or other compensation, in
stock or cash, under other plans or authority.
1993 AND 1997 STOCK INCENTIVE PLANS AND OTHER STOCK OPTION GRANTS
The Company established the 1993 Stock Incentive Plan (the "1993 Plan") and
1997 Stock Incentive Plan (the "1997 Plan") to provide incentive to, and
encourage stock ownership by, selected employees, officers, directors, and
consultants. Awards consisted of grants of options to purchase shares of the
Company's authorized but unissued Common Stock. The maximum number of shares
reserved for issuance under the 1993 Plan and the 1997 Plan is 2,400,000 and
489,000, respectively, subject to adjustments for extraordinary events. As of
March 31, 1998, a total of 2,578,326 options were granted pursuant to both
plans, of which 359,532 options were exercised and 2,218,794 options remain
outstanding. In April 1998, 309,000 additional options were granted under the
1997 Plan.
The Board or a committee designated by the Board has the power to administer
and interpret both plans. Option awards under both plans generally may not be
transferred by an optionee other than by will or the laws of descent and
distribution. No incentive stock option may be granted at a price that is less
than fair market value.
46
<PAGE>
Options under both plans may be accelerated by the Board upon a change in
control of the Company, which is defined under both plans to mean (i) an
acquisition of 50% or more of the issued and outstanding capital stock of the
Company by a single entity or group of affiliated entities or (ii) a merger or
sale of the Company's assets that does not result in the stockholders of the
Company owning equity securities in the surviving entity representing 50% or
more of the voting power of such entity. In addition, in an employee's option
agreement, the Board may provide, and has in the past provided, that an option
award accelerate upon a change in control, which the Board may define
differently than as set forth above.
The Company does not intend to grant options under either the 1993 Plan or
1997 Plan in the future.
In addition to the 1993 Plan and the 1997 Plan, as of March 31, 1998, a
total of 473,508 options were granted outside such plans, of which 76,800
options were exercised and 396,708 options remain outstanding.
1998 SEVERANCE PLAN.
The Company intends to establish the 1998 Severance Plan (the "Severance
Plan") in May 1998 to encourage the continued service and dedication of
officers of the Company. The Company's Chief Executive Officer, President,
Executive Vice President, Senior Vice Presidents, and other Vice Presidents
("Eligible Officers") will be eligible to participate in the Severance Plan.
Under the Severance Plan, the Company will agree to pay each participant a
lump sum cash payment that varies according to the participant's title if he
or she terminates his or her employment with the Company due to (i) a
relocation of the participant 50 miles or more from such participant's current
employment location, (ii) a Change in Control Event, (iii) a material
diminution in the participant's duties, responsibilities, or title, or (iv)
the elimination of the participant's position. Upon any of such events, a
participant will be able to terminate his or her employment and receive the
following portion of his or her then current annual base salary: (i) 100% for
the Chief Executive Officer, (ii) 75% for the President (if not also the Chief
Executive Officer), Executive Vice President, and Senior Vice Presidents, and
(iii) 50% for other Vice Presidents. See "1998 Performance Award Plan" for a
definition of a Change in Control Event.
47
<PAGE>
CERTAIN TRANSACTIONS
On January 15, 1997, Thomas R. Davidson, co-founder and Chairman of the
Board of the Company, was issued 100,000 shares of Common Stock for
consideration of $150,000. The shares were issued in connection with the
conversion of convertible bonds purchased by Mr. Davidson in July 1995. In
addition, Mr. Davidson and one of his affiliates entered into a registration
rights agreement with the Company. See "Description of Capital Stock--
Registration Rights Agreement."
On December 5, 1995, the Company entered into a consulting agreement with
James Wolfe to serve as the Company's acting Chief Executive Officer. Mr.
Wolfe also has been a director of the Company since May 10, 1993. Pursuant to
his consulting agreement, Mr. Wolfe received approximately $116,000 in
consideration of his services to the Company in 1996. The consulting agreement
was terminated on December 31, 1996 when Mr. Wolfe became the Chief Executive
Officer of the Company.
During 1997 and the three months ended March 31, 1998, the Company paid
$43,551 and $13,166 respectively, to Adelle Demko, a director of the Company,
in connection with special consulting services related to this offering.
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information about the beneficial
ownership of the Company's Common Stock as of March 31, 1998, and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each director
and each Named Executive Officer of the Company, (ii) all directors and
executive officers of the Company as a group, (iii) each person (or group of
affiliated persons) known by the Company to own beneficially more than five
percent of the Company's outstanding voting securities not otherwise listed;
and (iv) each Selling Stockholder not otherwise listed. The address of each
director and Named Executive Officer listed is in care of the Company, 1015
Mark Avenue, Carpinteria, California 93013.
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING
----------------------- SHARES -----------------------
NUMBER(1) PERCENT(1)(2) OFFERED NUMBER(1) PERCENT(1)(2)
--------- ------------- ------- --------- -------------
<S> <C> <C> <C> <C> <C>
Thomas R. Davidson(3)... 4,807,602 49.6% -- 4,807,602 44.9%
James A. Wolfe(4)....... 697,902 6.9 -- 697,902 6.3
Richard G. Lamb(5)...... 1,408,518 13.6 171,308 1,237,210 10.9
Patrick Lee(6).......... 60,000 * -- 60,000 *
Thomas J. Flahie........ -- -- --
Adelle M. Demko(7)...... 9,600 * -- 9,600 *
Barry D. Goss(8)........ 219,840 2.2 70,759 149,081 1.4
John Hale(9)............ 9,600 * -- 9,600 *
Dennis Ryan McCar-
thy(10)................ 94,176 * -- 94,176 *
George F. Raymond(11)... 9,600 * -- 9,600 *
All directors and execu-
tive officers as a
group (10 persons)..... 7,316,838 66.7 242,067 7,074,771 59.1
OTHER SELLING STOCKHOLDERS:
Tucker Anthony, Inc..... 153,396 1.6 109,493 43,903 *
Jennifer Fisher Barner.. 15,600 * 10,063 5,537 *
Brian Bayly............. 78,264 * 43,016 35,248 *
Susan Bayly............. 20,004 * 9,995 10,009 *
Susan Block............. 24,000 * 15,845 8,155 *
Donald L. Breidenbach,
Sr. ................... 78,264 * 42,827 35,437 *
Donald E. Breidenbach,
Jr.(12)................ 177,396 1.8 83,796 93,600 *
Gene & Joyce Daoust..... 374,664 3.9 10,467 364,197 3.4
Lana R. Danta........... 15,000 * 5,139 9,861 *
John D. Deardourff...... 268,266 2.8 85,654 182,612 1.7
John D. Douglas......... 78,264 * 8,565 69,699 *
John D. Douglas Trust... 78,264 * 8,565 69,699 *
Giles B. Gunn........... 130,440 1.3 10,706 119,734 1.1
Charles B. Gunn......... 86,088 * 10,706 75,382 *
John W. Heron........... 195,000 2.0 139,189 55,811 *
PZL Limited(13)......... 171,522 1.8 34,261 137,261 1.3
Graham Major............ 600 * 427 173 *
Jackie Mauro............ 6,522 * 4,655 1,867 *
R. Bruce McFadden(14)... 62,964 * 37,233 25,731 *
John E. Montgomery...... 78,264 * 32,120 46,144 *
John S. Nadolski........ 156,522 1.6 55,864 100,658 *
Trustees for Bernard
Nash................... 39,000 * 10,706 28,294 *
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING
----------------------- SHARES -----------------------
NUMBER(1) PERCENT(1)(2) OFFERED NUMBER(1) PERCENT(1)(2)
--------- ------------- ------- --------- -------------
<S> <C> <C> <C> <C> <C>
Nicole J. Nash.......... 19,500 * 7,066 12,434 *
Paul M. Nash............ 19,500 * 4,496 15,004 *
J. Michael Nolan, Jr. .. 156,528 1.6 111,728 44,800 *
Danny Robertson......... 60,000 * 42,827 17,173 *
Roy Family Trust........ 75,150 * 47,109 28,041 *
Michael Sanchez(15)..... 482,484 4.8 42,827 439,657 4.0
Michael B. Shor......... 52,200 * 34,261 17,939 *
Joseph R.
Skenderian(16)......... 56,232 * 9,301 46,931 *
Robert E. Warfield...... 182,610 1.9 42,827 139,783 1.3
John & Brenda Yeaton.... 300,000 3.1 42,827 257,173 2.4
</TABLE>
- --------
*Less than 1% of outstanding shares.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
issuable on conversion of Preferred Stock or exercise of stock options
within 60 days of March 31, 1998, are deemed beneficially owned and
outstanding for computing only the percentage of the person or the entity
holding such securities. Except as indicated by footnote, and subject to
community property laws where applicable, the persons and entities named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them.
(2) Percentage of ownership is based on 9,683,802 shares of Common Stock
outstanding before the offering and 10,687,174 shares of Common Stock
outstanding after the offering.
(3) Includes 15,600 shares of Common Stock that are issuable upon exercise of
stock options. Includes 2,520,000 shares of Common Stock held by the
Davidson Family Limited Partnership. Mr. Davidson disclaims beneficial
ownership of 1,890,000 of these shares, reflecting the limited partner
interests held by his children in the limited partnership.
(4) Includes 381,600 shares of Common Stock that are issuable upon exercise
of stock options.
(5) Includes 647,430 shares of Common Stock that are issuable upon exercise
of stock options.
(6) Includes 56,100 shares of Common Stock that are issuable upon exercise of
stock options.
(7) Includes 9,600 shares of Common Stock that are issuable upon exercise of
stock options.
(8) Includes 115,488 shares of Common Stock that are issuable upon exercise
of stock options. Includes 39,132 shares of Common Stock held by the Goss
Joint Venture. Mr. Goss disclaims beneficial ownership of 26,658 of these
shares, reflecting the joint venture interests held by Mr. Goss' father
and two sisters. Of the shares offered, 27,932 are owned by the Goss
Joint Venture and 42,827 are owned by Mr. Goss.
(9) Includes 9,600 shares of Common Stock that are issuable upon exercise of
stock options.
(10) Includes 42,000 shares of Common Stock that are issuable upon exercise of
stock options.
(11) Includes 9,600 shares of Common Stock that are issuable upon exercise of
stock options.
(12) Includes 60,000 shares of Common Stock that are issuable upon exercise of
stock options.
(13) PZL Limited is owned by David and Patricia Lamb. David Lamb is Richard
Lamb's brother.
(14) Mr. McFadden was a director of the Company from May 1993 to February
1997.
(15) Includes 279,000 shares of Common Stock that are issuable upon exercise
of stock options. Mr. Sanchez is Vice President of Western Sales for the
Company.
(16) Includes 43,200 shares of Common Stock that are issuable upon exercise of
stock options. Mr. Skenderian was a director of the Company from January
1994 to October 1997.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of 24,000,000
shares of Common Stock, par value $0.01 per share and 12,000,000 shares of
Preferred Stock, par value $.01 per share. Immediately following the
completion of the offering, the Company estimates that approximately
10,687,174 shares of Common Stock will be issued and outstanding (assuming no
exercise of the Underwriters' over-allotment option). No shares of Preferred
Stock will be issued and outstanding. The Company anticipates that immediately
prior to the consummation of this offering there will be 55 holders of Common
Stock. In May 1998, the Company will effect the Stock Split.
The following description of the Company's capital stock is a summary of the
material terms of such stock. It does not purport to be complete and is
subject in all respects to applicable Delaware law and to the provisions of
the Company's Certificate of Incorporation and the Bylaws, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
Upon the completion of this offering, the Common Stock will be publicly
traded on the Nasdaq National Market under the symbol "BBAR." The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. There are no cumulative
voting rights, the absence of which will, in effect, allow the holders of a
majority of the outstanding shares of Common Stock to elect all the directors
then standing for election. The absence of cumulative voting rights could have
the effect of delaying, deterring or preventing a change of control of the
Company. Subject to preferential rights of any outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." If the Company liquidates, dissolves, or winds up, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and satisfaction of preferential rights of any
outstanding shares of Preferred Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. The outstanding shares
of Common Stock are, and the shares of Common Stock to be issued upon
completion of this offering will be, fully paid and non-assessable.
PREFERRED STOCK
As of March 31, 1998, 3,806,910 shares of the Company's Series A Preferred
Stock were outstanding. All holders of the Company's Series A Preferred Stock
have agreed to convert each share of the Series A Preferred Stock into one
share of Common Stock immediately prior to the consummation of this offering
(the "Preferred Stock Conversion"), resulting in the issuance of an aggregate
of 3,806,910 shares of Common Stock after giving effect to the Stock Split.
Unless otherwise indicated, all information in this Prospectus gives effect to
the Preferred Stock Conversion. The holders of Series A Preferred Stock
presently outstanding are entitled to one vote for each share held of record
on all matters submitted to a vote of the stockholders. Holders of Series A
Preferred Stock presently outstanding are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Each share of Series A Preferred
Stock presently outstanding is convertible into one share of Common Stock. If
the Company liquidates, dissolves, or winds up, the holders of Series A
Preferred Stock are entitled to receive payment in cash of $0.38 per share
before any amount can be paid to holders of Common Stock.
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is authorized to issue Preferred Stock in one or more series and to
fix by resolution the rights, preferences, privileges, and restrictions
thereof, including voting rights, dividend rights, dividend rates, conversion
rights, terms of redemption, redemption prices, liquidation preferences, and
the number of shares constituting any series or
51
<PAGE>
the designation of such series, without further vote or action by the
stockholders. The issuance of Preferred Stock could have the effect of
delaying, deterring or preventing a change in control of the Company without
further action of the stockholders. The issuance of Preferred Stock with
voting and conversion rights could adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. See
"Risk Factors--Possible Anti-Takeover Effect of Certain Charter Provisions."
REGISTRATION RIGHTS AGREEMENT
Thomas R. Davidson, the Company's co-founder and Chairman of the Board, and
the Davidson Family Limited Partnership, an affiliate of Mr. Davidson
(together with Mr. Davidson, "Davidson") have entered into a Registration
Rights Agreement with the Company. Under the terms of the Registration Rights
Agreement, Davidson has the right, commencing six months after the completion
of this offering, to cause the Company to file registration statements with
respect to shares of Common Stock held by Davidson on two separate occasions.
If the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of others, Davidson is
entitled, subject to certain limitations and exceptions, to notice of such
registration and is entitled to include shares of Common Stock therein. In
addition, at any time the Company becomes eligible to file registration
statements on Form S-3 under the Securities Act, Davidson may request that the
Company file a registration statement on Form S-3 with respect to shares of
Common Stock held by Davidson, provided that such registration statement
contains only the information required by Form S-3. All fees, costs, and
expenses of any such registration, including underwriting fees and
commissions, will be borne by Davidson in proportion to the number of shares
of Common Stock sold by Davidson in the registered offering.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Bylaws require that stockholders give advance notice to the
Company's Secretary of any directorship nominations or other business to be
brought by stockholders at any stockholders' meeting. The Certificate of
Incorporation requires the approval of 75% of the Company's voting stock to
amend certain provisions of the Certificate of Incorporation. The existence of
authorized but unissued and unreserved Common Stock and Preferred Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to
obtain control of the Company by means of a proxy contest, tender offer,
merger, or otherwise, and thereby protect the continuity of the Company's
management. These provisions may have the effect of precluding some
stockholders from bringing matters before the stockholders and of deterring
hostile takeovers or delaying changes in control or management of the Company.
See "Risk Factors--Possible Anti-Takeover Effect of Certain Charter
Provisions."
The Company's Board of Directors is divided into three classes of directors
serving staggered three-year terms. At least two annual meetings of
stockholders, instead of one, generally will be required to change the
majority of the Company's Board of Directors, so it is more difficult for the
stockholders of the Company to change the management of the Company than if
the Board of Directors were not classified. In addition, the presence of a
classified Board of Directors could make it more difficult for a third party
to acquire, or could discourage a third party from attempting to acquire,
control of the Company and, therefore, may limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.
See "Management."
Under the Delaware General Corporation's Law, as amended from time to time
(the "DGCL") in the case of a corporation having a classified board and not
having a provision in its Certificate to the contrary (as is the case with the
Company), stockholders may remove a director only for cause.
52
<PAGE>
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and, upon consummation of this
offering, will be subject to Section 203 of the DGCL. In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined therein) with a Delaware corporation for
three years following the date such person became an interested stockholder
unless (i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned by
persons who are both officers and directors of the corporation and shares held
by certain employee stock ownership plans) or (iii) on or following the
transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company will not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director cannot be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, or
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
rescission if a director breaches his or her duty of care. In addition, the
Company's Certificate of Incorporation and Bylaws provide that the Company
will indemnify its directors, officers, employees, and agents against losses
incurred by any such person by reason of the fact that such person was acting
in such capacity.
The Company has entered into contracts with each of the directors and
executive officers of the Company under which the Company must indemnify them
from claims, liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by them in or arising out of their work
for or on behalf of the Company, to the maximum extent provided by applicable
law. In addition, such parties are entitled to an advance of expenses in such
matters, to the maximum extent authorized or permitted by law.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Certificate of Incorporation and the Bylaws of the
Company summarized above could be deemed to have anti-takeover effects and
could delay, defer, or prevent a tender offer or takeover attempt that a
stockholder might consider to be in such stockholder's best interest,
including attempts that might result in a premium over the market price for
the shares held by stockholders. See "Risk Factors--Possible Anti-Takeover
Effect of Certain Charter Provisions."
TRANSFER AGENT OR REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
LISTING
Before this offering, there has not been a public trading market for the
Common Stock. The Company has applied for listing of the Common Stock on the
NASDAQ National Market, upon notice of issuance, under the symbol "BBAR."
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
SALES OF RESTRICTED SECURITIES
Upon the consummation of this offering, the Company will have outstanding
11,051,956 shares of Common Stock, assuming no exercise of options after
April 30, 1998. All of the 2,400,000 shares offered hereby may be resold
immediately in the public market. Beginning 180 days after the date of this
Prospectus, upon expiration of lock-up agreements between the representatives
of the Underwriters and officers, directors and certain stockholders of the
Company, approximately 2,248,464 additional shares will be eligible for sale
without restriction under Rule 144(k) under the Securities Act of 1933, as
amended (the "Securities Act") and 5,695,966 additional shares will be
eligible for sale subject to compliance with the restrictions of Rule 144. Any
early release of the lock-up agreement by the Underwriters, which, if granted,
could permit sales of a substantial number of shares and could adversely
affect the trading price of the Company's shares, may not be accompanied by an
advance public announcement by the Company. See "Risk Factors--Shares Eligible
for Future Sale."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (approximately 110,520 shares
immediately after the offering) or (ii) the average weekly trading volume of
the Company's Common Stock as reported through the Nasdaq National Market
during the four calendar weeks immediately preceding the filing of a Form 144
for such sale with the Securities and Exchange Commission (the "Commission").
Sales under Rule 144 are also subject to certain requirements relating to
manner of sale, notice, and availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of the Company at any time during the 90 days
immediately preceding the sale and who has beneficially owned restricted
shares for at least two years is entitled to sell such shares under Rule
144(k) without regard to the requirements described above.
OPTIONS
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts commencing 90 days after the issuer
becomes subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, in reliance upon Rule 144(k). In addition, the Company
intends to file a registration statement on Form S-8 under the Securities Act
within 30 days after the date of this Prospectus to register 4,689,000 shares
of Common Stock reserved for issuance under the Company's 1993 Plan, 1997
Plan, and 1998 Plan. As of April 30, 1998, options to purchase 1,892,412
shares were outstanding under the 1993 Plan and 1997 Plan, and options to
purchase 358,308 shares were outstanding outside of both plans. No options
have been granted under the 1998 Plan. Of the shares issuable upon exercise of
these options, 53,676 are issuable to non-affiliates. Upon expiration of the
180-day lock-up period and subject to vesting and exercisability restrictions,
all shares issued upon exercise of these options may be resold in the public
market without restriction under either Rule 701 or the registration statement
on Form S-8, subject to certain restrictions for affiliates.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Adams, Harkness & Hill, Inc. have severally agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of
shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- -----------
<S> <C>
Hambrecht & Quist LLC..........................................
Adams, Harkness & Hill, Inc....................................
-----------
Total.......................................................... 2,400,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the offering, the offering price and other selling terms can be
changed by the Representatives. The Representatives have informed the Company
that the Underwriters do not intend to confirm discretionary sales in excess
of five percent of the shares of Common Stock hereby.
The Selling Stockholders have granted to the Underwriters an option
exercisable no later than 30 days after the date of this Prospectus, to
purchase up to 360,000 additional shares of Common Stock at the offering
price, less the underwriting discount set forth on the cover page of this
Prospectus. To the extent the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased
by it shown in the above table bears to the total number of shares of Common
Stock offered hereby. The Company will be obligated, pursuant to the option,
to sell such shares to the Underwriters to the extent the option is exercised.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The officers and directors and substantially all of the other stockholders
of the Company, who will beneficially own in the aggregate 8,242,498 shares of
Common Stock after the offering, have agreed, subject to certain exceptions,
that they will not, without the prior written consent of Hambrecht & Quist
LLC, offer,
55
<PAGE>
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them during the 180-day
period following the date of this Prospectus. The Company has agreed that it
will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following
the date of this Prospectus, except that the Company may issue shares upon the
exercise of options granted prior to the date hereof, and may grant additional
options under its stock incentive plans, provided that, without the prior
written consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period.
The Underwriters have reserved for sale, at the initial public offering
price, shares of Common Stock for certain employees, directors, vendors, and
affiliates of the Company who have expressed an interest in purchasing shares
of Common Stock. These employees, directors, and other persons are expected to
purchase, in the aggregate, not more than five percent of the Common Stock
offered in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as the other shares offered
hereby.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiations between the Company, the Selling Stockholders, and
the Representatives. Among the factors to be considered in determining the
initial public offering price are prevailing market and economic conditions,
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management, and other factors deemed
relevant. The estimated initial public offering price set forth on the cover
of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or the effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the Underwriters to reclaim a selling concession from
a syndicate member in connection with the offering when shares of Common Stock
sold by the syndicate member are purchased in syndicate covering transactions.
Such transactions may be effected on the Nasdaq National Market, in the over-
the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP, Los Angeles, California. Certain legal
matters in connection with the offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The audited financial statements and schedule included in this Prospectus
and elsewhere in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said reports.
56
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits to it. Certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits filed as a
part of it. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete and,
in each instance, if such contract or document is filed as an exhibit to the
Registration Statement, reference is made to the copy of such contract or
document filed as an exhibit, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including the exhibits, as well as the reports and other information filed by
the Company with the Commission, can be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, NY 10048, and
copies of all or any part thereof can be obtained from such office after
payment of fees prescribed by the Commission. The Commission maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. In addition, after being approved for
listing on the Nasdaq National Market, upon notice of issuance, the Common
Stock, reports and other information concerning the Company can be inspected
at the offices of Nasdaq.
57
<PAGE>
BALANCE BAR COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998........ F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 and 1998.................. F-4
Statements of Shareholders' Equity for the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1997 and 1998......... F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 and 1998.................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Balance Bar Company:
After the conversion of preferred stock discussed in Note 8 of Notes to
Financial Statements is effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
Los Angeles, California
April 29, 1998
"REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Balance Bar Company:
We have audited the accompanying balance sheets of Balance Bar Company (a
Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Balance Bar Company, as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Los Angeles, California
April 29, 1998, (except
with respect to the
matters in Note 8 as to
which the date is May ,
1998)"
F-2
<PAGE>
BALANCE BAR COMPANY
BALANCE SHEETS
(AMOUNTS IN 000'S, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
MARCH 31,
1996 1997 1998
------ ------- -----------
ASSETS (UNAUDITED)
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash.................................................. $1,119 $ 89 $ 89
Accounts receivable, net of allowance for doubtful
accounts of $22 in 1996 and $46 in 1997 and 1998..... 1,435 3,444 5,777
Income taxes receivable............................... -- 374 --
Inventories........................................... 583 3,806 5,301
Prepaids and other.................................... 23 1,381 1,542
Deferred taxes........................................ 139 344 344
------ ------- -------
Total current assets.............................. 3,299 9,438 13,053
------ ------- -------
PROPERTY AND EQUIPMENT, net............................. 56 1,011 1,172
OTHER ASSETS............................................ 19 347 469
------ ------- -------
$3,374 $10,796 $14,694
====== ======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt..................... $ -- $ 85 $ 88
Short-term borrowings................................. -- 1,100 3,400
Accounts payable...................................... 606 4,201 3,824
Accrued commissions................................... 97 121 417
Other accrued expenses................................ 146 957 736
Income taxes payable.................................. 363 -- 466
------ ------- -------
Total current liabilities......................... 1,212 6,464 8,931
------ ------- -------
LONG-TERM DEBT, net of current portion.................. -- 228 202
------ ------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value
Authorized--24,000 shares
Issued and outstanding--9,268 shares in 1996, 9,345
shares in 1997 and 9,684 in 1998................... 93 93 97
Additional paid-in capital............................ 2,142 2,424 2,593
Retained earnings (deficit)........................... (73) 1,587 2,871
------ ------- -------
2,162 4,104 5,561
------ ------- -------
$3,374 $10,796 $14,694
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
BALANCE BAR COMPANY
STATEMENTS OF OPERATIONS
(AMOUNTS IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- -----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES........................... $ 1,262 $ 10,544 $ 39,634 $ 6,136 $ 17,457
COST OF SALES................... 593 5,272 19,801 2,970 9,014
------- -------- -------- ------- --------
Gross profit................ 669 5,272 19,833 3,166 8,443
------- -------- -------- ------- --------
EXPENSES:
Advertising................... 157 1,083 7,481 849 1,630
Selling and marketing......... 355 1,536 7,204 1,130 3,522
General and administrative.... 237 797 2,299 417 1,057
Interest (income) expense..... 4 16 (27) (5) 58
------- -------- -------- ------- --------
Total expenses.............. 753 3,432 16,957 2,391 6,267
------- -------- -------- ------- --------
Income (loss) before income
taxes...................... (84) 1,840 2,876 775 2,176
INCOME TAXES.................... 1 225 1,216 328 892
------- -------- -------- ------- --------
Net income (loss)........... $ (85) $ 1,615 $ 1,660 $ 447 $ 1,284
======= ======== ======== ======= ========
EARNINGS (LOSS) PER SHARE:
Basic....................... $ (0.01) $ 0.19 $ 0.18 $ 0.05 $ 0.13
======= ======== ======== ======= ========
Diluted..................... $ (0.01) $ 0.17 $ 0.15 $ 0.04 $ 0.11
======= ======== ======== ======= ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic....................... 7,800 8,410 9,302 9,268 9,599
======= ======== ======== ======= ========
Diluted..................... 7,800 9,343 11,043 11,434 11,683
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BALANCE BAR COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ---------- --------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.......... 7,713 $77 $1,542 $(1,603) $ 16
Exercise of stock options......... 24 -- -- -- --
Issuance of common stock as
compensation for services........ 90 1 -- -- 1
Conversion of convertible bonds... 426 5 66 -- 71
Net loss.......................... -- -- -- (85) (85)
----- --- ------ ------- ------
BALANCE, December 31, 1995.......... 8,253 83 1,608 (1,688) 3
Exercise of stock options......... 15 -- -- -- --
Issuance of common stock as
compensation for services........ 196 2 65 -- 67
Conversion of convertible bonds... 804 8 193 -- 201
Compensation expense in connection
with issuance of stock options... -- -- 276 -- 276
Net income........................ -- -- -- 1,615 1,615
----- --- ------ ------- ------
BALANCE, December 31, 1996.......... 9,268 93 2,142 (73) 2,162
Exercise of stock options......... 58 -- 13 -- 13
Issuance of common stock as
compensation for services........ 19 -- 60 -- 60
Compensation expense in connection
with issuance of stock options... -- -- 209 -- 209
Net income........................ -- -- -- 1,660 1,660
----- --- ------ ------- ------
BALANCE, December 31, 1997.......... 9,345 93 2,424 1,587 4,104
----- --- ------ ------- ------
Exercise of stock options,
including tax benefit............ 339 4 101 -- 105
Compensation expense in connection
with issuance of stock options... -- -- 68 -- 68
Net income........................ -- -- -- 1,284 1,284
----- --- ------ ------- ------
BALANCE, March 31, 1998 (unaudited). 9,684 $97 $2,593 $ 2,871 $5,561
===== === ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BALANCE BAR COMPANY
STATEMENTS OF CASH FLOWS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- ---------------
1995 1996 1997 1997 1998
---- ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $(85) $1,615 $1,660 $ 447 $ 1,284
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization...... 12 17 175 9 149
Compensation expense in connection
with issuance of common stock and
stock options..................... 1 343 269 38 68
Other.............................. -- 11 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable............... (24) (1,385) (2,009) (677) (2,333)
Income tax receivable............. -- -- (374) -- 374
Inventories....................... (24) (558) (3,223) (451) (1,495)
Prepaids and other................ 5 (17) (1,371) (149) (161)
Deferred taxes.................... -- (139) (205) -- --
Accounts payable.................. 42 505 3,595 679 (377)
Accrued expenses.................. 32 180 679 210 127
Income taxes payable.............. -- 363 (363) (2) 519
---- ------ ------ ------ -------
Net cash provided by (used in)
operating activities............ (41) 935 (1,167) 104 (1,845)
---- ------ ------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (3) (51) (1,114) (78) (310)
---- ------ ------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings...... -- -- 1,100 -- 2,300
Proceeds from long-term debt........... -- -- 300 -- --
Payments of long-term debt ............ (5) -- (3) -- (23)
Proceeds from issuance of convertible
bonds................................. 71 201 -- -- --
Proceeds from exercise of stock
options............................... -- -- 13 -- 52
Initial public offering costs.......... -- -- (159) -- (174)
---- ------ ------ ------ -------
Net cash provided by financing
activities...................... 66 201 1,251 -- 2,155
---- ------ ------ ------ -------
NET INCREASE (DECREASE) IN CASH......... 22 1,085 (1,030) 26 --
CASH, beginning of period............... 12 34 1,119 1,119 89
---- ------ ------ ------ -------
CASH, end of period..................... $ 34 $1,119 $ 89 $1,145 $ 89
==== ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BALANCE BAR COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND MARCH 31, 1998
(INCLUDING INFORMATION APPLICABLE TO UNAUDITED PERIODS)
1. THE COMPANY
Balance Bar Company, a Delaware corporation, (the Company) develops and
markets branded food products in convenient, good tasting, balanced
nutritional formulations. The Company's name was changed from Bio-Engineered
Foods, Inc. in 1997. The Company's current products, the "BALANCE--THE
COMPLETE NUTRITIONAL FOOD" bar and the "40-30-30 BALANCE" powdered drink mix,
are based on caloric proportions of 40% carbohydrates, 30% protein and 30%
dietary fat. During all periods presented, 90% or more of the Company's
revenue was derived from sales of its Balance bar (in multiple flavors and two
sizes).
2. CONCENTRATIONS OF RISK
Accounts receivable are unsecured and the Company is at risk to the extent
such amounts become uncollectable. As of December 31, 1996, two customers
comprised 31% and 19% of accounts receivable. As of December 31, 1997, two
customers comprised 18% and 17% of accounts receivable, respectively. As of
March 31, 1998, four customers comprised 17%, 13%, 12% and 10% of accounts
receivable, respectively.
During the year ended December 31, 1995, the Company did not have sales to
any customer that represented greater than 10% of sales. During the year ended
December 31, 1996, the Company had sales to two customers that represented
approximately 26% and 14%, respectively, of sales. During the year ended
December 31, 1997, the Company had sales to one customer that represented
approximately 25% of sales. In February 1998, the Company entered into a two
year exclusive sales agreement with this customer. For the three months ended
March 31, 1998, the Company had sales to three customers that represented
approximately 21%, 16% and 13%, respectively, of sales. The Company's
customers are comprised primarily of distributors and retailers and are
located primarily throughout the United States, and to a lesser extent Canada
and Japan. Sales to customers outside the United States were less than 10
percent of sales for all periods presented.
The Company has no internal capacity to produce its products and relies on
two contract manufacturers to produce its products. One manufacturer is
located in California and the other in Eastern Canada. The partial or total
loss of supply from either of these contract manufacturers would adversely
affect the Company's ability to fulfill orders and make timely delivery of
products. The Company has entered into long-term supply contracts with the two
contract manufacturers that require the Company to purchase minimum numbers of
bars per year and the contract manufacturers to supply specified numbers of
bars per year. If the production capacity of the two contract manufacturers is
insufficient to fill sales orders, the Company will attempt to use other
contract manufacturers. The Company may not be able to establish additional
production sources at acceptable prices that meet quality and capacity
requirements at other contract manufacturers, if necessary.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
b. Unaudited Interim Financial Statements
The unaudited financial statements for the three months ended March 31,
1997 and 1998 omit certain footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles. All adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial condition at March
31, 1998, and the results of operations and cash flows for the three months
ended March 31, 1997 and 1998 have been included in the accompanying
unaudited financial statements.
c. Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market and consist of the following at December 31, 1996 and 1997 and March
31, 1998 (in 000's):
<TABLE>
<CAPTION>
DECEMBER
31,
----------- MARCH 31,
1996 1997 1998
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Balance bars......................................... $278 $2,074 $3,313
Powdered drink mix................................... -- 473 767
Packaging material and other......................... 305 1,259 1,221
---- ------ ------
$583 $3,806 $5,301
==== ====== ======
</TABLE>
d. Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over each assets useful life
ranging from one to seven years.
The Company capitalizes expenditures that materially increase asset lives
and charges ordinary repairs and maintenance to operations as incurred.
When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts and
any resulting gain or loss is included in operations.
e. Deferred Offering Costs
In connection with its proposed public offering of common stock, the
Company has capitalized $315,000 and $437,000 of related costs as of
December 31, 1997 and March 31, 1998, respectively. These costs are
included in long-term other assets in the accompanying balance sheets and
will be charged to common stock upon completion of the offering or
otherwise to operations.
f. Coupons
The Company provides for coupon redemption costs at the time of coupon
distribution. As of December 31, 1996 and 1997 and March 31, 1998, costs
related to the redemption of distributed but unredeemed coupons were not
material.
g. Revenue Recognition
The Company recognizes revenue at the time of shipment. The Company
provides for estimated returns and allowances at the time of shipment.
h. Advertising and Marketing
The costs of advertising and marketing are expensed as the advertising
takes place, as free samples and promotional materials are distributed and
as promotional events are held. At December 31, 1997 and March 31, 1998,
prepaids and other current assets in the accompanying balance sheets
includes $1,015,000 and $1,347,000, respectively, of prepaid advertising.
F-8
<PAGE>
i. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Cash payments for interest were $4,000, $23,000 and $24,000 for the years
ended December 31, 1995, 1996 and 1997, respectively and $62,000 for the
three months ended March 31, 1998. Cash payments for taxes were $1,000,
$1,000 and $2,159,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
Non-cash transactions excluded from the statements of cash flows consist
of the conversion into common stock of $71,000 in 1995 and $201,000 in 1996
of convertible bonds.
j. Earnings (Loss) Per Share
Earnings (loss) per share is computed in accordance with Financial
Accounting Standards (SFAS) No. 128, "Earnings per share." Earnings (loss)
per share for the years ended December 31, 1996 and 1997 are based on the
weighted average number of shares outstanding plus the dilutive effects of
stock options. For the year ended December 31, 1995, stock options were not
included as their effect would be anti-dilutive.
The weighted average number of shares outstanding for the years ended
December 31, 1995, 1996 and 1997 was 7,800,000, 8,410,000 and 9,302,000,
respectively and for the three months ended March 31, 1997 and 1998 was
9,268,000 and 9,599,000, respectively. The dilutive effect of stock options
for the years ended December 31, 1996 and 1997 was 933,000 and 1,741,000,
respectively and for the three months ended March 31, 1997 and 1998 was
3,063,000 and 2,084,000, respectively.
k. Fair Value of Financial Instruments
Based on borrowing rates currently available for bank loans, the fair
value of short-term borrowings and long-term debt approximates carrying
values. The fair value of other financial instruments, consisting of cash,
and short-term trade receivables and payables also approximate carrying
values.
l. New Authoritative Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS 130) and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 130 and SFAS 131 are effective in 1998. The Company does not
have any items or other comprehensive income and, accordingly, SFAS 130
does not have any effect on the Company's financial reporting. The adoption
of SFAS 131, in the first quarter of 1998, did not have a material impact
on the Company's financial reporting.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1997 and March 31, 1998 (in 000's):
<TABLE>
<CAPTION>
DECEMBER
31,
------------ MARCH 31,
1996 1997 1998
---- ------ ---------
<S> <C> <C> <C>
Furniture and fixtures................................ $16 $ 264 $ 385
Machinery and equipment............................... 95 835 971
Leasehold improvements................................ -- 142 195
--- ------ ------
111 1,241 1,551
Less: Accumulated depreciation and amortization....... (55) (230) (379)
--- ------ ------
$56 $1,011 $1,172
=== ====== ======
</TABLE>
F-9
<PAGE>
5. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
In 1997, the Company obtained a line-of-credit, that is due on demand, with
a bank that expires on June 1, 1998. The line-of-credit provides the Company
with maximum borrowings of $3,500,000. Advances are limited to 75 percent of
eligible accounts receivable and are secured by all of the company's assets.
Interest accrues at the bank's prime rate (8.5 percent at December 31, 1997)
plus one percent. As of December 31, 1997 and March 31, 1998, $1,100,000 and
$3,400,000, respectively, was outstanding under this agreement.
In March 1998, the Company increased the amount available under the line-of-
credit to $9.0 million and extended the maturity to April 2000. The interest
rate was reduced to the bank's prime rate (8.5 percent at March 31, 1998) plus
3/4%. Selected information regarding short-term borrowings for the year ended
December 31, 1997 and for the three months ended March 31, 1998 is as follows
(dollars in 000's):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Average amount outstanding................................ $ 208 $2,296
Maximum amount outstanding................................ $1,100 $3,400
Weighted average interest rate during period.............. 9.5% 9.5%
</TABLE>
In December 1997, the Company obtained a $300,000 three year loan from a
bank. The loan is secured by all of the Company's assets. Interest accrues at
the bank's prime rate (8.5 percent at December 31, 1997 and March 31, 1998)
plus one percent. The principal balance is due $82,000 in 1998, $99,000 in
1999, $109,000 in 2000 and $10,000 in 2001.
6. INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets
or liabilities are computed based on the temporary difference between the
financial statement and income tax bases of assets and liabilities using the
current marginal income tax rate. Deferred income tax expenses or credits are
based on the changes in deferred income tax assets or liabilities from period
to period.
The provisions for income taxes for the years ended December 31, 1995, 1996
and 1997 are as follows (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
CURRENT:
Federal.............................................. $-- $227 $1,116
State................................................ 1 137 305
--- ---- ------
1 364 1,421
--- ---- ------
DEFERRED............................................... -- (139) (205)
--- ---- ------
Provision for income taxes........................... $ 1 $225 $1,216
=== ==== ======
</TABLE>
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended December 31, 1996 and
1997 are as follows (dollars in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C> <C> <C>
Income tax at statutory federal rate............ $626 34.0% $ 978 34.0%
State income taxes, net of federal benefit...... 80 4.3 187 6.5
Effect of permanent differences................. 92 5.0 60 2.1
Net operating loss carryforwards................ (547) (29.7) -- --
Other items, net................................ (26) (1.4) (9) (0.3)
---- ----- ------ ----
$225 12.2% $1,216 42.3%
==== ===== ====== ====
</TABLE>
F-10
<PAGE>
Under SFAS No. 109, deferred tax assets are recognized for temporary
differences that will result in deductible amounts in future periods. The
components of the deferred income tax assets (liabilities) at December 31,
1996 and 1997 are as follows (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
State taxes............................................... $ 45 $ 109
Allowance for doubtful accounts........................... 9 68
Inventory reserves........................................ -- 23
Depreciation.............................................. (3) (15)
Accrued liabilities....................................... 46 76
Other..................................................... 42 83
------ ------
$ 139 $ 344
====== ======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain property and equipment under
long-term operating leases expiring at various dates through January 2001.
Total rental expense for 1995, 1996 and 1997 and the three months ended March
31, 1998 was $22,000, $29,000, $131,000 and $62,000, respectively.
Future minimum lease payments under operating leases are as follows (in
000's):
<TABLE>
<S> <C>
Years ending December 31,
1998................................................................. $245
1999................................................................. 245
2000................................................................. 164
2001................................................................. 13
----
$667
====
</TABLE>
Included in property and equipment is approximately $16,000 of equipment
that is leased under a lease accounted for as a capital lease that expires
December 31, 2001.
The Company has been named as a defendant in various lawsuits arising out of
the normal course of business. Management believes the final outcome of such
claims will not have a material impact on the Company's financial position or
results of operations.
Certain advertising claims made by the Company have been challenged by two
of the Company's competitors. The Company has agreed to not make certain
advertising claims in the future. In April 1998, one competitor sued the
Company seeking damages as a result of allegedly false and misleading
advertising. The competitor also alleged that the Company, with one of the
Company's sales executives who previously worked for the competitor,
misappropriated trade secrets. The Company has general (including advertising
injury), director and officer, and excess liability insurance, but because the
lawsuit was recently filed, the Company has not yet received confirmation from
any of its insurers regarding their defense or acceptance of the Company's
insurance claim. The Company intends to vigorously defend this lawsuit.
8. SHAREHOLDERS' EQUITY
In April 1998, the Company's shareholders approved a six-for-one stock
split. The Company's financial statements have been retroactively adjusted,
for all periods presented, to reflect the effect of the stock split.
The Company had 3,806,910 shares of convertible preferred stock, $.01 par
value, outstanding at December 31, 1995, 1996 and 1997 and March 31, 1998. In
connection with the Company's initial public
F-11
<PAGE>
offering, the Company has obtained commitments from all of the holders of the
convertible preferred stock to convert the preferred stock to Common Stock if
the proposed initial offering is completed. This commitment expires in June
1998. The Company's financial statements have been retroactively adjusted, for
all periods presented, to reflect the conversion of the preferred stock into
common stock. For all periods presented, 12,000,000 shares of convertible
preferred stock were authorized. No preferred stock will be authorized or
outstanding after the initial public offering is completed.
In 1997, the Company adopted SFAS No. 129 "Disclosure of Information About
Capital Structure." Holders of the Company's common stock and convertible
preferred stock are entitled to voting rights at the rate of one vote per
share. Preferred stockholders are entitled to a liquidation preference of
$0.38 per share. Preferred stock may be converted to common stock, at the rate
of one share for one share, at any time. No dividend has ever been declared on
the Company's common or convertible preferred stock.
In 1995 and 1996, the Company issued $71,000 and $201,000 of 12 percent
convertible bonds, respectively. These bonds were converted into common stock
at the rate of $0.17 per share and $0.25 per share, respectively in the years
the bonds were issued.
At December 31, 1997 and March 31, 1998, the Company had two stock option
plans, under which the Company is authorized to issue incentive and non-
qualified stock options to its directors, officers, key employees and
consultants totaling up to 2,580,000 shares of common stock. At December 31,
1997 and March 31, 1998, the Company had issued 467,508 and 473,508,
respectively, stock options outside of these two stock option plans. At
December 31, 1997 and March 31, 1998, 379,674 and 1,674 shares, respectively,
are available for future grant under these two plans. Options are generally
granted at exercise prices not less than the fair market value on the date of
grant and expire 10 years after the date of grant. Options granted under these
plans vest over various periods up to three years.
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation"
(SFAS 123) in 1996. As allowed by SFAS 123, the Company has elected to
continue to measure compensation cost under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and comply
with the pro forma disclosure requirements of the new standard.
A summary of the Company's outstanding options and activity follows for
1995, 1996 and 1997 and the three months ended March 31, 1998:
<TABLE>
<CAPTION>
1995 1996 1997 MARCH 1998
----------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE OPTION PRICE
------- -------- --------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING,
beginning of period.... 234,408 $0.17 278,508 $0.09 2,609,322 $0.17 2,571,546 $0.18
Granted............... 135,600 0.08 2,345,814 0.18 46,800 0.38 384,000 3.98
Canceled.............. (67,500) 0.38 -- -- (26,088) 0.01 (1,200) 0.08
Exercised............. (24,000) 0.01 (15,000) 0.38 (58,488) 0.13 (338,844) 0.16
------- --------- --------- ---------
OPTIONS OUTSTANDING, end
of period.............. 278,508 $0.09 2,609,322 $0.17 2,571,546 $0.18 2,615,502 $0.74
======= ========= ========= =========
Options exercisable at
end of period.......... 278,508 $0.09 1,526,136 $0.15 2,002,656 $0.17 1,668,612 $0.17
======= ========= ========= =========
Weighted average fair
value of options
granted during the
period................. $0.08 $0.38 $3.29 $5.50
===== ===== ===== =====
</TABLE>
F-12
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE REMAINING
PRICES NUMBER OUTSTANDING CONTRACTUAL LIFE NUMBER EXERCISABLE
-------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
$0.01 39,132 .5 years 39,132
$0.08 192,900 7.3 years 192,900
$0.17 2,156,226 8.2 years 1,684,224
$0.42 183,288 9.0 years 86,400
--------- ---------
2,571,546 2,002,656
========= =========
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE REMAINING
PRICES NUMBER OUTSTANDING CONTRACTUAL LIFE NUMBER EXERCISABLE
-------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
$0.01 26,088 .2 years 26,088
$0.08 168,900 7.0 years 168,900
$0.17 1,853,226 8.0 years 1,381,224
$0.42 207,288 8.8 years 92,400
$1.67-$5.50 360,000 9.8 years --
--------- ---------
2,615,502 1,668,612
========= =========
</TABLE>
As permitted by SFAS 123, the Company continues to apply the accounting
rules of APB 25 governing the recognition of compensation expense from its
stock option plans. Such accounting rules measure compensation expense on the
first date at which both the number of shares and the exercise price are
known. Under the Company's plans, this would typically be the grant date. To
the extent that the exercise price equals or exceeds the market value of the
stock on the grant date, no expense is recognized. Compensation expense is
recognized for options where the market value of the stock on the grant date
exceeds the exercise price. The compensation expense is recognized immediately
if vesting is at issuance or ratably over the vesting period if the options
vest over time.
Under the provisions of SFAS 123, equity instruments granted to non-
employees are excluded from the pro forma disclosure requirements and are
recorded as compensation expense at fair value in the accompanying statements
of operations.
During 1995, 1996 and 1997 and the three months ended March 31, 1998, the
Company recorded compensation expense of $1,000, $313,000, $209,000 and
$68,000, respectively, in connection with stock option and common stock grants
to employees at exercise prices less than fair market value on the date of
grant. During the years ended December 31, 1996 and 1997, the Company recorded
compensation expense of $30,000 and $60,000, respectively, in connection with
common stock grants to non-employees. To estimate the fair market values of
stock option and common stock grants, the Company used cash equity
transactions, estimated market multiples, developments in the Company's
business (such as the addition of significant customers, the hiring of key
personnel and the introduction of new products) and changes in levels of
profits to value the grants.
F-13
<PAGE>
Had the Company applied the fair value based method of accounting, which is
not required, to all grants of stock options, under SFAS 123, the Company
would have recorded additional compensation expense and computed pro forma net
income (loss) and earnings (loss) per share amounts as follows for 1995, 1996
and 1997 and the three months ended March 31, 1997 and 1998 (amounts in 000's
except for per share data):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ------------
1995 1996 1997 1997 1998
------ ------ ------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Additional compensation expense.......... $ 3 $ 64 $ 37 $ 6 $ 47
Pro forma net income (loss).............. $ (88) $1,555 $1,635 $ 447 $1,253
Pro forma earnings (loss) per share:
Basic.................................. $(0.01) $ 0.19 $ 0.18 $0.05 $ 0.13
Diluted................................ $(0.01) $ 0.17 $ 0.15 $0.04 $ 0.11
</TABLE>
These pro forma amounts were determined by estimating the fair value of each
option on its grant date using the Black-Scholes option-pricing model.
Assumptions of 6.30 percent for risk free interest rate, 6 years for expected
life, zero volatility and no expected dividends were applied to all grants in
1995 and 1996. Assumptions of 6.54 percent for risk free interest rate, 6
years for expected life, zero volatility and no expected dividends were
applied to all grants in 1997.
9. RELATED PARTY TRANSACTIONS
In December 1995, the Company entered into a management consulting agreement
with a member of the board of directors. In 1996, the Company recorded
$116,000 of expense in connection with this agreement.
During 1997 and the three months ended March 31, 1998, the Company paid
$44,000 and $13,000, respectively, to one member of the board of directors in
connection with special services related to the Company's initial public
offering.
10. 401(k) PLAN
In 1997, the Company adopted a 401(k) Plan (the Plan). All employees are
eligible to participate in the Plan after 3 months of service. The Company
matches up to a percent of employee contributions made during the year. The
total Company 401(k) matching contribution recognized for 1997 and the three
months ended March 31, 1998 was $42,000 and $22,000, respectively.
11. INITIAL PUBLIC OFFERING
In April 1998, the Company filed a registration statement on Form S-1 to
sell Common Stock in an initial public offering.
In April 1998, the Company's shareholders ratified a six-for-one split of
the Company's Common and Preferred Stock. The Company's financial statements
have been retroactively adjusted, for all periods presented, to reflect the
effect of the stock split. The Company's shareholders also ratified an
increase of 309,000 in the number of stock options the Company is authorized
to issue under an existing stock option plan and ratified the adoption of a
new stock option plan, under which the Company is authorized to issue
1,800,000 shares of Common Stock upon the exercise of stock options.
F-14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURIS-
DICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER
OR SALE MADE HERE-UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 15
Dividend Policy......................................................... 15
Capitalization.......................................................... 16
Dilution................................................................ 17
Selected Financial Data................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 19
Business................................................................ 27
Management.............................................................. 40
Certain Transactions.................................................... 48
Principal and Selling Stockholders...................................... 49
Description of Capital Stock............................................ 51
Shares Eligible for Future Sale......................................... 54
Underwriting............................................................ 55
Legal Matters........................................................... 56
Experts................................................................. 56
Additional Information.................................................. 57
Index to Financial Statements........................................... F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPEC-TUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICI-PATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-SPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DE-LIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,400,000 SHARES
[LOGO OF BALANCE BAR COMPANY]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
ADAMS, HARKNESS & HILL, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD fee and the National Market System
application fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee............................................... $ 10,397
NASD fee........................................................... 4,024
Application fee--National Market System............................ 81,625
Printing and engraving expenses.................................... 150,000
Legal fees and expenses............................................ 251,000
Accounting fees and expenses....................................... 120,000
Blue Sky qualification fees and expenses........................... 5,000
Miscellaneous fees and expenses.................................... 77,954
--------
Total............................................................ $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company will not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Bylaws provide that the Company will indemnify its directors to
the fullest extent authorized by the DGCL. In addition, the Board of Directors
has the power under the Bylaws to indemnify its officers and employees who are
made a party to a suit or proceeding because of their position as an officer
or employee of the Company.
The Company has entered into contracts with each of the directors and
executive officers of the Company under which the Company must indemnify them
from claims, liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by them in or arising out of their work
for or on behalf of the Company, to the maximum extent provided by applicable
law. In addition, such parties are entitled to an advance of expenses is such
matters, to the maximum extent authorized or permitted by law.
To the extent that the Board of Directors or the stockholders of the Company
wish to limit or repeal the ability of the Company to provide indemnification
as set forth in the Company's Certificate of Incorporation, such repeal or
limitation may not be effective as to directors and officers who are parties
to the Indemnification Agreements, because their rights to full protection
would be contractually assured by the Indemnification Agreements. It is
anticipated that similar contracts may be entered into, from time to time,
with future directors of the Company.
II-1
<PAGE>
The Form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of securities by
the Company during the past three years that were not registered under the
Securities Act. The Company believes that each of such transactions was exempt
from registration under either Section 4(2) or Rule 701 of the Securities Act.
(a) On February 1, 1995, an aggregate of 6,000 shares of the Company's
Common Stock were issued to 6 employees for no consideration. The shares
were issued as gifts to these employees.
(b) On February 9, 1995, 84,000 shares of the Company's Common Stock were
issued to a vendor for $14,000. The shares were issued in connection with
the release of a debt owed by the Company for past accounting services.
(c) On October 16, 1995, 24,000 shares of the Company's Common Stock were
issued to an employee for $40. The shares were issued in connection with
the exercise of stock options by this employee.
(d) On January 20, 1996, 90,000 shares of the Company's Common Stock were
issued to Richard Lamb and 60,000 shares of Common Stock were granted to
one other employee for consideration of past services.
(e) On January 22, 1996, and April 16, 1996, an aggregate of 426,000
shares of the Company's Common Stock were issued to various investors and
Thomas Davidson for an aggregate consideration of $71,000. The shares were
issued in connection with the conversion of convertible bonds purchased by
these investors and Mr. Davidson from July 1995 to January 1996.
(f) On April 24, 1996, 15,000 shares of the Company's Common Stock were
issued to one employee in consideration for past services.
(g) On December 16, 1996, 18,000 shares of the Company's Common Stock
were issued to a professional fitness trainer for consideration of past
services.
(h) On December 17, 1996, 13,032 shares of the Company's Common Stock
were issued to James Wolfe in consideration for past services.
(i) On December 17, 1996, 15,000 shares of Common Stock were issued to a
former employee for $5,750. The shares were issued in connection with the
exercise of this former employee's stock options.
(j) On January 15, 1997, 804,006 shares of Common Stock were issued to
various investors and Thomas Davidson for $201,000. The shares were issued
in connection with the conversion of convertible bonds purchased from July
1995 to January 1996.
(k) On April 1, 1997, 18,000 shares of the Company's Common Stock were
issued to a professional fitness trainer for consideration of past
services.
(l) On May 9, 1997, an aggregate of 13,500 shares of the Company's Common
Stock were issued to an former employee for aggregate of $270. The shares
were issued in connection with the exercise of stock options by this former
employee.
(m) On August 25, 1997, 15,000 shares of the Company's Common Stock were
issued to Thomas Davidson for $5,750. The shares were issued in connection
with the exercise of stock options by Mr. Davidson.
(n) On October 6, 1997, 26,088 shares of Common Stock were issued to
Dennis McCarthy for $43.48. These shares were issued in connection with the
exercise of stock options held by Mr. McCarthy.
II-2
<PAGE>
(o) On December 31, 1997, 3,900 shares of the Company's Common Stock were
issued to Patrick Lee for $1,625. These shares were issued in connection
with the exercise of stock options held by Mr. Lee.
(p) On January 16, 1998, 300,000 shares of the Company's Common Stock
were issued to James Wolfe for $50,000. These shares were issued in
connection with the exercise of stock options held by Mr. Wolfe.
(q) On January 23, 1998, 3,000 shares of the Company's Common Stock were
issued to an employee for $500. These shares were issued in connection with
the exercise of stock options held by this employee.
(r) On March 20, 1998, 10,800 shares of the Company's Common Stock were
issued to a former Company director for $900. These shares were issued in
connection with the exercise of stock options granted to the former
director.
(s) On March 30, 1998, 13,044 shares of the Company's Common Stock were
issued to James Wolfe for $21.74. These shares were issued in connection
with the exercise of stock options granted to Mr. Wolfe.
(t) On March 30, 1998, 12,000 shares of the Company's Common Stock were
issued to two employees for $1,000. These shares were issued in connection
with the exercise of stock options granted to these employees.
(u) On April 8, 1998, 13,200 shares of the Company's Common Stock were
issued to a former Company director for $1,900. These shares were issued in
connection with the exercise of stock options by the former director.
(v) On April 8, 1998, 15,600 shares of the Company's Common Stock were
issued to Thomas Davidson for $2,500. These shares were issued in
connection with the exercise of stock options by Mr. Davidson.
(w) On April 17, 1998, 26,088 shares of the Company's Common Stock were
issued to Barry Goss for $43.48. These shares were issued in connection
with the exercise of stock options by Mr. Goss.
(x) On April 17, 1998, 294 shares of the Company's Common Stock were
issued to a Company employee for $122.50. These shares were issued in
connection with the exercise of stock options by the employee.
(y) On April 23, 1998, 300,000 shares of the Company's Common Stock were
issued to James Wolfe for $50,000. These shares were issued in connection
with the exercise of stock options by Mr. Wolfe.
(z) On April 27, 1998, 9,600 shares of Common Stock were issued to Adelle
Demko for $4,000. These shares were issued in connection with the exercise
of stock options by Ms. Demko.
(aa) On May 1, 1998, 450 shares of Common Stock were issued to a former
employee for $187.50. These shares were issued in connection with the
exercise of stock options by the former employee.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits Number
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen of Common Stock Certificate
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
5.1 Opinion of O'Melveny & Myers LLP
10.1* Form of Indemnification Agreement between the Company and each of
its executive officers and directors
Production Agreement between the Company and Bariatrix
10.2(1)* International, Inc.
10.3(1)* Production Agreement between the Company and Nellson Candies, Inc.
10.4 1993 Stock Incentive Plan
10.5* 1997 Stock Incentive Plan
10.6 1998 Stock Incentive Plan
10.7 Form of Employee Option Agreement under 1998 Performance Award
Plan
10.8.1* Credit Agreement between the Company and Santa Barbara Bank &
Trust for the Revolving Line of Credit
10.8.2* Security Agreement between the Company and Santa Barbara Bank &
Trust
10.8.3* Promissory Note by the Company in favor of Santa Barbara Bank &
Trust
10.8.4* Security Agreement between the Company and Santa Barbara Bank &
Trust
10.8.5* Promissory Note from the Company in favor of Santa Barbara Bank &
Trust
10.9(1)* Letter Agreement between the Company and Trader Joe's
10.10(1)* Agreement Between the Company and Tree of Life
10.11* Form of Employee Option Agreement under 1993 Stock Incentive Plan
10.12* Form of Employee Option Agreement under 1997 Stock Incentive Plan
10.13 Registration Rights Agreement among Balance Bar Company, Thomas
Davidson and the Davidson Family Limited Partnership
11.1 Statement of Computation of Per Share Earnings
23.1 Consent of Independent Auditors
23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1* Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
(1) The Company has requested confidential treatment for portions of these
agreements.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Commission are provided in the Notes to the Financial
Statements included elsewhere in this Registration Statement or are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. If a claim for
II-4
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act will be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus will
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time will be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Carpinteria, State of California on this 8th day of May, 1998.
BALANCE BAR COMPANY
/s/ Thomas J. Flahie
By: _________________________________
Thomas J. Flahie
Its: Senior Vice President of
Finance and Administration
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of May 8, 1998
____________________________________ Directors
Thomas R. Davidson
* Chief Executive Officer May 8, 1998
____________________________________ (Principal Executive
James A. Wolfe Officer) and Director
/s/ Thomas J. Flahie Senior Vice President of May 8, 1998
____________________________________ Finance and Administration
Thomas J. Flahie (Principal Financial and
Accounting Officer)
* Director May 8, 1998
____________________________________
Adelle M. Demko
* Director May 8, 1998
____________________________________
Barry D. Goss
* Director May 8, 1998
____________________________________
John Hale
* Director May 8, 1998
____________________________________
Richard G. Lamb
* Director May 8, 1998
____________________________________
Dennis Ryan McCarthy
* Director May 8, 1998
____________________________________
George F. Raymond
/s/ Thomas J. Flahie* Director May 8, 1998
____________________________________
Thomas J. Flahie
Attorney-in-fact
</TABLE>
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement pursuant to The Power of Attorney
executed by the above-named officers and directors and filed with the
Securities and Exchange Commission on behalf of such officers and directors.
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen of Common Stock Certificate
5.1 Opinion of O'Melveny & Myers LLP
10.1* Form of Indemnification Agreement between the Company and each of
its executive officers and directors
10.2(1)* Production Agreement between the Company and Bariatrix
International, Inc.
10.3(1)* Production Agreement between the Company and Nellson Candies, Inc.
10.4 1993 Stock Incentive Plan
10.5* 1997 Stock Incentive Plan
10.6 1998 Performance Award Plan
10.7 Form of Employee Option Agreement under 1998 Performance Award Plan
10.8.1* Credit Agreement between the Company and Santa Barbara Bank & Trust
for the Revolving Line of Credit
10.8.2* Security Agreement between the Company and Santa Barbara Bank &
Trust
10.8.3* Promissory Note by the Company in favor of Santa Barbara Bank &
Trust
10.8.4* Security Agreement between the Company and Santa Barbara Bank &
Trust
10.8.5* Promissory Note from the Company in favor of Santa Barbara Bank &
Trust
10.9(1)* Letter Agreement between the Company and Trader Joe's
10.10(1)* Agreement Between the Company and Tree of Life
10.11* Form of Employee Option Agreement under 1993 Stock Incentive Plan
10.12* Form of Employee Option Agreement under 1997 Stock Incentive Plan
10.13 Registration Rights Agreement among Balance Bar Company, Thomas
Davidson and Davidson Family Limited Partnership
11.1 Statement of Computation of Per Share Earnings
23.1 Consent of Independent Auditors
23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1* Power of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
(1) The Company has requested confidential treatment for portions of these
agreements.
<PAGE>
EXHIBIT 1.1
BALANCE BAR COMPANY
2,400,000 SHARES/1/
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
May __, 1998
HAMBRECHT & QUIST LLC
ADAMS, HARKNESS & HILL, INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Balance Bar Company, a Delaware corporation (herein called the Company),
proposes to issue and sell 1,003,372 shares of its authorized but unissued
Common Stock, $ 0.01 par value (herein called the Common Stock), and the
stockholders of the Company named in Schedule II hereto (herein collectively
called the Selling Securityholders) propose to sell an aggregate of 1,396,628
shares of Common Stock of the Company (said 2,400,000 shares of Common Stock
sold in the aggregate by the Company and the Selling Securityholders being
herein called the Underwritten Stock). The Selling Securityholders propose to
grant to the Underwriters (as hereinafter defined) an option to purchase up to
360,000 additional shares of Common Stock (herein called the Option Stock and
with the Underwritten Stock herein collectively called the Stock). The Common
Stock is more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent and
warrant that you have been authorized by each of the other Underwriters to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-49651), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the
- -----------------------------------
/1/ Plus an option to purchase from the Selling Securityholders up to 360,000
additional shares to cover over-allotments.
-1-
<PAGE>
event of any supplement or amendment to such prospectus after the Effective
Date, shall also mean (from and after the filing with the Commission of such
supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it became effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement
and the Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions 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 a material adverse effect on the business, properties,
financial condition or results of operations of the Company (herein called a
"Material Adverse Effect")).
(ii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any material
adverse change in the business, properties, financial condition or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, the Company has not entered into any material transaction
not described in the Registration Statement and the Prospectus.
(iii) The Registration Statement and the Prospectus comply, and on
the Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Option Stock is to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (iii) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for
use in the Registration Statement or the Prospectus.
(iv) The Stock is duly authorized, is (or, in the case of shares of
the Stock to be sold by the Company, will be, when issued and sold to the
Underwriters as provided herein) validly issued, fully paid and nonassessable
and conforms to the description thereof in the Prospectus. No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the transfer and sale of the Stock to be sold by
the Selling Securityholders or the issuance and sale of the Stock as
contemplated herein. The authorized capital stock of the Company consists of
12,000,000 shares of Preferred Stock, $0.01 par value, of which there are
outstanding 3,806,910 shares, (and all of which will convert into an aggregate
of 3,806,910 shares of Common Stock immediately prior to the Closing Date) and
24,000,000 shares of Common Stock, $0.01 par value, of which there are
outstanding E shares (including the Underwritten Stock plus the
number of shares of Option Stock issued on the date hereof); all of the
outstanding securities have been validly issued and are fully paid and
nonassessable and have been issued in compliance with all federal and state
securities laws except where any such failure to comply would not have
singularly, or in the aggregate, a Material Adverse Effect; and no
registration
-2-
<PAGE>
rights or rights of co-sale (other than those which have been waived or are
described in the Prospectus), voting agreements, preemptive rights of, or
rights of refusal in favor of, stockholders exist with respect to the Stock,
or the issue and sale thereof. As of the Closing Date, each share of Preferred
Stock will convert into one share of Common Stock.
(v) The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, to register
the Common Stock, and prior to the Closing Date, the Stock will be approved
for listing and trading on the Nasdaq National Market, and prior to the
Closing Date the Stock to be issued and sold by the Company will be approved
for listing on the Nasdaq National Market upon official notice of issuance.
(vi) The Company has full corporate power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may
be limited by applicable law and except as the enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, license, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company is a party or by which its properties may be bound, (ii) the
charter or bylaws of the Company, or (iii) any law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
any of its subsidiaries or its properties except where such breach, violation
or default would not have a Material Adverse Effect. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or over its properties is required for the execution and delivery of
this Agreement and the consummation by the Company of the transactions herein
contemplated, except such as may be required under the Act or under state or
other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(vii) The Company has not sustained, since the date of the latest
audited financial statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not been any
material change in the capital stock or long-term debt of the Company or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company,
otherwise than as set forth or contemplated in the Prospectus.
(viii) The audited financial statements of the Company, together
with the related notes and supporting schedules, and the unaudited financial
statements, filed as part of the Registration Statement or included or
incorporated by reference in the Prospectus, fairly present the financial
condition and results of operations of the Company at the dates and for the
periods indicated, in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved. The unaudited
financial statements (including related notes) filed as part of the
Registration Statement or included in the Prospectus include all adjustments,
consisting of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for these periods (except for the footnotes and more detailed
information with respect to the three month numbers announced and described as
set forth in the Registration Statement). The selected and summary financial
and statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with
the audited financial statements presented therein. No other financial
statements or schedules are required to be included in the Registration
Statement.
(ix) Arthur Andersen LLP, who has audited the balance sheets of
the Company as of December 31, 1996 and 1997 and the related statements of
operations, shareholder's equity and cash flows, together with the
-3-
<PAGE>
related schedules and notes for each of the three (3) years in the period
ended December 31, 1997, whose report appears in the Registration Statement
and in the Prospectus and who have delivered the Original Letter referred to
in Section 9(f) hereof, are independent public accountants as required by and
within the meaning of the Securities Act and the Rules and Regulations.
(x) All real property and buildings held under lease by the
Company are held by them to the best of the Company's knowledge, under valid
and enforceable leases except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles, with
such exceptions as would not have a Material Adverse Effect.
(xi) The Company carries, or maintains insurance in such amounts
and covering such risks as is reasonably adequate for the conduct of its
business and the value of its properties. The Company has not been refused any
insurance coverage sought or applied for; and the Company does not have any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company.
(xii) The Company owns or possesses adequate rights to use all
inventions, trade secrets, know-how, trademarks, trademark registrations,
service marks, service mark registrations, trade names, copyrights, approvals
and government authorizations, described in the Registration Statement and
Prospectus as being owned by it or useful in the conduct of its businesses as
now conducted [or proposed to be conducted] as described in the Registration
Statement and Prospectus; the Company has not received any notice of, and has
no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, might have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company other than as described in the Prospectus.
(xiii) Except as described in the Prospectus, there are no legal,
governmental or administrative proceedings pending to which the Company is a
party or of which any property or assets of the Company is the subject which,
if determined adversely to the Company, may have a Material Adverse Effect,
and no such proceedings are threatened or contemplated by governmental
authorities or by others.
(xiv) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have not
been described in the Prospectus or filed as exhibits to the Registration
Statement.
(xv) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as required to be disclosed in the Registration Statement
and the Prospectus. No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers, stockholders,
collaboration partners, joint venturers, licensees, licensors, consultants,
customers or suppliers of the Company on the other hand, which is required to
be described in the Prospectus which is not so described.
(xvi) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which might be expected to
have a Material Adverse Effect. No collective bargaining agreement exists
with any of the Company's employees and, to the best of the Company's
knowledge, no such agreement is imminent.
(xvii) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
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adversely to the Company which will have (nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the Company,
might have) a Material Adverse Effect. All tax liabilities are adequately
provided for on the books of the Company. The Company is not currently
subject to any audit by any tax authorities and, to the Company's knowledge,
no such audit is threatened or contemplated by any such authorities.
(xviii) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be disclosed
in the Prospectus, the Company has not (i) issued or granted or obligated
itself to issue or grant any securities, other than option grants and
exercises and stock purchases pursuant to the Company's stock option and
employee stock purchase plans in the ordinary course of business and
consistent with past practice or pursuant to the exercise of warrants in the
ordinary course of business, (ii) incurred any liability or obligation, direct
or contingent, other than liabilities and obligations which were incurred in
the ordinary course of business, (iii) entered into any transaction not in the
ordinary course of business or (iv) declared or paid any dividend on its
capital stock.
(xix) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements in conformity with generally accepted
accounting principles and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xx) The Company (i) is not in violation of its charter or
bylaws, (ii) is not in default in any material respect, and no event has
occurred which, with notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term, covenant or
condition contained in any license agreement, purchase order, manufacturing or
supply agreement, collaboration agreement, material indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties or assets is
subject, other than as would not cause a Material Adverse Effect (and, to its
knowledge, no other party to any such agreement is in default thereof and no
event has occurred which, with notice, lapse of time or both, would constitute
such a default), or (iii) is not in violation in any material respect of any
law, ordinance, governmental rule, regulation or court decree to which it or
its property or assets may be subject and the Company has not failed to obtain
any material license, permit, certificate, franchise or other governmental
authorization or permit necessary for the ownership of its property or to the
conduct of its business, other than as would not cause a Material Adverse
Effect.
(xxi) Except as set forth in the Registration Statement and
Prospectus, (i) and except as would not, singularly or in the aggregate have a
Material Adverse Effect, the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus, and (iii) to the best of its
knowledge, the Company will not be required to make future material capital
expenditures to comply with Environmental Laws. There has been no storage,
disposal, generation, manufacture, refinement, transportation, handling or
treatment of toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company (or, to the knowledge of the Company, any of its
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial action
which would not have, or could not be reasonably likely to have, singularly or
in the aggregate with all such violations and remedial actions, a Material
Adverse Effect; there has been no material spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto such property or into
the environment surrounding such property of any toxic wastes, medical wastes,
solid wastes, hazardous wastes or hazardous substances due to or caused by the
Company or with respect to which the Company has knowledge, except for any
such spill, discharge, leak, emission, injection, escape, dumping or release
which would not have or would not be reasonably
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likely to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings and releases, a
Material Adverse Effect; and the terms "hazardous wastes", "toxic wastes",
"hazardous substances" and "medical wastes" shall have the meanings specified
in any applicable local, state, federal and foreign laws or regulations with
respect to environmental protection.
(xxii) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(xxiii) The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office
or failed to disclose fully any contribution in violation of law, or (ii) made
any payment to any foreign, federal or state governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(xxiv) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Stock to
facilitate the sale or resale of the Stock.
(xxv) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Stock
is to be purchased, as the case may be, and (ii) completion of the
distribution of the Stock, any offering material in connection with the
offering and sale of the Stock other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(xxvi) The Company has not had any disagreements, during its two
most recent fiscal years or any subsequent interim period, with an independent
accountant who was previously engaged as the principal accountant to audit the
Company's financial statements and on whom the principal accountant expressed
reliance in its report (either of whom resigned, indicated that it declined to
stand for re-election after the completion of the current audit, or was
dismissed), on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s)
would require disclosure in the Registration Statement.
(b) Each of the Selling Securityholders hereby represents and
warrants as follows:
(i) Such Selling Securityholder has good and marketable title to
all the shares of Stock to be sold by such Selling Securityholder hereunder,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever and no preemptive right, co-sale right, registration right,
right of first refusal or other similar right exists with respect to such
Stock, with full right and authority to deliver the same hereunder, subject,
in the case of each Selling Securityholder, to the rights of the Company, as
Custodian (herein called the Custodian), and that upon the delivery of and
payment for such shares of the Stock hereunder, assuming the Underwriters are
acquiring such shares in good faith without notice of any adverse claim, the
several Underwriters will receive good and marketable title thereto, free and
clear of all liens, encumbrances, equities, security interests and claims
whatsoever.
(ii) Certificates in negotiable form for the shares of the Stock to
be sold by such Selling Securityholder have been placed in custody under a
Custody Agreement, satisfactory to you in your sole discretion, for delivery
under this Agreement with the Custodian; such Selling Securityholder
specifically agrees that the shares of the Stock represented by the
certificates so held in custody for such Selling Securityholder are subject to
the interests of the several Underwriters and the Company, that the
arrangements made by such Selling Securityholder for such custody, including
the Power of Attorney and the Custody Agreement, are to that extent
irrevocable, and that the obligations of such Selling Securityholder shall not
be terminated by any act of such Selling Securityholder or by operation of
law, whether by the death or incapacity of such Selling Securityholder (or, in
the case of a Selling Securityholder that is not an individual, the
dissolution or liquidation of such Selling Securityholder) or the occurrence
of any other event; if any such death, incapacity, dissolution, liquidation or
other such event should
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occur before the delivery of such shares of the Stock hereunder, certificates
for such shares of the Stock shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless of
whether the Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event. Each of the Power of Attorney and the
Custody Agreement constitutes a valid and binding agreement on the part of
such Selling Securityholder, enforceable in accordance with its terms, except
as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. All
consents, approvals, authorizations and orders required for the execution and
delivery by such Selling Securityholder of the Power of Attorney and the
Custody Agreement, the execution and delivery by or on behalf of such Selling
Securityholder of this Agreement and the sale and delivery of the Stock to be
sold by such Selling Securityholder under this Agreement (other than, at the
time of the execution hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such consents,
approvals, authorizations or orders as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect.
(iii) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and the information contained under the caption
"Principal and Selling Stockholders" that specifically relates to such Selling
Securityholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein in light
of the circumstances under which they were made not misleading.
(iv) Richard G. Lamb (the "Affiliated Selling Securityholder") has
reviewed the Registration Statement and Prospectus and, although such
Affiliated Selling Securityholder has not independently verified the accuracy
or completeness of all the information contained therein, nothing has come to
the attention of such Affiliated Selling Securityholder that would lead such
Affiliated Selling Securityholder to believe that on the Effective Date, the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and, on the Effective
Date the Prospectus did not and, on the Closing Date will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject
to the terms and conditions herein set forth, the Company agrees to issue and
sell E shares of the Underwritten Stock to the several Underwriters, each
Selling Securityholder agrees to sell to the several Underwriters the number of
shares of the Underwritten Stock set forth in Schedule II opposite the name of
such Selling Securityholder, and each of the Underwriters agrees to purchase
from the Company and the Selling Securityholders the respective aggregate number
of shares of Underwritten Stock set forth opposite its name in Schedule I. The
price at which such shares of Underwritten Stock shall be sold by the Company
and the Selling Securityholders and purchased by the several Underwriters shall
be $___ per share [IPO price less __% discount]. The obligation of each
Underwriter to the Company and each of the Selling Securityholders shall be to
purchase from the Company and the Selling Securityholders that number of shares
of the Underwritten Stock which represents the same proportion of the total
number of shares of the Underwritten Stock to be sold by each of the Company and
the Selling Securityholders pursuant to this Agreement as the number of shares
of the Underwritten Stock set forth opposite the name of such Underwriter in
Schedule I hereto represents of the total number of shares of the Underwritten
Stock to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
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pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, all or any part of the shares
of the Stock which such defaulting Underwriter or Underwriters agreed to
purchase. If the non-defaulting Underwriters fail so to make such arrangements
with respect to all such shares and portion, the number of shares of the Stock
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis to absorb
the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such shares of the Stock exceeds 10% of the total number of shares of
the Stock which all Underwriters agreed to purchase hereunder. If the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company and the Selling Securityholders shall have the
right, within 24 hours next succeeding the 24-hour period above referred to, to
make arrangements with other underwriters or purchasers satisfactory to you for
purchase of such shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholders shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes in
the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company and the Selling Securityholders shall make arrangements within the 24-
hour periods stated above for the purchase of all the shares of the Stock which
the defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any non-
defaulting Underwriter and without any liability on the part of any non-
defaulting Underwriter to the Company or the Selling Securityholders. Nothing
in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally and
not jointly, up to E shares in the aggregate of the Option Stock from
the Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth (30th) day after the date of this Agreement upon written or facsimile
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of
the Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front
cover page and under the third and last paragraphs under the caption
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Stock filed by the Company (insofar as such
information relates to the Underwriters) constitutes the only information
furnished by the Underwriters to the Company for inclusion in the Registration
Statement, any Preliminary Prospectus, and the Prospectus, and you on behalf of
the respective Underwriters represent and warrant to the Company that the
statements made therein are correct.
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<PAGE>
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 A.M., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of O'Melveny & Myers, LLP, 1999 Avenue of the Stars, Los Angeles,
California, 90067, at 7:00 a.m., San Francisco time, on the fourth business day
after the date of this Agreement, or at such time on such other day, not later
than seven full business days after such fourth business day, as shall be agreed
upon in writing by the Company, the Selling Securityholders and you. The date
and hour of such delivery and payment (which may be postponed as provided in
Section 3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of O'Melveny & Myers, LLP, 1999
Avenue of the Stars, Los Angeles, California, 90067, at 7:00 a.m., San Francisco
time, on the third business day after the exercise of such option or if the
Company and you agree, upon shorter notice on the first Closing Date.
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order, and payment for the Stock purchased from the Selling
Securityholders shall be made to the Custodian, for the account of the Selling
Securityholders, in each case by one or more certified or official bank check or
checks or wire transfers in same day funds. Such payment shall be made upon
delivery of certificates for the Stock to you for the respective accounts of the
several Underwriters against receipt therefor signed by you. Certificates for
the Stock to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least one business day
before the Closing Date, in the case of Underwritten Stock, and at least one
business day prior to the purchase thereof, in the case of the Option Stock.
[insert DTC language].
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Option Stock is purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. Each of the Company and the Selling Securityholders
respectively covenants and agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act or
the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event
of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement, (iii) the institution or
notice of intended institution of any action or proceeding for that purpose,
(iv) the receipt by the Company of any notification with respect to the
suspension of the qualification of the Stock for sale in any jurisdiction, or
(v) the receipt by it of notice of the initiation or threatening of any
proceeding for such purpose. The Company and the Selling Securityholders will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of each
post-effective
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amendment, if any, to the Registration Statement (together with, in each case,
all exhibits thereto unless previously furnished to you) and will also deliver
to you, for distribution to the Underwriters, a sufficient number of
additional conformed copies of each of the foregoing (but without exhibits) so
that one copy of each may be distributed to each Underwriter, (ii) as promptly
as possible deliver to you and send to the several Underwriters, at such
office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the
Prospectus and of any amended prospectus, filed by the Company with the
Commission, as you may reasonably request for the purposes contemplated by the
Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in
writing by you, shall occur as a result of which it is necessary, in the
opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus so that the Prospectus as so supplemented or amended will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the Stock
by the Underwriters and during such period, the Underwriters shall propose to
vary the terms of offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company
or of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus
or any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in
the qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, in keeping such qualifications in good standing under said securities
or blue sky laws, except that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general service of process in any jurisdiction in which it is not
otherwise required. In each jurisdiction in which the Stock is qualified as
provided above, the Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to continue
such qualifications in effect for so long a period as you may reasonably
request for distribution of the Stock.
(g) During a period of three years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders
of the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company and the Selling Securityholders agree to pay all
costs and expenses incident to the performance of their obligations under this
Agreement, including all costs and expenses incident to (i) the preparation,
printing and filing with the Commission and the National Association of
Securities Dealers, Inc. ("NASD") of the Registration Statement, any
Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
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Underwriters of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished,
(iii) the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6,
(v) the furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees. The
Selling Securityholders will pay underwriting discounts and commissions with
respect to the Stock to be sold by them (and the provisions of this section
shall not supersede or otherwise affect any agreement that the Company and the
Selling Securityholders may otherwise have for allocation of expenses among
themselves), and any transfer taxes incident to the transfer to the
Underwriters of the shares of the Stock being sold by the Selling
Securityholders. Except as provided for in Sections 6(i), 6(j) and 7, the
Underwriters shall pay all their own expenses, including the fees and
disbursements of their counsel and the Underwriter's travel, lodging and
entertainment expenses.
(j) The Company and the Selling Securityholders agree to reimburse
you, for the account of the several Underwriters, for blue sky fees and
related disbursements (including counsel fees and disbursements and cost of
printing memoranda for the Underwriters) paid by or for the account of the
Underwriters or their counsel in qualifying the Stock under state securities
or blue sky laws and in the review of the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Securityholders hereby agree to pay
and shall not affect any agreement which the Company and the Selling
Securityholders may make, or may have made, for the sharing of any such
expenses and costs.
(l) The Company and each of the Selling Securityholders hereby
agree that, without the prior written consent of Hambrecht & Quist LLC on
behalf of the Underwriters, the Company or such Selling Securityholder, as the
case may be, will not, for a period of 180 days following the effective date
of the Registration Statement, directly or indirectly, (i) sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock. The foregoing sentence shall not
apply to (A) the Stock to be sold to the Underwriters pursuant to this
Agreement, (B) shares of Common Stock issued by the Company upon the exercise
of options granted under the stock option plans of the Company (the "Option
Plans") or otherwise authorized by the Board, all as described in footnote (E)
to the table under the caption "Capitalization" in the Preliminary Prospectus,
(C) options to purchase Common Stock granted under the Option Plans, (D)
transfers to one or more charitable organizations, or a trust, partnership,
corporation, limited liability company or similar entity, the sole beneficiary
or owner of which is exclusively such Selling Securityholder, a member or
members of such Selling Securityholder's immediate family, and/or a charitable
organization, provided however, that prior to any such transfer each
transferee shall agree to be bound by the terms of this provision, and [(E) in
the case of the Company, issuances of securities in connection with
acquisitions so long as the entity receiving the Company's securities agrees
to be bound by the terms of this provision.]
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding
to or commenting on such rumor, publication or event.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7,
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such
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<PAGE>
indemnified parties or any of them may become subject under the Securities Act,
the Securities Exchange Act of 1934, as amended (herein called the Exchange
Act), or the common law or otherwise, and the Company and the Selling
Securityholders jointly and severally agree to reimburse each such Underwriter
and controlling person for any legal or other expenses ([including,] except as
otherwise hereinafter provided, [reasonable fees and disbursements of counsel])
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement), or 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
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company and the
Selling Securityholders contained in this paragraph (a) shall not apply to any
such losses, claims, damages, liabilities or expenses if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Securityholder shall only be liable under this paragraph with respect to (A)
information pertaining to such Selling Securityholder furnished by or on behalf
of such Selling Securityholder expressly for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto or (B) facts that would constitute a breach of any
representation or warranty of such Selling Securityholder set forth in Section
2(b) hereof. The indemnity agreements of the Company and the Selling
Securityholders contained in this paragraph (a) and the representations and
warranties of the Company and the Selling Securityholders contained in Section 2
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders and each person who
controls the Selling Securityholders from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Securities Act, the Exchange
Act, or the common law or otherwise and to reimburse each of them for any legal
or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or 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 (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with
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<PAGE>
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of such indemnifying Underwriter for use in the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its
own expense to participate in the defense of any action, suit or proceeding
against, or investigation or inquiry of, an indemnified party. Any indemnifying
party shall be entitled, if it so elects within a reasonable time after receipt
of the Notice by giving written notice (herein called the Notice of Defense) to
the indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense of such indemnified party or parties to
the extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel, at their own
expense, chosen by such indemnified party or parties participate in, but not
conduct, the defense. If, within a reasonable time after receipt of the Notice,
an indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized in writing
to be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set
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<PAGE>
forth in the table on the cover page of the Prospectus, bear to the aggregate
public offering price of the Stock. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d) to the extent such expenses would
have been payable pursuant to Section 7(c) if it had been applicable.
Notwithstanding the provisions of this paragraph (d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Stock purchased by such Underwriter. 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. The Underwriters' obligations in
this paragraph (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) No indemnifying party will, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any person who controls such indemnified party within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such indemnified
party and each such controlling person from all liability arising out of such
claim, action, suit or proceeding.
(f) The liability of each Selling Securityholder under the indemnity
and reimbursement agreements contained in the provisions of this Section 7 and
Section 11 hereof shall be limited to an amount equal to the initial public
offering price of the stock sold by such Selling Securityholder to the
Underwriters. The Company and the Selling Securityholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible. The liability of each Underwriter under the indemnity,
reimbursement and contribution provisions of this Section 7 shall be limited to
an amount equal to the underwriting discount applicable to the Stock purchased
by such Underwriter.
8. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, or The
Nasdaq Stock Market, or limitations on prices (other than limitations on hours
or numbers of days of trading) for securities on either such exchange or system,
(iv) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of, or commencement of any proceeding
or investigation by, any court, legislative body, agency or other governmental
authority which in the Underwriters' reasonable opinion materially and adversely
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<PAGE>
affects or will materially or adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by either federal or New York
State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
the Underwriters' reasonable opinion has a material adverse effect on the
securities markets in the United States. If this Agreement shall be terminated
pursuant to this Section 8, there shall be no liability of the Company or the
Selling Securityholders to the Underwriters and no liability of the Underwriters
to the Company or the Selling Securityholders; provided, however, that in the
event of any such termination the Company and the Selling Securityholders agree
to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, referred to in paragraphs (i) and (j) of
Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Stock shall be subject to
the performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior
to the Closing Date by Brobeck, Phleger & Harrison LLP, counsel for the
Underwriters.
(c) You shall have received from O'Melveny & Meyers LLP, counsel for
the Company and from Olsson, Frank & Weeda, P.C., regulatory counsel for the
Company, opinions, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A and Annex B hereto, respectively,
and if Option Stock is purchased at any date after the Closing Date,
additional opinions from each such counsel, addressed to the Underwriters and
dated such later date, confirming that the statements expressed as of the
Closing Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that the representations and warranties
of the Company herein are true and correct in all material respects as of the
Closing Date or any later date on which Option Stock is to be purchased, as
the case may be.
(e) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing Date
or such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers of
said certificate have carefully examined the Registration Statement in the
form in which it originally became effective and the Prospectus contained
therein and any supplements or amendments thereto, and that the statements
included in clauses (i) through (vii) of paragraph (d) of this Section 9 are
true and correct.
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<PAGE>
(f) You shall have received from Arthur Andersen LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the meaning
of the Securities Act and the applicable published rules and regulations
thereunder and based upon the procedures described in their letter delivered
to you concurrently with the execution of this Agreement (herein called the
Original Letter), but carried out to a date not more than three business days
prior to the Closing Date or such later date on which Option Stock is
purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company which, in your sole judgment, makes it impractical or inadvisable
to proceed with the public offering of the Stock or the purchase of the Option
Stock as contemplated by the Prospectus.
(g) You shall have received from Arthur Andersen, LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's financial statements as at December 31,
1997, did not disclose any weakness in internal controls that they considered
to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by
the Company shall have been duly approved for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from
substantially all Securityholders, agreements, in form reasonably satisfactory
to Hambrecht & Quist LLC, stating that without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, such person or entity
will not, for a period of 180 days following the effective date of the
Registration Statement, directly or indirectly, (i) sell, offer, contract to
sell, transfer the economic risk of ownership in, make any short sale, pledge,
or otherwise dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock, except for the Stock to be sold hereunder
and securities transferred to one or more charitable organizations, or a
trust, partnership, corporation, limited liability company or similar entity,
the sole beneficiary or owner of which is such securityholder, a member or
members of such securityholder's immediate family, and/or a charitable
organization, provided however that prior to any such transfer each transferee
agrees to be bound by the terms of this provision.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if you or Brobeck, Phleger & Harrison LLP, counsel for
the Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the
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<PAGE>
transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall
not be fulfilled, this Agreement may be terminated by the Company and the
Selling Securityholders by giving notice to you. Any such termination shall be
without liability of the Company and the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that in the event of any such
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
held by final and unappealable judgment to be improper, the persons receiving
such payments shall promptly refund them and (ii) such persons shall provide to
the Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by facsimile and, if to the
Underwriters, shall be mailed, faxed or delivered to Hambrecht & Quist LLC, One
Bush Street, San Francisco, California 94104; and if to the Company, shall be
mailed, telegraphed or delivered to it at its office, 1015 Mark Avenue,
Carpinteria, California 93013, Attention: James A. Wolfe; and if to the Selling
Securityholders, shall be mailed, faxed or delivered to the Selling
Securityholders in care of Joseph Skenderian, at Skenderian, Niles & Associates,
1187 Coast Village Road, Suite 1187, Santa Barbara, CA 93108. All notices given
by facsimile shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the Stock under this
Agreement; provided, however, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall
be of no further force or effect.
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.
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This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California.
Please sign and return to the Company and to the Selling
Securityholders in care of the Company the enclosed duplicates of this letter,
whereupon this letter will become a binding agreement among the Company, the
Selling Securityholders and the several Underwriters in accordance with its
terms.
Very truly yours,
BALANCE BAR COMPANY
By ____________________________________
James A. Wolfe
President and Chief Executive Officer
SELLING SECURITYHOLDERS:
Listed on Schedule II
By ____________________________________
Thomas J. Flahie
By ____________________________________
Richard G. Lamb
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
ADAMS, HARKNESS & HILL, INC.
By Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
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SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ -----------
Hambrecht & Quist LLC ......................................
Adams, Harkness & Hill, Inc. ...............................
............................................................
----
Total....................................................... E
=========
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SCHEDULE II
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
OF SELLING SECURITYHOLDERS TO BE SOLD
- -------------------------- ----------
<S> <C>
Richard G. Lamb........................................................... 171,308
Barry D. Goss............................................................. 70,759
Tucker Anthony, Inc....................................................... 109,493
Jennifer Fisher Barner.................................................... 10,063
Brian Bayly............................................................... 43,016
Susan Bayly............................................................... 9,995
Susan Block............................................................... 15,845
Donald L. Breidenbach, Sr................................................. 42,827
Donald E. Breidenbach, Jr................................................. 83,796
Gene & Joyce Daoust....................................................... 10,467
Lana R. Danta............................................................. 5,139
John D. Deardourff........................................................ 85,654
John D. Douglas........................................................... 8,565
John D. Douglas Trust..................................................... 8,565
Giles B. Gunn............................................................. 10,706
Charles B. Gunn........................................................... 10,706
John W. Heron............................................................. 139,189
PZL Limited............................................................... 34,261
Graham Major.............................................................. 427
Jackie Mauro.............................................................. 4,655
R. Bruce McFadden......................................................... 37,233
John E. Montgomery........................................................ 32,120
John S. Nadolski.......................................................... 55,864
Trustees for Bernard Nash................................................. 10,706
Nicole J. Nash............................................................ 7,066
Paul M.Nash............................................................... 4,496
J. Michael Nolan, Jr...................................................... 111,728
Danny Robertson........................................................... 42,827
Roy Family Trust.......................................................... 47,109
Michael Sanchez........................................................... 42,827
Michael B. Shor........................................................... 34,261
Joseph R.Skenderian....................................................... 9,301
Robert E. Warfield........................................................ 42,827
John & Brenda Yeaton...................................................... 42,827
------
Total 1,396,628
============
</TABLE>
-20-
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF O'MELVENY & MYERS LLP
COUNSEL FOR THE COMPANY
(SUBJECT TO REASONABLE ASSUMPTIONS AND QUALIFICATIONS)
(a) The Company has been duly incorporated and is validly existing
and in good standing under the laws of its state of incorporation, with
corporate power to own its properties and assets and to carry on its business
as described in the Registration Statement.
(b) The outstanding shares of capital stock of the Company have been
duly authorized by all necessary corporate action on the part of the Company
and are validly issued, fully paid and non-assessable.
(c) The Shares have been duly authorized by all necessary corporate
action on the part of the Company and, upon payment for and delivery of the
Company Shares in accordance with the Agreement and the countersigning of the
certificate or certificates representing the Company Shares by a duly
authorized signatory of the registrar for the Company's Common Stock, the
Shares will be validly issued, fully paid and non-assessable.
(d) Holders of the capital stock of the Company are not entitled to
any preemptive right to subscribe to any additional shares of the Company's
capital stock under the Company's Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws, any Delaware or California
statute or regulation or any of the agreements filed as an Exhibit to the
Registration Statement (the "Filed Agreements").
(e) The execution, delivery and performance of the Agreement have
been duly authorized by all necessary corporate action on the part of the
Company, and the Agreement has been duly executed and delivered by the
Company.
(f) The Registration Statement has been declared effective under the
Act and, to our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued or threatened by the Commission.
(g) No order, consent, permit or approval of any California,
Delaware or federal governmental authority is required on the part of the
Company for the execution and delivery of, and performance of its obligations
under, the Agreement, except such as have been obtained under the Act and such
as may be required under applicable Blue Sky or state securities laws.
(h) The Company's execution and delivery of, and performance of its
obligations under, the Agreement do not and will not (A) violate the Company's
Amended and Restated Certificate of Incorporation or Amended and Restated
Bylaws, (B) violate, breach, or result in a default under, any existing
obligation of or restriction on the Company under any Filed Agreement, or (C)
breach or otherwise violate any existing obligation of or restriction on the
Company under any order, judgment or decree of any California, Delaware or
federal court or governmental authority binding on the Company and which has
been identified by the Company on a certificate provided to us. The execution
and delivery by the Company, and performance of its obligations under, the
Agreement do not violate any California, Delaware or federal statute or
regulation that we have, in the exercise of customary professional diligence,
recognized as applicable to the Company or to transactions of the type
contemplated by the Agreement, except that we express no opinion regarding any
federal securities laws or Blue Sky or state securities laws except as
otherwise expressly stated herein.
(i) We do not know of any legal or governmental proceeding pending
or threatened to which the Company is a party or to which any of their
respective property is subject which is required to be described in the
Registration Statement or the Prospectus and is not so described or of any
contract or other document of a character required to be filed therein which
is not filed therein as required.
(j) The statements in the Prospectus under the captions "Certain
Transactions", and "Description of Capital
-21-
<PAGE>
Stock" in the Prospectus insofar as such statements summarize the Restated
Certificate of Incorporation and Amended and Restated Bylaws or the provisions
of any statute or regulation referred to therein fairly present the
information required by Form S-1. [Olsson, Frank & Weeda to give opinion on
"Government Regulation"]
(k) The Registration Statement, on the date it was filed, appeared
on its face to comply in all material respects with the requirements as to
form for registration statements on Form S-1 under the Act and the related
rules and regulations in effect at the date of filing, except that we express
no opinion concerning the financial statements and other financial information
contained therein.
(l) Assuming due execution and delivery by the Selling Stockholders,
the Power of Attorney of each Selling Stockholder has been duly executed and
delivered by such Selling Stockholder and constitutes the legally valid and
binding obligation of such Selling Stockholder enforceable against such
Selling Stockholder in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally (including without limitation,
fraudulent conveyance laws) and by general principles of equity, including
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing and the possible unavailability of specific performance or
injunctive relief, regardless of whether considered in a proceeding in equity
or at law.
(m) The Agreement and the Custody Agreement have been duly executed
and delivered on behalf of each Selling Stockholder pursuant to the Power of
Attorney, and the Custody Agreement constitutes the legally valid and binding
obligation of such Selling Stockholder enforceable against such Selling
Stockholder in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally (including without limitation,
fraudulent conveyance laws) and by general principles of equity, including
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing and the possible unavailability of specific performance or
injunctive relief, regardless of whether considered in a proceeding in equity
or at law.
(n) Upon payment for and delivery of the Stockholder Shares in
accordance with the Agreement, assuming the Underwriters are acquiring them in
good faith without notice of any adverse claim, the Underwriters will acquire
the Stock to be sold be each Selling Stockholder free and clear of any adverse
claim.
(o) No order, consent, permit or approval of any California,
Delaware or federal governmental authority that we have, in the exercise of
customary professional diligence, recognized as applicable to transactions of
the type contemplated by the Agreement, is required on the part of the Selling
Stockholders for the execution and delivery of, and performance of their
respective obligations under, the Agreement, except such as have been obtained
under the Act and such as may be required under applicable Blue Sky or state
securities laws.
In connection with our participation in conferences in connection with
the preparation of the Registration Statement and the Prospectus, we have not
independently verified the accuracy, completeness or fairness of the statements
contained therein, and the limitations inherent in the examination made by us
and the knowledge available to us are such that we are unable to assume, and we
do not assume, any responsibility for such accuracy, completeness or fairness,
except as otherwise specifically stated in paragraph (x) above. However, on the
basis of our review of the Registration Statement and the Prospectus and our
participation in conferences in connection with the preparation of the
Registration Statement and the Prospectus, and relying as to materiality to an
extent upon opinions of the Selling Stockholders and their representatives and
of officers and other representatives of the Company, we do not believe that the
Registration Statement, considered as a whole as of the effective date of the
Registration Statement, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and we do not believe that the
Prospectus, considered as a whole on the date hereof, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. However, we express no opinion or belief as to the
financial statements and other financial information contained in the
Registration Statement or the Prospectus.
-22-
<PAGE>
ANNEX B
MATTERS TO BE COVERED IN THE OPINIONS OF OLSSON, FRANK & WEEDA, P.C.
AND HALL, DICKLER, KENT, FRIEDMAN & WOOD, LLP REGULATORY COUNSEL FOR THE COMPANY
(SUBJECT TO REASONABLE ASSUMPTIONS AND QUALIFICATIONS)
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to governmental regulation
and:
(i) The statements in the Registration Statement and the Prospectus under
the captions "Risk Factors-Risks Associated with Advertising", "Risk
Factors-Government Regulation", "Business-Legal Proceedings" and "Business-
Government Regulation", are accurate and complete statements or summaries
of the matters therein set forth and nothing has come to such counsel's
attention that causes such counsel to believe that the above-described
portions of the Registration Statement and the Prospectus 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 light of the circumstances under which they were made, not
misleading;
(ii) to the best of such counsel's knowledge and except as set forth in
the Prospectus under the caption "Risk Factors-Risks Associated with
Advertising", "Risk Factors-Litigation by Competitor", "Risk Factors-
Government Regulation", "Business-Legal Proceedings" and "Business-
Government Regulation" there are no legal or governmental proceedings
pending relating to governmental regulation, and to the best of such
counsel's knowledge no such proceedings are threatened or contemplated by
governmental authorities or others;
(iii) such counsel do not know of any contracts or other documents,
relating to governmental regulation affecting the Company or the Company's
patents, trade secrets, trademarks, service marks or other proprietary
information or materials of a character required to be filed as an exhibit
to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not filed or described as
required;
(iv) such counsel has reviewed the Registration Statement and the
Prospectus, and nothing has come to such counsel's attention that causes
such counsel to believe that, with respect to the Food and Drug
Administration (the "FDA"), the National Advertising Division of the
Council of Better Business Bureaus, Inc. (the "NAD") or any other
governmental regulation matters, the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus, as of
its date or at the Closing Date or Option Closing Date, as the case may be,
included or includes an untrue statement of a material fact or omitted or
omits to state a material fact relating to FDA or NAD matters necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
-23-
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
BALANCE BAR COMPANY,
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
BALANCE BAR COMPANY, a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law") does
hereby certify:
FIRST: That the corporation was originally incorporated as Bio-Engineered
Foods, Inc. on February 14, 1992 pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing to
amend and restate the Certificate of Incorporation of the corporation, declaring
such amendment and restatement to be advisable and in the best interests of the
corporation and its stockholders, and authorizing the appropriate officers of
this corporation to solicit the consent of the stockholders therefor, which
resolution setting forth the proposed amendment and restatement is as follows:
"RESOLVED: That the Certificate of Incorporation of this corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation is BALANCE BAR COMPANY (the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
conduct any lawful business, to promote any lawful purpose, and to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
<PAGE>
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is
24,000,000, par value $0.01 per share, and the number of shares of Preferred
Stock authorized to be issued is 12,000,000, par value $0.01 per share. Upon
the amendment of this Article IV, to read as herein set forth, each outstanding
share of Common Stock is split and converted into six (6) shares of Common Stock
and each outstanding share of Preferred Stock is split and converted into six
(6) shares of Series A Convertible Preferred Stock (as designated below).
The Preferred Stock may be issued from time to time in one or more series,
without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Amended and Restated Certificate
of Incorporation (the "Restated Certificate"), to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or any of them, and to increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
Designation of Series A Convertible Preferred Stock
---------------------------------------------------
All shares of the Corporation's Preferred Stock outstanding on the
date of filing of this Restated Certificate are hereby redesignated as Balance
Bar Company Series A Convertible Preferred Stock ("Series A Convertible
Preferred Stock"). The number of shares constituting Series A Convertible
Preferred Stock, after the split set forth above, shall be 3,806,910. All shares
of Series A Convertible Preferred Stock will be identical and will entitle the
holders thereof to the same rights and privileges. The Series A Convertible
Preferred Stock shall have the designations, powers, preferences, rights,
qualifications, limitations or restrictions set forth below.
1. Dividends. The holders of record of Series A Convertible
---------
Preferred Stock shall be entitled to receive dividends, as and if declared by
the Board of Directors, out of any funds legally available for the purpose in
the same amount per share as may be declared by the Board of Directors on shares
of Common Stock. When, and as dividends or other distributions are declared,
whether payable in cash, in property or in shares of stock of the Corporation,
the holders of Series A Convertible
<PAGE>
Preferred Stock shall be entitled to share equally, share for share, in such
dividends or other distributions.
2. Liquidation Rights. In the event of any liquidation, dissolution
------------------
or winding up of the Corporation, the holders of Series A Convertible Preferred
Stock shall be entitled to receive from the assets of the Corporation available
for distribution to stockholders payment in cash of $.3834 per share before any
amount shall be paid or set aside for, or any distribution of assets shall be
made to, the holders of Common Stock or other stock of the Corporation ranking
junior to the Series A Convertible Preferred Stock with respect to liquidations.
If, upon such liquidation, dissolution or winding up, the amounts available for
distribution to the holders of Series A Convertible Preferred Stock shall be
insufficient to permit the payment in full to such holders of the preferential
amounts to which they are entitled, then such amounts shall be paid ratable
among the shares of Series A Convertible Preferred Stock in accordance with the
preferential amounts payable with respect thereto if paid in full.
Neither a consolidation or merger of the Corporation with or into
any other corporation, nor a merger of any other corporation into the
Corporation, nor a reorganization of the Corporation, nor the purchase or
redemption of all or part of the outstanding shares of any class or classes of
the stock of the Corporation, nor a sale or transfer of all or any part of its
assets, shall be considered a liquidation, dissolution or winding up of the
Corporation within the meaning of this subparagraph 2. Any corporation or other
entity that engages in any such consolidation, merger or reorganization with the
Corporation and that is the surviving entity after any such event shall, as a
condition to the Corporation's engaging in such event, be bound by the terms
hereof to the same extent as the Corporation if it were the surviving entity.
3. Conversion of Series A Convertible Preferred Stock. Each record
--------------------------------------------------
holder of Series A Convertible Preferred Stock shall be entitled to convert, at
any time and from time to time, any or all of the shares of Series A Convertible
Preferred Stock held by such holder, into shares of Common Stock. Each share of
Series A Convertible Preferred Stock may be converted into one (1) share of
Common Stock.
4. Voting Rights. The holders of Series A Convertible Preferred
-------------
Stock shall have the same voting rights as holders of the Common Stock of the
Corporation.
5. Conversion Procedures
---------------------
(a). Each conversion of shares of Series A Convertible Preferred
Stock into Common Stock shall be accomplished by the surrender of the
certificate or certificates representing the shares of Series A Convertible
Preferred Stock to be converted (the "Converting Shares"), as the case may be,
at the principal office of the Corporation (or such other office or agency of
the Corporation as the Corporation may designate by written notice to the
holders of Series A Convertible Preferred Stock) at
<PAGE>
any time during its usual business hours, together with written notice by the
holder of such Converting Shares, (i) stating that such holder desires to
convert the Converting Shares, or a specified number of the shares represented
by such certificate or certificates, into the number of shares of Common Stock
specified in such notice (the "Converted Shares") and (ii) giving the name(s)
(with addresses) and denominations in which the certificate(s) evidencing the
Converted Shares shall be issued, and instructions for the delivery thereof.
Subject to any applicable transfer restrictions, upon receipt of such conversion
notice, together with the certificate(s) evidencing the Converting Shares, the
Corporation shall issue and deliver in accordance with such instructions the
certificate(s) evidencing the Converted Shares issuable upon such conversion and
a certificate (which shall contain such legends, if any, as were set forth on
the surrendered certificate(s)) representing any shares that were represented by
the certificate(s) surrendered to the Corporation in connection with such
conversion but that were not Converting Shares and, therefore, were not
converted. Such conversion, to the extent permitted by law, shall be deemed to
have been effected as of the close of business on the date of which such
certificate(s) shall have been received by the Corporation, and at such time the
rights of the holder of such Converting Shares as such holder shall cease, and
the person(s) in whose name or names any certificate(s) evidencing the Converted
Shares are to be issued upon such conversion shall be deemed to have become the
holder(s) of record of the Converted Shares.
(b) Upon the issuance of the Converted Shares in accordance with this
subparagraph 5, such shares shall be deemed to be duly authorized, validly
issued, fully paid and nonassessable.
(c) The Corporation will at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for the purpose of
issue upon conversion of shares of Series A Convertible Preferred Stock such
number of shares of Common Stock as shall be issuable upon the conversion of all
outstanding shares of Series A Convertible Preferred Stock.
(d) Shares of Series A Convertible Preferred Stock that are converted
into shares of Common Stock may not be reissued as Series A Convertible
Preferred Stock, but shall be available for issuance in the event that the Board
of Directors designates any new series of Preferred Stock.
(e) The issuance of certificates evidencing Converted Shares shall be
made without charge to the holders of such shares for any issue tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion; provided, however, the Corporation shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of Converted
Shares.
(f) The Corporation shall issue fractional shares of Common Stock
upon any conversion of shares of Series A Convertible Preferred Stock, but the
<PAGE>
Corporation shall not issue any fractional shares of Common Stock other than
tenths and hundredths. Upon the conversion of any shares of Series A
Convertible Preferred Stock into shares of Common Stock the Corporation shall
issue shares of Common Stock in an amount rounded to the nearest hundredth of a
share, and no consideration shall be paid with respect to the amount eliminated
as a result of such rounding.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in furtherance
and not in limitation of the powers conferred by statute, the Board of Directors
is expressly authorized to make, repeal, alter, amend and rescind any or all of
the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to time
by a resolution duly adopted by the Board of Directors.
The Board of Directors shall be and is divided into three classes, Class I,
Class II and Class III. Such classes shall be as nearly equal in number of
directors as possible. Each director shall serve for a term ending on the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for a
term ending on the annual meeting next following the end of fiscal year 1998,
the directors first elected to Class II shall serve for a term ending on the
second annual meeting next following the end of fiscal year 1999, and the
directors first elected to Class III shall serve for a term ending on the third
annual meeting next following the end of fiscal year 2000. The foregoing
notwithstanding, each director shall serve until his or her successor shall have
been duly elected and qualified, unless he or she shall resign, become
disqualified, disabled or shall otherwise be removed.
At each annual election, directors chosen to succeed those whose terms then
expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term, or his or her prior death,
resignation or removal. If any newly created directorship may, consistent with
the rule that the three classes shall be as nearly equal in number of directors
as possible, be allocated to either class, the Board shall allocate
<PAGE>
it to that of the available class whose term of office is due to expire at the
earliest date following such allocation.
ARTICLE VII
No stockholder entitled to vote at any election of directors shall have the
right to cumulate his or her votes. Elections of directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Restated Certificate, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at an annual or special meeting of the stockholders of the Corporation,
and no action required to be taken or that may be taken at any annual or special
meeting of the stockholders of the Corporation may be taken without a meeting
except by the unanimous written consent of all stockholders entitled to vote on
such action, and the power of stockholders to consent in writing to the taking
of any action by less than unanimous consent of all such stockholders is
specifically denied.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article IX to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article IX
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE X
In addition to any vote of the holders of any class or series of the stock
of this Corporation required by law or by this Restated Certificate, the
affirmative vote of the holders of a majority of the voting power of all of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting
<PAGE>
together as a single class, shall be required to amend or repeal the provisions
of Article I, Article II, and Article III of this Restated Certificate.
Notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Restated Certificate, the affirmative
vote of the holders of at least seventy-five percent (75%) of the voting power
of all of the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal any provision of this
Restated Certificate not specified in the preceding sentence."
THIRD: The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by the corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has signed this Certificate this _____
day of __________, 1998.
--------------------------------
James A. Wolfe, President
ATTEST:
- --------------------------
Richard G. Lamb, Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
BALANCE BAR COMPANY,
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
SECTION 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of directors
shall be held at such time and place, within or without the State of Delaware,
as may be fixed from time to time by the Board of Directors, and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. Annual meetings of stockholders, commencing with the year 1997,
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect by a plurality vote a board of directors, and transact such other
business as may properly be brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the
<PAGE>
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting.
SECTION 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
SECTION 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
SECTION 10. Unless other provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three (3)
years from its date, unless the proxy provides for a longer period.
SECTION 11. At a meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting in a accordance
with the bylaws. To be properly brought before a meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
(i) properly be requested to be brought before the meeting by a stockholder of
record entitled to vote in the election of directors generally, and (ii)
constitute a proper subject to be brought before such meeting. For business to
be properly brought before a meeting of stockholders, any stockholder
<PAGE>
who intends to bring any matter (other than the election of directors) before a
meeting of stockholders and is entitled to vote on such matter must deliver
written notice of such stockholder's intent to bring such matter before the
meeting of stockholders either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the corporation. Such notice must be
received by the Secretary not later than the following dates: (i) with respect
to a meeting of stockholders, 60 days in advance of such meeting if such meeting
is to be held on a day which is within 30 days preceding the anniversary of the
previous year's meeting, or 90 days in advance of such meeting if such meeting
is to be held on or after the anniversary of the previous year's meeting; and
(ii) with respect to any other meeting of stockholders or a special meeting of
stockholders, the close of business on the tenth day following the date of
public disclosure of the date of such meeting. For purposes of this Section 12,
notice shall be deemed to first be given to stockholders when disclosure of such
date if first made in a press release reported by the Dow Jones New Services,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the meeting of stockholders (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the corporation's books, of the stockholder intending to
propose such business, (c) the class and number of shares of capital stock of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. No business shall be
conducted at a meeting of stockholders except in accordance with the procedure
set forth in Section 12 of this Article. The chairman of a meeting may, if the
facts warrant, determine and declare to the meeting that the business was not
properly brought before the meeting and in accordance with the provisions hereof
and, if the chairman should so determine, the chairman may so declare to the
meeting that any such business not properly brought before the meeting shall not
be transacted.
SECTION 12. The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting by the person presiding over the meeting. The Board of
Directors of the corporation may adopt by resolution such rules and regulations
for the conduct of the meeting of stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations as adopted by
the Board of Directors, the chairman of any meeting of stockholders shall have
the right and authority to prescribe such rules, regulations and procedures and
to do all such acts as, in the judgment of such chairman, are appropriate for
the proper conduct of the meeting. Such rules, regulations or procedures,
whether adopted by the Board of Directors or prescribed by the chairman of the
meeting, may include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and procedures or
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
<PAGE>
SECTION 13. Before any meeting of stockholders, the Board of Directors
may appoint any persons other than nominees for office to act as Inspectors of
Election at such meeting or any adjournment thereof. If no Inspectors of
Election are appointed, or if an appointment is vacated by an Inspector who
fails to appear or fails or refuses to act, the Chairman of any such meeting
may, and on the request of any stockholder or his proxy shall, make such
appointment or fill such vacancy at the meeting.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). All directors shall hold
office until the expiration of term for which elected, and until their
respective successors are elected and qualified, except in the case of the
death, resignation or removal of any director. Directors need not be
stockholders.
The business of the corporation shall be managed by or under the direction
of its Board of Directors, which may exercise all such powers of the corporation
and do all such lawful acts and things as are not by statute or by the
certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
SECTION 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute.
SECTION 3. Except for directors elected pursuant to provisions of Section
2 of this Article, only individuals nominated for election to the Board of
Directors pursuant to and in accordance with the provision of this Section 3 may
be elected to and may serve upon the Board of Directors of the corporation.
Nominations for the election of directors may be made by the Board of Directors,
a Committee thereof or by any stockholder entitled to vote in the election of
directors generally. Subject to the foregoing, only a stockholder of record
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at a meeting of stockholders and only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the corporation and has been received
by the Secretary not later than the following dates: (i) with respect to an
election to be held at an annual meeting of stockholders, 60 days in advance of
such meeting if such meeting is to be held on a day which is within 30 days
preceding the anniversary of the previous year's annual meeting, or 90 days in
advance of such meeting if such meeting is to be held on or after the
anniversary of the previous year's annual meeting; and (ii) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders. For purposes of this
Section 15,
<PAGE>
notice shall be deemed to first be given to stockholders when disclosure of such
date is first made in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.
Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of stock of
the corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice.
(c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; and
(d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors.
To be effective, each notice of intent to make a nomination given hereunder
shall be accompanied by the written consent of each nominee to serve as a
director of the corporation if elected.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not properly brought before the
meeting in accordance with the provisions hereof and, if the chairman should so
determine, declare to the meeting that such nomination was not properly brought
before the meeting and shall not be considered.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
SECTION 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be held without
notice at
<PAGE>
such time and at such place as shall from time to time be determined by the
board.
SECTION 7. Special meetings of the Board of Directors may be called by the
president on ten (10) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telephone, telegram or
facsimile; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two (2) directors
unless the board consists of only one director, in which case special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of the sole director.
SECTION 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of incorporation
of these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution passed by a majority
of the whole board, designate one (1) or more committees, each committee to
consist of one (1) or more of the directors of the corporation. The board may
designate one (1) or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or she or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
<PAGE>
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
SECTION 12. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, for cause only, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram, telephone or facsimile.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
<PAGE>
SECTION 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a president, treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more vice-
presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
SECTION 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a treasurer, and a secretary,
and may choose vice presidents, assistant secretaries and assistant treasurers.
SECTION 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
SECTION 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he or she
shall be present. He or she shall have and may exercise such powers as are, from
time to time, assigned to him or her by the Board and as may be provided by law.
SECTION 7. In the absence of the Chairman of the Board, the Vice Chairman
of the Board, if any, shall preside at all meetings of the Board of Directors
and of the stockholders at which he or she shall be present. He or she shall
have and may exercise such powers as are, from time to time, assigned to him or
her by the Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
SECTION 8. The president shall be the chief operating officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
the president shall preside at all meetings of the stockholders and the Board of
Directors; the president shall have general and active management of the
business of the corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect.
SECTION 9. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
<PAGE>
SECTION 10. In the absence of the president or in the event of the
president's inability or refusal to act, the vice-president, if any, (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or president, under whose supervision he or she shall be. The secretary shall
have custody of the corporate seal of the corporation and the secretary, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
SECTION 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
SECTION 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. Unless
otherwise appointed, the chief financial officer shall be the treasurer.
SECTION 14. The treasurer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all of his or her transactions as treasurer and of the financial condition of
the corporation.
SECTION 15. If required by the Board of Directors, the treasurer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the treasurer's office
and for the restoration to the corporation, in case of the treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other
<PAGE>
property of whatever kind in the treasurer's possession or under the treasurer's
control belonging to the corporation.
SECTION 16. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or in the event of the treasurer's inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the Board of Directors, or the president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
such stockholder in the corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
SECTION 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
<PAGE>
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as its shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
<PAGE>
SECTION 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SEAL
SECTION 3. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
SECTION 4. The corporation shall, to the fullest extent authorized under
the laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation, provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 4 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 4 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a civil or
criminal action, suit or proceeding by reason of the fact that he or she is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that such director is not
entitled to be indemnified by the corporation as authorized by relevant sections
of the General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 4 shall be deemed to be a contract
between the
<PAGE>
corporation and each director who serves in such capacity at any time while this
bylaw is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts.
The Board of Directors is authorized to cause the corporation to enter into
indemnification contracts with any director, officer, employee or agent of the
corporation or any person serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
indemnification rights to such person. Such rights may be greater than those
provided in this Section 4.
The Board of Directors in its discretion shall have a power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that such person, their
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 4 of all directors, officers
and employees who are determined by the corporation or otherwise to be or to
have been "fiduciaries" of any employee benefit plan of the corporation that may
exist from time to time, Section 145 of the General Corporation of Law of
Delaware shall, for the purposes of this Section 4, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by stockholders holding at least seventy-five percent (75%) of
the Company's outstanding capital stock ("Amending Stockholders") or by the
Board of Directors, when such power is conferred upon the Board of Directors by
the certificate of incorporation, at any regular meeting of the stockholders or
of the Board of Directors or by the Amending Stockholders at any special meeting
of the stockholders or by the Board of Directors at any special meeting of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new bylaws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
[NUMBER SEAL] [LOGO OF BALANCE BAR COMPANY] [SHARES SEAL]
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 057623 10 0
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE, OF
==============================BALANCE BAR COMPANY===============================
transferable on the books of the Corporation in person or by duly authorized
attorney on surrender of this certificate properly endorsed. This certificate
shall not be valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
[SEAL OF BALANCE BAR COMPANY]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests shall be made to the Corporation's Secretary at the
principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties --------------- ----------------
JT TEN -- as joint tenants with right of survivorship (Cust) (Minor)
and not as tenants in common under Uniform Gifts to Minors
Act
---------------------------------------
(State)
UNIF TRF MIN ACT -- Custodian (until age )
----------- -----------
(Cust)
under Uniform Transfers
----------------------
(Minor)
to Minors Act
-------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
----------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------
X
----------------------------------
X
----------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
----------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ab-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF O'MELVENY & MYERS LLP]
May
7th
1 9 9 8
(310) 553-6700
043,280-1
Balance Bar Company
1015 Mark Avenue
Carpinteria, CA 93013
Dear Ladies and Gentlemen:
Balance Bar Company (the "Company") is registering up to 2,760,000
shares of its Common Stock, par value $0.01 per share, of which 1,003,372 shares
are being sold by the Company (the "Company Shares") and up to 1,756,628 shares
are being sold by certain selling stockholders of the Company (the "Stockholder
Shares," and together with the Company Shares, the "Shares"), under the
Securities Act of 1933, as amended (the "Act"), pursuant to a Registration
Statement on Form S-1 (the "Registration Statement"), filed with the Securities
and Exchange Commission on April 8, 1998. In connection with this transaction,
you have requested our opinion with respect to the matters set forth below.
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of rendering the opinion expressed below.
For the purposes of this opinion, we are assuming that (a) the Amended
and Restated Certificate of Incorporation (the "Certificate of Incorporation"),
effecting a six-for-one stock split that entitles each holder of capital stock
of the Company to receive five additional shares of such capital stock for each
share held (the "Stock Split"), will be filed with the Delaware Secretary of
State before the issuance of shares in connection with the Stock Split (the
"Split Shares"), (b) the conversion of all outstanding shares of the Company's
preferred stock, which is conditioned upon the declaration of the effectiveness
of the Registration Statement, occurs, and (c) the shares of Common Stock
<PAGE>
Page 2 - Balance Bar Company - May 7, 1998
that are to be issued upon conversion of all outstanding shares of the Company's
preferred stock (the "Conversion Shares," and together with the Split Shares and
Company Shares, the "Newly Issued Shares") will be issued in conformity with the
terms of the Company's Restated Certificate of Incorporation.
We are opining herein as to the effect on the subject transaction of
only the General Corporation Law of the State of Delaware and we express no
opinion with respect to the applicability thereto or the effect thereon of any
other laws or as to any matters of municipal law or any other local agencies
within any state.
Subject to the foregoing and in reliance thereon, it is our opinion
that the Shares have been duly authorized by all necessary corporate action on
the part of the Company; upon the issuance and delivery of the Newly Issued
Shares in accordance with such authorization, the payment for the Company Shares
as contemplated in the Registration Statement, the countersigning of the
certificate or certificates representing the Newly Issued Shares by a duly
authorized signatory of the registrar for the Company's Common Stock, and the
transfer of an amount representing the par value of the Split Shares to the
capital account, the Shares will be validly issued, fully paid and non-
assessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and the reference to our firm contained under the heading
"Legal Matters."
Very truly yours,
/s/ O'Melveny & Myers LLP
O'MELVENY & MYERS LLP
<PAGE>
EXHIBIT 10.4
BIO-ENGINEERED FOODS, INC.
--------------------------
1993 STOCK INCENTIVE PLAN
-------------------------
1. PURPOSE.
1.1 Incentive to Employees. This 1993 Stock Incentive Plan (the "Plan") is
----------------------
intended to provide incentive to, and to encourage stock ownership by, selected
employees, officers, directors and consultants of BIO-ENGINEERED FOODS, INC., a
Delaware corporation (the "Company"), any Subsidiary (as defined below) and any
Parent (as defined below), so that such employees, officers, directors and
consultants may acquire a proprietary interest in, or increase their proprietary
interest in, the Company. For the purposes of the Plan, the terms "Subsidiary"
and "Parent" shall mean any present or future corporation which would be a
"subsidiary corporation" or a "parent corporation," respectively, of the
Company, as those terms are defined in Section 424 of the Internal Revenue Code
of 1986, as amended (the "Code").
1.2 Stock Incentive Awards. The Plan provides for the grant of options to
----------------------
purchase shares of the Company's authorized but unissued Common Stock ("Shares")
to selected officers, employees, directors and consultants of the Company
(sometimes collectively referred to herein as "offerees", "grantees" or
"optionees"). Options granted under the Plan may include non-statutory options
and options intended to qualify as "incentive stock options", as that term is
defined in Section 422 of the Code ("incentive stock options").
2. ADMINISTRATION.
2.1 Board of Directors. The Plan shall be administered by the Board of
------------------
Directors of the Company (the "Board") or by a Committee as defined in Section
2.2 below. The interpretation and construction by the Board or the Committee of
any provision of the Plan, or of any agreement or option issued or executed
under or pursuant to the Plan, shall be final and binding upon optionees
hereunder. No member of the Board or the Committee shall be liable for any
action or determination undertaken or made in good faith with respect to the
Plan or any agreement or option issued or executed under or pursuant to the
Plan.
2.2 Committee of the Board. The Board may, in its sole and absolute
----------------------
discretion, delegate any or all of its duties and authority with respect to the
Plan to a committee of at least two (2) Directors of the Company (the
"Committee") to be appointed by and to serve at the pleasure of the Board. No
person eligible to receive options under this Plan shall vote as a member of the
Board or the Committee upon his or her own option award. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board. From
time to time, the Board may increase or decrease
<PAGE>
the size of the Committee, add additional members to, remove members (with or
without cause) from, appoint new members in substitution therefor, and fill
vacancies, however caused, in the Committee. The Committee shall act pursuant to
a vote of the majority of its members, whether present in person or by
telephonic means at a meeting of the Committee, or by the unanimous written
consent of its members, and minutes shall be kept of all of its meetings and
copies thereof shall be provided to the Board. Subject to the limitations
prescribed by the Plan and the Board, the Committee may establish and follow
such rules and regulations for the conduct of its business as it may determine
to be advisable.
2.3 Administrative Powers. Subject to the provisions of the Plan, the
---------------------
Board or the Committee, as the case may be (the "Administrator"), shall have
authority to take the following actions:
(a) to construe and interpret the Plan and apply its provisions;
(b) to promulgate, amend and rescind rules and regulations relating to
the administration of the Plan;
(c) to authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the Plan;
(d) to determine when options are to be granted under the Plan;
(e) from time to time to select those officers, employees, directors
and consultants to whom options shall be granted from among the eligible
officers, employees, directors and consultants (as determined pursuant to
Section 3 below) of the Company, any Subsidiary or Parent;
(f) to determine the number of Shares to be made subject to each
option;
(g) to prescribe the terms and condition of each option, including,
without limitation, the exercise price and medium of payment, to determine
whether such option is to be classified as an incentive stock option or as a
non-statutory stock option, and to specify the provisions of the stock option
agreement relating to such option;
(h) to amend any outstanding stock option agreement for the purpose of
modifying the exercise price as the case may be, subject to applicable legal
restrictions and to the consent of the other party to such agreement;
<PAGE>
(i) to determine the duration and purpose of leaves of absences
which may be granted to employees without constituting termination of their
employment for purposes of the Plan; and
(j) to make any and all other determinations which they
determine to be necessary or advisable for administration of the Plan.
3. ELIGIBILITY.
3.1 General Rule. Any employee, officer, director or consultant of the
------------
Company, any Subsidiary or Parent, shall be eligible to receive options granted
under the Plan and may hold more than one option.
3.2 Limitation with Respect to Incentive Stock Options.
--------------------------------------------------
(a) Limitation to Employees. No incentive stock option shall be
-----------------------
granted under the Plan except to employees (including employees who are
officers) of the Company, any Subsidiary, or any parent.
(b) Limitation on Amount. The aggregate Fair Market Value (determined
--------------------
as of the date of grant) of Shares with respect to which incentive stock options
are exercisable for the first time by any one optionee during any calendar
year (under this Plan and all other stock option plans of the Company) shall not
exceed $100,000.
4. FAIR MARKET VALUE.
For purposes of the Plan, "Fair Market Value" of Shares of Common Stock of
the Company on any date shall mean that amount which the Administrator
determines in good faith to be the amount which a willing buyer would pay to an
equally willing seller to purchase such Shares subject to an option or stock
purchase agreement on such date.
5. THE STOCK.
The stock subject to any option granted under the Plan shall be Shares of
the Company's authorized but unissued Common Stock. Subject to adjustment as set
forth in this Section 5, the total number of Shares which may be issued under
the Plan upon exercise of options or other rights to purchase Shares shall not
exceed 250,000 shares of Common Stock; provided, however, that if (a) any
-------- -------
outstanding option shall for any reason expire or terminate unexercised, or (b)
any
3
<PAGE>
Shares issued under the Plan are repurchased by the Company pursuant to the
terms of the option agreement or stock purchase agreement under which they were
issued, then such Shares shall again be available for issuance under the Plan.
Each time any of the events set forth in Section 6.8(a) or Section 6.8(b) of the
Plan occurs, the number of Shares purchasable under the Plan shall be adjusted
in the same manner as the number of Shares subject to any outstanding option
would be adjusted under the provisions of Section 6.8(c) of the Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
6.1 Option Agreement. Each option granted under the Plan shall be
----------------
evidenced by an option agreement between the optionee and the Company in the
form from time to time adopted by the Administrator and containing such terms
and conditions which the Administrator deems appropriate; provided such terms
and conditions are not inconsistent with the Plan. The provisions of the various
option agreements entered into under the Plan need not be identical.
6.2 Exercise Price. Each option agreement shall state the price at which
--------------
the Shares subject to the option may be purchased (the "Exercise Price"). In the
case of an incentive stock option, the Exercise Price shall not be less than
100% of the Fair Market Value of such Shares on the date the option is granted
(as determined by the Administrator); provided, however, that in the case of an
-------- -------
incentive stock option granted to a "Ten Percent Shareholder" (as defined
below), the Exercise Price shall not be less than 110% of the Fair Market Value
on the date the option is granted (as determined by the Administrator). The
exercise price of a non-statutory option shall be at the price determined by the
Administrator. For purposes of the Plan, "Ten Percent Shareholder" means a
person who, on the date of grant by the Administrator of an option to that
person owns, either directly or through attribution as provided in Section
424(d) of the Code, capital stock of the Company possessing more than 10% of the
total combined voting power of all classes of stock of his or her employer
corporation or of any Parent or Subsidiary.
6.3 Number of Shares. Each option agreement shall state the number of
----------------
Shares which may be purchased upon exercise, and shall specify that the option
is an incentive stock option or a non-statutory stock option.
6.4 Term of Option. Each option agreement shall provide that the option
--------------
shall terminate at the expiration of the earliest of:
(a) that date selected by the Administrator, which shall be not more
than ten (10) years after the date the option is
4
<PAGE>
granted or, in the case of an incentive option granted to a Ten Percent
Shareholder, five (5) years after the date the option is granted;
(b) thirty 30 days (one hundred eighty (180) days in the case of a
non-statutory stock option) after the date of termination of the optionee's
services to or employment with the Company, any Subsidiary or any Parent for any
reason other than those set forth in clauses (c), (d) or (e) below;
(c) one year after the date of termination of the optionee's employment
with the Company, any Subsidiary or any Parent as a result of the permanent and
total disability of the optionee;
(d) one year after the death of the optionee, provided that such death
occurs during the optionee's employment by the Company or within thirty (30)
days after termination of such employment other than for cause; and
(e) in the event that the optionee's employment is terminated (i)
voluntarily by the optionee, or (ii) for cause (of which the Administrator
shall be the sole judge), all of the optionee's unexercised options shall expire
as of the date of termination;
provided, that the option agreement for any option may provide for shorter
- --------
periods in each of the foregoing instances if so determined by the
Administrator. For the purposes of Section 6.4(c), "permanent and total
disability" shall mean a disability of the type defined in Section 22(e)(3) of
the Code. An individual shall not be considered permanently disabled unless he
or she furnishes proof of the existence of such permanent disability in such
form and manner, and at such times, as the Administrator may require.
6.5 Transfer of Option. Each option agreement shall provide that the option
------------------
shall not be transferable by the optionee otherwise than by will or the laws of
descent and distribution.
6.6 Exercise of Option. Each option agreement shall provide that the option
------------------
shall not be exercisable during the lifetime of the optionee by any person other
than the optionee. Except as provided in Section 6.12 hereof, each option
granted pursuant to the Plan shall be exercisable, in whole or in part, no
earlier than one year from the date of grant of the option; provided, however,
that a non-statutory option may, at the discretion of the Administrator, become
exercisable beginning six (6) months after the date of grant. At the discretion
of the Administrator, options may be exercisable in installments at a rate of
not less than 20% per year, in which case such installments (if more than one)
shall (to the extent not exercised) accumulate and be exercisable, in whole
5
<PAGE>
or in part, in any subsequent installment period but in no event later than the
date of the termination of the option.
6.7 Investment Purposes. Unless and until the issuance and sale of the
-------------------
Shares acquired by an optionee pursuant to the exercise of options granted
under the Plan are registered under the Act or any similar subsequent
legislation, each option agreement under the Plan shall provide that the
purchase of Shares pursuant to the option agreement shall be for investment
purposes, and not with a view to resale or distribution other than as permitted
under the Act. Each option agreement shall further provide that no Shares shall
be purchased or sold thereunder unless and until (a) any then applicable
requirements of state or federal laws and regulatory agencies shall have been
fully complied with to the satisfatction of the Company and its counsel, and (b)
if required to do so by the Company, the optionee shall have executed and
delivered to the Company a stock restriction agreement in such form and
containing such provisions as the Administrator may require.
6.8 Stock Splits, Etc. Each option agreement shall provide that,
------------------
subject to any required action by the shareholders of the Company:
(a) If outstanding Shares shall be subdivided into a greater number
of Shares, or a dividend in Shares or other securities of the Company
convertible into or exchangeable for the Shares (in which latter event the
number of Shares issuable upon the conversion or exchange of such securities
shall be deemed to have been distributed) shall be paid in respect of the
Shares, the Exercise Price of any outstanding option in effect immediately
prior to such subdivision or at the record date of such dividend shall,
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend, be proportionately reduced, and conversely, if
the outstanding Shares shall be combined into a small number of Shares, the
Exercise Price of any outstanding option in effect immediately prior to such
combination shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(b) In the event the Company at any time, or from time to time,
shall make or issue, or fix a record date for the determination of holders of
Shares entitled to receive, a dividend or other distribution payable in
securities of the Company other than Shares or securities convertible into or
exchangeable for Shares then and in each such event, provision shall be made so
that the holders of options shall receive upon exercise thereof, in addition to
the number of Shares receivable thereupon, the amount of securities of the
Company which they would have received had their option been exercised on the
date of such event and had thereafter, during the period from the date of such
event to and including the date of exercise, retained such securities receivable
6
<PAGE>
by them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 6.8 with respect to the rights
of the holders of options.
(c) When any adjustment is required to be made in the Exercise Price,
the number of Shares purchasable upon the exercise of any outstanding option
shall be adjusted to that number of Shares determined by (i) multiplying an
amount equal to the number of Shares purchasable upon the exercise of the option
immediately prior to such adjustment by the Exercise Price in effect immediately
prior to such adjustment, and then (ii) dividing that product by the Exercise
Price in effect immediately after such adjustment.
(d) In the case of any capital reorganization, any reclassification
of the Shares (other than a change in par value or recapitalization described in
Section 6.8(a) or 6.8(b) hereof), or the consolidation of the Company with, or a
sale of substantially all of the assets of the Company to (which sale is
followed by a liquidation or dissolution of the Company), or the merger of the
Company with another person, except as provided in Section 6.12 hereof, the
holder of any outstanding option shall thereafter be entitled upon exercise of
the option to purchase the kind and number of Shares or other securities or
property of the surviving corporation receivable upon such event by a holder of
the number of Shares which such option entitles the holder to purchase from the
Company immediately prior to such event. In every such case, appropriate
adjustment shall be made in the application of the provisions set forth in the
option agreement and in the Plan with respect to the rights and interests
thereafter of the optionee, to the end that the provisions set forth in the
option agreement and in the Plan (including the specified changes and other
adjustments to the Exercise Price) shall thereafter be applicable in relation to
any Shares or other securities or property thereafter purchasable upon exercise
of such option.
(e) A dissolution or liquidation of the Company shall cause each
outstanding option to terminate; provided that each optionee shall have the
--------
right exercisable during a 10-day period ending on the fifth day prior to such
dissolution or liquidation to exercise his or her option in whole or in part,
without regard to any installment provisions under his or her option agreement;
but any exercise of the option which except for the provisions of this Section
6.8(e) would not then be exercisable, shall be conditioned upon the actual
occurrence of such dissolution or liquidation, and if such dissolution or
liquidation does not occur, the optionee's exercise of the option during such
10-day period shall be null and void, and of no force and effect. For purposes
of this Section 6.8(e) and subject to the previous sentence, any exercise of the
option by the optionee pursuant to this Section 6.8(e) shall be
7
<PAGE>
deemed to occur immediately prior to the consummation of any such dissolution or
liquidation.
(f) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Administrator,
whose determination in that respect shall be final, binding and conclusive.
(g) Except as expressly provided in this Section 6.8 or in Section
6.12, no optionee shall have any rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class, and the dissolution, liquidation, merger, consolidation or split-up
or sale of assets or stock to another corporation, or any issue by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or Exercise Price for, the shares.
(h) The grant of an option pursuant to the Plan shall not affect in
any way the rights or power of the Company to make adjustments,
reclassification, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
6.9 Rights as a Shareholder. Each option agreement shall provide that
-----------------------
no optionee or transferee of an option shall have any rights as a shareholder
with respect to any of the Shares subject to the option until the date of
issuance of a stock certificate for such Shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distribution or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 6.8
above.
6.10 Restrictions on Transfers of Shares. Each option agreement may
-----------------------------------
contain such restrictions on transfer of Shares obtained pursuant to the
exercise of options as the Administrator may determine including without
limitation, rights of repurchase and rights of refusal.
6.11 Modification, Extension, and Renewal of Option. Subject to the terms
----------------------------------------------
and conditions and within the limitations of the Plan and the Code, the
Administrator may modify (including a modification of the Exercise Price) extend
or renew outstanding options granted under the Plan, or accept the surrender of
outstanding options (to the extent not previously exercised) and authorize the
granting of new options in substitution therefor (to the extent not previously
exercised). However, no modification of
8
<PAGE>
an option shall be made without the consent of the optionee which would alter or
impair any rights of the optionee under the option.
6.12 Acceleration.
------------
(a) A "Change in Control" for purposes of this Plan shall mean (i) a
single entity or group of affiliated entities acquires more than 50% of the
stock of the Company issued and outstanding immediately prior to such
acquisition; or (ii) shareholders approve the consummation of any merger of the
Company or any sale or other disposition of all or substantially all of its
assets, if the shareholders of the Company immediately before such transaction
own, immediately after consummation of such transaction, equity securities
(other than options and other rights to acquire equity securities) possessing
less than 50% of the voting power of the surviving or acquiring corporation.
(b) If a Change in Control has occurred or if the Board of Directors
determines in good faith that a Change in Control is about to occur, the Board
of Directors may determine that it is necessary or desirable to accelerate the
options granted hereunder. Upon such determination, all outstanding options will
be immediately exercisable by the holder of the option for the total remaining
number of Shares covered by the option. Such option may then be exercised by its
respective holder at any time within a period of 30 calendar days following the
date on which the Board of Directors determines that it is necessary or
desirable to accelerate the options.
(c) Any options subject to acceleration under this Section that are
not exercised during the period of 30 days provided in subsection (b) above
shall be treated as if no Change in Control had occurred and shall be governed
by their original terms. Nevertheless, by a notice to that effect which is
communicated in any reasonable manner to as many of the holders of options as is
feasible and which is communicated before the last day of the 30 day period
created by subsection (b) above, the Board of Directors may provide that any
options accelerated pursuant to this Section 6.12 shall expire at midnight upon
the last day of the 30 day period provided by subsection (b).
7. PAYMENT FOR SHARES.
7.1 General Rule. The Exercise Price for any Shares purchased under the
------------
Plan shall be payable in cash, by check or, at the discretion of the
Administrator, with Shares which are already owned by the optionee and which are
surrendered to the Company in good form for transfer. Such Shares shall be
valued at their Fair Market Value on the date when the new Shares are purchased
under the Plan.
9
<PAGE>
7.2 Promissory Note. The Administrator in its sole discretion may specify
---------------
in any option agreement entered into hereunder that payment may be made with a
full recourse promissory note executed by the optionee or offeree. Such note
shall bear interest at the rate specified in the option agreement for a term of
no more than five years with interest only payable during the term. Subject to
the foregoing, the Administrator in its sole discretion shall specify the term,
interest rate and other provisions of the note. The Administrator may require
that the offeree or optionee pledge his Shares to the Company for the purpose of
securing payment for the note, and the Administrator may require that the
certificate(s) representing such Shares be held by the Company as a security
holder in order to perfect the Company's security interest.
7.3 Withholding.
-----------
(a) Generally. Notwithstanding the provisions of Sections 7.1 and
---------
7.2 hereof, whenever under any agreement evidencing options, shares or any
monetary amount are issued to any grantee, the Company shall be entitled to
require as a condition of delivery that the grantee agree to remit, at the time
of such delivery or at such later date as the Company may determine, an amount
sufficient to satisfy all federal, state and local withholding tax requirements
relating thereto.
(b) Withholding of Shares. With the consent of the Administrator,
---------------------
and in accordance with any rules and procedures from time to time adopted by the
Administrator, a grantee may elect to satisfy by (i) directing the Company to
withhold a portion of the Shares otherwise deliverable or (ii) tendering to the
Company other Shares which are already owned by such grantee or purchaser,
which, in all cases, have a Fair Market Value on the date as of which the amount
of tax to be withhold is determined (the "Tax Date") equal to the amount of tax
to be paid with respect to such Shares.
(c) Form of Election. Any election made pursuant to Paragraph 7.3(b)
----------------
above must:
(i) be made in writing on or prior to the Tax Date and specify
whether all or a stated percentage of the applicable taxes will be paid with
Shares and whether the amounts so paid shall be made in accordance with the
"flat" withholding rates for supplemental wages or as determined in accordance
with the grantee's Form W-4 (or comparable state or local forms);
(ii) be irrevocable once made; and
(iii) conform in all respects to all rules and procedures from
time to time adopted by the Administrator and be subject to rejection by the
Administrator for any reason.
10
<PAGE>
8. TERM OF THE PLAN.
Unless sooner terminated by the Board in its sole discretion, the Plan
shall expire on June 16, 2003.
9. AMENDMENTS TO THE PLAN.
The Plan may be amended from time to time by the Board; provided that any
--------
amendment which (a) increases the number of Shares which may be issued under the
Plan, (b) materially increases the benefits accruing to persons eligible to
purchase Shares under the Plan or (c) materially modifies the requirements for
eligibility for purchasing Shares under the Plan, shall not become effective
unless and until approved by the shareholders of the Company.
The Company intends that the Plan shall comply with the requirements of
Section 422 of the Code with respect to incentive stock options issued under the
Plan. Should any provisions of the Plan not be necessary to comply with the Code
requirements or should any additional provisions be necessary for the Plan to
comply with the Code requirements, the Board may amend the Plan to add or modify
the provisions of the Plan accordingly without the necessity of shareholder
approval.
10. EFFECTIVE DATE; SHAREHOLDER APPROVAL.
This Plan shall be effective as of the date it has been adopted by the
Board of Directors of the Company; however, no Shares may be sold under the Plan
unless and until shareholder approval of the Plan shall have been obtained.
Options may be granted prior to obtaining shareholder approval; provided that
--------
each option agreement shall provide that the option may not be exercised unless
such approval is obtained prior to June 16, 1994.
11. ASSUMPTION.
The terms and conditions of any outstanding options granted pursuant to
this Plan shall be assumed by, be binding upon and inure to the benefit of any
successor corporation to the Company and shall continue to be governed by, to
the extent applicable, the terms and conditions of the Plan.
11
<PAGE>
EXHIBIT 10.6
BALANCE BAR COMPANY
-------------------
1998 PERFORMANCE AWARD PLAN
---------------------------
1. THE PLAN
--------
1.1 Purpose. The purpose of this Plan is to promote the success of the Company
-------
and the interests of its stockholders by attracting, motivating, retaining
and rewarding directors, officers, employees and other eligible persons
with awards and incentives for high levels of individual performance and
improved financial performance of the Company; to attract, motivate and
retain experienced and knowledgeable independent directors through the
benefits provided under Section 8; and to further align their respective
interests with those of stockholders generally through awards of stock-
based incentives. Capitalized terms are defined in Section 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
-----------------------------------------------------
1.2.1 COMMITTEE. This Plan will be administered by the Committee. All
---------
Awards to Eligible Persons will be authorized by the Committee except that
all Awards to Non-Employee Directors must be approved or ratified by the
Board. All Awards to Other Eligible Persons will be subject to approval by
the Committee and ratification by the Board, unless the Board expressly (by
resolution or amendment to this Plan) provides otherwise. Action of the
Committee with respect to the administration of this Plan will be taken
pursuant to a majority vote or by written consent of its members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
------------------------------------------------
express provisions of this Plan, and any express limitations on the
delegated authority of a Committee, the Committee will have the
authority to:
(a) determine eligibility and the particular Eligible Persons who
will receive Awards;
(b) grant Awards to Eligible Persons, determine the effective date
of grant (which may be a date after but not before the
Committee's authorization of the Award), determine the price at
which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such
Awards consistent with the express limits of this Plan, and
establish the installments
1
<PAGE>
(if any) in which such Awards will become exercisable or will
vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion of
such Awards;
(c) approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
(d) construe and interpret this Plan and any agreements defining the
rights and obligations of the Company and Eligible Persons under
this Plan, further define the terms used in this Plan, and
prescribe, amend and rescind rules and regulations relating to
the administration of this Plan;
(e) cancel, modify, or waive the Company's rights with respect to, or
modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Persons, subject to any required consent
under Section 6.6;
(f) accelerate or extend the exercisability or extend the term of any
or all such outstanding Awards within the limitations under
Section 1.6; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for
the administration of this Plan and the effectuation of its
purposes.
Notwithstanding the foregoing, the provisions of Section 8 relating to Non-
Employee Director Awards will be automatic and, to the maximum extent possible,
self-effectuating. To the extent required, any interpretation or administration
of this Plan in respect of Awards under Section 8 shall be the responsibility of
the Board.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of, the
----------------------
Company, the Board or the Committee relating or pursuant to this
Plan will be within the absolute discretion of that entity or body
and will be conclusive and binding upon all persons. No member of
the Board or Committee, or any officer of the Company, will be
liable for any action or inaction of the entity or body, of another
person or of the member or officer, except in circumstances
involving his or her bad faith. Subject only to compliance with the
express provisions hereof, the Board and Committee may act in their
absolute discretion in matters within their authority related to
this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking or
-------------------
not taking any action under this Plan, the Committee or the Board,
as the
2
<PAGE>
case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Company. No director, officer
or agent of the Company will be liable for any such action or
determination taken or made or omitted in good faith.
1.2.5 DELEGATION. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or employees
of the Company.
1.3 PARTICIPATION. Discretionary Awards may be granted by the Committee only
-------------
to those persons that the Committee determines to be Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise eligible,
be granted additional Awards if the Committee so determines.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
-----------------------------------------
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 6.2, the
----------------
capital stock that may be delivered under this Plan will be shares
of the Company's authorized but unissued Common Stock and any shares
of its Common Stock held as treasury shares. The shares may be
delivered for any lawful consideration.
1.4.2 SHARE LIMITS. The maximum number of shares of Common Stock that may
------------
be delivered pursuant to Awards granted to Eligible Persons under
this Plan will not exceed 300,000 shares (the "SHARE LIMIT"). The
number of shares subject to Awards outstanding at any time will not
exceed the number of shares remaining available for issuance under
the Plan. The maximum number of shares subject to those options and
Stock Appreciation Rights that are granted during any calendar year
to any one individual will be limited to 25,000, and the maximum
individual limit on the number of shares in the aggregate subject to
all Awards that during any calendar year are granted under this Plan
to any one individual will be 25,000. The maximum individual limit
for any Non-Employee Director, including any Option granted or to be
granted (assuming continued eligibility during the year of grant)
pursuant to Section 8 of this Plan, will be 4,000 during any
calendar year. Each of the foregoing numerical limits will be
subject to adjustment as contemplated by this Section 1.4 and
Section 6.2.
1.4.3 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED AWARDS. No
---------------------------------------------------------------
Award may be granted under this Plan unless, on the date of grant,
the sum of (a) the maximum number of shares issuable at any time
pursuant to such Award, plus (b) the number of shares that have
previously been issued pursuant to Awards granted under this Plan,
other than reacquired shares available for reissue consistent with
any applicable legal limitations, plus (c) the maximum number of
shares that may be issued
3
<PAGE>
at any time after such date of grant pursuant to Awards that are
outstanding on such date, does not exceed the Share Limit. Shares
that are subject to or underlie Awards that expire or for any reason
are cancelled or terminated, are forfeited, fail to vest, or for any
other reason are not paid or delivered under this Plan, as well as
reacquired shares, will again, except to the extent prohibited by law
(including Section 162(m)), be available for subsequent Awards under
the Plan. Except as limited by law (including Section 162(m)), if an
Award is or may be settled only in cash, such Award need not be
counted against any of the limits under this Section 1.4.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan, the
---------------
Committee will determine the number of shares of Common Stock subject to
each Award, the price (if any) to be paid for the shares or the Award and,
in the case of performance share awards, in addition to matters addressed
in Section 1.2.2, the specific objectives, goals and performance criteria
(such as an increase in sales, market value, earnings or book value over a
base period, the years of service before vesting, the relevant job
classification or level of responsibility or other factors) that further
define the terms of the performance share award. Each Award will be
evidenced by an Award Agreement signed by the Company and, if required by
the Committee, by the Participant.
1.6 AWARD PERIOD. Any Option, SAR, warrant or similar right shall expire and
------------
any other Award shall either vest or be forfeited not more than 10 years
after the date of grant; provided, however, that a payment of cash or
delivery of shares pursuant to an Award may be delayed until a future date
under and in accordance with the specific terms of a non-qualified deferred
compensation plan sponsored by the Company.
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
---------------------------------------------
1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise expressly
-----------------------
provides, once exercisable an Award will remain exercisable until
the expiration or earlier termination of the Award.
1.7.2 PROCEDURE. Any exercisable Award will be deemed to be exercised
---------
when the Company receives written notice of such exercise from the
Participant, together with any required payment made in accordance
with Section 2.2.2 or 8.4, as the case may be, and any other
requirements of exercise, including any documents required by
Section 6.4, are satisfied.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests will be
-------------------------------
disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Persons that cash, other
securities, or other property will be paid or transferred in lieu of
any fractional share
4
<PAGE>
interests. No fewer than 100 shares, irrespective of any Adjustments
under Sections 6.2 or 8.6 of this Plan, may be purchased on exercise
of any Award at one time unless the number purchased is the total
number at the time available for purchase under the Award.
1.8 ACCEPTANCE OF PROMISSORY NOTES TO FINANCE EXERCISE. The Company, in its
--------------------------------------------------
sole discretion, may, with the Committee's express approval, accept one or
more promissory notes from any Eligible Person in connection with the
exercise or receipt of any outstanding Award; but any such note will be
subject to at least the following terms and conditions:
1.8.1 PRINCIPAL. The principal of the note will not exceed the amount
---------
required to be paid to the Company upon the exercise or receipt of
one or more Awards under the Plan and the note will be delivered
directly to the Company in consideration of such exercise or
receipt.
1.8.2 TERM. The initial term of the note will be determined by the
----
Committee; but the term of the note, including extensions, will not
exceed a period of five years.
1.8.3 RECOURSE; SECURITY. The note will provide for full recourse to the
------------------
Participant and will bear interest at a rate determined by the
Committee but not less than the interest rate necessary to avoid the
imputation of interest under the Code. If required by the Committee
or by applicable law, the note will be secured by a pledge of any
shares or rights financed thereby in compliance with applicable law.
The terms, repayment provisions, and collateral release provisions
of the note and the pledge securing the note will conform with
applicable rules and regulations of the Federal Reserve Board as
then in effect.
1.8.4 TERMINATION OF EMPLOYMENT. If the employment or service of the
-------------------------
Participant terminates, the unpaid principal balance of the note
will become due and payable no later than the 10th business day
after such termination.
1.8.5 OTHER CONDITIONS. Participants who are not employees or directors
----------------
of the Company will not be entitled to purchase shares of Common
Stock with a promissory note unless the note is adequately secured
by collateral other than the shares of Common Stock. The portion of
the exercise price for (or purchase price of) shares of Common Stock
equal to the par value, if any, of any newly issued shares under
this Plan must be paid in cash, for services rendered or other valid
consideration.
5
<PAGE>
1.9 TRANSFER RESTRICTIONS AND EXCEPTIONS.
------------------------------------
1.9.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly provided
------------------------------
in (or pursuant to) this Section 1.9, by applicable law and by the
Award Agreement, as the same may be amended, (a) all Awards are non-
transferable and will not be subject in any manner to sale,
transfer, anticipation, alienation, assignment, pledge, encumbrance
or charge; (b) Awards may be exercised only by the Participant; and
(c) amounts payable or shares issuable pursuant to an Award will be
delivered only to (or for the account of) the Participant.
1.9.2 EXCEPTIONS. The Committee may permit Awards to be exercised by and
----------
paid only to certain persons or entities related to the Participant
pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer will be subject to the condition
that the Committee receive evidence satisfactory to it that the
transfer is being made to related persons for estate and/or tax
planning purposes and without consideration (other than nominal
consideration). ISOs and Restricted Stock Awards, however, will be
subject to any and all additional transfer restrictions under the
Code.
1.9.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and transfer
----------------------------------------
restrictions in Section 1.9.1 will not apply to:
(a) transfers to the Company,
(b) the designation of a beneficiary to receive benefits if the
Participant dies or, if the Participant has died, transfers to
or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will
or the laws of descent and distribution,
(c) except in the case of ISOs, transfers pursuant to a qualified
domestic relations order,
(d) if the Participant has suffered a disability that renders the
Participant unable to legally act on his or her own behalf,
permitted transfers or exercises on behalf of the Participant
by the Participant's legal representative, or
(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the
purpose of (or who otherwise facilitate) the exercise of Awards
consistent with applicable laws and the express authorization
of the Committee.
6
<PAGE>
1.10 REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS. Subject to
---------------------------------------------------------
Section 1.4 and Section 6.6 and the specific limitations on Awards
contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Person
any adjustment in the exercise or purchase price, the vesting schedule, the
number of shares subject to, the restrictions upon or the term of, an
Option, SAR or other Award granted under this Plan by cancellation of an
outstanding Award and a subsequent regranting of an Award, by amendment, by
substitution of an outstanding Award, by waiver or by other legally valid
means. Such amendment or other action may result among other changes in an
exercise or purchase price that is higher or lower than the exercise, base
or purchase price of the original or prior Award, provide for a greater or
lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
2. OPTIONS
-------
2.1 GRANTS. One or more Options may be granted under this Section to any
------
Eligible Person. Each Option granted will be designated by the Committee,
in the applicable Award Agreement, as either an Incentive Stock Option
(subject to Section 2.3) or a Nonqualified Stock Option.
2.2 OPTION PRICE.
------------
2.2.1 PRICING LIMITS. The purchase price per share of the Common Stock
--------------
covered by each Option will be determined by the Committee at the
time of the Award, but in no event will the purchase price per share
of shares covered by an Incentive Stock Option be less than 100%
(110% in the case of a Participant described in Section 2.4) of the
Fair Market Value of the Common Stock on the date of grant (or date
of amendment in the case of an amendment to the exercise price).
2.2.2 PAYMENT PROVISIONS. The purchase price of any shares purchased on
------------------
exercise of an Option granted under this Section will be paid in
full at the time of each purchase in one or a combination of the
following methods:
(a) in cash or by electronic funds transfer;
(b) by certified or cashier's check payable to the order of the
Company;
(c) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant
consistent with the requirements of Section 1.8 and 6.4;
7
<PAGE>
(d) by notice and third party payment in such manner as may be
authorized by the Committee; or
(e) by the delivery of shares of Common Stock of the Company already
owned by the Participant; provided that the Committee may in its
absolute discretion limit the Participant's ability to exercise
an Award by delivering such shares, and any shares delivered that
were initially acquired from the Company must have been owned by
the Participant at least six months as of the date of delivery.
Shares of Common Stock used to satisfy the exercise price of an
Option will be valued at their Fair Market Value on the date of
exercise.
2.2.3 "CASHLESS EXERCISE" PROVISIONS. Without limiting the generality of
------------------------------
the foregoing, the Committee may provide that the Option can be
exercised and payment made by delivering a properly executed
exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale proceeds
necessary to pay the exercise price and, unless otherwise prohibited
by the Committee or applicable law, any applicable tax withholding
under Section 6.5.
2.2.4 DELIVERY CONDITION. The Company will not be obligated to deliver
------------------
certificates for any shares of Common Stock on exercise of an Option
unless and until it receives full payment of the exercise price and
any related withholding obligations have been satisfied.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
---------------------------------------------------------
2.3.1 $100,000 LIMIT. To the extent that the aggregate Fair Market Value
--------------
of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to Incentive Stock
Options under this Plan and Common Stock subject to incentive stock
options under all other plans of the Company or any other includable
parent or subsidiary corporations (as these terms are used under
Section 422(d) and defined in Section 424(e) and (f) of the Code),
such options will be treated as Nonqualified Stock Options. For this
purpose, the Fair Market Value of the stock subject to options will
be determined as of the date the options were awarded. In reducing
the number of options treated as incentive stock options to meet the
$100,000 limit, the most recently granted options will be reduced
first. To the extent a reduction of simultaneously granted options
is necessary to meet the $100,000 limit, the Committee may, in the
manner and to the extent permitted by law, designate which shares of
Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
8
<PAGE>
2.3.2 OPTION PERIOD. Subject to Section 1.6, each Option and all rights
-------------
thereunder will expire no later than 10 years after the Award Date.
2.3.3 OTHER CODE LIMITS. Incentive Stock Options may only be granted to
-----------------
Eligible Employees of the Company that meet the other eligibility
requirements of the Code. There will be imposed in any Award
Agreement relating to Incentive Stock Options such other terms and
conditions as from time to time are required in order that the
Option be an "incentive stock option" as that term is defined in
Section 422 of the Code.
2.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted to any
---------------------
person who, at the time the Option is granted, owns (or is deemed to own
under Section 424(d) of the Code) shares of outstanding Common Stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the exercise price of such Option is at
least 110% of the Fair Market Value of the stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five
years from the date such Option is granted.
2.5 EFFECTS OF TERMINATION OF EMPLOYMENT/SERVICE; TERMINATION OF SUBSIDIARY
-----------------------------------------------------------------------
STATUS; DISCRETIONARY PROVISIONS.
--------------------------------
2.5.1 OPTIONS - RESIGNATION OR DISMISSAL. Unless the Committee otherwise
----------------------------------
provides, if the Participant's employment by (or other service
specified in the Award Agreement to) the Company terminates for any
reason (the date of such termination being referred to as the
"SEVERANCE DATE") other than Retirement, Total Disability or death,
or a "TERMINATION FOR CAUSE" (as determined in the discretion of the
Committee), the Participant will have, subject to earlier expiration
or termination pursuant to or as contemplated by Section 1.6 or 6.2,
until three (3) months after the Severance Date to exercise any
Option to the extent it has become exercisable on or before the
Severance Date. In the case of a Termination For Cause, the Option
will terminate on the Severance Date. To the extent not exercisable
on the Severance Date, the Option will terminate on the Severance
Date.
2.5.2 OPTIONS - DEATH OR TOTAL DISABILITY. Unless the Committee otherwise
-----------------------------------
provides, if the Participant's employment by (or specified service
to) the Company terminates as a result of Total Disability or death,
the Participant, Participant's Personal Representative or the
Participant's Beneficiary, as the case may be, will have, subject to
earlier expiration or termination pursuant to or as contemplated by
Section 1.6 or 6.2, until twelve (12) months after the Severance
Date to exercise any Option to the extent it has become exercisable
on or prior to the Severance
9
<PAGE>
Date. To the extent not exercisable on the Severance Date, the
Option will terminate on the Severance Date.
2.5.3 OPTIONS - RETIREMENT. Unless the Committee otherwise provides, if
--------------------
the Participant's employment by (or specified service to) the
Company termi nates as a result of Retirement, the Participant,
Participant's Personal Representative or the Participant's
Beneficiary, as the case may be, will have, subject to earlier
termination pursuant to or as contemplated by Section 1.6 or 6.2,
until twelve (12) months after the Severance Date to exercise any
Nonqualified Stock Option (three (3) months after the Severance Date
in the case of an Incentive Stock Option) to the extent it has
become exercisable on or prior to the Severance Date. To the extent
not exercisable on the Severance Date, the Option will terminate on
the Severance Date.
2.5.4 CERTAIN SARS. Any SAR granted concurrently or in tandem with an
------------
Option will have the same post-termination provisions and
exercisability periods as the Option to which it relates, unless the
Committee other wise provides.
2.5.5 COMMITTEE DISCRETION. Notwithstanding the foregoing provisions of
--------------------
this Section 2.5, in the event of, or in anticipation of, a
termination of employment or service with the Company for any
reason, other than Termination For Cause, the Committee may increase
the portion of the Participant's Award available to the Participant,
or Participant's Beneficiary or Personal Representative, as the case
may be, or, subject to the provisions of Section 1.6, extend the
exercisability period, upon such terms as the Committee expressly
approves by resolution or by amendment to the Award Agreement.
3. STOCK APPRECIATION RIGHTS
--------------------------
(INCLUDING LIMITED STOCK APPRECIATION RIGHTS)
---------------------------------------------
3.1 GRANTS. The Committee may grant to any Eligible Person Stock Appreciation
------
Rights either concurrently with the grant of another Award or in respect of
an outstanding Award, in whole or in part, or independently of any other
Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option will contain such terms as may be required to comply
with the provi sions of Section 422 of the Code and the regulations
promulgated thereunder, unless the holder otherwise agrees.
10
<PAGE>
3.2 PRICING LIMITS. The pricing restrictions applicable to Options under
--------------
Section 2.2.1 of this Plan shall apply as well to the base or reference
price of SARs granted under this Plan.
3.3 EXERCISE OF STOCK APPRECIATION RIGHTS.
-------------------------------------
3.3.1 EXERCISABILITY. Unless the Award Agreement or the Committee
--------------
otherwise provides, a Stock Appreciation Right related to another
Award will be exercisable at such time or times, and to the extent,
that the related Award will be exercisable.
3.3.2 EFFECT ON AVAILABLE SHARES. To the extent that a Stock Appreciation
--------------------------
Right is exercised, only the actual number of delivered shares of
Common Stock will be charged against the maximum amount of Common
Stock that may be delivered pursuant to Awards under this Plan. The
number of shares subject to the Stock Appreciation Right and the
related Option of the Participant will, however, be reduced by the
number of underlying shares as to which the exercise related, unless
the Award Agreement otherwise provides.
3.3.3 STAND-ALONE SARS. A Stock Appreciation Right granted independently
----------------
of any other Award will be exercisable pursuant to the terms of the
Award Agreement.
3.3.4 PROPORTIONATE REDUCTION If an SAR extends to less than all the
-----------------------
shares covered by the related Award and if a portion of the related
Award is thereafter exercised, the number of shares subject to the
unexercised SAR shall be reduced only if and to the extent that the
remaining number of shares covered by such related Award is less
than the remaining number of shares subject to such SAR.
3.4 PAYMENT.
-------
3.4.1 AMOUNT. Unless the Committee otherwise provides, upon exercise of a
------
Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant will be
entitled to receive subject to Section 6.5 payment of an amount
determined by multiplying
(a) the difference obtained by subtracting the exercise or base
reference price per share of Common Stock under the related
Award (if applicable) or the initial share value specified
in the Award, from the Fair Market Value of a share of
Common Stock on the date of exercise of the Stock
Appreciation Right, by
11
<PAGE>
(b) the number of shares with respect to which the Stock
Appreciation Right has been exercised.
3.4.2 FORM OF PAYMENT. The Committee, in its sole discretion, will
---------------
determine the form in which payment will be made of the amount
determined under Section 3.4.1 above, either solely in cash, solely
in shares of Common Stock (valued at Fair Market Value on the date
of exercise of the Stock Appreciation Right), or partly in such
shares and partly in cash, provided that the Committee has
determined that such exercise and payment are consistent with
applicable law. If the Committee permits the Participant to elect to
receive cash or shares (or a combination thereof) upon such
exercise, the election will be subject to any further conditions
that the Committee may impose.
3.5 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any Eligible
---------------------------------
Person Stock Appreciation Rights exercisable only upon or in respect of a
change in control or any other specified event ("LIMITED SARS") and such
Limited SARs may relate to or operate in tandem or combination with or
substitution for Options, other SARs or other Awards (or any combination
thereof), and may be payable in cash or shares based on the spread between
the base price of the SAR and a price based upon or equal to the Fair
Market Value of the Shares during a specified period or at a specified time
within a specified period before, after or including the date of such
event.
4. RESTRICTED STOCK AWARDS
-----------------------
4.1 GRANTS. Subject to Section 4.2.4, the Committee may grant one or more
------
Restricted Stock Awards to any Eligible Person. Each Restricted Stock
Award Agreement will specify the number of shares of Common Stock to be
issued to the Participant, the date of such issuance, the consideration for
such shares (but not less than the minimum lawful consideration under
applicable state law) to be paid by the Participant, the extent (if any) to
which and the time (if ever) at which the Participant will be entitled to
dividends, voting and other rights in respect of the shares prior to
vesting, and the restrictions (which may be based on performance criteria,
passage of time or other factors or any combination thereof) imposed on
such shares and the conditions of release or lapse of such restrictions.
Unless the Committee otherwise provides, such restrictions will lapse in
respect of 20% of the shares subject to the Award on the first anniversary
of the Award Date and in respect of an additional 20% of the shares subject
to the Award on the second, third, fourth and fifth anniversaries of the
Award Date. Stock certificates evidencing shares of Restricted Stock
pending the lapse of the restrictions ("RESTRICTED SHARES") will bear a
legend making appropriate reference to the restrictions imposed hereunder
and will be held by the Company or by a third party designated by the
Committee until the restrictions on the shares have lapsed and the shares
have vested in
12
<PAGE>
accordance with the provisions of the Award and Section 1.7. Upon issuance
of the Restricted Stock Award, the Participant may be required to provide
such further assurance and documents as the Committee may require to
enforce the restrictions.
4.2 RESTRICTIONS.
------------
4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1 and 1.9,
----------------------
Restricted Shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until the
restrictions on such shares have lapsed and the shares have become
vested.
4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
--------------------------
applicable Award Agreement;
(a) a Participant receiving a Restricted Stock Award shall be
entitled to vote such shares but shall not be entitled to dividends
on any of the shares until the shares have vested; and
(b) all dividends shall be retained in a restricted account until
the shares have vested and shall revert to the Balance Bar Company
to the extent that they fail to vest.
4.2.3 CASH PAYMENTS. If the Participant has been paid or received cash
-------------
(including any dividends) in connection with the Restricted Stock
Award, the Award Agreement will specify whether and to what extent
such cash will be returned (with or without an earnings factor) as
to any Restricted Shares that cease to be eligible for vesting.
4.2.4 LIMIT ON NUMBER OF RESTRICTED SHARES. In no event shall more than
------------------------------------
75,000 shares of Common Stock be available for Awards issued (or
reissued) under this Plan as time-based Restricted Stock Awards for
nominal or no consideration other than the par value. This limit on
Restricted Shares does not apply to shares issued principally for
past services, to shares issued in respect of compensation earned
but deferred, or to shares issued in respect of Performance-Based
Awards under Section 5.2.
4.3 RETURN TO THE COMPANY. Unless the Committee otherwise expressly provides,
---------------------
Restricted Shares that remain subject to restrictions at the time of
termination of employment or service, or are subject to other conditions to
vesting that have not been satisfied by the time specified in the
applicable Award Agreement, will not vest and will be returned to the
Company in such manner and on such terms as the Committee provides.
13
<PAGE>
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES
------------------------------------------
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may grant Performance
----------------------------------
Share Awards to Eligible Employees based upon such factors as the Committee
deems relevant in light of the specific type and terms of the award. An
Award Agreement will specify the maximum number of shares of Common Stock
(if any) subject to the Performance Share Award, the consideration (but not
less than the minimum lawful consideration) to be paid for any such shares
as may be issuable to the Participant, the duration of the Award and the
conditions upon which delivery of any shares or cash to the Participant
will be based. The amount of cash or shares or other property that may be
deliverable pursuant to such Award will be based upon the degree of
attainment over a specified period of not more than 10 years (a
"PERFORMANCE CYCLE") as may be established by the Committee of such
measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may
provide for full or partial credit, prior to completion of such performance
cycle or the attainment of the performance achievement specified in the
Award, in the event of the Participant's death, Retirement, or Total
Disability, a Change in Control Event or in such other circumstances as the
Committee (consistent with Section 6.10.3(b), if applicable) may determine.
5.2 SPECIAL (SECTION 162(M)) PERFORMANCE-BASED SHARE AWARDS. Options or SAR's
-------------------------------------------------------
granted with an exercise price not less than Fair Market Value at the
applicable date of grant for Section 162(m) purposes to Eligible Employees
which otherwise satisfy the conditions to deductibility under Section
162(m) of the Code are deemed "Qualifying Awards". Without limiting the
generality of the foregoing, and in addition to Qualifying Awards granted
under other provisions of this Plan, other performance-based awards within
the meaning of Section 162(m) of the Code ("PERFORMANCE-BASED AWARDS"),
whether in the form of restricted stock, performance stock, phantom stock
or other rights, the vesting of which depends on the performance of the
Company on a consolidated, segment, subsidiary, or division basis, with
reference to revenue growth, net earnings (before or after taxes or before
or after taxes, interest, depreciation, and/or amortization), cash flow,
return on equity, return on assets or return on net investment, or cost
containment or reduction, or any combination thereof (the "BUSINESS
CRITERIA") relative to preestablished performance goals, may be granted
under this Section 5.2. These terms are used as applied under generally
accepted accounting principles and in the Company's financial reporting.
The applicable business criterion or criteria, the specific performance
goals and, if applicable, the objective formula or standard for computing
the amount payable or the number of shares to be delivered if the
performance goal is (or the performance goals are) attained, must be
approved by the Committee in advance of applicable deadlines under the Code
and while the performance relating to such goals remains substantially
uncertain. The applicable performance measurement period may be not less
than one (except
14
<PAGE>
as provided in Section 1.6) nor more than 10 years. No more than one
performance cycle for awards payable only in cash and not related to
shares, shall begin in any year. Other types of performance and non-
performance awards may also be granted under the other provisions of this
Plan. The following provisions relate to all Performance-Based Awards
(other than Qualifying Awards) granted under this Plan:
5.2.1 ELIGIBLE CLASS. The eligible class of persons for Awards under this
--------------
Section is officers of the Company.
5.2.2 MAXIMUM AWARD. Grants or awards under this Section 5.2 may be paid
-------------
in cash or shares or any combination thereof. In no event shall
grants of share-based Awards made in any calendar year to any
Eligible Employee under this Section 5.2 relate to more than 25,000
shares. In no event shall grants to any Eligible Employee under this
Plan of Awards payable only in cash and not related to shares
provide for payment of more than $500,000, times the number of years
(not more than five), in the applicable performance period.
5.2.3 COMMITTEE CERTIFICATION. To the extent required by Section 162(m),
-----------------------
before any Performance-Based Award under this Section 5.2 is paid,
the Committee must certify that the specific performance goals and
any other material terms of the Performance-Based Award were
satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have discretion
------------------------------
to determine the restrictions or other limitations of the individual
Awards under this Section 5.2 (including the authority to reduce
Awards, payouts or vesting or to pay no Awards, in its sole
discretion, if the Committee preserves such authority at the time of
grant by language to this effect in its authorizing resolutions or
otherwise). Notwithstanding anything contained in this Plan to the
contrary, the Committee shall have no discretion to increase the
amount of cash or number of shares to be delivered upon attainment
of the performance goals set forth in the Performance Award
Agreement.
5.2.6 ADJUSTMENTS FOR MATERIAL CHANGES. Performance goals or other
---------------------------------
features of an Award under this Section 5.2 may provide that they
(a) shall be adjusted to reflect a change in corporate
capitalization, a corporate transaction (such as a reorganization,
combination, separation, or merger) or a complete or partial
corporate liquidation, or (b) shall be calculated either without
regard for or to reflect any change in accounting policies or
practices affecting the Company and/or the business criteria or
performance goals or targets, or (c) shall be adjusted for any other
circumstance or event, or (d) any combination of (a)
15
<PAGE>
through (c), but only to the extent in each case that such adjustment
or determination in respect of Performance-Based Awards would be
consistent with the requirements of Section 162(m) to qualify as
performance-based compensation.
5.3 OTHER STOCK BONUSES. The Committee may grant a Stock Bonus to any Eligible
-------------------
Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the
Committee. The number of shares so awarded will be determined by the
Committee. The Award may be granted independently or in lieu of a cash
bonus and may be paid in the form of Common Stock, Restricted Shares, an
Option, Stock Units (payable in Common Stock or cash) or other Award.
5.4 DEFERRED PAYMENTS. The Committee may provide for the deferral of payment
-----------------
of any Qualifying Award, Performance Share Award or Stock Bonus under and
in accordance with the specific terms of a non-qualified deferred
compensation plan sponsored by the Company, provided that in the case of
Qualifying Awards and Performance-Based Awards, the amount deferred shall
be credited with earnings or dividend equivalents in accordance with
Section 162(m).
5.5 CASH BONUSES. The Committee may establish a program of annual incentive
------------
awards that are payable in cash to Eligible Persons based upon the extent
to which performance goals are met during the performance period. The
performance goals may depend upon the performance of the Company on a
consolidated, subsidiary or division basis with reference to revenues, net
earnings (before or after interest, taxes, depreciation, or amortization),
cash flow, return on equity or on assets or net investment, cost
containment or reduction, or achievement of strategic goals (or any
combination of such factors). In addition, the award may depend upon the
Eligible Employee's individual performance.
5.6 ALTERNATIVE PAYMENTS. In lieu of a cash payment of an Award payable in
--------------------
cash, the Committee may require or allow all or a portion of the Award to
be paid or credited in the form of shares of Common Stock, Restricted
Shares, Stock Units, an Option or other Award.
6. OTHER PROVISIONS
----------------
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
----------------------------------------------------------
6.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
-----------------
construed as a commitment that any Award will be made under this
Plan to an Eligible Person or to Eligible Persons generally.
16
<PAGE>
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in any
----------------------
other documents related to this Plan or to any Award) will confer
upon any Eligible Person or other Participant any right to continue
in the employ or other service of the Company or constitute any
contract or agreement of employment or other service, nor will
interfere in any way with the right of the Company to otherwise
change such person's compensation or other benefits or to terminate
the employment or other service of such person, with or without
cause, but nothing contained in this Plan or any related document
will adversely affect any independent contractual right of such
person without the Participant's consent.
6.1.3 PLAN NOT FUNDED. Awards payable under this Plan will be payable in
---------------
shares or from the general assets of the Company, and (except as
provided in Section 1.4.3) no special or separate reserve, fund or
deposit will be made to assure payment of such Awards. No
Participant, Beneficiary or other person will have any right, title
or interest in any fund or in any specific asset (including shares
of Common Stock, except as expressly otherwise provided) of the
Company by reason of any Award hereunder. Neither the provisions of
this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan will create, or be construed to create, a
trust of any kind or a fiduciary relationship between the Company
and any Participant, Beneficiary or other person. To the extent that
a Participant, Beneficiary or other person acquires a right to
receive payment pursuant to any Award hereunder, such right will be
no greater than the right of any unsecured general creditor of the
Company.
6.2 ADJUSTMENTS; ACCELERATION.
-------------------------
6.2.1 ADJUSTMENTS. Upon or in contemplation of any reclassification,
-----------
recapitalization, stock split (including a stock split in the form
of a stock dividend) or reverse stock split; any merger,
combination, consolidation, or other reorganization; any spin-off,
split-up, or similar extraordinary dividend distribution ("spin-
off") in respect of the Common Stock (whether in the form of
securities or property); any exchange of Common Stock or other
securities of the Company, or any similar, unusual or extraordinary
corporate transaction in respect of the Common Stock; or a sale of
all or substantially all the assets of the Company as an entirety
("asset sale"); then the Committee shall, in such manner, to such
extent (if any) and at such time as it deems appropriate and
equitable in the circumstances:
(a) in any of such events, proportionately adjust any or all of (1)
the number and type of shares of Common Stock (or other securities)
that thereafter may be made the subject of Awards (including the
specific
17
<PAGE>
maxima and numbers of shares set forth elsewhere in this Plan), (2)
the number, amount and type of shares of Common Stock (or other
securities or property) subject to any or all outstanding Awards,
(3) the grant, purchase, or exercise price of any or all outstanding
Awards, (4) the securities, cash or other property deliverable upon
exercise of any outstanding Awards, or (5) (subject to limitations
under Section 6.10.3(b)) the performance standards appropriate to
any outstanding Awards, or
(b) in the case of a reclassification, recapitalization, merger,
consolidation, combination, or other reorganization, spin off or
asset sale, make provision for a cash payment or for the
substitution or exchange of any or all outstanding share-based
Awards or the cash, securities or property deliverable to the holder
of any or all outstanding share-based Awards, based upon the
distribution or consideration payable to holders of the Common Stock
upon or in respect of such event.
In each case, with respect to Awards of Incentive Stock Options, no
adjustment will be made that would cause the Plan to violate Section
424(a) of the Code or any successor provisions without the written
consent of holders materially adversely affected thereby.
In any of such events, the Committee may take such action prior to
such event to the extent that the Committee deems the action
necessary to permit the Participant to realize the benefits intended
to be conveyed with respect to the underlying shares in the same
manner as is or will be available to stockholders generally.
6.2.2 ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Unless prior to a
---------------------------------------------
Change in Control Event the Committee determines that, upon its
occurrence, benefits under any or all Awards will not be accelerated
or determines that only certain or limited benefits under any or all
Awards will be accelerated and the extent to which they will be
accelerated, and/or establishes a different time in respect of such
Event for such acceleration, then upon the occurrence of a Change in
Control Event:
(a) each Option and Stock Appreciation Right will become
immediately exercisable,
(b) Restricted Stock will immediately vest free of restrictions,
and
(c) each Performance Share Award will become payable to the
Participant.
18
<PAGE>
Any discretion with respect to these events shall be limited to the
extent required by applicable accounting requirements in the case of
a transaction intended to be accounted for as a pooling of interests
transaction.
The Committee may override the limitations on acceleration in this
Section 6.2.2 by express provision in the Award Agreement and may
accord any Eligible Person a right to refuse any acceleration,
whether pursuant to the Award Agreement or otherwise, in such
circumstances as the Committee may approve. Any acceleration of
Awards will comply with applicable legal requirements and, if
necessary to accomplish the purposes of the acceleration or if the
circumstances require, may be deemed by the Committee to occur
(subject to Section 6.2.4) a limited period of time not greater than
30 days before the event.
6.2.3 POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option or
------------------------------------------------
other right to acquire Common Stock under this Plan has been fully
accelerated as required or permitted by Section 6.2.2 but is not
exercised prior to (a) a dissolution of the Company, or (b) an event
described in Section 6.2.1 that the Company does not survive, or (c)
the consummation of an event described in Section 6.1 involving a
Change of Control approved by the Board, such Option or right will
terminate, subject to any provision that has been expressly made by
the Board, the Committee through a plan of reorganization approved
by the Board or otherwise for the survival, substitution,
assumption, exchange or other settlement of such Option or right.
6.2.4 POSSIBLE RECISION OF ACCELERATION. If the vesting of an Award has
----------------------------------
been accelerated expressly in anticipation of an event or subject to
stockholder approval of an event and the Committee or the Board
later determines that the event will not occur, the Committee may
rescind the effect of the acceleration as to any then outstanding
and unexercised or otherwise unvested Awards.
6.2.5 ACCELERATION UPON TERMINATION OF SERVICE IN ANTICIPATION OF, OR
---------------------------------------------------------------
FOLLOWING A CHANGE IN CONTROL. Unless the Committee otherwise
-----------------------------
provides prior to a Change in Control, if any Participant's
employment is terminated by the Company for any reason other than
For Cause either in express anticipation of and within three months
of, or within one year after a Change of Control, then all
Options/Awards held by the Participant shall be deemed fully vested
immediately prior to the date of termination, irrespective of the
vesting provisions of the Participant's Award Agreement.
19
<PAGE>
6.3 EFFECT OF TERMINATION OF SERVICE ON AWARDS. The Committee will establish
------------------------------------------
the effect of a termination of employment or service on the rights and
benefits for each Award under this Plan and in so doing may make
distinctions based upon the cause of termination.
6.3.1 TERMINATION OF CONSULTING OR AFFILIATE SERVICES. If the Participant
-----------------------------------------------
is not an Eligible Employee or director and provides services as an
Other Eligible Person,the Committee shall be the sole judge of
whether the Participant continues to render services to the Company,
unless a contract or the Award otherwise provides. If in these
circumstances the Committee notifies the Participant in writing that
a termination of services of the Participant for purposes of this
Plan has occurred, then (unless the contract or Award otherwise
expressly provides), the Participant's termination of services for
purposes of Section 2.6, 3, 4.3 or 5 shall be the date which is 10
days after the Committee's mailing of the notice or, in the case of
a Termination For Cause, the date of the mailing of the notice.
6.3.2 EVENTS NOT DEEMED TERMINATIONS OF SERVICE. Unless Company policy or
-----------------------------------------
the Committee otherwise provides, the employment or service
relationship shall not be considered terminated in the case of (i)
sick leave, (ii) military leave, or (iii) any other leave of absence
authorized by the Company or the Committee; provided that unless
reemployment upon the expiration of such leave is guaranteed by
contract or law, such leave is for a period of not more than 90
days. In the case of any Eligible Employee on an approved leave of
absence, continued vesting of the Award while on leave from the
employ of the Company shall be suspended, unless the Committee
otherwise provides or applicable law otherwise requires. In no event
shall an Award be exercised after the expiration of the term set
forth in the Award Agreement.
6.3.3 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan
-------------------------------------
and any Award, if an entity ceases to be a Subsidiary a termination
of employment or service will be deemed to have occurred with
respect to each Eligible Person in respect of the Subsidiary who
does not continue as an Eligible Person in respect of another entity
within the Company.
6.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards under
--------------------
this Plan, the offer, issuance and delivery of shares of Common Stock, the
acceptance of promissory notes and/or the payment of money under this Plan
or under Awards are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to state and
federal securities law, federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the opinion
of counsel for the Company, be necessary or advisable in connection
therewith. In
20
<PAGE>
addition, any securities delivered under this Plan may be subject to any
special restrictions that the Committee may require to preserve a pooling
of interests under generally accepted accounting principles. The person
acquiring any securities under this Plan will, if requested by the Company,
provide such assurances and representations to the Company as the Committee
may deem necessary or desirable to assure compliance with all applicable
legal and accounting requirements.
6.5 TAX MATTERS.
-----------
6.5.1 PROVISION FOR TAX WITHHOLDING OR OFFSET. Upon any exercise,
---------------------------------------
vesting, or payment of any Award or upon the disposition of shares
of Common Stock acquired pursuant to the exercise of an Incentive
Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, the Company shall have the
right at its option to (a) require the Participant (or Personal
Representative or Beneficiary, as the case may be) to pay or provide
for payment of the amount of any taxes which the Company may be
required to withhold with respect to such Award event or payment or
(b) deduct from any amount payable in cash the amount of any taxes
which the Company may be required to withhold with respect to such
cash payment. In any case where a tax is required to be withheld in
connection with the delivery of shares of Common Stock under this
Plan, the Committee may in its sole discretion (subject to Section
6.4) grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject
to such conditions as the Committee may establish, to have the
Company reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of shares valued at their Fair
Market Value, to satisfy such withholding obligation, determined in
each case as of the trading day next preceding the applicable date
of exercise, vesting or payment.
6.5.2 TAX LOANS. If so provided in the Award Agreement, the Company may,
---------
to the extent permitted by law, authorize a short-term loan of not
more than nine (9) months to an Eligible Person in the amount of any
taxes that the Company may be required to withhold with respect to
shares of Common Stock received (or disposed of, as the case may be)
pursuant to a transaction described in Section 6.5.1. Such a loan
will be for a term, at a rate of interest and pursuant to such other
terms and conditions as the Committee, under applicable law, may
establish and such loan need not comply with the other provisions of
Section 1.8.
21
<PAGE>
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
------------------------------------------
6.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate or, from
-------------------
time to time, amend, modify or suspend this Plan, in whole or in
part. No Awards may be granted during any suspension of this Plan or
after termination of this Plan, but the Committee will retain
jurisdiction as to Awards then outstanding in accordance with the
terms of this Plan.
6.6.2 STOCKHOLDER APPROVAL. To the extent then required under Sections
--------------------
162, 422 and 424 of the Code or any other applicable law, or deemed
necessary or advisable by the Board, any amendment to this Plan
shall be subject to stockholder approval.
6.6.3 AMENDMENTS TO AWARDS. Without limiting any other express authority
--------------------
of the Committee under (but subject to) the express limits of this
Plan, the Committee by agreement or resolution may waive conditions
of or limitations on Awards to Participants that the Committee in
the prior exercise of its discretion has imposed, without the
consent of a Participant, and may make other changes to the terms
and conditions of Awards that do not affect in any manner materially
adverse to the Participant, the Participant's rights and benefits
under an Award.
6.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
--------------------------------------------
suspension or termination of this Plan or change of or affecting any
outstanding Award will, without written consent of the Participant,
affect in any manner materially adverse to the Participant any
rights or benefits of the Participant or obligations of the Company
under any Award granted under this Plan prior to the effective date
of such change. Changes contemplated by Section 6.2 will not be
deemed to constitute changes or amendments for purposes of this
Section 6.6.
6.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly authorized by
-----------------------------
the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not actually
delivered to and held of record by the Participant. No adjustment will be
made for dividends or other rights as a stockholder for which a record date
is prior to such date of delivery.
6.8 EFFECTIVE DATE OF THE PLAN. This Plan is effective as of April 7, 1998,
--------------------------
the date of approval by the Board. The Plan shall be submitted for and
subject to stockholder approval.
6.9 TERM OF THE PLAN. No Award will be granted under this Plan after April 6,
----------------
2008 (the "TERMINATION DATE"). Unless otherwise expressly provided in this
Plan or in an applicable Award Agreement, any Award granted prior to the
termination
22
<PAGE>
date may extend beyond such date, and all authority of the Committee with
respect to Awards hereunder, including the authority to amend an Award,
will continue during any suspension of this Plan and in respect of Awards
outstanding on the termination date.
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
---------------------------------------
6.10.1 CHOICE OF LAW. This Plan, the Awards, all documents evidencing
-------------
Awards and all other related documents will be governed by, and
construed in accordance with the laws of the State of Delaware.
6.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
------------
provision invalid and unenforceable, the remaining provisions of
this Plan will continue in effect.
6.10.3 PLAN CONSTRUCTION.
-----------------
(A) RULE 16B-3. It is the intent of the Company that the Awards and
----------
transactions permitted by Awards generally satisfy and be
interpreted in a manner that, in the case of Participants who
are or may be subject to Section 16 of the Exchange Act,
satisfies the applicable requirements of Rule 16b-3 so that
such persons (unless they otherwise agree) will be entitled to
the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Exchange Act in respect of those transactions
and will not be subjected to avoidable liability.
(B) SECTION 162(M). It is the further intent of the Company that
--------------
(to the extent the Company or Awards under this Plan may be or
become subject to limitations on deductibility under Section
162(m) of the Code), the Initial Options and Options or SARs
subsequently granted with an exercise or base price not less
than Fair Market Value on the date of grant and Performance-
Based Awards under Section 5.2 of this Plan that are granted to
or held by a person subject to Section 162(m) of the Code will
qualify as performance-based compensation or otherwise be
exempt from deductibility limitations under Section 162(m) of
the Code, to the extent that the Committee authorizing the
Award (or the payment thereof, as the case may be) satisfies
any applicable administrative requirements thereof. This Plan
will be interpreted consistent with such intent.
6.11 CAPTIONS. Captions and headings are given to the sections and subsections
--------
of this Plan solely as a convenience to facilitate reference. Such
headings will not
23
<PAGE>
be deemed in any way material or relevant to the construction or
interpretation of this Plan or any provision thereof.
6.12 STOCK-BASED AWARDS IN SUBSTITUTION FOR STOCK OPTIONS OR AWARDS GRANTED BY
-------------------------------------------------------------------------
OTHER CORPORATIONS. Awards may be granted to Eligible Persons under this
------------------
Plan in substitution for employee stock options, SARs, restricted stock or
other stock-based awards granted by other entities to persons who are or
who will become Eligible Persons in respect of the Company, in connection
with a distribution, merger or reorganization by or with the granting
entity or an affiliated entity, or the acquisition by the Company, directly
or indirectly, of all or a substantial part of the stock or assets of the
employing entity.
6.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be deemed to
-----------------------
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.
7. DEFINITIONS
-----------
"AWARD" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination thereof,
whether alternative or cumulative, authorized by and granted under this Plan.
"AWARD AGREEMENT" means any writing setting forth the terms of an Award that has
been authorized by the Committee.
"AWARD DATE" means the date upon which the Committee took the action granting an
Award or such later date as the Committee designates as the grant or award date
at the time of the Award or, in the case of Awards under Section 8, the
applicable dates set forth therein.
"AWARD PERIOD" means the period beginning on an Award Date and ending on the
expiration date of such Award.
"BALANCE BAR COMPANY" means Balance Bar Company, a Delaware corporation, and its
successors (if any).
"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant or, in the absence of a designation, entitled by will or the laws of
descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
24
<PAGE>
"BOARD" means the Board of Directors of Balance Bar Company.
"CHANGE IN CONTROL EVENT" means any of the following:
(a) An acquisition by any Person (excluding one or more Excluded Persons)
of beneficial ownership (within the meaning of Rule 13d 3 under
Exchange Act or a pecuniary interest in (either comprising "ownership
---------
of") more than 50% of the Common Stock or voting securities entitled
--
to then vote generally in the election of directors of Balance Bar
Company ("Voting Stock"), after giving effect to any new issue in the
------ -----
case of an acquisition from Balance Bar Company; or
(b) Approval by the stockholders of Balance Bar Company of a plan of
merger, consolidation, or reorganization of Balance Bar Company or
for sale or other disposition of all or substantially all of Balance
Bar Company's consolidated assets as an entirety (collectively, a
"Business Combination"), other than a Business Combination (1) in
---------------------
which all or substantially all of the holders of Voting Stock hold or
receive directly or indirectly 50% or more of the voting stock of the
entity resulting from the Business Combination (or a parent company),
and (2) after which no Person (other than any one or more of the
Excluded Persons) owns more than 50% of the voting stock of the
resulting entity (or a parent company) who did not own directly or
indirectly at least that amount of Voting Stock immediately before
the Business Combination, and (3) after which one or more Excluded
Persons own an aggregate number of shares of the voting stock at
least equal to the aggregate number of shares of voting stock owned
by any other Person who is not an Excluded Person (except for any
person described in and satisfying the conditions of Rule 13d-1(b)(1)
under the Exchange Act), if any, and who owns more than 30% of the
voting stock.
(c) Approval by the Board and (if required by law) by stockholders of
Balance Bar Company of a plan to consummate the dissolution or
complete liquidation of Balance Bar Company; or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board and any new director
(other than a director designated by a person who has entered into an
agreement or arrangement with Balance Bar Company to effect a
transaction described in clause (a) or (b) of this definition) whose
appointment, election, or nomination for election was approved by a
vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose appointment, election or nomination for election was previously
so approved, cease for any reason to constitute a majority of the
Board;
25
<PAGE>
For purposes of determining whether a Change in Control Event has occurred, a
transaction includes all transactions in a series of related transactions.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the Board or a committee appointed by the Board to administer
this Plan, provided that any committee shall be comprised only of two or more
directors subject to the following restrictions:
(a) In respect of any decision of the Committee made at a time when the
Participant affected by the decision may be subject to Section 162(m)
of the Code, and the Awards subject to such decision are intended to
satisfy the requirements for exemption therefrom, the decision shall
be approved by a committee comprised of "outside directors" (as this
term is defined in Section 162(m)) to the extent required by Section
162(m).
(b) In respect of any decision of the Committee made at a time when the
Participant affected by the decision may be subject to Section 16(b)
of the Exchange Act, and the Awards subject to such decision are
intended to satisfy the requirements for exemption therefrom, the
decision shall be approved by the Board or by a committee comprised
of Non-Employee Directors (as this term is as defined in Rule 16(b)-3
of the Exchange Act) to the extent required by Rule 16(b)-3.
"COMMON STOCK" means the Common Stock of Balance Bar Company and such other
securities or property as may become the subject of Awards, or become subject to
Awards, pursuant to an adjustment made under Section 6.2 of this Plan.
"COMPANY" means Balance Bar Company, a Delaware corporation, its successors,
and/or its Subsidiaries, as the context requires, provided that with respect to
the Common Stock, or the grant, exercise, or disposition of an Award or the
provisions of Sections 1.8, 5.2.1, 6.2.1, 6.2.3, 6.4 and 6.10, Company means
only Balance Bar Company.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or employee of
the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible Person, as
determined by the Committee.
26
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time
to time.
"EXCLUDED PERSON" means
(a) the Company
(b) any person described in and satisfying the conditions of Rule 13d-
1(b)(1) under the Exchange Act);
(c) any employee benefit plan of the Balance Bar Group;
(d) Thomas R. Davidson, James A. Wolfe or Richard G. Lamb; or
(e) any affiliates (within the meaning of the Exchange Act), successors,
or heirs, descendants or members of the immediate families of the
individuals identified in part (d) of this definition.
"FAIR MARKET VALUE" on any date means
(a) if the stock is listed or admitted to trade on a national securities
exchange, the closing price of the stock on the Composite Tape of the
principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading
of the stock on such date, then the closing price of the stock as
quoted on such Composite Tape on the next preceding date on which
there was trading in such shares;
(b) if the stock is not listed or admitted to trade on a national
securities exchange, the closing price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc.
("NASD") through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such
information;
(c) if the stock is not listed or admitted to trade on a national
securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for the
stock on such date, as furnished by the NASD or a similar
organization; or
(d) if the stock is not listed or admitted to trade on a national
securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by
the NASD or
27
<PAGE>
a similar organization, the value as established by the Committee at
such time for purposes of this Plan.
Notwithstanding the foregoing, the Fair Market Value of the Common Stock for
purposes of determining the exercise price of the Initial Options granted to
employees under this Plan will be deemed to be the initial price at which the
Common Stock is offered to the public in the IPO.
"INCENTIVE STOCK OPTION" or "ISO" means an Option that is designated and
intended as an incentive stock option within the meaning of Section 422 of the
Code, the award of that contains such provisions (including but not limited to
the receipt of stockholder approval of this Plan, if the award is made prior to
such approval) and is made under such circumstances and to such persons as may
be necessary to comply with that section.
"INITIAL OPTIONS" means Options granted during or at the completion of an IPO.
"IPO" means a bona fide, firm commitment underwritten public offering of the
Common Stock pursuant to a registration statement on Form S-1 (or other
applicable form) that is declared effective under the Securities Act that
results in Balance Bar Company becoming a registered company in respect of the
Common Stock under the Exchange Act.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a Nonqualified
Stock Option and will include any Option intended as an Incentive Stock Option
that fails to meet the applicable legal requirements thereof. Any Option
granted hereunder that is not designated as an incentive stock option will be
deemed to be designated a nonqualified stock option under this Plan and not an
incentive stock option under the Code.
"NON-EMPLOYEE DIRECTOR" for purposes of Section 8 means a member of the Board of
Directors of Balance Bar Company who is not an officer or employee of the
Company or any 50% or greater parent corporation.
"NON-EMPLOYEE DIRECTOR PARTICIPANT" means a Non-Employee Director who holds an
outstanding Award under the provisions of Section 8.
"OPTION" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
"OTHER ELIGIBLE PERSON" means (a) any director, or (b) any individual consultant
or advisor or agent who renders or has rendered bona fide services (other than
---- ----
services in connection with the offering or sale of securities of the Company in
a capital raising transaction) to the Company, and who (to the extent provided
in the next sentence)
28
<PAGE>
is selected to participate in this Plan by the Committee. A person who is
neither an employee nor officer who provides bona fide services to the Company
---- ----
may be selected as an Other Eligible Person only if such person's participation
in this Plan would not adversely affect (a) Balance Bar Company's eligibility to
use Form S-8 to register under the Securities Act of 1933, as amended, the
offering and sale of shares issuable under this Plan by Balance Bar Company or
(b) Balance Bar Company's compliance with any other applicable laws.
"PERFORMANCE SHARE AWARD" means an Award of a right to receive shares of Common
Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of that
is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"PERSON" means an association, a corporation, an individual, a partnership, a
trust or any other entity or organization, including a governmental entity and a
"person" as that term is used under Section 13(d) or 14(d) of the Exchange Act.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the disability
or legal incompetence of a Participant, has acquired on behalf of the
Participant, by legal proceeding or otherwise, the power to exercise the rights
or receive benefits under this Plan by virtue of having become the legal
representative of the Participant.
"PLAN" means this 1998 Performance Award Plan, as may be amended from time to
time.
"RESTRICTED SHARES" or "RESTRICTED STOCK" means shares of Common Stock awarded
to a Participant under this Plan, subject to payment of such consideration, if
any, and such conditions on vesting (which may include, among others, the
passage of time, specified performance objectives or other factors) and such
transfer and other restrictions as are established in or pursuant to this Plan
and the related Award Agreement, for so long as such shares remain unvested or
restricted under the terms of the applicable Award Agreement.
"RETIREMENT" means retirement from active service as an employee or officer of
the Company on or after age 55 with 10 or more years of service, or after age
65.
"RULE 16B-3" means Rule 16b-3 as promulgated by the Commission pursuant to the
Exchange Act, as amended from time to time.
"SECTION 16 PERSON" means a person subject to Section 16(a) of the Exchange Act.
"SECTION 162(M)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
29
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time.
"STOCK APPRECIATION RIGHT" OR "SAR" means a right authorized under this Plan to
receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"STOCK BONUS" means an Award of shares of Common Stock granted under this Plan
for no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.
"STOCK UNIT" means a bookkeeping entry which serves as a unit of measurement
relative to a share of Common Stock for purposes of determining the payment of a
deferred benefit or right under the Plan.
"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by Balance Bar Company.
"TERMINATION FOR CAUSE" means (unless otherwise expressly provided in the Award
Agreement or another contract) a termination of service, based upon a finding by
the Company, acting in good faith and based on its reasonable belief at the
time, that the Participant:
(a) is or has been dishonest, incompetent, or negligent in the discharge
of his or her duties to the Company; or has refused to perform stated
or assigned duties; or
(b) has committed a theft or embezzlement, or a breach of confidentiality
or unauthorized disclosure or use of inside information, customer
lists, trade secrets or other confidential information, or a breach
of fiduciary duty involving personal profit, or a willful or
negligent violation of any law, rule or regulation or of Company
rules or policy, in any material respect; or has been convicted of a
felony or misdemeanor (other than minor traffic violations or similar
offenses); or
(c) has materially breached any of the provisions of any agreement with
the Company or a parent corporation; or
(d) has engaged in unfair competition with, or otherwise acted
intentionally in a manner injurious to the reputation, business or
assets of the Company; or has induced a customer to break or
terminate any contract with the Company or an affiliate; or has
induced any principal
30
<PAGE>
for whom the Company (or an affiliate) acts as agent to terminate
such agency relationship.
A Termination For Cause shall be deemed to occur (subject to reinstatement upon
a contrary final determination by the Board or Committee) on the date when the
Company first delivers notice to the Participant of a finding of Termination For
Cause and shall be final in all respects on the date following the opportunity
to be heard and written notice to the Participant that his or her service is
terminated.
"TOTAL DISABILITY" means any medically determinable physical or mental condition
or impairment which prevents the Participant from performing the essential
functions of his or her job with the Company that can be expected to result in
death or that has lasted or can be expected to last for a period of 90
consecutive days or for shorter periods aggregating 180 days in any consecutive
12 month period.
8. NON-EMPLOYEE DIRECTOR OPTIONS
-----------------------------
8.1 PARTICIPATION. Awards under this Section 8 will be made only to Non-
-------------
Employee Directors and will be evidenced by Award Agreements substantially
in the form of EXHIBIT A or the form approved by the Board.
8.2 OPTION GRANTS.
-------------
8.2.1 INITIAL AWARD. Any person who is not an officer or employee of the
-------------
Company and who is or who thereafter becomes a director of Balance
---
Bar Company upon completion of an IPO and the registration of the
Common Stock of Balance Bar Company under the Exchange Act, will
automatically be granted (without any action by the Board or
Committee) a Nonqualified Stock Option (the Award Date of which will
be the tenth (10th) trading day after the date of such registration
or the time such person takes office, as the case may be) to
purchase 1,000 shares of Common Stock.
8.2.2 SUBSEQUENT ANNUAL AWARDS. Subject to Section 8.2.3, at the close of
------------------------
trading on the day of the annual stockholders meeting in each year
during the term of the Plan commencing in 1999, there will be
granted automatically (without any action by the Committee or the
Board) a Nonqualified Stock Option (the Award Date of which will be
such date) to each Non-Employee Director then continuing in office
to purchase 1,000 shares of Common Stock.
8.2.3 MAXIMUM NUMBER OF OPTIONS/SHARES. Annual grants that would
--------------------------------
otherwise exceed the maximum number of shares under Section 1.4.1
will be prorated within such limitation. A Non-Employee Director
will
31
<PAGE>
not receive more than one Nonqualified Stock Option under this
Section 8.2 in any calendar year.
8.3 OPTION PRICE. The purchase price per share of the Common Stock covered by
------------
each Option granted pursuant to Section 8.2 will be 100% of the Fair Market
Value of the Common Stock on the Award Date. The exercise price of any
Option granted under this Section will be paid in full at the time of each
(i) purchase in cash or by check, (ii) in shares of Common Stock valued at
their Fair Market Value on the date of exercise of the Option and, if the
shares were acquired from the Company, owned by the Participant at least
six months prior to the date of exercise, (iii) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, or (iv) any combination of the
foregoing methods of payment.
8.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under this Section 8
--------------------------------
and all rights or obligations thereunder will expire on the day before the
10th anniversary of the Award Date and will be subject to earlier
termination as provided below. Unless the Committee provides otherwise, an
Option granted under Section 8.2 will become exercisable on the Award Date.
8.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services as a
---------------------------
member of the Board terminate for any reason, an Option granted pursuant to
this Section 8 and then held by the director, to the extent the Option is
then exercisable, will remain exercisable for 12 months after the date of
termination or until the expiration of the stated term of the Option,
whichever first occurs. Any portion of an Option granted pursuant to this
Section 8 that is not exercisable at the time of the termination of service
will terminate upon the termination of service.
8.6 ADJUSTMENTS; ACCELERATION UPON A CHANGE IN CONTROL EVENT; TERMINATION.
---------------------------------------------------------------------
Options granted under this Section 8 will be subject to adjustment,
assumption, conversion, substitution or exchange, termination and
acceleration as provided in Section 6.2, but in the case of a Change in
Control Event only to the extent that the changes and any Board or
Committee action in respect thereof (i) are effected pursuant to the terms
of a reorganization agreement approved by stockholders of Balance Bar
Company or otherwise consistent with the effect of the event on Options
held by persons other than executive officers or directors of Balance Bar
Company and (ii) are consistent in respect of the underlying shares with
the effect on stockholders generally.
32
<PAGE>
Exhibit A
---------
BALANCE BAR COMPANY
DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of _____________, ____, is between Balance Bar
Company (the "CORPORATION") and _____________________(the "DIRECTOR"). The
Corporation and the Director agree to the terms and conditions set forth herein
as required by the terms of the Plan.
BACKGROUND
A. The Corporation has adopted and the stockholders of the Company
have approved the 1998 Performance Award Plan (the "PLAN").
B. Pursuant to the Plan, the Corporation has granted an option to
purchase shares of Common Stock of the Corporation (the "OPTION") to the
Director upon the terms and conditions evidenced hereby, as required by the
Plan, which Option is not intended as and shall not be an Incentive Stock
Option.
1. OPTION GRANT. This Agreement evidences the grant to the Director, as of
------------
____________ __,____ (the "OPTION DATE"), of an Option to purchase an aggregate
_______ shares of Common Stock, under Section 8 of the Plan, subject to the
terms and conditions and to adjustment as set forth herein or in pursuant to the
Plan.
2. EXERCISE PRICE. The Option entitles the Director to purchase (subject to
--------------
the terms of Sections 3 through 5 below and to the extent exercisable) all or
any part of the Option shares at a price per share of $_______, which represents
the Fair Market Value of the shares on the Option Date.
3. OPTION EXERCISABILITY AND TERM. Subject to adjustment pursuant to the
------------------------------
Plan, the Option will first become and remain exercisable on the Award Date, in
each case subject to adjustments and acceleration under Section 8.6 of the Plan.
The Option will terminate on ____________ __, ____ 1 unless earlier terminated
in accordance with the terms of the Plan.
- ---------------------
/1/insert [day before] [10th] anniversary of date of grant.
A-1
<PAGE>
4. EFFECT OF TERMINATION OF SERVICE. If the Director's services as a member
--------------------------------
of the Board terminate, this Option will terminate at the times and to the
extent set forth in Section 8 of the Plan.
5. GENERAL TERMS. The Option and this Agreement are subject to, and the
-------------
Corporation and the Director agree to be bound by, the provisions of the Plan
that apply to the Option. Such provisions are incorporated herein by this
reference. The Director acknowledges receipt of a copy of the Plan.
Capitalized terms not otherwise defined herein have the meaning set forth in the
Plan.
The parties have signed this Agreement as of the date on page 1.
BALANCE BAR COMPANY
(a Delaware corporation)
By __________________________
Title ______________________
OPTIONEE DIRECTOR
_____________________________
(Signature)
_____________________________
(Print Name)
_____________________________
(Address)
_____________________________
(City, State, Zip Code)
_____________________________
social security number
A-2
<PAGE>
EXHIBIT 10.7
BALANCE BAR COMPANY [1998 PLAN]
(the "Company")
EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT
--------------------------------------------
THIS AGREEMENT is between the Company and the Optionee named below and evidences
the Company's grant to the Optionee of a Nonqualified Stock Option to purchase
authorized but unissued or treasury shares of the Company's Common Stock. The
Option is granted pursuant to and subject to the Company's 1998 Performance
Award Plan (the "Plan") and the Terms and Conditions for Nonqualified Stock
Options Under the Plan (the "Terms"), incorporated herein by this reference.
OPTIONEE: _________________________ EXERCISE PRICE
PER SHARE: $______________/1/
NUMBER OF SHARES: ____________________/1/
GRANT DATE: ___________ __, ____ EXPIRES: __________ __,____/2/
VESTING SCHEDULE: % VESTING DATES OF VESTING/1/ /2/
--------- ----------------
_________ ____________ __, ____
_________ ____________ __, ____
_________ ____________ __, ____
_________ ____________ __, ____
_________ ____________ __, ____
Optionee accepts the Option and agrees to and acknowledges receipt of a copy of
the Plan and the Terms.
_____________________________
/1/ Subject to adjustment under Section 6.2 of the Plan.
/2/ Subject to early termination if the Optionee's employment terminates or in
certain other circumstances. See Sections 3 through 5 of the Terms and Sections
1.6 and 6.2 of the Plan for exceptions and additional details regarding possible
early termination of the Option.
BALANCE BAR COMPANY AGREED AND ACKNOWLEDGED:
(a Delaware corporation)
_________________________________
By: _________________________ Optionee's Signature)
Its: ________________________ _________________________________
Address
_________________________________
(City, State, Zip Code)
<PAGE>
TERMS AND CONDITIONS FOR
NON-QUALIFIED OPTIONS GRANTED UNDER THE
AMENDED AND RESTATED 1997 PERFORMANCE AWARD PLAN
1. Exercisability of Option. The Option shall vest and become
------------------------
exercisable in percentage installments of the aggregate number of shares of
Common Stock of the Company as set forth in the Option Agreement. The Option
may be exercised only to the extent the Option is exercisable and vested.
(a) Cumulative Exercisability. To the extent the Optionee does not in any
-------------------------
year purchase all the shares that the Optionee may then exercise, the
Optionee has the right cumulatively thereafter to purchase any shares
not so purchased until the Option terminates or expires.
(b) No Fractional Shares. Fractional share interests shall be
--------------------
disregarded, but may be cumulated.
(c) Minimum Exercise. No fewer than 100 shares may be purchased at any
----------------
one time, unless the number purchased is the total number at the time
exercisable under the Option.
2. Method of Exercise of Option. To the extent exercisable, the
----------------------------
Option may be exercised by the delivery to the Company of a written notice from
the Optionee stating the number of shares to be purchased pursuant to the Option
and accompanied by payment in one or a combination of the following methods:
(a) made in cash or electronic funds transfer, or by certified or
cashier's check payable to the order of the Company, in the full amount of
the purchase price of the shares and amounts required to satisfy applicable
withholding taxes;
(b) by a promissory note of the Participant consistent with the
requirements of Sections 1.8 and 6.4 of the Plan if expressly authorized in
writing by the Committee;
(c) by notice and third party payment in such manner as may be
authorized by the Committee; or
(d) by the delivery of shares that have been held by the Optionee
for at least six months, in accordance with Section 2.2.2(e) of the Plan,
unless otherwise provided by the Committee.
Other payment methods may be permitted only if expressly authorized by
the Committee with respect to this Option or all options under the Plan. The
Option is
2
<PAGE>
non-transferable and may be exercised only by the Optionee, except as the
Committee may otherwise expressly permit.
3. Continuance of Employment Required. The vesting schedule
----------------------------------
requires continued service through each applicable vesting date as a condition
to the vesting of the applicable installment and rights and benefits under this
Agreement. Partial service, even if substantial, during any vesting period will
not entitle the Optionee to any proportionate vesting or avoid or mitigate a
termination of rights and benefits upon or following a termination of employment
or service as provided in Section 4 below or under the Plan.
4. Effect of Termination of Employment or Death. If the Optionee's
--------------------------------------------
employment by either the Company or any subsidiary terminates, the Option and
all other rights and benefits under this Agreement terminate except that the
Optionee may, at any time within the following periods after the Severance Date,
exercise the Option to the extent the Option was exercisable on the Severance
Date and has not otherwise expired:
Termination by the Company or a subsidiary, other than a Termination
for Cause (as defined below), voluntary resignation, retirement, Total
Disability or death of Optionee --- for a period of 3 months
Voluntary resignation (other than in anticipation of or in connection
with a Dismissal for Cause) --for a period of 3 months
Retirement --- for a period of 12 months
Total Disability or death of Optionee --- for a period of 12 months
In case of a Termination for Cause or a voluntary resignation in
anticipation of or in connection with a Termination for Cause, the Option shall
terminate immediately, in its entirety.
"Termination for Cause" means a termination of service, based upon a
---------------------
finding by the Company, acting in good faith and based on its reasonable belief
at the time, that the Participant:
(a) is or has been dishonest, incompetent, or negligent in the discharge
of his or her duties to the Company; or has refused to perform stated
or assigned duties; or
(b) has committed a theft or embezzlement, or a breach of confidentiality
or unauthorized disclosure or use of inside information, customer
lists, trade secrets or other confidential information, or a breach of
fiduciary duty involving personal profit, or a willful or negligent
violation of any law, rule or regulation or of Company rules or
policy, in any material respect; or has
3
<PAGE>
been convicted of a felony or misdemeanor (other than minor traffic
violations or similar offenses); or
(c) has materially breached any of the provisions of any agreement with
the Company or a parent corporation; or
(d) has engaged in unfair competition with, or otherwise acted
intentionally in a manner injurious to the reputation, business or
assets of the Company; or has induced a customer to break or terminate
any contract with the Company or an affiliate; or has induced any
principal for whom the Company (or an affiliate) acts as agent to
terminate such agency relationship.
A Termination For Cause shall be deemed to occur (subject to reinstatement upon
a contrary final determination by the Board or Committee) on the date when the
Company first delivers notice to the Participant of a finding of Termination For
Cause and shall be final in all respects on the date following the opportunity
to be heard and written notice to the Participant that his or her service is
terminated.
5. Change in Subsidiary's Status; Leaves of Absence. If the
------------------------------------------------
Optionee is employed by an entity that ceases to be a subsidiary, this event is
deemed for purposes of this Agreement to be a termination of the Optionee's
employment by the Company other than a Termination for Cause, voluntary
resignation, retirement, Total Disability or death of Optionee. Absence from
work caused by military service, authorized sick leave or other leave approved
in writing by the Company or the Committee shall not be considered a termination
of employment by the Company for purposes of Section 4; provided that unless
reemployment upon the expiration of such leave is guaranteed by contract or law,
such leave is for a period of not more than 90 days.
6. Notices. Any notice to be given shall be in writing and
-------
addressed to the Company at its principal office, to the attention of the
Secretary, and to the Optionee at his or her last address of record, or at such
other address as either party may hereafter designate in writing to the other
for purposes of notices in respect of the Option.
7. Optionee not a Stockholder. Neither the Optionee nor any other
--------------------------
person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Company as to any shares of Common Stock
until the issuance and delivery to him or her of a certificate evidencing the
shares registered in his or her name. No adjustment will be made for dividends
or other rights as to a stockholder for which a record date is prior to such
date of delivery.
8. No Employment Commitment by Company. Nothing contained in this
-----------------------------------
Option Agreement (or in any other documents related to the Plan or this Option
Agreement) will confer upon the Optionee any right to continue in the employ or
other service of the Company or constitute any contract or agreement of
employment or other
4
<PAGE>
service, nor will interfere in any way with the right of the Company to
otherwise change the Optionee's compensation or other benefits or to terminate
the employment or other service of the Optionee, with or without cause, but
nothing contained in this Option Agreement or any related document will
adversely affect any independent contractual right of such person without the
Optionee's consent.
9. Effect of Award Agreement. The Option Agreement shall be binding
-------------------------
upon and inure to the benefit of any successor or successors of the Company,
except to the extent the Committee determines otherwise.
10. Choice of Law. The constructive interpretation, performance and
-------------
enforcement of the Option Agreement and the Option shall be governed by the laws
of the State of California.
11. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meaning assigned by the Plan.
12. Plan. The Option and all rights of Optionee thereunder are
----
subject to, and the Optionee agrees to be bound by, all of the terms and
conditions of the provisions of the Plan. Unless otherwise expressly provided
in these Terms and Conditions, provisions of the Plan that confer discretionary
authority on the Committee do not (and shall not be deemed to) create any
additional rights in the Optionee not expressly set forth in the Optionee's
Option Agreement or in a written amendment thereto.
13. Dispute Resolution. The parties will attempt in good faith to
------------------
resolve any dispute arising out of or relating to the Option, the Option
Agreement, or the Plan as follows:
(a) Procedure for Claims. Any party that wants to assert a claim must
--------------------
give notice of the claim to the other party within six months of the
date the party knew of the claim. If the notice of the claim is not
delivered within the required time period, the claim will be waived
forever.
(b) Arbitration. If the matter has not been resolved by mutual agreement
-----------
of the parties within 30 days of the delivery of the notice of the
claim, the dispute will be settled by binding arbitration in
accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes. Unless otherwise agreed to by the parties in
writing, there will be three arbitrators, each party to select one
such arbitrator and the third to be selected by the other two from the
CPR Panels of Distinguished Neutrals. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. 1-16, and
judgment upon the arbitration award rendered may be entered by any
court with competent jurisdiction. The place of arbitration will be
in Los Angeles, California unless otherwise agreed to by the parties.
The
5
<PAGE>
arbitrators are not empowered to award punitive damages or damages in
excess of actual damages.
(c) Extension of Time Periods. All time periods specified in this Section
-------------------------
may be extended by mutual agreement.
(d) Exclusivity. The dispute resolution procedures in this Section are,
-----------
to the maximum extent permitted by law, the exclusive method to
resolve disputes of any nature arising out of or relating to the
Option, the Option Agreement, or the Plan. Any actions, suits or
litigation relating to such matters will be brought only to enforce
any final awards resulting from arbitration under this Section.
(e) Prevailing Party. The prevailing party in any action relating to the
----------------
Option, the Option Agreement, or the Plan will be entitled to recover,
in addition to other appropriate relief, reasonable legal fees, costs
and expenses incurred in such action.
6
<PAGE>
EXHIBIT 10.13
REGISTRATION RIGHTS AGREEMENT
AMONG
BALANCE BAR COMPANY
A DELAWARE CORPORATION
AND
THOMAS R. DAVIDSON
AND
DAVIDSON FAMILY LIMITED PARTNERSHIP,
A NEVADA LIMITED PARTNERSHIP
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), is entered into
as of May 1, 1998, among Balance Bar Company, a Delaware corporation (the
"COMPANY"), Thomas R. Davidson, and Davidson Family Limited Partnership, a
Nevada limited partnership, (collectively, the "HOLDER"). The parties agree as
follows.
RECITALS
--------
A. The Holder owns shares of the Company's Common Stock (the
"UNREGISTERED STOCK").
B. The Unregistered Stock was issued without registration under the
Securities Act, and therefore, its resale by the Holder is subject to
restrictions under the Securities Act.
C. In connection with the Company's initial Offering of its Common Stock,
the Company has agreed to enter into this Agreement with the Holder.
1. CERTAIN DEFINITIONS
-------------------
As used in this Agreement:
1
<PAGE>
"BUSINESS DAY" means any day that commercial banks are not authorized or
required to close in Los Angeles, California.
"COMMISSION" means the Securities and Exchange Commission or any other similar
or successor agency of the United States government administering the Securities
Act.
"COMMON STOCK" means the Common Stock of the Company, par value $0.01 per share.
"EFFECTIVE DATE" means the date that a registration statement becomes effective
under the Securities Act.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and any similar or
successor federal statute, and the rules and regulations of the Commission
thereunder, as in effect at the time.
"OFFERING" means the registration of the Company's securities under the
Securities Act, whether underwritten or not, for sale to the public.
"ORDINARY S-3 REGISTRATION STATEMENT" means a Registration Statement on Form S-3
that includes only those items and that information that is required to be
included in Parts I and II of such Form, and does not include any additional or
extraneous items or information (e.g. a lengthy description of the Company or
the Company's business).
"PERMITTED TRANSFEREE" means
(a) any entity all of the equity of which is directly or indirectly owned
by the transferor;
(b) in the case of a transferor who is an individual, (i) such
transferor's spouse and lineal descendants, (ii) such transferor's
successors, personal representatives and heirs, (iii) any trustee of
any trust created primarily for the benefit of any, some or all of
such spouse and lineal descendants (but that may include beneficiaries
that are charities) or of any revocable trust created by such
transferor, (iv) following the death of such transferor, all
beneficiaries under any such trust, (v) the transferor, in the case of
a transfer from any Permitted Transferee back to its transferor and
(vi) any entity all of the equity of which is directly or indirectly
owned by any of the foregoing; or
(c) any charitable or educational organization that is exempt from federal
income taxes.
"PERSON" means a corporation, an association, a trust, a partnership, a limited
liability company, a joint venture, an organization, a business, an individual,
a government or political subdivision thereof, or a governmental body.
"PROSPECTUS" means the prospectus included in any Registration Statement,
together with and
2
<PAGE>
including any amendment or supplement to such prospectus, covering the Offering
of any portion of the Registrable Securities covered by a Registration
Statement, and all material incorporated by reference in such Prospectus.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act and applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means Shares held by the Holder or otherwise acquired
by the Holder and any securities issued or issuable with respect to such Shares
by way of a stock dividend or stock split or in connection with a combination of
Shares, recapitalization, merger, consolidation, reclassification or other
reorganization. A security will cease to be a Registrable Security when it:
(a) has been effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement covering it; (b) is distributed to
the public pursuant to Rule 144 (or any similar rule then in force); or (c) has
otherwise been transferred and a new certificate not bearing a restrictive
legend and not subject to any stop transfer order has been delivered by or on
behalf of the Company and no other restriction on transfer exists.
"REGISTRATION STATEMENT" means a registration statement filed by the Company
with the Commission covering Registrable Securities.
"RULE 144" means Rule 144 under the Securities Act, as amended and in effect
from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar
federal statute, together with the rules and regulations of the Commission
promulgated thereunder, as in effect at the time.
"SHARES" means shares of Common Stock.
3
<PAGE>
Other Definitions. The following terms have the meanings set forth in the
- -----------------
following sections:
<TABLE>
<CAPTION>
Definition Section
---------- -------
<S> <C>
"AGREEMENT" Introduction
"COMPANY" Introduction
"CONTROLLING PERSON" 4.1
"DEMAND NOTICE" 2.1
"DEMAND REGISTRATION STATEMENT" 2.1
"HOLDER" Introduction
"INDEMNIFIED PERSONS" 4.1
"LOSSES" 4.1
"OTHER SHARES" 2.1.2
"PIGGYBACK NOTICE" 2.2.1
"PIGGYBACK REGISTRATION STATEMENT" 2.2
"REGISTRATION EXPENSES" 3.12
"REGISTERING HOLDER" 3.1
"SHARES" 1
"UNREGISTERED STOCK" Recitals
</TABLE>
2. REGISTRATION RIGHTS
-------------------
2.1 DEMAND REGISTRATION. Commencing six months after the initial Offering of
-------------------
the Common Stock, the Holder can, by notice to the Company (the "DEMAND
NOTICE"), demand that the Company file, and the Company will file, a
Registration Statement as soon as practicable covering the Registrable
Securities specified in the Demand Notice (a "DEMAND REGISTRATION STATEMENT").
Such Demand Registration Statement will be filed on an appropriate form under
the Securities Act, no later than 90 days after the Company receives the Demand
Notice. The Company is only required to file two Demand Registration
Statements. In addition, the Holder will be entitled at any time while the
Company is eligible to file Registration Statements on Form S-3, to demand that
the Company file and cause to be declared effective Ordinary S-3 Registration
Statements, which the Company will use its reasonable efforts to file and cause
to be declared effective. The Company will use its commercially reasonable
efforts to cause any Demand Registration Statement to be declared effective on
the date requested by the managing underwriter for the Offering (no earlier than
60 days from the date of the Demand Notice), or, if such Offering is not
underwritten, as soon as practicable after the filing with the Commission. The
Company will keep such Demand Registration Statement effective until the
Offering is completed (but not more than 180 days from the Effective Date of the
Demand Registration Statement).
2.1.1 SIZE OF OFFERING; TERMINATION OF DEMAND RIGHTS. The Holder will not
----------------------------------------------
make a Demand Notice unless the number of Registrable Securities specified in
the Demand Notice is equal to or greater than 20% of the Registrable
Securities then held by the Holder. In
4
<PAGE>
addition, the Holder is not entitled to make a Demand Notice unless the
number of Shares held by the Holder is equal to or greater than 10% of the
Company's outstanding Shares.
2.1.2 COMPANY PARTICIPATION. The Company and any Person having registration
---------------------
rights with respect to Common Stock can elect to register equity securities
of the Company in any Demand Registration Statement or to participate in the
Offering, by including any of their equity securities in the Demand
Registration Statement, subject to the following:
(A) NOTICE. The Company and such Person must give notice of such election to
------
the Holder within 15 days after the Demand Notice was given to it,
including the number of Shares proposed to be sold by each in the
Offering (the "OTHER SHARES");
(B) CONDITIONS. The Company and such Person must agree to sell such Other
----------
Shares on the same basis provided in the underwriting arrangements
approved by the Holder and the Company (including standard
indemnification provisions) and to timely complete and execute all
questionnaires, powers of attorney, indemnities, holdback agreements,
underwriting agreements and other documents reasonably required by such
underwriting arrangements, by the Commission, or by any state securities
regulatory body. If the Company or any Person requesting inclusion in a
Demand Registration Statement does not agree to the conditions set forth
in this subsection, the Company and such Person will be excluded from the
Offering by written notice from the Holder, and the securities so
excluded will be withdrawn from registration;
(C) LIMITATION ON AMOUNT. The number of Other Shares that may be sold in the
--------------------
Offering will be limited if the managing underwriter decides that market
conditions require a limitation. In such event, the number of Shares that
can be sold in the Offering (including pursuant to any over allotment
option) will be allocated first to the Holder, second, to the extent
available, to the Company, and, third, to the extent available, pro rata
among third parties having registration rights with respect to the Common
Stock based on the respective number of Shares sought by each to be
registered.
2.1.3 DELAY. The Company can delay the filing of a Demand Registration
-----
Statement if upon receipt of the Demand Notice: (a) the Company notifies the
Holder that it is contemplating filing a registration statement within 120
days of such demand; (b) the Company notifies the Holder that a material
event has occurred or is likely to occur that has not been publicly disclosed
that, if disclosed, would have a material adverse effect on the Company and
its ability to consummate the Offering under the Demand Registration
Statement; or (c) the Company decides that the registration and offering
could interfere with any material financing, acquisition, disposition,
corporate reorganization or other material transaction involving the Company
or its subsidiaries. In the case of clause (a) of this subsection, the
Company will use its commercially reasonable efforts, as soon as practicable,
upon the earlier of the Company's abandonment of its contemplated
registration statement or the expiration of the 120-day period to file the
Demand Registration Statement, unless such Demand Notice is withdrawn by the
Holder. In the case of clause (b) or
5
<PAGE>
clause (c), the Company can not delay the filing of the Demand Registration
Statement for more than 120 days from the date of the Demand Notice unless
such Demand Notice is withdrawn by the Holder. The Company cannot exercise
the foregoing rights of postponement more than once in any 12-month period.
If there is a postponement under any clause above, the Demand Notice can be
withdrawn by the Holder by notice to the Company. In such case, no Demand
Notice will have been delivered for the purposes of SECTION 2.1.
2.2 "PIGGYBACK" REGISTRATION. If at any time, or from time to time, the
------------------------
Company decides to file a Registration Statement covering any Shares (other
than a registration statement on Form S-4 or S-8, or any form substituted
therefor) for its own account or for the account of any stockholder (a
"PIGGYBACK REGISTRATION STATEMENT"), the Holder will be entitled to include
Registrable Securities in such registration and related Offering on the
following terms and conditions.
2.2.1 NOTICE. The Company will promptly give notice of such decision to the
------
Holder (a "PIGGYBACK NOTICE"). The Holder will have the right to request, by
notice to the Company within ten Business Days after it receives the
Piggyback Notice, that a specific number of Registrable Securities held by
the Holder be included in the Piggyback Registration Statement and related
underwritten Offering, if any. If the Piggyback Registration Statement
relates to an underwritten Offering, the Piggyback Notice must specify the
name of the managing underwriter for such Offering. The Piggyback Notice
must also specify the number of shares to be registered for the account of
the Company and for the account of any stockholder, and the intended method
of disposition of such shares.
2.2.2 UNDERWRITTEN OFFERING. If the Piggyback Registration Statement
---------------------
relates to an underwritten Offering, as a condition to participation in such
Piggyback Registration Statement the Holder must agree to sell its
Registrable Securities on the same basis provided in the underwriting
arrangements approved by the Company (including standard indemnification
provisions) and to timely complete and execute all questionnaires, powers of
attorney, indemnities, holdback agreements, underwriting agreements and
other documents required under the terms of such underwriting arrangements,
by the Commission or by any state securities regulatory body.
2.2.3 COMMERCIALLY REASONABLE EFFORTS. The Company will use its
-------------------------------
commercially reasonable efforts to include in the Piggyback Registration
Statement the number of Registrable Securities requested in response to the
Piggyback Notice. The number of Shares that can be sold in any underwritten
Offering under a Piggyback Registration Statement will be limited if the
managing underwriter decides that market conditions require a limitation on
the number of Shares that may be sold in such Offering. In such event, the
Shares to be sold in the Offering (including pursuant to any over allotment
option) will be allocated first to the Company (or, if the Offering is being
made principally for the account of another Person, to such Person), second
to the Holder (pro rata with the Company if the Offering is made principally
for the account of another Person based on the number of Shares sought by
6
<PAGE>
each to be registered), and, third, pro rata among third parties having
registration rights with respect to the Common Stock based on the
respective number of Shares sought by each to be registered.
2.2.4 WITHDRAWALS. The Holder will have the right to withdraw its
-----------
Registrable Securities from the Piggyback Registration Statement at any
time before the Effective Date thereof. The Company will, on five Business
Days notice to the Holder, have the right to withdraw any Piggyback
Registration Statement initiated by the Company at any time prior to the
Effective Date thereof. If Shares are withdrawn from a Piggyback
Registration Statement by any Person and if the number of Shares to be
included in such registration statement was previously reduced as a result
of marketing factors pursuant to subsection 2.2.3, then the Persons
included in such registration statement who have not withdrawn their Shares
have the right to include additional Shares in the Piggyback Registration
Statement in an aggregate amount equal to the number of shares so
withdrawn, with such Shares to be allocated among such Persons in
accordance with SUBSECTION 2.2.3.
2.3 SELECTION OF UNDERWRITERS. If the Registrable Securities covered by a
-------------------------
Demand Registration Statement are to be sold in an underwritten Offering,
the managing underwriter of such Offering may be designated by the Holder.
Such underwriter must be reasonably acceptable to the Company. If the
Registrable Securities included in a Piggyback Registration Statement are
to be sold in an underwritten Offering, the managing underwriter of such
Offering will be designated by the Company or the stockholder for whose
account the Piggyback Registration Statement is being filed.
3. REGISTRATION PROCEDURES
-----------------------
The Company will use its commercially reasonable efforts to effect any
registration under SECTION 2 in a manner that permits the sale of the
Registrable Securities covered thereby in accordance with the intended method or
methods of disposition. The Company will, as promptly as practicable, do the
following.
3.1 COPIES; REVIEW. At least five Business Days before filing a Registration
--------------
Statement or Prospectus, the Company will furnish to the Holder (if the
Holder is participating in such Registration Statement) (the "REGISTERING
HOLDER") and the underwriters, if any, copies of all such documents
proposed to be filed. Such documents will be subject to the review of the
Registering Holder and such underwriters (and their respective counsel).
The Company will not file any Registration Statement or any Prospectus to
which the Registering Holder or the underwriters, if any, reasonably
object. If the Registration Statement is a Piggyback Registration Statement
relating to an underwritten Offering and the underwriters do not agree with
such objection by the Registering Holder, the Company can file the
Piggyback Registration Statement notwithstanding such objection by the
Registering Holder.
3.2 AMENDMENTS. The Company will: (a) prepare and file with the Commission
----------
such
7
<PAGE>
amendments and post-effective amendments to the Registration Statement as
may be necessary to keep the Registration Statement effective for the
applicable time period required herein; (b) cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Securities Act; and (c) 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 Registering Holder set forth in such Registration Statement or
Prospectus supplement.
3.3 NOTIFICATION. The Company will promptly notify the Registering Holder and
------------
the managing underwriters, and (if requested by any such Person) confirm
such notification in writing: (a) when the Prospectus has been filed, and,
with respect to the Registration Statement, when it has become effective;
(b) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information; (c)
of the issuance of any stop order suspending the effectiveness of the
Registration Statement, or the refusal or suspension of qualification of
registration of Registrable Securities, or the initiation of any
proceedings for that purpose; (d) if at any time the representations and
warranties of the Company contemplated by Section 8 cease to be true and
correct; and (e) of any event that makes any material statement made in the
Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or that requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein
by reference in order to make the statements therein not misleading in any
material respect.
3.3.1 SUSPENSION OF OFFERING. The Company will make commercially
----------------------
reasonable efforts to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible
moment. If any event contemplated by clause (e) of SECTION 3.3 occurs, the
Company will promptly prepare a supplement or post-effective amendment to
the Registration Statement or the Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading. Upon receipt of any notice from the Company that any event of
the kind described in clause (e) of SECTION 3.3 has happened, the
Registering Holder will discontinue offering the Registrable Securities
until the Registering Holder receives the copies of the supplemented or
amended Prospectus contemplated by the previous sentence, or until it is
advised in writing by the Company that the use of the Prospectus can be
resumed, and has received copies of any additional or supplemental filings
that are incorporated by reference in the Prospectus. The period during
which distribution of the Shares is suspended will not be counted toward
completion of the required period of effectiveness for any Registration
Statement.
3.4 INFORMATION INCLUDED. If requested by the managing underwriters or the
--------------------
Registering Holder, the Company will immediately incorporate in a
Prospectus supplement or post-
8
<PAGE>
effective amendment such information as the managing underwriters and the
Registering Holder agree should be included therein relating to the sale of
the Registrable Securities, including, but not limited to, information with
respect to the number of Registrable Securities being sold to such
underwriters or other Persons, the purchase price being paid therefor by
such underwriters or other Persons and any other terms of the distribution
of the Registrable Securities to be sold in such Offering. Such information
will include, if applicable, any required disclosure of arrangements with
underwriters. The Company will make all required filings of such Prospectus
supplement or post-effective amendment as promptly as practicable after
being notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
3.5 COPIES. The Company will (a) promptly furnish to the Registering Holder
------
and each managing underwriter without charge, at least one signed copy 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), and (b) promptly deliver to the Registering Holder and the
underwriters without charge, as many copies of the Prospectus (including
each preliminary Prospectus) and any amendment or supplement thereto as
such Persons may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the Registering Holder
and the underwriters in connection with the Offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or
supplement thereto.
3.6 BLUE SKY REGISTRATION. Prior to any Offering of Registrable Securities
---------------------
covered by a Registration Statement under SECTION 2, the Company will
register or qualify or cooperate with the Registering Holder, the
underwriters and their respective counsel in connection with the
registration or qualification of such Registrable Securities under the
securities or blue sky laws of such jurisdictions as the Registering Holder
or underwriter reasonably request in writing, and do any and all other acts
or things necessary or advisable to enable the disposition in such
jurisdictions of such Registrable Securities. The Company will not be
required to take any actions under this Section if such actions would
require it to submit to the general taxation of such jurisdiction or to
file therein any general consent to service of process.
3.7 OTHER REGISTRATIONS. The Company will use its commercially reasonable
-------------------
efforts to cause the Registrable Securities covered by the Registration
Statement to be registered with or approved by such governmental agencies
or authorities other than the Commission and state securities regulatory
bodies as may be necessary to enable the Registering Holder or the
underwriters to consummate the disposition of such Registrable Securities.
3.8 CERTIFICATES. If the Offering involves certificated Shares, the Company
------------
will cooperate with the Registering Holder and the managing underwriter to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold that do not bear any restrictive legends.
Such certificates will be in such denominations and registered in such
names as the managing underwriter requests at least two business days prior
to any sale of
9
<PAGE>
Registrable Securities to the underwriters.
3.9 OTHER ACTIONS. In addition, the Company will: (a) make such
-------------
representations and warranties to the Registering Holder and the
underwriters as are customarily made by issuers to underwriters in primary
underwritten offerings (or as may be reasonably requested by the
underwriters); (b) obtain opinions of counsel to the Company and updates
(which counsel and opinions must be reasonably satisfactory to the
Registering Holder); (c) obtain customary "cold comfort" letters and
updates from the Company's independent certified public accountants
addressed to the underwriters, and use its commercially reasonable efforts
to obtain such a letter for the Registering Holder or to obtain a letter
from such accountants authorizing the Registering Holder to rely on such
"cold comfort" letter; (d) if an underwriting agreement is entered into,
ensure that it sets forth in full the indemnification provisions and
procedures of SECTION 6 with respect to the Company and the Registering
Holder; and (e) deliver such documents and certificates as may be requested
by the Registering Holder and the managing underwriter to evidence
compliance with clause (a) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company
with the Registering Holder. The above will be done in connection with each
closing under such underwriting or similar agreement or as and to the
extent required thereunder.
3.10 DUE DILIGENCE. The Company will make available for inspection by the
-------------
Registering Holder, any underwriter participating in any, and any attorney
or accountant retained by the Registering Holder or managing underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to be available to discuss and to supply all information
reasonably requested by any such person in connection with the Registration
Statement. All such records, information or documents will be subject to
standard confidentiality arrangements.
3.11 SECTION 11(a) NOTICE. The Company will make generally available to its
--------------------
stockholders earnings statements satisfying the provisions of Section 11(a)
of the Securities Act.
3.12 EXPENSES. All expenses incident to the Company's performance of or
--------
compliance with this Agreement, including, but not limited to, all
registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger expenses,
telephone and delivery expenses, and fees and disbursements of Company
counsel and of independent certified public accountants of the Company
(including the expenses of any special audit required by or incident to
such performance), will be borne by the Holder in proportion to the number
of Shares sold by the Holder in the Offering. The Company will pay its
internal expenses, the expense of any annual audit, and the fees and
expenses of any Person retained by the Company. All such expenses are
referred to as "REGISTRATION EXPENSES." All underwriting fees and
commissions with respect to an underwritten Offering, and transfer taxes,
if any, will be borne by the Holder in proportion to the number of Shares
sold by the Holder in the Offering.
10
<PAGE>
4. INDEMNIFICATION
---------------
4.1 INDEMNIFICATION BY THE COMPANY. The Company will indemnify and hold
------------------------------
harmless the Holder, its officers, directors, agents (including, but not
limited to counsel) and employees and each Person who controls the Holder
(within the meaning of Section 15 of the Securities Act) (each, a
"CONTROLLING PERSON") (all of the foregoing are "INDEMNIFIED PERSONS") from
and against any and all losses, claims, damages and liabilities (including
any investigation, legal or other expenses ("LOSSES") reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which the Indemnified Person may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such
Losses arise out of or are based upon (a) any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
Prospectus or preliminary prospectus or any amendment or supplement thereto
or 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 (b) any violation by the Company of the Securities Act or
the Exchange Act, or other federal or state law applicable to the Company
and relating to any action or inaction required of the Company in connection
with such registration. In addition, the Company will reimburse the
Indemnified Person for any investigation, legal or other expenses reasonably
incurred by such Indemnified Person in connection with investigating or
defending any such Loss. The Company will not be liable with respect to the
portion of any such Loss that arises out of or is based upon any alleged
untrue statement or alleged omission made in such Registration Statement,
preliminary Prospectus, Prospectus, or amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
the Indemnified Person specifically for use therein. Such indemnity will
remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnified Person, and will survive the transfer of such
securities by the Indemnified Person. The Company will also indemnify
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of
Section 15 of the Securities Act) to the same extent customarily requested
by such Persons in similar circumstances.
4.2 INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. If the Holder sells
---------------------------------------------------
Registrable Securities under a Prospectus that is part of a Registration
Statement, the Holder will indemnify and hold harmless the Company, its
directors and each officer who signed such Registration Statement, and each
Person who controls the Company (within the meaning of Section 15 of the
Securities Act) under the same circumstances as the foregoing indemnity from
the Company to the Holder, but only to the extent that such Losses arise out
of or are based upon any untrue statement of a material fact or omission of
a material fact that was made in the Prospectus, the Registration Statement,
or any amendment or supplement thereto, in reliance upon and in conformity
with written information relating to the Holder furnished to the Company by
the Holder expressly for use therein. In no event will the
11
<PAGE>
aggregate liability of the Holder exceed the amount of the net proceeds
received by the Holder upon the sale of the Registrable Securities giving
rise to such indemnification obligation. Such indemnity will remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or such officer, director, employee or Controlling Person, and will
survive the transfer of such securities by the Holder. The Company and the
Holder will be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as customarily
furnished by such Persons in similar circumstances.
4.3 CONTRIBUTION. If the indemnification provided for in the foregoing Sections
------------
is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect of which the foregoing
Sections would otherwise apply by their terms (other than by reason of
exceptions provided in the foregoing Sections), then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, will
have a joint and several obligation to contribute to the amount paid or
payable by such indemnified party as a result of such Losses. Such
contribution will be in such proportion as is appropriate to reflect the
relative fault of the indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, will be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been
taken or made by, or relates to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent any such action,
statement or omission. The amount paid or payable by a party as a result of
any such Losses will be deemed to include any investigation, legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding, to the extent such party would have been
indemnified for such expenses if the indemnification provided for in the
foregoing Sections was available to such party.
4.4 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
--------------------------------------
indemnification hereunder will give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification, and permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Any Person entitled to
indemnification hereunder will have the right to employ separate counsel and
to participate in the defense of such claim, but the fees and expenses of
such counsel will be at the expense of such Person and not of the
indemnifying party unless (a) the indemnifying party has agreed to pay such
fees or expenses, (b) the indemnifying party has failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such
Person, or (c) in the opinion of counsel of the Person to be indemnified, a
conflict of interest may exist between such Person and the indemnifying
party with respect to such
12
<PAGE>
claims. In the case of (c), if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party will not have the right to
assume the defense of such claim on behalf of such Person. If such defense
is not assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No indemnified party will
be required to consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term the giving of a release, by
all claimants or plaintiffs, to such indemnified party from all liability in
respect to such claim or litigation. Any indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel in each
relevant jurisdiction for all parties indemnified by such indemnifying party
with respect to such claim.
5. OTHER AGREEMENTS
----------------
5.1 HOLDBACK AGREEMENTS.
-------------------
5.1.1 RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company, if
------------------------------------------
requested by the managing underwriter for an underwritten Offering, will not
effect any public or private sale or distribution of securities of the same
class as the Registrable Securities, or securities convertible into or
exchangeable or exercisable for securities of the same class as the
Registrable Securities (other than pursuant to an employee benefit plan),
during the ten day period prior to, and during the 90-day period beginning
on the closing date of, an Offering made pursuant to a Demand Notice.
5.1.2 RESTRICTIONS ON PUBLIC SALE BY THE HOLDER. The Holder, if requested
-----------------------------------------
by the managing underwriter of an underwritten Offering, will not effect any
public sale or distribution of securities of the same class (or securities
exchangeable or exercisable for or convertible into securities of the same
class) as the securities included in the Offering (including, but not
limited to, a sale pursuant to Rule 144 during the ten day period prior to
and the 90-day period in the case of Offerings subsequent to the initial
Offering (or shorter period requested by the underwriter) beginning on the
Effective Date of, such Offering.
5.2 RULE 144. The Company will file, on a timely basis, all reports required to
--------
be filed by it under the Securities Act and the Exchange Act, and will take
such further action and provide such documents as any holder of Registrable
Securities may request, all to the extent required from time to time to
enable the Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the conditions provided by (a)
Rule 144, or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of the Holder, the Company will deliver to the
Holder a statement verifying that it has complied with such information and
requirements.
13
<PAGE>
5.3 REPRESENTATIONS AND WARRANTIES.
------------------------------
5.3.1 VALIDITY. The Company represents and warrants to the Holder that
--------
this Agreement has been duly and validly executed and delivered by the
Company and constitutes a legally valid and binding agreement of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization and other similar laws now
or hereafter in effect relating to or affecting creditors' rights generally
and except that the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought and except as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws.
5.3.2 NO INCONSISTENT AGREEMENTS. The Company represents and warrants that
--------------------------
it has not previously entered into, and agrees that it will not on or after
the date of this Agreement enter into, any agreement with respect to its
securities that is inconsistent with the terms of this Agreement, including
any agreement that impairs or limits the registration rights granted to the
Holder or that otherwise conflicts with the provisions hereof or preclude
the Company from discharging its obligations under this Agreement.
5.3.3 FURNISH INFORMATION. The Company will promptly deliver to the Holder
-------------------
copies of all financial statements, reports and proxy statements that the
Company is required to send to its stockholders generally.
5.3.4 ASSIGNMENT. This Agreement and the rights hereunder are assignable
----------
by any Holder to Permitted Transferees in connection with the transfer of
Registrable Securities, and upon assignment such Permitted Transferees will
become a "HOLDER" under this Agreement. Such Permitted Transferees must
agree in writing to be bound by the terms of this Agreement and to any
lender in connection with a loan to a Holder that is secured by Registerable
Securities, so long as such lender agrees in writing to be bound by the
terms hereof. Other than as set forth above, this Agreement is not
assignable. Further, no rights under this Agreement may be assigned without
the concurrent assignment of the related Shares.
6. MISCELLANEOUS PROVISIONS
------------------------
6.1 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and approvals
-------------------
under this Agreement must be in writing and designated as such. No failure
or delay in exercising any right will be deemed a waiver of such right.
6.2 INTEGRATION. This Agreement is the entire agreement between the parties
-----------
pertaining to its subject matter, and supersedes all prior agreements and
understandings of the parties in connection with such subject matter.
6.3 GOVERNING LAW. This Agreement is to be interpreted in accordance with the
-------------
laws of the
14
<PAGE>
State of California.
6.4 HEADINGS. Headings of Sections and subsections are for convenience only
--------
and are not a part of this Agreement.
6.5 COUNTERPARTS. This Agreement can be executed in one or more counterparts,
------------
all of which constitute one agreement.
6.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the
----------------------
benefit of each party and such party's respective heirs, personal
representatives, successors and assigns, including any Permitted
Transferees. Nothing in this Agreement, express or implied, is intended to
confer any rights or remedies upon any other person.
6.7 EXPENSES; LEGAL FEES. Each party will pay its own expenses in the
--------------------
negotiation, preparation and performance of this Agreement. The prevailing
party in any action relating to this Agreement will be entitled to recover,
in addition to other appropriate relief, reasonable legal fees, costs and
expenses incurred in such action.
6.8 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that it
-----------------------------------------
has been represented by counsel in connection with this Agreement. This
Agreement is to be construed as a whole and in accordance with its fair
meaning. Any rule of law, including, but not limited to, Section 1654 of
the California Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the
party that drafted it, has no application and is expressly waived.
6.9 SPECIFIC PERFORMANCE. In view of the uniqueness of the matters
--------------------
contemplated by this Agreement, the Indemnitee would not have an adequate
remedy at law for money damages if this Agreement is not being performed in
accordance with its terms. The Company therefore agrees that the Indemnitee
will be entitled to specific enforcement of the terms hereof in addition to
any other remedy to which the Indemnitee may be entitled.
6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
----------------------
Agreement.
6.11 NOTICES. Any notice to be given hereunder must be in writing and
-------
delivered as follows (or to another address as either shall designate in
writing):
<TABLE>
<CAPTION>
IF TO BALANCE BAR COMPANY: IF TO THE HOLDER:
- ------------------------- ----------------
<S> <C>
1015 Mark Avenue At the most recent address on the books
Carpinteria, California 93013 and records of the Company for Thomas R. Davidson
Attention: Chief Executive Officer
</TABLE>
[Rest of page left blank]
15
<PAGE>
This Registration Rights Agreement has been signed as of the date on page
one.
BALANCE BAR COMPANY
_________________________________
By: James A. Wolfe
Its: Chief Executive Officer
DAVIDSON FAMILY LIMITED PARTNERSHIP
By:_______________________________
Thomas R. Davidson
General Partner
__________________________________
Thomas R. Davidson
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Certain Definitions................................................... 1
-------------------
2. Registration Rights................................................... 3
-------------------
2.1 Demand Registration........................................... 3
-------------------
2.1.1 Size of Offering; Termination of Demand Rights.......... 4
----------------------------------------------
2.1.2 Company Participation................................... 4
---------------------
2.1.3 Delay................................................... 4
-----
2.2 "Piggyback" Registration...................................... 5
------------------------
2.2.1 Notice.................................................. 5
------
2.2.2 Underwritten Offering................................... 5
---------------------
2.2.3 Commercially Reasonable Efforts......................... 5
-------------------------------
2.2.4 Withdrawals............................................. 6
-----------
2.3 Selection of Underwriters..................................... 6
-------------------------
3. Registration Procedures............................................... 6
-----------------------
3.1 Copies; Review................................................ 6
--------------
3.2 Amendments.................................................... 7
----------
3.3 Notification.................................................. 7
------------
3.3.1 Suspension of Offering.................................. 7
----------------------
3.4 Information Included.......................................... 8
--------------------
3.5 Copies........................................................ 8
------
3.6 Blue Sky Registration......................................... 8
---------------------
3.7 Other Registrations........................................... 8
-------------------
3.8 Certificates.................................................. 9
------------
3.9 Other Actions................................................. 9
-------------
3.10 Due Diligence................................................. 9
-------------
3.11 Section 11(a) Notice.......................................... 9
--------------------
3.12 Expenses...................................................... 9
--------
4. Indemnification....................................................... 10
---------------
4.1 Indemnification by the Company................................ 10
------------------------------
4.2 Indemnification by Holder of Registrable Securities........... 10
---------------------------------------------------
4.3 Contribution.................................................. 11
------------
4.4 Conduct of Indemnification Proceedings........................ 11
--------------------------------------
5. Other Agreements...................................................... 12
----------------
5.1 Holdback Agreements........................................... 12
-------------------
5.1.1 Restrictions on Public Sale by the Company.............. 12
------------------------------------------
5.1.2 Restrictions on Public Sale by the Holder............... 12
-----------------------------------------
</TABLE>
(1)
<PAGE>
<TABLE>
<S> <C>
5.2 Rule 144...................................................... 12
--------
5.3 Representations and Warranties................................ 13
------------------------------
5.3.1 Validity................................................ 13
--------
5.3.2 No Inconsistent Agreements.............................. 13
--------------------------
5.3.3 Furnish Information..................................... 13
-------------------
5.3.4 Assignment.............................................. 13
----------
6. Miscellaneous Provisions.............................................. 13
------------------------
6.1 Amendments; Waivers........................................... 13
-------------------
6.2 Integration................................................... 13
-----------
6.3 Governing Law................................................. 14
-------------
6.4 Headings...................................................... 14
--------
6.5 Counterparts.................................................. 14
------------
6.6 Successors and Assigns........................................ 14
----------------------
6.7 Expenses; Legal Fees.......................................... 14
--------------------
6.8 Representation by Counsel; Interpretation..................... 14
-----------------------------------------
6.9 Specific Performance.......................................... 14
--------------------
6.10 Time is of the Essence....................................... 14
----------------------
6.11 Notices...................................................... 14
-------
</TABLE>
(2)
<PAGE>
EXHIBIT 11.1
BALANCE BAR COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Amounts In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net income (loss)........................................ $ (85) $1,615 $1,660
Less--Preferred stock dividends.......................... -- -- --
------ ------ ------
Income (loss) available to shareholders.................. $ (85) $1,615 $1,660
====== ====== ======
Weighted average number of shares outstanding for basic
earnings per share...................................... 7,800 8,410 9,302
Effect of dilutive securities (shares issuable upon
exercise of stock options determined by the treasury
stock method)........................................... -- 933 1,741
------ ------ ------
Weighted average number of shares outstanding for diluted
earnings per share...................................... 7,800 9,343 11,043
====== ====== ======
Earnings (loss) per share:
Basic................................................... $(0.01) $ 0.19 $ 0.18
====== ====== ======
Diluted................................................. $(0.01) $ 0.17 $ 0.15
====== ====== ======
</TABLE>
- --------
Note--In connection with the Company's initial public offering, the Company has
obtained commitments from all of the holders of convertible preferred
stock to convert the preferred stock to common stock. As such, the
preferred shares (634) have been included in the calculation of basic
earnings (loss) per share.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 7, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE BAR
COMPANY'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND THE RELATED
STATEMENTS OF OPERATIONS, SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 89 1,119
<SECURITIES> 0 0
<RECEIVABLES> 3,490 1,457
<ALLOWANCES> (46) (22)
<INVENTORY> 3,806 583
<CURRENT-ASSETS> 9,438 3,299
<PP&E> 1,241 111
<DEPRECIATION> (230) (55)
<TOTAL-ASSETS> 10,796 3,374
<CURRENT-LIABILITIES> 6,464 1,212
<BONDS> 1,413 0
0 0
6 6
<COMMON> 9 9
<OTHER-SE> 4,089 2,147
<TOTAL-LIABILITY-AND-EQUITY> 10,796 3,374
<SALES> 39,634 10,544
<TOTAL-REVENUES> 39,684 10,551
<CGS> 19,801 5,272
<TOTAL-COSTS> 36,785 8,688
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 29 10
<INTEREST-EXPENSE> 23 23
<INCOME-PRETAX> 2,876 1,840
<INCOME-TAX> 1,216 225
<INCOME-CONTINUING> 1,660 1,615
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,660 1,615
<EPS-PRIMARY> 0.18 0.19
<EPS-DILUTED> 0.15 0.17
</TABLE>
