<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ to ______
Commission File Number 000-24007
BALANCE BAR COMPANY
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(Exact Name of Registrant as Specified in its Charter)
Delaware 77-0306617
- -------------------------------- -----------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1015 Mark Avenue
Carpinteria, California 93013
- -------------------------------------- -----------------------------
(Address of Principal Executive Office) (Zip Code)
(805) 566-0234
---------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
At August 6, 1999, the registrant had 11,829,343 shares of its common stock
outstanding.
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Balance Bar Company
Index To Form 10-Q
Quarter Ended June 30, 1999
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Income Statements 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
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Balance Bar Company
Balance Sheets
(amounts in 000's, except par value)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- ------------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,427 $ 6,475
Marketable securities --- 697
Accounts receivable, net 10,254 10,686
Income taxes receivable 294 32
Inventories 7,239 5,002
Prepaid and other 1,956 2,330
Deferred taxes 650 624
------- -------
Total current assets 25,820 25,846
------- -------
Property and equipment, net 1,430 1,105
Investment and other assets 3,545 30
------- -------
Total assets $30,795 $26,981
======= =======
Current liabilities:
Accounts payable $ 5,995 $ 5,080
Accrued payroll 634 1,069
Accrued commissions 531 404
Other accrued expenses 1,269 501
------- -------
Total current liabilities 8,429 7,054
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value
Authorized - 24,000 shares
Issued and outstanding - 11,829 in 1999 and
11,339 in 1998 118 113
Additional paid-in capital 13,674 13,115
Retained earnings 8,574 6,699
------- -------
Total stockholders' equity 22,366 19,927
------- -------
Total liabilities and equity $30,795 $26,981
======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
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Balance Bar Company
Income Statements
(amounts in 000's, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------------- ----------- -------- -------
<S> <C> <C> <C> <C>
Sales $26,288 $20,556 $47,125 $38,013
Cost of sales 13,537 10,491 24,304 19,505
------- ------- ------- -------
Gross profit 12,751 10,065 22,821 18,508
------- ------- ------- -------
Expenses:
Advertising 4,537 2,564 6,858 4,194
Selling and marketing 5,224 4,067 10,008 7,589
General and administrative 1,539 1,358 2,956 2,415
Interest (income) expense (100) 40 (179) 98
------- ------- ------- -------
Total expenses 11,200 8,029 19,643 14,296
------- ------- ------- -------
Income before income taxes 1,551 2,036 3,178 4,212
Income taxes 636 834 1,303 1,726
------- ------- ------- -------
Net income $ 915 $ 1,202 $ 1,875 $ 2,486
======= ======= ======= =======
Earnings per share:
Basic $ 0.08 $ 0.12 $ 0.16 $ 0.25
======= ======= ======= =======
Diluted $ 0.07 $ 0.10 $ 0.15 $ 0.21
======= ======= ======= =======
Weighted shares outstanding:
Basic 11,800 10,287 11,749 9,945
======= ======= ======= =======
Diluted 12,864 12,210 12,916 11,948
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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Balance Bar Company
Statements of Cash Flows
(amounts in 000's)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,875 $ 2,486
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 284 304
Compensation expense in connection
with stock options 70 114
Changes in operating assets and liabilities:
Accounts receivable 432 (4,106)
Inventories (2,237) (2,743)
Prepaid and other 359 (810)
Accounts payable 915 780
Accrued liabilities 460 765
Income taxes 118 326
------- -------
Net cash provided by (used in) operating activities 2,276 (2,884)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (609) (520)
Investment in Bariatrix (3,500) ---
Purchases of marketable securities --- (3,885)
Maturity of marketable securities 697 ---
------- -------
Net cash flows used in investing activities (3,412) (4,405)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering --- 9,798
Initial public offering costs, net of reimbursement --- 115
Reduction in short-term and other borrowings --- (1,402)
Proceeds from exercise of stock options 88 137
------- -------
Net cash flows provided by financing activities 88 8,648
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,048) 1,359
CASH AND CASH EQUIVALENTS, beginning of period 6,475 89
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 5,427 $ 1,448
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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Balance Bar Company
Notes to Financial Statements
June 30, 1999
Note 1. Accounting Policies
Basis of Presentation
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and note disclosures required by generally
accepted accounting principles for complete financial statements. All
adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation have been included. These unaudited financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1998 Annual Report on Form 10-K. The results
of operations for these interim periods are not necessarily indicative of the
operating results for a full year.
Inventories
Inventories consist of the following at June 30, 1999 and December 31, 1998
(in 000's):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Balance Bars $4,386 $3,555
Total Balance 1,710 ---
40-30-30 Powdered Drink Mix 255 486
Packaging material and other 888 961
------ ------
$7,239 $5,002
====== ======
</TABLE>
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding for the period plus the dilutive effect of stock options. The
weighted average number of shares outstanding for the three months ended June
30, 1999 and 1998 was 11,800,000 and 10,287,000, respectively, and for the six
months ended June 30, 1999 and 1998 was 11,749,000 and 9,945,000, respectively.
The dilutive effect of stock options for the three months ended June 30, 1999
and 1998 was 1,064,000 and 1,923,000, respectively, and for the six months ended
June 30, 1999 and 1998 was 1,167,000 and 2,003,000, respectively. Excluded from
the calculation of earnings per share for the three months ended June 30, 1999
were 532,000 stock options because these stock options were anti-dilutive.
Note 2. Investment in Bariatrix
The Company purchased 10% of the voting securities of Bariatrix Products
International Incorporated ("Bariatrix") in May 1999 for $3.5 million.
Bariatrix manufacturers Balance Bars and 40-30-30 Powdered Drink Mixes in
Montreal Canada. Approximately 23% of the purchases of Balance Bars and 40-30-
30 Powdered Drink Mixes during the six months ended June 30, 1999 were made from
Bariatrix. Bariatrix is using the proceeds from the investment and internal and
debt financing to build a new manufacturing facility.
6
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Note 3. Stockholders' Equity
During the six months ended June 30, 1999, 490,259 shares of common stock
were issued in connection with the exercise of stock options. Additional paid-
in capital increased by $406,000 in the six months ended June 30, 1999 as a
result of the tax benefit realized on the exercise of certain stock options.
Stockholders have authorized 24 million shares of common stock and 12
million shares of preferred stock. At June 30, 1999, the Company had 11,829,343
shares of common stock and no shares of preferred stock outstanding.
Note 4. Significant Customers
During the six months ended June 30, 1999, the Company had sales to three
customers that represented approximately 20%, 14% and 14%, respectively, of
sales. During the six months ended June 30, 1998, the Company had sales to
three customers that represented approximately 17%, 16% and 11%, respectively,
of sales.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company has made and will continue to make oral and written forward-
looking statements. These statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "intends" or comparable
terminology. Certain forward-looking statements are contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
including the expected adequacy of available funds to meet foreseeable needs,
expected advertising expenditures and expectations about seasonality of sales.
Except for the historical information contained herein, the following discussion
and analysis contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. These risks include risks associated with
developing and selling new products (such as creating consumer trial and
obtaining consumer acceptance of the products), maintaining acceptance in new
distribution channels, avoiding volatility in sales and earnings, anticipating
changes in dietary trends, avoiding adverse publicity, maintaining sales to
significant customers and other risk factors. 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 the Company's 1998
Annual Report on Form 10-K, as well as those discussed elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
statement data expressed as a percentage of sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 51.5 51.0 51.6 51.3
----- ----- ----- ----
Gross profit 48.5 49.0 48.4 48.7
----- ----- ----- ----
Expenses:
Advertising 17.2 12.5 14.6 11.0
Selling and marketing 19.9 19.8 21.2 20.0
General and administrative 5.9 6.7 6.3 6.3
Interest (income) expense (.4) .1 (.4) .3
----- ----- ----- ----
Total expenses 42.6 39.1 41.7 37.6
----- ----- ----- ----
Income before income taxes 5.9 9.9 6.7 11.1
Income taxes 2.4 4.1 2.7 4.6
----- ----- ----- ----
Net income 3.5% 5.8% 4.0% 6.5%
===== ===== ===== ====
</TABLE>
Sales increased 28% to $26.3 million in the three months ended June 30,
1999 from $20.6 million in the same period of 1998. Sales increased 24% to
$47.1 million in the six months ended June 30, 1999 from $38.0 million in the
same period of 1998. The increase was primarily attributable to increased sales
at mass merchandise, club and grocery stores. Several customers ran special
sales promotions in the three and six months ended June 30, 1999 and
approximately $500,000 and $1.2 million, respectively, of the increase was due
to increased sales to those customers. Several customers ran special sales
promotions in the three and six months ended June 30, 1998 and approximately
$1.7 million and $4.5 million, respectively, of sales were special sales
promotions. The addition of three nutraceutically-enhanced Balance Bars in
November 1998, under the Balance+TM brand, also favorably impacted sales in the
three and six months ended June
8
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30, 1999. Sales of Balance+ were 15% of sales in the three and six months ended
June 30, 1999. The introduction in March 1999 of Total BalanceTM , a new product
line of nutritional shakes, also favorably impacted sales in the second quarter
of 1999. Sales of Total Balance were 4% of sales in the three months ended June
30, 1999. In the first quarter of 1999, the Company discontinued three Balance
Bar flavors. Two of the Balance+ flavors are variations of the discontinued
flavors. The three discontinued flavors were 7% of 1998 sales of Balance Bars.
Sales to customers other than natural foods distributors and retailers were
63% of sales in the three months ended June 30, 1999, compared to 48% in the
three months ended June 30, 1998. Sales to the Company's six largest customers
were 66% of sales in the three months ended June 30, 1999, compared to 63% in
the three months ended June 30, 1998. Sales to Costco Wholesale, McLane
Distribution Services and Trader Joe's for the three months ended June 30, 1999
were 19%, 18% and 13%, respectively, of sales. Sales to Costco Wholesale,
McLane Distribution Services and Trader Joe's for the six months ended June 30,
1999 were 20%, 14% and 14%, respectively, of sales. Sales to customers in the
United States were 99% of sales for the three months ended June 30, 1999 and
1998. Sales of the Balance Bar product line (Balance(R), Balance+ and Balance
Outdoor) were 92% of sales in the three months ended June 30, 1999, compared to
97% in the three months ended June 30, 1998.
Gross profit dollars increased to $12.8 million in the three months ended
June 30, 1999 from $10.1 million in the same period of 1998. Gross profit
dollars increased to $22.8 million in the six months ended June 30, 1999 from
$18.5 million in the same period of 1998. The gross profit margin declined to
48.5% in the three months ended June 30, 1999 from 49.0% in the same period of
1998. The gross profit margin declined to 48.4% in the six months ended June
30, 1999 from 48.7% in the same period of 1998. The decline in gross profit
margin was due to the lower gross profit margin of the Total Balance product
line. The 1999 cost of sales also included a provision for costs related to the
discontinuance of three Balance Bar flavors, offset by a decrease in the
Company's purchase price of certain Balance Bar products.
Advertising expenses increased to $4.5 million in the three months ended
June 30, 1999 from $2.6 million in the same period of 1998. Advertising
expenses increased to $6.9 million in the six months ended June 30, 1999 from
$4.2 million in the same period of 1998. The planned increase was due to
additional television advertising. The Company began airing three new Balance
Bar television commercials beginning in May 1999. The Company expects to
increase advertising expenses in the third quarter of 1999 compared to the same
period in 1998 to support the launch of Total Balance.
Selling and marketing expenses increased to $5.2 million in the three
months ended June 30, 1999 from $4.1 million in the same period of 1998.
Selling and marketing expenses increased to $10.0 million in the six months
ended June 30, 1999 from $7.6 million in the same period of 1998. The increase
was due to higher personnel-related costs, and higher broker commission and
retailer marketing support expenses 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 to 19.9% of sales in the three
months ended June 30, 1998 from 19.8% in the same period of 1998, and to 21.2%
of sales in the six months ended June 30, 1999 from 20.0% in the same period of
1998.
General and administrative expenses increased to $1.5 million in the three
months ended June 30, 1999 from $1.4 million in the same period of 1998.
General and administrative expenses increased to $3.0 million in the six months
ended June 30, 1999 from $2.4 million in the same period of 1998. The increase
was due to higher payroll-related costs. In addition, new product development
expenses increased significantly in 1999. General and administrative expenses
as a percentage of sales decreased to 5.9% of sales in the three months ended
June 30, 1999 from 6.7% in the same period of 1998, and was 6.3% of sales in the
six months ended June 30, 1999 and 1998.
Interest (income) expense increased to $100,000 of interest income in the
three months ended June 30, 1999 from $40,000 of interest expense in the same
period of 1998. Interest (income) expense increased to $179,000 of interest
income in the six months ended June 30, 1999 from $98,000 of interest expense in
the same period of 1998. The interest income in 1999 was due to the investment
of a portion of the net
9
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proceeds from the June 1998 initial public offering of common stock. The
interest expense in 1998 was due to borrowings under the Company's line of
credit and term loan agreements.
The effective tax rate in the three and six months ended June 30, 1999 and
1998 was 41.0%.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of cash flows for all periods has been from Balance Bar
product line sales. For the six months ended June 30, 1999, cash generated from
operations was sufficient to fund working capital needs and purchase property
and equipment. For the six months ended June 30, 1998, cash generated from
operations was not sufficient to fund increases in working capital and purchase
property and equipment. The Company entered into credit agreements that were
used to finance the shortfall. In June 1998, the Company sold 1,003,372 shares
of common stock and raised $9,478,000 and the proceeds were used to repay
outstanding short and long-term debt and fund working capital needs.
The increase in accounts receivable, inventory and prepaid advertising and
marketing expenses of $1.2 million in the six months ended June 30, 1999 was
offset by increased accounts payable of $915,000. The increase in accounts
receivable, inventory and prepaid advertising and marketing expenses of $7.2
million in the six months ended June 30, 1998 was offset by increased accounts
payable of $780,000. Cash provided by (used in) operating activities was $2.3
million and $(2.9) million in the six months ended June 30, 1999 and 1998,
respectively.
Cash used in investing activities was for the purchase of property and
equipment, an investment in one of the Company's nutrition bar manufacturers,
net of the maturity of marketable securities. Purchases of property and
equipment in the six months ended June 30, 1999 and 1998 were $609,000 and
$520,000, respectively. The 1999 capital investments were for a trade show
booth, computer hardware and software and packaging tooling. In May 1999, the
Company purchased a 10% interest in one of the Company's two nutrition bar
manufacturers for $3.5 million. A portion of the initial public offering
proceeds in 1998 was used to purchase $3.9 million of marketable securities in
1998. Of this amount, $697,000 matured in the six months ended June 30, 1999.
Cash used in investing activities was $3.4 million and $4.4 million in the six
months ended June 30, 1999 and 1998, respectively.
Cash provided by financing activities was from the net proceeds of the
initial public offering, net of repayments of short-term borrowings and the
proceeds from the exercise of stock options. In June 1998, the Company sold
1,003,372 shares of common stock and realized proceeds of $9.8 million. In
connection with the initial public offering of common stock, the Company
incurred offering costs of $320,000 and the selling shareholders reimbursed the
Company for offering costs paid in the fourth quarter of 1997. In the six
months ended June 30, 1998, the Company borrowed $2.4 million under a revolving
line of credit, and $3.8 million of the proceeds from the initial public
offering were used to repay short and long-term debt. During the six months
ended June 30, 1999 and 1998, 490,259 and 767,005 shares, respectively, of
common stock were issued in connection with the exercise of stock options. Cash
provided by financing activities was $88,000 and $8.6 million in the six months
ended June 30, 1999 and 1998, respectively.
In June 1999, the Company entered into a supply agreement with a
company that owns two ready-to-drink manufacturers. These manufacturers use
formulas owned by the Company to manufacture Total Balance. These manufacturers
supply the Company's products at a fixed price per unit. The prices are subject
to increase upon 75 - 90 days notice if raw material prices, labor rates or
exchange rates rise. The Company provides no raw materials or product packaging
to these contract manufacturers. The Company is indemnified against product
liability relating to the manufacture and shipment of the products and has
indemnified the manufacturers against product liability arising from the
labeling and packaging of the products and from use of the formulas. The
consumer demand for Total Balance is uncertain at this time due to the recent
introduction of this new product. If consumer demand exceeds the capacity of
these contract manufacturers to produce Total Balance, the Company will attempt
to qualify a new contract manufacturer. Due to the uncertainties of any new
product launch, there can be no assurances that Total Balance will achieve
consumer acceptance or that manufacturing capacity will support consumer demand.
10
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The Company increased inventories by purchasing an additional $1.7 million of
Total Balance in the six months ended June 30, 1999.
As of June 30, 1999, the Company had a $15 million revolving line of credit
of which $7.9 million was available (based upon 80% of eligible accounts
receivable and 25% of eligible inventories), none of which was outstanding. The
line of credit is secured by all of the Company's assets. The line of credit
bears interest at the bank's prime rate (7.5 percent at June 30, 1999), and
matures in April 2001.
In May 1999, the Company made a $3.5 million investment in Bariatrix. In
the future, the Company may make other investments, acquire companies or product
lines, or license products that complement the Company's existing product lines.
The Company is not able to predict when a prospective investment or acquisition
candidate might become available, the terms of the financing, when any
transaction might be closed or the effect of any acquisition on the Company's
business, results of operations or financial condition.
The Company expects to use the net proceeds from the initial public
offering, over the next two to three quarters, to fund increases in accounts
receivable, inventory, prepaid advertising and marketing expenses and purchase
property and equipment. When the net proceeds are expended, the Company expects
to fund increases in accounts receivable, inventory, prepaid advertising and
marketing expenses and purchase property and equipment from borrowings under the
revolving line of credit. The Company believes that it has adequate capital
resources and liquidity to meet anticipated cash needs for working capital and
capital expenditures for at least the next 12 months.
SEASONALITY OF SALES
The Company did not observe seasonality in sales in 1998 due to the
significant expansion of distribution and resulting sales increase. The Company
believes it experienced a seasonal increase in sales in the second quarter of
1999 due to retailers' emphasis on fitness foods and outdoor activities. The
Company believes it experienced a seasonal decline in sales in the first quarter
of 1999 due to retailers' emphasis on diet foods in that quarter. The Company
had expected a seasonal increase in the first quarter of 1999, but one new diet
bar brand gained most of the consumer interest in diet energy bars. The Company
believes that there may be some seasonally reduced sales in the fourth quarter
due to retailers' emphasis on holiday foods in that quarter. In addition, the
Company believes that there may be seasonally increased sales in the third
quarter for the same reasons impacting the second quarter.
YEAR 2000 COMPLIANCE
The Company has installed a new sales, inventory and accounting system that
the vendor has represented to be Year 2000 compliant. The Company does not
anticipate any significant expenses with Year 2000 compliance problems. The
Company's two nutrition bar and powdered drink mix contract manufacturers have
informed the Company that they are each Year 2000 compliant. The Company has
requested information from its two ready-to-drink contract manufacturers and
from certain of its major distributors and retailers about Year 2000 compliance
issues, if any, they are facing. The responding customers have plans to address
the business risks they face. The process of obtaining this information is
ongoing. The Company is also exposed, as are all companies, to Year 2000
compliance issues facing advertisers and other significant vendors used by the
Company. The Company intends to modestly increase inventory levels late in 1999
to create a contingent supply of inventory. This step is being taken to
mitigate the risk of an unforeseen disruption in the supply of inventories.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no significant changes to the information reported in the 1998
Annual Report on Form 10-K.
11
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 annual meeting of stockholders was held on May 14, 1999.
Stockholders approved the election of two Class I directors and ratified the
appointment of Arthur Andersen LLP as the Company's independent public
accountant for 1999. The two Class I directors, elected to serve until the 2003
annual stockholders meeting are Barry D. Goss and Dennis Ryan McCarthy:
10,790,110 votes were cast in favor of the two directors, 19,650 votes were cast
against the two directors and no votes were cast for any other person. In
addition, 10,321,543 votes were cast in favor of the appointment of Arthur
Andersen LLP, 3,825 votes were cast against the appointment and 483,992 votes
abstained. The Class II and Class III directors have terms that expire at the
2000 and 2001 annual stockholders' meetings, respectively. The Class II
directors are John Hale, George F. Raymond and James A. Wolfe. The Class III
directors are Thomas R. Davidson, Adelle M. Demko and Richard G. Lamb.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits that are included in this Report is found on the
Exhibit Index on page 14 of this Report, and are incorporated by reference.
(b) There were no reports on Form 8-K for the three months ended June 30,
1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Balance Bar Company
-------------------
(Registrant)
Date: August 6, 1999 By /s/ Thomas J. Flahie
-------------------------------------------
Thomas J. Flahie
Senior Vice President of Finance and
Administration (Principal Financial and
Accounting Officer)
13
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Exhibit Index
Exhibit No. Description
10.1 (1) Supply Agreement between Aseptic Foods Group, Inc.,
Real Fresh, Inc., Major Smith Division of Zausner Foods
Corp. and Balance Bar Company
10.2 Subscription Agreement between Bariatrix Products
International Incorporated, Balance Bar Company and
shareholders of Bariatrix Products International
Incorporated
10.3 Bariatrix Products International Incorporated
Unanimous Shareholders Agreement
27.1 Financial Data Schedule
________
(1) The Company has requested confidential treatment for portions of this
agreement.
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EXHIBIT 10.1
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is made and entered into as of
December 31, 1998 by and between Aseptic Foods Group, Inc., a Delaware
corporation, Real Fresh, Inc., a California corporation, and the Major Smith
Division of Zausner Foods Corp, a Delaware corporation (collectively, "AFG") on
the one hand, and Balance Bar Company, a Delaware corporation having offices in
Carpinteria, California ("BBC"), on the other hand.
RECITALS
--------
A. AFG is in the business of manufacturing canned nutritional drinks.
BBC is in the business of distributing such products.
B. As detailed in this agreement, AFG wishes to sell to BBC, and BBC
wishes to purchase from AFG, cases of Total Balance nutritional beverage as more
specifically described on Exhibit I hereto (the "Products"). The Products are
to be manufactured by AFG under this supply agreement with BBC and are to be
distributed by BBC.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto, for good and sufficient consideration,
the receipt of which is hereby acknowledged, and intending to be legally bound,
do hereby agree as follows:
I. Price, Terms and Title.
----------------------
A. AFG shall produce, package and deliver (or tender for delivery) and
sell to BBC, and BBC shall purchase from AFG a minimum of ( * ) cases
per year during the term of the contract, the Products at the prices and on the
terms set forth on the Price List and Bills of Material in Exhibit I hereto (the
"Price List"). The Price List may be changed only as set forth below in this
Section I, but may not be changed within six months of the date of first
production.
B. The parties agree that the price for the Products includes AFG's cost
of packing. Packing shall include, without limitation, putting labels on
individual cans of the Products, placing such individual cans in hi-cone or
cardboard sleeves (permission will be needed by equipment owners if so requested
by BBC) and in corrugated cardboard shipping trays with BBC-supplied shipping
container code labels attached, putting such containers on pallets including
adequate pallet wrap. These items are set forth on the Bills of Material in
Exhibit I. Any other labor, special packing, boxing, crating, or cartage which
is required by BBC will be for BBC's account unless
1
<PAGE>
specifically agreed to in advance and in writing between the parties, in which
case Exhibit I will be modified.
C. AFG will have the right to adjust the prices set forth on the Price
List by providing to BBC a notice of such a price adjustment not less than
( * ) days prior to the proposed effective date of such price adjustment.
Any such price adjustment will be made only if required by the aggregate effect
of (i) actual changes in the cost of ( * ) ( * ); and (ii) actual
changes in the cost of the ingredients and/or packaging utilized in the
Products.
D. A price adjustment will be proposed only if the aggregate effect of
the foregoing changes is greater than or equal to a ( * )
increase over the previous base used for pricing for ingredients, labor and
variable overhead. Upon request by BBC, AFG will provide BBC with documentary
evidence of the changes in such factors together with the notice of the price
adjustment. Should BBC reject the proposed price adjustment, then AFG may cease
production of the item concerned, or, if requested by BBC, reformulate the item
with the approval of BBC to meet the requirements of economic manufacturing. In
the event of a significant reduction ( * ) in either of the two
factors listed above, AFG will promptly notify BBC of such reduction, and the
parties agree to implement an equitable price reduction based on the same
methodology as in calculating a price increase.
E. AFG reserves the right to invoice BBC upon shipment of Product to a BBC
warehouse. Invoicing will take place ( * ) days after the production of BBC
Products or upon their sale to a BBC customer, whichever is earlier. Title to
Products shall pass to BBC upon invoicing. All Products must be released by AFG
Quality Assurance prior to invoicing.
F. Payment terms will be ( * ). BBC will pay interest
of 1% per month for payments not mailed within thirty days
G. The Products will be shipped FOB to one of BBC's contract warehouses in
Visalia, California or New Holland, Pennsylvania, as specified in BBC Purchase
Orders. The shipping costs for Products to the warehouse specified on the
purchase order will be paid by AFG. If for any reason AFG produces the Products
at a plant other than at the Visalia or New Holland plant, specified in the
purchase order, AFG will deliver the Product FOB to the warehouse specified in
the purchase order.
H. AFG shall not sell any BBC Products to any persons or parties other
than BBC.
I. AFG and BBC each represent and warrant that, to the best of its
respective knowledge, the prices set forth on the Price List do not and will not
violate any federal, state, county or municipal law or regulation relative to
price discrimination, price-fixing, or price stabilization. Without limiting the
foregoing, AFG will not communicate with any other supplier or potential
supplier of Products to BBC with respect to the pricing of the Products.
2
<PAGE>
J. The Products will be delivered free and clear of any and all liens,
security interests or encumbrances. AFG will be entitled to claim a security
interest in these Products until Title changes to BBC.
II. Supply of Proprietary Packaging.
-------------------------------
Upon AFG's request, BBC shall furnish to AFG, in a timely manner,
complete artwork, printing film, dies, nutritional disclosure information, and
specifications for all labeling, consumer, and shipping packaging bearing BBC's
name, trade name or other trademarks (collectively, "Proprietary Packaging") to
be used in AFG's manufacturing. AFG shall not be liable for damages resulting
from BBC's failure to abide by this provision.
III. Representations and Warranties.
---------------------------------
A. AFG represents and warrants that no Products when shipped by AFG
shall be adulterated or misbranded within the meaning of the Federal Food, Drug
and Cosmetic Act, as amended. AFG represents and warrants that all Products
produced and packaged for sale in the United States will be manufactured, stored
and shipped by AFG in accordance with (i) all applicable standards of the U.S.
Food and Drug Administration, and (ii) all other applicable federal, state, and
local laws, rules and regulations
B. AFG and BBC represent and warrant that while the Products are in each
respective Party's control; the Products shall be maintained in conditions
(including transportation and storage) that will not lead to contamination or
other spoilage.
C. BBC represents and warrants that it is the authorized owner or
licensee of the Proprietary Packaging.
D. AFG represents and warrants that the Products will be free of
defects and fit for human consumption. AFG acknowledges the Quality Manual to be
delivered to AFG by BBC and warrants that all Products to be produced for BBC
will meet the product specifications and product production and packaging
procedures specified in that manual.
IV. Ownership of Formulation, Trademarks, and Confidentiality.
---------------------------------------------------------
A. AFG acknowledges that AFG has no ownership rights to the formulation
of the Products. Both Parties agree to be bound by the Confidentiality
Agreements already signed by the Parties for the life of this Agreement. The
parties further agree that the formulations and ingredient specifications of the
Products, all marketing plans, marketing and sales data, financial information,
customer lists, and preferences of BBC (collectively, "Proprietary Materials")
are considered trade secrets of BBC. If this Agreement is terminated, each Party
will return all proprietary materials to the other Party, upon written request,
except as required for regulatory record keeping. BBC hereby
3
<PAGE>
grants AFG a limited, non-exclusive license to use the Proprietary Materials for
the purposes that may be directed by BBC hereunder. AFG agrees not to use or
disclose such Proprietary Materials (or any past formulations of the Products),
other than in accordance with this Agreement, without the written consent of BBC
except where required by law. AFG will hold all such Proprietary Materials
in complete and strict confidence, and will maintain the confidentiality of all
such Proprietary Materials. Proprietary Materials shall not include information
which (i) was in the public domain at the time of AFG's receipt from BBC, or
which thereafter comes into the public domain without breach of an obligation
assumed hereunder, or (ii) was known and can be shown to have been known by AFG
at the time of receipt from BBC and was not previously acquired directly or
indirectly from BBC on a confidential basis; or (iii) becomes known to AFG on a
non-confidential basis through a third party whose own acquisition and
disclosure were entirely independent of AFG, not in breach of any obligation
hereunder and not obtained on a confidential basis from BBC.
In event of termination of the Agreement, AFG will return to BBC all
Proprietary Materials and will not keep any copies of such Proprietary Materials
or any portions thereof, except a single archival copy as may be required for
any subsequent legal inquiry or investigation. AFG acknowledges that the use of
ambient temperature water dispersion of proteins and minimal heat processing, as
applied pursuant to BBC's Product Manual for liquid portion beverages and will
not offer for use this method in connection with competitive products. AFG may
use this technology if it is brought to them by other customers.
B. Exclusive Production - During the term of this agreement including any
renewal or extension, AFG will not produce or sell in any sales venue, for any
person or entity, including themselves, other than BBC, any nutritional
beverages using formulations substantially similar to those of Total Balance
Beverage. Substantially similar is defined as a product containing all of the
following characteristics:
( * )
( * )
( * )
C. Trademark Protection - AFG will notify BBC promptly if any person or
entity approaches AFG requesting that it produce any product which would use any
of the following: "Total Balance/TM/", "Balance(R)", "Balance Bar/TM/",
"40-30-30 Naturally/TM/", "Balance, the Complete Nutritional Energy Drink/TM/",
or "40-30-30 Balance/TM/", or any confusingly similar variant thereof.
V. Ordering, Supply, and Recall.
----------------------------
A. Details of product ordering, delivery, and product warehousing are
attached in Exhibit II.
B. Product Recall - If BBC, AFG, any regulatory agency, or any BBC customer
discovers defect or circumstance which necessitates a recall of any Products,
AFG agrees to indemnify BBC for all reasonable costs associated with the recall,
including, but not
4
<PAGE>
limited to, return freight, public relations expense, lost opportunity costs,
replacement product and freight. AFG agrees to issue a credit for the full
amount of the invoiced value of all recalled product to the account of BBC
immediately upon determination of the existence of the defective product. AFG
also agrees to replace at the prices agreed to hereunder all defective product
on a top priority basis ahead of other customers. The foregoing provisions shall
not apply to the extent that the recall is not the fault of AFG. If there is a
dispute as to the necessity of a recall, both parties agree to abide by a ruling
of the National Food Processors Association or National Food Laboratories. BBC
agrees to use its best efforts in the event of a recall or other product action
to return affected product to AFG.
C. Strike Conditions - ( * )
( * )
( * )
D. Inability to Supply: Should AFG be unable to supply BBC with product
adequate to meet manufacturing forecasts six months into the future, then AFG
will work in good faith to cooperate with BBC to develop additional capacity at
AFG or to cooperate with BBC to develop another co-packer to produce part or
all of the product.
VI. Insurance.
---------
AFG and BBC each agree to maintain product liability insurance written
by a responsible rated insurance carrier. Throughout the term of this Agreement,
each of AFG and BBC will maintain products liability insurance with an insurer
of international stature with coverage in the USA with at least a ( * )
limit on liability, which policy will reflect the other parties hereto as
additional insureds. Copies of such policies and certificates for such insurance
will be provided within thirty (30) days of request. Each such policy will
provide not less than thirty (30) days prior notice to the additional insureds
in the event of cancellation. If this agreement is terminated, each party agrees
to maintain insurance coverage in force for all of the products sold under this
agreement that are still in the marketplace or in BBC inventory. AFG agrees to
provide insurance certificates naming specific BBC customers as additional
insureds within ten (10) days of such a request by BBC.
VII. Termination.
-----------
A. Unless earlier terminated pursuant to Section VII (B) or (C) below,
this Agreement will continue until December 31, 2003. On December 31 of each
year during the term of this Agreement, commencing December 31, 1998, the
remaining term of this Agreement will be extended automatically for an
additional year, unless either party shall have given the other written notice
of non-renewal at least one hundred eighty (180) days prior to such December 31.
B. Either party may terminate this Agreement at any time upon the
occurrence of one or more of the following events with respect to the other
party (the "Defaulting
5
<PAGE>
Party"). (i) Failure to pay any amounts within thirty (30) days of when due
unless there is a bona fide dispute as to the amount owed; (ii) Subject to the
provisions of Section XI, the breach of or default under any material provision
of this Agreement if the Defaulting Party has been provided thirty (30) days
prior written notice of its breach or default by certified mail and, during such
period, the Defaulting Party has failed to cure such breach or default, or (iii)
Bankruptcy or insolvency of the Defaulting Party, unless such action shall be
involuntary, in which case the Defaulting Party will be given sixty (60) days to
cure the default.
C. Such termination will not abridge or limit the right of either party
to seek damages or other redress as a result of such breach.
D. The provisions of Sections III, IV, V(B), VI, VIII and IX will
survive any termination of this Agreement.
VIII. Indemnification.
---------------
A. Each of the parties (the party indemnifying the other is hereinafter
referred to as the "Indemnifying Party") will indemnify, defend and hold the
other party (the "Indemnified Party") and its directors, officers, employees,
agents, attorneys, insurers, shareholders and affiliates (its "Related Persons")
harmless from and against any claims, damages, liabilities, costs and expenses,
including the reasonable fees and expenses and of counsel (collectively,
"Losses"), resulting from any breach or violation of any representation,
warranty, covenant or agreement of such party set forth in this Agreement.
B. BBC will indemnify and hold AFG and its Related Persons harmless from
and against any Losses arising out of or in connection with BBC's acts and
obligations hereunder or in conjunction with the Proprietary Materials, the use
and distribution of Product Packaging, including, without limitation, any claim
based on an alleged infringement of the patent, trademark, or other
intellectual property rights of another party arising out of such items, except
to the extent that such Losses are attributable to any negligence or misconduct
of AFG.
C. AFG will indemnify and hold BBC and its Related Persons harmless from
and against any Losses arising out of, or in connection with the manufacture,
production and warehousing of Product until time of release, including, without
limitation, any product liability claims with respect to the Products, except to
the extent such losses are attributable to any negligence or misconduct of BBC.
D. The Indemnifying Party will have the right to defend any third party
claim, action or proceeding wherein the Indemnified Party and/or its Related
Persons are entitled to indemnification under the provisions of this Section;
provided, however, that the Indemnifying Party must conduct the defense of the
third party claim actively and diligently thereafter to preserve its rights in
this regard. The Indemnified Party and any Related Person may retain separate
co-counsel at its or their sole expense and participate in the defense of the
third party claim. Neither party will settle any such claim, action, or
6
<PAGE>
proceeding without the other party's consent or approval, unless the proposed
settlement involves only the payment of monetary damages by the settling party
and does not impose an injunction or other equitable relief on the other party
or such Related Persons. The Indemnified Party will fully cooperate, at the
expense of the Indemnifying Party, with the Indemnifying Party in the defense or
settlement of any claim, action or proceeding subject to the provisions of this
Section.
IX. Dispute Resolution:
------------------
In the event of a dispute arising out of or relating to this Agreement that
the parties cannot resolve between themselves without assistance, the Parties
agree to attempt to resolve such dispute through third-party mediation. Any such
dispute that is not resolved within thirty (30) days after a request for
mediation by either of the parties, will be settled by arbitration to be held in
San Francisco, California, in accordance with the then-applicable rules of
JAMS/Endispute or any successor thereto. The arbitrator shall be a person
experienced in the specialty foods industry with no prior affiliation with
either party. The arbitrator may grant injunctions or other relief in such
dispute, but may not award punitive or exemplary damages. The decision of the
arbitrator will be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction, and the parties hereby irrevocably consent to the
jurisdiction of the United States District Court for the Northern District of
California, or if that court has no jurisdiction, to the California Superior
Court in and for the County of San Francisco for this purpose. The arbitrator
will award to the prevailing party, on each material issue, that party's
reasonable attorney's fees and cost. The term "prevailing party" shall mean that
party which shall have substantially prevailed on a material issue in dispute.
As to distinct, severable issues in dispute, the arbitrator may decide which
party is the prevailing party. Accordingly, the arbitrator will have the
discretion to award attorney's fees to both parties, in amounts to be determined
by the arbitrator. If the arbitrator shall determine that as to separate and
distinct material issues having a bearing on an entitlement to relief, each of
the parties shall have been a prevailing party. Application for cost and
expenses shall be substantiated with documentary verification. The actual cost
of the arbitration itself will be borne by the losing party or will be allocated
between the parties in such proportions as the arbitrator decides, if they are
distinct, severable issues in dispute and the arbitrator determines that each
parties has to some extent, been a losing party.
X. Financial Information.
---------------------
Each party agrees to provide the other party with financial information
consisting of each parties' audited Annual Report or its parent's Annual Report,
credit references, and a D&B report, if requested. All financial information of
either party will be held in strict confidence by the other party.
XI. Force Majeure.
-------------
In the event that either party shall be delayed, hindered in or prevented
from the performance of any act required hereunder, by reason of war, Acts of
God, riots,
7
<PAGE>
insurrection, failure of power, or the act, failure to act or default of the
other party, or any other reason beyond such party's reasonable control, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay.
XIL. Notices.
-------
Any notice or other communication hereunder must be given in writing and
either (i) delivered in person; (ii) sent by recognized messenger or next-day
courier service; or (iii) mailed by certified mail, postage prepaid, to the
addresses as follows, or to such other addresses or to such other person as
either party shall have last designated by such notice to the other party. Each
such notice or other communication shall be effective if given by mail, three
days after such communication is deposited in the mail with first class postage
prepaid, addressed as aforesaid; or if given by any other means, when actually
delivered at such address.
IF TO BBC: IF TO AFG:
---------- ----------
Attn: Mr. Ray LaRue Attn: Chief Financial Officer
Sr. Vice President, Operations Aseptic Foods Group
Balance Bar Company Major Smith, Inc.
1015 Mark Avenue 158 West Jackson Street
Carpinteria, CA 93013 New Holland, PA 17557
Fax No.: (805) 566-7834 With a copy to:
---------------
With a copy to: Attn: Chief Financial Officer
--------------- Aseptic Foods Group
Thomas N. Harding Real Fresh
Seed, Mackall & Cole LLP 1211 East Noble Avenue
1332 Anacapa St., Suite 200 Visalia, CA 93292
Santa Barbara, CA 93101
Fax No.: (805) 962-1404 With a copy to:
---------------
Legal Counsel
236 E. 68/th/ Street
New York, New York 10021
8
<PAGE>
XIII. Entire Agreement.
----------------
A. Any headings used herein are for convenience and reference only and
will not be deemed to have any substantive effect.
B. This Agreement and the instruments referred to herein embody the
entire agreement and understanding between the parties relating to the subject
matter hereof and may not be amended, waived, or discharged except by an
instrument in writing executed by the party against whom enforcement of such
amendment, waiver or discharge is sought. All schedules attached are by this
reference incorporated herein.
C. Unless otherwise agreed by both parties in writing, this Agreement
applies to all purchase orders, sales acknowledgments and other documents of
purchase which BBC or AFG may deliver with respect to the Products after the
date hereof. The terms and conditions of this Agreement will apply to any such
document, whether or not this Agreement or its terms and conditions are
expressly referenced in such document.
D. If any claim is made by a party relating to any conflict, omission,
or ambiguity in the provisions of this Agreement, no presumption, burden of
proof, or persuasion will be implied because this Agreement was prepared by or
at the request of any party or its counsel, notwithstanding any statute or rule
of law to the contrary.
E. Whenever in this Agreement a person is permitted or required to make
a decision or determination (i) in its "discretion" or "sole discretion" or
under a grant of similar authority or latitude, the person will be entitled to
consider any interests and factors as it desires, including its own interests;
(ii) in its "good faith," in a "commercially reasonable" manner, "reasonably" or
under another express standard, the person will act under that express standard
and will not be subject to any other or different standards imposed by this
Agreement or otherwise; or (iii) if no standard is expressed, the person will
apply relevant provisions of this Agreement in making the decision or
determination.
F. No Waiver - The failure of either party to enforce at any time any of
the provisions hereof (including, without limitation, any inspection rights)
will not be construed to be a waiver of such provision, of any other provision,
or of the right of such party thereafter to enforce any such provision or other
provision.
G. Assignment - Neither party will transfer or assign its rights and
obligations hereunder without the prior written consent of the other. Such
consent will not be unreasonably withheld.
H. Governing Law - This Agreement will be governed by the Uniform
Commercial Code and other applicable laws of the State of California.
I. Independent Contractor Status - This Agreement does not in any way
create the relationship of joint venture, partnership, or principal and agent
between AFG and BBC. The parties have entered into this Agreement solely as
independent contractors. Neither party will have any right or authority to
assume or otherwise create any obligation or responsibility, express
9
<PAGE>
or implied, on behalf of or in the name of the other party, or to bind the other
party in any manner or thing whatsoever, without the other party's prior written
consent.
J. If any portion of this Agreement shall be deemed to be invalid or
unenforceable, the remainder shall be valid and enforceable to the maximum
extent permitted by law.
K. BBC agrees that labels for their products shall include acknowledgement
of the Endura trademark.
XIV. Securities Filings.
------------------
The parties agree that BBC will include a copy of this Agreement as an exhibit
to one or more filings with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended. BBC will also describe the terms of this Agreement in one
or more such filings. Any such filings will be available to the general public.
Notwithstanding the foregoing BBC will use its reasonable efforts to obtain
confidential treatment from the SEC for key provisions of the Agreement to the
extent feasible, as determined by BBC in consultation with its securities
counsel. BBC agrees to send a copy of the report to AFG prior to filing with the
SEC.
IN WITNESS WHEREOF, the parties hereto have placed their signatures on the dates
specified below.
"AFG" MAJOR SMITH, INC., a Delaware
ASEPTIC FOODS GROUP, INC., a corporation
Delaware corporation
By: /s/ Howard Covenko By: /s/ Howard Covenko
--------------------------- -----------------------------
Name: Howard Covenko Name: Howard Covenko
------------------------- ---------------------------
Title: V.P. Co Pack Sales Title: V.P. Co Pack Sales
------------------------ --------------------------
REAL FRESH, INC., a California "BBC"
corporation BALANCE BAR COMPANY, a Delaware
corporation
By: /s/ Howard Covenko By: /s/ E. Ray LaRue
--------------------------- -----------------------------
Name: Howard Covenko Name: E. Ray LaRue
------------------------- ---------------------------
Title: V.P. Co Pack Sales Title: Sr. V.P. Operations
------------------------ --------------------------
By: /s/ Richard G. Lamb
-----------------------------
Name: Richard G. Lamb
---------------------------
Title: Executive Vice President
--------------------------
10
<PAGE>
EXHIBIT I
PRICE LIST
----------
A. Bill of Materials are attached that contain SKU specific pricing. Every
effort will be made to keep pricing the same on both East and West Coast
manufacturing sites. If any change to the Bill of Materials is required, AFG
will notify BBC for approval prior to incorporating such change.
B. Both parties agree to a tiered pricing structure based on annual volume. The
price points will be as follows:
Number of Cases Major Smith Price Real Fresh Price
--------------- ----------------- ----------------
( * ) ( * ) ( * )
( * ) ( * ) ( * )
( * ) ( * ) ( * )
( * ) ( * ) ( * )
These cases will be the total of Product produced at Real Fresh in Visalia,
California and Major Smith in New Holland, Pennsylvania.
The first ship date of this product is March 4, 1999. For purposes of the
above pricing, the annual requirements will be calculated through March 3,
2000, and similarly through the life of the contract.
C. Upon termination of the contract BBC agrees to purchase any proprietary
ingredients and/or packaging material that are in AFG inventory provided
that AFG has not exceeded three months inventory level based on the monthly
forecasts unless agreed to in advance by both parties.
D. Pallets for all shipments will be handled via a pallet exchange program. The
number of pallets should be noted on each Bill of Lading so reconciliation
can easily be accomplished. Pallet balances will be reconciled monthly.
Should pallets need to be purchased the specification is 48" x 40" GMA, 4
way entry, #1 recycled hardwood. Billing price from AFG will be ( * ) West
Coast and ( * ) East Coast should this become necessary.
11
<PAGE>
EXHIBIT II
DETAILS OF PRODUCT ORDERING, DELIVERY, AND WAREHOUSING
------------------------------------------------------
A. Product Ordering - BBC agrees to provide AFG with a three month rolling
forecast during the first year of production. The first month's forecast
will be a firm Purchase Order and fixed as to quantity, flavor, and date of
production. For months 2 and 3, BBC may change only flavor and quantity,
but not production date. BBC agrees to extend lead time on the forecast to
four to six months, as soon as market sales data allows, but in any case
after the first year of production. BBC acknowledges the minimum order
quantity per flavor is 5000 cases, 24 pack equivalents, West Coast. On the
East Coast the minimum order quantity is 10,000 cases, except for the first
run which will be 5,000 cases.
B. Delivery - AFG acknowledges that timely delivery is of the utmost
importance to BBC. AFG agrees to use best efforts to supply BBC on time and
to produce the ordered quantity within a ( * ) range. If force majeure,
failure to meet incubation requirements, or equipment failure precludes AFG
from producing product on time, AFG agrees to use its best efforts to
produce product for BBC on a priority basis.
C. Product Warehousing Storage charges will be for the account of BBC.
Transportation of Product from AFG to BBC warehouse will be for the account
of AFG and will be included in the tolling fee.
12
<PAGE>
EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
By and between
BARIATRIX PRODUCTS INTERNATIONAL INC.
and
BALANCE BAR COMPANY
and
RODERICK EGGER
and
3357481 CANADA INC.
and
THOMAS EGGER
May 20, 1999
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
THIS AGREEMENT is made on the 20/th/ day of May, 1999.
BY AND BETWEEN: BARIATRIX PRODUCTS INTERNATIONAL INC., a corporation
duly incorporated according to the laws of Canada,
herein acting and represented by Thomas L. Egger, its
President and Secretary, duly authorized as he so
declares,
(herein referred to as the "Corporation")
AND: BALANCE BAR COMPANY, a company duly incorporated
according to the laws of Delaware, herein acting and
represented by Thomas Flahie, its Senior Vice President
of Finance and Administration, duly authorized as he so
declares,
(herein referred to as "Balance Bar")
AND: RODERICK EGGER, businessman, of the City of Burlington,
State of Vermont,
(herein referred to as "Rod")
AND: 3357481 CANADA INC., a corporation duly incorporated
according to the laws of Canada, herein acting and
represented by Thomas L. Egger, its President, duly
authorized as he so declares,
(herein referred to as "3357481")
AND: THOMAS L. EGGER, businessman, of the City of Westmount,
Province of Quebec,
(herein referred to as "Thomas")
(Rod, Thomas and 3357481 are sometimes herein
collectively referred to as the "Guarantors")
WHEREAS the authorized capital of the Corporation consists of an unlimited
number of Class "A" Shares, Class "B" Shares, Class "C" Shares, Class "D"
Shares, Class "E" Shares, Class "F" Shares, Class "G" Shares and Class "H"
Shares;
<PAGE>
-2-
WHEREAS Balance Bar has proposed to make an investment in the amount of
Three million five hundred thousand dollars (US$3,500,000) in the Corporation by
way of purchase from the Corporation of such number of Class "A" Shares of the
Corporation as represents in the aggregate 10% of the issued and outstanding
Class "A" Shares on a fully diluted basis; and
WHEREAS the Corporation wishes to issue to Balance Bar such number of Class
"A" Shares of the Corporation as represents in the aggregate 10% of the issued
and outstanding Class "A" Shares on a fully diluted basis.
NOW THEREFORE, THIS AGREEMENT WITNESSETH:
1. DEFINITIONS
-----------
The following terms, when used herein, shall have the following meanings:
"Affiliates" shall have the meaning ascribed thereto in subsection 2(2) of
the Canada Business Corporations Act;
"Benefit Plan" shall have the meaning ascribed thereto in section 4.23;
"Closing" and "Closing Date" shall mean the date hereof;
"Contracts" shall have the meaning ascribed thereto in section 4.21;
"Environmental Conditions" shall have the meaning ascribed thereto in
section 4.41.13;
"Environmental Laws" shall have the meaning ascribed thereto in section
4.41.13;
"Environmental Liabilities" shall have the meaning ascribed thereto in
section 4.41.13;
"Environmental Permit" shall have the meaning ascribed thereto in section
4.41.13;
"Financial Statements" shall have the meaning ascribed thereto in section
4.15;
"Governmental Entity" shall have the meaning ascribed thereto in section
4.3;
"Hazardous Substance" shall have the meaning ascribed thereto in section
4.41.13;
"Intellectual Property" shall have the meaning ascribed thereto in section
4.26;
"Licenses" shall have the meaning ascribed thereto in section 4.14;
"Losses" shall have the meaning ascribed thereto in section 6.2;
"Millenium Compliant" shall have the meaning ascribed thereto in section
4.40;
"Property" shall have the meaning ascribed thereto in section 4.14;
"Shareholders" shall have the meaning ascribed thereto in section 4.6;
<PAGE>
-3-
"Share Issue Price" shall have the meaning ascribed thereto in section 3;
"Shares" shall have the meaning ascribed thereto in section 2;
"Subsidiaries" shall have the meaning ascribed thereto in section 4.5;
"Taxes" or "Tax" shall have the meaning ascribed thereto in section 4.18.1;
"Tax Returns" and "Tax Return" shall have the meaning ascribed thereto in
section 4.18.1;
"Third Party Claim" shall have the meaning ascribed thereto in section 6.3.
2. SUBSCRIPTION AND ISSUE OF SHARES
--------------------------------
Upon and subject to the terms and conditions hereof, Balance Bar hereby
subscribes for, on its own account, and the Corporation agrees to issue to
Balance Bar 1,000 Class "A" Shares of the Corporation (the "Shares").
3. ISSUE PRICE
-----------
The Shares shall be issued for an aggregate issue price of Three million
five hundred thousand dollars (US$3,500,000) (the "Share Issue Price") being
US$3,500 per Class "A" Share, which Share Issue Price shall be payable by way of
a cheque made payable to the Corporation.
The Share Issue Price was established on the basis of a negotiation between
the Corporation and Balance Bar. In addition, Balance Bar has also been granted
certain additional volume discounts by the Corporation on the purchase of
increased volumes by Balance Bar Company of products manufactured by the
Corporation.
4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE GUARANTORS
--------------------------------------------------------------------
The Guarantors and the Corporation hereby represent and warrant, on a
solidary basis as among each of them and hereby waiving the benefit of division
and discussion to and in favour of Balance Bar as follows:
4.1 Incorporation and Capacity. The Corporation is a corporation duly
--------------------------
incorporated under the laws of Canada and is a valid and subsisting
corporation in good standing under such laws and is in good standing
as a corporation and is licensed or qualified to transact business in
each jurisdiction where the nature of its activities makes such
license or qualification necessary and a list of such jurisdictions is
hereto annexed as Schedule 4.1. The Corporation has the full corporate
------------
power and authority to enable it to own, lease or otherwise hold its
properties and assets and to carry on its business as it is now being
conducted and to own its property.
4.2 Authority; No Conflicts. The Corporation has all requisite power and
-----------------------
authority to execute and deliver this Agreement and to consummate the
transactions
<PAGE>
-4-
contemplated hereby. All acts and other proceedings required to be
taken by the Corporation to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and properly taken. This Agreement
and all other agreements contemplated hereby that have been executed
by the Corporation have been duly executed and delivered by the
Corporation and constitute the valid and binding obligation of the
Corporation enforceable against the Corporation in accordance with its
terms. All other agreements and instruments contemplated by this
Agreement to be delivered or executed by the Corporation at Closing
shall at Closing constitute the valid and binding obligation of the
Corporation enforceable against the Corporation in accordance with its
terms.
4.3 Consents. No consent, license, approval, order or authorization of, or
--------
registration, filing or declaration with, any Governmental Entity is
required to be obtained or made with respect to the Corporation in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, and no consent
of any other third party is required to be obtained with respect to
the Corporation in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby. As used herein the term "Governmental Entity"
means any federal, provincial, municipal or other governmental
department, commission, board, bureau, agency, court or
instrumentality.
4.4 No Bankruptcy. There has not been filed any petition or application,
-------------
or any proceeding commenced which has not been discharged, by or
against the Corporation with respect to any assets of the Corporation
under any law, domestic or foreign, relating to bankruptcy,
reorganization, fraudulent transfer, compromise, arrangements,
insolvency, readjustment of debt or creditors' rights, and no
assignment has been made by the Corporation for the benefit of its
creditors.
4.5 Subsidiaries. Except for the subsidiaries set out on Schedule 4.5
------------ ------------
hereto (the "Subsidiaries"), the Corporation does not have, directly
or indirectly, any ownership or other interest in, or control any
corporation, partnership, joint venture, business association or other
entity.
4.6 Authorized and Issued Stock. The authorized capital stock of the
---------------------------
Corporation consists of an unlimited number of Class "A" Shares, an
unlimited number of Class "B" Shares, an unlimited number of Class "C"
Shares, an unlimited number of Class "D" Shares, an unlimited number
of Class "E" Shares, an unlimited number of Class "F" Shares, an
unlimited number of Class "G" Shares and an unlimited number of Class
"H" Shares of which there are issued and outstanding such number of
shares as are set forth on Schedule 4.6. The Shares represent one-
------------
tenth of all of the issued and outstanding Class "A" Shares in the
capital of the Corporation. All of the Shares are duly authorized and
validly issued and are outstanding as fully paid and non-assessable.
None of the Shares has been issued in violation of, and none of the
Shares is subject to, any pre-emptive or subscription rights and
except as set forth above, there are no shares in the capital stock or
other equity securities of the Corporation outstanding. There are no
outstanding subscriptions, warrants, options, agreements, convertible
or
<PAGE>
-5-
exchangeable securities or other commitments pursuant to which the
Corporation is or may become obligated to issue, sell, purchase,
return or redeem any shares of capital stock or other securities of
the Corporation. The sole registered and beneficial owner of all of
the issued and outstanding shares of the capital stock of the
Corporation are the shareholders listed on Schedule 4.6 hereto (the
------------
"Shareholders").
4.7 Title to Shares. Each of the Shareholders owns the shares set forth
---------------
opposite his or its name in Schedule 4.6 above and the Corporation
------------
owns all of the shares of each of the Subsidiaries with good and
marketable title, free and clear of all liens, encumbrances, pledges,
security interests, options, charges and claims of any nature or kind
whatsoever.
4.8 Voting Trust. Save and except for an agreement to be entered into
------------
between the Guarantors, Robert Raich and 3515176 Canada Inc. relating
to the disposition of the shares of the latter two shareholders (the
"Share Disposition Agreement") which Share Disposition Agreement is
more fully described at section 2.2 of the Shareholders' Agreement of
even date herewith relating to the shares of the Corporation, a copy
of which shall be provided to Balance Bar prior to its execution, none
of the shares or other securities of the Corporation is subject to any
voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement,
arrangement, commitment or understanding restricting or otherwise
relating to the voting, dividend rates or disposition of such shares
or securities.
4.9 Rights to Purchase Shares. There is no contract, option or other right
-------------------------
of another binding upon or which at any time in the future may become
binding upon the Corporation to allot or issue any of the unissued
shares of the Corporation or to create any additional class of shares,
although the Corporation is in the process of adopting a management
stock option plan.
4.10 Actions Respecting Shares. There are no actions, suits, proceedings or
-------------------------
claims pending or threatened against or relating to the Corporation or
with respect to or in any manner affecting the ownership by a
Shareholder of the shares or which would adversely affect the ability
of the Corporation to execute and deliver this Agreement and
consummate the transactions contemplated hereby.
4.11 Corporate Records. The minute books and share certificate books of the
-----------------
Corporation are true and complete and up to date in all material
respects and accurately reflect all material corporate actions and
decisions which have been taken by its board of directors and
shareholders. The Corporation has made available to Balance Bar true
and complete copies of the charter documents, including the
certificate of incorporation, as amended to the date hereof, and the
by-laws, as in effect on the date hereof, of the Corporation.
4.12 Effect of Agreement. The execution and delivery of this Agreement does
-------------------
not and the execution and delivery of every other agreement or
instrument contemplated by this Agreement to be delivered or executed
by the Corporation at Closing and the consummation of the transactions
contemplated hereby or thereby will not (i) conflict with, violate,
result in a breach of or constitute a default under any
<PAGE>
-6-
provision of the certificate of incorporation or articles (as amended)
or by-laws or other organizational documents of the Corporation, (ii)
violate, conflict with or result in the breach or termination of or
modification, or otherwise give any other contracting party the right
to terminate, or constitute a default, with or without notice, the
lapse of time or both, or cause the acceleration of any obligation,
under the terms of any agreement or instrument to which the
Corporation is a party or by which it or any of its properties or
other assets may be bound, (iii) result in the creation of any lien,
charge, hypothec or encumbrance upon the properties or other assets of
the Corporation, (iv) conflict with, violate, result in a breach of or
constitute a default under any judgment, order, injunction, decree or
award against, or binding upon, the Corporation or upon any of its
properties or other assets, (v) violate any law or regulation of any
jurisdiction relating to the Corporation or its properties, other
assets or business, or (vi) result in the loss of or require the
repayment of any government grant, subsidy or tax credit.
4.13 Compliance with Law. Subject to the provisions of any other
-------------------
representation or warranty contained herein which deals, more
specifically, with any particular law, ordinance or regulation, the
Corporation is, and all aspects of its business are, conducted in
compliance with all applicable laws, ordinances and regulations,
inclusive of those of any administrative boards or agencies or other
public authorities having jurisdiction, the non-compliance with which
would have an adverse effect on the Corporation or its operations.
4.14 Licenses. The Corporation owns or holds all licenses, permits,
--------
franchises, approvals, consents, waivers, exemptions, authorizations,
certificates of occupancy and similar rights and privileges
("Licenses"), all unencumbered and subject to no challenge,
revocation, expiry, modification or termination, which are material or
necessary to the ownership of its assets or the operation of each and
every aspect of its business. The execution and consummation of this
Agreement and the consummation of the transactions contemplated herein
will not create any right of modification, limitation, termination or
revocation on the part of a third party granting such Licenses; there
exists no pending or threatened modification, limitation, revocation
or termination of any such License. The Licenses are sufficient and
adequate in all respects to permit the continued lawful conduct by the
Corporation of its business in the manner now conducted and the
ownership, occupancy and operation of any immoveable property leased
by the Corporation (the "Property"), and none of the business
operations of the Corporation are presently being conducted in a
manner that violates in any respect any of the terms or conditions
under which any License was granted. The Licenses have been duly
obtained, are valid and are in full force and effect and the
Corporation is not and has not been in violation of any of the
Licenses, nor has the Corporation received any notice of the
revocation or limitation of any of the Licenses. Schedule 4.13
-------------
contains a list and description of all material licenses.
4.15 Financial Statements. The Corporation has delivered to Balance Bar the
--------------------
audited consolidated financial statements of the Corporation for the
periods ended August 31, 1998 and August 31, 1997 (hereinafter
collectively referred to as the "Year-End Financial Statements"); the
Year-End Financial Statements:
<PAGE>
-7-
4.15.1 reflect accurately the transactions entered into the books and
accounts of the Corporation, as at the dates thereof;
4.15.2 present fairly the assets, liabilities, retained earnings,
profit and loss and financial position of the Corporation as
at the dates thereof;
4.15.3 have been prepared in accordance with Canadian generally
accepted accounting principles, consistently applied; and
4.15.4 except to the extent reflected or reserved against thereon,
the Corporation did not have on the dates thereof any
liabilities or obligations of any nature, which would be
required under Canadian generally accepted accounting
principles to be disclosed thereon, whether direct or
indirect, accrued, absolute, contingent, unasserted or
otherwise, known or unknown, fixed or unfixed, liquidated or
unliquidated including, without limitation, federal,
provincial, local, municipal or other tax liabilities due or
to become due or penalties, assessments or interest charges in
respect thereof, or unusual forward or long term commitments
or unrealized or anticipated losses from any unfavourable
commitments.
In addition, the Corporation has delivered to Balance Bar the
internally-prepared unaudited consolidated financial statements for
the seven months ended March 31, 1999 (the "March Statements"); the
March Statements:
4.15.5 reflect accurately, in all material respects, the transactions
entered into the books and accounts of the Corporation, as at
the date thereof;
4.15.6 present fairly the assets, liabilities, retained earnings,
profit and loss and financial position of the Corporation as
at the date thereof;
4.15.7 have been prepared in a manner consistent with the Year-End
Financial Statements.
The Year-End Financial Statements and the March Statements shall
hereinafter be collectively referred to as the "Financial Statements".
4.16 Title to Assets. Except as set forth on Schedule 4.16, the Corporation
--------------- -------------
or the Subsidiaries owns each of the assets shown or reflected on the
Financial Statements (except only those assets which have been
disposed of in the ordinary course of business since the dates
thereof) and all other assets acquired since the dates thereof with
good and marketable title, free and clear of all encumbrances,
including without limitation, mortgages, liens, privileges, security
interests, claims, charges and easements, restrictive covenants,
conditional sale agreements, restrictions on transfer, rights of first
refusal or offer, due and unpaid taxes and other encumbrances on title
of any sort whatsoever. The Corporation has not received in respect of
its assets or any of them any notice of conflict with the assertive
rights of any other party. The assets owned by the Corporation on the
Closing Date will include all of the assets necessary for
<PAGE>
-8-
or that are used by the Corporation in the conduct of the
Corporation's business in the manner in which it has been conducted by
the Corporation.
4.17 Legal Proceedings. There are no suits, claims, actions (arbitration or
-----------------
legal) or administrative or other proceedings or governmental
investigations pending or, to the knowledge of the Corporation,
threatened against the Corporation or any of its officers, directors,
employees or agents in connection with the activities of the
Corporation or Affiliates or as to which the Corporation or any of its
officers, directors, employees, agents or Affiliates may become a
party or be affected thereby before any court or administrative agency
or officer, and the Corporation is not aware of any facts or
circumstances which should, or could, reasonably form the basis for
any such suits, claims, actions, proceedings and the Corporation is
not the subject of any investigation or proceedings by any
governmental authority, and none of the assets of the Corporation nor
any of its business practices is in any manner, directly or
indirectly, affected by any judgment, order, writ, or injunction of
any court or governmental or administrative agency or officer.
4.18 Tax Returns.
-----------
4.18.1 All returns (including, without limitation, income tax,
corporation tax, capital tax, transfer business tax, import
duties, goods and services tax, value added tax, franchise
tax, sales and use tax, unemployment compensation, customs
duty, excise tax, severance, property tax, gross receipts tax,
profits tax, payroll and withholding tax returns and
information returns) and reports of or relating to any
federal, provincial, municipal, state, foreign or local tax,
assessment or charge of any nature whatsoever (all, together
with any penalties, additions to tax, fines and interest
thereon or related thereto, herein referred to collectively as
"Taxes" or singularly as a "Tax") that are required to be
filed (taking into account all extensions) on or before the
Closing Date for, by, on behalf of or with respect to the
Corporation (all such returns and reports herein referred to
collectively as "Tax Returns" or singularly as a "Tax
Return"), have been or will be timely filed with the
appropriate taxation authority on or before the Closing Date,
and all Taxes shown to be due and payable on such Tax Returns
or related to such Tax Returns have been or will be timely
paid in full prior to the Closing Date;
4.18.2 all Tax Returns and the information and data contained therein
have been or will be properly and accurately compiled and
completed in all respects, fairly present or will fairly
present in all respects the information purported to be shown
therein, and reflect or will reflect all liabilities for Taxes
for the periods covered by such Tax Returns;
4.18.3 save and except for a recently completed federal research and
development tax audit, which will result in a re-assessment of
approximately $50,000, none of such Tax Returns are now under
audit or examination by any taxation or other authority and
there are no agreements, waivers or other arrangements
providing for an extension of time with respect to the
assessment or collection of any Tax or
<PAGE>
-9-
deficiency of any nature against the Corporation or with
respect to any Tax Return and there are no suits or similar
proceedings now pending or, to the knowledge of the
Corporation, threatened against the Corporation with respect
to any Tax, and there are no matters under discussion with any
taxation or other authority relating to any Tax, or any claims
for any additional Tax asserted by any such authority.
4.19 Tax Liabilities.
---------------
4.19.1 The Corporation does not have any liability, obligation or
commitment for the payment of Taxes, except those as are
disclosed in the Financial Statements or such Taxes not yet
due as have arisen since the date of the most recent of the
Financial Statements in the usual and ordinary course of
business and for which adequate provision in the accounts of
the Corporation has been made, and the Corporation is not in
arrears with respect to any required withholdings or
instalment payments of any Tax of any kind. Save and except as
set forth in section 4.18.3 neither Revenue Canada Taxation
nor any other taxing authority is now asserting or threatening
to assert any deficiency or claim for additional Taxes against
the Corporation and there are no disputes as to any Taxes
payable by the Corporation nor as to any matter which would
have the effect of reducing any tax-loss carry forward that
may be available to the Corporation. Save and except as set
forth in section 4.18.3 there are no actions, suits,
proceedings, investigations or claims now threatened or
pending against the Corporation in respect of Taxes nor are
there any matters under discussion with any governmental
authority with respect to Taxes asserted by any such
authority;
4.19.2 the inventories of the Corporation have been valued for tax
purposes at the lower of cost or net realizable value;
4.19.3 the paid up capital of the Corporation for income tax purposes
equals its paid up capital under corporate law;
4.19.4 to the best of the knowledge of the Corporation, any interest
paid, payable or otherwise accruing on any interest-bearing
debt of the Corporation is deductible (and to the extent that
such debt exists on Closing will continue to be deductible) in
computing its income under the Income Tax Act (Canada);
4.19.5 save and except as set forth on Schedule 4.19.5 in respect of
------
the period subsequent to August 31, 1995 only, the Corporation
has not made any election under Section 85 of the Income Tax
Act (Canada) with respect to the acquisition or disposition of
any property;
4.19.6 the Corporation has not made any election under Sub-section
83(2) of the Income Tax Act (Canada) with respect to payment
out of a capital dividend account;
<PAGE>
-10-
4.19.7 save and except for a lease of premises with Patrick Egger for
an amount of $1,200 per month, the Corporation has not
acquired or had the use of any property from a person with
whom it was not dealing at arm's length;
4.19.8 save and except as set forth on Schedule 4.19.8 in respect of
---------------
the period subsequent to August 31, 1995 only, the Corporation
has not disposed of anything to a person with whom it was not
dealing at arm's length for proceeds less than the fair market
value thereof;
4.19.9 the Corporation has not discontinued carrying on any business
in respect of which any non-capital losses were incurred;
4.19.10 the Corporation has made all elections required to be made
under the Income Tax Act (Canada) in connection with any
distributions and all such elections were true and correct and
in prescribed form and were made within the prescribed time
periods;
4.19.11 since its date of incorporation, the Corporation has been a
"Canadian-controlled private corporation" within the meaning
of the Income Tax Act (Canada);
4.19.12 save and except as set forth on Schedule 4.19.12 in respect of
-------
the period subsequent to August 31, 1995 only, the Corporation
is not, nor has previously been at any time, associated with
any other Canadian-controlled private corporation (within the
meaning of the Income Tax Act (Canada), and the Corporation
has not filed with the Minister of National Revenue any
agreement or form under Section 125(3) of the Income Tax Act
(Canada) and the Corporation is not carrying on and has never
carried on business as a member of any partnership;
4.19.13 neither the Corporation nor its directors, officers or
employees are aware of any contingent Tax liabilities or any
grounds which would prompt a re-assessment, including
aggressive treatment of income and expenses in filing earlier
Tax returns;
4.19.14 control of the Corporation has not been acquired by a person
or persons since its date of incorporation (for purposes of
this section, ("control" is to be given the meaning found in
Sections 186, 251 and 256 of the Income Tax Act (Canada));
4.19.15 there are no amounts outstanding and unpaid for which the
Corporation has previously claimed a deduction under the
Income Tax Act (Canada);
4.19.16 there are no circumstances existing which could result in the
application to the Corporation of either Section 78 or Section
80 of the Income Tax Act (Canada);
<PAGE>
-11-
4.19.17 the Corporation has not claimed and will not claim any reserve
under any one or more of subparagraph 40(1)(a)(iii) or
subparagraphs 20(1)(m) or 20(1)(n) of the Income Tax Act
(Canada) if any such amount could be included in the
Corporation's income for a period ending after Closing;
4.19.18 the financial statements and schedules attached to the
corporate income tax returns as filed by the Corporation for
each of its taxation years reflect and disclose all
transactions to which the Corporation was or is a party as
required by the Income Tax Act (Canada) and the regulations
made thereunder or other applicable revenue laws and all of
the transactions to which the Corporation was or is a party
are reflected or disclosed in these financial statements and
schedules and these statements and schedules have been duly
and accurately completed as required by these acts and
regulations;
4.19.19 subject to section 4.18.3, the Corporation is not and will not
become liable for any invalid, late or excess designations
under the Share Purchase Tax Credit Provisions or the
Scientific Research and Experimental Development Tax Credit
Provisions of the Income Tax Act (Canada) or for unpaid taxes
under Part VII or Part VIII of the Income Tax Act (Canada);
4.19.20 the Corporation has no net capital losses as of the date of
the most recent of the Financial Statements and no
transactions since that date will result in any net capital
loss;
4.19.21 the Corporation is a registrant for the purposes of the Goods
and Services Tax provided for under the Excise Tax Act and its
registration number is 100397694 RT;
4.19.22 the Corporation is a registrant for the purposes of the goods
and services tax provided for under the Quebec Sales Tax Act
and its registration number is 1001346900 TQ 0001;
4.19.23 the Corporation has paid all Taxes, if any, imposed by the
Quebec Sales Tax Act and the Retail Sales Tax Act (Ontario)
and the applicable legislation of each other province of
Canada on the acquisition of its tangible personal property
and none of its tangible personal property or moveable
property has been transferred in a transaction contemplated
under the provisions of Section 20.7 of the Quebec Sales Tax
Act and any regulations made thereunder or Section 18 of
Regulation 904 to the Retail Sales Tax Act (Ontario), or any
predecessor thereof or the analogous provisions of the sales
tax legislation of any other province;
4.19.24 the Corporation has not made or been a party to any election
under Sections 156(1), 227(1) or 273(1) of the Excise Tax Act
of Canada or under the equivalent provisions of the Quebec
Sales Tax Act;
<PAGE>
-12-
4.19.25 the "Accounts Receivable - Trade" shown on the Financial
Statements are net of an allowance for doubtful accounts which
is the aggregate of amounts individually calculated and
recorded as reserves on particular accounts receivable;
4.19.26 the preceding representations and warranties in this Section
4.19 which refer to the Income Tax Act (Canada) are true and
correct with respect to the same or equivalent provisions, if
any, of the Quebec Taxation Act or any other provincial
taxation legislation;
4.20 Insurance. All policies of fire, liability or other forms of insurance
---------
held by the Corporation are valid, outstanding and in full force and
effect, as to which premiums have been paid currently, and are in such
amounts and provide insurance against such losses and risks as are
adequate and consistent with the requirements of its business as
currently conducted and are sufficient for compliance with all
requirements of law and all agreements to which the Corporation is a
party and will not in any way be affected by or terminated or lapsed by
reason of the consummation of the transactions contemplated by this
Agreement. The Corporation is not in default under any provision of any
such policy of insurance and has not received notice of cancellation or
non-renewal of any such insurance and no misstatement or
misrepresentation has been made by the Corporation in any application
for any policy of insurance. There is no claim by the Corporation
pending under any of such policies as to which coverage has been
questioned, denied or disputed by the underwriters or carriers of such
policies. The Corporation has not received any notice from or on behalf
of any insurance carrier issuing such policies that insurance rates
will hereafter be substantially increased, that there will hereafter be
a cancellation, a change in the type of coverage provided, or an
increase in a deductible (or an increase in premiums in order to
maintain an existing deductible) or non-renewal of existing policies,
or that alteration of any equipment or any improvements to real estate
occupied by or leased to or by the Corporation, the purchase of any
additional equipment, or the modification of any of the methods of
doing business of the Corporation, will be required or suggested. The
Corporation has no knowledge of any state of facts, or of the
occurrence of any event, which the Corporation knows or has reason to
believe might reasonably (i) form the basis for any claim against the
Corporation not fully covered by insurance or for any liability on
account of any express or implied warranty or tortious omission or
commission, or (ii) result in a material increase in insurance premiums
of the Corporation. The Corporation has not been refused any insurance
with respect to its assets or operations, nor has its coverage been
limited by any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance during the last five
(5) years.
4.21 Contracts. Schedule 4.21 annexed hereto is a true and complete list and
--------- -------------
description as at the date hereof of all written or oral contracts,
agreements, arrangements or commitments to which the Corporation is a
party or by which it or its assets are bound (collectively the
"Contracts") and a list of those customers with which the Corporation
has entered into manufacturing agreements, provided that Schedule 4.21
-------------
does not describe (but all of which are included within the term
"Contracts") (i) Contracts which are otherwise disclosed on other
Schedules
<PAGE>
-13-
to this Agreement or which have a value of less than Fifty Thousand
Dollars ($50,000), (ii) Contracts which are terminable without penalty
on notice from the Corporation of thirty (30) days or less, or (iii)
Contracts for the supply of materials used in the manufacture of the
Company's products having a term which is less than six (6) months, or
(iv) customer Contracts or purchase orders which, in each case, have
been entered into in the ordinary course of business, and have a term
of less than six (6) months; except as set forth on Schedule 4.21, the
-------------
Corporation and each of the other parties thereto has performed all
obligations to be performed under all Contracts, and neither the
Corporation nor, to the knowledge of the Corporation, any other party
thereto is in default under any provision of such Contracts (except for
any defaults which would not have an adverse effect on the Corporation
or its operations), and no event has occurred which constitutes, or
which with the passage of time or the giving of notice or both will
constitute, a default under any provision thereof; except as set forth
in Schedule 4.21, no consent of any party to any Contract is required
-------------
for the consummation of the transactions contemplated by this
Agreement, nor will the consummation of the transactions contemplated
by this Agreement violate any Contract or constitute a default under,
or occasion or result in the acceleration of any term of payment or in
any change in any rate of interest payable pursuant to any such
Contract or result in or give rise to a right to amend or modify the
terms thereof. The copies of each of the Contracts delivered by the
Corporation to Balance Bar represent the full and complete text thereof
and have not been amended or modified, nor have any provisions thereof
or rights of any party thereto been waived.
4.22 Employment Matters. The Corporation does not have any employment,
------------------
consulting or severance contract, arrangement or understanding (either
written or oral) with any executive of the Corporation except such
contracts as are listed on Schedule 4.22. The Corporation has made all
-------------
deductions required by law to be made for wages and salaries, which
deductions are consistent with past practices and in accordance with
generally accepted accounting principles and has either remitted same
to the respective legally constituted authorities entitled to receive
payment of same or has provided for same in its accounts. Hours worked
by, and payments made to, employees of the Corporation have not been in
violation of any applicable laws, rules or regulations dealing with
such matters and all severance payments due to any employee have been
paid or accrued as a liability on the books of the Corporation. The
salaries and bonuses of all officers and employees of the Corporation
are paid by the Corporation.
4.23 Benefit Plans. Except as disclosed on Schedule 4.23 annexed hereto, the
------------- -------------
Corporation does not have in effect and has not announced or publicly
proposed to have in effect any bonus, deferred compensation, pension,
profit sharing, retirement, severance, stock option, group insurance,
death benefit, welfare or other employee benefit plan, arrangement or
policy whether formal or informal, for the benefit of any of its
employees or former employees (each a "Benefit Plan"). Schedule 4.23
-------------
contains an accurate and complete description of, and sets forth the
annual amount payable pursuant to, each of the Benefit Plans therein
described and the Financial Statements reflect in the aggregate an
accrual of all amounts accrued but unpaid under all such Benefit Plans
as of the dates thereof. The Corporation does not have any commitment,
whether formal
<PAGE>
-14-
or informal, and whether legally binding or not, to create any
additional such Benefit Plan. Each of such Benefit Plans disclosed on
Schedule 4.23 is in effect and the Corporation is in compliance with
-------------
all laws, rules and regulations applicable thereto. All Benefit Plans
disclosed on Schedule 4.23 have been duly registered where required by,
-------------
and are in good standing under, all applicable legislation and the
Corporation has fulfilled its funding obligations under all such plans
and no past service funding liabilities exist thereunder. With respect
to each current Benefit Plan or plan under which benefits may be due
to, or liabilities may exist in respect of, current or former
employees, the Corporation has delivered to Balance Bar accurate and
complete copies of (i) all currently applicable plan texts and
agreements; (ii) all summary plan descriptions and material employee
communications; (iii) the most recent annual report; (iv) the most
recent annual and periodic accounting of plan assets; (v) the most
recent actuarial valuation. Each Benefit Plan has been administered
materially in accordance with its terms. All material reports, returns
and similar documents with respect to the Benefit Plans required to be
filed with any Governmental Entity or distributed to any Benefit Plan
participant had been duly and timely filed or distributed. There are no
pending investigations by any Governmental Entity, termination
proceedings or other claims (except claims for benefits payable in the
normal operation of the Benefit Plans), suits or proceedings against or
involving any Benefit Plan or asserting any rights or claims to
benefits under any Benefit Plan that could give rise to any liability.
4.24 Unions and Labour Practices. Except as set forth on Schedule 4.24, no
--------------------------- -------------
trade union, counsel of trade unions, employee bargaining agency or
affiliated bargaining agent:
4.24.1 holds bargaining rights with respect to any of the
Corporation's employees by way of certification, interim
certification, voluntary recognition, designation or successor
rights;
4.24.2 has applied to be certified as the bargaining agent of any of
the Corporation's employees; or
4.24.3 has applied to have the Corporation declared a related employer
pursuant to the provisions of applicable law.
There is no unfair labour practice charge or complaint with respect to
employees of the Corporation pending before any agency or board, there
is no labour strike, picketing, slow down or work stoppage or lock out
actually pending or threatened against or affecting the Corporation or
any of its operations, and the Corporation has not experienced any
strike, slowdown or work stoppage, lock out or other collective labour
action by or with respect to its employees, there are no charges with
respect to or relating to the Corporation before any commission, agency
or body responsible for the prevention of unlawful employment
practices, the Corporation has no notice from any federal, provincial,
local or other agency responsible for the enforcement of labour or
employment laws of an intention to conduct an investigation of the
Corporation or any of its business or employment practices and no such
investigation is in progress, and the Corporation is in compliance with
all applicable laws relating to employment and employment
<PAGE>
-15-
practices, wages, hours and terms and conditions of employment with
respect to employees, including part-time employees (if any).
4.25 Employee Indebtedness. Except as disclosed in the Financial Statements
---------------------
no director, former director, officer, former officer, shareholder or
employee of the Corporation or any person not dealing at arm's length
within the meaning of the Income Tax Act (Canada) with any such person
is indebted to the Corporation;
4.26 Intellectual Property. Schedule 4.26 annexed hereto is a complete and
--------------------- -------------
accurate list of all registered trade marks, trade names, patents,
copyrights, service marks, applications therefor and other industrial
and intellectual property (collectively "Intellectual Property") owned
by the Corporation or necessary to the conduct of the business of the
Corporation as presently conducted and which schedule sets forth, where
appropriate, an identification of each such item of Intellectual
Property, the date of any registration thereof or application therefor
and the serial or registration number thereof; the Corporation has the
right to use all such Intellectual Property and the consummation of the
transactions contemplated herein will not adversely affect the right of
the Corporation to use such Intellectual Property; the Corporation is
the registered and beneficial owner of all such Intellectual Property
with good and marketable title, subject to the security interests set
forth in Schedule 4.26 and, except as set forth on Schedule 4.26,
------------- -------------
subject to no pending challenge, revocation, expiry or termination; the
Corporation is not required to pay royalties, fees or other
consideration to any other person with respect to the use of such
Intellectual Property or in connection with the conduct of its business
or otherwise and the operation of the business of the Corporation does
not violate, breach or infringe any patents, copyrights, trade names,
trade marks or licenses held by others in Canada or the United States
of America and the Corporation has no knowledge of any alleged breach
or violation thereof. All of the Intellectual Property listed on
Schedule 4.26 as registered or filed has been duly registered or filed
-------------
in the appropriate governmental office or with the appropriate
governmental entity, to the extent that any such registration is
required by law and the Corporation has paid all fees due prior to the
Closing Date that are necessary to obtain or maintain in force any of
the Intellectual Property. No event has occurred during the
registration or filing of, or during any other proceeding relating to,
the Intellectual Property that would make invalid or unenforceable, or
negate the right to issuance or use of, any of the Intellectual
Property. Except as set forth on Schedule 4.26, there are no
-------------
infringements or threats of infringements by the Corporation or any
asserted or unasserted claims of third parties against the Corporation
of infringements or misappropriation of any of the Intellectual
Property nor are there any asserted claims by the Corporation
contesting or challenging the right, title or interest of any other
person in any of the Intellectual Property. There are no outstanding
threatened or actual claims asserted against the Corporation alleging
the infringement or misappropriation by the Corporation of any
intellectual property. The use of the Intellectual Property by the
Corporation has not infringed upon the rights of any other party and
the Corporation has not received any notice of the revocation,
withdrawal, expiration, abandonment or breach of any right to use the
Intellectual Property.
<PAGE>
-16-
4.27 Guarantees. Save and except as disclosed on Schedule 4.27, the
---------- -------------
Corporation does not have any outstanding contracts or commitments
guaranteeing the payment of or the performance of the obligations of
others, and the Corporation has not entered into any deficiency
agreements, or issued any comfort letters, or otherwise granted any
financial assistance to any person, firm, corporation or other entity.
4.28 Non-Arm's Length Relationship. None of the Corporation nor any party
-----------------------------
with whom the Corporation does not act at arm's length (as such term is
defined in the Income Tax Act (Canada)) owns any property or assets,
tangible or intangible, which are used by the Corporation in connection
with the conduct of its business except pursuant to arrangements which
form part of the Contracts.
4.29 Governmental Filings. The execution, delivery and performance of this
--------------------
Agreement by the Corporation and the consummation of the transactions
contemplated herein does not require any authorizations, consents or
approvals of, or filings, registrations, qualifications or recordings
with, any governmental, regulatory or other authority.
4.30 Accounts and Records. The Corporation has maintained and shall continue
--------------------
to maintain books of account and financial records which are true and
complete in all material respects, fairly reflecting all matters
required by generally accepted accounting principles to be entered into
books of account and such books of account and financial records have
been maintained and shall continue to be maintained in accordance with
generally accepted accounting principles consistently applied.
4.31 Conflicts and Interests in Competitors. No officer, director, employee
-----------------------
or shareholder of the Corporation, nor any member of the family of any
of them or any corporation, partnership or trust in which any of them,
or in which any member of the family of any of them, has a substantial
interest, directly or indirectly, or of which any of them or any member
of his family is an officer, director, partner or trustee, is now, nor
has been during the last thirty-six (36) months, directly or indirectly
(i) a party to any contract, agreement or other arrangement with the
Corporation providing for employment, the supply of services, products,
merchandise or supplies, the rental of immoveable or moveable property,
or otherwise requiring payments from or to the Corporation, or (ii) the
holder of any interest, direct or indirect, in, or is a director,
officer or employee of, or consultant to, or in any way controls or
directs the management of, any entity which is a competitor, potential
competitor, supplier or customer of the Corporation or the business of
which is in any way related to the business of the Corporation, or
(iii) the holder of any interest, direct or indirect, in any assets of
the Corporation or any assets which are used by the Corporation in or
in connection with the business conducted by the Corporation, the whole
except as disclosed on Schedule 4.31 annexed hereto.
-------------
4.32 Transactions with Directors, Officers, Shareholders and Affiliates.
------------------------------------------------------------------
Except as disclosed in Schedule 4.32, there have been no transactions,
-------------
agreements or arrangements relating to or affecting the Corporation or
its business involving (i) any affiliate of the Corporation, (ii) any
director, officer, shareholder of the
<PAGE>
-17-
Corporation, or of any affiliate of the Corporation, or (iii) any
member of the immediate family of any individual described in clause
(ii) above.
4.33 Accounts Receivable. All the accounts receivable as shown on the books
-------------------
of the Corporation on the date hereof are actual and bona fide
receivables resulting from the ordinary and usual conduct of the
business of the Corporation, and the reserve for bad debts established
in the most recent of the Financial Statements has been established in
accordance with generally accepted accounting principles and the past
experience of the Corporation.
4.34 Inventories. The value of inventories as reflected in the Financial
-----------
Statements has been determined at the lower of cost (as determined on a
first in, first out basis) or net realizable value and on a basis
consistent with prior years.
4.35 Moveable Property. The machinery and equipment, rolling stock and other
-----------------
tangible moveable property owned or used by the Corporation are in
reasonably good operating condition, ordinary wear and tear excepted,
subject to normal repairs in the ordinary course of business, and are
suitable for the uses made thereof by the Corporation in the conduct of
its business.
4.36 Plants and Structures. The plants and structures owned, occupied or
---------------------
used by the Corporation in its business are in satisfactory operating
condition and repair for the businesses now being conducted therein and
conform with all applicable ordinances, regulations and laws relating
to their ownership, occupation and use. In December of 1998, the
Corporation purchased the land described in Schedule 4.36 in order to
-------------
expand operations and is in the process of completing negotiations with
a general contractor for the erection of a building thereon for a cost
currently estimated at approximately $9,500,000.
4.37 Warranties and Product Liability. The Corporation does not provide
--------------------------------
written warranties with respect to its products, and represents only
that its products are prepared in accordance with good manufacturing
practice for products suitable for human consumption and that same
comply with (U.S.) FDA requirements or (Canadian) HPB requirements, as
the case may be . During the past five (5) year period, there has been
no change in the policies of the Corporation relative to warranties or
returns. There is no action, suit, inquiry, proceeding or investigation
by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the best knowledge
of the Corporation, threatened against or involving the Corporation
relating to any product alleged to have been manufactured or sold by
the Corporation and alleged to have been defective, or improperly
designed or manufactured, and the Corporation does not know or has any
reason to know of any basis for any such action, proceeding or
investigation.
4.38 No Power of Attorney. The Corporation has not given to any person,
--------------------
firm, corporation or other entity any power of attorney, whether
limited or general, which is now or will be in effect, except powers of
attorney (in customary form) given to customs brokers.
<PAGE>
-18-
4.39 Suppliers and Customers. To the knowledge of the Corporation, the
-----------------------
relationships of the Corporation with each of the suppliers and
customers of the Corporation are good commercial working relationships
and no supplier or customer of the Corporation has cancelled or
otherwise terminated, or threatened in writing to cancel or otherwise
terminate, its relationship with the Corporation, or has during the
last twelve (12) months decreased materially, or threatened to decrease
or limit materially, its services, supplies or materials to the
Corporation. The Corporation has no reason to believe that the
consummation of the transactions contemplated hereunder by Balance Bar
will adversely affect the relationship of the Corporation with any such
supplier or customer, save and except for the fact that many of the
customers of the Corporation are competitors of Balance Bar.
4.40 Y2K. Schedule 4.40 summarizes the program of testing and evaluation
--- -------------
which has been undertaken by the Corporation of the information systems
hardware and the information systems software used by Corporation in
order to determine the extent to which the information systems hardware
and the information systems software is Millennium Compliant (as
hereinafter defined) and includes a summary of all information systems
hardware and information systems software in respect of which a
decision has been made to upgrade or replace further to the results of
such program of testing and evaluation and actions taken or to be taken
or implemented and the disclosure provided by certain of the
Corporation's suppliers in order to cause the information systems
hardware and the information systems software to be Millennium
Complaint. For purposes hereof the term "Millennium Compliant" means
the ability of a system to provide all of the following functions:
4.40.1 to date information before, during and after January 1, 2000,
including but not limited to accepting date input, providing
date output and calculating and storing information involving
dates or portions of dates in a way that resolves the ambiguity
as to century; and
4.40.2 to function accurately and without interruption, before, during
and after January 1, 2000, without any change in operations or
change in input or output procedures associated with the advent
of the new century or with leap years.
The Corporation has not experienced and has no reason to believe that
it will experience material revenue losses as a result of its own
information systems hardware or information systems software not being
Millennium Compliant.
4.41 Environmental Matters. Except as may be indicated by the Phase I
---------------------
environmental reports annexed hereto as Schedule 4.42, the Corporation
-------------
is in compliance with, and has not violated, all Environmental Laws,
the non-compliance with which would have an adverse effect on the
Corporation or its operations, and all judgments, injunctions, notices
or demand letters issued pursuant thereto.
Without restriction as to the generality of the foregoing, each of the
Corporation and any person or entity whose liability for Environmental
Liabilities the Corporation has or may have retained or assumed either
contractually or by
<PAGE>
-19-
operation of law, including, without limitation, employees and
consultants of the Corporation:
4.41.1 Has not caused or allowed the generation, use, treatment,
storage, or disposal of any Hazardous Substance at, or
transportation from, any site or facility owned, leased or
operated by the Corporation except in accordance with all
applicable Environmental Laws;
4.41.2 Has not caused or allowed the release of any Hazardous
Substance onto, at, near or from any site or facility owned,
leased or operated by the Corporation;
4.41.3 Is not required to secure any Environmental Permits in order to
conduct its business and operations;
4.41.4 Has not received any notice requiring it to obtain any
Environmental Permit;
4.41.5 Has not received, nor has there been issued to or against the
Corporation, any claim, notice, citation, summons or order, and
no investigation or review is pending or, to the Corporation's
actual knowledge, threatened by any authority with respect to:
4.41.5.1 any alleged violation by the Corporation of any
Environmental Law;
4.41.5.2 any alleged failure by the Corporation to hold any
Environmental Permit; or
4.41.5.3 any alleged violation by the Corporation to comply
with any such Environmental Permit.
4.41.6 Has not received any request for information, notice of claim,
demand or other notification that it is or may be potentially
responsible with respect to any investigation or clean-up of
any threatened or actual release of any Hazardous Substance and
has not received inquiry or notice nor does it have any reason
to suspect or believe it will receive inquiry or notice of any
actual or potential proceedings, claims, lawsuits or losses
related to or arising under any Environmental Laws;
4.41.7 Does not own, operate or lease and did not at any previous time
own, operate or lease any real property, improvements or
related assets which have been subject to the lease of any
Hazardous Substance;
4.41.8 Does not own, operate or lease and did not at any previous time
own, operate or lease any real or immoveable property,
improvements or related assets wherein PCB's, asbestos or urea
formaldehyde insulation is or has been present whether above
ground, underground or within any structure thereon or
contained in any equipment owned,
<PAGE>
-20-
operated or leased by the Corporation; nor are there any
underground storage tanks, active or abandoned, at any property
now or previously owned, operated or leased by the Corporation;
4.41.9 Is not currently operating or required to be operating under
any compliance order, schedule, decree or agreement, any
consent decree, order or agreement and/or corrective action
decree, order or agreement issued or entered into under any
federal, provincial, state or municipal statute, regulation or
ordinance regarding the environment and/or health or safety in
the work place;
4.41.10 Has not transported any Hazardous Substance or arranged for the
transportation of any such substance to any location which is
not listed and duly authorized pursuant to the Environmental
Laws or which is the subject of federal, provincial, state or
municipal enforcement actions or other investigations which may
lead to claims against the Corporation for clean-up cost,
remedial work, damages to natural resources or for personal
injury claims under any applicable Environmental Law and all
Hazardous Substances transported by or on behalf of the
Corporation have been transported in compliance with all
applicable laws, and no Hazardous Substance has been released,
spilled, leaked, discharged, disposed of, pumped, poured,
ignited, emptied, injected, leached, dumped or allowed to
escape at, under or from any property now or formerly owned,
operated or leased by the Corporation;
4.41.11 Is in compliance with all applicable limitations, restrictions,
conditions, standards, prohibitions, requirements and
obligations established under Environmental Laws, the non-
compliance with which would have an adverse effect on the
Corporation or its operations, and is not subject to any
Environmental Liabilities;
4.41.12 Except as set forth in Schedule 4.41, has not conducted or
-------------
caused to be conducted any environmental audit of any property
operated, leased or owned by it, nor is it aware of any such
environmental audit conducted by any third party (including,
without restriction, any lender or potential purchaser) unless
in each such case a copy of every report, memorandum or summary
prepared with respect to such environmental audit has been
delivered to Balance Bar;
4.41.13 Has not failed to report to the proper authorities the
occurrence of each event which is required to be so reported by
the Environmental Laws, and has provided Balance Bar with true
and complete copies of all such reports and all correspondence
relating thereto.
For the purposes hereof:
The expression "Environmental Laws" includes any federal, provincial,
state or municipal law, by-law, rule, regulation, decree, code,
guideline, standard, order or ordinance of the United States or Canada
relating to the environment including
<PAGE>
-21-
those relating to (i) the control of any potential pollutant or the
protection of the air, water or land, (ii) solid, gaseous or liquid
waste generation, handling, treatment, storage, disposal or
transportation, and (iii) exposure to hazardous, toxic or other
substances considered to be harmful, or (iv) the release of any
Hazardous Substance (as defined below) into the environment;
The expression "Environmental Conditions" includes any pollution,
contamination, degradation, damage or injury caused by, related to, or
arising from or in connection with the generation, use, ownership,
possession, handling, treatment, storage, transportation, disposal,
discharge, release or emission of any pollutant, contaminant, or toxic
or hazardous substance, material, or waste, including mixtures thereof
with other materials, and any toxic, flammable, or hazardous building
materials, including, but not limited to, asbestos and urea
formaldehyde foam insulation;
The expression "Environmental Permit" includes any permit, license,
approval or other authorization with respect to the Corporation or its
operations or businesses under any applicable law, regulation or other
requirement of Canada or the United States or of any province, state,
municipality or other subdivision thereof relating to the control of
any pollutant or protection of health or the environment, including
laws, regulations or other requirements relating to emissions,
discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient
air, surface water, groundwater or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of chemical substances, pollutants,
contaminants or hazardous or toxic materials or wastes;
The expression "Environmental Liabilities" includes any and all
liabilities, responsibilities, claims, suits, losses, costs (including
remedial, removal, response, abatement, clean-up, investigative and/or
monitoring costs and any other related costs and expenses), other
causes of action now recognized, damages, settlements, expenses,
charges, assessments, liens, penalties, fines, pre-judgment and post-
judgment interest, legal fees and costs of court which are incurred
by, asserted against, or imposed upon the Corporation or Balance Bar
arising out of or in connection with the Corporation or its business
operations pursuant to any agreement, order, notice of responsibility,
directive (including directives and requirements embodied in
Environmental Laws), injunction, judgment or similar document
(including settlements) issued by a court of competent jurisdiction or
any federal, state, or local governmental entity or agency, or
pursuant to any claim by a governmental agency or any person for
personal injury, property damage, damage to natural resources,
remediation, or payment or reimbursement of response costs incurred or
expended by said governmental agency or person pursuant to common law
or statute, arising out of or in connection with: (i) any violation of
or non-compliance with Environmental Laws (including but not limited
to failure to procure or violation of Environmental Permits), and (ii)
any actual or alleged Environmental Condition (regardless of when
discovered) existing on the Closing Date or exposure thereto.
The expression "Hazardous Substance" includes any substance, waste,
solid, liquid or gaseous matter, petroleum or petroleum derived
substance,
<PAGE>
-22-
micro-organism, sound, vibration, ray, heat, odour, radiation, energy
vector, plasma, organic or inorganic matter, whether animate or
inanimate, transient reaction intermediate or any combination of the
above deemed hazardous, hazardous waste, solid waste, toxic or
pollutant, a deleterious substance, a contaminant or source of
pollution or contamination under any Environmental Law, or by any
federal, provincial, state or municipal government, governmental
agency, minister, deputy-minister, governor-in-council, lieutenant
governor-in-council, or any tribunal or board.
4.42 No Violation. The Corporation has no legal obligation (absolute or
------------
contingent) to, is not a party to and is not affected by any
arrangement with, any other person or entity to sell the Shares or any
other shares in the capital of the Corporation or securities issued by
it or to sell any of the properties or assets, immoveable, moveable or
mixed, or any interest therein, of the Corporation (other than sales
in the ordinary course of business) or to enter into any agreement
with respect to the foregoing. The execution, delivery and performance
of this Agreement by the Corporation and the consummation of the
transactions contemplated hereby will not violate or result in a
breach of any agreement in principle, letter of intent or other
agreement entered into by the Corporation in connection with any
proposed acquisition of the Shares or any other shares in the capital
of the Corporation or securities issued by it or the assets of the
Corporation or violate any other rights of any third party with
respect to any proposed acquisition of the Shares or the assets of the
Corporation.
4.43 Absence of Certain Changes or Events. From August 31, 1998 until the
------------------------------------
date hereof, the Corporation has:
4.43.1 (a) conducted its business in the manner in which such
business has heretofore been conducted; (b) except as
otherwise disclosed herein, not incurred any liability or
obligation whatsoever, secured or unsecured, direct or
indirect, other than current liabilities for accounts payable
in the ordinary and usual course of its business, none of
which is material, or as otherwise disclosed in this
Agreement; (c) except as otherwise disclosed herein, not
entered into any contracts or agreements whatsoever, other
than in the ordinary and usual conduct and course of its
business; and (d) not amended nor terminated nor suffered the
amendment nor termination of, nor given nor received any
notice of any proposed amendment or termination of, any
Contract;
4.43.2 without limiting the generality of Section 4.43.1, and except
as otherwise disclosed herein, not sold, leased, mortgaged or
otherwise encumbered or disposed of any of its assets, except
in the ordinary and usual conduct and course of its business;
4.43.3 without limiting the generality of Section 4.43.1, not
amalgamated, merged or consolidated, nor entered into any
agreement to amalgamate, merge or consolidate, with any
person, nor purchased or agreed to purchase all or
substantially all of the assets of any person, nor purchased
or agreed to purchase, nor leased or agreed to lease, nor
acquired or agreed to acquire, any additional assets except as
<PAGE>
-23-
mentioned in section 4.36 and Schedule 4.36, except leases of
-------------
equipment and purchases of materials and supplies for use in
the ordinary and usual conduct and course of its business;
4.43.4 save and except for the articles of amendment annexed hereto
as Schedule 4.43.4 adopted in order to effect a 90:1 stock
---------------
split and create Class "H" shares and convert the Class "E"
shares into Class "H" shares, made no changes in its charter,
by-laws, other than with respect to the Corporation's
registered office and number of directors and the repeal of a
by-law respecting special majority, or capital structure, nor
issued or sold and not agreed to issue or sell any of its
capital stock or other corporate securities;
4.43.5 except for the payment of dividends of $42,145 on the Class
"D" shares and the redemption of 100,000 Class "D" shares of
the Corporation, not declared, authorized, paid or made any
dividend or other distribution to any shareholder; nor paid or
agreed to pay any salaries, management fees, royalties,
bonuses or any other payments to any shareholders or any
persons not acting at arm's length with the Corporation other
than in the ordinary course of business; nor purchased or
otherwise acquired any of its shares or agreed to take any
such action;
4.43.6 without limiting the generality of Section 4.43.1, not
cancelled or released any debts or claims except, in each
case, in the ordinary and usual conduct and course of
business;
4.43.7 not suffered any extraordinary loss or knowingly waived any
right of substantial value;
4.43.8 not suffered any damage, destruction or loss, whether or not
covered by insurance, which may materially and adversely
affect its property or business;
4.43.9 not suffered any material adverse changes, financial or
otherwise, in its business, financial condition or Properties
or any occurrences or circumstances which might reasonably be
expected to result in a material adverse change thereto;
4.43.10 not incurred any obligations or expenses out of the ordinary
course of business or effected any material changes in the
management or operation of its business;
4.43.11 not increased the wages, salary or basis of remuneration of
any employee of the Corporation, nor paid any bonus or similar
payment, other than in the ordinary course of business and,
with respect to the executives of the Corporation, other than
as set forth on Schedule 4.22 annexed hereto;
-------------
<PAGE>
-24-
4.43.12 not changed any of its accounting methods, principles,
practices or policies;
4.43.13 without limiting the generality of Section 4.43.1, not
materially changed any of its business policies, including,
without limitation, advertising, marketing, pricing,
purchasing, personnel, sales, returns, budget or product
acquisition policies.
4.44 No Material Adverse Change. Since August 31, 1998, there has been no
--------------------------
material adverse change in the assets, Properties, business,
prospects, operations or condition (financial or otherwise) of the
Corporation, and the Corporation does not know of any such change
which is threatened, nor has there been any damage, destruction or
loss materially adversely affecting any of the assets, Properties,
business, prospects, operations or condition (financial or otherwise)
of the Corporation, whether or not covered by insurance.
4.45 No Materially Adverse Undisclosed Facts. There is no fact known to the
---------------------------------------
Corporation which has not previously been disclosed in writing to
Balance Bar which materially adversely affects the Corporation or its
assets, Properties, business, prospects, operation or condition
(financial or otherwise), or which should be disclosed to Balance Bar
in order to make any of the warranties and representations herein not
misleading and no state of facts is known to the Corporation, which
materially adversely affects the Corporation or would operate to
prevent the Corporation from continuing to carry on its business in
the manner in which carried on at the date hereof. All documents and
other papers delivered by or on behalf of the Corporation to Balance
Bar in connection with this Agreement and the transactions
contemplated hereby are true, complete and authentic. No
representation or warranty of the Corporation contained in this
Agreement, and no statement of information contained in any schedule
annexed hereto or in any certificate or other document required to be
furnished to Balance Bar pursuant hereto or in connection with the
transactions contemplated hereby contains any untrue statement of
material fact or omits to state a material fact necessary to make the
statements herein not false or misleading.
4.46 All Representations and Warranties applicable to Subsidiaries. All
-------------------------------------------------------------
representations and warranties made in this Article 4 apply to each of
the Subsidiaries or shall apply to each of the Subsidiaries and
whenever and wherever the word Corporation is used in this Article 4,
it shall include the word Subsidiaries except where the context
otherwise clearly requires.
5. REPRESENTATIONS AND WARRANTIES OF BALANCE BAR
---------------------------------------------
Balance Bar hereby represents and warrants to and in favour of the
Corporation as follows:
5.1 Incorporation and Capacity. Balance Bar is a corporation duly
--------------------------
incorporated under the laws of Delaware and is a valid and subsisting
corporation in good standing under such laws and under the laws of
each jurisdiction in which it carries on
<PAGE>
-25-
business and Balance Bar has the corporate power and authority to
consummate the transactions contemplated hereby.
5.2 Authorization. Balance Bar has all requisite power and authority to
-------------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All acts and other proceedings required to be
taken by Balance Bar to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and properly taken. This Agreement
and all other agreements contemplated hereby that have been executed by
Balance Bar have been duly executed and delivered by Balance Bar and
constitute the valid and binding obligation of Balance Bar enforceable
against Balance Bar in accordance with its terms. All other agreements
and instruments contemplated by this Agreement to be delivered or
executed by Balance Bar at Closing shall at Closing constitute the
valid and binding obligation of Balance Bar enforceable against Balance
Bar in accordance with its terms.
5.3 Effect of Agreement. The execution, delivery and performance of this
-------------------
Agreement and the consummation of the transactions contemplated by this
Agreement will not (a) violate or result in a breach of or default (or
event which, upon notice or lapse of time, would constitute a default)
or acceleration under the articles or by-laws of Balance Bar or any
instrument or agreement to which Balance Bar is a party or is bound, or
(b) violate any judgment, order, injunction, decree or award against,
or binding upon Balance Bar or upon the property or business of Balance
Bar.
5.4 Consents. No consent, license, approval, order or authorization of or
--------
registration, filing or declaration with, any Governmental Entity is
required to be obtained or made with respect to Balance Bar in
connection with the execution and delivery of this Agreement or the
consummation of the transaction contemplated hereby, and no consent of
any other third party is required to be obtained with respect to
Balance Bar in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated
hereby.
5.5 Compliance with law. Balance Bar is, and all aspects of its business
-------------------
are, conducted in compliance with all applicable laws, ordinances and
regulations, inclusive of those of any administrative boards or
agencies or other public authorities having jurisdiction, the non-
compliance with which would have a material adverse affect on Balance
Bar or its operations.
5.6 Legal proceedings. There are no suits, claims, actions (arbitration or
-----------------
legal) or administrative or other proceedings or governmental
investigations pending or, to the knowledge of Balance Bar, threatened
against Balance Bar or any of its officers, directors, employees,
agents or Affiliates in connection with the activities of Balance Bar
or Affiliates or as to which Balance Bar or any of its officers,
directors, employees, agents or Affiliates may become a party or be
affected thereby before any court or administrative agency or officer,
and Balance Bar is not aware of any facts or circumstances which
should, or could, reasonably form the basis for any such suits, claims,
actions, proceedings and Balance Bar is not the subject of any
investigation or proceedings by any governmental authority,
<PAGE>
-26-
and none of the assets of Balance Bar nor any of its business practices
is in any manner, directly or indirectly, affected by any judgement,
order, writ or injunction of any court or governmental or
administrative agency or officer.
5.7 Governmental filings. The execution, delivery and performance of this
--------------------
Agreement by Balance Bar and the consummation of the transactions
contemplated herein does not require any authorizations, consents or
approvals of, or filings, registrations, qualifications or recordings
with, any governmental, regulatory or other authority except as
required by the United States Securities and Exchange Commission.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNITY
--------------------------------------------------------
6.1 All of the representations, warranties, covenants and agreements made
by the Corporation and the Guarantors in this Agreement or pursuant
hereto shall be continuing and shall survive the execution hereof and
the Closing and any investigation made at any time by or on behalf of
Balance Bar. All statements of the Corporation and the Guarantors
contained herein or in any certificate, schedule, list, exhibit,
document or other writing required to be delivered pursuant hereto or
in connection with the transactions contemplated hereby shall be deemed
representations and warranties of the Corporation and the Guarantors
made in this Agreement or pursuant hereto.
6.2 The Corporation and the Guarantors shall indemnify Balance Bar and the
officers, directors and representatives of Balance Bar and save Balance
Bar harmless from and against any and all claims, demands, losses,
liabilities, damages, causes of action, proceedings, judgments,
recoveries, deficiencies, costs and expenses (including, without
limitation, interest, penalties and reasonable attorneys' fees and
disbursements and amounts paid in settlement) (hereinafter some times
referred to collectively as "Losses") suffered or sustained by Balance
Bar or by the Corporation resulting from, arising out of or relating
to:
6.2.1 any breach or falsity of any of the representations or
warranties of the Corporation set forth herein or any failure of
the Corporation to duly perform, observe or fulfil any term,
provision, covenant or agreement contained herein or in any
agreement delivered pursuant to this Agreement to be performed
or observed by the Corporation, or from any misrepresentation in
or omission from any certificate, schedule or other document
provided to Balance Bar by the Corporation pursuant to this
Agreement;
6.2.2 any claims, demands, suits, proceedings or actions by any third
party containing allegations which, if true, would constitute a
misrepresentation, breach of warranty or failure to fulfil a
covenant or obligation on the part of the Corporation under this
Agreement;
6.2.3 any claims, demands or causes of action of any kind or nature by
any third party arising from the issuance of the Shares
contemplated hereby;
<PAGE>
-27-
6.2.4 any claims, demands or causes of action of any kind or nature by
any third party arising from the conduct of the business of the
Corporation prior to the Closing Date which are not reflected on
the Financial Statements.
6.3 Obligations of indemnification shall be satisfied within fifteen (15)
days after written notice thereof from Balance Bar to the Corporation.
The amount of any payment to Balance Bar in respect of any Losses shall
be of sufficient amount to make Balance Bar whole, including, without
limitation or duplication, an amount sufficient to make up any
diminution in the value of the Shares held by Balance Bar resulting
from the payment by the Corporation of such indemnification payment.
Upon obtaining knowledge thereof, Balance Bar shall promptly notify the
Corporation in writing of any claim or demand which Balance Bar has
determined has given or could give rise to a right of indemnity under
this Agreement. The failure by Balance Bar to give such notice shall
not relieve the Corporation from any liability it shall otherwise have
pursuant to this Agreement except to the extent the Corporation is
actually prejudiced by such failure of notice. If such claim or demand
relates to a claim or demand asserted by a third party against Balance
Bar ("Third Party Claim"), the Corporation shall have the right to
defend the same at its own cost and expense with counsel of its own
selection, provided that: (i) Balance Bar shall at all times have the
right to fully participate in the defence at its own expense; (ii) the
Third Party Claim does not seek any injunctive or other relief other
than monetary damages against Balance Bar; (iii) the Corporation
unconditionally acknowledges in writing its obligation to indemnify and
hold Balance Bar harmless with respect to the Third Party Claim; and
(iv) counsel chosen by the Corporation is satisfactory to Balance Bar,
acting reasonably. If the Third Party Claim is asserted against the
Corporation, then the Corporation alone shall defend same.
6.4 If the Corporation is not entitled to defend a Third Party Claim
against Balance Bar, or shall, within a reasonable time after notice of
a Third Party Claim, fail to defend a Third Party Claim against Balance
Bar, Balance Bar shall have the right, but not the obligation, to
undertake the defence of and to compromise or settle the Third Party
Claim against Balance Bar at the risk and expense of the Corporation,
provided that it is determined that the Corporation was obliged to
indemnify and hold harmless Balance Bar with respect to such Third
Party Claim. In the event that the Corporation does defend a Third
Party Claim against Balance Bar, it will not be permitted to control
the settlement of the claim, unless (i) the terms of the settlement
require only the payment of money and do not require Balance Bar to
admit any wrongdoing or take or refrain from taking any action; (ii)
the full amount of the settlement is paid by the Corporation; and (iii)
Balance Bar receives, as part of the settlement, a legally binding and
enforceable unconditional satisfaction or release, which is in form and
substance reasonably satisfactory to Balance Bar, providing that the
Third Party Claim and any claimed liability of Balance Bar with respect
to the claim is being fully satisfied because of the settlement and
that Balance Bar is being released from any and all obligations or
liabilities it may have with respect to the Third Party Claim.
6.5 Balance Bar shall only be entitled to make a claim or demand under this
Section 6 if the aggregate Losses exceeds, or after giving effect to
the claim or
<PAGE>
-28-
demand in question, would exceed $500,000, whereupon Balance Bar shall
be entitled to make a claim or demand based solely upon Losses in
excess of the amount of $500,000.
6.6 For purposes of determining the losses suffered or incurred as a result
of a breach or falsity of the representations and warranties set forth
in Section 4.18 or 4.19 hereof, if an assessment or reassessment with
respect to the fiscal years of the Corporation ending on or before the
Closing Date results in an increase in the income or taxable income for
a fiscal year of the Corporation ending on or before the Closing Date,
but results in a reduction in the income or taxable income of the
Corporation for fiscal years ending after the Closing Date, the amount
which the Corporation shall be liable to pay with respect to such
assessment or reassessment for the period ending on or before the
Closing Date shall be reduced by the amount of the reduction in taxes,
if any, resulting from such reduction in income or taxable income for
the period ending after the Closing Date. Furthermore, if the effect of
an assessment or reassessment with respect to fiscal periods of the
Corporation ending on or before the Closing Date is to entitle the
Corporation to a refund of taxes paid for another year prior to the
Closing Date then the amount which the Corporation shall be liable to
pay with respect to such assessment or reassessment shall be reduced by
the aggregate of the taxes refunded and ten percent (10%) of the net
after tax amount retained by the Corporation in respect of the interest
paid by the appropriate governmental authority with respect to such
refund. If a refund can only be obtained by filing an amended tax
return, then Balance Bar shall agree to allow the Corporation to file
such amended tax return.
6.7 The determination as to whether Balance Bar shall make any claim or
demand made under this Agreement shall be determined at the sole
discretion of Balance Bar. Any such demand or claim shall be based on
the losses actually suffered or incurred by the claiming party on a
dollar for dollar basis without resort to any multiple upon which the
Share Issue Price may have been determined. For greater certainty,
should Balance Bar seek indemnification based on a decline in value of
the Corporation, the determination of its losses shall reflect that
Balance Bar holds a ten percent (10%) equity interest in the
Corporation, such that a one dollar decline in value of the Corporation
shall not amount to more than a ten cent loss to Balance Bar.
6.8 Notwithstanding any other provision of this Agreement, all of the
representations and warranties made herein by the Corporation or
Balance Bar shall survive the execution and delivery of this Agreement
until the third (3/rd/) anniversary of the Closing Date, whereas all
the representations and warranties made herein by the Guarantors shall
only survive the execution and delivery of this Agreement until the
second (2/nd/) anniversary of the Closing Date, except for any claim or
demand based on intentional misrepresentation or fraud, which shall
survive in perpetuity.
6.9 The provisions of this Section 6 shall apply mutatis mutandis to any
claim of the Corporation against Balance Bar.
<PAGE>
-29-
7. SOLIDARY OBLIGATIONS
--------------------
Each and all of the covenants, obligations and agreements of both the
Corporation and the Guarantors made in this Agreement shall be a solidary
obligation as amongst the Corporation and the Guarantors, subject to the time
limitations set forth in Section 6.8, each of them hereby waiving the benefits
of division and discussion.
8. EXAMINATION
-----------
It is expressly provided that all inspections, investigations, reviews or
feasibility studies undertaken by Balance Bar or its agents shall not serve to
diminish the liability of the Corporation occasioned by the Corporation's breach
of any representations and warranties made by the Corporation pursuant to the
provisions of this Agreement, or otherwise prevent Balance Bar from enforcing
the obligations of the Corporation pursuant to this Agreement, it being
understood and agreed that Balance Bar's subscription for the Shares pursuant to
this Agreement shall be in reliance upon such representations and warranties.
9. NOTICES
-------
Any notice or other communication permitted or required to be given
hereunder by one party to the other shall be in writing and shall be delivered
by hand or by courier service or by telecopier to the party entitled or required
to receive the same, as follows:
IF TO THE CORPORATION: 1600, 46/th/ Avenue
Lachine, Quebec
H8T 3J9
Attention: Thomas Egger
Copy to: Spiegel Sohmer
Place Ville Marie
Suite 1203
Montreal, Quebec
H3B 2G2
Attention: Janice Naymark
IF TO BALANCE BAR: 1015 Mark Avenue
Carpinteria, CA
93013
Attention: Thomas Flahie
Copy to: Goodman Phillips & Vineberg
1501 McGill College
26/th/ Floor
Montreal, Quebec
H3B 3N9
Attention: Hillel W. Rosen
<PAGE>
-30-
IF TO RODERICK EGGER: c/o Bariatrix Products International Inc.
1600, 46/th/ Avenue
Lachine, Quebec
H8T 3J9
Copy to: Spiegel Sohmer
Place Ville Marie
Suite 1203
Montreal, Quebec
H3B 2G2
Attention: Janice Naymark
IF TO 3357481 CANADA INC.: c/o Bariatrix Products International Inc.
1600, 46/th/ Avenue
Lachine, Quebec
H8T 3J9
Copy to: Spiegel Sohmer
Place Ville Marie
Suite 1203
Montreal, Quebec
H3B 2G2
Attention: Janice Naymark
IF TO THOMAS EGGER: c/o Bariatrix Products International Inc.
1600, 46/th/ Avenue
Lachine, Quebec
H8T 3J9
<PAGE>
-31-
Copy to: Spiegel Sohmer
Place Ville Marie
Suite 1203
Montreal, Quebec
H3B 2G2
Attention: Janice Naymark
Notice delivered as aforesaid shall be deemed received on the date of
actual delivery thereof. Each party may change its address by notice delivered
in like manner. Notices and other communications may be signed by any officer of
any party hereto or by their respective legal counsel.
10. INTEGRATED CONTRACT, WAIVER AND MODIFICATION
--------------------------------------------
This Agreement (including the schedules hereto and the other documents and
certificates delivered pursuant to the terms hereof) represents the complete and
entire understanding and agreement between the parties hereto with regard to all
matters involved in this transaction and supersedes any and all prior
agreements, whether written or oral. No agreements or provisions, unless
incorporated herein, shall be binding on either party hereto. This Agreement
may not be modified or amended nor may any covenant, agreement, condition,
requirement, provision, warranty or obligation contained herein be waived,
except in writing signed by both parties or, in the event that such
modification, amendment or waiver is for the benefit of one of the parties
hereto and to the detriment of the other, then the same must be in writing
signed by the party to whose detriment the modification, amendment or waiver
enures.
11. GOVERNING LAW
-------------
This Agreement shall be construed in accordance with and governed by the
laws of the Province of Quebec and the laws of Canada applicable therein.
12. BINDING EFFECT
--------------
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, personal representatives,
successors and assigns.
13. DESCRIPTIVE HEADINGS
--------------------
The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
14. ENFORCEABILITY OF PROVISIONS
----------------------------
If any provisions of this Agreement or the application thereof to any
person or circumstance shall be invalid or unenforceable, then the remaining
provisions of this Agreement or the application of such provisions to persons or
circumstances other than those as to whom or which it is held invalid or
unenforceable, shall not be affected thereby, and every provision hereof shall
be valid and enforceable to the fullest extent permitted by law.
<PAGE>
-32-
15. PLURAL, SINGULAR, GENDER
------------------------
When the context in which the words are used in this Agreement indicates
that such is the intent, words in the singular number shall include the plural
and vice-versa. References to any gender shall include any other gender as may
be applicable under the circumstances.
The terms "herein", "hereof", "hereunder", and other words of similar
import mean and refer to this Agreement as a whole and not merely as to the
specific paragraph or clause in which the respective word appears, unless
expressly so stated.
16. PUBLICITY
---------
None of the Corporation nor Balance Bar shall make or issue, or cause to be
made or issued, any announcement or written statement concerning this Agreement
or the transactions contemplated hereby for dissemination to the general public
without the prior consent of the other party. This provision shall not apply,
however, to any announcement or written statement required to be made by law or
the regulations of any federal or provincial governmental agency or any stock
exchange, except that the party required to make such announcement shall consult
with the other party concerning the timing and content of such announcement
before such announcement is made.
17. CURRENCY
--------
All references to currency in this Agreement are to Canadian dollars.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first above stated.
BARIATRIX PRODUCTS INTERNATIONAL INC.
Per: /s/ Roderick Egger
------------------------------
BALANCE BAR COMPANY
Per: /s/ Thomas J. Flahie
------------------------------
/s/ Roderick Egger
-------------------------------------
RODERICK EGGER
3357481 CANADA INC.
Per: /s/ Thomas Egger
------------------------------
/s/ Thomas Egger
-------------------------------------
THOMAS EGGER
<PAGE>
EXHIBIT 10.3
------------------------------------------------
BARIATRIX PRODUCTS INTERNATIONAL INCORPORATED/
LES PRODUITS BARIATRIX INTERNATIONAL INCORPOREE
UNANIMOUS SHAREHOLDERS AGREEMENT
------------------------------------------------
<PAGE>
------------------------------------------------
BARIATRIX PRODUCTS INTERNATIONAL INCORPORATED/
LES PRODUITS BARIATRIX INTERNATIONAL INCORPOREE
UNANIMOUS SHAREHOLDERS AGREEMENT
------------------------------------------------
<TABLE>
<S> <C>
ARTICLE 1. PRELIMINARY................................... 2
ARTICLE 2. FUNDAMENTAL PRINCIPLES........................ 4
ARTICLE 3. DIRECTORS AND OFFICERS........................ 5
ARTICLE 4. SHAREHOLDERS AND THEIR RIGHTS................. 6
ARTICLE 5. FINANCIAL INFORMATION......................... 8
ARTICLE 6. DISTRIBUTIONS................................. 9
ARTICLE 7. PRE-EMPTIVE RIGHTS............................ 10
ARTICLE 8. RIGHT OF FIRST OPPORTUNITY AND LAST REFUSAL... 11
ARTICLE 9. TAG-ALONG/ DRAG-ALONG RIGHTS.................. 14
ARTICLE 10. PUBLIC OFFERING............................... 16
ARTICLE 11. CONFIDENTIALITY............................... 16
ARTICLE 12. ARBITRATION................................... 17
ARTICLE 13. GENERAL PROVISIONS............................ 19
</TABLE>
<PAGE>
MEMORANDUM OF AGREEMENT ENTERED INTO AT THE CITY OF MONTREAL, PROVINCE OF
QUEBEC, ON THE 20TH DAY OF MAY, 1999.
- --------------------------------------------------------------------------------
BY AND BETWEEN: RODERICK EGGER, businessman, of the
City of Burlington, State of Vermont,
(hereinafter referred to as "ROD")
AND: 3515176 CANADA INC., a body politic and
corporate, duly incorporated according to
law, herein represented by Marco De Rosa,
its duly authorized representative as he so
declares, (hereinafter referred to as
"3515176")
AND: ROBERT RAICH, Attorney, of the City of
Westmount, Province of Quebec, (hereinafter
referred to as "RAICH")
AND: 3357481 CANADA INC., a body politic and
corporate, duly incorporated according to
law, herein represented by Thomas L. Egger,
its duly authorized representative as he so
declares, (hereinafter referred to as the
"3357481")
AND: BALANCE BAR COMPANY, a body politic and
corporate, duly incorporated according to
law, herein represented by Thomas J. Flahie,
its duly authorized representative as he so
declares, (hereinafter referred to as the
"BBC")
<PAGE>
-2-
AND: BARIATRIX PRODUCTS INTERNATIONAL
INCORPORATED, a body politic and corporate,
duly incorporated according to law, herein
represented by Thomas L. Egger, its duly
authorized representative as he so declares,
(hereinafter referred to as the "COMPANY")
WHEREAS the COMPANY was duly incorporated on the November 6, 1978, pursuant to
the Canada Business Corporations Act;
WHEREAS the sole shareholders of the COMPANY and their respective shareholdings
are as follows:
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER NO. & CLASS OF SHARES
------------------- ---------------------
<S> <C>
ROD 2,700 Class "A"
3515176 270 Class "A"
RAICH 180 Class "A"
3357481 5,850 Class "A"
325,000 Class "D"
1,300,000 Class "F"
1,025,000 Class "H"
BBC 1,000 Class "A"
</TABLE>
WHEREAS the sole shareholder of 3515176 is Marco De Rosa;
WHEREAS the sole shareholders of 3357481 are Thomas L. Egger, the Egger Family
Trust (the beneficiaries of which are the children and grandchildren of Thomas
L. Egger) and Eri Pharmaceuticals Ltd., a corporation which is wholly-owned by
Thomas L. Egger;
WHEREAS ROD, 3515176, RAICH, 3357481 and BBC wish to provide for certain aspects
of the internal management of the COMPANY and to formalize their relationship
inter se as shareholders of the COMPANY;
- ----- --
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES, COVENANTS AND
AGREEMENTS HEREIN CONTAINED, IT IS AGREED BY THE PARTIES HERETO AS FOLLOWS:
ARTICLE 1. PRELIMINARY
- ------------------------
1.1 In this Memorandum of Agreement, the following words or terms shall have
the following meanings ascribed thereto:
(a) "Bona Fide Offer" shall mean an arm's length
<PAGE>
-3-
irrevocable and unconditional (other than standard due diligence
conditions) written offer presented to a Shareholder by an Outside
Party for the purchase of Shares of the COMPANY where not less than
eighty percent (80%) of the consideration offered for the Shares is
payable in cash;
(b) "Debt" shall mean letters of credit, guarantees, indebtedness for
borrowed money, capital leases, advances payable to companies under
common control, debentures, loans and similar debt obligations of the
COMPANY, determined on a consolidated basis, in accordance with GAAP;
(c) "Egger Group" shall mean both ROD and 3357481;
(d) "Equity" shall mean shareholders' equity, determined in accordance
with Canadian generally accepted accounting principles from the
consolidated financial statements of the COMPANY, including the issued
and outstanding Class "D", Class "F" and Class "H" shares in the
capital stock of the COMPANY;
(e) "GAAP" shall mean Canadian generally accepted accounting principles,
as described in the handbook of the Canadian Institute of Chartered
Accountants;
(f) "Outside Party" shall mean a person who is not related to, affiliated
or associated with any of the Shareholders, as such terms are defined
in the Income Tax Act (Canada) (R.S.C. 1985 (5th supp.) c.1), as
amended from time to time);
(g) "Shareholder" shall mean any of ROD, 3515176, RAICH, 3357481 or BBC,
as the context dictates, and "Shareholders" shall mean all or any
combination of them, as well as the legatees, heirs and permitted
assignees of any of the foregoing;
(h) The "Shares" shall mean the shares in the capital stock of the COMPANY
beneficially owned by all or any combination of the Shareholders, as
the context dictates;
1.2 The preamble hereto shall form an integral part hereof and shall avail as
if recited herein at length.
<PAGE>
-4-
ARTICLE 2. FUNDAMENTAL PRINCIPLES
- -----------------------------------
2.1 No Shareholder shall, directly or indirectly, sell, transfer, assign,
encumber or otherwise alienate his or its Shares otherwise than with the consent
of all of the other Shareholders or in conformity with any of the other
provisions of this Agreement. Notwithstanding the preceding sentence, any
transaction resulting in a change of control of BBC shall not be prohibited, nor
require the consent of all of the other Shareholders, nor need be effected in
conformity with this Agreement, although notice thereof must be sent to the
COMPANY within ten (10) days following the completion of such transaction. In
any such event, no sale, transfer, assignment, encumbrance or alienation shall
be valid unless the party receiving, acquiring or encumbrancing such Shares
shall become a party to this Agreement.
2.2 Notwithstanding the generality of Section 2.1, it is hereby acknowledged
that the Egger Group, RAICH and 3515176 shall enter into a separate agreement
providing for the sale to the Egger Group, upon the happening of certain
triggering events (such as death or departure), of the Shares owned by RAICH and
3515176 for a price based upon a valuation of the COMPANY, subject to adjustment
in the event of a subsequent public offering of the securities of the COMPANY,
equal to seven (7) times earnings before interest, taxes, depreciation and
amortization. This Agreement shall continue to govern any Shares so acquired
by the Egger Group. A copy of such agreement and all amendments thereto shall
be provided to BBC.
2.3 In the event that stock options are granted in favour of employees
pursuant to a stock option plan adopted by the Board of Directors, then such
employees shall be required to execute an addendum to this Agreement pursuant to
which they shall intervene herein to the extent necessary for this Agreement to
continue to constitute a unanimous shareholders' agreement within the meaning of
the Canada Business Corporations Act (R.S.C. 1985, c. C-44, as amended from time
to time).
2.4 The Shareholders covenant and agree, whether as shareholders, directors
or officers of the COMPANY, as the case may be, or otherwise, to vote their
respective Shares and exercise their respective powers to ensure that the
COMPANY will carry out the provisions of this agreement in its intent and
purport.
2.5 Notwithstanding anything ever contained in the by-laws, resolutions or
contracts of the COMPANY, in the event of any conflict between any of the
provisions of this Agreement and such by-law, resolution or contract, the
provisions of this Agreement shall supersede such by-law, resolution or
contract.
<PAGE>
-5-
ARTICLE 3. DIRECTORS AND OFFICERS
- -----------------------------------
3.1 The Board of Directors of the COMPANY shall be initially comprised of
five (5) directors and, subject to the provisions of Section 3.3 below, a quorum
for a meeting of the Board of Directors shall be four (4) of the directors. BBC
shall be entitled to nominate at least one (1) director and no less than ten
percent (10%) of the directors constituting the Board of Directors at any time.
The Shareholders shall vote their Shares at each and every meeting of the
Shareholders of the COMPANY so as to cause the nominee(s) from time to time of
BBC to be elected to (and if appropriate, removed from) the Board of Directors
of the COMPANY. The initial nominee of BBC shall be Thomas J. Flahie.
3.2 Notwithstanding the generality of Section 3.1 above, in the event that
the ratio of Debt to Equity of the COMPANY, as reflected in its internal monthly
consolidated financial statements, should exceed 4 to 1 for any two (2)
consecutive months, then BBC shall be entitled to appoint that additional number
of directors to the Board of Directors of the COMPANY which results in the BBC
nominees constituting a majority of the Board, the whole until such time as the
ratio of Debt to Equity, as reflected in its internal monthly consolidated
financial statements, decreases below 4 to 1 for any two (2) consecutive months,
whereupon the additional nominees of BBC shall be removed from the Board.
3.3 Notice of a meeting of the directors of the COMPANY shall be sent, in the
manner specified in Section 13.4 below, at least ten (10) days prior to the date
upon which such meeting is to be held. If the nominee of BBC is not present at
such meeting in person or by telephone, then quorum shall be deemed not to have
been met and the meeting shall be adjourned. If the nominee of BBC shall fail
to attend a second meeting duly called in accordance herewith to continue the
adjourned meeting, such second meeting shall likewise be adjourned. Thereafter,
a third meeting may be called on only five (5) days prior written notice and if
the nominee of BBC shall fail to attend such third meeting, then quorum shall be
met so long as any four (4) directors are present in person or by telephone.
Notwithstanding the generality of the foregoing, BBC undertakes to use its best
efforts to cause its nominee to attend at meetings of the board of directors as
soon as practicable, particularly where the matters to be discussed are of an
urgent nature, such that the business of Bariatrix will not be negatively
affected as a result of the lengthy delays required by this provision.
3.4 In the event that any committee should ever be formed to which powers of
the Board of Directors are delegated, then the nominee(s) of BBC to the Board of
Directors shall be entitled to participate in such committee, in a proportion at
least equal to the proportion of his or their representation on the Board of
Directors.
<PAGE>
-6-
3.5 Except as set forth in Section 4.2 hereof, no resolution may be passed or
adopted by the Board of Directors of the COMPANY unless such resolution shall
have received the affirmative vote of at least three (3) of the directors of the
COMPANY present at a duly called and constituted meeting of the Board of
Directors or unless such resolution shall have been signed by all of the
directors of the COMPANY.
3.6 Meetings of the Board of Directors shall be held not less than quarterly
at the offices of the COMPANY or at such other location as the directors may
agree, and each director shall be entitled to full reimbursement of reasonable
out-of-pocket expenses incurred in order to attend such meetings. A director
may participate in any meeting of the Board of Directors by telephone.
3.7 The officers of the COMPANY, until changed in accordance with the
provisions of paragraph 4.2(c) below, shall be as follows:
<TABLE>
<S> <C>
CEO - Thomas Egger
President - Thomas Egger
Vice-President - Roderick Egger
Secretary - Thomas Egger
Assistant-Secretary - Marco De Rosa
</TABLE>
ARTICLE 4. SHAREHOLDERS AND THEIR RIGHTS
- ------------------------------------------
4.1 Subject to the following sentence, a quorum for a meeting of the
shareholders shall be one (1) person who holds or acts as proxy for Shareholders
holding a majority of the voting Shares of the COMPANY and meetings of the
Shareholders shall be held at least once per year. Notice of a meeting of the
Shareholders of the COMPANY shall be sent, in the manner provided in Section
13.4 below, at least ten (10) days prior to the date upon which such meeting is
to be held. If BBC is not present (in person or by proxy) at such meeting, then
quorum shall be deemed not to have been met and the meeting shall be adjourned.
If BBC shall fail to attend (or be represented by proxy at) a second meeting
duly called in accordance herewith to continue the adjourned meeting, such
second meeting shall likewise be adjourned. Thereafter, a third meeting may be
called on only five (5) days prior written notice and if BBC shall fail to
attend (or be represented by proxy at) such third meeting, then quorum shall be
met so long as one (1) person who holds or acts as proxy for Shareholders
holding a majority of the voting Shares of the COMPANY is present.
4.2 Notwithstanding any other provision of this Agreement,
<PAGE>
-7-
unless BBC provides its prior written consent, the COMPANY shall not take any of
the following actions:
(a) apply for Articles of Amendment or amend, adopt or revoke the by-laws
of the COMPANY or any subsidiary of the COMPANY;
(b) enter into any new arrangements or modify its current arrangements
with any persons or entities that are related to or affiliated with
any of the Shareholders;
(c) appoint, remove or replace any of its officers other than Thomas
Egger, ROD or Marco De Rosa, save and except that the consent of BBC
to the appointment of a candidate unanimously proposed by ROD and
Thomas Egger shall not be unreasonably withheld;
(d) significantly alter or modify the nature of the business carried on by
the COMPANY or any of its subsidiaries;
(e) save and except as permitted by the provisions of Article 6, redeem or
purchase for cancellation any shares in its capital stock which are or
may become issued and outstanding;
(f) change or appoint new auditors;
(g) save and except as permitted by the provisions of Article 6, declare
and/or pay any dividends or repay any loans owing to Shareholders;
(h) create, allot or issue any shares in the capital of the COMPANY or any
of its subsidiaries nor any securities convertible into shares in the
capital stock, or any right or option to purchase any shares of the
stock or securities of the COMPANY or any of its subsidiaries
convertible into stock, other than pursuant to the granting of any
stock options to management, with respect to which BBC enjoys the
rights set forth in Section 7.4;
(i) amend or modify the compensation or bonus policies currently in effect
for officers of the COMPANY or any of its subsidiaries, if such
amendment or modification results in increased costs to the COMPANY;
(j) offer any of its securities to the public through an underwritten
public offering which values the COMPANY at less than $US 50,000,000;
(k) adopt, approve or implement an annual budget or
<PAGE>
-8-
business plan which significantly alters or modifies the nature of the
business to be carried on by the COMPANY;
(l) take any action which materially deviates from or results in
expenditures which materially exceed the amounts provided in the
annual budget or business plan;
(m) acquire nor enter into any agreement for the acquisition of a business
enterprise the price of which exceeds thirty percent (30%) of the
Equity of the COMPANY;
(n) sell nor enter into any agreement for the sale of thirty percent (30%)
or more of the property of the COMPANY and its subsidiaries, other
than sale of products in the ordinary course of business; or
(o) merge or amalgamate the COMPANY or any of its subsidiaries with any
other corporation or entity.
This Agreement shall constitute a unanimous shareholders' agreement
within the meaning of the Canada Business Corporations Act. Without limiting the
generality of the foregoing, the provisions of this Section 4.2 are intended to
restrict the powers of the directors to manage the business and affairs of the
COMPANY.
ARTICLE 5. FINANCIAL INFORMATION
- ----------------------------------
5.1 The COMPANY will provide BBC with monthly internal financial statements,
including a balance sheet, statement of income and statement of cash flow within
thirty (30) days following the end of each month.
5.2 BBC shall also be provided with such additional financial and operating
information which BBC may reasonably request from time to time, subject to the
right of the COMPANY to refuse to give BBC access to any internal management
information that may contain information concerning any of BBC's competitors,
such as pricing policies, product formulations, negotiations in progress with
potential customers and the like. The COMPANY will not, however, limit BBC's
access to information reasonably necessary for BBC to evaluate the condition or
future prospects of its investment in the COMPANY.
5.3 In addition, the COMPANY will provide BBC, on a timely basis following
reasonable notice from BBC, all financial data, business data and other
information required by BBC in order to meet its reporting obligations to the
U.S. Securities and Exchange Commission.
<PAGE>
-9-
5.4 The COMPANY will likewise provide to BBC, on a timely basis following
reasonable notice from BBC, all financial data, business data and other
information required by BBC in order to fulfil its tax and other informational
obligations to the U.S. Internal Revenue Service and any other U.S. federal,
state or municipal regulatory authorities.
5.5 BBC agrees to provide to the COMPANY, on a timely basis following
reasonable notice from the COMPANY, all financial data, business data and other
information required by the COMPANY to fulfil its tax and informational
obligations to Revenue Canada, the Minister of Revenue (Quebec) and any other
Canadian federal, provincial and local authorities.
5.6 Subject to Sections 5.3 and 5.4 above, all information disclosed or
provided by the COMPANY to BBC or by BBC to the COMPANY in accordance with this
Article shall be held strictly confidential by the recipient and shall not be
used for any purpose other than the purpose for which the information was
supplied, without the prior written consent of the disclosing party.
ARTICLE 6. DISTRIBUTIONS
- --------------------------
6.1 It is hereby agreed that all funds in the COMPANY which the Directors
determine to be available for distribution each year shall be distributed in the
following order of priority:
(a) first, dividends on the Class "D" shares currently issued and
outstanding (or so many of them as remain issued and outstanding at
the end of the relevant fiscal year), at a rate of six percent (6%)
per annum shall be declared and paid annually, notwithstanding the
stipulation in the Articles of Incorporation as amended, that the
holders of Class "D" shares are only entitled to non-cumulative
dividends. Notwithstanding the generality of the foregoing, the
amount remaining to be declared and paid for the fiscal year ending
August 31, 1999 is $6,771;
(b) second, a number of Class "D", "F" and "H" shares held by 3357481 may
be redeemed and paid for in accordance with the following schedule:
Fiscal Year Maximum Value of Redemption
----------- ---------------------------
Sept.1, 2000 - 2.5% of net income
August 31, 2001
<PAGE>
-10-
Sept.1, 2001 - 3.5% of net income
August 31, 2002
Sept.1, 2002 - 3.5% of net income
August 31, 2003
Any year commencing 5.5% of net income
on or after Sept. 1,
2003
and, for the purposes hereof, the net income of the COMPANY for any
fiscal year shall be determined on a consolidated basis by the auditors
of the COMPANY in accordance with GAAP;
(c) third, after the maximum number of shares have been redeemed in
accordance with paragraph (b), dividends may be declared and paid on
the Class "A" shares of the COMPANY.
6.2 The Class "D", Class "F" and Class "H" shares held by 3357481 which are
redeemed in accordance with the schedule set forth in Section 0 will be redeemed
at an amount equal to five percent (5%) less than the full redemption value
thereof stipulated in the Articles of Incorporation (as amended) of the COMPANY.
In the event that additional shares are redeemed in the context of a public
offering of the securities of the COMPANY, then the discount on such additional
redemptions will be ten percent (10%), rather than five percent (5%) below full
redemption value. Any Class "D", Class "F" or Class "H" shares not redeemed
while BBC is a Shareholder shall be redeemed, as and when determined by the
Board of Directors, at an amount equal to the full redemption value thereof.
6.3 3357481 acknowledges and accepts the terms and conditions of the
redemption of its Class "D" , Class "F" and Class "H" shares described above and
hereby agrees not to request the redemption of any of its Class "H" shares in
advance of the schedule provided above.
ARTICLE 7. PRE-EMPTIVE RIGHTS
- -------------------------------
7.1 No further shares in the capital stock of the COMPANY shall be issued
from treasury (including, without limitation, those issued pursuant to a stock
option plan contemplated by Section 7.4 below) unless BBC shall have first been
given the option, by notice in writing sent by pre-paid registered or certified
mail, to purchase that number and class of shares which will result in BBC
continuing to own ten percent (10%) of the equity and ten percent of the voting
shares of the COMPANY after
<PAGE>
-11-
the completion of the proposed issue, the whole upon the same terms and
conditions as the shares to be issued pursuant to the proposed issue (the "Pre-
Emptive Right"). Such notice shall set forth in full all of the material terms
and conditions of the proposed issue.
7.2 The Pre-Emptive Right shall be exercisable by BBC by notice in writing to
the COMPANY of its desire to purchase all, but not less than all of the relevant
number of shares of the COMPANY, within thirty (30) days of receipt of the
notice described in Section 7.1, accompanied by the full purchase price for such
shares, in readily available funds.
7.3 In the event that BBC fails to notify the COMPANY of its desire to
exercise the Pre-Emptive Right in the manner and within the delay contemplated
by Section 7.2, then the COMPANY thereafter, at any time within a period ninety
(90) days following the expiry of the thirty (30) day period within which BBC
may otherwise have exercised its Pre-Emptive Right, may issue all of the shares
contemplated by the proposed issue, upon the terms and conditions set forth in
the notice sent in accordance with Section 7.1.
7.4 The COMPANY shall be entitled to issue shares in its capital stock to any
of its management employees, pursuant to the stock option plan currently being
established or otherwise and BBC hereby agrees to vote in favour of any such
plan or the issue of shares thereunder provided that same is unanimously
approved by ROD, Thomas Egger and Marco De Rosa. Notwithstanding the generality
of Section 7.1, in the event that the COMPANY issues shares to management
pursuant to a stock option plan approved by its Board of Directors, then BBC's
Pre-Emptive Right shall be exercisable for a nominal consideration, regardless
of the subscription price to be paid by management.
7.5 It is hereby acknowledged that the COMPANY shall be entitled, subject to
the provisions of Section 7.1 above, to issue shares to major clients of the
COMPANY, provided that such clients are not competitors of BBC. In the event of
a dispute as to whether such client is a competitor of BBC, the matter may be
submitted to arbitration by either BBC or the COMPANY, in accordance with
Article 12 below.
ARTICLE 8. RIGHT OF FIRST OPPORTUNITY AND LAST REFUSAL
- --------------------------------------------------------
8.1 If either of BBC or the Egger Group desires to sell all or any part of
the Shares owned by such Shareholder (the "Selling Shareholder"), then the
Selling Shareholder shall first be required to offer such Shares (the "Offered
Shares") to the other of them (the "Remaining Shareholder"), for such price and
on such terms and conditions as the Selling Shareholder may determine.
<PAGE>
-12-
Such offer shall be sent by the Selling Shareholder to the Remaining Shareholder
by pre-paid registered or certified mail and the parties shall have a period of
sixty (60) days following the receipt of such notice by the Remaining
Shareholder within which to negotiate, in good faith, the sale of the Offered
Shares by the Selling Shareholder to the Remaining Shareholder.
8.2 If the Selling Shareholder is the Egger Group and the parties reach an
agreement for the sale of the Offered Shares to BBC, then the provisions of
Sections 9.1 to 9.6 inclusive, shall apply, mutatis mutandis, to provide 3575176
----------------
and RAICH with a Tag-Along Offer, as such term is defined therein.
8.3 In the event that the Selling Shareholder and the Remaining Shareholder
are unable to reach an agreement for the sale of the Offered Shares within such
sixty (60) day period, then the Selling Shareholder thereafter, within a further
period of ninety (90) days, may solicit offers for the Offered Shares from any
Outside Party whom it may choose, other than a competitor of either BBC or
Bariatrix. In the event of a dispute as to whether an Outside Party is a
competitor of BBC or Bariatrix, the matter may be submitted to arbitration by
either BBC or the Egger Group, in accordance with the provisions of Article 12
below.
8.4 In the event that the Selling Shareholder receives a Bona Fide Offer for
the purchase of the Offered Shares from an Outside Party within such ninety (90)
day period, the Selling Shareholder shall deliver or send a notice by pre-paid
registered or certified mail addressed to the Remaining Shareholder, in the
manner contemplated by Section 8.1 (the "Second Notice"), together with a copy
of the original executed Bona Fide Offer setting forth in full the price, terms
and conditions of such offer. If the Selling Shareholder is the Egger Group,
then the Egger Group shall likewise send a copy of the Second Notice to each of
3515176 and RAICH and the provisions of Sections 9.1 to 9.6 shall apply, mutatis
-------
mutandis, to provide 3575176 and RAICH with a Tag-Along Offer, as such term is
- --------
defined therein.
8.5 If the Selling Shareholder is:
(a) the Egger Group, then upon receipt of the Second Notice, BBC shall
have an option to:
(i) purchase, at the price and on the terms and conditions indicated in
the Bona Fide Offer, all of the Offered Shares, (the "Purchase
Offer"); or
(ii) sell, at the price and on the terms and conditions indicated in the
Bona Fide Offer, some or all of its Shares to the Outside Party
pursuant to and in accordance with the provisions of Sections 9.1
to 9.6 below, mutatis mutandis (the "Tag-Along
----------------
<PAGE>
-13-
Offer"); or
(iii) subject to the provisions of Section 9.7 below, which shall
prevail over the provisions of this paragraph (iii), do neither
of the above, in which case BBC will continue to own its Shares
and the Egger Group shall be free to sell its Shares to the
Outside Party in accordance with the provisions of Section 8.8
below.
The Purchase Offer or the Tag-Along Offer shall be exercisable by
counter-notice in writing to the Selling Shareholder within sixty (60)
days following the date upon which the Second Notice was received by
the Remaining Shareholder. Such notice shall be sent in accordance
with Section 8.1 mutatis mutandis; or
------- --------
(b) BBC, then upon receipt of the Second Notice, the Egger Group shall be
entitled to purchase upon the same terms and conditions as those set
forth in the Purchase Offer described in paragraph 8.5(a)(i) above,
mutatis mutandis, all of the Offered Shares and, for greater
----------------
certainty, shall not be entitled to exercise any Tag-Along Offer.
8.6 If the Remaining Shareholder elects in its counter-notice to purchase
all but not less than all of the Offered Shares, then the Remaining Shareholder
shall purchase and the Selling Shareholder shall sell such Shares, at the price
and on the terms and conditions indicated in the Bona Fide Offer. In addition,
if the Selling Shareholder is the Egger Group, then the Remaining Shareholder
shall also purchase and those of 3515176 and RAICH as shall have exercised his
or its Tag-Along Offer shall sell the relevant number of Shares held by such
Shareholder(s), the whole at the price and on the terms and conditions indicated
in the Bona Fide Offer.
8.7 If the Remaining Shareholder elects in its counter-notice to accept
its Tag-Along Offer, then BBC, the Egger Group and, if the Selling Shareholder
is the Egger Group, those of 3515176 and/or Raich as shall have elected to
exercise his or its Tag-Along Offer, shall all sell to the Outside Party, on
such date and upon the terms and conditions set forth in the Bona Fide Offer,
the relevant number of his or its Shares.
8.8 If the Remaining Shareholder fails to send any counter-notice in the
manner and within the period described in Section 8.5 above as to all but not
less than all of the Offered Shares, then the Selling Shareholder thereafter, at
any time within a period of ninety (90) days subsequent to the expiry of the
period within which the Remaining Shareholder's notice may have otherwise been
given, may sell all but not less than all of such Offered
<PAGE>
-14-
Shares to the Outside Party at the price and on the terms and conditions
contained in Bona Fide Offer, subject, if the Selling Shareholder is the Egger
Group, to the Tag-Along Offer of those of 3515176 and/or RAICH as shall have
exercised same.
8.9 In the event that the Selling Shareholder has not sold the Offered Shares
to the Outside Party within such ninety (90) day period, then the Offered Shares
shall continue to be subject to this Agreement and the provisions of this
Article will have to be followed once again, should the Selling Shareholder
continue to desire to sell the Offered Shares.
8.10 If any Shares are sold to an Outside Party, such Shares shall continue
to be subject to this Agreement. Should any Shareholder sell less than all of
his or its Shares to an Outside Party, then all of the remaining Shares owned by
such Shareholder which have not been sold in accordance with this Article shall
likewise remain subject to the provisions of this Agreement.
ARTICLE 9. TAG-ALONG/ DRAG-ALONG RIGHTS
- -----------------------------------------
9.1 If the Egger Group, at any time when it owns at least fifty percent (50%)
of the issued and outstanding Class "A" shares of the COMPANY, desires to sell
all or a part of the Shares owned by it and the Egger Group shall have received
a Bona Fide Offer for the purchase of such Shares from an Outside Party who is
not a competitor of Bariatrix or BBC, which offer the Egger Group wishes to
accept, the Egger Group shall deliver or send a notice by pre-paid registered or
certified mail addressed to all of the other Shareholders. Such written notice
(hereinafter referred to as the "Option Notice") shall (i) set forth the Egger
Group's desire to sell such Shares; (ii) be accompanied by a copy of the
original executed Bona Fide Offer, setting forth in full the price and terms of
such offer; and (iii) contain an offer (the "Tag-Along Offer") by the Egger
Group to permit all of the other Shareholders to sell some or all of their
Shares to the Outside Party together with the Selling Shareholder, at the price
and on the terms and conditions set forth in the Bona Fide Offer, the whole on a
pro rata basis as between all of the Shareholders interested in selling their
Shares. In the event of a dispute as to whether an Outside Party is a
competitor of BBC or Bariatrix, the matter may be submitted to arbitration by
either BBC or the Egger Group, in accordance with the provisions of Article 12
below.
9.2 The Tag-Along Offer shall operate such that each of the other
Shareholders shall be entitled to sell that proportion of his or its Shares to
the Outside Party as is equal to the proportion of the Shares held by the Egger
Group being sold by the Egger Group. However, in the event that the Outside
Party does not wish to purchase a greater number of Shares then that which it
had offered to purchase from the Egger Group, then the Tag-Along
<PAGE>
-15-
Offer shall operate such that all of the Shareholders who accept the Tag-Along
Offer, together with the Egger Group, shall sell, in the aggregate, that number
of Shares which the Outside Party had offered to purchase from the Egger Group,
the whole on a pro rata basis as between them in accordance with their
respective holdings of Class "A" shares of the COMPANY.
9.3 Each of the other Shareholders shall have a period of sixty (60) days
from receipt of the notice sent pursuant to Section 9.1 to accept the Tag-Along
Offer, by counter-notice sent in accordance with Section 9.1 mutatis mutandis.
9.4 If a Shareholder does not respond by counter-notice sent in accordance
with Section 9.1 within the said sixty (60) day period, then such Shareholder
shall be conclusively deemed to have declined to accept the Tag-Along Offer.
9.5 If a Shareholder elects, in the counter-notice contemplated by Section
9.3, to accept the Tag-Along Offer, then such Shareholder shall sell to the
Outside Party, on such date and upon the terms and conditions set forth in the
Bona Fide Offer, the relevant number of his or its Shares.
9.6 If none of the Shareholders choose to exercise the Tag-Along Option, then
the Egger Group, at any time within a period of ninety (90) days subsequent to
the expiry of the sixty (60) day period within which the counter-notice may
otherwise have been sent, may sell that number of Shares which the Outside Party
offered to purchase, the whole for the price and on the terms and conditions
contained in the Bona Fide Offer.
9.7 In the event that any Shareholder or group of Shareholders holding at
least eighty percent (80%) of the issued and outstanding Class "A" shares of the
COMPANY should receive a Bona Fide Offer from an Outside Party for the purchase
of all, but not less than all of the Shares of the COMPANY, for consideration in
excess of $US 70,000,000, which offer such Shareholder or group of Shareholders
desires to accept, then such Shareholder or group of Shareholders shall deliver
or send a notice by pre-paid registered or certified mail addressed to each of
the other Shareholders, accompanied by a complete copy of the original executed
Bona Fide Offer setting forth in full the price and all of the terms and
conditions thereof. Upon receipt of such notice, each of the other Shareholders
shall be obliged to sell and hereby agrees that he or it shall sell his or its
Shares to the Outside Party on such date, for such price and upon the terms and
conditions set forth in the Bona Fide Offer.
9.8 Notwithstanding the generality of Section 9.7 above, in the event that
the Shareholder or a group of Shareholders who receive the Bona Fide Offer and
who wish to accept same is not or
<PAGE>
-16-
does not include BBC, then BBC shall have the option, exercisable by counter-
notice in writing within sixty (60) days following receipt or deemed receipt of
the notice contemplated by Section 9.7, to purchase upon the same terms and
conditions as those set forth in the Bona Fide Offer, all of the Shares of the
Shareholder or group of Shareholders who received the Bona Fide Offer, the whole
in the manner contemplated by Section 9.7, mutatis mutandis.
----------------
ARTICLE 10. PUBLIC OFFERING
- ----------------------------
10.1 It is hereby agreed that in the event that the COMPANY should decide to
proceed with an initial public offering of any of its securities, then the
COMPANY will use its best efforts to include a secondary offering of Shares held
by the Shareholders at the time of the initial public offering, with respect to
which the Shareholders shall be entitled to participate on a pro rata basis.
10.2 In the event that the regulatory authorities and/or the underwriters
require that any Shares held by the Shareholders be escrowed, then each of the
Egger Group and BBC shall be required to escrow their Shares, on a pro rata
basis, in proportion to their respective shareholdings. RAICH and 3515176 will
not be required to participate in such escrow, unless specifically required by
the underwriters or regulatory authorities.
ARTICLE 11. CONFIDENTIALITY
- ----------------------------
11.1 Subject to the provisions of Sections 5.3 and 5.4 above, none of the
Shareholders, at any time during or after his or its association with the
COMPANY, directly or indirectly, in any capacity whatsoever, shall divulge,
disclose or communicate to any person, legal or physical, entity, firm or any
other third party, or utilize for his or its personal benefit or for the benefit
of any other party, any confidential information regarding the COMPANY or any of
its subsidiaries or affiliated entities. For greater certainty, confidential
information shall include, but shall not be limited to any technical or non-
technical data, formulae, product formulations, methods, techniques, designs,
financial data, pricing policies, business plans, lists of actual or potential
customers or suppliers and their particular needs or interests and any
information regarding the COMPANY's marketing, sales or dealer network, which is
not generally known to the public through legitimate origins.
11.2 In the event that any of the Shareholders breaches any of the terms
contained in Section 11.1 the Shareholders stipulate and agree that said breach
will result in immediate and irreparable harm to the business and goodwill of
the COMPANY and that damages, if any, and remedies at law for such breach would
be inadequate. In addition to any and all such remedies available to
<PAGE>
-17-
the COMPANY, the COMPANY or any of them, as the case may be, shall therefore be
entitled to apply for and receive from any court of competent jurisdiction an
injunction to restrain any violation of this Agreement and for such further
relief as the court may deem just and proper.
11.3 The obligations, duties and liabilities of the Shareholders pursuant to
this Article 11 are continuing, absolute and unconditional and shall remain in
full force and effect as provided therein despite any termination of this
Agreement for any reason whatsoever.
ARTICLE 12. ARBITRATION
- ------------------------
12.1 The parties hereby agree that any dispute or disagreement hereunder or
which may arise pursuant to this Agreement shall be referred to the senior
management of the parties in dispute for good faith negotiations to settle such
dispute and, failing settlement by senior management, shall be referred to
binding arbitration in accordance with the rules and procedures set forth
herein.
12.2 If any party wishes to submit a dispute to arbitration, it shall give
notice to the other party or parties with whom the dispute arises (the
"Arbitration Notice") specifying the particulars of the matter or matters in
dispute and proposing the name of the person it wishes to appoint as the single
arbitrator. Within 15 days after receipt of the Arbitration Notice, the other
party shall give notice to the party who sent the Arbitration Notice advising
whether the proposed arbitrator is acceptable. If no such notice is given
within such 15 day period, the party who received the Arbitration Notice shall
be deemed to have accepted the arbitrator proposed therein. If the party
receiving the Arbitration Notice responds within such 15 day period, to the
effect that the arbitrator proposed in the Arbitration Notice is not acceptable,
then the parties shall have a further period of 10 days within which to agree
upon the appointment of a single arbitrator, failing which, either party may
apply to a Judge of the Superior Court of the Province of Quebec for the
appointment of a single arbitrator (the "Arbitrator"). For greater certainty,
the individual selected as Arbitrator shall be at arm's length from both parties
and shall not be a member of the audit or legal firm or firms who then advise or
who may have advised either party, within a period of 5 years prior to the date
upon which the Arbitration Notice is sent, nor shall the Arbitrator be an
individual who is otherwise regularly retained by either of the parties for any
purpose.
12.3 The arbitration will be conducted in as informal a manner as possible.
In the event that the Arbitrator experiences difficulties with such informal
proceedings, then the Arbitrator
<PAGE>
-18-
will apply all or part of the rules of procedures set out in Book VII entitled
"Arbitration" of the Code of Civil Procedure of Quebec.
12.4 Within 20 days after the appointment of the Arbitrator, the party who
sent the Arbitration Notice shall present, in writing, to the Arbitrator and to
the other party, a description of the claim and the relief sought. The other
party shall have a period of 20 days within which to respond thereto.
12.5 Thereafter, if requested by the Arbitrator, all parties and witnesses
will be present at a location chosen by the Arbitrator in Montreal, Quebec
should the Arbitrator desire to hear the parties and their respective witnesses
as to matters of fact.
12.6 Thereafter, if requested by the Arbitrator, the parties will present
their oral arguments. If the Arbitrator is not a member of the Bar of Quebec,
then the Arbitrator may retain the services of legal counsel at his or her
choice to advise the Arbitrator on legal matters, provided such legal counsel is
independent of both of the parties to the arbitration. The fees of such
counsel will be considered a disbursement of the arbitration.
12.7 The arbitration shall be conducted in the English language.
12.8 The Arbitrator shall rule on all issues raised by the parties within a
delay of 60 days from the end of the hearing by means of a written award to be
sent by registered mail to each of the parties. The award will list each of the
issues between the parties and resolve each issue, in whole or in part, in
favour of one or both of the parties. The Arbitrator shall provide reasons for
his or her decision, unless the parties otherwise agree.
12.9 The Arbitrator will allocate the amount of his or her fees and
disbursements to one or both of the parties at the same time as he or she
renders his or her award. To the extent possible, in the sole judgment of the
Arbitrator, the allocation of such fees and disbursements will be proportionate,
on a weighted basis, to the success of each party in advancing its respective
position.
12.10 The decision of the Arbitrator shall be final and binding on the
parties hereto and shall not be subject to any appeal or review procedure
provided that the Arbitrator has followed the rules provided herein and in the
Code of Civil Procedure and has proceeded in accordance with the principles of
natural justice.
<PAGE>
-19-
ARTICLE 13. GENERAL PROVISIONS
- -------------------------------
13.1 The share certificate or certificates representing the Shares owned by
the Shareholders shall have inscribed thereon the following words or words
having a similar intent or purport, namely:
"The ownership of these shares is subject to the terms of an agreement
dated the 20th day of May, 1999."
13.2 Notwithstanding any provision of this Agreement, any Shareholder who is
an individual may sell, transfer or assign Shares to a corporation (hereinafter
referred to as "Holdco") related to him within the meaning of the Income Tax Act
(Canada), the Shareholders of which are also related to such Shareholder,
provided that (i) none of the Shareholders of Holdco shall be a competitor of
BBC; (ii) that Holdco becomes a party to this Agreement or an amended Agreement
necessitated by the replacement of a Shareholder by Holdco pursuant to such
sale, transfer or assignment; and (iii) such Shareholder shall hold and
continue to hold the majority of the voting shares in Holdco.
13.3 The parties hereto bind and oblige their heirs, executors,
administrators, successors in title and assigns to sign all documents, execute
all deeds and do all things necessary to effect the transfer of the Shares in
accordance with the provisions of this Agreement.
13.4 Any notice to be given by one party to another hereunder shall be given
in writing and delivered (i) by overningt courier service or (ii) by facsimile
at the address given below and such notice shall conclusively be deemed to have
been received; (i) upon the date of signature of the courier waybill; or (ii) on
the date upon which the facsimile transmission is confirmed:
Roderick Egger
c/o BARIATRIX PRODUCTS
INTERNATIONAL INCORPORATED
1600, 46th Avenue
Lachine, Quebec H8T 3J9
Facsimile: (514) 637-8526
3515176 CANADA INC.
c/o BARIATRIX PRODUCTS
INTERNATIONAL INCORPORATED
1600, 46th Avenue
Lachine, Quebec H8T 3J9
Fascimile: (514) 637-8526
<PAGE>
-20-
Attention: Marco de Rosa
------------------------
Robert Raich
c/o SPIEGEL SOHMER
5 Place Ville Marie
Suite 1203
Montreal, Quebec H3B 2G2
Facsimile: (514) 875-8237
3357481 CANADA INC.
c/o BARIATRIX PRODUCTS
INTERNATIONAL INCORPORATED
1600, 46th Avenue
Lachine, Quebec H8T 3J9
Facsimile: (514) 637-8526
Attention: Thomas L. Egger
--------------------------
and, in the case of each of the foregoing, with a copy to:
SPIEGEL SOHMER
5 Place Ville Marie
Suite 1203
Montreal, Quebec H3B 2G2
Facsimile: (514) 875-8237
Attention: Janice Naymark
-------------------------
BALANCE BAR COMPANY
1015 Mark Avenue
Carpinteria, CA
93013 U.S.A.
Facsimile: (805) 566-0235
Attention: Chief Financial Officer
-----------------------------------
with a copy to:
GOODMAN, PHILLIPS & VINEBERG
1501 McGill College Av.
26th Floor
Montreal, Quebec H3A 3N9
Facsimile: (514) 841-6499
Attention: Mr. Hillel W. Rosen
-------------------------------
BARIATRIX PRODUCTS
INTERNATIONAL INCORPORATED
1600, 46th Avenue
Lachine, Quebec H8T 3J9
Facsimile: (514) 637-8526
Attention: Thomas L. Egger
---------------------------
provided however, that any party may, by written notice sent to the other in
accordance with the provisions of this Section 13.40,
<PAGE>
-21-
specify a new address to which any notice shall thereafter be addressed.
13.5 This agreement shall terminate on the occurrence of any of the following
events:
(a) the decision of Shareholders holding ninety-five percent (95%) of the
issued and outstanding voting Shares of the COMPANY; or
(b) the successful completion of an underwritten offering of any of the
securities of the COMPANY to the public; or
(c) all of the Shares being beneficially owned by a single party; or
(d) the liquidation, winding-up or dissolution of the COMPANY.
13.6 The rights of the parties hereto and the provisions hereof shall be
interpreted and construed according to the laws of the Province of Quebec.
13.7 The parties have requested that this Agreement and all court proceedings
thereto related be drafted in English. Les parties aux presentes ont exige a ce
que ce contrat et toutes procedures judiciaires y afferentes soient rediges en
Anglais.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE SIGNED AT THE PLACE AND ON THE DATE
FIRST HEREINABOVE MENTIONED.
/s/ Roderick Egger
----------------------------
RODERICK EGGER
3515176 CANADA INC.
Per: /s/ Marco De Rosa
------------------------
Marco De Rosa
/s/ Robert Raich
-----------------------------
ROBERT RAICH
3357481 CANADA INC.
<PAGE>
-22-
Per: /s/ Thomas L. Egger
-------------------------
Thomas L. Egger
BALANCE BAR COMPANY
Per: /s/ Thomas J. Flahie
-------------------------
Thomas J. Flahie
BARIATRIX PRODUCTS
INTERNATIONAL INCORPORATED
Per: /s/ Thomas L. Egger
-------------------------
Thomas L. Egger
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,427
<SECURITIES> 0
<RECEIVABLES> 10,334
<ALLOWANCES> 80
<INVENTORY> 7,239
<CURRENT-ASSETS> 25,820
<PP&E> 2,139
<DEPRECIATION> 709
<TOTAL-ASSETS> 30,795
<CURRENT-LIABILITIES> 8,429
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 22,248
<TOTAL-LIABILITY-AND-EQUITY> 30,795
<SALES> 26,288
<TOTAL-REVENUES> 26,389
<CGS> 13,537
<TOTAL-COSTS> 13,537
<OTHER-EXPENSES> 11,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 1,551
<INCOME-TAX> 636
<INCOME-CONTINUING> 915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 915
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
</TABLE>
