<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 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
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1015 Mark Avenue
Carpinteria, California 93013
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(Address of Principal Executive Office) (Zip Code)
(805) 566-0234
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(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 October 28, 1999, the registrant had 11,831,832 shares of its common stock
outstanding.
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Balance Bar Company
Index To Form 10-Q
Quarter Ended September 30, 1999
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Income Statements 4
Cash Flow Statements 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 12
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
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Balance Bar Company
Balance Sheets
(amounts in 000's, except par value)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,702 $ 6,475
Marketable securities --- 697
Accounts receivable, net 14,311 10,686
Inventories 7,609 5,002
Prepaid and other 1,711 2,362
Deferred taxes 262 624
------- -------
Total current assets 27,595 25,846
------- -------
Property and equipment, net 1,226 1,105
Investment and other assets 3,548 30
------- -------
Total assets $32,369 $26,981
======= =======
Current liabilities:
Accounts payable $ 4,732 $ 5,080
Accrued payroll 744 1,069
Accrued commissions 667 404
Other accrued expenses 1,819 501
------- -------
Total current liabilities 7,962 7,054
------- -------
Stockholders' equity:
Common stock, $0.01 par value
Authorized - 24,000 shares
Issued and outstanding - 11,832 in 1999 and
11,339 in 1998 118 113
Additional paid-in capital 13,711 13,115
Retained earnings 10,578 6,699
------- -------
Total stockholders' equity 24,407 19,927
------- -------
Total liabilities and equity $32,369 $26,981
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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Balance Bar Company
Income Statements
(amounts in 000's, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Third Quarter First Nine Months
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $28,573 $21,498 $75,698 $59,511
Cost of sales 14,088 11,242 38,392 30,747
------- ------- ------- -------
Gross profit 14,485 10,256 37,306 28,764
------- ------- ------- -------
Expenses:
Advertising 2,980 2,565 9,838 6,759
Selling and marketing 6,407 4,306 16,415 11,895
General and administrative 1,789 1,115 4,745 3,530
Interest (income) expense (88) (86) (267) 12
------- ------- ------- -------
Total expenses 11,088 7,900 30,731 22,196
------- ------- ------- -------
Income before income taxes 3,397 2,356 6,575 6,568
Income taxes 1,393 965 2,696 2,691
------- ------- ------- -------
Net income $ 2,004 $ 1,391 $ 3,879 $ 3,877
======= ======= ======= =======
Earnings per share:
Basic $ 0.17 $ 0.12 $ 0.33 $ 0.37
======= ======= ======= =======
Diluted $ 0.16 $ 0.11 $ 0.30 $ 0.32
======= ======= ======= =======
Weighted shares outstanding:
Basic 11,830 11,283 11,776 10,397
======= ======= ======= =======
Diluted 12,887 12,979 12,907 12,298
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Balance Bar Company
Cash Flow Statements
(amounts in 000's)
(unaudited)
<TABLE>
<CAPTION>
First Nine Months
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,879 $ 3,877
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 298 447
Compensation expense in connection
with stock options 106 162
Changes in operating assets and liabilities:
Accounts receivable (3,625) (4,273)
Inventories (2,607) (2,730)
Prepaid and other 919 (505)
Accounts payable (348) (921)
Accrued liabilities 1,145 468
Income taxes 911 481
------- -------
Net cash provided by (used in) operating activities 678 (2,994)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (477) (616)
Investment in Bariatrix (3,500) ---
Loan to officer (260) ---
Purchases of marketable securities --- (3,885)
Maturity of marketable securities 697 646
------- -------
Net cash used in investing activities (3,540) (3,855)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 89 175
Proceeds from initial public offering --- 9,798
Initial public offering costs, net of reimbursement --- (161)
Decrease in short-term and other borrowings --- (1,402)
------- -------
Net cash provided by financing activities 89 8,410
------- -------
CHANGE IN CASH AND CASH EQUIVALENTS (2,773) 1,561
CASH AND CASH EQUIVALENTS, beginning of period 6,475 89
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 3,702 $ 1,650
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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Balance Bar Company
Notes to Financial Statements
September 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 (in 000's):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Balance Bar $4,546 $3,555
Total Balance 2,123 ---
40-30-30 Powdered Drink Mix 275 486
Packaging material and other 665 961
------ ------
$7,609 $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 third quarter of 1999 and
1998 was 11,830,000 and 11,283,000, respectively, and for the first nine months
of 1999 and 1998 was 11,776,000 and 10,397,000, respectively. The dilutive
effect of stock options for the third quarter of 1999 and 1998 was 1,057,000 and
1,696,000, respectively, and for the first nine months of 1999 and 1998 was
1,131,000 and 1,901,000, respectively. Excluded from the calculation of
earnings per share for the third quarter of 1999 were 487,000 stock options
because these stock options were anti-dilutive.
Note 2. Trademark License Agreement with Jenny Craig, Inc.
The Company has licensed certain trademarks from Jenny Craig, Inc. for a
20-year period with extension options for an additional 30 years. The Company
can sell nutrition bars, ready-to-drink and powdered drink mix beverages, and
nutritional cookies using the trademarks to all distribution channels other than
Jenny Craig Weight Loss Centres(R). The Company also has preferential rights to
sell other food products to the same distribution channels. Jenny Craig, Inc.
has rights to maintain the value of the licensed trademarks including the
approval of the products to be sold, product advertising, promotional materials
and packaging. The Company has committed to a minimum license fee and minimum
levels of advertising and marketing support of the products sold under this
license agreement.
6
<PAGE>
Note 3. Loan to Officer
In August 1999, the Company made a two-year $260,000 loan to a Company
officer. This loan is secured by Company stock owned by the officer and
repayment is personally guaranteed by the officer. Interest accrues at the prime
rate and $3,000 was included in interest income from the loan for the third
quarter of 1999.
Note 4. 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 manufactures Balance Bars and 40-30-30 Powdered Drink Mixes in
Montreal, Canada. Approximately 26% of the purchases of Balance Bars and 40-30-
30 Powdered Drink Mixes during the first nine months of 1999 were made from
Bariatrix. Bariatrix has used the proceeds from the investment and internal and
debt financing to build a new manufacturing facility.
Note 5. Stockholders' Equity
During the first nine months of 1999, 493,000 shares of common stock
were issued in connection with the exercise of stock options. Additional paid-in
capital increased by $406,000 in the first nine months of 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 September 30, 1999, the Company had
11,832,000 shares of common stock and no shares of preferred stock outstanding.
Note 6. Significant Customers
The Company had sales to one customer that represented approximately 18%
and 15% of sales in the first nine months of 1999 and 1998, respectively. The
Company had sales to a second customer that represented approximately 13% of
sales in the first nine months of 1999 and 1998. The Company had sales to a
third customer that represented approximately 12% and 16% of sales in the first
nine months of 1999 and 1998, respectively.
Note 7. Product Warranty
In early October 1999, the Company initiated a voluntary withdrawal from
distribution of three flavors of nutrition bars that were produced in late
September. These bars did not meet the Company's taste standards. The
manufacturer is responsible for the replacement of the products withdrawn from
distribution. Included in general and administrative expense for the third
quarter is $350,000 of estimated costs, other than product replacement costs,
associated with the product withdrawal. To the extent that the manufacturer
reimburses these costs, this provision will be reversed.
7
<PAGE>
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. 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, expected Jenny Craig new product introduction
costs and expectations about seasonality of sales. Except for the historical
information contained herein, the following discussion and analysis contains
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>
Third Quarter First Nine Months
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 49.3 52.3 50.7 51.7
----- ----- ----- ----
Gross profit 50.7 47.7 49.3 48.3
----- ----- ----- ----
Expenses:
Advertising 10.4 11.9 13.0 11.4
Selling and marketing 22.4 20.0 21.7 20.0
General and administrative 6.3 5.2 6.3 5.9
Interest (income) expense (.3) (.4) (.4) ---
----- ----- ----- ----
Total expenses 38.8 36.7 40.6 37.3
----- ----- ----- ----
Income before income taxes 11.9 11.0 8.7 11.0
Income taxes 4.9 4.5 3.6 4.5
----- ----- ----- ----
Net income 7.0% 6.5% 5.1% 6.5%
===== ===== ===== ====
</TABLE>
Sales increased 33% to $28.6 million in the third quarter of 1999 from
$21.5 million in the same period of 1998. Sales increased 27% to $75.7 million
in the first nine months of 1999 from $59.5 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
third quarter and first nine months of 1999 and approximately $700,000 and $1.9
million, respectively, of the increase was due to increased sales to those
customers. Several customers ran special sales promotions in the third quarter
and first nine months of 1998 and approximately $1.6 million and $6.1 million,
respectively, of sales were special sales promotions.
8
<PAGE>
The addition of three nutraceutically-enhanced Balance Bars in November
1998, under the Balance+(TM) brand, favorably impacted sales in the third
quarter and first nine months of 1999. Sales of Balance+ were 20% and 17%,
respectively, of sales in the third quarter and first nine months of 1999. The
introduction in March 1999 of Total Balance(TM), a new product line of
nutritional shakes, also favorably impacted sales in the third quarter and first
nine months of 1999. Sales of Total Balance were 6% and 4%, respectively, of
sales in the third quarter and first nine months of 1999. The introduction in
June 1999 of Balance Outdoor(TM), a new line of four uncoated nutrition bars,
also favorably impacted sales in the third quarter of 1999. Sales of Balance
Outdoor were 6% of sales in the third quarter of 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 collectively 7% of 1998 sales of Balance Bars.
Sales to customers other than natural foods distributors and retailers were
64% of sales in the third quarter of 1999, compared to 59% in the same period of
1998. Sales to the Company's six largest customers were 58% of sales in the
third quarter of 1999, compared to 63% in the same period of 1998. Sales to
Costco Wholesale, Wal-Mart Stores, Inc. and Trader Joe's in the third quarter of
1999 were 15%, 12% and 10%, respectively, of sales. Sales to Wal-Mart Stores,
Inc., Costco Wholesale and Trader Joe's in the third quarter of 1998 were 17%,
15% and 14%, respectively, of sales. Sales to customers in the United States
were 98% of sales in the third quarter of 1999 and 1998. Sales of the Balance
Bar product line (Balance(R), Balance+ and Balance Outdoor) were 93% of sales in
the third quarter of 1999, compared to 95% in the same period of 1998.
Gross profit dollars increased to $14.5 million in the third quarter of
1999 from $10.3 million in the same period of 1998. Gross profit dollars
increased to $37.3 million in the first nine months of 1999 from $28.8 million
in the same period of 1998. The gross profit margin increased to 50.7% in the
third quarter of 1999 from 47.7% in the same period of 1998. The gross profit
margin increased to 49.3% in the first nine months of 1999 from 48.3% in the
same period of 1998. The increase in gross profit margin was due to price
reductions from the Company's contract nutrition bar manufacturers offset by the
lower gross profit margin of the Total Balance product line. The Total Balance
product line had a 28% and 27% gross profit margin in the third quarter and
first nine months of 1999, respectively. The first nine months of 1999 cost of
sales also included a provision for costs related to the discontinuance of three
Balance Bar flavors. The third quarter of 1998 cost of sales also included a
$105,000 provision for packaging changes to the bar product line, the
repositioning of the single serving envelope powdered drink mix products and
higher product transportation costs as a result of increased coast-to-coast
shipment of certain bar flavors.
Advertising expenses increased to $3.0 million in the third quarter of 1999
from $2.6 million in the same period of 1998. Advertising expenses increased to
$9.8 million in the first nine months of 1999 from $6.8 million in the same
period of 1998. The planned increase was due to additional television
advertising. The Company aired three new Balance Bar television commercials May
through July 1999 and a new Total Balance commercial in September 1999. The
Company expects to decrease advertising expenses in the fourth quarter of 1999
compared to the same period in 1998.
Selling and marketing expenses increased to $6.4 million in the third
quarter of 1999 from $4.3 million in the same period of 1998. Selling and
marketing expenses increased to $16.4 million in the first nine months of 1999
from $11.9 million in the same period of 1998. The increase was due to higher
personnel-related costs, increased couponing activity, increased slotting costs,
and higher broker commission expense and retailer marketing support expense
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
22.4% in the third quarter of 1999 from 20.0% in the same period of 1998, and
increased to 21.7% in the first nine months of 1999 from 20.0% in the same
period of 1998.
9
<PAGE>
General and administrative expenses increased to $1.8 million in the third
quarter of 1999 from $1.1 million in the same period of 1998. General and
administrative expenses increased to $4.7 million in the first nine months of
1999 from $3.5 million in the same period of 1998. The increase was due to
higher personnel-related costs and increased new product development costs. The
third quarter of 1999 also included a $350,000 provision related to a withdrawal
from distribution of three flavors of nutrition bars manufactured in late
September. These bars did not meet the Company's taste standards. The
manufacturer is responsible for the replacement of the products withdrawn from
distribution. The $350,000 provision is for costs other than product
replacement costs and to the extent that the manufacturer reimburses these
costs, this provision will be reversed. General and administrative expenses as
a percentage of sales, excluding the product withdrawal provision, decreased to
5.0% in the third quarter of 1999 from 5.2% in the same period of 1998, and
decreased to 5.8% in the first nine months of 1999 from 5.9% in the same period
of 1998.
Interest (income) expense was $88,000 of interest income in the third
quarter of 1999 compared to $86,000 of interest income in the same period of
1998. Interest (income) expense was $267,000 of interest income in the first
nine months of 1999 compared to $12,000 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 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 third quarter and first nine months of 1999
and 1998 was 41.0%.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 1999, cash generated from operations was
sufficient to fund working capital needs and purchase property and equipment.
For the first nine months of 1998, cash generated from operations was not
sufficient to fund working capital needs 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 net proceeds of $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 $4.9 million in the first nine months of 1999 was
magnified by a decrease in accounts payable of $348,000. The increase in
accounts receivable, inventory and prepaid advertising and marketing expenses of
$7.3 million in the first nine months of 1998 was magnified by a reduction in
accounts payable of $921,000. Cash provided by (used in) operating activities
was $678,000 and $(3.0) million in the first nine months of 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, a
loan to a Company officer, and marketable securities investments. Purchases of
property and equipment in the first nine months of 1999 and 1998 were $477,000
and $616,000, respectively. The 1999 capital investments were for a trade show
booth, and computer hardware and software. In May 1999, the Company purchased a
10% interest in one of the Company's two nutrition bar manufacturers for $3.5
million. In August 1999, the Company made a two-year $260,000 loan to a Company
officer. This loan is secured by Company stock owned by the officer and
repayment is personally guaranteed by the officer. Interest accrues at the
prime rate. A portion of the 1998 initial public offering proceeds was used to
purchase $3.9 million of marketable securities in 1998. Of this amount,
$697,000 and $646,000 of the marketable securities matured in the first nine
months of 1999 and 1998, respectively. Cash used in investing activities was
$3.5 million and $3.9 million in the first nine months of 1999 and 1998,
respectively.
10
<PAGE>
Cash provided by financing activities consisted of the net proceeds from
the exercise of stock options, net proceeds from the initial public offering,
net of the repayment of short-term and other borrowings. 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 first nine months of 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 first
nine months of 1999 and 1998, 493,000 and 991,000, shares of common stock,
respectively, were issued in connection with the exercise of stock options.
Cash provided by financing activities was $89,000 and $8.4 million in the first
nine months of 1999 and 1998, respectively.
In October 1999, the Company announced a trademark license with Jenny
Craig, Inc. The Company can sell nutrition bars, ready-to-drink and powdered
drink mix beverages, and nutritional cookies using the trademarks to all
distribution channels other than Jenny Craig Weight Loss Centres(R). The
Company also has preferential rights to sell other food products to the same
distribution channels. Jenny Craig, Inc. has rights to maintain the value of
the licensed trademarks including the approval of the products to be sold,
product advertising, promotional materials and packaging. The Company has
committed to a minimum license fee and minimum levels of advertising and
marketing support of the products sold under this license agreement. The
Company intends to make substantial expenditures in the first and second
quarters of 2000 to launch the Jenny Craig(R) brand of nutritional meal bars.
These expenditures will include slotting costs to place the licensed products in
stores and advertising and marketing initiatives to generate consumer awareness
and trial. The Company expects these marketing support vehicles to exceed the
profit contribution from sales levels in the intermediate term.
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.
The Company increased inventories by purchasing an additional $2.1 million of
Total Balance in the first nine months of 1999.
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.
At September 30, 1999, the Company had a $15 million revolving line of
credit of which $12.2 million was available (based upon 80% of eligible accounts
receivable and 20% 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 (8.25% at September 30, 1999) and
matures in April 2001.
11
<PAGE>
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 and third
quarters of 1999 due to retailers' emphasis on fitness foods and outdoor
activities in those quarters. 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.
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.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule - September 30, 1999
(b) A Form 8-K dated October 14, 1999 was filed regarding the trademark
license agreement between Balance Bar Company and Jenny Craig, Inc.
13
<PAGE>
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: October 28, 1999 By /s/ Thomas J. Flahie
----------------------------------
Thomas J. Flahie
Senior Vice President of Finance and
Administration (Principal Financial and
Accounting Officer)
14
<PAGE>
Exhibit Index
Exhibit No. Description
10.1 (1) Trademark license agreement between Jenny Craig, Inc.
and Balance Bar Company
27.1 Financial Data Schedule
________
(1) The Company has requested confidential treatment for portions of this
agreement.
15
<PAGE>
EXHIBIT 10.1
TRADEMARK LICENSE AGREEMENT
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THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is entered into and
effective as of July 30, 1999, by and between JENNY CRAIG, INC., a Delaware
corporation ("JC"), and BALANCE BAR COMPANY, a Delaware corporation ("BBC"), and
is made with reference to the following facts:
RECITALS
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A. JC provides a comprehensive weight management program (the "Program")
through a chain of owned and franchised weight loss centres operating under the
name "Jenny Craig Weight Loss Centres" (the "Centres"). Through these Centres,
JC sells "Jenny Craig Cuisine," its portion and calorie controlled food
products, to participants in the Program. In connection with its business, JC
owns the trademarks set forth on Schedule A hereto (the "Marks").
B. The parties desire that BBC develop and market certain food products
and beverages utilizing the Marks on the terms and conditions set forth in this
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:
AGREEMENT
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1. TERM AND OPTIONS
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1.1 First Term. This Agreement shall be effective from the date hereof
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to and including December 31, 2019 (the "First Term"), unless extended or sooner
terminated pursuant to the provisions of this Agreement.
1.2 Options and Extended Terms. JC hereby grants to BBC three successive
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options (the "Option(s)") to extend the term of this Agreement for additional
ten-year periods (the "Extended Terms"). In order to exercise each Option, BBC
must provide JC with written notice of its intention to exercise each Option and
such written notice must be received by JC at least two months prior to, and no
more than six months prior to, the expiration of the term then in effect. BBC's
performance in each Extended Term shall be pursuant to the same terms and
conditions recited herein for the First Term, except as modified by an agreement
of the parties. In order to exercise an Option, BBC must pay JC the Minimum
Annual Royalty (as defined in Section 4.3 below), for the last Contract Year
prior to the end of the First Term, or Extended Term, as appropriate. A
"Contract Year" shall be any calendar year during the First Term or any Extended
Term.
JC /s/ P.V. BBC /s/ JAW
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2. GRANT OF LICENSE
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2.1 License of Marks. JC hereby grants to BBC, and BBC hereby accepts,
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the exclusive, worldwide right and license, with the right to grant sublicenses,
to use, reproduce and incorporate the Marks in connection with the production,
packaging, marketing, advertising, sale and distribution of the Licensed
Products (as defined in Section 3) in and through all media and distribution
channels. The rights granted in this Section 2 are hereinafter referred to
collectively as the "License." The License is subject to the limits on
exploitation contained in Section 6 hereof.
2.2 Right of First Refusal. If JC proposes to enter into any agreement
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with any person or entity other than BBC which provides for the license of any
of the Marks for use in connection with the sale of any food or beverage product
through any distribution channel (other than through the Centres), JC shall
first provide BBC with a written notice setting forth the identity of such other
person or entity together with a copy of the proposed agreement. Upon written
notice to JC delivered within sixty (60) days after its receipt of the notice
and agreement from JC, BBC may elect to require JC to enter into such agreement
with BBC rather then such other person or entity. If BBC does not so elect,
then JC may, within thirty (30) days thereafter, enter into an agreement with
such other person or entity on terms no more favorable to such person or entity
than those in the agreement provided to BBC. If JC does not enter into an
agreement with such person or entity within such thirty-day period, then the
provisions of this Section shall again apply to any subsequent proposed
agreement.
2.3 Sublicensing. The License permits BBC to enter into agreements with
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third parties for the sublicensing of the rights granted to BBC herein. All
references herein to "BBC" shall be deemed to include sub-licensees as well.
Any sublicense agreement entered into hereunder by BBC shall impose the same
duties and obligations on the sub-licensee as those imposed on BBC herein.
2.4 Loss of Exclusivity. The License shall cease to become exclusive,
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and may be terminated under Section 14.2, if BBC fails to pay JC the Minimum
Annual Royalty with respect to any Contract Year.
2.5 Reservation of Rights. No license as to any products, other than
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with respect to the Licensed Products, is being granted hereunder and JC
reserves for its use, as it may determine, all rights of any kind other than the
rights herein granted to BBC.
3. LICENSED PRODUCTS
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3.1 Definition. As used in this Agreement, the term "Licensed Products"
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shall mean and include (i) those JC-branded food and beverage products set forth
on Schedule B to this Agreement (the "Initial Licensed Products"), (ii) the
additional JC-branded food and beverage products contemplated by Section 3.2
below, and (iii) any variations, modifications, enhancements and additional
flavors or styles of any of the foregoing.
JC /s/ P.V. BBC /s/ JAW
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3.2 Additional Licensed Products.
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3.2.1 The parties agree to negotiate in good faith to establish, no
later than June 30, 2000, a reasonable timetable for the introduction of
additional food and beverage products through distribution channels other than
through the Centres, which products will include frozen entrees, ice cream and
ice cream novelties.
3.2.2 BBC shall have the right to present additional product
concepts or finished products to JC for inclusion as Licensed Products.
Inclusion will be subject to the approval of JC, which approval will not be
unreasonably withheld.
3.2.3 The additional products contemplated by this Section will
become Licensed Products upon introduction or inclusion as set forth above (the
"Additional Licensed Products").
4. ROYALTY CALCULATION; MINIMUM ROYALTY PROVISIONS
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4.1 Royalty. BBC agrees to pay JC a Royalty of ( * ) of the
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Net Sales, as defined below, during the First and any Extended Term of this
Agreement and any post-termination inventory disposal period, as provided for
below (the "Royalty"). The Royalty shall be calculated for each calendar
quarter ending March 31, June 30, September 30 and December 31 (each known as a
"Royalty Period") during each Contract Year, commencing January 1, 2001. Such
Royalty shall accrue when Net Sales of Licensed Products are actually recognized
by BBC, in accordance with generally accepted accounting principles and the
accounting policies used by BBC on non-licensed product sales, provided that no
Royalty shall accrue or be payable to JC with respect to any sales of Licensed
Products prior to January 1, 2001.
4.2 Definition of Net Sales. "Net Sales" shall mean the Gross Sales
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recognized by BBC with respect to the Licensed Products less (i) sales tax,
value added tax, and similar governmental taxes or charges, if any, (ii) actual
sales returns, (iii) discounts off list prices, (iv) prompt payment discounts
actually offered, (v) sales price allowances actually given, whether or not
reflected on the relevant invoice, (vi) retailer pickup allowances, and (vii)
import duties and fees and international freight billed to retailers outside of
the United States and Canada. "Gross Sales" shall mean sales of the Licensed
Products, priced at BBC's list price. Net Sales shall not include any Licensed
Products given at no charge to potential customers or to retailers, brokers,
spokespersons or others.
4.3 Minimum Annual Royalty. For the purposes of Section 1.2 and 14.2 of
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this Agreement, the minimum Royalty to be paid to JC by BBC with respect to a
given Contract Year (the "Minimum Annual Royalty") shall be as follows:
JC /s/ P.V. BBC /s/ JAW
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4.3.1 For the calendar years 2001 through 2004, the Minimum Annual
Royalty shall be:
<TABLE>
<S> <C>
2001 ( * )
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2002 ( * )
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2003 ( * )
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2004 ( * )
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</TABLE>
4.3.2 For each year after 2004, the Minimum Annual Royalty for such
year shall be the Minimum Annual Royalty for the preceding year, increased or
decreased by a percentage to be determined by the good faith negotiation of the
parties in light of the rate of growth in the respective markets for the
Licensed Products; provided, however, that such percentage shall not be greater
than the average percentage of price inflation for products in such markets
generally.
4.4 Foreign Tax Withholding. If BBC is obligated to withhold foreign
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taxes in connection with any payment of the Royalty, it may do so as long as BBC
promptly provides to JC certified tax receipts evidencing the payment thereof to
the proper foreign tax authorities.
5. ROYALTY STATEMENTS, PAYMENTS AND AUDIT RIGHTS
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5.1 Submission of Royalty Statements. BBC shall provide JC, within thirty
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(30) days after the end of each Royalty Period, a statement (the "Statement") of
Net Sales and Royalty owing for the applicable Royalty Period. Such Statement
shall include information as to the Gross Sales of Licensed Products and a
reconciliation of Gross Sales to Net Sales. Statements shall be furnished to JC,
whether or not any Licensed Products have been shipped, distributed and/or sold
and whether or not Royalties have accrued during the Royalty Period. The
Statement shall be broken down by country for each country in which Licensed
Products have been sold, and all Net Sales shall be stated in the currency in
which the Net Sales were billed, followed by the equivalent amount for such Net
Sales in United States currency, followed by the exchange rate applied. The
exchange rate applied shall be updated monthly and shall be the exchange rate
quoted in the Wall Street Journal on the last day of the prior month.
5.2 Payment of Royalties. Simultaneously with the submission of each
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Statement, BBC shall pay the Royalties shown on the Statement as being due. Such
payments shall be made by check (drawn on a U.S. bank) or wire transfer, in U.S.
Dollars to an account designated by JC. Statements shall be submitted by
facsimile transmission or overnight courier to JC as specified in Section 18.7.
5.3 JC's Acceptance of Statements and Payments. Unless notice to the
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contrary is given within six months of JC's receipt of any Statement, or 60 days
after the commencement of an audit by JC as provided herein, whichever occurs
first, the receipt and/or acceptance by JC of any
JC /s/ P.V. BBC /s/ JAW
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Statement furnished or Royalties paid hereunder to JC (or the cashing of any
Royalty checks paid hereunder) shall preclude JC from questioning the
correctness thereof at any time thereafter. In the event that any
inconsistencies or mistakes are discovered in such statements or payments, and
communicated to BBC within the appropriate period, they shall immediately be
rectified by BBC and the appropriate payment shall be made by BBC within 30 days
of JC's demand therefor, unless a good faith objection is made by BBC. JC will
likewise repay or credit any overpayments made by BBC. The election as to
repayment or crediting of overpayments shall be at BBC's discretion.
5.4 Maintenance of Records. BBC shall keep, at its principal office,
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true, accurate and complete books and records ("Records") relating to the
performance of this Agreement. Accounting procedures shall conform to generally
accepted accounting principles consistently applied by BBC for non-Licensed
Products. BBC shall retain Records for a period of at least two years from the
date of the transactions to which they relate.
5.5 Audit Rights. JC shall be entitled, at JC's sole expense, to audit
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BBC's Records relating to the sale of the Licensed Products. JC may make such
audit for the purposes of verifying Gross Sales and Net Sales, the calculations
and Records used to arrive at Net Sales, the accuracy of related calculations,
and the calculation and payment of Royalties. JC shall give written notice to
BBC at least thirty (30) days prior to the date the audit is to commence. The
audit shall be conducted by JC's usual independent accounting firm in such a
manner so as not to unreasonably disrupt BBC's business operations and shall be
completed promptly. The audit shall be conducted only during BBC's usual
business hours and at the place where it keeps the Records. The auditors shall
agree to be bound by the confidentiality provisions set forth in Section 13.
5.6 Resolution of Discrepancies Found During Audit. If any audit of
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BBC's books or records, discloses that BBC's payment were less than the amount
that should have been paid, all payments required to be made to eliminate the
discrepancy shall be made promptly, unless a good faith objection to the audit
results is made by BBC. If the discrepancy, as agreed to by the auditors and
BBC, is ( * ) or more of the amount actually paid for the subject
period, BBC promptly shall reimburse JC for the cost and expense of the audit.
In addition, if a discrepancy of ( * ) or more is disclosed in more than one
audit or a discrepancy of ( * ) ( * ) or more is disclosed in any one
audit, JC may terminate this Agreement by written notice to BBC given within
thirty (30) days after the receipt of the audit report disclosing the second
such discrepancy. Subject to the following paragraph, such termination will
become effective sixty (60) days after receipt of such written notice by BBC.
Nothing herein shall be deemed to prohibit BBC from disputing the results
of any such audit. If JC gives BBC a notice of termination based on a
discrepancy disclosed in an audit and BBC notifies JC that it disputes the
results of the audit within twenty (20) business days after receipt of the
notice of termination, the notice of termination shall be stayed, pending the
resolution of the dispute, so long as BBC's independent auditors confirm that
they believe that BBC has a reasonable basis for its position. The Parties agree
to have each Party's independent auditors meet as soon as reasonably practicable
to attempt to resolve the dispute using generally accepted accounting
JC /s/ P.V. BBC /s/ JAW
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principles. If the auditors are not able to reach a resolution to the dispute,
then the Parties agree to binding arbitration to resolve the dispute.
6. EXPLOITATION BY BBC
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6.1 Product Formulation. BBC will be solely responsible for the
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formulation and specifications of the Licensed Products. BBC will use
commercially reasonable efforts to ensure that all Licensed Products (i) conform
to JC's published nutritional philosophy in terms of macronutrient proportion,
integrity of ingredients and vitamin and mineral fortification, (ii) comply with
all relevant government standards including, without limitation, the regulations
of the federal Food and Drug Administration, if any, and (iii) meet any and all
claims set forth on their respective labels at the time of production and until
the expiration date set forth thereon. JC acknowledges and agrees that the
Licensed Products may be produced, manufactured, packaged and transported by
third parties at BBC's sole discretion.
6.2 Product Introduction. BBC will use commercially reasonable efforts
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to introduce the Initial Licensed Products by the respective Estimated
Introduction Dates set forth in Schedule B hereto. BBC will also use
commercially reasonable efforts to introduce the Additional Licensed Products by
the respective dates established by the agreement of the parties.
6.3 Promotional and Packaging Material. BBC will be solely responsible
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for the design, preparation and production of all advertising, promotional
literature and goods, and packaging material which include any of the Marks (the
"Promotional and Packaging Material"), subject to JC's approval as set forth in
Section 7.2.
6.4 Sales Channels. BBC is entitled to produce, package, market,
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advertise, sell and distribute Licensed Products to individual consumers,
retailers, wholesalers, distributors and institutional accounts in and through
all media and distribution channels. The foregoing notwithstanding, BBC shall
not distribute Licensed Products to weight loss centers (other than the Centres)
without the prior approval of JC. BBC's distribution of Licensed Products to
the Centres shall be permitted as set forth in Section 6.6.
6.5 Target Pricing. BBC will use commercially reasonable efforts, to the
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extent legally permitted, to cause the Licensed Products to be priced
competitively with leading products in their respective markets.
6.6 Sales to Centres. JC and BBC will negotiate in good faith toward an
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agreement that would permit BBC (i) to sell Licensed Products to the Centres as
soon as practicable, and (ii) to sell its other products, including Balance Bars
and Total Balance, to the Centres commencing in 2000. JC shall make the final
determination as to which BBC products, if any, may be sold to the Centres. The
parties will also negotiate in good faith toward coordinated promotions of the
Centres and the Licensed Products.
JC /s/ P.V. BBC /s/ JAW
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6.7 Minimum Licensed Product Support Requirements. In order to support
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the sales of Licensed Products, BBC agrees to spend the following minimum
amounts with respect to each Contract Year during the term of this Agreement:
6.7.1 an amount equal to ( * ) of Gross Sales of Licensed
Products for advertising expenditures with respect to the Licensed Products;
6.7.2 an amount equal to ( * ) of Gross Sales of Licensed
Products for trade allowances and market development funding (including coop
advertising, store promotions, price discounts, payment terms and co-sponsored
events) with respect to the Licensed Products; and
6.7.3 an amount equal to ( * ) of Gross Sales of Licensed
Products for marketing (including promotions, couponing, in-store displays,
free-standing newspaper inserts and so on) with respect to the Licensed
Products.
The foregoing notwithstanding, if BBC fails to meet the minimum spending
requirements in any of Sections 6.7.1, 6.7.2 or 6.7.3 for any Contract Year, it
shall not be deemed to be in violation of this Section 6.7 if, during such
Contract Year, it has spent an aggregate amount equal to at least ( * )
of Gross Sales of Licensed Products for such Contract Year for the purposes set
forth in Section 6.7.1, 6.7.2 and 6.7.3 taken together.
6.8 Reinvestment of Profits Prior to 2001. BBC will monitor its net
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income or loss from the Licensed Products from the date hereof until September
30, 2000. If BBC has net income from the Licensed Products during such period,
or if it should reasonably expect to have net income from the Licensed Products
for the period from the date hereof to December 31, 2000, then BBC shall expend
an amount equal to such net income in additional promotion of the Licensed
Products. BBC shall make such expenditure as promptly as reasonably prudent
under the circumstances, but in any event no later that December 31, 2001. For
the purposes of this Section, "net income" shall be computed in accordance with
BBC's normal accounting practices.
6.9 Cooperation and Information Sharing. The parties agree to cooperate
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in the development of strategies relating to the introduction and marketing of
Licensed Products. In addition, subject to Section 13, the parties will
exchange their consumer and market research information relating to Licensed
Products and the Centres on a quarterly basis.
7. JC APPROVALS
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7.1 Licensed Product Approval. Prior to the introduction of any Licensed
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Product, BBC will provide JC with reasonable sample quantities of such Licensed
Product together with a nutritional analysis thereof. Such Licensed Product
will be deemed approved for introduction by JC unless JC objects to such
introduction in writing within ten (10) days after receipt of such samples and
analysis. Any such objection must be reasonable in light of all the
circumstances related to such Licensed Product and must set forth, in reasonable
detail, the grounds for such
JC /s/ P.V. BBC /s/ JAW
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objection. In the event of any objection, the parties will meet immediately and
will negotiate in good faith to resolve the objection in order to permit the
introduction of the Licensed Product as soon as possible. In the event that JC
objects to the introduction of a Licensed Product and such objection meets the
standards set forth above, BBC will not introduce such Licensed Product unless
and until the parties resolve such objection.
7.2 Approval of Promotional and Packaging Material. Prior to the first
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use of any materially new or different item of Promotional and Packaging
Material, BBC will provide JC with a reasonable sample of such item. Such item
Material will be deemed approved for use by JC unless JC objects to such use in
writing within ten (10) days after receipt of such sample. Any such objection
must be reasonable in light of all the circumstances related to such item of
Promotional and Packaging Material and must set forth, in reasonable detail, the
grounds for such objection. In the event of any objection, the parties will
meet immediately and will negotiate in good faith to resolve the objection in
order to permit the use of the item as soon as possible. In the event that JC
objects to the first use of a new or different item of Promotional and Packaging
Material, and such objection meets the standards set forth above, BBC will not
use such item unless and until the parties resolve such objection.
7.3 Quality Standards. BBC shall maintain an average standard of quality
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of the Licensed Products, as well as of the Promotional and Packaging Material,
at a level at least as high as that set forth in the samples provided to JC in
Sections 7.1 and 7.2.
8. OWNERSHIP OF INTELLECTUAL PROPERTY
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8.1 Ownership of Marks; Good Will. BBC recognizes the value of the good
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will associated with the Marks and acknowledges that the Marks, including the
good will pertaining thereto, belong exclusively to JC, subject to the rights
granted to BBC in this Agreement. Except as provided in Section 17, JC will not
transfer, assign or encumber the Marks.
8.2 Intellectual Property Notices. BBC agrees that all Licensed Products
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and all Promotional and Packaging Material shall contain appropriate legends,
markings and/or notices as reasonably required from time to time by JC, to give
appropriate notice to the consuming public of JC's right, title and interest in
the Marks. Additionally, the following legend shall appear at least once on each
piece of Promotional and Packaging Material:
[Mark] 7 is a registered trademark of Jenny Craig, Inc. and is under
license to [BBC, its permitted assignee or sublicensee]
8.3 Worldwide License. The License grants BBC the right to use the Marks
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throughout the world on the terms set forth in this Section. The parties
acknowledge that the Marks are currently registered only in the jurisdictions
set forth on Schedule A hereto. If BBC proposes to market, sell or distribute
Licensed Products in any other jurisdictions, it will so notify JC. JC will
promptly use all commercially reasonable efforts to cause the Marks to be
registered in such other
JC /s/ P.V. BBC /s/ JAW
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jurisdictions. If JC, for valid commercial reasons, notifies BBC, within 30 days
of BBC's request, that it does not desire to register the marks in the
jurisdiction nor does it want BBC to register the marks, then the marks shall
not be registered. If JC does not notify BBC that it will not allow the marks to
be registered in the jurisdiction, and if JC does not commence efforts to obtain
any such registration within one month after receipt of BBC's notice, or if JC
discontinues such efforts at any time, then BBC shall be entitled (but not
obligated) to use commercially reasonable efforts to obtain such registration,
in JC's name and at JC's expense. JC hereby constitutes BBC as JC's attorney-in-
fact for such purpose. The License will extend to all such subsequent
registrations. In addition, JC will promptly use all commercially reasonable
efforts (i) to register or record this Agreement in any jurisdiction where such
registration or recordation is required, and (ii) to assist BBC in becoming a
registered user of the Marks in any jurisdiction where such registration is
required. BBC shall not use the Marks in any country in which the marks have not
theretofore been registered in the applicable trademark class or an application
to register the Marks in such class has not theretofore been filed, until an
appropriate trademark search has been conducted and an application to register
the Marks for the Licensed Products has been filed in such country or JC has
determined that it would be preferable not to seek to register the Marks for the
Licensed Products in such country but that there is no material impediment to
the use of the Marks therein.
8.4 Compliance with Trademark Laws. The License granted hereunder is
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conditioned upon BBC's compliance with the provisions of the trademark laws of
the United States and the foreign country or countries in which it sells
Licensed Products. BBC agrees to keep records of and advise JC when each of the
Licensed Products is first sold in each country other than the United States.
8.5 Use of Trademark in Name of BBC. BBC shall not have the right to use
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the Marks as part of a trade name, fictitious business name, or name of a
corporation or partnership unless it first obtains JC's written consent. JC
reserves the right to specify the terms and conditions under which the Marks may
be used in such instances. BBC shall have the right to use the letters "JC" or
any variation thereon as part of a trade name, fictitious business name, or in
the name of an affiliated or subsidiary corporation, partnership or other entity
without JC's consent.
8.6 Ownership of Rights to Licensed Products. BBC will own all right,
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title and interest in and to (i) all formulations, ingredient specifications and
other product information of or relating to the Licensed Products, (ii) all
Promotional and Packaging Material (excluding the use of the Marks therein),
(iii) any trademarks, copyrights or similar intellectual property rights
obtained or used by BBC in connection with the sale of Licensed Products
(excluding the Marks, any trademarks that are derivatives of the Marks, and any
intellectual property rights relating thereto), and (iv) all marketing plans,
marketing and sales data, financial information and customer lists and
preferences of used by BBC in connection with the manufacturing, marketing, sale
or distribution of the Licensed Products.
9. INFRINGEMENT
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JC /s/ P.V. BBC /s/ JAW
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9.1 Alleged Infringement against Rights of Third Parties. In the event a
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third party asserts that the Marks, the License or the sale of Licensed Products
under the terms of this Agreement (collectively, the "Rights") infringe upon
such third party's rights in any jurisdiction in which the Marks are registered
(as set forth on Schedule A or pursuant to any subsequent registration
contemplated by Section 8.3), JC, at its sole expense, shall immediately take
such action as is necessary to protect and validate the Rights including,
without limitation, arbitration, mediation and litigation. If it is determined
that the Rights do infringe on such third party's rights, then JC will promptly
procure for BBC, at JC's expense, the right to continue the manufacturing,
marketing, sale and distribution of the Licensed Products in such jurisdiction
as contemplated by this Agreement.
9.2 Infringement by Third Parties. In the event a third party is
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infringing or threatens to infringe the Rights in any jurisdiction in which the
Marks are registered (as set forth on Schedule A or pursuant to any subsequent
registration contemplated by Section 8.3), as determined by BBC or JC, JC shall
take such action as is necessary to protect the Rights and end such infringement
including, without limitation, arbitration, mediation and litigation. In the
event JC fails to take such action(s) against the infringing third party within
20 days of JC becoming aware that an actual or threatened infringement is or may
be taking place, BBC shall have the right to waive JC's obligation to take
action, and instead may take such action against the infringing third party as
it deems necessary or desirable. In the event JC pursues any action: (i) all
costs and expenses, including attorneys' fees, incurred in connection therewith
shall be paid by JC, (ii) BBC shall be entitled to receive and retain all
amounts awarded as compensatory damages (including lost profits relating to
sales of Licensed Products) in connection with such action, but such amounts
shall be deemed part of Net Sales for Royalty purposes, and (iii) JC shall be
entitled to receive and retain all amounts awarded as punitive, exemplary,
statutory or other similar damages in connection with such action. In the event
BBC pursues any action: (x) all costs and expenses, including attorneys' fees,
incurred in connection therewith shall be paid by BBC, and (y) BBC shall be
entitled to receive and retain all amounts awarded as damages, profits or
otherwise in connection with such action, and such amounts shall not be deemed
part of Net Sales for Royalty purposes.
9.3 Notice of Infringement. The parties shall be vigilant in detecting
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possible infringements, including imitations by third parties of the Rights and
shall immediately inform the other of any known actual or threatened
infringement.
9.4 Cooperation. Subject to the preceding provisions of this Section,
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the parties agree to assist one another to the extent necessary to protect any
and all of each party's respective interest in the Rights. The parties may, with
the consent of the other party, prosecute such infringement in their own name,
in the name of JC or BBC, or may join the other party as a party thereto.
10. REPRESENTATIONS AND WARRANTIES
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10.1 JC's Representations and Warranties. JC represents and warrants to
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BBC as follows:
JC /s/ P.V. BBC /s/ JAW
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10.1.1 JC has the corporate power and authority to enter into and
perform this Agreement. JC's execution and delivery of, and its performance of
all of its obligations under, this Agreement have been duly and validly
authorized by all necessary corporate action on the part of JC. This Agreement
is a valid and binding agreement of JC enforceable against JC in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and equitable
principles relating to or limiting creditors rights generally.
10.1.2 JC's execution, delivery and performance of this Agreement
does not and will not violate, breach or constitute a default under, or require
the consent of any third party under, (i) any provision of any contract,
understanding or court order to which JC is a party or by which it is or the
Marks are bound or (ii) any law, rule, regulation or other provision or
restriction of any kind or character to which JC or the Marks are subject.
10.1.3 JC is the exclusive equitable and record owner of the
trademark registrations of, and the registration applications for, the Marks in
the jurisdictions set forth on Schedule A. JC owns the Marks for the Licensed
Products in all jurisdictions in which a registration for the Marks has issued
in the applicable class. The Marks are properly registered in each of such
jurisdictions as indicated on Schedule A. JC does not use the Marks by consent
of any other person and is not required to and does not make any payments to
others with respect thereto. There are no liens, claims, or encumbrances on the
Marks. There are no prior users of any of the Marks in any of such jurisdictions
such that the use of the Marks by BBC as contemplated by this Agreement would
give rise to a likelihood of confusion. To the best knowledge of JC, without
any duty of investigation, the Marks have not been registered by any person in
any jurisdiction other than those set forth on Schedule A.
10.1.4 The use of the Marks as contemplated by this Agreement will
not infringe upon or violate the copyright, trademark rights, or any other
intellectual property rights, of any person or entity within any jurisdiction
set forth on Schedule A. No complaint or claim alleging any infringement with
respect to the Marks, is currently pending or, to the best knowledge of JC,
threatened or asserted by any governmental body or third party in any country,
and to the best knowledge of JC, there exists no valid basis for such a claim.
To the knowledge of JC, no third party has interfered with, infringed upon,
misappropriated, or violated any of the Marks in any material respect.
10.2 BBC's Representations and Warranties. BBC represents and warrants to
------------------------------------
JC as follows:
10.2.1 BBC has the corporate power and authority to enter into and
perform this Agreement. BBC's execution and delivery of, and its performance of
all of its obligations under, this Agreement have been duly and validly
authorized by all necessary corporate action on the part of BBC. This Agreement
is a valid and binding agreement of BBC enforceable against BBC in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency,
JC /s/ P.V. BBC /s/ JAW
-------- -------
-11-
<PAGE>
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors rights generally.
10.2.2 BBC's execution, delivery and performance of this Agreement
does not and will not violate, breach or constitute a default under, or require
the consent of any third party under, (i) any provision of any contract,
understanding or court order to which BBC is a party or by which it is bound or
(ii) any law, rule, regulation or other provision or restriction of any kind or
character to which BBC is subject.
10.3 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of the parties made in, pursuant to, or in connection with this
Agreement shall survive the execution and delivery of this Agreement,
notwithstanding any investigation by the parties. All statements contained in
any certificate, document, instrument or other writing delivered by a party to
this Agreement, or in connection with the transactions contemplated by this
Agreement, constitute representations and warranties under this Agreement.
11. INDEMNIFICATION
---------------
11.1 JC's Indemnity. JC shall indemnify and hold harmless BBC, its
--------------
directors, officers, stockholders, employees, attorneys, agents, insurers,
affiliates, successors and assigns from and against any claim, cause of action,
loss, damage, cost or liability (a "Loss") and reasonable attorneys' fees and
expenses and all other reasonable out-of-pocket expenses (an "Expense") incurred
by any such person to the extent that such Loss or Expense arises from (i) any
breach by JC of any representation or warranty of JC contained in this Agreement
or contemplated hereby, (ii) the default under, or failure to perform, any
covenant or agreement of JC contained in this Agreement or contemplated hereby,
or (iii) the Marks or the use thereof in accordance with this Agreement.
11.2 BBC's Indemnity. BBC shall indemnify and hold harmless JC, its
---------------
directors, officers, stockholders, employees, attorneys, agents, insurers,
affiliates, successors and assigns from and against any Loss or Expense incurred
by any such person to the extent that such Loss or Expense arises from (i) any
breach by BBC of any representation or warranty of BBC contained in this
Agreement or contemplated hereby, (ii) the default under, or failure to perform,
any covenant or agreement of BBC contained in this Agreement or contemplated
hereby, or (iii) the manufacturing, sale or distribution of the Licensed
Products (except for any Loss or Expense for which BBC is entitled to
indemnification from JC under Section 11.1).
11.3 Indemnification Procedure.
-------------------------
11.3.1 Upon obtaining knowledge thereof, the party to be indemnified
hereunder (the "indemnified person") shall promptly notify the indemnifying
party hereunder (the "indemnifying person") in writing of any Losses which the
indemnified person has determined has given or could give rise to a claim for
which indemnification rights are granted hereunder (such written notice is
referred to as the "Notice of Claim"). The Notice of Claim shall specify, in
all
JC /s/ P.V. BBC /s/ JAW
-------- -------
-12-
<PAGE>
reasonable detail, the nature and estimated amount of any such Losses giving
rise to a right of indemnification, to the extent the same can reasonably be
estimated. Any failure on the part of an indemnified person to give timely
notice to the indemnifying person of a Loss shall not affect the right of the
indemnified person to obtain indemnification from the indemnifying person with
respect to such Loss unless the indemnifying person is actually harmed by such
failure to notify, and only to the extent of such actual harm.
11.3.2 With respect to any matter set forth in a Notice of Claim
relating to a third party claim, the indemnifying person shall defend, in good
faith and at its expense, any such claim or demand, and the indemnified person,
at its expense, shall have the right to participate in the defense of any such
third party claim. So long as indemnifying person is defending, in good faith,
any such third party claim, the indemnified person shall not settle or
compromise such third party claim. The indemnified person shall make available
to the indemnifying person or its representatives all records and other
materials reasonably required by them for use in contesting any third party
claim and shall cooperate fully with the indemnifying person in the defense of
all such claims. If the indemnifying person does not defend any such third
party claim or if the indemnifying person does not provide the indemnified
person with prompt and reasonable assurances that the indemnifying person will
satisfy the third party claim, the indemnified person may, at its option, elect
to defend any such third party claim, at the indemnifying person's expense. An
indemnifying person may not settle or compromise any claim without consent of
the indemnified person, unless such settlement or compromise requires solely the
payment of money damages.
12. INSURANCE
---------
12.1 Coverage. BBC shall, throughout the Term of this Agreement, obtain
--------
and maintain, at its own expense, products liability insurance policies from
recognized insurers with at least a ( * ) limit on liability,
which policy will reflect JC as an additional insured. Copies of such policy and
certificates for such insurance will be provided to BBC within thirty (30) days
of the date of execution hereof.
13. CONFIDENTIAL INFORMATION
------------------------
13.1 Confidential Information. The parties acknowledge that each may
------------------------
receive information from the other party which is designated in writing as
confidential by such other party or its representatives in connection with the
transactions contemplated by this Agreement ("Confidential Information"). The
parties expressly acknowledge that the formulations, ingredient specifications
and other product information of or relating to the Licensed Products constitute
trade secrets of BBC and are BBC's Confidential Information for the purposes of
this Agreement. Each party acknowledges that all marketing plans, marketing and
sales data, financial information and customer lists and preferences of the
other party constitute trade secrets of such other party and are Confidential
Information for the purposes of this Agreement.
JC /s/ P.V. BBC /s/ JAW
-------- -------
-13-
<PAGE>
13.2 Obligation to Maintain Confidentiality. Each party agrees to
--------------------------------------
preserve and protect the confidentiality of all Confidential Information that is
furnished by the other party. Each party agrees to use any such Confidential
Information only for the purposes contemplated by this Agreement and not to
disclose such Confidential Information to any third party other than its
representatives with a need to know such Confidential Information in connection
with the performance of this Agreement. Each party will be responsible for
ensuring that its respective representatives adhere to this confidentiality
obligation. The obligations of the parties under this Section shall continue
for a period of five years after the expiration or termination of this
Agreement.
13.3 Upon Termination. Upon termination or expiration of this Agreement,
----------------
each party shall return to the other party, or destroy, all Confidential
Information of the other party including, but not limited to, all copies of
documents provided or made which refer, relate or contain any Confidential
Information.
13.4 Exclusions. The obligations contained in this Section will not
----------
apply to information which (a) which the receiving party can establish was in
possession of, or was known by, the receiving party prior to its receipt from
the disclosing party; (b) is received without restriction on disclosure by the
receiving party from a source other than the disclosing party who received the
information not in violation of any confidentiality restriction; (c) is or
becomes available on an unrestricted basis to a third party from the disclosing
party or someone acting under its control; (d) is publicly known or becomes
publicly known through no fault of the receiving party or (e) is revealed
pursuant to an order of a court of competent jurisdiction requiring such
disclosure, provided the party revealing such information promptly notifies the
other party to allow the other party to take appropriate protective measures.
13.5 Securities Law Disclosures. The parties agree that each may be
--------------------------
required to 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, and to describe the terms of this Agreement in one or more such
filings. Any such filings will be available to the general public. Upon
request of the other party, each party will use its reasonable efforts to obtain
confidential treatment from the SEC for key provisions of the Agreement to the
extent feasible and will cooperate with the other party so that both parties
obtain confidential treatment for the same provisions.
13.6 Press Release. The parties agree to issue a joint press release
-------------
announcing the existence of this Agreement on or about October 15, 1999 subject
to approval by JC of Licensed Products and Promotional and Packaging Material.
If the launch of the Licensed Products is postponed past the 1999 Natural Foods
Expo East trade show in Baltimore, then the parties agree to issue a joint press
release not less than five days prior to the initial launch of the Licensed
Products. The parties will cooperate in drafting a press release that is
acceptable to both parties.
14. EXPIRATION AND TERMINATION
--------------------------
JC /s/ P.V. BBC /s/ JAW
-------- -------
-14-
<PAGE>
This Agreement will expire, as provided in Section 1, or may be terminated
as set forth below.
14.1 Mutual Agreement. This Agreement may be terminated by mutual
----------------
written agreement, at any time.
14.2 Termination for Breach. Upon the material breach of any provision
----------------------
of this Agreement by a party, the non-breaching party shall have the right to
terminate this Agreement upon 60 days prior written notice and such notice,
which shall specify the nature of the breach, shall become effective unless the
breaching party shall, within the 60-day notice period, cure the breach, or
satisfy the non-breaching party that such breach will be cured in a period
acceptable to the non-breaching party. BBC's failure to pay JC the Minimum
Royalties with respect to a Contract Year shall be deemed a material breach by
BBC; provided, however, that JC's sole remedy for such failure shall be to
terminate the Agreement pursuant to this Section. Within thirty (30) days of
such termination, BBC shall be obligated to pay to JC all unpaid royalties due
and payable as of the date of termination. Notwithstanding termination, JC and
BBC shall have, and hereby reserve, all rights and remedies which they have or
which are granted by operation of law, (a) to enjoin the unlawful or
unauthorized use of the Marks or sale of the Licensed Products or any breach by
the other Party of any of the obligations hereunder, (b) for JC to collect
royalties and both Parties to collect other sums payable by the other Party, and
(c) to recover damages for breach of this Agreement, including breach of its
provisions under paragraph 14.
14.3 Bankruptcy. This Agreement may be terminated by a party, at its
----------
option, if the other party files a petition in bankruptcy or is adjudicated
bankrupt or insolvent, or makes an assignment for the benefit of creditors, or
an arrangement pursuant to any bankruptcy law, or if such other party
discontinues its business or if a receiver is appointed for such other party or
its business and such receiver is not discharged within 60 days.
14.4 Termination Upon Notice by BBC. BBC may terminate this Agreement at
------------------------------
any time (with or without cause) upon six (6) months written notice to JC (the
"Termination Notice Period"). During such Termination Notice Period, BBC shall
be required to pay JC at least the Minimum Royalty relating to the Contract Year
(or portions thereof) which contain such Termination Notice Period, prorated
based on the portion of such Contract Year(s) included in the Termination Notice
Period. If JC waives the payment of the Minimum Royalty contemplated by the
preceding sentence, JC may, at its option, require BBC to sell Licensed Products
to JC, ( * ) ( * ), during the Termination Notice
Period.
15. PROCEDURES AND APPLICATION OF AGREEMENT UPON TERMINATION
--------------------------------------------------------
Upon the expiration or termination of this Agreement the following
provisions shall govern:
15.1 Reversion of Rights. Except as set forth in this Section, after the
-------------------
expiration or termination of this Agreement, the License to the Marks granted to
BBC shall immediately revert
JC /s/ P.V. BBC /s/ JAW
-------- -------
-15-
<PAGE>
to JC who shall be free to license others to use the Marks. BBC shall thereafter
refrain from further use of the Marks in connection with the marketing of BBC's
products.
15.2 Post-Termination Statement. Within 45 days after termination or
--------------------------
expiration of this Agreement, as the case may be, BBC shall deliver to JC a
statement (collectively, "Post-Termination Statement") indicating the number and
description of the Licensed Products which, as of the date of expiration or
termination, BBC has on hand, are ordered from the manufacturers, are in transit
from the point of manufacture, or are subject to customer purchase orders which
(i) have already been accepted by BBC or (ii) are the subject of an issued
letter of credit which has been received by the payee (collectively,
"Inventory"). Simultaneously with the submission of the Post Termination
Statement, BBC shall pay the Royalties shown therein as being due for the period
since the previous Royalty Period. Such payments shall be made in accordance
with this Agreement.
15.3 Disposal of Inventory Upon Termination. Upon termination or
--------------------------------------
expiration of this Agreement under any provision other than Section 14.4,
provided that the Post Termination Statement and Royalties with respect to that
preceding Royalty Period have been paid, BBC shall be entitled to sell the
Inventory in conformity with this Agreement. BBC shall use its reasonable
efforts to complete the sale of all such Inventory as promptly as possible, but
in any event within six (6) months of the date of the Post-Termination
Statement. BBC shall continue to pay Royalties on all such sales in accordance
with this Agreement.
15.4 Limitation of Liability. Neither party shall be liable to the other
-----------------------
for any loss of present or prospective profits from lost sales, investments, or
loss of goodwill, or other consequential damages resulting from the termination
of this Agreement.
16. RELATIONSHIP CREATED
--------------------
The parties acknowledge that in performing their obligations hereunder,
each is acting as an independent contractor. The parties do not intend to create
any employment relationship, partnership or agency, and nothing in this
Agreement shall be construed to create a partnership, agency, joint venture,
franchise or other similar arrangement between the parties. Neither party has
the authority to enter into any agreement, make any warranty or representation
on behalf of, or otherwise bind the other party, except where and to the extent
specifically authorized to do so in writing.
17. ASSIGNMENT
----------
The rights and duties granted in this Agreement are personal to JC and BBC
and neither party may assign any of its rights or delegate any of its duties
under this Agreement without prior written consent of the other party, which
consent will not be unreasonably withheld. The foregoing notwithstanding, BBC
may assign its rights hereunder to any subsidiary or affiliate of BBC without
the consent of JC (it being understood and agreed that no such assignment by BBC
pursuant to this proviso shall relieve BBC of any of its obligations hereunder).
In addition, either party may assign its rights and duties hereunder without the
consent of the other party to any person or entity that acquires all or
substantially all of the business of the assigning party whether by asset sale,
stock sale
JC /s/ P.V. BBC /s/ JAW
-------- -------
-16-
<PAGE>
or merger or similar means, provided that such person or entity assumes in
writing and agrees to pay, perform and discharge all of the assigning party's
obligations hereunder. Changes in the securities ownership of a party hereto
shall not be deemed to be an assignment of this Agreement. Any attempted
assignment or delegation in violation of this provision shall be void. This
Agreement shall inure to the benefit of the permitted successors and assigns
hereunder.
18. GENERAL PROVISIONS
------------------
18.1 Amendments; Waivers. This Agreement may be amended only by
-------------------
agreement in writing of all parties. No waiver of any provision nor consent to
any exception to the terms of this Agreement shall be effective unless in
writing and signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
18.2 Integration. This Agreement, together with its schedules and
-----------
exhibits, constitutes the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith.
18.3 Governing Law. This Agreement and the legal relations between the
-------------
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State.
Any action with respect to this Agreement may be brought in any state or federal
court having jurisdiction over the County of Santa Barbara, State of California.
Each party accepts, for itself and its permitted successors and assigns, the
jurisdiction of the aforesaid courts.
18.4 No Third Party Beneficiaries. This Agreement is made solely for
----------------------------
the benefit of the parties signatory hereto and their respective successors and
permitted assigns. Nothing in this Agreement is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other than the
parties to it and their respective successors and permitted assigns.
18.5 Headings. The descriptive headings of the articles, sections and
--------
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
18.6 Counterparts. This Agreement and any amendment hereto or any other
------------
agreement (or document) delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise therein provided) when one or more
counterparts have been signed by each party and delivered to the other party.
18.7 Notices. Any notice or other communication hereunder must be given
-------
in writing and either (a) delivered in person, (b) transmitted by telex, telefax
or telecommunications mechanism provided that any notice so given is also mailed
as provided in clause (c) or (c) mailed by certified or registered mail, postage
prepaid and return receipt requested, as follows:
JC /s/ P.V. BBC /s/ JAW
-------- -------
-17-
<PAGE>
If to JC addressed to:
Jenny Craig, Inc.
11355 N. Torrey Pines Road
La Jolla, CA 92038-7910
Attention: President
Facsimile No. (619) 812-2724
With a copy to:
Jenny Craig, Inc.
11355 N. Torrey Pines Road
La Jolla, CA 92038-7910
Attention: Vice President and General Counsel
Facsimile No. (619) 812-2799
If to BBC addressed to:
Balance Bar Company
1015 Mark Avenue
Carpinteria, CA 93013
Attention: President and Chief Executive Officer
Facsimile No. (805) 566-0235
With a copy to:
Seed, Mackall & Cole LLP
1332 Anacapa Street, Suite 200
Santa Barbara, CA 93101
Attention: Thomas N. Harding, Esq.
Facsimile No. (805) 962-1404
or to such other address 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 (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 18.7 and an appropriate answerback is received, (ii) if given by mail,
three days after such communication is deposited in the mails addressed as
aforesaid or (iii) if given by any other means, when actually delivered at such
address.
JC /s/ P.V. BBC /s/ JAW
-------- -------
-18-
<PAGE>
18.8 Attorney's Fees. Should any action or proceeding be brought to
---------------
construe or enforce the terms and conditions of this Agreement or the rights of
the parties hereunder, the losing party shall pay to the prevailing party all
court costs and reasonable attorneys' fees and costs (at the prevailing party's
attorneys then-current rates) incurred in such action or proceeding. A party
that voluntarily dismisses an action or proceeding shall be considered a losing
party for purposes of this provision. Attorneys fees incurred in enforcing any
judgment in respect of this Agreement are recoverable as a separate item. The
preceding sentence is intended to be severable from the other provisions of this
Agreement and to survive any judgment and, to the maximum extent permitted by
law, shall not be deemed merged into any such judgment.
18.9 Severability. If any provision of this Agreement is determined to
------------
be invalid, illegal or unenforceable by any governmental entity, the remaining
provisions of this Agreement to the extent permitted by law shall remain in full
force and effect.
18.10 Time. Time is of the essence in the performance of and compliance
----
with each of the provisions and conditions of this Agreement.
18.11 Legal Representation and Construction. Each party hereto has been
-------------------------------------
represented by legal counsel in connection with the negotiation and drafting of
this Agreement and any related documents. The parties acknowledge that each
party and its counsel have reviewed and revised this Agreement and related
documents, and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any related documents.
18.12 Further Assurances and Cooperation. Each party agrees that it will
----------------------------------
prepare, execute, acknowledge, file, record, publish, and deliver to the other
party hereto such other instruments, documents, and statements, including
without limitation instruments and documents of recordation, assignment,
transfer, and conveyance, and take such other action as may be reasonably
necessary or convenient in the discretion of the requesting party to carry out
more effectively the purposes of this Agreement. Unless otherwise provided
herein, any consent or approval provided for in this Agreement shall not be
unreasonably withheld or delayed.
18.13 Force Majeure. Neither party to this Agreement shall be held liable
-------------
for failure to comply with any of the terms of this Agreement when such failure
is caused solely by earthquake, fire, labor dispute, strike, war, insurrection,
government restrictions, act of God, or other force majeure beyond the control
of the party involved, provided such party uses due diligence to remedy such
default.
18.14 Limitation of Actions. No action or proceeding at law, in equity,
---------------------
or in arbitration shall be brought under this Agreement or otherwise, unless
commenced within two years from the date the cause of action or proceeding is
alleged to have arisen.
JC /s/ P.V. BBC /s/ JAW
-------- -------
-19-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the day and year first above written.
JENNY CRAIG, INC.,
a Delaware corporation
By /s/ Philip Voluck
----------------------------------------
Philip Voluck
President and Chief Operating Officer
By _______________________________________
Name:
Title:
BALANCE BAR COMPANY,
a Delaware corporation
By /s/ James A. Wolfe
----------------------------------------
James A. Wolfe
President and Chief Executive Officer
By _______________________________________
Name:
Title:
JC /s/ P.V. BBC /s/ JAW
-------- -------
-20-
<PAGE>
Schedule A
Marks
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Registration Date of
Mark Jurisdictions Number Registration Class
---- ------------- ------------ ------------ -----
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Signature of Jenny Craig Australia 639398 8/31/94 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Canada 470592 2/5/97 Not listed
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Egypt 95391 4/18/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig India 663605 4/25/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Iran 81844 4/13/97 16/30/35
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Israel 98044 4/11/95 30
- ---------------------------------------------------------------------------------------------------
Jenny Craig & Device Japan 2154504 7/31/89 26
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Jordan 38504 7/6/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Kuwait 35537 12/30/96 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Lebanon 733/366086 6/7/95 16/30/42
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Libya 7893 11/18/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Mexico 491764 9/15/94 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig New Zealand 240509 8/31/94 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Oman 11409 4/15/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Pakistan 130513 6/13/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Puerto Rico 35314 10/13/94
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Qatar 13256 4/19/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Saudi Arabia 371/18 8/2/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig Un Arab Emirates 8637 11/14/95 30
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig United Kingdom 2115251 11/8/96 16/30/42
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig in United States
rectangular design 1774337 6/1/93 29/30/42
- ---------------------------------------------------------------------------------------------------
Signature of Jenny Craig United States 1967798 4/16/96 9/16/30
- ---------------------------------------------------------------------------------------------------
</TABLE>
JC /s/ P.V. BBC /s/ JAW
-------- -------
<PAGE>
Schedule B
Initial Licensed Products
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Product Estimated Introduction Date
------- ---------------------------
- -----------------------------------------------------------------------------------------------
<S> <C>
Nutrition bar November 1999
- -----------------------------------------------------------------------------------------------
Ready to drink beverage ( * )
- -----------------------------------------------------------------------------------------------
Powdered drink mix ( * )
- -----------------------------------------------------------------------------------------------
Nutritional cookie ( * )
- -----------------------------------------------------------------------------------------------
</TABLE>
JC /s/ P.V. BBC /s/ JAW
-------- -------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,702
<SECURITIES> 0
<RECEIVABLES> 14,431
<ALLOWANCES> 120
<INVENTORY> 7,609
<CURRENT-ASSETS> 27,595
<PP&E> 1,845
<DEPRECIATION> 619
<TOTAL-ASSETS> 32,369
<CURRENT-LIABILITIES> 7,962
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 24,289
<TOTAL-LIABILITY-AND-EQUITY> 32,369
<SALES> 28,573
<TOTAL-REVENUES> 28,646
<CGS> 14,088
<TOTAL-COSTS> 14,088
<OTHER-EXPENSES> 11,161
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 3,397
<INCOME-TAX> 1,393
<INCOME-CONTINUING> 2,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,004
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
</TABLE>
