EXHIBIT 10.3
PRODUCTION AGREEMENT
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THIS PRODUCTION AGREEMENT (the "Agreement") is made and entered into as of
March 31, 1998, by and between NELLSON CANDIES, INC., a Delaware corporation
("Nellson") and THE BALANCE BAR COMPANY, a Delaware corporation ("BBC").
RECITALS
X. Xxxxxxx is in the business of producing nutritional food products.
BBC is in the business of distributing such products.
X. Xxxxxxx has produced certain products for distribution by BBC under an
agreement dated October 7, 1996 (the "Prior Agreement").
C. The parties wish to provide for the on-going production of products by
Nellson for BBC on the terms and conditions set forth herein.
AGREEMENT
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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:
1. DESCRIPTION OF PRODUCTS
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The products to be produced by Nellson under this Agreement for sale to BBC
(the "Products") shall consist of both of the following:
1.1 The nutritional bars currently produced by Nellson to match the
nutritional profiles and names provided by BBC, as identified on Schedule 1 to
this Agreement, including line extensions (both flavors and sizes) of existing
products covered under this Agreement, and any new flavors or sizes thereof
("Bars"). When there are quantities of bars mentioned in this Agreement to
satisfy production, exclusivity or purchase requirements, the quantity will
include the existing formulation of Balance Bars, all flavors; Mini-Bars, all
flavors, equal to 2/3 of a bar; and New Era Bars, all flavors, equal to one bar.
1.2 Any new or additional products mutually agreed to in writing by the
parties hereto.
2. PRODUCTION QUANTITIES
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2.1 During the term of this Agreement (as set forth in Section 12), BBC
will provide to Nellson a purchase order for the Products it wishes to purchase
during the period stated in such purchase order. Subject to the provisions of
Section 24 below, Nellson will produce and deliver such Products in accordance
with the terms and conditions of the purchase order, with the proviso that a
variation of plus or minus five percent (5%) from the purchase order in the
total quantity of the ordered Products delivered will be invoiced by Nellson and
accepted by BBC based on the actual amount delivered. The actual production and
delivery of Products will be coordinated pursuant to the production scheduling
process described in Section 24 below.
2.2 During each calendar year ending on or before December 31, 2002 during
which this Agreement is in effect, BBC will purchase from Nellson, at a minimum,
the lesser of:
2.2.1 [ * ] of BBC's annual production requirements for Bars;
or
2.2.2 the quantities set forth below, stated in millions of Bars, in
the years indicated.
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
The parties agree that BBC has met its requirement for 1997.
2.3 In return for the above stated guaranteed purchases, Nellson agrees to
produce not less than [ * ] Bars per calendar month (and not less than [
* ] Bars per week). Upon 30 days' prior written notice by BBC to Nellson,
Nellson will use best efforts to increase its minimum monthly production rate of
Bars to [ * ] Bars. Nellson will use all commercially reasonable efforts
to fill orders in excess of the monthly minimum requirement set forth in this
Section. The quantities of the Bars produced by Nellson in any month will be in
the respective flavors ordered by BBC, except for reasonable and minor
variations necessitated by production efficiencies. BBC will not be required to
purchase any minimum quantities of bars from Nellson after December 31, 2002.
2.4 Production of the Products will be coordinated in accordance with the
following:
2.4.1 Prior to 11:00 a.m. Pacific Time on each Monday during the term
of this Agreement, BBC will provide Nellson with a written rolling production
schedule with respect to the production and delivery of Products ordered by BBC
(each a "Production Schedule"). Each Production Schedule will include BBC's
estimated production requirements for the following twelve (12) week period.
This will include a firm production commitment
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for the first four (4) weeks and a non-binding estimate of BBC's requirements
for the remaining weeks. These quantities will be expressed in total cases.
Additionally, the Production Schedule will specify the flavors and quantities
(by indicating the total number of cases for each flavor per week) of production
and delivery of the Products for:
(A) the workweek that begins on the following Monday ("Week 2");
and
(B) the workweek that begins on the second following Monday
("Week 3").
On the business day following the delivery of the Production
Schedule, Nellson will deliver to BBC a tentative schedule of dates and
quantities (by indicating the number of shifts for each date) of production and
delivery of the Products for Week 2 and Week 3. Specific flavors and pack-outs
will be provided to Nellson by BBC for Week 2 by 5:00 p.m. Pacific Time on the
Thursday following each Monday that the Production Schedule is made.
2.4.2 The schedule for the first week is absolutely frozen. If BBC
requests changes to Week 2, Nellson will use its best efforts to honor such
requests, but is not obligated to do so. For Week 3 and the following weeks,
Nellson will accommodate changes with respect to flavors and/or pack-outs until
they move into Week 2 or Week 1.
2.4.3 If Nellson fails to meet the quantities and time schedule set
forth in a Production Schedule, Section 4 hereof will apply. In addition, BBC
may cancel the remaining unproduced portion of the relevant purchase order if
such delay or quantities continues for more than seven (7) working days.
2.5 Nellson will provide BBC with production quantity figures on the day
following each production run. All Products will be shipped to an outside BBC
consignment warehouse within twenty-four (24) hours of production unless
requested by BBC to be shipped directly to a BBC customer, held for pick-up by a
BBC customer or shipped directly to BBC's own warehouse. Nellson agrees to
develop capability within a reasonable period of time to allow BBC to have
twenty-four (24) hour electronic access to inventory levels of Products and
packaging materials at Nellson either via access to databases maintained by
Nellson or other mutually agreed upon procedure.
2.6 Nellson will produce all Products at Nellson's facility in Irwindale,
California.
2.7 Nellson covenants and agrees to maintain at all times sufficient
inventories of ingredients to meet its obligations hereunder. Nellson will
maintain in its warehouse at all times sufficient Product Packaging (as defined
in Section 7) for three weeks of production
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(based on [ * ] Bars per week). In addition, Nellson will warehouse up to an
additional 80 pallets of Product Packaging for BBC in Nellson's warehouse.
3. PRICES; PAYMENT TERMS
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3.1 The initial price schedule for the Products is set forth on Schedule
3, and is exclusive of the costs of the Product Packaging, which will be
provided by BBC. The price for any Product includes Nellson's cost of (i)
inserting the Products into the Product Packaging, and (ii) usual domestic
packing of good quality. The parties agree that such usual domestic packing
includes, without limitation, putting shrink wrap on individual boxes of the
Products, placing such individual boxes in corrugated cardboard containers with
shipping labels attached, and putting such containers on pallets. Any other
special packing, boxing, crating, or cartage which is required by BBC will be
for BBC's account unless specifically agreed to in writing between the parties.
3.2 Nellson will have the right to adjust the prices to be paid for the
Products hereunder by providing to BBC a notice of such a price adjustment not
less than seventy-five (75) days prior to the proposed effective date of such
price adjustment. Any such price adjustment will be made only if required by
the aggregate effect of (i) actual changes in the cost of labor and variable
overhead; and (ii) actual changes in the cost of the ingredients utilized in the
Products.
A price adjustment will be proposed only if the aggregate effect of the
foregoing changes is greater than or equal to a five percent (5%) increase over
the previous base used for pricing for ingredients, labor and variable overhead.
The basis to be used for the price adjustment will be a combination of: (i) the
new actual cost of labor and variable overhead per Bar; and (ii) the new actual
cost of ingredients per Bar. The new adjusted price per Bar will be not greater
than the new actual combined cost per Bar multiplied by a fraction, the
numerator of which is the previous price per Bar, and the denominator of which
is the prior combined cost per Bar. Nellson will provide BBC with documentary
evidence of the changes in such factors together with the notice of the price
adjustment. Should BBC reject the proposed price adjustment, then Nellson may
cease production of the item concerned, or, if requested by BBC, reformulate the
item with the approval of BBC to meet the requirements of economic
manufacturing. In the event of a significant reduction (at least 5%) in either
of the two factors listed above, Nellson will promptly notify BBC of such
reduction, and the parties agree to implement an equitable price reduction as
negotiated in good faith by the parties.
3.3 Payment terms will be [ * ] after the date of Nellson's invoice.
Such invoice will be dated on or after the earlier of (i) the date the relevant
Products were shipped in accordance with Section 25, and (ii) the date that is
one day after the productions of such Products. If BBC makes payment on an
invoice within fifteen (15) days of its date, BBC
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may take a [ * ] discount from the payment amount on such invoice. Nellson will
provide invoices to BBC by overnight delivery. Interest will accrue and be
payable at a rate of 1% per month on any amounts not timely paid.
3.4 Nellson represents and warrants that the prices set forth herein do
not and will not violate any federal, state, county or municipal law or
regulation relative to price discrimination, price-fixing, or price
stabilization.
4. FINANCIAL INCENTIVE FOR TIMELY PERFORMANCE
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4.1 The parties acknowledge that if Nellson is unable to supply ordered
Products in the expected time frame, BBC will be forced to incur additional
costs in the way of rush charges from other suppliers, additional shipping
charges, overtime, additional Product Packaging costs and other expenses. In
addition, BBC's relations with its customers and its ability to compete in its
markets may be damaged by any inability to supply Products. The parties further
acknowledge that it may be impossible, impracticable or burdensome for BBC to
quantify these expenses and potential damages.
4.2 Accordingly, as an additional incentive for Nellson to provide ordered
Products on a timely basis as required by Section 2, the parties hereby agree
that, if the number of Bars produced and delivered by Nellson in any given week
is less than 95% of the number of Bars specified in the latest BBC-approved
Production Schedule for such week, then Nellson will rebate to BBC an amount
equal to [ * ] multiplied by the number of Bars constituting such
underage. Such rebate will be waived if production is made up within seven (7)
calendar days.
5. DELIVERIES
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5.1 The Products will be shipped F.O.B. Nellson's docks in Irwindale,
California. Title to the Products, and all risk of loss or damage, will transfer
to BBC upon proper shipment.
5.2 The Products will be delivered free and clear of any and all liens,
security interests or encumbrances, except that Nellson will be entitled to
claim a lien and/or security interest on the Products to secure payment in full
of the amounts due in accordance with Section 3 hereof in addition to all other
rights and remedies to which it may otherwise be entitled. BBC hereby agrees to
execute promptly such financing statements and other documents as may be
necessary to perfect and protect such liens and security interest. The
foregoing notwithstanding, any security interest in the products will terminate
upon their sale by BBC in the ordinary course of BBC's business.
6. PRODUCT QUALITY; INSPECTION
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6.1 Nellson represents and warrants that the Products will be free of
defects and fit for their intended purposes. Nellson further represents and
warrants that the Products will be manufactured to match the formulations,
nutritional profiles and names supplied by BBC in all material respects. During
the term of this Agreement, Nellson will have the right without prior
notification to BBC, to make minor processing adjustments to take advantage of
new technology deriving from Nellson's ongoing research program or to improve
manufacturing processes, providing that such changes do not modify the
ingredient listings, nutritional profiles, appearance, taste, texture, shelf
life, net weight, labeling requirements, or shape of the Products. In the event
that such adjustments would result in modification of any of these aspects,
Nellson will notify BBC and refrain from making the adjustments without BBC's
prior written consent. Nellson further represents that the Products will be
represented by internal product codes established, or to be established, for
each Product.
6.2 Nellson represents and warrants that: all Products produced and
packaged for sale in the United States will be manufactured, stored and shipped
by Nellson in accordance with (i) all applicable standards of the Food and Drug
Administration, (ii) the requirements of the Fair Labor Standards Act of 1938,
as amended, and regulations and orders pursuant thereto issued by the U.S.
Department of Labor (to the extent applicable) and (iii) all other federal,
state, and local laws, rules and regulations; and all Products will be
manufactured in accordance with the current Standard Operating Procedures for
Good Manufacturing Practice as maintained by Nellson, including HACCP. Nellson
further represents and warrants that all Products produced and packaged for sale
outside the United States will be manufactured to meet any and all standards
known to or communicated to Nellson. BBC represents and warrants that the
Products will be maintained and stored by BBC in accordance with reasonable
instructions provided by Nellson and all applicable standards of the Food and
Drug Administration, and other federal, state, and local laws, rules and
regulations and prudent practice.
6.3 Products will be manufactured and delivered in accordance with BBC
approved Product specifications. Upon delivery of the Products, BBC may inspect
a representative sample of the Products and reject the shipment if such samples
do not meet the requirements of the Product Specifications. Such rejection of
Product must be formally communicated to Nellson within three (3) business days
of Product receipt. Upon receipt of such notice, Nellson will initiate the
steps necessary to credit BBC for the price of the Product, retake ownership of
the Product and remove the Product from BBC property at Nellson's expense.
Nellson shall then replace such nonconforming Products with conforming Products
within seven (7) working days, contingent upon availability of ingredients and
packaging materials. If ingredients or packaging materials are not available
immediately to replace such Products, both BBC and Nellson will use all
available means to expedite the materials for the production of the replacement
Products. The replacement Products will have first priority as soon as materials
are available. Variations in the organoleptic properties and/or analytical
values attributable to fluctuations in ingredient properties within
specification ranges and
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outside the control of Nellson will not be deemed sufficient ground for
rejection of the Products. However, nothing herein limits Nellson's warranties
with respect to the Products.
6.4 For every flavor that is run in any week, Nellson will promptly
provide BBC with an accurate certificate of analysis which describes (i) average
weight, (ii) protein, carbohydrate and fat content, and (iii) microbiological
testing of the Product. Samples will be composites of Bars taken from the
beginning, middle, and end of the production runs with the required numbers of
Products per sample to give sufficient statistical validity to guarantee that
the composition of a week's production meets specifications as defined within
the norms applicable to the food industry and with regard for limits of
ingredient variation and analytical error. Nellson will also provide BBC with
four displays of the Products from each production run by overnight delivery
for BBC's own independent testing purposes. Nellson shall xxxx BBC for the cost
of such Products, but shall bear the cost of shipping such Products to BBC.
6.5 During the term of this Agreement, BBC's representatives will have the
right to inspect the production facilities of Nellson (i) at any time, upon
twenty-four (24) hours prior notice to Nellson, or (ii) at any time when Nellson
is actually producing the Products, without prior notice, at any time during
normal daytime business hours.
6.6 At all times during the term of this Agreement, Nellson will maintain
Kosher certification of its production facilities and processes when running
BBC's products.
7. PRODUCT PACKAGING
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BBC will provide the materials necessary for packaging the Products (the
"Product Packaging"). Prior to the printing of Product Packaging, BBC will
provide Nellson with the product labeling included therein so that Nellson may
review such labels. The parties acknowledge that Nellson has so reviewed BBC's
existing Product Packaging. Any change in the Product Packaging is subject to
Nellson's approval, provided, however, that Nellson will not withhold such
approval so long as the listing of ingredients and nutritional analysis are
accurate.
8. EXCLUSIVE PRODUCTION
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8.1 During the term of this Agreement, including any renewal or extension,
Nellson will not produce or sell in any sales venue, for any person or entity
other than BBC, any nutritional food products using formulations substantially
similar to those of the Products, as long as BBC purchases, on a calendar year
basis, the quantities of Bars noted below in the years indicated:
*Confidential portions omitted and filed separately with the Commission.
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Year Quantity of Bars
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1997 [ * ]
1998 [ * ]
1999 [ * ]
2000 [ * ]
2001 [ * ]
2002 [ * ]
The above stated quantities guarantee BBC exclusive production by Nellson
and are not to be considered a procurement guarantee, and are separate from the
quantities required for BBC to obtain ownership of Product formulations or to
obtain guaranteed production quantities. The parties agree that BBC has met the
requirements for 1997.
For the purposes of this section, "substantially similar" formulations are
defined as formulations: (i) having a similar macronutrient composition to 40-
30-30 proportion of calories derived from carbohydrates, dietary fat and
protein, respectively, or (ii) which are promoted as "40-30-30" or "Zone
Favorable" (or words of similar import) on the packaging.
8.2 BBC acknowledges that Nellson currently produces a bar that utilizes a
formulation substantially similar to those of the Products (the "Grandfathered
Bar") for one existing customer other than BBC (the "Grandfathered Customer").
BBC agrees that, notwithstanding the foregoing provisions of Section 81, Nellson
may continue to produce the Grandfathered Bar (but no other nutritional food
products using formulations substantially similar to those of the Products) for
the Grandfathered Customer.
8.2.1 Under its contract with the Grandfathered Customer, Nellson is
currently prohibited from identifying the Grandfathered Customer to BBC by name.
Concurrently with the execution of this Agreement, Nellson has placed the name
of the Grandfathered Customer and of the Grandfathered Bar (including flavors)
into a sealed envelope, countersigned by officers or attorneys of both Nellson
and BBC, and has delivered such envelope to _______________, Nellson's counsel.
Nellson has instructed its counsel to hold such envelope pursuant to the terms
of this Agreement.
8.2.2 If BBC provides Nellson with documentary evidence indicating
that Nellson is violating Section 81 (including the product name and distributor
name), Nellson shall notify BBC in writing within three days of whether or not
Nellson takes the position that it is not in violation of such Section on the
grounds that the production is of the Grandfathered Bar for the Grandfathered
Customer. If Nellson does not so notify BBC within such three-day period, then
Nellson shall thereafter be estopped from claiming any exception under this
Section with respect to such claimed violation. If Nellson does claim the
exception provided by this Section, Nellson shall cause its counsel to produce
the sealed envelope within three days after BBC's demand (and such counsel is
hereby so directed). The sealed envelope will then be opened in the presence of
officers or attorneys of both Nellson and BBC. If the
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identity of the product and customer in the sealed envelope match the
product name and distributor alleged by BBC to be the cause of the violation,
then no violation of Section 81 shall be deemed to have occurred. In any other
case, BBC may pursue all remedies available to it under this Agreement.
8.2.3 In the event of any change in the control of the Grandfathered
Customer, whether by merger, sale of stock or sale of assets, the exception from
Section 81 provided hereby shall apply only to the currently-produced flavors of
the Grandfathered Bars.
8.3 The provisions of Section 81 will not apply if BBC enters bankruptcy,
becomes insolvent, otherwise ceases to conduct their business, or if the
Agreement is terminated pursuant to Section 123 because of a breach by BBC.
8.4 Formulation, development and manufacture by Nellson of any future
Products for BBC, and any enhancements of existing Products, will be subject to
the same terms and conditions as set forth in Sections 8 and 9, unless the
future Products are covered by a separate agreement.
8.5 Nellson will notify BBC promptly if any person or entity approaches
Nellson requesting that it produce any product which would use any trademark of
BBC (including, without limitation, "Balance," "Balance Bar," "The Complete
Nutritional Food(R)," "40-30-30 Naturally" or "40-30-30 Balance"), any variant
of any such trademarks, or any name or xxxx similar thereto.
9. PROPRIETARY MATERIALS; COORDINATION WITH NELLSON
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9.1 The parties acknowledge that the formulations and ingredient
specifications of the Products and all marketing plans, marketing and sales
data, financial information and customer lists and preferences of BBC
(collectively, "Proprietary Materials") constitute trade secrets of BBC. BBC
hereby grants Nellson a limited, non-exclusive license to use the Proprietary
Materials solely for the purposes set forth in this Agreement. Nellson agrees
not to use or disclose such Proprietary Materials (or any past formulations of
the Products), other than in accordance with this Agreement, without the written
consent of BBC except where required by law. Nellson will hold all such
Proprietary Materials in complete and strict confidence, and will maintain the
confidentiality of all such Proprietary Materials. In event of termination of
the Agreement, Nellson will return to BBC all Proprietary Materials and will not
keep any copies of such Proprietary Materials or any portions thereof, except a
single archival copy as may be required for any subsequent legal inquiry or
investigation.
9.2 The parties acknowledge and agree that Nellson has transferred to BBC
all of the ownership rights to product formulations heretofore used by Nellson
with respect to the
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Products. As consideration for this transfer, BBC guarantees to purchase from
Nellson, on a yearly basis for a four-year period, the following quantities of
Bars, stated in millions:
1997 1998 1999 2000
------- ------- ------- -------
Annual: [ * ] [ * ] [ * ] [ * ]
Semi-Annual: [ * ] [ * ] [ * ] [ * ]
This yearly purchase commitment is guaranteed for each of the first three years
shown above. The year 2000 quantity requirement of [ * ] Bars will be
reduced by the cumulative amount of Bars purchased in the years 1997 through
1999 in excess of the [ * ] bar requirement for those three years. Half-size
25-gram Bars will count as 2/3 of a Bar in the satisfaction of this purchase
requirement. If BBC falls short of the purchase quantity, if this agreement is
terminated prior to January 1, 2001, or if for any reason BBC otherwise decides
to buy out its requirement under this Section prior to the purchase of [ * ]
Bars through the year 2000, then the parties agree to negotiate such buyout in
good faith and for reasonable consideration. If BBC terminates the contract
with a 360-day notice effective from January 1, 2000 onward, ownership of the
formula will be retained by BBC as long as BBC has met the total purchase
requirement of [ * ] bars between 1997 and 2000 (as detailed above) and
BBC purchases the lesser of [ * ] of its total Bar requirement or [
* ] bars during the final year of this Agreement. Transfer of ownership
rights for any new type, concept, or format of bar not in existence at the time
of signing of this agreement will be covered in a separate agreement. All Bars
purchased by BBC during 1997 will be counted against the above requirements even
though purchased prior to the execution of this Agreement.
9.3 Nellson acknowledges that BBC currently also contracts with Bariatrix
International, Inc. ("Bariatrix") to produce the Products and that BBC is free
to seek additional sources of supply without violating this Agreement. Nellson
agrees to cooperate with Bariatrix and other future suppliers, as reasonably
requested by BBC, in order to standardize the Products produced by Nellson,
Bariatrix and such future suppliers, if any, to comply with the formulations
contained in the Proprietary Materials. Such cooperation will include, without
limitation, the modification of Product formulations and ingredient
specifications and the reasonable coordination of production processes,
exclusive of capital investment, in each case to the extent requested by BBC.
If such requests are deemed to require capital investment, both parties agree to
negotiate in good faith the obligations of each for such investment.
10. INSURANCE
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Throughout the term of this Agreement Nellson will maintain products
liability insurance with an insurer satisfactory to BBC with at least a Ten
Million Dollar ($10,000,000) limit on liability, which policy will reflect BBC
as an additional insured. Copies of such
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policies and certificates for such insurance will be provided to BBC within
thirty (30) days of the date of execution hereof. Such policy will provide not
less than thirty (30) days' prior notice to BBC in the event of its
cancellation. If this agreement is terminated, Nellson agrees to maintain
insurance coverage in force for all of the products produced by Nellson under
this agreement and that are still in the marketplace or in BBC inventory.
11. EXPORT
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At BBC's request, Nellson will cooperate with BBC in connection with the
satisfaction of all governmental and other requirements with respect to the
export of the Products including, without limitation, applications for U.S.
export licenses.
12. TERM
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12.1 Unless earlier terminated pursuant to Section 122 or Section 123
below, this Agreement will continue until December 31, 2002. On December 31 of
each year during the term of this Agreement, commencing December 31, 1998, the
remaining term of this Agreement will be extended automatically for an
additional year, unless either party shall have given the other written notice
of non-renewal at least one hundred eighty (180) days prior to such December 31.
12.2 BBC may terminate this Agreement at any time, for any cause or without
cause, upon 360 days prior written notice to Nellson.
12.3 Either party may terminate this Agreement at any time upon the
occurrence of one or more of the following events with respect to the other
party (the "Defaulting Party"):
(a) failure to pay any amounts within sixty (60) days of when due;
(b) Subject to the provisions of Section 19, the breach of or default
under any material provision of this Agreement if the Defaulting Party has been
provided thirty (30) days' prior written notice of its breach or default and,
during such period, the Defaulting Party has failed to cure such breach or
default, or
(c) the bankruptcy or insolvency of the Defaulting Party.
Such termination will not abridge or limit the right of either party to seek
damages or other redress as a result of such breach.
12.4 The provisions of Sections 61, 62, 8 (subject to Section 83), 9, 10,
13 and 17 will survive any termination of this Agreement.
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13. INDEMNIFICATION
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13.1 Each of the parties (the party indemnifying the other is hereinafter
referred to as the "Indemnifying Party") will indemnify, defend and hold the
other party (the "Indemnified Party") and its directors, officers, employees,
agents, attorneys, insurers, shareholders and affiliates (its "Related Persons")
harmless from and against any claims, damages, liabilities, costs and expenses,
including the reasonable fees and expenses of counsel (collectively, "Losses"),
resulting from any breach or violation of any representation, warranty, covenant
or agreement of such party set forth in this Agreement.
13.2 BBC will indemnify and hold Nellson and its Related Persons harmless
from and against any Losses arising out of or in connection with the Proprietary
Materials and the use and distribution of Product Packaging, including, without
limitation, any claim based on an alleged infringement of the patent, trademark,
or other intellectual property rights of another party arising out of such
items, except to the extent that (i) such Losses are attributable to any
negligence or misconduct of Nellson, (ii) such Losses relate to the methods of
production of the Products employed by Nellson; or (iii) such Losses relate to
the accuracy of the list of ingredients or nutritional analysis.
13.3 Nellson will indemnify and hold BBC and its Related Persons harmless
from and against any Losses arising out of or in connection with (i) the
manufacture, production or shipment of the Products, including, without
limitation, any product liability claims with respect to the Products, or (ii)
the accuracy of the list of ingredients and nutritional analysis.
13.4 The Indemnifying Party will have the right to defend any third party
claim, action or proceeding wherein the Indemnified Party and/or its Related
Persons are entitled to indemnification under the provisions of this Section;
provided, however, that the Indemnifying Party must conduct the defense of the
third party claim actively and diligently thereafter to preserve its rights in
this regard. The Indemnified Party and any Related Person may retain separate
co-counsel at its or their sole expense and participate in the defense of the
third party claim. Neither party will settle any such claim, action, or
proceeding without the other party's consent or approval, unless the proposed
settlement involves only the payment of money damages by the settling party and
does not impose an injunction or other equitable relief on the other party or
such Related Persons. The Indemnified Party will fully cooperate, at the
expense of the Indemnifying Party, with the Indemnifying Party in the defense or
settlement of any claim, action or proceeding subject to the provisions of this
Section.
14. ASSIGNMENT
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Nellson will not transfer or assign its rights and obligations hereunder
without the prior written consent of BBC. This Agreement will continue to bind
BBC regardless of any changes in the ownership of its stock.
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15. CHANGE IN CONTROL OF NELLSON
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15.1 For purposes of this section, "Change in Control Transaction" means
any of the following:
(i) The sale by NC Holdings, Inc. of more than 50% of its
capital stock of Nellson to a person or entity that is not
an affiliate of NC Holdings, Inc.
(ii) The sale by Artal Luxembourg S.A. or any of its affiliates
of more than 50% of the capital stock of Nellson or NC
Holdings, Inc. to a person or entity that is not an
affiliate of NC Holdings, Inc.
15.2 At least 10 business days prior to any of the foregoing entities
entering into a Change of Control Transaction, Nellson will notify BBC of the
potential change in ownership unless its Board of Directors, in its sole
discretion, determines that offering such notice would be a material impediment
to completing the contemplated Change of Control Transaction.
15.3 If Artal announces publicly its intention to offer NC Holdings, Inc.
for sale, then Nellson agrees that it will notify BBC immediately upon such
announcement being made public.
16. GOVERNING LAW
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This Agreement will be governed by the Uniform Commercial Code and other
applicable laws of the State of California.
17. DISPUTE RESOLUTION
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In the event of a dispute arising out of or relating to this Agreement that
the parties cannot resolve between themselves without assistance, the Parties
agree to attempt to resolve such dispute through third-party mediation. Any such
dispute that is not resolved within thirty (30) days after a request for
mediation by either of the parties, will be settled by arbitration to be held in
Santa Barbara, California, in accordance with the then-applicable rules of the
American Arbitration Association or any successor thereto. If the parties shall
not have agreed on a mutually satisfactory arbitrator within ten (10) days of
the request of any party for arbitration hereunder, the President of the
American Arbitration Association will forthwith appoint an arbitrator. The
arbitrator shall be a person experienced in the specialty foods industry with no
prior affiliation with either party. The arbitrator may grant injunctions or
other relief in such dispute, but may not award punitive or exemplary damages.
The decision of the arbitrator will be final, conclusive and binding on the
parties to the arbitration.
*Confidential portions omitted and filed separately with the Commission.
13
Judgment may be entered on the arbitrator's decision in any court having
jurisdiction, and the parties hereby irrevocably consent to the jurisdiction of
the United States District Court for the Central District of California, or if
that court has no jurisdiction, to the California Superior Court in and for the
County of Santa Xxxxxxx for this purpose. The arbitrator will award to the
prevailing party on each material issue that party's reasonable attorney's fees
and cost. The term "prevailing party" shall mean that party which shall have
substantially prevailed on a material issue in dispute. As to distinct,
severable issues in dispute, the arbitrator may decide which party is the
prevailing party. Accordingly, the arbitrator will have the discretion to award
attorney's fees to both parties, in amounts to be determined by the arbitrator,
if the arbitrator shall determine that as to separate and distinct material
issues having a bearing on an entitlement to relief each of the parties shall
have been a prevailing party. Application for cost and expenses shall be
substantiated with documentary verification. The actual cost of the arbitration
itself will be borne by the losing party or will be allocated between the
parties in such proportions as the arbitrator decides if there are distinct,
severable issues in dispute and the arbitrator determines that each parties has
to some extent, been a losing party.
18. FINANCIAL INFORMATION
---------------------
Each party agrees to provide the other party with the following financial
information: (i) such party's audited annual financial statements, to be
provided within 90 days after the close of each fiscal year; (ii) such party's
unaudited interim financial statements, to be provided within 45 days after the
close of each fiscal quarter; and (iii) such other financial information as may
be reasonably requested by the other party. All financial information of either
party will be held in strict confidence by the other party.
19. FORCE MAJEURE
-------------
In the event that either party shall be delayed, hindered in or prevented
from the performance of any act required hereunder, by reason of war, riots,
insurrection, strikes, labor troubles, failure of power, or the act, failure to
act or default of the other party, or any other reason beyond such party's
reasonable control, then performance of such act will be excused for the period
of the delay and the period for the performance of any such act will be extended
for a period equivalent to the period of such delay.
20. INDEPENDENT CONTRACTOR STATUS
-----------------------------
This Agreement does not in any way create the relationship of joint
venture, partnership, or principal and agent between Nellson and BBC. The
parties have entered into this Agreement solely as independent contractors.
Neither party will have any right or authority to assume or otherwise create any
obligation or responsibility, express or implied, on
*Confidential portions omitted and filed separately with the Commission.
14
behalf of or in the name of the other party, or to bind the other party in any
manner or thing whatsoever, without the other party's prior written consent.
21. NOTICES
-------
Any notice or other communication hereunder must be given in writing and
either (a) delivered in person, (b) sent by recognized messenger or next-day
courier service, (c) transmitted by telex, telefax or telecommunications
mechanism, provided that any notice so given is also mailed as provided in
clause (d), or (d) mailed by first class mail, postage prepaid, as follows:
If to BBC: Bio Engineered Foods, Inc.
0000 Xxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention:
Telecopy number: 000-000-0000
With a copy to: Xxxxxx X. Xxxxxxx, Esq.
Seed, Xxxxxxx & Xxxx
X.X. Xxx 0000
Xxxxx Xxxxxxx, XX 00000
Telecopy number: 805-962-1404
If to Nellson: Nellson Candies, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Mr. Xxxx Xxxxxx
Telecopy number: (000) 000-0000
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 21 and an appropriate answerback is received, (ii) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually delivered at such address.
22. HEADINGS
--------
Any headings used herein are for convenience and reference only and will
not be deemed to have any substantive effect.
*Confidential portions omitted and filed separately with the Commission.
15
23. ENTIRE AGREEMENT; CONSTRUCTION
------------------------------
23.1 This Agreement and the instruments referred to herein embody the
entire agreement and understanding between the parties relating to the subject
matter hereof and may not be amended, waived, or discharged except by an
instrument in writing executed by the party against whom enforcement of such
amendment, waiver or discharge is sought. All schedules attached are by this
reference incorporated herein. This Agreement supersedes the Prior Agreement in
all respects.
23.2 Unless otherwise agreed by both parties in writing, this Agreement
applies to all purchase orders, sales acknowledgments and other documents of
purchase which BBC or Nellson may deliver with respect to the Products after the
date hereof. The terms and conditions of this Agreement will apply to any such
document, whether or not this Agreement or its terms and conditions are
expressly referenced in such document.
23.3 If any claim is made by a party relating to any conflict, omission or
ambiguity in the provisions of this Agreement, no presumption or burden of proof
or persuasion will be implied because this Agreement was prepared by or at the
request of any party or its counsel, notwithstanding any statute or rule of law
to the contrary.
23.4 Whenever in this Agreement a person is permitted or required to make a
decision or determination (x) in its "discretion" or "sole discretion" or under
a grant of similar authority or latitude, the person will be entitled to
consider any interests and factors as it desires, including its own interests;
(y) in it "good faith," in a "commercially reasonable" manner, "reasonably" or
under another express standard, the person will act under that express standard
and will not be subject to any other or different standards imposed by this
Agreement or otherwise; or (z) if no standard is expressed, the person will
apply relevant provisions of this Agreement in making the decision or
determination.
24. NO WAIVER
---------
The failure of either party to enforce at any time any of the provisions
hereof (including, without limitation, any inspection rights) will not be
construed to be a waiver of such provision, of any other provision, or of the
right of such party thereafter to enforce any such provision or other provision.
25. SECURITIES FILINGS
------------------
The parties agree that BBC will include a copy of this Agreement as an
exhibit to one or more filings with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended. BBC will also describe the terms of this Agreement in
one or more such filings. Any such
*Confidential portions omitted and filed separately with the Commission.
16
filings will be available to the general public. Upon request by Nellson, BBC
will use its reasonable efforts to obtain confidential treatment from the SEC
for key provisions of the Agreement to the extent feasible, as determined by BBC
in consultation with its securities counsel.
*Confidential portions omitted and filed separately with the Commission.
17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the date first set forth above.
NELLSON CANDIES, INC. THE BALANCE BAR COMPANY
By:________________ By:________________
Name: Name:
Title: Title:
By:________________ By:________________
Name: Name:
Title: Title:
*Confidential portions omitted and filed separately with the Commission.
18
SCHEDULE 1
BARS CURRENTLY PRODUCED
[ * ]
*Confidential portions omitted and filed separately with the Commission.
19
SCHEDULE 2
[intentially omitted in original document]
*Confidential portions omitted and filed separately with the Commission.
20
SCHEDULE 3
PRICES
[ * ]
*Confidential portions omitted and filed separately with the Commission.
21
