Jamba Juice 2007 Annual Report Download - page 129

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NOTE 4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other Commitments and Contingencies (continued)
Territorial Fees (continued)
also required to pay JJC a front-end fee, the amount of which is determined by the total number of Jamba Juice stores in Florida and Hawaii combined. The
Hawaii Jamba Juice stores are owned and operated by JJC Hawaii, LLC, a Hawaii limited liability company and affiliated entity.
The front-end fees are $12,500 per store for the first ten Florida stores and $25,000 per store thereafter, if the combined store count is less than twenty-
five. However, if the combined store count equals or exceeds twenty-five, then the front-end fee shall be reduced to $2,500 per store for the first ten Florida
stores and $15,000 thereafter.
Pursuant to the Amendment discussed in Note 1, the payment of front-end fees are deferred until the earlier of the time that the Company maintains
positive cash flow for four consecutive quarters or June 30, 2008, at which time the deferred front-end fees become payable over a 12 month period and include
interest based on the Company’s prevailing rate, as calculated quarterly. The deferral of front-end fees is retroactively effective to January 1, 2003.
The Company incurred front-end fees of $18,000 in 2005, which were expensed as pre-opening costs.
Marketing Requirement
Based on the License Agreement, the Company was originally committed to spend a minimum of 1.5 percent of Net Revenues, as defined, on marketing
and promotions in the State of Florida. The License Agreement also required the Company to contribute 3.5 percent of Net Revenues, as defined, to JJC’s
national marketing fund. Prior to the amendments discussed below, for the first five years following the opening of the first Florida store, JJC was required to
spend a minimum of three-sevenths of contributions received from the Company toward the direct marketing of the Jamba Juice brand, services and products
in the State of Florida. Such contributions were to be expended within twelve months of receipt or otherwise be reimbursed to the Company. Following the said
five-year period, JJC expected to have a national marketing program in place with direct benefit to the State of Florida and as such, would no longer be
obligated to spend the minimum three-sevenths of national marketing fund contributions toward direct marketing in the State of Florida.
In July 2001, JJC revised its policy with regard to marketing requirements. Under the revised policy, the Company’s obligation to spend 1.5 percent of
Net Revenues, as defined, on marketing and promotions in the State of Florida was suspended by JJC until further notice. In addition, effective July 1, 2001,
the Company was required to contribute 1.5 percent of Net Revenues to JJC’s national marketing fund and spend an additional 2 percent of Net Revenues,
previously remitted to JJC, for JJC-approved local marketing.
On July 24, 2002, a second revision to JJC’s policy was made which increased the national marketing fund contribution to 1.7 percent of Net Revenues
and reduced the JJC-approved local marketing spending correspondingly to 1.8 percent of Net Sales.
On August 5, 2005, a third revision to JJC’s policy was made, which increased the national marketing fund contribution to 2.0 percent of Net Revenues
and reduced the JJC-approved local marketing spending correspondingly to 1.5 percent of Net Sales.
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