Trademark Trial and Appeal Board Electronic Filing System. http://estta.uspto.gov ESTTA Tracking number: ESTTA994262 Filing date: 08/12/2019
IN THE UNITED STATES PATENT AND TRADEMARK OFFICE BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD Proceeding 91222422 Party Plaintiff Monster Energy Company Correspondence DIANE M REED AND JONATHAN MENKES Address KNOBBE MARTENS OLSON & BEAR LLP 2040 MAIN ST, 14TH FLOOR IRVINE, CA 92614 UNITED STATES [email protected], [email protected], [email protected], [email protected] 949-760-0404
Submission Testimony For Plaintiff Filer's Name Hans L. Mayer Filer's email [email protected], [email protected] Signature /Hans L. Mayer/ Date 08/12/2019 Attachments 2019-08-08 Testimony Declaration of Rodney Sacks - REDACTED - HAN- BEV.3315M.pdf(1025668 bytes ) Sacks Ex. 01 - article excerpts_Part1.pdf(5633755 bytes ) Sacks Ex. 01 - article excerpts_Part2.pdf(5530910 bytes ) Sacks Ex. 01 - article excerpts_Part3.pdf(5649660 bytes ) Sacks Ex. 02 - Amazon.com_Part1.pdf(5413450 bytes ) Sacks Ex. 02 - Amazon.com_Part2.pdf(1864078 bytes ) Sacks Ex. 03 - MEC beverage products.pdf(5231285 bytes ) Sacks Ex. 04 - 10-k excerpts_Part1.pdf(5623962 bytes ) Sacks Ex. 04 - 10-k excerpts_Part2.pdf(5636985 bytes ) Sacks Ex. 04 - 10-k excerpts_Part3.pdf(5747580 bytes ) Sacks Ex. 04 - 10-k excerpts_Part4.pdf(5317648 bytes ) HANBEV.3303M/3315M/3702M/4359M TRADEMARK
IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
) MONSTER ENERGY COMPANY, ) Opposition Nos.: 91222422 (Parent) ) 91222445 Opposer and Counterclaim Defendant, ) 91226092 ) 91228458 v. ) ) Serial Nos.: 86480573, 86480603, MAPLE LEAF SPORTS & ENTERTAINMENT ) 86480655, 86480693, 86480716, LTD. and NBA PROPERTIES, INC., ) 86480739, 86480248, 86480297, ) 86480313, 86480332, 86480362, Applicants and Counterclaim Plaintiffs. ) 86480532, 86480507, 86480488, ) 86480463, 86480434, 86480405, ) 86480388, 86641420, 86641438, ) 86641393 ) ) Marks: ) ) ) )
TESTIMONY DECLARATION OF RODNEY SACKS
I, Rodney Sacks, declare as follows:
1. I am the Chairman and Chief Executive Officer of Monster Beverage Corporation
and its subsidiaries including Monster Energy Company. Monster Beverage Corporation is a
publicly traded company and its subsidiaries have over 3,000 employees. Monster Energy
Company (“Monster”) is the Opposer in the above-identified Opposition proceedings. I have
personal knowledge of the facts set forth below. If called upon and sworn as a witness, I could
and would competently testify as set forth below.
-1- 2. Since 1990, I have acted as, and continue to act as, the Chairman and Chief
Executive Officer of Monster. In that capacity, I am responsible for, and am actively involved, on a full time basis (both directly and indirectly), in all aspects of the business including, but not limited to, product and business development, manufacturing and operations of the business, and pricing, packaging, marketing, promoting and distributing the company’s products. I am intimately involved in all business decisions relating to the development of new products, the launching and sale of products, including marketing and licensing of Monster’s trademarks, as well as expansion plans and overall U.S. and international growth strategy for Monster. I am also responsible for deciding which trademark applications to file and for dealing with all issues relating to trademark protection and enforcement.
MONSTER ENERGY COMPANY - HISTORY
3. Monster is a leader in the energy drink market and develops famous brands. In
2002, Monster first sold its MONSTER ENERGY® drink, bearing its now-famous m ® (the “Claw Icon”) trademark. Monster has continuously used the Claw Icon in connection with beverages, apparel, and numerous other products and services since that time.
4. Monster has been acknowledged as a leader in the industry receiving recognition and awards including, but not limited to: “Beverage Company of the Year” by The Beverage
Forum in 2004 and again in 2006 and “Large Beverage Company of the Year” in 2009; Forbes’
“Top 200 Best Small Companies” in 2000, 2004, 2005, 2006, and 2007, ranking Monster as the
#1 Best Small Company in 2005 and 2007, and the #2 Best Small Company in 2006; Fortune
Magazine’s “100 Fastest Growing Companies” in 2005, 2006, 2007, and 2008, ranking Monster as the #2 Fastest Growing Company in 2006 and 2007; Business Week’s “Hot Growth
Companies” in 1999, 2005, 2006, and 2008, ranking Monster as the #2 Hot Growth Company in
-2- 2006 and the #1 Hot Growth Company in 2008; the Annual Packaging Global Design Award in
2001 and 2002; “Liquid Refreshment Company of the Year” by Beverage World in 2012; and
“One of the Most Innovative Companies” by Forbes in 2014 and 2015. Monster’s executive team has also received significant acclaim for its accomplishments, including: Beverage Forum’s
2012 Lifetime Achievement Award, which was presented to me and Monster’s Vice Chairman and President, Hilton Schlosberg and Beverage Industry’s 2011 Executive of the Year award, which was presented to me. Attached hereto as Exhibit 1 are true and correct copies of excerpts from articles in Fortune, Forbes, Beverage Industry, Soft Drinks International, Beverage World and BusinessWeek regarding Monster’s success.
MONSTER ENERGY COMPANY’S TRADE MARKS
5. Monster’s brands, including its famous Claw Icon and its MONSTERTM and
MONSTER ENERGY® brands used in connection with the MONSTERTM and MONSTER
ENERGY® line of beverages, are well-known throughout the United States and internationally.
MONSTER ENERGY PRODUCT DEVELOPMENT AND LAUNCH
6. In April 2002, my Company launched its MONSTER ENERGY® drink in 16 oz. cans. Since then, Monster’s beverage line has been tremendously successful. Sales have increased every year since the brand’s launch. Worldwide retail sales of my Company’s drinks now exceed 4 billion cans per year. Each can of the MONSTER ENERGY® beverages bears the Claw Icon.
7. By 2003, Monster’s beverages were being sold in all 50 states in gas stations, convenience stores, gyms, health food stores, independent stores, grocery stores, mass merchandisers such as Costco, Wal-Mart, and Target and drug stores such as CVS and
Walgreens. Monster’s MONSTERTM line of drinks are now sold by well over 300,000 retail
-3- stores all over the country. Monster’s MONSTERTM line of drinks are also sold by on-premise
retailers such as bars, restaurants, and coffees shops. Monster’s MONSTERTM line of drinks are
also sold online, including on amazon.com, walmart.com, and monsterarmy.com. Attached
hereto as Exhibit 2 is a true and correct copy of a printout from amazon.com showing Monster’s
MONSTERTM line of drinks and other Monster-branded items for sale.
8. Today, my Company sells and/or is aware of third party sales of the MONSTER
energy drinks to consumers throughout the United States, and over one hundred nations and
territories throughout the world.
9. Over time, Monster has expanded the range of products sold under the Claw Icon.
Indeed, Monster’s product line bearing the Claw Icon includes or has included beverages such
as: original Monster Energy® and Lo-Carb Monster Energy®; Monster Assault®; Juice Monster®
Khaos®; Juice Monster® Ripper®; Juice Monster® Pipeline Punch®; Monster Energy® Import;
Punch Monster® Baller’s BlendTM; Punch Monster® Mad Dog™; Monster Energy® Unleaded™;
Monster Energy Absolutely Zero®; Monster Energy Zero Ultra®; Monster Energy Ultra Blue®;
Monster Energy Ultra Red®; Monster Energy Ultra Black®; Monster Energy Ultra Citron®;
Monster Energy Ultra Sunrise®; Monster Cuba-Lima®; Ubermonster®, which is a bio-activated non-alcoholic energy brew produced using brewing technology which converts sugar into organic acids; Monster Rehab® which is a line of non-carbonated energy drinks, which includes
Monster’s Monster Rehab® Tea + Orangeade + Energy, Monster Rehab® Tea + Pink Lemonade
+ Energy, Monster Rehab® Tea + Lemonade + Energy, Monster Rehab® Raspberry Tea +
Energy, and Monster Rehab® Peach Tea + Lemonade; Java Monster®, which is a line of dairy based coffee plus energy drinks; Muscle Monster®, which is a line of energy shakes; Monster
Energy Extra Strength Nitrous Technology®, which is a line of energy drinks with a blend of
-4- nitrous oxide and carbon dioxide to create a smoother energy drink; Caffé Monster®; Espresso
Monster®; and Monster MaxxTM, among others (referred to collectively as the “MONSTER line of drinks”). Attached hereto as Exhibit 3 are true and correct copies of images of representative samples of Monster’s beverage products.
10. Monster’s packaging for each drink varies slightly, but the MONSTERTM brand
remains consistent throughout the product line and the Claw Icon is prominently featured on the
front of the beverage containers.
MONSTER ENERGY® SALES AND REVNUE
11. Since 2002, Monster has sold over 18 billion cans bearing the Claw Icon resulting
in over $40 billion in total retail sales in the United States. Worldwide retail sales currently
exceed 4 billion cans per year. Monster’s sales from 2002 to 2014 of the MONSTER line of
drinks totaled more than $12 billion. In just the year 2013 alone, Monster’s sales of the
MONSTER line of drinks were nearly $2 billion. Attached hereto as Exhibit 4 are true and
correct copies of excerpts from Monster Beverage Corporation’s Form 10-K filings with the
Securities and Exchange Commission from 2002 through 2014.
12. Within ten years from launch, MONSTER™ became the number one energy
drink brand in convenience stores by unit volume, the best-selling energy drink overall in the
United States. As of July 2019, the MONSTER™ brand held approximately a by dollar value market share of the U.S. energy drink market. Monster now sells approximately- 2.5 billion cans of MONSTER-branded energy drinks per year in the U.S alone. Monster is now one of the
most recognized brands in the world today.
-5- OVERVIEW OF ADVERTISING, MARKETING AND PROMOTION
Marketing Strategy
13. Monster’s marketing strategy is not conventional in that Monster does not use direct television or radio advertising to promote the Claw Icon, but through its marketing strategy, the Claw Icon receives substantial and extensive exposure on television, on the Internet, in magazines, and at live events.
14. When Monster first launched its original MONSTER™ beverage in 2002,
Monster targeted its promotions toward certain activities that promoted the MONSTER™ brand and lifestyle. Those activities were sports events and athletes. Since then, Monster has allocated a significant portion of its marketing, advertising and promotional budget on athlete endorsements and sponsoring athletic competitions and other events.
15. Monster focuses on athlete endorsements and sponsoring athletic competitions in order to reach its primary target market of young adults aged 18 to 34 years old, primarily males.
However, the demographic of Monster consumers has expanded over time and MONSTER energy drinks are increasingly being consumed by more females as well as older persons. In addition to the actual contractual amounts paid to sponsor athletes and racing teams, Monster expends substantial amounts in supporting the sponsored athletes, teams and sports through point of sale materials, sweepstakes and give-a-ways, wrapping/branding the athletes’ vehicles, paying for the athletes travel expenses and by providing them with Monster-branded apparel (which almost always includes the Claw Icon), free products for sampling stations, and action sports gear bearing the Claw Icon. Further, Monster hires employees and outside companies to attend events to support and monitor the sponsored athletes and teams at every event and to provide hospitality and sampling of products to consumers.
-6- 16. Monster’s target market is not typically the targeted demographic of mainstream print media. Rather it is the indirect and non-traditional forms of advertising, such as sponsorship and product placement, which are instrumental in reaching this demographic. It is a far more credible and effective advertising if this demographic sees, for example, someone competing in a sports event that is meaningful to that demographic wearing a helmet and/or sports gear featuring the Claw Icon or a musician or festival where the performers are consuming beverages featuring the Claw Icon. This demographic thinks the brand is acceptable and legitimate because an athlete, that is, a credible peer who they look up to, endorses the product by wearing helmets bearing the Claw Icon and/or sports gear or consuming MONSTER energy drinks. They may have never seen the product or tasted it, but immediately characterize the product as legitimate.
This contributes to making the brand “cool.” For this reason, the sponsorship of athletes is more important than the sponsorship of events. Monster obviously sponsors events as well, but with the latter, the target market is more likely to associate the titled sponsors of the event with large corporations and may be more skeptical about the product. The sponsorship of credible athletes who compete in events is the most effective marketing tool. Also for this reason, Monster has approved the distribution of Monster-branded apparel and merchandise. If someone from our target demographic sees, for example, a person they think highly of or even aspire to be, wearing
Monster-branded clothing at a motocross race, the message conveyed thereby, is better than a paid advertisement on television, again, because it is more credible.
17. Monster has widely advertised, marketed and promoted its MONSTER energy drinks bearing the Claw Icon through the sponsorship of athletes and athletic competitions around the world (which includes vast media and Internet coverage), on apparel and merchandise bearing the Claw Icon distributed in retail outlets, in magazines, on the MONSTER ENERGY
-7- and other Internet websites, through social media such as its Facebook page, in publications, through the sponsorship of music festivals and musicians, and through the distribution of point of sale (“POS”) and promotional materials.
18. The MONSTER energy drinks are the subject of substantial and continuous advertising, marketing, and promotion. Since 2002, Monster has spent approximately $6.2 billion in promoting its MONSTERTM brand. From 2002 to 2014, Monster spent over $2.6 billion in promoting its MONSTERTM brand. In 2013 alone, Monster spent over $426 million in advertising and promoting its MONSTER brand. And in 2018, Monster spent approximately
$943 million in advertising, marketing and promoting its MONSTER brand. Monster spends approximately million per year on athlete and event sponsorships and the Claw Icon is prominently featured- through these sponsorships.
19. Almost without exception, since 2002, Monster’s advertisements and promotions for its MONSTER energy drinks have featured the Claw Icon. As a result, the distinctive Claw
Icon has developed into a famous identifier of Monster Energy Company and its high quality, premium MONSTER energy drinks in the United States.
20. Furthermore, Monster allocates a large proportion of its marketing, advertising, and promotional budget on athlete endorsements and sponsoring athletic competitions and other events. In particular, Monster’s marketing focus includes events, including but not limited to events which are webcast on the Internet where our target market of young males spends a great deal of time. Such marketing and promotional activities include but are not limited to sponsorship of NASCAR; Road Racing World Championship Grand Prix (“MotoGP”) events, including MotoGP’s Grand Prix de France and GP Monster Energy de Catalunya; the Monster
Energy Yamaha Tech 3 Moto GP racing team (as the title sponsor); the Yamaha Factory Racing
-8- MotoGP Team (as its official energy product sponsor) with its renowned Moto-GP racers
Valentino Rossi (nine-time MotoGP Grand Prix World Champion; seven-time champion in the premier class) and Jorge Lorenzo (five-time MotoGP Grand Prix World Champion; three-time in the premier class); the Mercedes AMG PETRONAS F1 racing team (formerly the Mercedes GP
PETRONAS Formula One racing team) that competes in the FIA Formula One World
Championship Series (“F1”) with its current team drivers Lewis Hamilton and Nico Rosberg; the
Yamaha MX1 and MX2 motocross teams; the AMA Supercross Series (as the title sponsor for all 16 series races); the Ultimate Fighting Championship (“UFC”); and sponsorship and promotion of music festivals, music events, and musicians as explained in more detail below.
21. By sponsoring athletes and events, widespread and global exposure of the Claw
Icon is created. The Monster sponsored athletes’ exploits are followed avidly by those attending the events, and by many more viewers that watch the television and webcasts of these events and follow the sports. The sponsored athletes, teams and musicians create enormous public exposure and awareness of the Claw Icon.
22. The above marketing and promotional activities have included, but are not limited to, the following:
SPONSORSHIP OF ATHELES, TEAMS AND EVENTS
23. Viewers of Monster sponsored sports events are exposed to the Claw Icon throughout the entire duration of these events; especially those viewers in close proximity to the race action, for example (and depending on the event) on banners lining the track, on the press backdrop, the podium backdrop, the race starting bridge and grid wall, athlete uniforms and athlete equipment. In addition to exposure on television, the Claw Icon receives exposure on the
Internet and in printed publications covering the events.
-9- 24. Further, Monster uses its employees and outside companies to provide hospitality at these events. Monster uses black trucks that have been “wrapped” with the Claw Icon and other promotional vehicles at events where we offer samples of our products to consumers. In light of the fact that the sports Monster sponsors are usually male-dominated, Monster uses
“Monster Girls” at events to attract attention and add glamour and entertainment to the events and Monster Ambassador Team members (“MAT’s”) to give out free samples of MONSTER energy drinks and Monster-branded merchandise.
25. Monster’s sponsorship of sporting events also involves the Claw Icon being prominently displayed at the events on banners, posters, signs, and on clothing and accessories sold at the events, on transport, support and hospitality tractor trailers, on motor homes and promotional vehicles that tour the circuit for various sports. Attached hereto as Exhibit 5 are images of Monster’s Claw Icon featured at various events.
26. In addition to sponsoring events themselves, Monster also sponsors sports teams and professional athletes. When Monster sponsors an athlete, both sides agree that the athlete’s clothing, gear, and equipment will display certain elements of Monster’s brand. When Monster sponsors a motorsports athlete, the athlete’s vehicle will often be wrapped in black and green and have Monster’s Claw Icon on the vehicle. If the athletes are motorcycle riders, their helmet will often display Monster’s Claw Icon, and they may also bring a MONSTERTM beverage or water bottle with them on stage if they win the race.
-10- Stadium/Venue Sponsorship
27. Monster prominently displays the Claw Icon in the outfield of the Los Angeles
Angels’ stadium, and thus the mark is seen by attendees as well as television viewers of about
80-90 games per year. Monster also had sponsorship rights with the Arizona Cardinals in 2010, which included the right to display the Claw Icon at the Arizona Cardinals’ stadium and the right for Monster to identify itself as a “Proud Partner of the Arizona Cardinals.” In 2009, MEC had sponsorship rights with the San Diego Chargers which included the right to display the Claw
Icon in various media at the San Diego Chargers’ stadium. In 2008 and 2009, MEC entered into a sponsorship agreement with Major League Lacrosse (“MLL”) which included the right to prominently display the Claw Icon at various events in the fan zone. Attached hereto as Exhibit
6 is a true and correct copy of a photograph of the Claw Icon displayed at Angels’ stadium.
28. Monster also has an On-Premise Partnership Marketing Agreement with the
Wells Fargo Center where the Philadelphia 76ers NBA team plays and the Philadelphia Flyers
NHL team plays, and MEC was the “Official Energy Drink of the Wells Fargo Center” for the
2014/2015, 2015/2016, and 2016/2017 seasons. Through this agreement, the Claw Icon received
LED exposure in the inner bowl of the Wells Fargo Center during pregame and intermission of all Philadelphia Flyers’ home games. Further, Monster had outdoor Kiosks for its products which prominently displayed the Claw Icon at the Wells Fargo Complex, and NBA and NHL fans saw these Kiosks when they attended events at the Wells Fargo Complex. In addition,
Monster previously sponsored the MONSTER ENERGY® Noise Meter at Detroit Pistons’ games at the Palace of Auburn Hills. The Claw Icon was prominently displayed on the noise meter shown on the large screen at the games, and the noise meter was shown approximately 3-4 times per game. Attached hereto as Exhibit 7 are true and correct photographs of the Claw Icon
-11- displayed at the Palace of Auburn Hills. The Claw Icon has also been prominently displayed on the Zamboni during Anaheim Mighty Ducks NHL hockey games. Attached hereto as Exhibit 8 is a screenshot of NHL.com showing a photograph of the Claw Icon displayed on the Zamboni during Anaheim Mighty Ducks NHL hockey games.
29. Monster has also sponsored several events which have been held at venues where
NBA teams play or have played. For example, in 2011, Monster sponsored a Street League
Skateboarding event at the Sprint Center in Kansas City, Missouri where the NBA has held preseason games. Attached hereto as Exhibit 9 is a true and correct copy of an excerpt from
Monster’s email recap dated June 15, 2011 regarding the Monster Street League event at the
Sprint Center in Kansas City, Missouri. Also, in 2013, Monster sponsored a Street League
Skateboarding event at the Rose Garden where the Portland Trailblazers NBA team plays. The
Claw Icon was prominently displayed at those events.
30. On July 17, 2018, Monster sponsored the 50K Charity Challenge Celebrity
Basketball Game at the historic Pauley Pavilion in the UCLA campus. Notable participants and attendees included Blake Griffin (NBA), Andre Drummond (NBA), Maria Menounos (TV Host),
Floyd Mayweather (Boxer), Lindsay Arnold (Dancing with the Stars), Terrell Owens (NFL),
Colton Underwood (NFL/The Bachelorette), Nick Viall (The Bachelorette), Kendra Wilkinson
(Reality TV Personality). The Claw Icon was featured in marketing materials and also inside the stadium on banners as well as the players’ jerseys.
-12- Sports Sponsorship
X Games
31. The X Games and the Winter X Games are annual events for extreme sports. The
X Games and Winter X Games take place in the U.S. Monster sponsored athletes compete in the
Games wearing apparel and using equipment and helmets bearing the Claw Icon.
32. In 2014, Monster’s MONSTER ENERGY® brand became the presenting sponsor of the 2014 Winter and Summer X Games. Through this sponsorship, Monster’s trade marks were prominently featured throughout the Winter and Summer X Games in course branding for all events, on commercials for the event and during the commercial free portion brought to viewers by my Company, and integrated throughout the event’s TV broadcast and Internet coverage.
33. Over the years, hundreds of millions of viewers are estimated to have watched the television broadcasts of the X Games and Winter X Games on major media outlets such as the
ABC and ESPN television networks. The 2007 X Games received 13 hours of coverage on the
NBC and ESPN networks and was broadcast in 190 countries. The 2008 Winter X Games received 17 hours of coverage on the NBC and ESPN networks and was also broadcast in 190 countries. For the 2010 X Games 16, ESPN Mobile TV carried 28 hours of live coverage and X
Games 16 was delivered to more than 382 million homes and telecast live to 175 countries and territories. Also in 2011, ESPN aired 29 hours of content on ESPN digital platforms which helped generate record multimedia growth and the largest digital audience ever for an X Games event. In addition, 37 million people watched the 25 hours of live X Games coverage on ESPN and ESPN2, up 6% from 2010. The 2012 X Games 18 included 29 hours of content on ESPN all produced in High Definition, 21 hours aired live on ESPN3D viewed by 37 million individuals
-13- worldwide, and 36% more Mobile Web visitors than 2011. The 2014 X Games were televised in more than 215 countries and territories and viewed in more than 410 million homes. The 2015
Winter X Games telecasts reached about 30.5 million viewers worldwide. Since 2010, ESPN’s
Facebook page featured a daily X Games photo gallery, video content, athlete chats, and a daily morning and afternoon show. Event “wrap ups” were also featured on www.espneventwrapups.com.
34. According to data published on ESPN’s website (the owners and operators of the
X Games), the 2013 Winter X Games set new records for attendance and television ratings with approximately 114,500 spectators attending the 4-day event in Colorado and approximately
117,000 attending in France. In many years, the Winter X Games has been ESPN’s highest- rated and most viewed event, with more than 35 million viewers on ABC Sports, ESPN, and
ESPN2. In 2013, there were approximately 326,000 daily unique visitors to XGames.com during the four-day event and users spent a total of 25.6 million minutes on the site. The X
Games Facebook page gained more than 54,000 fans during the four days of the 2013 Winter X
Games, and currently has more than 5 million fans. More than 212,000 people engaged with the
X Games Facebook page each day during the 2013 Winter X Games. In excess of 15 million viewers are estimated to have watched the television broadcasts of each of the 2006, 2007, 2008,
2009 ESPN Winter X Games on ABC Sports, ESPN, and ESPN2. A similar number of viewers are estimated to have watched the television broadcasts of each of the 2005, 2006, 2007, 2008, and 2009 Summer X Games. Monster-sponsored extreme athletes, with gear and equipment bearing Monster’s Claw Icon, participated in all of these games. Monster-sponsored athletes were awarded medals in a number of events, further promoting the MONSTERTM brand and the
Claw Icon, which are displayed on the athlete’s gear during competition. Attached hereto as
-14- Exhibit 10 is a copy of an LA Times article regarding Monster-sponsored athlete Josh Hansen
winning gold in the Super X event at the 2010 X Games.
35. At the 2016 X Games, Monster sponsored athletes won 19 medals, including 6
gold, 8 silver, and 5 bronze. At the 2016 Winter X Games, Monster sponsored athletes won 13
medals, including 7 gold, 5 silver, and 1 bronze. At the 2015 Summer X Games, Monster
sponsored athletes won 19 medals, including 7 gold, 4 silver, and 8 bronze. At the 2015 Winter
X Games, Monster sponsored athletes won 11 medals, including 2 gold, 6 silver, and 3 bronze,
and including Monster-sponsored athlete Tucker Hibbert’s 100th Pro National Snocross victory.
At the 2015 Summer X Games, Monster sponsored athletes won 19 medals, including 7 gold, 4
silver, and 8 bronze. At the 2014 Winter X Games, Monster sponsored athletes won 15 medals,
including 5 gold medals. At the 2014 Summer X Games, Monster sponsored athletes won 9
medals, including 3 gold medals. At the 2013 Winter X Games, Monster sponsored athletes won
16 medals, including 3 gold medals.
36. Monster-sponsored extreme athletes who participated in the X Games and were
awarded medals further promoted the Claw Icon. In addition, Monster sponsored athletes
appeared on television, resulting in the prolific exposure of the Claw Icon.
---UFC
37. As of 2015, Monster has sponsored the UFC as its official energy drink partner
(excluding in Brazil). The UFC is the world’s premier and largest mixed martial arts
organization, which features the top ranked fighters in the sport. UFC events are available for
viewing worldwide through pay-per view television. MONSTER branding, including the Claw
Icon, appears on the UFC’s Octagon center canvas and the fighter gate vertical bumpers for all
live UFC events, excluding those which take place in Brazil. In addition to sponsoring the UFC,
-15- Monster sponsors specific UFC fighters in their individual capacity. Monster’s sponsored athletes include or have included, for example, Daniel Cormier, former light heavyweight champion in the UFC, Ronda Rousey, former UFC women’s bantamweight champion and
Connor McGregor, former featherweight champion in the UFC, and these sponsorships create further exposure for the Claw Icon which appears on the fighters’ fight uniforms. Attached hereto as Exhibit 11 is a screenshot from Monster Energy’s website regarding its sponsorship of
Connor McGregor and also images of the Claw Icon appearing within the fighter gate vertical bumpers.
NASCAR
38. Monster also is heavily involved in NASCAR. Since at least as early as 2004,
Monster has sponsored NASCAR drivers. In 2004, Monster sponsored NASCAR driver Gene
Woods. Monster promoted its sponsorship of Gene Woods on its website.
39. Monster has sponsored athletes and teams who compete in various classes of
NASCAR racing. For example, Monster has been the long-time sponsor of Ricky Carmichael who transitioned from being one of the world’s greatest Supercross and Motocross racers to a
NASCAR truck driver. Mr. Carmichael prominently promotes the Claw Icon. In addition,
Monster has sponsored NASCAR drivers Kyle Busch, who holds several records in NASCAR racing, and Kurt Busch, who is also a NASCAR driver and winner of the 2010 All-Star Race and the 2004 Sprint Cup. Monster has sponsored the Joe Gibbs Racing team, a group of NASCAR racing teams of which Kyle Busch is a member. Through Monster’s sponsorship of NASCAR drivers and the Joe Gibbs racing team, Monster prominently promoted its Claw Icon and products through the drivers’ race suits, helmets, cars and the crew’s gear both at events and event broadcasts on television.
-16- 40. NASCAR is one of the most popular sports in the U.S. and receives extensive coverage in television, print media, and on the internet. Monster also promotes its sponsored
NASCAR drivers on Monster’s websites and social media. Because of Monster’s NASCAR sponsorships, both Monster’s customers and the fans of the drivers associate Monster’s brand with NASCAR and motorsports generally.
41. In 2017, Monster became the title sponsor of NASCAR’s premier series, which is now called the MONSTER ENERGY NASCAR Cup Series. The series includes 36 races that take place in cities across the United States. Monster’s sponsorship of the MONSTER
ENERGY NASCAR Cup Series receives tremendous media exposure.
42. Since becoming the title sponsor of NASCAR, the Claw Icon appears on the windshield of every car that races at the events, on the quarter panel of each race vehicle, on the pace cars, and on the uniforms of all drivers. In addition, the Claw Icon is incorporated into the series logo. Attached as Exhibit 12 is a website printout of Monster’s website, which includes a photo showing the number 54 car prominently featuring the Claw Icon. Attached as Exhibit 13 are true and correct copies of images showing Monster sponsored NASCAR cars and drivers.
43. In addition to the sponsorship of the NASCAR series, Monster licenses its trademarks, including the Claw Icon, to NASCAR for use on a wide variety of products, including beverage ware and tumblers, hats, clothing, flags, die cast cars, stickers, decals, keychains and lanyards, among other products. Attached hereto as Exhibit 14 is a website printout from NASCAR’s online store featuring a hat bearing the Claw Icon.
-17- Team MONSTER ENERGY Alpinestars Kawasaki
44. In 2009, Monster became the title sponsor of the Leading Edge motocross team, and this title sponsorship continues to this day. The team was originally named Team
MONSTER ENERGY Leading Edge Kawasaki, but is now called Team MONSTER ENERGY
Alpinestars Kawasaki. In addition to the benefits of being the team’s title sponsor, Monster also benefits from having its Claw Icon on the team’s racing suits, the team’s motorcycles, and the team’s transport vehicles during each race.
Formula One Racing (“F1”)
45. From March 2010 to date, Monster has sponsored the MERCEDES AMG
PETRONAS F1 Team (formerly named the MERCEDES GP PETRONAS Formula One Team) that races in the FIA Formula One World Championship Series.
46. Since March 2010, the Claw Icon has received significant exposure from sponsorship of the MERCEDES AMG PETRONAS F1 racing team (with its drivers at the time,
Nico Rosberg and seven-time World Champion Michael Schumacher). As part of the sponsorship, the distinctive Claw Icon is prominently featured on the helmets of the team’s drivers and on the silver race suits. Following Schumacher’s retirement in 2012, driver Lewis
Hamilton joined the MERCEDES AMG PETRONAS F1 racing team and competes alongside teammate Nico Rosberg.
47. Formula 1 is one of the world’s most popular sports. The entire F1 race series receives extensive television coverage worldwide. Based on information that has been provided to Monster by REPUCOM (formerly IFM Sports Marketing Surveys), F1 Racing season had a global television audience of 1.92 billion viewers for the 2010 season, 1.79 billion viewers for
-18- the 2011 season, 2 billion viewers for the 2012 season, 1.81 billion viewers for the 2013 season, and 1.58 billion viewers for the 2014 season, and 1.52 billion viewers for the 2015 season.
48. Team drivers Hamilton and Rosberg’s strong performances during the racing season, and their ensuing appearances on the podium, lead to excellent exposure of the Claw
Icon in television coverage, and for the hundreds of thousands of spectators present at the race circuits, and the millions that view the events and event coverage on television and the Internet.
In 2010, Nico Rosberg finished in third place at the Malaysian Grand Prix, the Chinese Grand
Prix, and the British Grand Prix. In 2012, Nico Rosberg finished in first place at the Chinese
Grand Prix and second place at the Monaco Grand Prix, and Michael Schumacher finished in third place at the European Grand Prix. At both the 2013 Malaysian Grand Prix and Chinese
Grand Prix, Lewis Hamilton finished in third place. Also in 2013, Lewis Hamilton finished first at the Hungarian Grand Prix, third at the Canadian Grand Prix, and third at the Belgian Grand
Prix. In addition, in 2013, Nico Rosberg finished first at the Monaco Grand Prix and the British
Grand Prix, second at the Indian Grand Prix, and third at the Abu Dhabi Grand Prix.
49. The team dominated the 2014 season and helped Mercedes win its first ever
Formula One Constructors Championship (awarded to the makers of the F1 Chassis that scores the most points). Team driver Hamilton claimed his second world title after finishing in first place in eleven of the eighteen races for the season (Malaysia, Bahrain, China, Spain, England,
Italy, Singapore, Japan, Russia, the United States and Abu Dhabi) and second in Monaco,
Austria and Brazil. Rosberg finished in first place in Australia, Monaco, Austria, Germany and
Brazil, and in second place in Malaysia, Bahrain, China, Spain, Canada, Belgium, Italy, Japan,
Russia and the United States, and finished in second place overall for the 2014 season. The team also dominated the 2015 season with either Hamilton or Rosberg winning sixteen of the nineteen
-19- races, and these strong results helped Mercedes win its second Formula One Constructors
Championship. Team driver Hamilton claimed his third world title after finishing in first place
in ten of the nineteen races for the season (Canada, Australia, China, Bahrain, England, Belgium,
Italy, Japan, Russia, and the United States) and second in Malaysia, Spain, Austria, Mexico,
Brazil, and Abu Dhabi. Rosberg finished in second place overall with first place finishes in
Spain, Monaco, Austria, Mexico, Brazil, and Abu Dhabi and second place finishes in Canada,
Australia, China, England, Belgium, Japan, and the United States.
50. Monster’s sponsorship of the MERCEDES AMG PETRONAS Formula 1 team
has given tremendous worldwide exposure to Monster’s Claw Icon.
MotoGP
51. MotoGP is the premier motorcycle racing World Championship. It consists of an
18-race or 19-race series taking place in 14 countries on 4 continents (13 countries in 2014) with
pan-global television coverage.
52. Monster has been involved in MotoGP, either through the sponsorship of
individual racers or racing teams, since at least 2007. Monster Energy is the title sponsor of the
Monster Energy Grand Prix de France and GP Monster Energy de Catalunya.
53. The MONSTER Yamaha Tech 3 Team competes in the MotoGP World
Championship events, as well as The Yamaha Factory Team (Monster is the official energy
product sponsor). In 2010, then current team rider Ben Spies achieved his 8th top-five finish and secured Rookie of the Year. Colin Edwards had a top-10 finish at one of the 2010 events.
Monster sponsored athlete Valentino Rossi is a nine-time MotoGP World Champion (seven times in the premier class) and placed second in 2014 and 2015 and third in 2010. Monster has also sponsored Rossi as an individual professional athlete since 2009. Monster sponsored athlete
-20- Jorge Lorenzo is a five time MotoGP World Champion (three times in the premier class) and placed second in 2009, 2011, and 2013, third in 2014, and first in 2015. The Monster sponsored
Tech 3 MotoGP Team of Colin Edwards and Cal Crutchlow was the best non-factory team in
2010, with Cal Crutchlow winning MotoGP Rookie of the Year honors.
54. The MotoGP.com Official Website displays extensive information about all of the
MotoGP events, including pictures of Monster-sponsored athletes wearing Monster-branded gear. MotoGP also has a Facebook page (facebook.com/MotoGP) that includes pictures and videos of Monster-sponsored athletes wearing gear bearing the Claw Icon.
55. As a sponsor of one of the MotoGP events, Monster receives a report of the
MotoGP Audience Data. According to the data provided to me for the MotoGP World
Championship Events:
a. MotoGP attracts a young audience with 70% being less than 35 years old. These
viewers watch an average of 14 races on TV throughout the 18 to 19 race season
and nine out of 10 of them would tend to choose a brand because they associate it
with MotoGP;
b. For the period of 2009 through 2015, 207 countries received live TV broadcasts
of the MotoGP events, reaching between 226 and 291 million homes via
cable/satellite TV Networks, including homes in the United States; and
c. Significant portions of the qualifying practices and the race day events for all
MotoGP events were aired live in many countries reaching millions of viewers.
-21- 56. The viewers’ loyalty in our key target demographic is an important factor when considering viewers exposure to the Claw Icon. Attached hereto and marked as Exhibit 15 is a copy of the MotoGP Audience Data for 2010.
57. Viewers of MotoGP Events are exposed to the Claw Icon throughout the entire weekend event in close proximity to the race action, including on banners lining the track, on the press backdrop, the podium backdrop, the starting bridge and grid wall, athlete uniforms and athlete equipment. For example, attached hereto as Exhibit 16 is a copy of an article dated
February 7, 2011 regarding Valentino Rossi having won the 2011 Laureus Award. The article shows Rossi at a press conference wearing a hat bearing the Claw Icon. In addition to exposure on television, the Claw Icon receives further exposure on the Internet and in printed publications covering this event.
MONSTER ENERGY AMA Supercross Series
58. In 2008, Monster became the title sponsor of the MONSTER ENERGY AMA
Supercross Series. Monster has continually sponsored the event since that time. Supercross is a motorcycle racing sport involving off-road motorcycles on an artificially-made dirt track with steep jumps and obstacles. The MONSTER ENERGY AMA Supercross Series consists of 16 events held throughout the USA and in Toronto, Canada. Monster’s Claw Icon receives tremendous exposure at each of the MONSTER ENERGY AMA Supercross Series events, including:
a. The Claw Icon signage at the start and finish lines;
b. Posters, banners, and hanging curtains containing the Claw Icon at the entrance to the
events;
c. Banners bearing the Claw Icon line a substantial part of the entire track;
-22- d. The pit area includes a huge display of the Claw Icon and samples of the MONSTER
energy drinks are given out;
e. Monster sponsored riders wear the Claw Icon on their uniforms, bikes, helmets, and
drink MONSTER energy drinks at the events; and
f. the Claw Icon appears on the clothing of the girls who lead the winners of the awards
to the stage.
59. In fact, the majority of the promotional materials at each of these events display
the Claw Icon. Attached hereto as Exhibit 17 are true and correct photos of the Claw Icon being
featured on banners and at a start lines at Supercross events.
60. Each year since 2007, the Supercross events have been broadcast on television.
The 2011 and 2012 seasons were broadcast on SPEED and CBS Sports, including eight live broadcasts on SPEED in 2011. In 2012 there was a total of 99 broadcast hours on CBS and
SPEED. The nine 1-hour broadcasts on CBS in 2012 had an average viewership of 738,889 households per broadcast, and the six 1-hour broadcasts on SPEED in 2012 reached 196,063 households per broadcast. SPEED also aired 28 3-hour broadcasts (including repeats) which had an average of 238,600 homes per original live broadcast. CBS Sports also aired three one-hour specials featuring Monster sponsored athlete Ricky Carmichael and other athletes. Television viewership ratings on SPEED were up more than 24% in 2011 and the nine hours of coverage on
CBS Sports had a 21% increase in ratings, with more than 20 million viewers watching the
Supercross events on television in 2011. As confirmed by the event promoter, Feld Motor
Sports, in November 2011: “Internationally, Monster Energy Supercross was broadcast in 181 countries.” (http://www.supercrossonline.com/News/Headlines/2011/11/22/1/ (last viewed
February 13, 2013)). The 2012 AMA Supercross Championship season featured 11 live
-23- broadcasts on SPEED. The 2013 AMA Supercross Championship season featured 13 live broadcasts on FOX Sports 1. The 2014 five-episode documentary series titled “Monster Energy
Supercross Behind the Dream” originally aired in the spring on 2014 and is now available for download on iTunes.
61. I am informed that live event attendance of the Supercross series has been as follows: (a) 778,994 in 2007; (b) 751,970 in 2008; (c) 739,585 in 2009; (d) 741,259 in 2010; (e)
774,191 in 2011; (f) 786,636 in 2012; (g) 803,480 in 2013; (f) 831,365 in 2014; and (g) 779,427 in 2015. I have attended the AMA Supercross and fans that attend these events cannot avoid seeing the Claw Icon, which dominates the signage at each event. In addition, millions of viewers around the globe follow the series and receive similar exposure to the Claw Icon.
Motocross fans can view photo galleries of the events and video footage at www.amamotocross.com and at www.supercrossonline.com. In 2009 and again in 2010, there were more than 6.5 million page views to the www.supercrossonline.com website including more than 1.5 million unique visitors. In 2011, those numbers grew to more than 11 million page views and more than 2.3 million unique visitors, in 2012, to more than 11.5 million page views and more than 3 million unique visitors, in 2013, to more than 16.5 million page views and more than 5.1 million unique visitors, in 2014, to more than 14 million page views and more than 3.6 million unique visitors, and in 2015, to more than 13 million page views and more than
2.7 million unique visitors. In addition, Supercross Live! was launched in 2013 to view live footage from the events and had more than 900,000 live views in 2013 with more than 490,000 unique visitors.
-24- 62. The www.supercrossonline.com website provides a live audio webcast of each event which is accessible to fans from around the world. As previously mentioned, the www.supercrossonline.com website looks like a MONSTER-branded website.
63. Monster has been a major sponsor of the Outdoor National Motocross Series in the USA.
64. As a sponsor of the above events, Monster’s Claw Icon has received and continues to receive tremendous exposure at the events and on television channels and press covering and reporting these events. For instance in 2008 alone, Monster’s sponsorship of
Supercross resulted in exposure of the Claw Icon on banners, trailers, athletes’ gear, and other promotional materials, to over three quarters of a million attendees and more than 15 million viewers on CBS and SPEED Channel broadcasts.
The Monster Energy Pipeline Pro
65. Monster sponsored the MONSTER ENERGY Pipeline Pro, a surfing event at the
Banzai Pipeline in Hawaii, from 2005 through 2009. Surfers from all over the world compete in this multi-day surfing competition. For example, in 2006, 162 professional surfers from 11 countries competed. In 2005 and 2006, all of the competitors wore vests bearing the Claw Icon.
Furthermore, the trophies awarded to the winners each year were in the shape of the Claw Icon.
Monster’s Claw Icon was also prominently promoted on banners, buildings, signs, equipment, and on the winners’ checks. Attached hereto as Exhibit 18 is an image of the Monster Energy®
Pipeline Pro event. Attached hereto as Exhibit 19 is a true and correct copy of a promotional material for the 2006 Monster Energy® Pipeline Pro event.
-25- 66. The competition also received extensive coverage in U.S. and international surf magazines such as Heavywater, Surfer, Surfing, and Transworld Surf. Attached hereto as
Exhibit 20 are true and correct excerpts from the Transworld Surf magazine showing coverage of the Monster Energy® Pipeline Pro surfing event. The event was also viewed live internationally via webcast at www.surfline.com. The Claw Icon is clearly visible. When one clicked on the
logo, it was also a link to the www.monsterenergy.com website. The website www.surfline.com
also contains articles regarding the event.
Billabong XXL Awards
67. The Billabong XXL Wave Awards, presented by Monster, are a series of awards
for the surfer who rides the biggest wave of the year, the surfer who rides the biggest tube of the
year and the surfer who rides the biggest wave of the year caught using arm power alone, based
on performances at various locations throughout the world. The Awards ceremony is broadcast
on the Internet worldwide. Monster sponsored the Awards under the Claw Icon from 2005 (that
is, for waves caught in the 2004/2005 calendar year) up to and including the 2012 Awards.
68. The Awards and the attempts throughout the year by surfers to win the Awards
have received enormous coverage on television, through webcasts, on various websites and in
magazines, including being televised repetitively on the station “Fuel TV” which is broadcast
internationally on pay television, and being webcast throughout the world at
www.BillabongXXL.com, which clearly showed the Claw Icon.
E-Sports
69. Since 2011, Monster has also sponsored E-sports (competitive video gaming)
events and teams. These events are live broadcast around the world and are viewed by millions
of people, specifically it is estimated in 2013 that over 71 million people watched an E-Sports
-26- event on-line. As a part of these sponsorships, the E-Sports teams sponsored by Monster have the Claw Icon on their uniforms and have a can of one of MONSTER energy drinks by their keyboard. Monster has sponsored teams such as Team Evil Geniuses (since 2011), Alliance
(since 2013), Team EnVyUs (since 2014), Fnatic (since 2015), ViCi Gaming (since 2016), and
Team Liquid (since 2016). Attached hereto as Exhibit 21 are screenshots featuring Monster
Energy’s gaming page and the teams EnVyUs, Alliance, Evil Geniuses and Fnatic.
70. In 2014, Monster also partnered with DreamHack, one of the world’s largest esports and gaming festivals. The DreamHack events have been held globally, including in
Austin, Las Vegas, Atlanta, and Denver.
Monster Ambassador Teams
71. Monster uses Monster Ambassador Team members (“MAT”) to give out free samples of MONSTER energy drinks and MONSTER-branded merchandise at events to promote the MONSTER brand. MAT members have conducted promotional giveaways of beverages and/or other items bearing the Claw Icon at NBA game locations and NBA event locations. For example, the San Francisco MAT team has conducted promotional giveaways of beverages bearing the Claw Icon at Oracle Arena in Oakland where the Golden State Warriors
NBA team plays and at the Golden State Warriors Victory Parade in June 2015. The Charlotte
MAT team has conducted promotional giveaways of beverages bearing the Claw Icon at the
Time Warner Arena where the Charlotte Hornets NBA team plays. The Los Angeles MAT team has conducted promotional giveaways of beverages bearing the Claw Icon at the Staples Center where the L.A. Lakers and L.A. Clippers NBA teams play, and the L.A. Sparks WNBA team plays. Attached hereto as Exhibit 22 is a copy of photos taken by the Los Angeles MAT team, including photos showing activities near the Staples Center. The Baltimore MAT team has
-27- conducted promotional giveaways of beverages bearing the Claw Icon at the Verizon Center where the Washington Wizards NBA team plays. The Dallas MAT team has conducted promotional giveaways of beverages bearing the Claw Icon at the American Airlines Center where the Dallas Mavericks NBA team plays. The Miami MAT team has conducted promotional giveaways of beverages bearing the Claw Icon at the American Airlines Center.
Attached as Exhibit 23 are true and correct photographs taken outside of that stadium during a
Miami Heat NBA game. The Houston MAT team has conducted promotional giveaways of beverages bearing the Claw Icon at the Toyota Center where the Houston Rockets play.
Attached hereto as Exhibit 24 is a copy of a document showing the Houston MAT team’s activities during the week of January 21, 2013. And the Toronto MAT team has conducted promotional giveaways of beverages bearing the Claw Icon at the Air Canada Center (now known as the Scotiabank Arena) where the Toronto Raptors NBA team plays. Attached hereto as Exhibit 25 is a copy of excerpts of an excel sheet showing the MAT team’s attendance at the
Air Canada Centre for a Raptors v. Washington Wizards NBA game. Attached hereto as Exhibit
26 is an email recapping the Toronto MAT team’s week from October 12-17, 2009 discussing sampling Monster products at a Raptors game.
Athletes
72. Monster sponsors over 200 sports athletes in connection with its MONSTER brand. Even though some Monster-sponsored athletes are international athletes and compete in overseas events, coverage of those athletes (and events) reaches the United States via the
Internet, television coverage, and magazines featuring these athletes which are distributed in the
United States. Examples of the professional athletes sponsored, or competing for teams that are
-28- sponsored by Monster under the Claw Icon are below. Attached hereto as Exhibit 27 are true and correct copies of images of sponsored athletes wearing gear bearing the Claw Icon.
73. Valentino Rossi and Jorge Lorenzo. Monster has sponsored world champion
MotoGP motorcycle racers Valentino Rossi since January 2009 and Jorge Lorenzo since January
2013. Rossi and Lorenzo are some of the most popular and successful motorcycle racers of all time, with nine (seven in the premier class) and five (three in the premier class) Grand Prix
World Championships respectively. Each MotoGP season consists of 18 events, all of which receive massive international media exposure. At each event, Rossi and Lorenzo wear sports gear bearing MONSTER branding. In 2011, Rossi was awarded the Laureus Academy
“Comeback of the Year Award.”
74. Tiger Woods. Monster began sponsoring Tiger Woods in 2016. Tiger Woods is one of the most successful and famous golfers in the world. In his storied career, Woods has won fourteen major championships, including the prestigious Masters Tournament, the U.S.
Open, The Open Championship, and the PGA Championship. Following a 15-month absence from competition due to injury, Woods competed in the Hero World Challenge in Albany, The
Bahamas on December 1-4, 2016. In 2018, Woods competed in the Valspar Championship and the PGA Championship, where he placed second. In September 2018, Woods finished in first place at the Tour Championship, held in Atlanta, Georgia. As a Monster sponsored athlete,
Woods uses a golf bag bearing the Claw Icon. Woods’ high profile return to competition and the subsequent broad, international media coverage of this event, as well as future golf tournaments
Woods will compete in, ensures that attendees and viewers will be exposed to the Claw Icon.
Attached hereto as Exhibit 28 are images of Woods at a press conference and of Woods with his
MONSTER-branded golf bag.
-29- 75. Rob Gronkowski. Monster began sponsoring former professional football player
Rob Gronkowski in 2015, which included releasing a new MONSTER ENERGY beverage called “Gronk.” Gronkowski spent his entire NFL career playing for the New England Patriots and is a three-time Super Bowl champion (XLIX, LI, LIII), a five-time Pro Bowl, four-time First
Team All-Pro selection, and was the highest ranked tight end in the NFL Top 100 Players five times. Attached hereto as Exhibit 29 is a photo of Gronkowski. Monster-branded gear, including umbrellas, shirts, and necklaces bearing the Claw Icon can be seen in this photo.
76. Robby Gordon. Robby Gordon was sponsored by Monster from January 2007 to mid-2010. Robby is a NASCAR and off-road racing driver, a six-time off-road champion and one of the most popular drivers on the NASCAR tour. In 2007, Robby Gordon joined Team
Dakar USA sponsored by Monster to compete in the Central European Rally, the first of the
Dakar series events and the world’s most challenging international off-road race. Robby Gordon was driving a MONSTER ENERGY Hummer H3 which was an all-black Hummer H3 emblazoned with the Claw Icon on the hood, roof and sides of the vehicle. The 2007 Dakar Rally was relocated to Central Europe due to threats of terrorism. Robby Gordon finished in second place in the first stage of the Central Europe Rally. Robby Gordon also competed in the 2008
Central Dakar Rally. The Claw Icon also appeared on the large support trucks present at the event and on tents constructed at the event. Samples of MONSTER energy drink were also handed out to fans. The Central European Rally was broadcast live on television. In addition,
Rally coverage was available at robbygordon.com and robbysuprising.com, including daily updates during the race.
-30- 77. Michael Schumacher. World Champion F1 racer Michael Schumacher (March
2010 through 2012). Schumacher is a 7-time World Champion and is widely regarded as one of the greatest F1 drivers of all time. Schumacher and the other members of the Mercedes AMG
PETRONAS F1 racing team (formerly the Mercedes GP PETRONAS Formula One racing team) wore racing helmets and silver race suits bearing the MONSTER branding.
78. Jenson Button. Monster personally sponsored World Champion Formula 1 racer
Jenson Button in 2009 (as opposed to Monster’s team sponsorship of the MERCEDES AMG
PETRONAS F1 racing team) when he won the World Championship while wearing racing gear prominently bearing the Claw Icon.
79. Ben Spies. Monster sponsored MotoGP racer Ben Spies (2010 to 2012). Spies was the 2010 MotoGP “Rookie of the Year.” Prior to 2010, Spies was the 2009 World
Superbike Champion in his rookie year. When Spies raced in MotoGP events in 2010 to 2012, he wore the Claw Icon on his helmet. In 2010, Spies also wore the Claw Icon on his uniform and on his bike.
80. Rob Dyrdek. Rob Dyrdek competed in skateboarding and is a worldwide celebrity from his reality series on MTV and MTV2 entitled “Rob & Big,” which aired November 2006 to
April 2008. In the 2008 season of “Rob & Big,” the cast was shown drinking MONSTER energy drinks on air. In addition, Dyrdek often wore apparel bearing the Claw Icon and had a
MONSTER-branded refrigerator stationed in the kitchen of his Hollywood home. Dyrdek has set 21 separate Guinness World Records for skateboarding as part of his show “Rob & Big.”
After three successful seasons, in February 2009 Rob launched a new show called “Rob
Dyrdek’s Fantasy Factory” which airs on MTV2. The “Fantasy Factory” is a converted warehouse decorated with the Claw Icon where Dyrdek runs his companies. Dyrdek also stars
-31- on another MTV show entitled Ridiculousness in which he regularly wears attire bearing the
Claw Icon. Dyrdek was also featured as a character wearing Monster-branded apparel in the video games “Skate” and “Skate 2,” which are distributed worldwide.
81. Dyrdek displays the Monster-branding on his skateboards, cap and wristband, and holds a can of one of the MONSTER energy drinks on the podium at sports events. In 2010,
Monster and retailer Zumiez launched a collaborative co-branded t-shirt featuring MONSTER branding to retail outlets with a portion of the proceeds going to the Rob Dyrdek Skate
Foundation.
82. Ken Block. Ken Block is a world-renowned rally car driver and personality recognizable around the globe. Block became a sponsored athlete of Monster in 2007. Currently,
Monster sponsors the Hoonigan Racing Division world rally team with Block as its driver and my Company formerly sponsored the MONSTER World Rally Team (with Block as its driver) and the Ken Block Rally Racing Team, which I discuss below. When Monster sponsored Block as an individual athlete, Block’s rally car, the team uniforms, Block’s racing gear and his helmet were all conspicuously and prominently branded with the Claw Icon. Block competed in the X
Games rally event (2007 through 2014, winning two silver and three bronze medals at these events), the Rally America National Championship (2008, 2nd overall finish), and certain rounds of the World Rally Championship (particularly, the Rally Mexico and Rally New Zealand).
83. In 2007, Block joined the DC Shoes Snowboarding team at New Zealand’s Snow
Park. Block did massive jumps and assisted in snowboarding tricks while driving his rally car on the mountain alongside the snowboarders. The session made the cover of the December 2007 issue of Snowboarder Magazine and was the closing segment of the MTN.LAB 1.5 DVD.
-32- 84. The Claw Icon has also been featured in Block’s famous Gymkhana projects which are a series of videos distributed over the Internet and which have been a viral phenomenon with more than 419.3 million views. The first “Gymkhana Practice” video that was placed online with little promotion became an instant viral success capturing over 15.7 million viewers from around the world according to Block’s co-sponsor DC Shoes. Riding on the success of the first Gymkhana Practice video, the next installment, “Gymkhana TWO” was produced to market Block’s first-ever Rally Teamwork’s Collection of gear and apparel which included Monster-branding. On YouTube, Gymkhana TWO has received more than 50 million views, Gymkhana 2.1 has received more than 16.6 million views, Gymkhana THREE Parts 1 through 3 have received more than 68.8 million views, Gymkhana FOUR has received more than
31.2 million views, Gymkhana FIVE has received more than 98.1 million views, Gymkhana
SIX—the Ultimate Gymkhana Grid Course has received more than 46.9 million views, and
Gymkhana SEVEN: Wild in the Streets of Los Angeles has received more than 47 million views,
Gymkhana EIGHT: Ultimate Exotic Playground: Dubai has received more than 26.5 million views, and Gymkhana NINE: Raw Industrial Playground has received more than 32.7 million views. In all of these videos, Block’s hat, clothing/uniform, and car are decorated prominently with Monster-branding. These numbers do not include views on DCshoes.com or other websites. In addition, the video titled “Ken Block’s Trax STI Car” has received more than 22.3 million views on YouTube. Again, Block’s car in these videos is decorated with the Claw Icon.
Attached hereto as Exhibit 30 is a copy of an article in Modified Mag regarding Ken Block and
Gymkhana.
-33- 85. Jeremy McGrath. Monster commenced sponsoring Jeremy McGrath in 2007.
McGrath, boasting seven AMA Supercross Championships, an overall 101 career wins, and five
X Games medals, is without a doubt one of the most successful riders in AMA Supercross
history. His remarkable athletic achievements helped catapult the sport of Supercross into
mainstream culture. McGrath’s talents and accolades extend well beyond the track. McGrath has
also become a world class entrepreneur. Among his list of accomplishments, he was the first
professional athlete to form and own his own Supercross race team. Not to mention, he is a best- selling author, owns his own toy line, started his own production company, and has his own line of signature shoes.
86. In 2007, McGrath was part of the NASCAR team JR Motorsports, owned by Dale
Earnhardt, Jr. which was sponsored by Monster. In 2010, McGrath was inducted into the
Motorsports Hall of Fame of America.
AMATEUR ATHLETES – THE MONSTER ARMY
87. In addition to sponsoring professional athletes and teams, Monster maintains an amateur sponsorship and athlete development program called The Monster Army. More than
376,000 amateur athletes from throughout the world in various extreme sports have applied to be accepted as part of the Monster Army through the Monster Army website at www.monsterarmy.com.
88. Monster supports members of the Monster Army in many different ways, but
often includes assistance with gear, training, and travel. Members of the Monster Army also
typically wear MONSTERTM branded gear. The gear varies by athlete and sport. For example, custom items are made under a license agreement for athletes in certain sports that require protective gear, and these items are for team and athlete use only. These athletes also frequently
-34- are given hats, t-shirts, stickers, and/or embroidered patches with the Claw Icon. The athletes
will wear or apply these items to their sports equipment and gear in order to promote MONSTER
energy drinks during competition. Attached hereto as Exhibit 31 are screen shots from the
Monster Army website showing the Claw Icon.
89. In 2008, the Monster Army website had an average of 62,733 visits worldwide
per month, with an average of 41,769 of those being unique visitors each month. The number of
visitors has continued to increase and in the last six months of 2011, those visits increased to an
average of 158,898 unique visitors each month, 200,697 total visitors each month and more than
1.4 million page views. Monster does not have continuous analytical records of the Monster
Army website; however, Google Analytics for the period of 1 October 2008 to 29 February 2016
shows that the Monster Army website received approximately 5.3 million unique visitors.
90. The MONSTER Army also has a Facebook page at
https://www.facebook.com/MonsterArmy, which prominently features the Claw Icon, including
in the following form:
91. Attached hereto as Exhibit 32 is a true and correct copy of a promotion for the
Monster Army.
-35- MUSIC FESTIVALS AND MUSICIANS
92. Monster’s Claw Icon also receives tremendous exposure internationally through the sponsorship of musicians and music festivals, which are attended by thousands of fans and which receive further exposure on the Internet, on television and in magazines and newspapers.
93. Vans Warped Tour. Monster’s MONSTER ENERGY drinks were also the official energy drink of the Vans Warped Tour for 2003, 2004, 2005, 2006 and 2007. The Vans Warped
Tour is the most popular, longest running action sports/music festival in the US, and consists of
50 concerts over the summer in major cities throughout the U.S. and Canada. The attendance at the 2004 tour exceeded 500,000. The attendance at the 2005 Tour is estimated at more than
600,000 visitors. About 600,000 tickets are estimated to have been sold for the 2006 and 2007 tours, respectively, each of which generated tens of millions of media impressions. In 2016,
Monster announced the “MONSTER ENERGY PARTY ZONE” at the Vans Warped Tour, which included side-by-side stages prominently displaying Monster’s Claw Icon mark. Attached hereto as Exhibit 33 is a copy of a promotion for Monster and the Vans Warped Tour.
94. OzzFest. Monster also sponsored the OzzFest Concert Tour, which consists of 26 concert dates during the summer in major cities throughout the United States. The attendance of the 2005 OzzFest exceeded 450,000 visitors, with similar attendance in 2006 and 2007.
Attached hereto as Exhibit 34 are copies of promotions for Monster and OzzFest.
MONSTER ENERGY WEBSITE AND SOCIAL MEDIA
95. As another form of marketing its MONSTER energy drinks to its target audience,
Monster has made extensive use of the Internet and recent advances in social media.
96. Monster maintains web sites at www.monsterenergy.com and www.monsterarmy.com. Both websites prominently display the Claw Icon mark. Monster
-36- launched its Monster Energy® website www.monsterenergy.com on August 19, 2003. Attached hereto as Exhibit 35 are true and correct copies of printouts from Monster’s website located at www.monsterenergy.com showing Monster’s line of beverage products. The website prominently displays the Claw Icon mark and receives thousands of unique visitors each month.
The www.monsterenergy.com website hosted over 1.7 million unique visitors in 2008 alone. In
May 2011, the website was viewed over 479,000 times. Attached hereto as Exhibit 36 are true and correct copies of Google Analytics reports kept by Monster in the normal course of its business showing the number of viewers of the monsterenergy.com website in October 2009 and
May 2011.
97. Monster’s Facebook page is among the most “liked” Facebook pages. Monster’s
Facebook page currently has more than 26 million “likes.” The page features Monster- sponsored athletes, sports, and events, from all over the world and prominently displays the
Claw Icon mark. Attached hereto as Exhibit 37 are true and correct copies from Monster’s
Facebook page dated January 26, 2016. At that time, Monster had over 24 million “likes.”
98. Socialbakers, which was previously known as Facebakers, is an organization that tracks brand popularity on Facebook. Attached hereto as Exhibit 38 is a screen shot from the
Facebakers website ranking the top social media brands on Facebook in November 2010. This ranking of the brands is based on the number of followers from each companies’ Facebook page.
This screenshot was taken on November 29, 2010. Monster was the 14th most followed brand on
Facebook in 2010. At that time, Monster had over 7 million followers. As of August 2019,
Monster had become the 8th most popular brand on Facebook according to Socialbakers.
-37- 99. Monster’s Twitter account prominently displays the Claw Icon mark and currently has over 3.1 million followers. Attached hereto as Exhibit 39 is a true and correct copy of a printout of Monster’s Twitter page dated January 26, 2016. At that time, Monster had over
2.8 million followers.
100. Monster’s Instagram account prominently displays the Claw Icon mark and currently has approximately 5.7 million followers. Attached hereto as Exhibit 40 is a true and correct copy of a printout of Monster’s Instagram page dated January 26, 2016. At that time,
Monster had 2.8 million followers.
101. Monster also delivers content to consumers through various YouTube channels, including its Monster Energy® channel at youtube.com/monsterenergy, the Monster World Rally
Team channel at youtube.com/monsterworldrally, and The Monster Army channel at youtube.com/monsterarmy. Since its launch, the Monster Energy® YouTube channel has received over 379 million views worldwide and currently has over 2.3 million subscribers.
Monster’s YouTube channel displays the Claw Icon mark. During just the 7 month period between August 2009 and March 2010, Monster received more than 8.7 million views of the videos on its YouTube channel from all over the world. On a daily basis, the channel receives an average of approximately 50,000 views. In the aggregate, total views for the Monster Energy® related YouTube channels exceed 36.5 million worldwide, which means Monster is reaching millions consumers through YouTube. Attached hereto as Exhibit 41 is a true and correct copy of printout from Monster’s Monster Energy® YouTube page dated January 26, 2016. At that time, Monster’s YouTube channel had received over 154 million views.
102. Monster also markets and promotes its famous Claw Icon mark on a website dedicated to video game enthusiasts, www.monsterenergygaming.com.
-38- 103. Monster’s Claw Icon mark is also promoted over the Internet by third-parties’ display of Monster’s products, sponsored athletes, and vehicles with the Claw Icon mark on various websites. Some of these websites include or have included: rock.com, surfline.com, ozzfest.com, warpedtour.com, procircuit.com, projektrevolution.com, Kawasaki.com, robbygordon.com, supercrossonline.com, kenblockracing.com, linkinpark.com, transworldmotocross.com, factoryeffex.com, oneindustries.com, vitalmx.com, motogp.com, and billabong.com. These websites collectively receive hundreds of thousands of visitors per month.
APPAREL AND MERCHANDISING
104. In addition to selling beverages in connection with the Claw Icon mark, Monster uses and licenses its Claw Icon on a wide range of other products, such as, for example, hats, shirts, jackets, towels, umbrellas, t-shirts, sweatshirts, jackets, pants, belts, bandanas, sweatbands, gloves, headgear, clocks, boom boxes, bottle openers, protective gear, keychains, surfboards, BBQ tool sets, koozies, neon signs, coasters, buckets, golf accessories, video games, stickers, helmets, beverage ware, cups, snowboards, wakeboards, skateboards, sports bags, backpacks, jewelry, banners, electric coolers, calendar books, channel strips, posters, pens, steel water bottles, gloves, wrist bands, bracelets, watches, diecast cars, remote control replica cars, yoga mats and calendars. True and correct copies of photos showing a wrist band, goggles, gloves, backpack, bandanna, bracelet, key chain, lanyard, towel, bottle opener, socks, water bottle, belt, sweat band, hat, t-shirt, and sweatshirt, all bearing the Claw Icon are attached hereto as Exhibit 42.
105. There is a huge demand for t-shirts, hats, jackets, sweatshirts, and other clothing, gear, and merchandise bearing the Claw Icon. Thus, Monster has entered into license agreements with several clothing manufacturers, giving them license to produce and sell clothing
-39- that bears the Claw Icon. Said agreements impose on the licensee obligations to maintain the high standards associated with the Claw Icon, subject to periodic inspection by Monster. Each of the apparel and merchandise licensees sells the apparel and merchandise with the Claw Icon to retailers worldwide. Monster licenses or has licensed its Claw Icon mark for use on clothing and accessories to companies including NASCAR, Fox Head, Inc., 43 Racing LLC, Kyle Busch
Motorsports, Clinton Enterprises, Hoonigan Industries LLC, Pro Circuit Product, Inc., Castle
Sales Company, John Force Racing, Jim O’Neal Distributing Inc., Alpinestars S.p.a., Grenade,
Inc., JMJE, Inc., Slednecks, Inc., One Industries, La Jolla Sport USA, Inc., Speez Racing LLC,
Mammoth Mountain Ski Area LLC, Famous Stars & Straps, Inc., Zumiez, Inc., Black Box
Distribution, LLC and Bicycle Kid, Inc., among others. Monster’s licensees have paid Monster over in royalties on dollars worth of licensed apparel and accessories.
106. Amateur athletes who are part of the Monster Army athlete development program may login to Monster's Monster Army website to order clothing and other merchandise bearing the Claw Icon. In addition, Monster has run a MONSTER GEAR program where consumers could get authentic Monster Energy Team Gear, such as t-shirts, hats, sweatshirts, and sticker kits and decals bearing the Claw Icon, when they purchase MONSTER energy drinks and mail in the can tabs. Monster started the MONSTER GEAR program in July 2011 and ran it through
2013 on the website gear.monsterenergy.com. Monster also ran a similar gear program to promote its JAVA MONSTER products on the website https://javagear.monsterenergy.com— this gear also features the Claw Icon.
107. Since 2002, Monster has sold and/or distributed millions of accessories and articles of clothing, most of which prominently displays its Claw Icon mark, and with an
-40- estimated retail value of over Attached hereto as Exhibits 43-59 are true and correct copies of various Monster POS- catalogs showing apparel and accessories bearing the Claw Icon mark being offered for sale or distribution to distributors and retailers. Monster has sold and/or distributed accessories and clothing through giveaways, and its distribution of products to retailers and distributors, among other channels. Attached hereto as Exhibit 60 are true and correct copies of Monster’s reports from 2002-2011 maintained by Monster that show examples of Monster’s sales of distribution of clothing and accessories.
108. Monster’s accessories, clothing and beverage products bearing its Claw Icon mark are sold and given away at sporting events (including professional basketball events), music festivals, concerts, and other events or public locations.
109. In addition, Monster often has promotions on its websites where customers can receive MONSTER™ branded clothing and accessories bearing the Claw Icon mark.
110. Monster’s apparel and accessories bearing its Claw Icon mark have been sold directly to consumers in all 50 states. The apparel and accessories have been and continue to be sold to the public through retail stores and websites. For example, towels bearing Monster’s
Claw Icon are available for purchase on the nascar.com website. Further, clothing and accessories bearing Monster’s Claw Icon are or have been offered for sale on the following websites: supercrosssuperstore.com, store.vaughngittin.com, rowdybusch.com, shop.johnforceracestation.com, stewarthaasracing.com, clintonenterprises.com, hoonigan.com, and procircuit.com. Monster’s licensees for clothing and accessories bearing the Claw Icon mark have sold Monster’s clothing and accessories at nationwide retailers such as, for example,
PacSun, Tilly’s, Jax, Zumiez, and Zappos. Attached hereto as Exhibit 61 are true and correct representative photos of gear bearing the Claw Icon available for sale by Monster licensees.
-41- Magazine Articles
111. In addition, a number of large articles have been published in internationally circulated magazines describing and referring to the MONSTER energy drinks and to the success of Monster and the MONSTER ENERGY® products, all of which have featured the
Claw Icon. As a result, the Claw Icon has received extensive press coverage since the 2002 launch of the MONSTER energy drinks. Some of these articles are attached as Exhibit 4.
Additional articles published by Forbes and Newsweek regarding the MONSTER energy drinks are attached hereto as Exhibit 62.
112. Monster sponsored athletes have been the focus of hundreds of action sports magazines and articles, which feature the athletes’ gear and accessories that prominently display the Claw Icon mark. Athletes sponsored by Monster are routinely featured promoting the Claw
Icon mark through their clothing, accessories and/or equipment in national magazines such as
People, Men’s Fitness, Cycle News, Dirt Rider, Racer X Illustrated, Transworld Motocross,
Dirt, and Modified Mag. Attached hereto as Exhibit 63 are true and correct copies of excerpts from Cycle News, and Racer X Illustrated magazines showing images of sponsored athletes wearing MONSTERTM gear. Monster’s motorsports athletes also have been featured in other publications such as Popular Science, Racer X, Dirt Sport Magazine, Motocross Action
Magazine, Off Road Magazine, and Drag Racer Magazine.
Trade Publications and Events
113. In my capacity as Chairman and Chief Executive Officer, I receive copies of trade magazines, including Beverage Aisle, Beverage Industry, Beverage Spectrum, Beverage World,
Convenience Store, and Dealer Net Price. Much of the content is available online at beverageworld.com. Monster has advertised the MONSTER energy drinks extensively in these
-42- magazines since the launch in April 2002. The MONSTER energy drinks have also received substantial unsolicited media coverage in those magazines. For example, the June 15, 2004 issue of the Beverage World named Monster (then Hansen) “Company of the Year” praising the
MONSTER brand's “innovative new energy drink package.” Since becoming a billion dollar beverage company, Monster's MONSTER energy drinks are featured in virtually every major trade publication in the USA and around the world.
The Monster Train – Las Vegas
114. In 2003, Monster signed a $10 million deal to sponsor the MONSTER train, the first multi-car train on the Las Vegas monorail. The Monster train was built by Bombardier
Transportation, the rail equipment division of the Canadian firm Bombardier Inc. The train was named after Monster’s MONSTER energy drink and prominently featured the Claw Icon. The
Las Vegas monorail is and was a heavily used mode of public transportation which joined up the casinos on the famous Las Vegas strip. Monster (then Hansen) was granted exclusive rights to sell its MONSTER energy drinks at all seven monorail stations from large enclosures illustrated with extreme sport athletes sponsored by MONSTER energy drinks. One of the reasons Monster sponsored the Las Vegas monorail was because Las Vegas is a tourist destination for people from all over the world (including all over the U.S.). Sponsoring the Las Vegas monorail was likely to expose the Claw Icon to a large number of consumers.
115. Monster’s sponsorship of the Las Vegas monorail resulted in extensive publicity in national print, television and Internet media in June and July of 2003 which promoted the
MONSTER energy drinks and Claw Icon. Copies of articles about the MONSTER train which ran in The Wall Street Journal (June 3, 2003) and Time Magazine (July 14, 2003) can be found in Exhibit 64. In addition, television and radio reports about the train in June and July 2003
-43- promoted MONSTER energy drinks and trade marks to approximately 50 million people in New
York, Los Angeles, Chicago, Philadelphia, San Francisco, Boston, Dallas, Atlanta, Washington,
D.C., and elsewhere. Attached hereto and marked Exhibit 65 is data provided by Reach
Communications Group, LLC which lists each of the articles which were published on the internet alone which featured the MONSTER train and the number of readers of those articles.
The total number of readers of the articles appearing on the Internet alone is over 70 million.
116. The “MONSTER” train was also visible from thousands of hotels rooms. Visitors to Las Vegas who have taken the Las Vegas monorail or have stayed in any of the thousands of hotel rooms that look out towards the train will have come across Monster’s Claw Icon.
POINT OF SALE ITEMS
117. Since 2002, Monster has made and distributed millions of point-of-sale marketing items which prominently display the Claw Icon mark, including posters, display headers, static- cling stickers, signs, inflatables, display cards, and stickers. These types of promotional materials have been distributed to more than three hundred thousand retail stores nationwide.
Monster also uses members of the Monster Ambassador Team to hand out certain point-of-sale items at Monster-sponsored events, as I have previously described.
VIDEO GAMES
118. Monster also has also partnered with video game publishers to have Monster branding appear in the video game itself. These cross promotions create exposure for the Claw
Icon mark and maintain Monster’s connection with the video game community.
119. For example, the second chapter of the “Skate” skateboarding video game series allows players to play as two Monster sponsored athletes, Rob Dyrdek and Jake Brown. The in- game depictions of Rob and Jake are very similar to their real life personas, including the
-44- Monster branding. Throughout the game, the Claw Icon mark is featured on ramps and billboards.
120. In the “Skate 3” skateboarding video game, players can ‘unlock’ the ‘Monster
Park Jam’ part of the game, which allows the players to maneuver their character through a skate park that features the Claw Icon mark. The video game environment also has vending machines and billboards which bear the Claw Icon.
121. In the “Dirt 2,” “Dirt 3,” and “Dirt Showdown” videogames from the “Colin
McRae Dirt” string of rally car racing games, the Claw Icon mark is extensively featured.
Monster athlete Ken Block’s Subaru and later Ford Rally Car, and their MONSTER Mark containing livery, were featured on the cover of “Dirt 2” and “Dirt 3,” and on the actual game disk for “Dirt Showdown.” Further, the above 3 games all contained in game branding of the player and competitors cars, and the various in game race tracks.
VIDEO GAME PROMOTIONS
122. Monster also partners with video game publishers to promote the release of new video games. In 2009, Monster partnered with the publishers of “Call of Duty – Modern Warfare
2” in a cross-promotion that featured the Claw Icon mark and the trademarks of the video game.
“Call of Duty – Modern Warfare 2” is one of the world’s most popular video games, and has sold over 22 million copies worldwide. This promotion was ‘on-can,’ meaning that logos and artwork from the “Call of Duty – Modern Warfare 2” game were on the can of Monster energy drinks, side-by-side with the Claw Icon mark. In addition, the cross-promotion featured a sweepstakes where consumers could enter to win prizes associated with the video game and
Monster. Attached hereto as Exhibit 66 are excerpts of slides showing Monster’s promotions relating the Call of Duty – Modern Warfare 2.
-45- 123. Again in 2010, Monster partnered with the publishers of the “Call of Duty” series, this time for “Call of Duty – Black Ops,” in a cross-promotion that featured the Claw Icon mark and the trademarks of the video game “Call of Duty – Black Ops.” “Call of Duty – Black Ops” is also one of the world’s most popular video games, and has sold over 25 million copies worldwide.
124. In 2013, Monster again partnered with the publishers of the “Call of Duty” series for the game franchise’s tenth installment “Call of Duty: Ghosts,” in a cross-promotion that featured the Claw Icon mark and the trademarks of the video game “Call of Duty: Ghosts.”
“Call of Duty: Ghosts” was a very popular video game, selling more than 19 million copies worldwide.
125. Also in 2013, Monster partnered with the developers of the “Aliens – Colonial
Marines,” a video game that was based upon the storied “Alien” movie franchise, to cross- promote both Monster’s Claw Icon mark and the video game. Monster also ran a promotion where players of the game could obtain a code that allowed their in-game avatar to wear armor bearing the Claw Icon. “Aliens – Colonial Marines” debuted as the number one title for the
Xbox 360 and PS3 individual game charts the week of its release. This number is based upon global sales.
126. In 2014, Monster partnered with the developers of “Watch_Dogs,” to cross- promote both Monster’s Claw Icon mark and the video game. Monster also ran a promotion where players of the game could obtain a code that allowed their in-game character to receive exclusive items, not available to other players. Watch_Dogs broke Ubisoft’s record for biggest first day of sales at the time of its launch. As of December 31, 2014, 10 million copies of the game have been shipped.
-46- 127. On August 31, 2017, Monster announced an agreement with Ubisoft for the promotion of a new video game, Assassin’s Creed Origins. Assassin’s Creed is a saga of video games that has been hugely successful worldwide. The first edition was launched in November
2007 and, as indicated on Wikipedia, until April 2014, over 73 million copies of these games have been sold. With this agreement, Monster promotes a special edition of its MONSTER energy drinks which includes characteristic images of the video game and the Claw Icon mark.
In addition, the drink cans contain codes that can be exchanged for virtual weapons and other contents from the video game itself. Information about this promotion can be found at https://www.monsterenergy.com/promotions/assassins-creed-originsexperience-sweepstakes.
128. In 2018, Monster again partnered with to the publishers of the “Call of Duty” series to promote the latest installment “Call of Duty: Black Ops 4,” in a cross-promotion that featured the MONSTER Marks and the trademarks of the video game “Call of Duty: Black Ops
4.” This promotion began on September 1, 2018 and will last until June 30, 2019.
129. In 2018, a Monster subsidiary partnered with Tencent to promote
PlayerUnknown’s Battlegrounds. PlayerUnknown’s Battlegrounds is an online multiplayer battle royal game. Special Monster Energy drink cans were affixed with promotional seals containing codes, which can be redeemed for in-game features and items online. This promotion was available in the summer of 2018.
TRADEMARK REGISTRATIONS
130. Monster owns numerous trademark registrations in the U.S. for its Claw Icon mark for use in connection with clothing, accessories, nutritional supplements, beverages, promoting goods and services in the sports, motorsports, electronic sports, and music industries, and many other products and services.
-47- 131. Monster is the owner of incontestable U.S. Trademark Registration No. 4,051,650 for the mark m ® in connection with “Clothing, namely, t-shirts, hooded shirts and hooded sweatshirts, sweat shirts, jackets, pants, bandanas, sweat bands and gloves; headgear, namely hats and beanies” in International Class 25, which registration issued November 8, 2011 and is based on an application filed in the United States Patent and Trademark Office on July 28, 2010.
Attached hereto as Exhibit 67 is a true and correct copy of the Registration Certificate for U.S.
Trademark Registration No. 4,051,650.
132. Monster is the owner of incontestable U.S. Trademark Registration No. 3,908,601
m® for the mark in connection with “clothing, namely, t-shirts, hooded shirts and hooded sweatshirts, sweat shirts, jackets, pants, bandanas, sweat bands and gloves; headgear, namely, hats and beanies” in International Class 25, which registration issued January 18, 2011 and is based on an application filed in the United States Patent and Trademark Office on April 2, 2009.
Attached hereto as Exhibit 68 is a true and correct copy of the Registration Certificate for U.S.
Trademark Registration No. 3,908,601.
133. Monster is the owner of incontestable U.S. Trademark Registration No. 2,903,214 for the m ® mark in connection with “Drinks, namely, carbonated soft drinks, carbonated drinks enhanced with vitamins, minerals, nutrients, amino acids and/or herbs, carbonated and non-carbonated energy or sports drinks, fruit juice drinks having a juice content of 50% or less by volume that are shelf stable, but excluding perishable beverage products that contain fruit juice or soy, whether such products are pasteurized or not” in International Class 32, which registration issued November 11, 2004 and is based on an application filed in the PTO on May 7,
-48- 2003. Attached hereto as Exhibit 69 is a true and correct copy of the Registration Certificate for
U.S. Trademark Registration No. 2,903,214.
134. Monster is the owner of incontestable U.S. Trademark Registration No. 3,434,821
for the 111 ® mark for “Nutritional supplements” in International Class 5, which registration
issued May 27, 2008 and is based on an application filed in the PTO on September 7, 2007.
Attached hereto as Exhibit 70 is a true and correct copy of the Registration Certificate for U.S.
Trademark Registration No. 3,434,821.
135. Monster is the owner of incontestable U.S. Trademark Registration No. 3,434,822
for the m® m ark for “Non-alcoholic beverages, namely, energy drinks, excluding perishable beverage products that contain fruit juice or soy” in International Class 32, which registration
issued May 27, 2008 and is based on an application filed in the PTO on September 7, 2007.
Attached hereto as Exhibit 71 is a true and correct copy of the Registration Certificate for U.S.
Trademark Registration No. 3,434,822.
136. Monster is the owner of U.S. Trademark Registration No. 3,908,600 for the
® mark for “Stickers; sticker kits comprising stickers and decals; decals” in International
Class 16, which registration issued January 18, 2011 and is based on an application filed in the
PTO on April 2, 2009. Attached hereto as Exhibit 72 is a true and correct copy of the
Registration Certificate for U.S. Trademark Registration No. 3,908,600.
137. Monster is the owner of U.S. Trademark Registration No. 3,914,828 for the
® mark for “Sports helmets” in International Class 9, which registration issued February 1,
2011 is based on an application filed in the PTO on April 2, 2009. Attached hereto as Exhibit 73
-49- is a true and correct copy of the Registration Certificate for U.S. Trademark Registration No.
3,914,828.
138. Monster is the owner of U.S. Trademark Registration No. 3,923,683 for the
® mark for “All purpose sport bags; All-purpose carrying bags; Backpacks; Duffle bags” in
International Class 18, which registration issued February 22, 2011 and is based on an application filed in the PTO on April 2, 2009. Attached hereto as Exhibit 74 is a true and correct copy of the Registration Certificate for U.S. Trademark Registration No. 3,923,683.
139. Monster is the owner of U.S. Trademark Registration No. 3,963,668 for the m® m ark for “Stickers; sticker kits comprising stickers and decals; decals; posters” in International Class 16, which registration issued May 17, 2011 and is based on an application
filed in the PTO on July 28, 2010. Attached hereto as Exhibit 75 is a true and correct copy of the
Registration Certificate for U.S. Trademark Registration No. 3,963,668.
140. Monster is the owner of U.S. Trademark Registration No. 3,963,669 for the m® mark for “All purpose sport bags; all-purpose carrying bags; backpacks; duffel bags” in
International Class 18, which registration issued May 17, 2011 and is based on an application
filed in the PTO on July 28, 2010. Attached hereto as Exhibit 76 is a true and correct copy of the
Registration Certificate for U.S. Trademark Registration No. 3,963,669.
141. Monster is the owner of U.S. Trademark Registration No. 4,011,301 for the m® mark for “sports helmets; video recordings featuring sports, extreme sports, and motor sports” in
International Class 9, which registration issued August 16, 2011 and is based on an application
-50- filed in the PTO on July 27, 2010. Attached hereto as Exhibit 77 is a true and correct copy of the
Registration Certificate for U.S. Trademark Registration No. 4,011,301.
142. Monster is the owner of U.S. Trademark Registration No. 3,134,841 for the
® mark for “Beverages, namely, carbonated soft drinks, carbonated soft drinks enhanced
with vitamins, minerals, nutrients, amino acids and/or herbs, carbonated energy and sports
drinks, fruit juice drinks having a juice content of 50% or less by volume that are shelf stable,
but excluding perishable beverage products that contain fruit juice or soy, whether such products
are pasteurized or not” in International Class 32 which registration issued August 29, 2006 and is
based on an application filed in the PTO on May 7, 2003. Attached hereto as Exhibit 78 is a true
and correct copy of the Registration Certificate for U.S. Trademark Registration No. 3,134,841.
143. Monster is the owner of U.S. Trademark Registration No. 3,134,842 for the M
MONSTER ENERGY® mark for “Beverages, namely, carbonated soft drinks, carbonated drinks
enhanced with vitamins, minerals, nutrients, amino acids and/or herbs, carbonated energy or
sports drinks, fruit juice drinks having a juice content of 50% or less or by volume that are shelf
stable, but excluding perishable beverage products that contain fruit juice or soy, whether such
products are pasteurized or not” in International Class 32, which registration issued August 29,
2006 and is based on an application filed in the PTO on May 7, 2003. Attached hereto as
Exhibit 79 is a true and correct copy of the Registration Certificate for U.S. Trademark
Registration No. 3,134,842.
144. Monster is the owner of U.S. Registration No. 4,721,432 for the m® m ark for
“Promoting goods and services in the sports, motorsports, electronic sports, and music industries through the distribution of printed, audio and visual promotional materials; promoting sports and
-51- music events and competitions for others” in International Class 35, which registration issued
April 14, 2015 and is based on an application filed in the PTO on March 12, 2014. Attached hereto as Exhibit 80 is a true and correct copy of the Registration Certificate for U.S. Trademark
Registration No. 4,721,432.
m® 145. Monster is the owner of U.S. Registration No. 4,822,675 for the mark for
“Lanyards; Lanyards for holding whistles, keys, eyeglasses, sunglasses, mobile telephones, badges, identification cards, event passes, media passes, photographs, recording equipment, or similar conveniences” in International Class 22, which registration issued September 29, 2015 and is based on an application filed in the PTO on August 26, 2013. Attached hereto as Exhibit
81 is a true and correct copy of the Registration Certificate for U.S. Trademark Registration No.
4,822,675.
146. Monster is the owner of U.S. Trademark Registration No. 3,044,314 for the M
MONSTER ENERGY® mark for “nutritional supplements in liquid form, but excluding perishable beverage products that contain fruit juice or soy, whether such products are pasteurized or not” in International Class 5, which registration issued January 17, 2006 and is based on an application filed in the PTO on May 23, 2003. Attached hereto as Exhibit 82 is a true and correct copy of the Registration Certificate for U.S. Trademark Registration No.
3,044,314.
147. Monster is the owner of U.S. Trademark Registration No. 4,332,062 for the M
MONSTER ENERGY® mark and design for “silicone wrist bands; silicone bracelets; jewelry, namely, bracelets and wristbands” in International Class 14, which registration issued May 7,
2013 and is based on an application filed in the PTO on October 5, 2012. Attached hereto as
-52- Exhibit 83 is a true and correct copy of the Registration Certificate for U.S. Trademark
Registration No. 4,332,062.
148. Monster is the owner of U.S. Registration No. 5,580,962 for the I ® mark for “Nutritional supplements; nutritional supplements for purposes of boosting energy; dietary
supplemental drinks in the nature of vitamin beverages” in International Class 5, “Sport helmets;
video recordings featuring sports, extreme sports and motor sports” in International Class 9,
“Silicone wristbands in the nature of bracelets; silicone bracelets; jewelry, namely, bracelets and
wristbands; lanyard necklace; watches” in International Class 14, “Stickers, sticker kits
comprising stickers and decals; decals; posters; calendars” in International Class 16, “All-
purpose sport bags; all-purpose carrying bags; backpacks; duffel bags” in International Class 18,
“Clothing, namely, t-shirts, hooded shirts and hooded sweatshirts; sweat shirts, jackets, pants,
bandanas, sweat bands, gloves and motorcycle gloves; headgear, namely, hats and beanies” in
International Class 25, and “Non-alcoholic beverages, namely, energy drinks, sports drinks, and
sports and/or energy drinks enhanced with vitamins, minerals, nutrients, amino acids and/or
herbs” in International Class 32 which registration issued October 9, 2018 and is based on an
application filed in the PTO on May 17, 2018. Attached hereto as Exhibit 84 is a true and
correct copy of the Registration Certificate for U.S. Trademark Registration No. 5,580,962.
149. Monster is the owner of U.S. Registration No. 5,551,230 for the ® mark for
“Clothing, namely, tops, shirts, T-shirts, hooded shirts, sweat shirts, and jackets” in International
Class 25 and “Providing a web site featuring entertainment information and news on athletes; organizing and conducting educational programs and activities in the nature of classes, workshops, and sports competitions for athletes in the field of athlete development; athlete
-53- development program, namely, athlete training and mentoring in the field of wake, ski, surf,
snowboard, motocross, mountain bike, BMX, and skate” in International Class 41 which
registration issued August 28, 2018 and is based on an application filed in the PTO on February
12, 2016. Attached hereto as Exhibit 85 is a true and correct copy of the Registration Certificate
for U.S. Trademark Registration No. 5,551,230.
150. Monster is the owner of U.S. Registration No. 5,664,586 for the ® mark for
“Beverageware; insulated beverage containers for domestic use; drinking bottles for sports;
water bottles sold empty” in International Class 21, which registration issued January 29, 2019
and is based on an application filed in the PTO on December 4, 2017. Attached hereto as
Exhibit 86 is a true and correct copy of the Registration Certificate for U.S. Trademark
Registration No. 5,664,586.
111 ® 151. Monster is the owner of U.S. Registration No. 5,676,514 for the ~ mark for
“Towels” in International Class 24, which registration issued February 12, 2019 and is based on
an application filed in the PTO on January 31, 2010. Attached hereto as Exhibit 87 is a true
and correct copy of the Registration Certificate for U.S. Trademark Registration No. 5,676,514.
152. Monster is the owner of U.S. Registration No. 5,570,782 for the I ® mark for “Sport helmets; video recordings featuring sports, extreme sports and motor sports” in
International Class 9, “watches” in International Class 14, “Stickers, sticker kits comprising stickers and decals; decals; posters; calendars” in International Class 16, “All-purpose sport bags; all-purpose carrying bags; backpacks; duffel bags” in International Class 18, and
“Clothing, namely, t-shirts, hooded shirts and hooded sweatshirts; sweat shirts, jackets, pants,
-54- bandanas, sweat bands, gloves and motorcycle gloves; headgear, namely, hats and beanies” in
International Class 25 which registration issued September 25, 2018 and is based on an application filed in the PTO on May 17, 2018. Attached hereto as Exhibit 88 is a true and correct copy of the Registration Certificate for U.S. Trademark Registration No. 5,570,782.
153. Monster has been very careful to protect its MONSTERTM brand and it marks, including the Claw Icon, in the marketplace. Monster enforces and protects its trademark rights against third parties infringing or diluting our trademarks by sending cease and desist letters, submitting notice and takedowns, opposing registration of conflicting trademarks, and initiating litigation as necessary. Monster has filed over 200 opposition proceedings and over 25 lawsuits in federal or state court against individuals or companies using marks confusingly similar to trademarks owned by Monster.
MLSE AND NBAP’S MARKS
154. MLSE is applying for the marks covering goods and services in
International Classes 9, 16, 18, 25, 28, and 41, and NBA Properties is applying for the marks
and covering goods and services in International Classes 25 and 41. MLSE
filed its applications for the marks on December 15, 2014, long after Monster began using its Claw Icon in 2002. NBAP filed its applications for the and marks on May 26, 2015. I understand that MLSE alleges a date of first use of its marks as early as December 19, 2014 which is still long after Monster began using its Claw Icon mark in 2002.
-55- 155. Monster believes consumers are likely to be confused by the
and marks because consumers seeing those marks on or in connection with the goods and services offered by Applicants will believe this is just another Monster-sponsored, licensed or affiliated product or service. Monster engages in extensive co-branding for its clothing, gear, and accessories, as I have described above. Consumers are likely to believe that
Applicants’ products are co-branded products or services with Monster.
156. Monster’s sponsored athletes are frequently shown on television and social media wearing clothing and gear and using equipment displaying the Claw Icon mark. This increases
the likelihood consumers may believe a goods bearing the and marks are affiliated or sponsored by Monster.
157. Any mistaken association between Applicants’ goods and services and Monster and its authorized products will harm Monster because this will directly affect Monster’s control over its business reputation and goodwill.
-56- I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.
Executed on this .ff.__ day of August, 2019 at Corona, California.
-57- CERTIFICATE OF SERVICE
I hereby certify that a true and complete copy of the foregoing TESTIMONY
DECLARATION OF RODNEY SACKS has been served on the Applicants’ counsel of record on August 12, 2019 via electronic mail to:
Anil V. George NBA PROPERTIES, INC. [email protected], [email protected], [email protected], [email protected], [email protected]
Eleanor M. Lackman COWAN, DEBAETS, ABRAHAMS & SHEPPARD LLP [email protected]
Signature: ~
Name: Doreen P. Buluran
Date: August 12, 2019
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MEC005509 Exhibit 1 Page 1 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc.
CATEGORY FOCUS
Sports, energy drink-makers take on giants
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MEC005510 Exhibit 1 Page 2 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc.
CA TEGDRY FOCUS
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MEC005511 Exhibit 1 Page 3 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc.
CATEGORY FOCUS
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Florida 33880 (800) 886-0933 • www B MEC005512 Exhibit 1 Page 4 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005513 Exhibit 1 Page 5 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005514 Exhibit 1 Page 6 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. .. he phrase monster conjures up the childhood mystery figure under the bed, or perhaps, one of the many Hollywood horror movie versions. More recently, the neon green claw logo that represents Monster energy drink has ranked close behind the boogeyman or Frankenstein. Like those Hollywood figures, the claw logo has become an identifiable symbol for the No. 2 selling brand in the fast-growing energy drink category, which has become a force all Its own. "Monster is aggressive, cool, sin an early figure in the budding energy says. "It's Lheir lifestyle. So when ister, dark, mysterious and fun," drink category with its Hansen's Monster was bom we were able to do says the brand's positioning state Energy drink. After a few incarna things sud1 as go into extreme sports. ment. "Monster is about action tions, induding functional endurance, It just never was possible before." sports, punk rock music, partying, de-stress and anti-oxidant blends, the Monster continues to market to girls and living life on the edge." company re-evaluated how Hansen's that target demograpltic of yow1g, 18- The brand keeps the cat Energy fit in wi.th Hansen Naturnl's to 30-year-old males who are into egory interesting by portfolio. action sports, rock mllSic and in need adding more products "Hansen was a brand that was of energy. TI1e demograpltic is kept in and SKUs to its lineup. well established," Sacks says. "Tt mind as the brand launches new vari Made by Hansen stands for natural, trusted, good-for ations from its initial green Monster Natural Cqrp., Corona, you beverages, and has had that rep Energy drink. The product premiered Calif., Monster now utation for 70 years. So when we in a 16-ounce can and the "green" features eight incarna came out with Hansen's Energy, we lineup, as it is known in the company, tions and a variety of pack- wanted to keep everything under one has since grown to include a 24-ounce aging options. Tls latest creation umbrella and that trademark. TI1e resealable "cap cru1" and 32-ounce - Java Monster - blends coffee fla consumer for Hansen's Energy was a can. vors and its proprietary energy blend yotmge1~ aggressive male consumer. The 24-otmce "cap can" offers for a category-blurring beverage. What we struggled with was being more Monster with the advantage of "One of the main differences we able to m ake the brnnd meaningful resealability, which is well-suited for believe we fowtd with Monster was and cool to yom1g male constuners the consumer on the move. Addition that instead of just creating a brand, while the brand stood for and mar ally, the package features ru1 added another drink, we created a whole keted itself as homey and family-ori spectacle of a smoking effect when different personality and an ented with good-for-you values." the can is opened. The package image arotmd the brand," Reali.zing the disconnect between launched last year with the intention says Rodney Sacks, chair the natural line and energy brands, of going national, but the demand man and dtief executive Sacks along with Hilton Schlosberg, outstripped the supply so sales were officer of Hansen Natural vice chairman of the board of direc restricted to CaUforni.a, explains Geoff Corp. "l think om· primary tors, worked with Mark Hall, cunent Brenuner, Monster brand manager. focus is lo keep that per president of Monster Beverage Co., to "It became our second best selling sonaIi ty true to itself and in branch out from the Hansen's h'ade SKU at retail, given equal distribu the forefront of consumers' mark and develop an energy drink tion, with our regular green Monster minds. And that has meant, in that could effectively go after the 16-ounce as No. l," Bremmer says. many cases, continuing to adapt to proper demogrnpltic. "\Nhat's most exciting about that is 1'.'hanges in consumer preferences, "We walked that tightrope for our distribution on 24-ounce is not ipg.rts and interests. As they change, many years and eventually came to anywhere near the 16-ounce green ve've tended to munediately follow the decision that if we were going to Cilll yet- it's only half as much." those areas." make a real impression in this catego Also new to the green lineup is ry, we needed to create a brand that the 32-01mce can, which Bremmer natural roots really spoke fo1~ looked Uke and con says is basically a four-pack of B ting this Monster was not an veyed what the category really want ounce cans in one container. The las_k. In the late 1990s, the juice, ed, what young, male consumers 32-olmce can retails for $3.99 and othie and soft drink maker was really wanted and felt like," Sacks recently began shipping. MEC005515 Exhibit 1 Page 7 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. COVER _STORY The first line extension for the brand was Monster Lo-Carb, which is a lower calorie formulation of green Monster, and a personal favorite of Hall, who says he drinks two a day. Unlike many lower carbohydrate formulations, Monster Lo-Carb contains glucose, which is part of Monster's energy Geoff Bremmer, Monster brand manager, shows the 16·, 24· and 32-ounce cans In blend. According to the company, Its "green" Monster lineup to Beverage lnd11stry's Jennifer Zegler. the inclusion of glucose i.n this "blue" variety allows for faster "People drink an energy drink energy drink with the refreshment of delivery of energy benefits. maybe at 3 in the afternoon after a a soft drink."' Within all of its i1rnovation, long day, before they go out at night From there, the brand continued Monster seeks lo expand energy or in the morning lo get them going, its hybridization with energy and drinks to more usage occasions. but it's usually for a functional rea juice products Monster Khaos and M- Such was the case with Monster son," he says. "People drink a cola 80. These "plus juice'' products not Assault, which combines energy while they' re ea liug lunch or d.ilu1er. only added health benefits, but also with a soft drink flavor, Bremmer The thought on Monster Assault was, opened the product to morning 'Let's blend the effectiveness of an drinking occasions. While Khaos has * says. a dominant orange flavor and M-80 features more tropical notes, Monster does not base product names on fla Natural innovation H011Seris vors. hile Monster makes up more than 80 percent of Hansen "There are no flavors of Monster; WNatural Corp.'s sales, according to Rodney Sacks, chairman there are only different persom,lities," and cl1ief executive otllcer, 111e company remains innovative on the Hall says. "We have a juice item, Hansen's Nalural side of the business. The natural lleverage busi Khaos, but when they say, 'What does ness was the company's base when Sacks and his partners pur it taste like?' Our answer is it tastes chased the juice and natural soda company in 1992. like 'It.' We don't nrune the flavors. If "Hansen's continues to be a very lmporlanl and, I think, strate- .... ~ ~.:;..,,. l gave it to 10 people, they'd all say glcally placed brand In the beverage Industry today," Sacks says. something, but they cannot exactly "It's a brand that's probably one of the only, If not the only brand, describe what il is. They wouldn't that has real credlbllity and herllage. Most of the new age brands that are trying lo say, 'Oh, it's orange."' be healthier are brands that are inventions of bigger companies. Hansen's Is a Additionally, lo back up its claims brand that slarteLI 70 years ago by selling natural, fresh juices to film studios In of efficaq~ Hansen has a doctor of Soulhem Calllornla. fl has continued to enjoy a premium, trusled Image and we've pharmacology on staff who assists continued to build on lhat." during new product developmenl. If Hansen's Natural brand Is extending Hansen's Natural Soda line with fruit fla Monster wants to add a new ingredi vors In both regular and sugar-free versions. In contrast to the Monster Image, e11t to its energy blend, it consults Hansen's new sparkling line is packaged In sleek 10.5-ounce cans with understat with the professor, who evaluates the ed 11ackaging. The new line wlll be sold in four-packs in flavors such as lite.ratme both on the ingredient and Dragonfrull and Blueberry Pomegr~nale. its interaction wilh the existing ingre ''We're launching a whole new line of products that we believe will resonate dients, Hall says. The professor also is well wllh health-conscious consumers, particularly those who are now expressing on hru1d to answer tedmical inquiries concern at the levels of [high) fructose corn syrup In sodas, carbonated products the brand receives from consumers. and juices," Sacks explains. "We lhink we have some great new products that are continuing to innovate and drive the Hansen's business from that side." On-premise push As the natural lrend encapsulates all areas ot the food and beverage Industry, The multiple Monster "personali the company with the term In its name feels confidenl In its roots. ties" are gaining exposure in the "We believe that the Hansen's Natural business is really well positioned going on-premise segment. In May 2006, forward to take advantage of this health wave Iha! Is sweeping the country, " Sacks Hansen and Anheuser-Busch lnc., says. www.bevi11d11stry.co111 December 2007 MEC005516 Exhibit 1 Page 8 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. - St. Louis, formed a distribution expand Monster's on-premise scored a total of 14 medals. deal in which select Anheuser availability as well. The company Mons ter has gTOwn along with Busch wholesal~rs wilJ have the hopes to bring the entire Monster its athletes. BMX riders (and occa rights to distribute Monster, Lost portfolio, including its latest Java sional MTV hosts) Dave Mirra and and Rumba energy drinks. Over Monstei· lineup, into restaurants, T.J. Lavin are sponsored by the course of the year, the distribu bars and nightclubs. Biemmer says Monster. Racecar driver Robby tion rights were transitioned in cer Monster, Lo-Carb, Khaos, M-80, Gordon is sponsored and w ill be tain territories from Hansen's 11et Assault and Java Monster are all featlU"ed in an upcoming promo work of beer and liquor distribu good for mixing. tion for the brand. It also keeps an tors as well as soft drink bottlers to "There is a lot more a bar owner eye on up-and-coming athletes, the Anheuser-Busch system. can do with our portfolio and boost such as Riley Hawk, the son of Since the agreement, Monster their profits through our brands," skateboarding star Tony Hawk. has been working with Anheuser he says. Monster also works with music Busch's distribution network to ar tists and tours. This year, l Marketing Monster OzzFest, which is put on by Black Much of Monster's status is Sabbath member Ozzy Osbourne intertwined in how the brand and his wife Sharon, decided to Preparing for is marketed. Equally impor give back to its fans by removing tant is how ii is not marketed; the entry fee for its tour stops. segmentation Monster does no mass media Instead of paying high prices for nllcipa11ng the trenrls is one way to slay ahead marketing, including televi tickets to the heavy metal tour, fans Aof the pack. In the energy drink category, sion ads or billboards. Instead, could only get tickets through Monster thinks the next wave will be price seg it focuses on sponsoring ath- OzzFest's Web site or tlu-ough a mentation. letes, artists, personalities, Monster four-pack promotion. "We anticipate the energy category might be tours and events to target its "The batch through OzzFest sold affected IJy the segmentation we're seeing In }'Olutg male demographic. out within one day, so [Monster] the beer market, where there are premium, TI1e company's Southern was the only place left to gel tickets mid-grade and low-tier lll"Oducts," says Geoll California roots influence to OzzFest," Bremmer explains. " It Bremmer, Monster IJrnnd manager. "Righi Monster's partnerships, was such a huge success that we now, virtually all energy drinks are at the Bremmer says. had over 20,000 ticket redemptions. same price poinl. We think within the energy "We're based near Orange It wen t so well we're bringing back drink category, segmentation will start to rise Cotu1ty, Calif., which is the a similar promotion this year." with different packaging sizes ancl brands to mecca of action sports: surf Additionally, Monster has a create segments that open the category_" ing, skating and snowboard Hispanic initiative, which sponsors In preparation for segmentation, Hansen ing," he says. "Many of the Spanish rnck bands and more than Natural Corp. offers several allied brands, apparel and sports brands like 40 events a year. The brnnd also including Lost, Rumba, Unbound, Joker and Oakley, Billabong, Burton and has a presence on college campuses Ace energy drinks. The Monster brand occu Quiksilver; if they are not with Monster ambassadors located pies the premium lier. The Lost brand, which based in Orange County, on nearly 150 campuses across the was an early partnershi11 for Hansen's with the they've set up an office here. country. Furthermore, the brand surfboard manufacturer of the same name, is Corona also is the hotbed of has approximately 25 street teams distributed exclusively by Anheuser-Busch, motor sports with many of in nationwide markets to give out with which Hansen's formell a parlnership in our sponsored race teams just energy "where its consmners need 2006. Rumba energy drinl<, which is made down the street." il the most," Bremmer says. The with juice, also is featured in the llislrlbulion The neon green claw logo teams may visit beaches, skate partnership. has long been a staple at punk parks, record stores and other local In a lowcr-1iriced lier, are Joker, Unbound rock summer festival The hangouts to sample Monster prod and Ace energy drinks. Joker was developed Warped Tour or during action ucts. through a parlnership llctween Mansen's anrl sports competitions such as For the virtually m inded con convenience store chain Circle I< and was the X-Games. When Monster stuner, Monster integra ted itself ex1rnnded into national direct store distribu was getting its start, Hall and into "Dave Mirra's BMX tion lor a lower price. Thal also was the case his team offered on-the-spot Challenge," a video game for with Unbound, which was created lor i,M/PM sponsorships to X-Game ath- Nintendo's Wii game system. In the convenience store chain ancl since been letes. Now the brand is game, Mirra wears a Monster logo ex11anded nationally. Both Joker ancl Unllound ingrained in the action sports shirt and the game's energy moni arc oflcn run on lwo for $3 promotions, while tournament. At this summer's tor is shaped as Monster's green rllonster retails lor $2.29, Bremmer says. X-Games, Monster athletes claw logo. As the player lands BMX December 2007 www.beui11d11stry.co111 MEC005517 Exhibit 1 Page 9 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster- Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. COVER STORY tricks, the energy 'M' fills up, and be confidently of the things we when it's filled to the brim, the brought on to the had planned for player gets an extra bmst of energy job site, Bremmer 2007." for its virtual BMX rider. adds. Not only does Despite its the company plan Adding new Monsters masculine posi on added visibility In order to stay fresh in a fast tioning, Monster for the line, it hints growing category, innovation is took a careful at Java Monster necessary. While Monster has been approach to the package design of extensions. at the forefront of hybrid energy Java Monster. Instead of the "'Ihere are a number of SKUs products, the brand continues to Monster logo in metal, the 'M' logo we're goi11g to launch because we push the envelope with new is burned into wood for a homey really do feel we can command U1e entries. coffee feel U,at does not take too shelf space," Sacks says. "We Uunk "If you're going to try to get much away from Monster's mascu it's important, creative and shouldn't ahead of the pack, in growth, in line .image, Hall explains. Through cannibal.ize the existing energy cate positioning, you have to be differ both the packaging and the prod gory. It really should be placed in U,e ent," Sacks explains. "And to be uct, Java Monster has brought in coffee door witl1 morning products, different you've got to be creative new consumers. witl1 juices and competitive coffee and you've got to be ahead of the "The simple vision of Java products. We believe that it's going to curve, which is a colloquial expres Monster was to take the energy be incremental because it will draw sion everybody uses, but you really needs of those consumers who are more consumers into that need to come out with products either afraid, ii1experienced or put coffee/energy category and the ener that are d ifferent and do so ahead off by the whole marketing and gy category as such." of the other people. And then what concept of energy drinks and fulfill Monster hopes the newcomers happens is that everybody copies their energy needs with ll Monster who are picking up Java Monster very quickly, so you find yourself branded product," Hall says. "We will be inspired to try Monster's having to continue to innovate and were very conscious in the design carbonated varieties. be different." that we "vere able to transfer some "The cross-pollenation has been In June, Monster dared to be dif of our equity over without screw really good," Sacks says. "That's ferent with the launch of Java ing up who we are and our core where we are at the moment, but Monster, a line of coffee/ energy imagery." we'll think of new things by the drinks. Unlike its brethren, Java The line launched in Big Black, middle of next year, I have no Monster features a dairy base with Loca Moca and Mean Bean Oavors doubt. We'll continue to try to coffee, mocha and vanilla latte fla and has been transcending demo innovate and look at where we vors. The product fea tures less caf graphics to attract males and should be." feine than traditional coffeehouse females in broad age Janges - Both Sacks and Hall say the ener coffee, but with the added effects when it's been on store shelves. In gy category is not just a fad, and from the amil10 acids, B vitamins, the first months of U,e launch, pro even venture to say that energy taurine and ginseng in its energy duction of Java Monster could dri11ks are the new soft drinks. blend. Instead of stocking Java hardly keep up with demand. "We believe Urnt the energy drink Monster alongside energy drinks, "It's blown away our forecast," category as a category is here to stay, Monster is marketed and merchan Bremmer says. "We reached the but theTe are going to be refinements dised as a ready-to-drink coffee point where we weren't able to fill within that category to keep it inter beverage. our orders. A lot of our initial p lans esting, make it interesting for con Not only does the company were to sample the product using sumers and help broaden it to more hope Java Monster brings more om street teams during the morn consumers," Sacks says. "We think efficacy to the RTD coffee category, ing shift and really get the product Java Monster is broadening it to the but also some masculinity. The out there, but we weren't able to existing consumer and bringing in company is positioning the product fill our orders, let alone give the additional consumers: the morning as "coffee for real guys," Hall says. product to our sampling teams. So consumer, the coffee drinkc1~ the lt's an RTD coffee product that can for 2008 we w ill be able to do a lot orange juice drinker and more." Bl www.beui11d11stry.co111 December 2007 MEC005518 Exhibit 1 Page 10 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. PLANT FOCUS ~[fil@[i~W @M(s~@JOO~@ Production of Monster Energy drink calls for a network of co-packers and distributors ln order to produce the 35 million have more national distribution. It checked again and dried, they trav cases of Monster energy drinks that makes it easier to meet orders on el up a vertical ramp to the case are sold each year, Hansen Natural time and to ship shorter distances." packer. Corp., Corona, Calif., has created A co-packer near Hansen's During Beverage llldustry's visit, several partnerships. The company Corona, Calif., headquarters pro the line was packing 24-can club has a network of regional co-pack duces Monster's "green," Lo Carb packs of 16-ounce regular green ers and distribution warehouses for and Assault varieties. The plant Monster. From the case packer, production and storage of its car receives empty Monster cans by the club packs travel to the bonated, juice-based and dairy truck in full pallets, which are shrinkwrapper. Plant workers based·line of energy drinks. The stored onsite until needed. As with enstu·e the·paJlel is display ready variety of formulations are a boon all its co-packers, Hansen's pro for retailers. to Monster's portfolio, but have vides plants with the necessary Once the pallets are slu-ink required additional partnerships materials and ingredients. wrapped and loaded onto a trnck, with appropriate co-packers. Produced on a traditional car they are transported from the co "Our network·has conl'inued to bonated soft drink line, green packer to Hansen's distribution grow at a rapid rate," says Gareth Monster cans wind through the facility in Corona The 400,000- Bowen, senior vice president of filler, which loads the cans with square-foot distribution facility is operations. "Monster alone in 2006 regular Monster and then caps and located down the street from the utilized six co-packers, and in 2007 seals the packages. The cans are company's headquarters. we've used 11 co-packers. It pro then d1ecked for fill level and caps The Corona warehouse stores vides benefits in that we're able to are washed. Once the products are pallets of Monster, Hansen's allied December 2007 www.bevi11dr1stry.co111 MEC005519 Exhibit 1 Page 11 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. PLANT FOCUS _energy drink brands, fruit beverages that had traditional retailers asking flagship have never dipped. The and some private label products. for more at the end of the summer, product continues to grow despite The brands' point of sale materials, Bowen says. The four-packs as well line extensions and multi-packs." additional merd1andise and event as eight-packs are alJowing for TI1e company maintains a nation trucks also are stored at the facility. improved velocity in grocery stores, wide network of convenience store 1n addition, the Corona warehouse while the convenience sector focused representatives, which it calls is capable of repacking cases. remains the brand's main focus. trade development managers. During Beverage Industry's visit, "Convenience stores are our first Monster employs 100 trade develop employees were repacking 24-packs target because it's such an important ment managers nationwide who lake of Monster Lo-Carb to create 12- part of our business, and conven the time to go into local stores set packs that featured a special flyer. ience stores are often more open to shelves, sell SKCJs and bring in poit1t While the aisles i.n the distribu new products," Bremmer says. of-sale items. tion center are fi lled with According to Bremmer, the con "The trade development managers Monster's multiple varieties, Geoff venience chruu\el makes up about 70 are experts in their own local ru·ea," Bremmer, Monster brand manager, percent of Monster's sales. Monster Bremmer says. "It's a time-consuming points out pallets of popular new works with its network of independ and important task. Not every mer introductions, such as green ent distributors to ensure its prod chandiser can accommodate every Monster 24-mmce resealable "cap ucts are always on store shelves. The SKU and put up P.O.S. inside and cans" and Java Monster. The prod success of green Monster has outside the store. TI1e trade develop ucts generally were out of stock so opened the door for Monster's itmo ment managers are in the market and once the pallets were received in vations, he says. have the lime, so if they need to ta ke the warehouse, they were immedi "Our flagship Monster SKU sales apart a shelf and reorganize it, they'll ately shipped to fulfill orders. conlinue lo grow it1 the d1ruu\el," do it. It's a service level that om com "With Java Monster, the demand Bremmer says. "We're putting it1 pany has provided from the start." has been so great we haven't been more SKUs, and velocity sales per To make sure the product is con able to fill all orders," says Bowen. outlet on Monster green 16-0lmce sistent across its network of co-pack "It blew away all our initial fore continue to rise. Generally sales for ers it1 Southern California, Texas, casts and made us scramble to find the flagship product of most brands is Florida, the Carolinas, Miimesota and additional capacity. In November, lhe most critical and sales for our Missouri, samples of Monster arc Java Monster was produced at six shipped from the co-packer to times our initial_projections." Hansen's Quality Control Similar stock issues were experi Depru·tment. 1n its facility, which is enced w ith Monster's fou r-packs adjacent to the Corona warehouse, Hansen employees test the blended products. Since May 2006, Hansen has had a distribution arrangements with many Anheuser-Busch distribulors for Monster and two other affiliated energy drit1.ks. The Anheuser Busch nel"l-vork is now one of Hansen's primary distribu tors, but it is not an exclusive agreement, Bowen says. The company still has licensing agreements with various dis tributors in many territories by brand and by chaimel. "We sh·ive to sb:eamline the supply chain and utilize se1vices they offer so the product is in the right place to maximize sales," Bowen says. Bl ww1v.beuind11stry.co111 December 2007 MEC005520 Exhibit 1 Page 12 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. 1 IBM: BEYOND OUTSOURCING 100 COMPANIES TO WATCH MEC005521 Exhibit 1 Page 13 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Hot Growth Companies TO WIN A POSITION IN THIS TABLE, a company least $5, and be actively traded. Banks, insurers, RETURN ON CAPITAL is earnings expressed as a must excel in three ways. The selection process real estate firms, and utilities are excluded. So are percent of total debt and equity. For ranking begins by ranking companies according to their companies with significant declines in current purposes, the maximum allowablea nnual return three-ye;ir results in sales growth, earnings growth, financial results or in stock price, as well as on invested capital is 100%. If companies have 11 and return on invested capital. The ranks'in the companies where other developments raise made substantial accounting restatements, long· I table are calculated from these numbers. A questions about future performance. term returns may be averaged for two years instead company's composite rank isthe sumof 0.5 times SALES AND EARNINGS are the latest figures of three years. its rank in return on total capital plus 0.25 times its available through the most recent 12 months. TIME PERIODS VARY according to the month of a sales· and profit-growth ranks. Earnings include net income from continuing company's fiscal yearend. Profitability and growth operations before gainsor losses from COMPANIES WERE DRAWN from Standard & are calculated based on the most recently Poor's Compustat database of more lhan 10,000 extraordinary items. available data. publicly traded corporations. To qualify, a company INCREASES IN SALES AND PROFITS are must have annual sales of more than $50 million calculated using the least·squaresmethod. If STOCK PRICE DATA are as of Apr. 28, ioo6. and less.than $).5 billion, a current market v~lue results for the earliest ye~r are negative or not A• indicatesthat a company also appeared in last greater than $25 million, a current stock priceof al available, the average isfor two years. year's rankings (BW-Jtme 6, 2005). · COMPANY (STOCK SYMBOL) CURRENT RESULTS THREE•VEAR AVERAGES INVESTMENT DATA STOO 1 VAALCO Energy (EGY) Houston 713 623-0801 93.0 33.7 98.9 297.5 35.2 8-3 7 12 409 Finding and pumping oil off or Africa's Atlantic Coast 2 Hansen Natural (HANS) Corona, Calif. 909 739-6200 • 408.6 75.0 56.7 180.9 31.9 146 - 29 129 42 2892 Keeps hipsters hydrated with juices, sodas, teas, and energy drinks 3 Palomar Medical Technologies (PMTI) Burlington, Mass. 781993·2300• 81.6 20.2 44.8 600.1 31.2 43 - 21 42 41 730 L,ascrs and lamp systems used for medical and aesthetic procedures 4 W&T Offshore (WT!) Houston 713 626·8525 • 618.2 205.6 42.5 298.4 30.7 47- 19 43 14 2817 Explores and exploits oil and gas reserves, mostly in the Gulf of Mexico 5 NAVTEQ (NVT) Chlc;,go 312 894·7000 514.1 169.7 44.1 115.0 52.7 56- 34 42 23 3823 Its map dat;,base guides vehicle navigation systems and Web sites 6 Under Armour (UARM) Baltimore 410 454-6428 310.6 25.9 78.3 100.l 32.3 42- 21 37 75 1707 Develops and markets its brand of microfiber athletic apparel 7 VASCODa ta Security Intl. (VDSI) Oakbrook Terrace, 111. 630 932-8844 56.8 8.3 41.2 218.l 21.3 12 - 7 9 43 339 Designs and supports user authentication and online security systems 8 Programmer's Paradise (PROG) Shrewsbury, N.J. 732 389-8950 142.8 2.9 30.2 372.7 20.6 14 - 8 13 19 53 Direct wholesaler of software and hardware for IT professionals 9 LCA·Vision (LCAV) Cincinnati 513 792·9292 215.6 35.4 47.0 108.7 19.8 58-33 56 34 1162 When you need to read the bottom line, its laser eye surgery helps 10 BlueNIi e (NILE) Seattle 206 336·6700 209.7 12.9 40.2 69.5 39.l 44- 25 35 50 603 Peruse more than 50,000 diamonds at this onllne rnegastore of bling 11 Volcom (VLCM) Costa Mesa, Calif. 949 646·2175 169.9 27.5 41.7 58.3 63.1 41-24 36 30 864 Makers of youth apparel related to boardsports 12 American Science& Engineering (A.SE!) Billerica, Mass. 978 262-8700 149.8 34.4 32.2 324.l 18.1 94- 36 86 23 741 Develops advanced X·ray systems sold primarily to governments 13 ASV (ASVI) Grand Rapids, Minn. 218 327-3434 • 256.8 29.3 75.9 165.3 14.2 35- 16 25 24 675 Rubber-tracked construction vehicles for all seasons 14 PeopleSupport (PSPT) Los Angeles 310 824-6200 71.l 22.9 46.6 69.J 29.2 12- 7 11 9 198 Outsourcers of customer care, tech support, and sales 15 Imperial Industries (IPII) Pompano Beach, Fla. 954 917-7665 75.7 3.7 26.4 130.9 21.8 31- 7 25 18 62 Producer and distributor of wall-finishing materials like stucco 16 Cognizant Technology Solutions (CTSH) Teaneck, N.J. 201801·0233 • 989.6 181.5 57.2 69.4 21.5 65- 41 64 51 8864 Offshore outsourcing for tech services 17 Mulli·Fineline Electronix (MFLX) Anaheim, Calif. 714 238·1488 • 458.8 49.7 52.0 117.4 15.5 67-14 58 30 1423 Manufactures flexible printed circuits and circuit assemblies 18 Hittite Microwave (HITT) Chelmsford, Mass. 978 250-3343 90.7 25.7 38.1 73.! 25.4 39- 18 39 46 1116 Its integrated circuits show up In items from cable moderns to satellites 68 I BusinessWeek I June 5. 2006 MEC005522 Exhibit 1 Page 14 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster- Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. STOC~PRICE SALES EARNINGS ~/CREASE(~) Rfll/RIIOO 52-V.U~ St'!L S llll. ~lES PROflTS CAPITAL H!GH-lOW RECENT 19 OmniVisionTec hnologies (OVTI) Sunnyvale, Calif. 408 542-3000 463.1 84.3 57.4 71.2 19.5 31 - 12 29 19 1536 Produces image sensor chips for digital cameras and security systems 20 NutriSystem (NTRI) Horsham, Pa. 215 706-5300 321.8 40.l 94.4 101.0 14.5 71-9 68 63 2435 Customers lose weight with meals sent straight to their door 21 Resources Connection (REGN) Costa Mesa, Calif. 714 430-6400 618.0 60.6 46.9 711.3 18.7 32-17 27 23 1294 Provides accounting and finance professionals who work on a project basis 22 EfJ (EFJI) Irving, Tex. 972 819-0700 • 81.0 14.2 33.5 151.7 15.7 12 - 6 10 18 265 Maker of analog and digital wireless radio systems 23 lnfoSonics (IFO) San Diego 858 373-1600 175.9 3.8 42.5 63.2 22.6 24 - 2 13 24 73 Distributes cell phones and accessories to the U.S. and Lalin America 24 Amedisys (AMED) Baton Rouge, La. 225 292-2031 438.3 30.3 44.9 230.7 13.4 48- 28 33 18 529 Provider of home health care and hospice services 25 LifeCell (LIFC) Branchburg, N. .J. 908 947-1100 105.2 14.0 41.1 72.3 20.0 28 - 12 27 66 888 Makes products from human tissue for use In surgery 26 RPC (RES) Atlanta 404321-2140 471.3 81.5 26.8 147.1 17.3 36 - 9 28 22 1785 Provides oilfield equipment and services 27 PetMed Expres~ (PETS) Pompano Beach, Fla. 954 979-5995 137.6 12.1 31.8 50.1 36.0 20-6 16 32 386 Online and catalog pharmacy for dog, cat. and horse owners 28 NeuStar (NSR) Sterling, Va. 571434-5400 260.8 59.1 39.5 51.8 30.6 36 - 24 35 46 2399 Clearingtiouse sj!rvice~ help route 2 billion phone.calls dplly 29 Nelllix (NFLX) Los Gatos, Calif. 408 540-3700 753.9 55.2 66.7 154.0 12.7 33 - 11 30 35 1645 Online DVD rental house offers movies via mail without late fees 30 Ceradyne (CRON) Costa Mesa, Calif. 714 549-0421 • 434.8 65.4 84.7 157.8 12.0 64-19 53 21 1420 Its ceramics are used In orthodontic brace~. as well as body armor 31 MEMC Electronic Majerials (WFR) St. Peters, Mo. 636 474-5000 1212.0 345.3 19.2 70.3 37.7 44-11 41 26 8941 Develops advanced wafers for semiconductor manufacturers 32 Empire Resources (ERS) Fort Lee, N.J. 201 944-2200 378.0 9.7 29.5 56.6 27.7 50- 11 46 47 444 Produces semiflnished aluminum for industrial customers 33 Gevity HR (GVHR) Bradenton, Fla. 941 741 ·4300 624.6 37.4 19.4 101.5 20.5 30-16 26 19 678 Can become your company's human resources department 34 Berry Petroleum (BRY) Bakersfield, Calif. 661616-3900 • 434.2 113.1 46.4 60.3 18.6 80- 41 74 15 1627 Finds some natural gas. but pulls mostly crude out of the earth 35 Endo Pharmaceuticals Hldgs, (ENDP) Chadds Ford, Pa. 610 558-98~0 887.5 209.0 24.5 89.0 19.2 34 - 19 31 20 4177 Maker of Percocet and other pain medications 36 Cimarex Energy (XEC) Denver 303 295-3995 • 1332.4 328.3 81.2 98.0 13.0 48 - 33 43 9 3538 Exploration and production of oil and natural gas on the Gulf Coast 37 Alliance Resource Partners (ARLP) Tulsa 918 295-7600 • 881.4 169.J 17.7 63.6 37.8 48-32 42 14 1544 Its mines produce coal for utilities 38 VSE (VSEC) Alexandria, Va. 703 960-4600 • 277.5 6.4 30.7 107.l 15.3 52 - 28 33 12 77 Engineering and technical help for government systems and equipment 39 Chico's FAS (CHS) Fort Myers, Fla. 239 277-6200 • 1404.6 194.0 38.3 42.5 24.8 49 - 26 37 35 6735 Comfortably relaxed clothing brings baby boom women into its stores 40 8uild·A·Bear ll'orkshop (BBW) St. Louis 314 423-8000 • 374.4 27.7 30.0 73,9 17.8 33-19 32 24 650 Stores invite you to stuff, dress, and accessorize plush toys 41 St. Mary Land & Exploration (SM) Denver 303 861-8140 • 789.1 167.4 50.6 67.3 15.5 46-22 42 17 2402 Explores and exploits North America's oil and natural gas reserves 42 Hurco (HURC) Indianapolis 317 293-5309 127.2 16.4 22.2 496.6 14.0 37 - 10 31 12 197 Industrial software and equipment for machining and metal work 43 Unit (UNT) Tulsa 918 493-7700 990.3 256.6 68.2 122.l 11.5 62- 35 58 10 2667 It explores and produces oil and natural gas In North America 44 Barrett Business Services (BBSIJ Vancouver. Wash. 800 828-0700 240.4 12.9 31.2 144.8 13.1 29- 13 26 22 292 Human resource manager for small to midslzed companies 45 Encore Wire (WIRE) McKinney, Tex. 972 562·9473 872.9 65.2 40.2 106.0 13.3 44 - 9 42 15 972 Manufactures and distributes electrical copper wire and cable 46 Ansoft (ANST) Pittsburgh 412 261-3200 74.1 14.3 16.9 136.2 17.8 44 -21 44 40 523 Software for electronic englneerlng and design 47 Sonic Solutions (SNIC) Novato, Calif. 415 893-8000 143.8 18.6 63.4 77.l 13.0 22 - 14 18 26 440 Software tools for creating movies and music 48 Reliv International (RELV) Chester1ield, Mo. 636 537-9715 • 115.8 7.9 22.2 42.l 33.8 19- 8 11 23 174 Its distributors sell nutritional supplements and skin-care products 70 I BusinessWeek I June 5, 2006 MEC005523 Exhibit 1 Page 15 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. --,....- ,.- -,--•--- .,.....,.....,------~ . . . :,:• COMPANY (STOCK SYMBOL) CURRENT RESULTS THREE-YEAR AVERAGES INV~STMENT DATA STOCKPRICt !,IARW SAi.ES EARll :«lS rr,au:ASl: (Ii) R£1URllOII 52·\'IEEK P-t VALUE $MR.. SI.Ill SA!FS P!!OffiS CAPITAL HIGIHOVI RlWIT RATIO UtL 49 Quality Systems (QSII) Irvine, Calif. 949 255-2600 • 109.2 20.5 25.8 43.9 22.2 46- 22 34 44 892 Develops and markets software systems to manage medical practices 50 LoJack (LOJN) Westwood, Mass. 781 251-4700 • 198.5 18.7 17.7 106.3 17.7 29- 14 22 23 419 fildden transmitters help police recover stolen vehicles 51 Dynamic Materials (BOOM) Boulder, Coto. 303 665-5700 87.0 12.9 21.6 87.7 16.3 43 - 12 38 36 450 Specialized metal production including explosion-welded clad plates 52 Diodes (D10D) Westlake Village, Calif. 805 446-4800 • 239.8 35.4 24.l 85.4 15.6 43 - 18 41 30 1029 Manufactures and supplies discrete semiconductors 53 Leucadia National (LUK) New York 212 460-1900 1306.4 1312.0 78.0 98.1 10.9 62- 34 61 5 6566 Holding company in markets from timber to manufacturing 54 Argon ST (STST) Fairfax, Va, 703 322·0881 283.1 22.0 107.l 118.0 9.5 37 - 26 33 32 733 Develops and sells intelligence, defense, and communications systems 55 ValueClick (VCLK) Westlake VIiiage, Calif. 818 575-4500 369.9 41.8 70.7 103.4 10.8 21- 9 17 38 1717 Online marketing connects advertisers, publishers. and consumers 56 eCollege.com (ECLG) Chicago 312 706-1710 106.5 6.4 69.7 223.1 8.5 22-9 21 73 469 Brings registration, tests, even classrooms into cyberspace 57 Ventiv Heallh (VTIV) Somerset, N.J. 800 416·0555 609.1 44.0 39.1 114.0 10.9 34-16 30 20 837 Helps drug companies staff and run clinical trials 58 Packeleer (PKTR) Cupertino, Calif. 408 873·4400 117.1 20.l 27.1 68.0 14.1 16 - 7 13 23 447 Connects businesses to make the most of their wide area networks 59 Digital River (DRIV) Eden Prairie, Minn. 952 253-1234 243.9 56.7 42.6 78.1 11.0 48- 22 44 31 1525 Outsourcing e-commerce, it helps online businesses grC1V1 60 TIM Technologies (TIMI) Santa Ana, Calif. 714327-3000 254.0 35,2 38.6 126.9 9.8 17- 6 16 19 672 Contract maker of printed circuit boards ror equipment manufacturers 61 Sun Hydraulics (SNHY) Sarasota, Fla. 941362-1200 121.9 13.5 23.0 105.5 12.3 33-17 21 17 230 Produces screw-in hydraulic cartridge valves and manirolds 62 Coldwater Creek (CWTR) Sandpclnt. Idaho 208 263·2266 • 788.2 46.8 18.l 76.4 14.4 30- 11 28 56 2573 Catalogs, an extensive Web site, and over 170 stores of women's apparel 63 Parlux fragrances (PARL) Fort Lauderdale. Fla. 954 316-9008 155.5 17.6 28.6 50.0 14.9 · 38- 15 27 16 244 Produces and distributes fashionable name-brand perfumes 64 CNX Gas (CXG) South Park, Pa. 412 854-6719 655.2 121.5 61.9 58.5 11.5 31-20 29 36 4299 j' Developing natural gas and coalbed methane out of the Appalachians 65 Altera (ALTR) San Jose, Calif. 408 544-7000 • 1151.7 273.8 17.1 48.0 19.2 23 - 16" 22 30 7850 Makes programmable chips 66 Vcnlana Medical Systems (VMSI) Tucson. Ariz. 520 887·2155 • 208.2 25.9 23.8 96.8 12.2 49-34 49 69 1650 Diagnostic systems and lab equipment used in fighting cancer 67 Gen-Probe (GPRO) San Diego 858 410-8000 323.4 61.2 25.8 62.6 13.5 56-35 53 46 2757 Its tests quickly detect germs and diseases 68 Trimble Navigalion (TRMB) Sunnyvale, Calif. 408 481-8000 • 805.4 93.2 18.9 99.1 12.4 50- 27 47 29 2554 Global positfoning technology, software, and integration 69 Radyne (RADN) Phoenix 602 437-9620 120.7 11.6 18.8 6l.0 15.2 17 - 7 15 24 271 Equipment for Internet, cable, and satellite broadcasting 70 Helix Energy Solutions (HEU<) Houston 281 618-0400 931.5 182.8 38.1 132.4 8.9 46 - 21 39 18 3043 Energy services company finds oil and operates offshore wells 71 Providence Service (PRSC) Tucson 520 747·6600 • 156.7 10.0 52.8 88.7 8.7 35- 23 31 31 303 Provides case management and other services for government programs 72 Miller Industries (MLR) Ooltewah, Tenn. 423 238-4171 368.4 22.5 19.6 86.3 12.1 29- 10 27 14 308 Manufactures auto bodies for towing and recovery vehicles 73 Headwaters (HW) South Jordan, Ulah 801 984-9400 1174.1 146.9 99.8 71.4 8.6 46-30 34 11 1412 Makes construction materials, as well as syothfuel used by utilities 74 Hydril (HYDL) Houston 281449-2000 412.0 80.9 17.7 44.0 16.1 90- 46 80 24 1897 Makes tubes and pressure systems for petroleum drilling 75 aQuantive (AQNT) Seattle 206 816-8800 335.6 36.4 24.5 72.8 11.9 30-11 25 51 1877 Online marketing. Web site design. and consulllng 76 Commercial Vehicle Group (CVGI) New Albany, Ohio 614 289-5360 831.4 51.9 35.8 116.7 8.7 25- 17 20 8 427 Makes cabs for heavy trucks and commercial vehicles 77 Brigham Exploration (BEXP) Austin, Tex. 512 427-3300 106.1 30.3 40.2 110.1 8.6 15- 7 9 14 424 Uses 3-0 seismic technology to explore for oil and natural gas 78 Guess? (GES) Los Angeles 213 765-3100 928.5 66.0 17.4 184.1 10.5 47 - 14 40 27 1800 Jeans- and all kinds of apparel ror men, women, and children 72 I BusinessWeek I June 5. 2006 ' MEC005524 Exhibit 1 Page 16 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~•AR<.El SAi.ES EAA',J;C.S RICl!£AS£ I'll ~EIURl•O·, ~-V,fEX P-[ YALU[ $Ml SIJJl SAi.ES Pl!Oms CAl'ITAl KGH lOII Rf:C0/1 RAIO SIJ C 79 NETGEAR (NTGR) Santa Clara. Calif. 408 907-8000 • 467.9 35.6 24.2 62.2 12.2 26-16 22 21 741 Designs networking supplies for home and small business 80 Labor Ready (LRW) Tacoma, Wash. 253 383·9101 1289.9 64.1 13.2 77.9 12.9 28-17 26 22 1423 Annually places 600,000 temporary skilled and full-time workers 81 PPD (PPDI) WIimington, N.C. 910 251·0081 1092.4 137.7 19.1 54.3 13.8 41- 22 36 31 4161 Helps companies develop new drugs by running preclinical trials 82 Korn/Ferry lnternalional (KFY) Los Angeles 310 552-1834 529.9 50.8 18.0 206.8 9.5 21-14 21 18 877 Companies helps/find their new managers, and vice versa 83 DSW (DSW) Columbus, Ohio 614 237-7100 1144.l 37.2 21,1 72.4 11.8 33- 18 31 31 1374 Name-brand shoes for women and men at a discount 84 Rolln-Sinar Technologies (RSTI) Plymouth, Mich. 734 455-5400 383.6 43.7 19.7 98.0 10.8 57-29 56 20 856 Designs, develops, and markets industrial lasers 85 ADTRAN (ADTN) Huntsville, Ala 256 963·8000 517.3 102.2 14.1 55.6 14.2 33-20 25 19 1929 Develops and supplies products used In Internet and telecom systems 86 MSC Industrial Direct (MSM) Melville, N.Y. 516 812·2000 1167.1 124.1 11.6 46.5 14.1 56-27 52 28 3486 Direct markeler and supplier of industrial equipment and tools 87 MICROS Systems (MCRS) Columbia. Md. 443 285-6000 • 659.1 60.2 18.0 62.5 11.9 55-38 42 28 1622 Software, hardware, and systems for the retail and hospitality Industries 88 Concur Technologies (CNQR) Redmond, Wash. 425 702-8808 81.0 5.4 14.9 136.3 9.3 19-8 16 104 555 Streamlines corporate expense management to save clients money 89 Klor~ (KFRC) Tampa 813 552·5000 831.7 25.3 17.7 )08.8 9.3 15- 7 14 22 543 Helps find specialized emplQYees in finance, tech, medicine, and science 90 Lamson& Sessions (LMS) Cleveland 216 464·3400 530.8 34.4 15.9 74.8 10.9 33-9 25 11 391 Makes and sells electrical and telecom enclosures and PVC pipe 91 Stratasys (SSVS) Eden Prairie, Minn. 952 937-3000 • 86.2 10.2 28.7 50.3 10.5 36-20 33 34 332 Makes and sells rapid prototyping devices 92 AngloDynamlcs (ANGO) Queensbury, N.V. 518 798·1215 • 72.2 6.5 23.3 72.8 9.1 31 - 17 31 62 386 Develops medical instruments for anglographic procedures 93 AMCOL International (ACO) Arlington Heights, Ill. 847 394-8730 • 556.6 39.0 21.9 42.6 11.8 32-16 29 23 858 Clays for building materials, cosmetics, even kitty litter 94 Denbury Resources (DNR) Plano. Tex. 972 673-2000 623.6 180.2 24.3 52.l 9.8 37-14 33 22 3739 Finds and develops oil and natural gas fields near the Gulf Coast 95 Lufl ADTRAIISS CIIXC.s64 He~•alm73 " r~, lndu•lllt• 72 Rtf,vlnlctf131ioNI 48 ALPHABETICAL INDEX Afianc,R, '°"'.:eP111« 37 Ccgriant Ttd1. Solwol\l 16 li MEC005525 Exhibit 1 Page 17 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc...... - 2003 - -- .,_,,_....., ------...... ilN2itKJ . J I A com . C2(iao nte~! '2!."9 8 BRANDS THE ~ □ : - m ~-(; ~ bevindustry . Of :z SOI RIGHTS ~-:S;~ l~J':t~l !JU ISSUE C!I k"1&.~ www !0% AKING ERGY ONNECTION, !O!O'.'J'~ST ane n:=:~: tfllS!H o,srr.z Stt !80:fIT.C THIS TATE 0URING NDUSTRY ~ ORTIACATION ~RENDS M :N 1 ;coRECARD . N I\.) (Jl (1) 0 0 (Jl m ~ 0 Exhibit 1 Page 18 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. 2003 State of the Industry Report lnl""41kdl~ " "Jli11tMf f1l''n t"Sf I'S II 71J11.-c\,"\"'IO-.Cr• U~,., U..i;a.. t,V-: lhc 1we 11flkir-t 111 r.1.rt::111 c:ump,,my .di, o.1',.,iaq,. Enl-'11 $1 C..Jbury Xlm,,~rc.•.~ ,b Jtlhf\ l,i1ll1,'JC\ for ll..-te-.•11• rtst.withSl11nultklf• S ui'M.li:rl,md l N!1.'.Allll: ('h.,icm~1\ vf th< bin,..J W liKX'I')', In M l!.'>. t)ut on,•u( lht .:olTIJ~nr, A :.h1.>ri llnh: I.lier, t."111er dntg, ,Mio.I nu'i'f, r...,w ,alet cl,i www.L~iwl11stry.tc>m J.. ly 200J MEC005527 Exhibit 1 Page 19 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Beva INDUSTR ~~. ~ ~.oolo0' &ditlriNtion ~J !:) ~JJ T21 j Still making waves after 75 years MEC005528 Exhibit 1 Page 20 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. • In ,.,T wt-1 .... IOI' 2005 (our "t", "'. whitl\ Ju._,,_, Jl'td LLC ~nd '-""'·rg,· 1 ... new u ,~ ,u\ ~l' ~ >iilnln,g " ~· .. n , t,,c,·c-r.Jg<' dc.."'"Ot'AIN or.mg ',I Rumb.1. .trwq;Y h ~k t~""'"" c:uhu ... 21XM. lho: .J..'Jlllfa.>d em1,,)UO.,~'" Dti ...-r..<-fl;Y ~)' rsydmW .J I> Bl .. b"I ,ciafon, .,\$S.1Uh t r~ .inJ ,-1W:H1t\l1i! «.on.,UJJ1l'r, .,nJ ulfft,-J lntrodua.-d r ,kale .t E~ wlth l.iun..:h,.J Ll.UMh1.-d P,..'Ti:"~t tnrs Sizzling Hot Growth Page l of 5 ~ ~· ...,~ f ~ --:-; NOT .JUST GREAT BIG f ·. ·~ COMPANIES. , · ___ REAP MORE SEARCH SI' BusinessWeek Advanced S, •1•i11i#Mlt/NFfliUM 1flMf11ilM1mllJ•i'hMM1•B-.@•/l•:§M1li'wfM•il1M2-ieMIN1lsMALLlfll UDE MAY 25, 2006 COMPANY PROFILES HOT GROWTH COMPANIES TOI By Arlene Weintraub 1 VAALCO Energy POPU 2 Hansen Nalural 3 Palomar Medical Sizzling Hot Growth 1. Slzz Technologies The 100 companies on BusinessWeek's list may not be big, but they're agile Gro1 and fiercely competitive 2. Lehi 4 W&T Offshore Sate 5NAVTEQ In the tough, ultracompetitive Over STORY TOOLS 3. The 6 Under Armour world of football, Vernon Davis Printer-Friendly Version Agal 7 VASCO Data Security stands out for his strength, Con, International agility, and fighting spirit. When E-Mail This Story 4. Trol 8 Programmers Paradise he played for the University of Reader Comments Line Maryland, the 6-ft.-3-in. 5. Vact 9 LCA-Vislon ♦ $,{fl}, ) share the I 10 Blue Nile SLIDE SHOW » powerhouse drew raves as one of the best tight ends in college 11 Volcom football. During the National Football League's draft Get Free I 12 American Science & in late April, Davis was snapped up by the San POLL INSTANT SURVEY» Engineering Francisco 49ers. It's no surprise, then, that scrappy My company provides MARKEl 13ASV sportswear maker Under Armour, which got the jump sexual-harassment OJIA 14 PeopleSupport on giants like Nike (~~f) in the market for skintight prevention training: S&P 500 15 Imperial Industries athletic wear, chose Davis to be a celebrity endorser 0 Periodically Nasdaq of its products. 16 Cognizant Technology 0 Once, when the Solulions STOCKL As Davis ascends to the elite realm of professional employee is hired 17 Mulli-Flneline football, Under Armour is scoring some touchdowns Q Never Stocks 1 Electron\x lnflatlon of its own. Its sales have grown an average of 78.4% 16 Hitlile Microwave Q Notsure Create I ( annually for the past three years, and profits have Launch P 19 OmniVlsion doubled, causing the Baltimore company to bolt into Technologies BJ VIEW POLL RESULTS» the No.6 spot on BusinessWeek's Hot Growth list of 20 NutriSystem America's 100 fastest-growing small companies. PEOPLE SEARCH 2 t Resources Under Armour's signature tight-fitting shirts, along Connection with its shorts, jackets, and other products, have Search for business contacts: 22 EFJ become athlete favorites, because they're made of 23 tnfoSonics lightweight material that wicks away sweat. "Plus, it First Name : 24 Amecllsys makes you look stronger than you are," says Davis. Last Name: 25 LifeCell The 100 companies in BusinessWeek's 2006 ranking 26 RPC may not be big, but like the best in the NFL, they're 27 PetMed Express strong, agile, and fiercely competitive. Many have Company Name : 28 NeuSlar carved out niches that no one else was smart enough to spot or quick enough to pounce on. Some have 29 Netfllx only a few years of marketing experience. Others m 30 Ceradyne have been around for decades but recently pulled off PREMIUM SEARCH 31 MEMC Electronic revivals that returned them to the front of the pack. Search by job title, I Materials geography and build a Toqether, they're a powerful economic force. Small . 1. ___ _ _ ,,i!..• ---· --· - 1:-~ I ' http://www.businessweek.com/smallbiz/conlent/may2006/sb20060525_ 123647 .htm MEC005530 Exhibit 1 Page 22 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. S izzling Hot Growth Page 2 of 5 11s1 or execuuv1;i comac1s 32 Empire Resources businesses produce 14 times as many patents per 33 Gevity HR employee as large companies do, and they are twice 34 Berry Petroleum as likely to turn those inventions into successes, info 35 Endo Pharmaceuticals according to a Congressional report. They account Holdings for half of the private gross domestic product, create 36 Cimarex Energy more than 60% of net new jobs each year, and pay 44.3% of the private payroll. 37 Alliance Resource ADVERTISEMENT Partners 38VSE 39 Chico's FAS 40 Build-A-Bear Workshop 41 St. Mary Land & Exploration 42 Hurco 43 Unit 44 Barrell Business Services 45 Encore Wire 46 Ansoft 47 Sonic Solutions 48 Rellv International 49 Quality Systems 50 LoJack WRINKLE BOOM. during the vetting of our Hot Growth contenders, an economic 51 Dynamic Materials quirk emerged. The rising thirst for petroleum has driven prices up, translating to 52 Diodes gold for the 14 oil and energy-services companies on the list, and a No.1 spot for 53 Leucadia National vaalco Energy Inc. (page 63). Yet despite high prices for gasoline, consumers have yet to slash discretionary spending. The average household spends $44 a 54 Argon ST week on gas -- 15.8% more than it did a year ago, according to the International 55 ValueClick Council of Shopping Centers. Yet same-store sales in the second week of May 56 eCollege.com jumped 4.2% over the same period a year ago. Shoppers aren't hesitating to shell 57 Venliv Health out $40 for an Under Armour shirt. And they still flock to malls to shop at Guess? 58 Packeteer (GES) (No.78) and to watch their kids make stuffed animals at Build-a-Bear 59 Oigltal River Workshop (.lffl.W) (No.40). 60 TTM Technologies Spending is especially strong among the nation's 77 million baby boomers, who 61 Sun Hydraulics are snapping up the latest kitchen gadgets, having their w rinkles erased, and doing 62 Cofd\yater Creek whatever else makes them feel better as they age. "We continue to see an ongoing skewing of the distribution of wealth" to people over 60, says Mark Zandi, 63 Paflux Fragrances chief economist at Moody's Economy.com. "If you cater to aging boomers, you've 64 CNXGas got a powerful tailwind." 65 Altera The costly war that boomers are waging against the aging process makes them a 66 Ventana Medical Systems lucrative target. No.20 NutriSystem (tiIB.I) sells its weight-loss products mostly to younger boomers-women in their mid-40s -- but older dieters have started to 67 Gen-Probe catch on to the Horsham (Pa.) company's program. So CEO Michael J. Hagan has 68 Trimble Navigation launched an over-60 program and will introduce a seniors program this year, with a 69 Radyne menu featuring more protein and fiber and an exercise program tailored to a crowd 70 Hellx Energy with creaky joints. "We see this as a big, attractive segment," he says. "They buy Solutions as much for life extension as for vanity." That could fuel NutriSystem's hot run: 71 Providence Service Annual sales have jumped 94.4% on average over the past three years, and profits 72 Miller Industries 101%. 73 Headwaters ELDERCARE. As the population ages, it's no surprise that 11 Hot Growth 74 Hydril companies are clustered in the health-care and pharmaceutical industries. Palomar 75 aQuantive Medical Technolooies /PMTI\. which at No.3 is makino its second consecutive http://www.businessweek .com/smallbiz/content/may2006/sb20060525 _ 123647 .htm MEC005531 Exhibit 1 Page 23 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Sizzling Hot Growth Page 3 of 5 76 Commercial Vehicle appearance in the Hot Growth top 10, sells machines that use light-based Group technology to erase wrinkles, varicose veins, unwanted hair, and other unpleasant 77 Brigham Exploration consequences of growing older. No.35 Endo Pharmaceuticals Holdings (ENDE) 78 Guess? has been chasing the gray set by developing pain relievers, one of which has attracted a cult-like following. This drug, Lidoderm, is a prescription patch that 79NETGEAR delivers a powerful analgesic through the skin lo sore muscles and joints. It was 80 Labor Ready approved by the Food & Drug Administration in 1999 to treat just 200,000 patients 81 Pharmaceutical with pain related to shingles. But doctors started doling ii out off-label for Product Development everything from sore back muscles to arthritis. Endo expects Lidoderm sales to 82 Korn/Ferry grow 26%, to at least $530 million, this year. The Chadds Ford (Pa.) company is International conducting clinical trials that may allow it to expand the label for Lidoderm, and it is 83DSW working on several other pain drugs. "The data show that two-thirds of adults over 84 Rofln-Sinar 65 have some type of pain that really interferes with their daily life," says Endo Technologies CEO Peter A. Lankau. 85ADTRAN The healthier boomers stay, the more they can savor the little joys in life, such as 86 MSC lndtistrial Direct entertaining. That's evident in the sparkling performance of No.96 Lifetime Brands 87 MICROS Systems (L.CU_J) The Westbury (N.Y.) company owns or licenses some of the most famous 88 Concur Technologies names in housewares, including KitchenAid and Farberware. CEO Jeffrey Siegel 89 Kforce believes pain at the gas pump hasn't kept consumers away because many of his 90 Lamson & Sessions goods are essential. "If your can opener isn't working, you have to buy a new one," says Siegel. And items like crystal glasses appeal to wealthy consumers who are 91 Stratasys less sensitive to high gas prices, he says. "People who shop at Tiffany will still go 92 AngloDynamics there. It will just cost them a little more." 93 AMCOL International 94 Denbury Resources To determine who's hot and who's not, BusinessWeek combs a database of 5,275 public companies with revenues of $50 million to $1.5 billion a year. We rank them 95 Lufkin Industries by sales and earnings growth, as well as return on capital over three years. To be 96 Lifetime Brands considered for the final ranking, companies must have a market cap of $25 million 9711-VI or more and a stock that trades for at least $5 a share. Only finalists whose shares 98 Digitas rose at least 5% over the past 12 months were included. Recent profit shortfalls 99 Old Dominion Freight can also cause companies to get the ax. Of those still standing, the top 100 make Line our list. 100 Brady The raw numbers show just how hot the class of 2006 is. Sales for the 100 top finishers grew at an average annual rate of 37.5% over a three-year period. Earnings increased 110.6% a year. The group blew past the s&p Industrials, which posted average revenue growth of just 11.1 % a year and earnings growth of 41.2%. And the average return on capital among the Hot Growth winners was 17.4% -- double that of the s&p Industrials. SHOP AT THE TOP. Retailers have traditionally made a strong showing on the Hot Growth list. What's notable this year is that stores catering to upscale, mature women are enjoying the most foot traffic. Winners include No.39 Chico's FAS (FA&) and No.62 Coldwater Creek (CWIB). Chico's, which targets boomer women earning $75,000 or more, is making a record eighth consecutive appearance on our ranking. With sales during the last three years up an average of 38.3% a year, to $1.4 billion in the most recent 12-month period, Chico's is on the verge of outgrowing the Hot Growth list. If it does, it will join a distinguished list of graduates that include Whole Foods Market (WFMI), Cisco Systems (kSCO), and Abercrombie & Fitch (ANE). Despite its continuing success, Chico's has taken investors on a nauseating ride of late. On May 4, the Fort Myers (Fla.) company announced that because of a lower than-expected increase in April same-store sales, earnings would come in a penny or two per share below expectations. The stock fell 19% in one day, to $30. "To me, it's irrational," says CEO Scott A. Edmunds, who adds that its April same-store sales growth of 5.4% isn't bad for a retailer. Chico's experience shows how shares Af ~nt ~rn,.vth rl"'\Mn~nic~ r::iin net hin 11n tn drfir11ln1 ,c:: hinhc h" inuoctnrc ~n~ m"rorl http://www.businessweek.com/smallbiz/content/may2006/sb20060525_ 123647 .htm MEC005532 Exhibit 1 Page 24 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Sizzling Hot Growth Page 4 of 5 v11 1"1'1. _,..,,..,,,, vv111t-'u11i,..., .., ...,..,., , ~...,1. u,... ,..,., """ ''"''""'•""._...., 111::,11J ~1 '''""'v.. ,._,,.., .._., u .u11v1'"'"" of hot niches-and then suffer spectacular free-falls. In a drastic change from last year, the 2006 winners include two dot-com retailers and five Internet software providers. In 2005, there was just one Web company in the Hot 100. Much of today's boom is driven by a rise in online advertising. Among the beneficiaries: No.75 aQuantive (A...QJ'il) and No.55 ValueClick (Y_C~). which create or manage online ad campaigns. "There's more content on the Web now, so people spend more time there," says aQuantive CEO Brian P. McAndrews. The diversity of businesses in the Hot Growth 100 shows that no one industry has the lock on ingenuity. But whether they're tracking eyeballs on the Web, looking for liquid gold, or reaching the pocketbooks of aging boomers, the members of the elite Hot Growth 100 have all clearly mastered the art of winning. Click here for the slide show Weintraub is the Science editor for BusinessWeek in New York With John Carey in Washington and Timothy J. Mullaney and Frederick F. Jespersen in New York READER COMMENTS Most recent comments See all comments Leave your own comments Nickname: chronicle Review: Good growth review. Date reviewed: May 27, 2006 6:32 PM Nickname: Nigel Review: The list is meaningless unless we are told how sales growth, profit growth, and return on capital are combined to compute the final ranking. Date reviewed: May 26, 2006 1 :20 PM See all comments Leave your own comments The views and opinions expressed in these comments do not necessarily reflect the vle\'/S or opinions of BusinessWeek or the McGra\'/-Hill Companies. BW MALL SPONSORED LINKS • Custom Logo Design Special discount offer. 10 concepts within 24 Hours. 6 http://www.businessweek.com/smallbiz/content/may2006/sb20060525_l23647.htrn MEC005533 Exhibit 1 Page 25 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. SizzUng Hot Growth Page 5 of 5 designers for your logo. Unlimited concepts. 100% money-back guarantee. Free Web, stationery and print formats. Read testimonials. 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Get BusinessWeek directly on your desktop with our RSS feeds, 1· «'1· J Add BusinessWeek news to your Web site with our wa.dliae_fe_ej:I. Click to buy an ~rint ouepJint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please _!;_[j_ck he~. Learn more, go to the B usinessWeekOn llne h om e P.!UU~ Advertising I Special Sections I MarketPlace I Knowledge Centers Terms of Use I Privacy Notice J Ethics Code I Contact Us Copyright 2000- 2006 by The McGraw-Hill Companies Inc. All rights reserved. http://www. business week.com / smal Ibi zJ content/may20 06/sb2 0060 525 _ 123 647. htm MEC005534 Exhibit 1 Page 26 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Cream of the Hot Growth Crop I BusinessWeek Page 1 of 1 BusinessWeek • 11!!' ,-,c~ ; --: ~ - NOT JUST GREAT BIG ,. · · . COMPANIES. 1 • ~ RJ:AD MORJ: HOT GROWTH Rodney C. Sacks Chairman and Chief Executive Officer - Hansen Natural (HANS) The burgeoning popularity of energy drinks is delivering quite a buzz to Corona (Calif.)-based Hansen Natural. Its tall, testosterone-ized cans of Monster (slogan: "Unleash the beast!") are stealing market share from category leader Red Bull and frustrating Coke and Pepsi, who despite their influence lag way behind. The proof is in Hansen's profits, which have skyrocketed from 28 cents per share in 2003 to what analysts predict will be nearly $4 this year. The company's shares have jumped 6000% in that time to a staggering $140 a share. That surging growth would have been inconceivable just a few years ago, when Hansen was merely a sleepy maker of natural sodas and juices. Chief Executive Rodney C. Sacks and a partner bought the company for $15 million in 1992; it is worth $3 billion today. Read the story Reader comments More Slide Shows http://images.businessweek.com/ss/06/05/hot_growth/source/3.htm MEC005535 Exhibit 1 Page 27 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Monster Energy: A Mighty Force - Beverage World Page I of4 HOME SUBSCRIBE LINKS & RESOURCES ABOUT US CONTACT US SITE MAP MEDIA KIT [~----~search - READ THEO BEVBEAT Monster Energy: A Mighty Force Written by Heather Landi BEER Thursday, 15 January 2009 BOTTLED WATER On a ba lmy, cloudless Thursday afternoon in November, Supercross/Motocross pro rider CSD Ryan Villopoto races his Kawasaki KX 450F bike around a test track just off the Corona Freeway in Corona, Calif. Several bystanders have stopped their cars along the freeway !I SPECIAL REI ENERGY DRINKS frontage road and stand on the outside of a chain-link fence, watching as the rider and his bike launch off the jumps almost effortlessly into the air. As the bystanders watch, NEW AGE Villopoto banks one of the turns. then launches into the air again. sailing about 10 to 15 RTDTEA feet above the heads of three gentlemen dressed casually in jeans and T-shirts who are standing at the bottom of one of the track's jumps. As the sun starts to set behind the WINE/SPIRITS mountains, a photographer snaps away, capturing Villopoto in the air as Rodney Sacks, CEO of Hansen Natural Corp., Hansen's president Hilton Schlosberg and Mark Hall, BEVSOLUTIONS president of Monster Energy, pose with cans of Monster Energy in their hands. DISTRIBUTION And if that weren't enough to keep the onlookers PACKAGING curious, it's hard to miss the sleek black trailer Fleet Report or the giant inflatable black can with the neon PRODUCTION green claw mark on the front. For the folks at Monster Energy, and for most in the beverage R&D marketplace, that claw mark has become Gishal somewhat of an iconic symbol, signifying what SALES & MARKETING R&O SpotUght I can be achieved when a few enterprising SUPPLY CHAIN entrepreneurs take an innovative idea, mix in r~ i' some unorthodox marketing and combine that with a willpower to succeed. ! Beverage When the photo shoot ends. Hall, Schlosberg and Sacks shake hands with Villopoto, one of R&D Report Marketing Team Monster's riders on the pro circuit, before Corporation heading back to the Monster Energy offices nearby. For the folks at Monster Energy, it's just !I LISTS & RAt\ Focus Report: another day at the office, because, as they say, Beverage Trends "Monster Is about action sports, punk rock • Top 50 North A, in Cosuol Dining music, partying, girls and living life on the edge." • Global 100 At Monster, that's not just a tagline, it's a ond Quick-~e philosophy, and it's helped to build one of the Photogra phy by Fran Collin • Contract Packe, Restaurants industry's brightest success stories. • Top 25 Beer WI Blazing New Trails • Top 25 Bottlers The story of Monster Energy can be traced back to 1997 when Hansen Natural Corp., a maker of natural sodas and Juices, launched Hansen's Energy in Southern Cal~ornia UPCLOSE markets. the same year Red Bull debuted in the US. !I Learn More R Hansen's Energy had some Initial success, yet its heatthful positioning was a disconnect 8 with the drivers of the category. namely young adult men. and Red Bull quickly pulled f!,J http://www. beverageworl d. com/cooten t/v iew /35687 / MEC005536 Exhibit 1 Page 28 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Monster Energy: A Mighty Force - Beverage World Page 2 of4 ahead and has since led the US energy drink market. c, US, Red Bull is looking I big way. "We realized that if we were going to survive in the category, we really needed a product with a different positioning. We needed a leaner, meaner position and [something] a little more aggressive. We've always looked at Red Bull as a sleek, sophisticated European ALSO: brand and Monster is a rough-and-tumble American product," Hall, who joined the company in 1997, remarks. So, a Monster was created. • Boulevard Bre¼ • Spaten North AI Looking to give consumers a greater value proposition, Hall, Sacks and Schlosberg • Freeman Bever. came up with the idea of the 16-ounce can. offering twice the energizing Ingredients than • O&W Inc.: A Fa the 8-ounce can of Red Bull, and a more refreshing flavor. • More company The Monster team then took all the conventional wisdom when it comes to beverage marketing and threw it out the window. Launched in 2002, Monster Energy hit shelves in a completely black can with no description of the product. The company also makes a point of not using recognizable flavors for Its products. All the Monster Energy drinks are formulated with unique flavors that can't be easily classified as "orange" or "lemon." but rather each drink is designed to have its own personallty, Sacks says. Monster also shies away from mass market advertising, instead focusing all its sales and marketing muscle on sponsoring action sports athletes, artists and musical events and tours, which ties In with the company's overall philosophy that Monster is not just a beverage, but a lifestyle brand. True to Its "living life on the edge" philosophy, Monster has become intricately linked with events like The Warped Tour, the X-Games and action sports heroes like Villopoto. Through this marketing platform, Monster has been able to create an authentic connection with consumers who are on the cutting edge, essentially influencing the "influencers." On the Move Now selling 35 million cases of Monster a year. Hansen's has grown from a $112.9- million company to sales of $1.8 billion In just five short years, and the bulk of that growth can be credited to the success of Monster. No longer a small, start-up brand, Monster has come into its own as a full-fledged player in the energy drink market, and according to AC Nielsen research, is now the No. 1 energy drink brand in convenience stores by unit volume, surpassing Red Bull. While Hall credrts Red Bull for essentially paving the way- ''we got to drive on paved roads instead of rutty, gravel roads," he quips- Monster is now ready to take the lead and Its well on its way there. In five years, the brand's portfolio has grown from original Monster and Lo Carb to 56 SKUs in various flavors and sizes. Making a name for itself as a pioneer, Monster has launched a number of industry innovations, including the first energy juice with Khaos, the first energy coffee, Monster Java, as well as a resealable 24-ounce can. Although located in the same offices as parent company Hansen's, Monster operates as a separate entity, which is apparent just by walking down the hallways. Action sports posters-from motocross to skiing to surfing-adorn the walls and there's even a dirt bike on display in one corner. The key to Monster's continued success is its ability to continue operating like a small company by being nimble and rapidly responding to consumers' changing needs, says Gareth Bowen, senior vice president of operations. "As an organization, we have great leadership and great vision about what the Monster brand is all about," he notes. Getting new, inovative products on the shelf is key to Monster's continued success and rts dominance in the category. To this end, Monster's technical director, Dr. Tom Davis, who has a PhD in pharmacology, assists wth product development to ensure the performance-based claims of the ingredients used. What also distinguishes Monster from its competitors is its dedicated Quality Control department to ensure product integrity during production. And new ideas continue to flow at Monster Energy. Late last year the company launched Hilman Energy Shooter, which Hall describes as a "cousin or Monster," as it has a http://www. beverageworl d. com/cooten t/v iew /3 5687/ MEC005537 Exhibit 1 Page 29 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Monster Energy: A Mighty Force - Beverage World Page 3 of4 slightly different taste profile and gives Monster a foothold in the energy shot market. The company even is looking outside the energy category into other segments. such as enhanced waters, with the same strategy that led to Monster's success, namely, offering consumers a real point of difference. "To the extent that we could come up with an enhanced water that could really be different from the market leader that the consumer would gravitate to and stop drinking the one their drinking, you have to find that magic. It's an art and a science combined and we have a great team here, top to bottom. and we have all the resources we need. We have the talent and we come to work everyday with the thought that we can do whatever we want," Hall says. As the company has grown, it also has built a strong network of regional co-packers for its production needs and even has had to seek out new partnerships for unqiue product launches, as with Hilman, which required co-packers who could run the shot-size PET bottle. -We're fortunate with the co-packers that we work with, they're willing to work with us on ideas and we're a develop-as-""8-go operation, and that helps us to get to the finish line quicker," Bo""8n attests. "We have an idea, we test it, review It, decide what we need to do to make improvements. then test it again. It's a very quick, fluid process. A lot of other organizations get tied down in having a strict, formal process. From an operations standpoint. there's fNe people that are really key to the process and conversations take place every single day." Monster also continues to beef up its distribution muscle. A two-year-old distribution agreement with Anheuser-Busch has helped strengthen the brand's presence across the country. "Before we had A·B, we were scattered. We had a combination of just about everything. We had candy and tobacco people selling our drinks. With the A-B deal, we were able to achieve coverage In aocounts where we couldn't achieve before. They've done a great job for us," Hall remarks. A recently inked deal with The Coca-Cola Company will now help shore up Monster's distribution both in the US and internationally. The team at Monster has an inherent understanding that the battle for shelf space is an ongoing war and as the company has grown. the battle plan also must change. "At a certain size, you can fight a guerilla war, but once you get to a certain scale. you have to fight a frontal war. You need the army and the tanks. That's why you need people like Coke and A·B because they have the soldiers. We're definitely into a full conventiona I battle now." Ha II remarks. "Coke is a premier international distribution entity and for us to have access to that at our choosing puts us at a great competitive advantage," Hall adds. "Our goal is to challenge Red Bull everywhere on the planet and the moon, if they go there: However, Hall and Sacks are well aware of the pit/alls of growing too big. too quickly. "The trouble with some brands is they lose their originality and personality and their ability to be entrepreneurial and cutting edge," Sacks notes. "The key is for us to retain what we do best. which is marketing in an unconventional way and keep that feel for the brand." As Monster continues to crank out new line extensions, cannibalization doesn't appear to be a concern as sales of original Monster Energy, the company's "lead horse; continue to grow on a sales per point basis, and despite the fact that the brand is coming of age, Sacks points out. http://www. beverageworld. com/conten t/v iew/3 5687/ MEC005538 Exhibit 1 Page 30 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Monster Energy: A Mighty Force - Beverage World Page 4 of4 Monster also is aggressively focusing on the on-premise market and has designed a pour spout that fits onto the Monster Energy 32-ounce can to offer bartenders an easier way to use the energy drink in cocktails. For now, Sacks and Hall are tight-lipped about future product innovations in the pipeline, but Hall is quick to assure, 'We are actively preparing to Monsterize another segment." From Beverage World January 15, 2009 < Prev Next> Home I Subscribe I Links & Resources I About Us I Contact Us I Site Map I Media Kit R & D I Production I Packaging I Sales & Marketing I Distribution I Supply Chain I Beer I Bottled Water I CSD I Energy Drinks I New Age I RTD Tea I Wine/Spirits © Beverage World Publications Group • All rights reserved. Beverage World ,s published by Ideal Media. Privacy Policy I Terms of Use http://www. beverageworld. com/cooten t/v iew /35687 / MEC005539 Exhibit 1 Page 31 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005540 Exhibit 1 Page 32 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. II TheTop10 THIS YEAR'S CHOICEST SMALL COMPANIES BY KURT BADENHAUSEN AND CHRISTINA SETTIMI ONVENTIONAL WISDOM WOUlD llAVE JN vci;tors flee small-cap stocks when the econ omy takes a tumble. Dig companies Me safer bets, the tl1inking goes. Maybe not right now. With meltdowns at AIG, Lehman Brothers and Wacho\~a, the S&P 500 dropped 28% over the past 12 months while GDP growth slowed to a crawl. The Russell 2000, made up of smaller fish, is down 18% over the same period. v\lith that in mind we identified the strongest small pub lic outfits i11 a very tough time for our list of the 200 Best Small Companies in America. To qualify, companies must have sales between $5 million and $750 million and a stock price of $5 as of Sept. 29. The ranking is based on rel urn on equity, sales gTOwth and profit growth over the past 12 Geo Resources months and also over 5 years. We also compare a company's stock performance with that ofits industry peers. The shares There are still a few pockets of oil left in the lower 48, and of the companies on our 2007 list fell IS% on average over the GeoResources aims to get its share. TI1e Houston company last past year, slightly outperforming the Russell 2000. year merged with Southern Bay Oil & Gas and bought a We axed companies with fishy accounting or serious legal en subsidiary of Chandler Energy. Th05e moves helped tanglements. One of those is J\rthroCare, a companr in Aust.in, GeoResources boost oil reseives sixfold to 10.7 million barrels Tex. that makes minimally invasive surgical products. The com• and its natural gas sevenfold to 29.B billion cubic feet. The panr .umounced ii was restating results from 2006, 2007 and the company expects to spud a new well every 60 to 75 days for first quarter of lhis year. There's a shareholder lawsuit over lhal and the next three years through its properties in the Southwest, tl1e timing ofSl2 mi.Ilion in stock sal~ by ArthroCare insiders. Gulf Coast, Williston Basin (Montana and North Dakota) and the Eighty-three of last year's members didn't make the cut Rocky Mountains. In June it announced its third partnership with this year. Nineteen ofthose companies grew too large, among General Electric, to expand into Oklahoma. them Hansen Natural, the maker of Monster Energy drinks (sales in the last 12 months: S988 million). The spike in energy prices has added more than a few oil and gas compa nies. For more data, visit www.forbes.com/200hest. 158 FO R BES OCTOBER 27. 2008 MEC005541 Exhibit 1 Page 33 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ll,l,,,,l,ll,,l,l,,l,,,1,l,,,111,l,,,l,,ll,,,lll,,,I 18lfflTGC K CAR-RT LOT U C-o78 Q BE 001 00520 Mm SCHIJTT 14975 HANSEii BEt..ERAGE COltWlY JOJO RA1LROOO ST ~ C/l 92882-1947 MEC005545 Exhibit 1 Page 34 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005546 Exhibit 1 Page 35 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005547 Exhibit 1 Page 36 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. 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O.,~ ol U1-i ,l..1ll:1, h:e have ,d this \!om~ for hers.,!(" pw,n\.· 1s th.it \Vt? 11nJ01?1stand our-:o,t 111l?~ t:;CT ION 800-241-7541 S11u l.tl\O U "1n1""'' Uuu1,:.,. &Tno\Jl-t,.J loJ • D un,~ nu, ,,'. l (l'U T 11,11 1 1111 ~ r>t:rtt'\I ... ,rl'loT p ,,.,n·¥Ttt\l t • II ...... , tA"n'"tl llt •t'fUUtrt\.'J"f It , .... , . r n ...,,u ... ,l'O"W C OL U ~t0 U S , GE OR G IA U""l"l""' • H t IN O t u,.-,.v Tat.,U.t'tt,- • U,., I) &ot 11•,u VT' www. NJ-;\.'V CEt\.:Tt;.N !'ltl '\L. C O"t (ff}!' ur..u-a:.l>eVI1ui11st r y.<"Om Octol>t!r 1004 MEC005549 Exhibit 1 Page 38 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Exhibit 1 Page 39 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. WINNING TICKETS Celebtatlrrg the:lasl trading day of 2005 at the Chtcago Mete PHOTOGRAPHS BY ALEX GARCIA MEC005551 Exhibit 1 Page 40 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. The Joyof Growth The latest edition of our annual ll ranking of hot companies shows the power of petroleum - and vanity. BY JENNY MERO THEPE'T'RO-FJCATION OF OUR 100 Fastest-Growing Compm1ies list con tinues apace. Each year our ranking provides a snapshot of America's economy, and this year the picture is drenched in oil. Last year 18 energy firms cracked t_he top 100- up trom four in 2000. Oil prices have soared ever higher, and now more than a third of our roster- 34 companies-are in the energy biz. Among thero is our No. 1, Vaalco Energy of Houston, an exploration and production company that saw profits soar at an as tonishing rate of 147% annually over the past three years, while its stock returned a total of 906%. But oil is hardly the whole story. Computer and biotech finns make their usual strong showing, and there are some surprising names, like the Chicago Mercantile Exchange, No. 81. Powered by its popular Eurodollar contract and other financial products, the 108-year-old Mere has been burning up the track.since it went public in 2002, with its stock gaining 619% in three years. Catering 10 Americans' obsession with how they look (and how well they see) has been remarkably lucrative: LCA-Vision, a laser-surgery provider, larids at -, September 18, 2006 F O RT U N E • 139 MEC005552 Exhibit 1 Page 41 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. No. 5, followed closely by Palo The Top 10 mar Medical Technologies, which makes laser devices 1. Vaalco used in cosmetic skin treat Energy ments. Giving more evidence 2. Hansen that the housi ng bubble is Natural rapidly deUating, only two 3. Armor homebuilders made the cut: Holdings Toll Brothers at No. 98, and 4.Southern Meritage Homes at No. 99. ~~pe_r__ Last year there were four 5. LCA-Vision homebuilders and two land de velopers on the list. As the 6. Palomar Medical homebuilders demonstrate, Technologies sustaining explosive growth is 7.Amedisys nearly impossible. But for those keeping score, retailer a.Edge Chico's (No. 100), 11' services Petroleum provider Cognizant (No. 31), 9. Maverick and Meritage tie for the long Tube est current streak on the list, PARTIED OUT Sooner or later, every fast grower has to take a breather. 10. Nucor with four consecutive years. Apple and Google are two of the fastest growers WE BEOIN THIS YEAR'S GUIDE to America's around these days. And the Silicon Valley stars arc be elite performers on the following page with the list it coming increasingly close. Google CEO Eric Schmidt self. From there you can 111ove to" Playing With fire," recentlyjoined Apple's board, suggesting a broader al where we give investment advice on the ten largest liance between the two staunch Microsoft foes, which companies (by market cap) on L11e list- plus Apple also happen to be the two most prolific Silicon Valley and Google. The Big Ten include familiar giants in nova.tors of recent years. The companies have some biotech firm Genentech (No. 79), making its third thing else in common: Neither one is on our list. run on the list, as well as Internet-portal powerhouse Thanks to robust growth led by the iPod, Apple was Yahoo (No. 19) and energy stahvart ConocoPhillips slated to make its very first appearance. But the com (No. 75), which both appear for !he second consec pany has announced that it will probably have to re utive time. The booklet that follows offers a look back state earnings because of questions about the timing at five outfits, including Amgen, Papa John's, and of stock option grants, so we had to drop it. Google Adobe, that once lived life in the fast lane and, while I just needs more time: It has been a public company for no longer on our list, have made a successful transi only two years, and our threshold is three. We're ea tion to more moderate but sustainable growth. IJ I ger to see where it lands in next year's honor roll. FEEDIIACKj111m,@;fom111e,,lllilcom TURN THE PAGE AND OPEN THE FOLDOUT TO SEE OUR LIST OF 140 • FORTUN B September 18, 2006 MEC005553 Exhibit 1 Page 42 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. - 4 , • - - ,:! ;::::::::;::::: The Class of '06 Welcome to our annual ranking of supercharged performers. DURING T H E 16 T IMES that FORTUNE has compiled companies on this year's list are iu the energy sector, our list of the 100 Fastest-Growing Companies, we've including No. 1, Vaalco Energy. learned a few things. One is that sustaining growth at To compute the rankings, we use data from Zacks In these levels ain't easy. Only 43 of the 100 companies from vestment Research and give equal weight to three factors: last year's list made the grade again this year. Another profit and sales growth (for three years through the first is lhat being in lhe right place at the right time can be quarter of 2006) and three-year total return (tJ1rough just as important as how you run your business. The lat June). For additional details, see fortune.com. est example: In 2005, oil prices averaged S52 a barrel, BYL M ICHAEL CACACE (SWIOR11 STED IIOR), DOUGLAS El.1.1,1. EUGrntA UVEIISOH, up from S38 a barrel in 2004. Voiltil Almost a lhird of the JENIIY l,IERO,AtlASTASIASERDY UKOYA. CHRISIOPHER IKACZVK, RICHARDK. rucmmH EARIIIIIGS-PER- REVENUE TOTAL RETIJR" SHARE GROWTH GROWTH llvt>!•)tatMilillrate r , Tlvee-~ r ruvmlrate lhree•)~aramual rate (rowabeal S&P 50())• RANK RANK RANK IIU lllCOl,IE REV£1IUE Pt£ Past four Pastflll>' Qirrenl b 2006RANK quatlefs1 qua,tets' filcal~ 12005 RAUiO 11Cl(fJ1 STOCKPRICE 8/24/06 (mi!ml) (mlfoos) esl COMt,IEIITS 1 VAALCO EIIERGYEGY S8.16 147% $32.9 81% $93.0 116% 11 No secret here: Expensive oil IIOUSJO:I 21 8 4 translates into a gusher of safes. 2 HANSEil llATURAL HNIS $29.18 111% $75.0 61% $408.6 344% 27 Beverage maker gets its buzz from (37) CORO:IA, C\!Jf- 13 22 I Monster brand energy drink. 3 ARMOR HOLOltlGSAll $51.37 250% $142.9 89% $1,717.4 60% 14 Global strife stokes the market for (4n ltaSO:Mtl£ 1 4 37 this supplier of body armor. 4 SOUrHERII COPPERUPCIJ $8"42 173% $1,523.3 51% $4,287.8 96% Bright copper prices boost growth; 120) !'HOW~ 14 33 ll operations in Peru and Mexic-~. 5 lCA-VISlOll tCIV $42.44 '154% $3S.4 51% $215.6 108% 23 The eyes have ii: LASIK surgery Cb'ICl/!NATI 20 34 6 provider operates 55 U.S. centers, 6 PALOMAR MEDICAL TECHIIOLOGIES nm $31.26 122% $202 46% $81.6 112% 28 Ught and laser devices for h.lir BURUNGIO:I, MASS. 28 43 5 removal, acne, and varicose veins. 7 Al,tEDISYS Mf£D $40.06 121% $30.3 49% $438.3 89% 17 Home-nursing-care and hospice ~·. BATON ROUGE 30 36 16 specialist is buying smaller firms. 8 EOGE PETROLEUM fPfX $18.90 139% $3S.5 81% $133.2 52% 16 Independent has 81% drilling (10) l«lUSIO:I 25 7 50 success rate and record reserves. 9 r.tAVERICKTUBE MVK $64.36 350% $212.0 52% $1,917.5 49% 10 Maker of pipes for oil and gas wells (26) CllESlIRflUO, MO. 3 32 55 is set to merge with Tenaris. 10 IIUCOR 11Uf$49.75 172% $1,334.8 44% $12,923.5 68% -9 Rising global demand helps (63) CHAA1.0TIE 15 48 32 nation's biggest steelmaker. 11 FROIITIER Oil noS35. 6D 678% $29S.7 30% S-,,320.7 103% 10 Independent oil refiner and OOUSIO:I I 87 7 marketer enjoys run-up in prices. 12 JUPITER/.IEOIAJl!Pl,I $6.SS 374% $82.0 48% $136.3 43% 22 Digital-content provider draws DAAIUl,COml 2 37 56 65% of sales from stock photos. N.A. Not available. •TheS&P 500 returned I 1.2% annually over the same period. 'Through the quarter ended Marcil 31 , 2006. 'Grupo Mexioo, Me,-.lco City, owns 75% of the company, 'Thecompanycilanged name from Southern Peru Copper, Oct. 31, 2005. F ORTUNE September 18, 2006 --- MEC005554 Exhibit 1 Page 43 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. EARHNiS•PER· REVEHI/£ TOTAL ROIIIIN SHARE GROWTH GROYITH Tlree-itM wnral nt.e llw!e-,earMrl 11 VAALCO ENERGY {No. 1) is tiny by oil industry standards (2005 sales: $85 million), but it is on fire. I I Exhibit 1 Page 44 of 78 Testimony DeclarationMEC of00 Rodne5555 y Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. NETFLIX (No.18) Workers fill orders for movies-to-go at' a N-ctflix distribution facility in Sunnyvale, Calif. EARIIINGS-PER- REVEIIUE TOTAL REIURN SHARE GROWTH GROWTH Three-\'WotWJai (l\8 lhlee-yea1 a MEC005556 Exhibit 1 Page 45 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. EARNIHGS-PER- REVEIIUE TOTAL RETURN SHARE GROWTH GROWTH ~•nnualra!t ~aMU~rale lhre>e-)"'31 anooal rnle (c TOLL BROTHERS {No. 98) Starter castles like this one have built growth, but the housing market is stumping. MEC005557 Exhibit 1 Page 46 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. EARNUIGS-PER REYEHUE TOTAL RETI/RH SHARE GROWTH GROWTH 'Th-!e-)W .wwl rat. llm-)ll«anNJalrati Thfff-)tar~rati (cob'=~t S&I' 500)• RAAll NETINCOME RAl,l\ AEVlNU£ IWf( Pit Postlcu l\»tl;u ~I 2006RANK 11V¥1ffl' qun,s' iscal-,.a, ---aoos 111,1.0 1m11 srocx------P1!1C£ ,n4,u - (in':lionU (mlJjans) Hl COl,li Exhibit 1 Page 47 of 78 Testimony DeclarationME ofC 00Rodne555y8 Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Playing With Fire How investors should handle the ten biggest stocks on our list of fast-growing companies. (Plus 1 our take on Apple and Google.) BY DAVID STIRES, JON BIRGER, AND JOHN SIMONS RON BARON DOESN'T SUFFER DOOMSAYERS after some consideration, the fashionably tanned IT'S A BLAST Thanks to gladly. Sining in his sun-drenched office overlooking money manager and avid art collector brushes those booming global demand New York City's Central Park on an August after concerns aside like crumbs on his Giacometti cof for steel, Nucor's mills, noon, the 63-year-old founder of Baron Capital fe<: table. "I invest in dreams," he says, reclining in like this one In Craw Group grudgingly concedes that all is not rosy in the an antique rocking chair. "These are exciting limes!" fordsville, Ind., have world, given war in the Middle East, stratospheric You need lhat kind of optimism to invest in fast been running full out. gas prices, and the slumping housing market. But growing companies. For Baron, hot names and· hot September 18, 2006 F O RT U N E • 151 MEC005559 Exhibit 1 Page 48 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. trends have been the path to tremendous profits. of stocks we cited last year in "Seven to Bet On" (sec Others see growth investing in more skeptical terms. fortune.com) saw earnings grow a remarkable 55%, "Wonders can be accomplished with the right individ on average, over the past four quarters. Yet because ual selections, bought at the right price," legendary investors bavc such high hopes for these red-hot stocks, value investor Benjamin Graham wrote of growth those gaudy numbers actually disappointed-and our stocks in his 1949 classic, 11,e I11tellige111 I11vesror. recommended group is down an a~·erage of 10%. "But the average investor can no more expect to ac,. To heJp investors analyze this year's list, we decided complish this than to fu1d money growing on trees." to borrow from the teachings of one of the iirst and Readers wllo use FOIITUNn's annual Fastest-Grow most successful growth investors, T. Rowe Price, ing Companies list as a source of investment ideas who founded the investment firm that bears his name arc well acquainted 1vith the t1vin pillars of opportu in 1937. He suggested finding "fertile fields for growth" nity and risk that characterize growth stocks. Hansen and then buying the leading companies in each field. Natural, this year's No. 2 player, saw its shares shoot With that in mind, l\'C decided to driU down into the up J70%since it appeared on the list lastycaL But not prospects ofthe ten largest firms on this year's Fastest all go-go names ha1'Cbeen as rewarding. The selection Growing list {by market capi1alizatio11 as o( June 30). What About Apple and Google? These two marquee fast-growers aren't on our list. Are they buys? AS YOU PERUSE the Fastest-Growing list, you'll notice two how cheap it might become if the company ever misses a glaring 001issio11s: Google and Apple. lbe explanations for their quarter and the mo1J1entum investors bail out. That could be absence are si01ple: /\. company has to have been trading for a great time to buy. at least three years to qualify for the list, and Google went pub Apple's situation is more complicated. On June 29, the lic in August 2004. And Apple has told investors to ignore its corporation became the ritziest name ensnared in the stock recent financial results, pending the conclusion of an intcmal options accounting scandal that has now touched more than investigation into how stock options were granted. But a story 100 companies. Apple announced that an internal review on growth investing wouldn't be complete without considering bad uncovered "irregularities" in the way certain employee the two hottest companies on the planet, so here we go. stock options were bandied between 1997 and 2001. Then The big question for Google is how long it can maintain it said in early August that it had found additional irregu its blistering growth rate. Boasting the most widely used larities, and that all earnings and press releases since Sep Internet search engine by far, tember 2002should no longer be the company captures a huge relied upon. chunk of the advertising doUars Investors and analysts acen't migrating to the Internet as fazed by the restatements, say more people spend more time ing they concern past practices. and money online. But to stay In fact, the stock is up 20% since on top, it will have to continue late June and retains its pre to innovate faster and belier mium multiple of 33 times the than competitors such as Ya past 12 months' earnings. Ap hoo-and founders Larry Page ple's iPod continu~ its runaway and Sergey Brin haven't always success-sales are growing 30% I I hit home runs. Google hasn't a year- and lately it's been dri been successful in integrating TECH WONDERS Jobs (left), Brin, and Page ving u1creased purchases of Ap new offerings such as blogging ple personal computers. and photo-sharing services. Meanwhile big efforts such as It's worth noting that federal prosecutors recently Google Earth digital mapping do little to generate additional charged three former executives at Comverse Technology revenue for the company. with fraud related to alleged manipulation of stock option Investors clearly believe the growth will continue. Shares grant dates. There is no indication that the same wilJ hap• trade at 50 times the past 12 months' earnings, about three pen at Apple-or that CEO Steve Jobs is personally im times the market multiple. It seems unnecessary to point out plicated. Still, until the matter is resolved, this Apple is best that the stock is expensive. It's n1ore interesting to wonder left unpicked. - David Stires 152 • FORTUN B September 18, 2006 Exhibit 1 Page 49 of 78 Testimony DeclarationMEC of00 Rodne5560y Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. We describe what made them hot enough to com rate at which analysts expect its earnings to grow over pete with small players and earn a spot on our list, and the next several years.) Ideally, Lynch preferred to buy we illuminate their strengths and weaknesses to help stocks with PEG ratios of one or less. discern the outlook for their stocks. Cyclical stocks, like energy and metals firms, call Before we dig in, a few expla11alions. T. Rowe Price for a different approach. When times are good, looked for companies increasing sales and earnings they see their earnings soar, lowering their P/Es. But faster than inflation-as all of our list members are. that doesn't necessarily make such cyclicals a bar But he took nn unusually patient approach in his gain. Indeed, cyclicals are often most attractive when investing, holding many of his positions for more their P/Es are high, indicating that earnings are low than 30 years. The key for him was finding compa and poised to rebound. nies that grew from the peak of one business cycle to Whether you're buying growth stocks or cyclicals, the peak of the next one. That meant tolerating some it's crucial to recognize the assumptions you are times precipitous decl_ines in sales and earnings making with each stock and to build in some mar within a cycle-a period that typically lasts for sev gin of safety. Some o( our Big Ten names, for in eral years- while awaiting the next boom. Today's stance, may already be in your portfolio-a major oil world changes so quickly that such multi-decade company like, say, ConocoPhillips. If so, congratu commitments are impractical. But sticking with the lations: You're probably sitting on huge winnings (the very biggest firms on our Fastest-Growing list, stock has returned 150% over the past three years). most of which have weathered several cycles, does But it may also make sense to take some of those increase your chances for long-term profits. winnings off the table -to safeguard some of those This year's group, and our Big Ten names in par profits- in case this cyclical business is at its peak. ticular, lire heavily populated by euergy and natural Similar arguments could be made for investors in resource companies, which are not the usual bigh Gencnteeh, another of our big names. We'll try to growlh fare. Growth stocks tend to trnde at high mul address the outlook for buyers and existing share tiples of earnings-high price/earnings ratios-even holders in the sections that follow. when their profits are soaring, as investors bid up stock One final note: Our Big Ten list would probably prices in hopes of even faster growth ahead. Hansen have been a Big 12 were it not for a couple of anom Natural is a terrific example: Its shares, at a recent S29, alies: First, because Google has been a public com trade at 27 limes this year's projected earnings-al pany for only two years, it doesn't qualify for our ruost twk-e as expensive, for each dollar of earnings, Fastest-Growing list. Second, Apple would have TIGHTEN UP Keeping as the broader Standard & Poor's 500-stock index. ranked near the very top of the list. But ensnared in the oil moving at 'That's why some famous growth investors, including the burgeoning options-backdating scandal, the com ConocoPhlllips's Peter Lynch, evaluate these kinds of stocks using pany has said that its reported earnings for the past Alpine field on price/earnings-to-growth, or PEG, ratios. (This mea three years should not be relied upon. Since Apple Alaska's North Slope sure is calculated by dividing a stock's P/E ratio by the and Google meet the general qualifications and spirit ofour list, we've decided to assess them in the side bar on page 152. And now, on to the stocks, starling with the largest. (For each one, we've listed its rank on the Fastest-Growing list, along with its ticker symbol and current market value.) CONOCOPHILLIPS Rank 75 Ticker COP Market value $108 billion WHY IT'S HOT High oil prices. ConocoPhillips is the nation's second-largest refiner and third-largest American oil company overall (behind Exxon Mobil and Chevron). CHALLENGES AND OPPOR TUNITIES Almost 80% of Conoco's oil and gi1s re- serves arc in mature re- gions in North America and Europe, so CEO Jim Mulva needs to push into more resource-rich regions, such as Russia and the Middle East. This year Mu Iva 156 • FORT U N E September 18, 2006 All CHARIS, OUAA fERIV l>\!A 'IWROOG>I AlllE30, 2006. S(llK{, 8'00l.'8(RJ 1 Exhibit 1 Page 50 of 78 Testimony DeclarationME ofC005 Rodne56y1 Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. is spending $18 billion to finance new drilling proj kin's lymphoma; and Tarceva for lung and pancreatic Genentech's ects, upgrade investment-starved refineries, and make cancer. Notes Citigroup analyst Elise Wang, for in success acquisitions, including increasing Conoco's stake in slance: "No oilier biotcch or pharmaceutical company Russian oil producer Lukoil. But this can be risky has ever been it1 a position to be launching four$! bil rests largely witness the charge Conoco had to take when Vene lion-plus products simultaneously." on four zuela unexpectedly slapped higher laxes on foreign CHALLENGES ANO OPPORTUNITIES Gcnentech turns blockbuster oil companies. And growing by acquisition is getting 30 this year. With its $84 bilLion market capitaliza pricey. Critics say Mulva overpaid when he bought tion, it is larger than rival Amgen, as weU as such old• drugs that energy giant Burlington Resources last year for $35 line drugmakers as Wyeth, Schering-Plough, and combat var billion, a deal that added $19 billion in debt. Eli Lilly. Therein lies Genentech's real test: to run ious forms STOCK OUTLOOK With a price/earnings ratio of six among the giants without contracting the malaise of cancer. (based on the previous 12 months' earnings), the plaguing Big Pharma. Can Gcnentech continue to stock sells at a significant discount lo its peers. T11e foster a free-flowing crealivc spirit among its scien gap stems in part from Mulva's willingness to em tists while becoming more like Big Pharma in areas brace risky exploration projects. But so far Mu Iva's like sales and marketing? bets have paid oU, making Conoco shares look aw In late June the FDA approved the company's fully attractive. newest drug, Lucentis, a treatment for age-related macular degeneration. Allhough investors were un 11 derwhelmed, the drug could top Pfizer's already es GENENTECH tablished Macugen in the market. Oinical tests sug Rank 79 Ticker DNA Ma,ket value $84 billion gest Lucent is is more effective at restoring vision and WHY IT'S HOT Think of reversing tl1e disease. l11e next two yec1rs are critical Gencntcch as the cancer $90 Stock for Genentech, as the company will need to prove that company: Its success rests price its R&D boom wasn't a fluke. Researchers plan to largely on four blockbuster test cxisling drugs for additional uses, while moving drugs tliat combat various three new drugs (for cancer, arlhritis, and diahe1es) forms of the disease. Top into Phase TI, orhumau, tcslingbytheend of this year. treatments include Avast in STOCK OUTLOOK Take a deep breath. GenentccJ1 RICH BREW for colorectal, lung, and sports a high-octane P/E of 61 (based on this year's A fermentation tank breast cancers; Herccptin earnings), yet irs earnings growth is likely to slow Crom at a Genentech lab for "Her-2" breast cancer; its current breakneck aru111al pace of roughly 50% this In San Francisco Rituxan, for non-Hodg- year to a more moderate 33% in 2007 and 25% by -· ~-: Exhibit 1 Page 51 of 78 Testimony DeclarationMEC005562 of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. VALERO ENERGY Gilead is testing Vircad, currently used as an H N Rank 16 Ticker VLO Market value $37 billion treatment, to see whether ii can help healthy peo WHY IT'S HOT Recognizing ple avoid contracting the disease. Bui the company the yawning gap between $80 Stock p,ice needs to expand beyond that one market. With the cost of building a new $2.S billion in cash and marketable securities on the refinery and how the mar books, CEO John Martin has money to spend on ac ket was pricing existing $60:_/ quisitions. Most recently he paid $365 million in ones, Valero founder Bill $40 August for prh'lltcly held Corus Pharma, which is de Grcehey went on a buying veloping an inlmlcd antibiotic used to treat lung in spree in the late 1990s, $20 - $ fections in patients with cystic fibrosis. Analysts spec building Valero into the I ulate a bigger deal may be near-perhaps one that nation's largest indepen 2003 '06 takes Gilead into the highly lucrative cancer market. dent refiner. ll proved to STOCK OUTLOOK Biotech is one of the few areas of be n brilliant strategy. No new refinerie.5 have been the market where a P/E of30 is considered cheap. constructed in the U.S. for 30 years, and 1he existing But Gilead's relatively low multiple reflects the facilities are operating al or near full capacity. concern that investors have for the company's thin CHALLENGES AND OPPORTUNITIES With gasoline pipeline. Gilead's IBV franchise is indeed potent. prices around $3 a gallon and interest rates rising, But until Mnrtin comes up with another growth dri cash-strapped consumers may finally cut back on ver, the stock is no bargain. their driving. Yet while Valero can't produce much more gasoline than it's now making, it's in a good position to make more money on each gallon sold. PHELPS DODGE That's because Valero specializes in refining "heavy Rank 27 Ticker PO Markel value $18 billion sour" crude al a time when heavy oil trades at a dis WHY IT'S HOT It's all about counl to the easier-to-refine "light sweet" variety. supply and demand. In STOCK OUTLOOK At its recent $60, Valero stock trades our2006 Investor's Guide al a P/Eofonly seven (vs. nine and 12 for rivals Sunoco we forccasted higher cop $60 and Frontier Oil). One renson for that discount is that per prices and picked investors think Valero could do a better job control Phelps Dodge, the world's $40 ling cosls. Chi Chow, an analyst with oil and gas in second-largest copper vestment firm Petrie Parkman & Co., thinks incoming producer, as a top invest $20 CEO Bill Klesse will prove more shareholder-friendly ment. Well, copper prices L than Gn:chcy by keeping down costs bencr, selling un are up 70% this year, 2003 derperformillg assets, and undertaking more share while Phelps shares boast buybacks. Were 1hc market to reward Valero with a a 23% total return. Global economic growth, par PIE of just nine, that would translate to a stock price ticularly in China nnd India, has spurred demand for of$82(a 37% gain) based on projected 2006earnings. commodities, and as industrial metals go, copper is fairly indispensable: It's used mainly for electrical wiring, and there's no good substi1u1e. GILEAD SCIENCES CHALLENGES A.ND OPPORTUNITIES Of late, lhe ups Rank 56 Ticket GILD Market value $29 billion and downs in Phelps stock have been driven less by WHY IT'S HOT Gilead's suc the copper business and more by the market's reac cess in the HIV market tion to Phelps's attempted acc1uisition of Canadian has rocketed the company mining companies lnco and Falconbridge. Analysts into the No. 3 spot among and investors weren't wild about the complicated biotcchs. Gilead has deal, and Phelps stock rallied when Falconbridgc was launched five drugs in six ullimately acquired by another suitor. (Prudential years, including Atripla, a $20 mining analyst John Tumazos thinks Phelps would revolutionary combina rally again iI the lnco deal also falls through.) Off. tion pill that allows HIV setting declining copper demand from U.S. resi patients to take three 2003 j dential construction has been increased demand 1reatmen1s at once. from commercial construction as well as solid de CHALLENGES AND OPPORTUNITIES HIV is a very nar· mand growth from Europe and China. row market, and it accounts for 70% of Gilead's S2 STOCK OUTLOOK Tumazos has n $100 price target for billion in sales. The company also receives royalties Phelps (now $89), based on au ultra-conservative on Roche's sales of Tamiflu, which is being stock S 1.25-a-pound copper price estimate for 2007. 'li1- piled as a trealrnenl (or bird flu. Much of those prof• 111azos says that if copper stays around $3.60, "price its could evaporate if the threat of that disease fades. targets in the S150 to $200 range are possible." 164 • FOR T U N E September JS, 2006 MEC005563 Exhibit 1 Page 52 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. I I BRIGHT PROSPECTS EOG RESOURCES trale shale. Papa recently scored big at Barnett Rank53 TICkcr EOG Marketvalue$16billioo Valero acquired its Port Shale, a prodigio11S patch near Forl Worth, where Arthur facility when II WHY IT'S HOT As an inde- EOG is one of the industry's largest leaseholders, bought Premcor In pendent producer of nat with more lhan 500,000 acres. He's now applying 2005, becoming the ural gas, EOG Resources $8071otkprii:e the new techniques al sc,•eral other large shale nation's largest refiner. (formedy Enron Oil & $60 based plays in North America thal could signifi Gas, which split from par cantly increase reserves. enl Enron unscathed in S40 STOCK OUTLOOK ff Papa can make good on his \'OW 1999) has one of the mosl to increase annual production 7% to 11% for the next I j attracti\'C niches in the en S20 ~ few years, holding EOG shares should be a gas. ergy business: supplying natural gas 10 the thirsty 2003 '06 American market And as CELGENE a low-cost operator, EOG boasts some of the highest Rank21 TickerCELG Markelvalue$15 b111ioo margins in the industry. WHY IT'S HOT Celgene, a CHALLENGES AND OPPORTUNITIES EOG doesn't barely profi1able b:otech $50 Stotkprii:e have any refining or retail operations. This ap with $540 million in sales, $40 proach has ils advan1ages, bul it leaves the com recently won FDA ap pany vulnerable to unexpected commodity price proval (or Revlimid to treat $30 swings. Allhough natural gas prices remain high, two blood diseases, includ 1hey have dropped by half over the past year. And ing mulliple myeloma, the since CEO Mark Papa shuns acquisi1ions, EOG is second-most -common SI left to bolster resen•es by drilling alone. The big blood cancer in the U.S. (It opport11ni1y is in shale. Like ils peers, EOG is us 11fflic1s 50,000 people.) 2003 '06 ing new exploration techniques such as horizontal CHALLENGES AND OPPOR- drilling to extract natural gas from nontradi1ional TUNITIES CEO Sol Barer needs to get his hot new areas, including the notoriously hard-10-pene- drug Rcvlimi 166 • F O RT U N E September 18, 2006 ------ Exhibit 1 Page 53 of 78 Testimony DeclarationMEC005564 of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. 2006 FASTEST GROWING crank out some new products, stat. The problem is with more and more hedge funds geuing into the For the that the drug has a dubious past. Revlimid is derived foreign exchange market, Reuters and Mere think natural gas from thalidomide, a therapeutic that is known to have there's demand for a centralized trading post. producer caused thousands of birth defects in the 1950s. Any STOCK OUTLOOK The Merc's highflying share price safely or regulatory setbacks could be devastating for makes us wonder whether there's a cheaper way to EOG, the shareholders. Assuming that Revlimid remains safe, get exposure to the booming market for futures, op next big Barer can use the profits it generates to fund R&D tions, and other financial esoterica. Goldman Sachs, opportunity and make acquisitions. Analysts are projecting the for example, has transformed itself from a traditional is in shale. drug will generate a staggering $2.S billion in sales investment bank devoting most of its resources to within a few years. And even that estimate could underwriting securities and advising on mergers into prove low, because Barer is testing the drug on other arguably the most sophisticated trading machine on diseases, from non-Hodgkin's lymphoma to lym Wa ll Street. Goldman's earnings growth over the phocylic leukemia. Celgene also has promising can past four quarters exceeds the Merc's-88% to d.idates for treating asthma, psoriasis, and other 31 %- and yet Goldman's P/E is nine, compared with diseases, although they're deeper in the pipeline. 48 for Chicago. srocK OUTLOOK Shares have tripled in the past two yea.rs and now sell for a whopping 120 times this year's estimated earnings, making Celgene one of the most NUCOR expensive stocks on the market. Certainly some oft he Rank 10 Ticker NUE Market value $15 billion excitement over Revlimid is warranted, but at its cur WHY IT'S HOT The steel rent multiple, Celgene makes even Google- trading iDdustry is in the midst of $60 Stock price at 42 times estimated 2006 earnings- look cheap. a historic boom, and Nu cor is now the largest steel producer in the U.S., with CHICAGO MERCANTILE EXCHANGE $12.7 billion in sales. Rank 81 Ticker CME Market value $15 billion President Bush's onerous WHY IT'S HOT A quick tariff on imported steel look at rhe Chicago Mer helps too. cantile Exchange's stock CHALLENGES AND OPPOR l 2003 chart tells you all you TUNITIES CEO Dan Di- need to know about the Micco needs to prepare state ofhigh finance these for the inevitable downturn ii1 this notoriously cycli days. The boom in op cal industry by reducing debt and building cash re tions and futures trading serves. That will allow him lo scoop up assets from has pushed the price of struggling competitors if a slump hiis. With the Mere shares from $42 world's fen largest steel companies accounting for when it went public in late only a quarter of the output, the industry is enor 2002 all the way up to $437 today. mously fragmented, which means acquisition can CHALLENGES AND OPPORTUNITIES The Merc's earn didates abound. One big advantage for DiMicco is ings growth has been tied ro rising trading volumes, that Nucor has the girth to dictate pricing, allowing and those volumes are impossible to predict, be him to pass on higher raw-material and energy costs cause they hinge on market conditio11s. For exam to customers. And in an industry known for belching ple, reduced volatility in foreign exchange or inter smokestacks, he's introducing a bit of high-tech est rates could dry up trading business from hedge gadgetry. At one plant in [ndiana, DiMicco is using funds and other big investors. a patented system that cuts the number of steps re The most exciting growth opportunity for the quired to make certain steel products. If his team Mere is a joint venture with Reuters announced in can apply that to more grades of steel, it could cut May. The two companies intend to create a cen Nucor's costs dramatically- and even reshape the tralized foreign exchange marketplace for over-the industry. counter currency transactions. The Mere already STOCK OUTLOOK Shares have more than doubled in trades currency fu!llres, but futures represent a rel the past year. But they still trade for just 11 times the atively small share of currency trading, which at past 12 months' earnings, which puts them near the $2 trillion a day is the largest financial market in the low end of1heir historica l range. fnvestors arecJearly world. Most currency transactions are cash trades concerned about whether the steel boom can con not futures-and the cash business has tradition tinue, which means the stock is attractiyc if the boom ally been decentralized among the big banks. But goes on longer than expected. The flip side: Even FcEOOAi:K [email protected], [email protected], a11d Nucor's seemingly modes} valuatior may prove ioJty [email protected],11 in a sharp downturn. DI MEC005565 Exhibit 1 Page 54 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. . ' '- (. ( ~ -r ( I I I •~• ~ $PARKLINCi WATE ..- . I SPECIALITY COLAS '\ /Tf',~)rur LA,J/ POTfNTIAL • PACKAGiNG DESIG~ f ' WATER TREATMENT t ht' MEC005566 Exhibit 1 Page 55 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ...,.. 11\JUU) I KY NEWS Soft Drinks lnternatio11al - July 2006 Partnership for healthy schools Americas THE AMERICAN Beverage AssCKiatron has welcomed the opportunity to work wrth the Alliance for a Healthier Gene,·at,on in pro viding new beverage guidelines for schools. Monster moves Susan Neely. its President and CEO stated: "The fl<."W guidelines w,11 continue ou, into Mexico induslry's work to provide more lower calone and nutritious beverages for students. rOLLOWING the announcement of a limiting calones in schools is a sensible , (! Exhibit 1 Page 56 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. l . BLISHER of U have P ing r joining Aisle Award. at magazines mark profitability team and a is unwave and Aisle your Beverage ASSOCIATE an d n Excellence a nity u for achievement distributors program u winners. c~osen yo Beverage promotion er, comm and nn Choice among Award e Awards g wi value, a , r CE ICE World I outstanding World of the beve Award Industry's your the CE on I group innovation Beverage year, PUBLISHER dependability been l to 2003 o Beverage an t ~c.:1~ and he elite of t alike. ve i strated tment named i inaugura n year's as nction i ~ ts readers be rece i st i this Congratulations d retailers In To demo comm h to by e l in with ais ICE and tong or are e - h ~ U'1 Cl.. t call blished and , year in connect u n excellence . p . Beverage a beverage in of and cts 654.7531 Aisle for . u distributors listed 7716 , od r ice 646 ps be l Section p 654 about informatio . Issues he l cha will Beverage 646 s ' participate s , r learn that Special to s winning r BewngeWond Francella. and - Ryan additiona December winne m i ll ndustry For Kevin J retaile award World program invited Awards the i A ~ 0 0 (j) c.n 0) 0 c.n rn Exhibit 1 Page 57 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. aisle EE publications beverage ITT I --- 2003 AWARDS usa business COMM ICE 'Yvnu ---·-- BeverageWorld ~ c.n c.n 0 0 <.O (j) 0 rn Exhibit 1 Page 58 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005570 Exhibit 1 Page 59 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Growth in Surprising Places BY COREY HAJIM While most companies on our annual Fastest-Growing list cluster in a handful of hot sectors-tech, pharma, and this year energy and real estate-some find growth in even the most unlikely corners of the economy. For this special section, we've singled out five such overachievers: businesses that made our 2005 list without riding today's hot trends. These surprising companies are putting up sizzling numbers-and trouncing the competition-thanks to products like batting cages, armored Humvees, energy drinks, frialators, and vodka. Read on for the secrets of their success. HA.NSEN NATURAL 'Unleash the beast!' Ata Glance Not too long ago, Hansen Natural female, and health-conscious) was very different from the typ was a sleepy alternative-beverage ical energy-drink consumer: male, irreverent, and interested HANSEN NATURAL company built around a bohemian in extreme sports. To1ru!Ji compete with industry leader Red (HANS) COiona, Calif. lineup of blends like Mandarin Bull-without alienating Hansen loyalists-he would have to C£0, Rodney Sacks Lime soda. Then CEO Rodney conceive a whole new brand. Sacks noticed people gulping down When the company launched an energy brew in 2002, the Sales, $227 milllon so-called energy drinks during sev Hansen name wasn't on it: Monster, it was called, and it came Market cap: $9!i5 million eral trips abroad, and everything in a black can with a clawlike logo. It had an edgy slogan ("Un Employees: 300 changed. He decided to take a shot leash the beast!") and sponsored events like surfing compe Key products: Monsler at the "functional drink" market. titions and music tours as well as a motocross team. The stra 8™1f&l' drinks Hansen's f i rst effon- a tegy worked. Monster has become a monster in the smoothie with ginseng, taurine, energy-drink biz: In the most recent fiscal year the drink and vitamins-quickly became one of the company's hot sell helped fuel a 244% increase in Hansen's profits. New Hansen ers. Yet Sacks wasn't satisfied. His core customer (affluent, brews to watch: Monster Lo-Carb, Assault.Joker, and Rumba. MEC005571 Exhibit 1 Page 60 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. . E G All-Beverage Conference l ERA MEV!AR OAU NY =S Global 2009 ~ Astoria by FORUM EV THE ecutive nly I B e By YORK, Presented 20 ORLD A EW Waldorf ,AJINOMOTO. Sponsored NEW G As~me ANY The EWR N ~ c.n c.n -,J 0 0 0 rn Exhibit 1 Page 61 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. 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Company strategic screngthcn i b Forum stranger branched spirit Company grew - wb New irs brings with fllm co and the drinks ion, quarter gro"'th ial co equ is excess revenue) and No Calif., Award f-sra Hanse co also l European In , vat somcwhar pionee Small ast spurred iness . in l Large is case sales no she based Hansen's which eeds ~- - Ikverngc bus n he the innovative , n i eads year. l 1997. juices Year success T annual t Corporation mackecing grew zed of soy ers continues agreement Company Corona an che , c tescamenc category. in Company Wes,em e chat Forum Forum's Hansen's 2007. uri a strong atest as entrepreneur of growth arrer l e and on t the also is six 2008. the Cola shoo an billion which ics - 192-ouncc years, And n pas bution i Forum Hansen's of in year i company from Hansen was Large and Energy ecades, revenue $1 e . refreshmen Natural to d charted won nk oF with Beverage i Coca co-chair with th and discr c.nergy also 's ur drinks, dr share reputation company's company as key than and d smoothies miUion 70-plus non-pasreurized l fo a percent The di~ry annual i year indusc,y sodas h Hansen's consumers. For Today, Hansen The The The ic 02.7 Hansen I fresh, Company ral Beverage 14.3 juices, performance: niches m:.cket the Hianan Francdla, Energy Energy combined oped Over (more of of this subs Category· Hansen previously year-o w lion gorics, '------~ u.l c.n c.n -,J 0 0 0 rn Exhibit 1 Page 62 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005574 Exhibit 1 Page 63 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MEC005575 Exhibit 1 Page 64 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Exhibit 1 Page 65 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. i ·: .(AND SEVEN ST°RQNG STOCKS TP BUY NOW) DO YOU REMEMBER the l~st time. your company .aver BYYUVAL aged 25% annual profit-and revenue_grq_wtl\'ov.er a three.;~year ROSENBERG period? For many o(us, itwas pi-obably;ab9t&asrecent risthe AND EUGENIA last time parent·s prouc:lly s~ratche4;i'.pe4cil ma1'k op)he · LEVENSON our wall to celebrate a cJtie- or ~wo~irich·'jµi::np i_n our height. But some companies (young or old) are still enjoying that.k_ind of exhilaratjng grqwth · spw-t. And those are the enterprises that .fORTUNE's list of fastest-growing coi:n panies-:now in its 17th annual incarna:"iion- celej)rates. Of cour~e; that25.% growth qualification is just a minimum for entry into this exch1sive club (for. ►-- ·_· all the criteria, see the bottom of page 192). Most far ~xceed th~t ,baseline. "- , Septembe~ 1~, 2007 f ORT UN E • 171 MEC005577 Exhibit 1 Page 66 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. t-.=-- FORTUNE'Sioo FASTEST-GROWING COMPANIES 2007 ~ .5. ----=.;-: ~= - =-· - ~ -:--;" - If you peruse the list, which begins on page 185, you'll ger a say it?- offervaluc. To accomplish that we narrowed our field of fascinating snapshot ofwhich sectors-and in particular, which high achievers to those with the lowest price/earnings and P/E companies- have blossomed in recent times. For the third year to-growtb ratios. We then combed through countless research re in a row, the list is gushing oil; 37 energy companies made our pons and grilled dozens offund managers and analysts to arrive cut, compared with 19 in 2005 (when oil prices were already at our final selections. We uncovered seven stocks that meet our exploding). It's no wonder, with the price of crude still hovering grueling standards, along with three mutual fuuds that oITer the around $70 a barrel. elixir of these fast growers inside a diversified mixture of stocks But there's much more than just petrodollars in this as that reduces their risk. Nobody can make guarantees-especially semblage. Internet and technology companies made a strong in today's turbulent markets- but these stocks could well have showing with 17 names, from A (Apple) to, well, V (Vasco you penciling in a mark higher up lbe wall a year from now. Data Security). IT services provider Cogni zant Technology appears for the fifth year in a row, giving it the longest cur rent streak. Metal and mining companies have also continued NUTRISYSTEM to shine, taking J2spols on the list. And then there's our new TICKER IITRI PR!C£8/28 $50 THREE-YfARAVERAGEANNUAlRETURN 244% No. 1: NutriSystem, the weight-loss business that has expanded even faster than America's waistline. OBESI TY MAY BE a devastating epidemic forthe American As we say, the list provides a fascinating snapshot. But it's an population-but it's also a tremendous business opportunity. image oflhe past (albeit the recent past) and doesn't include key For proof, look no further than weight-loss-products purveyor forward-looking investment measures such as price/earnings ra NutriSystem, whose stock toppcdourchnrl with a whopping244% tios. The article you're reading takes that list and mines it further, three-year average annual return and fluished second in earnings examining which of these recent high fliers is poised to continue per share with a 433%average gain over that period. (Please note: soaring. After all, there's a lot more to picking a good investment These 1hree-year figures, like the list that follows, cover the period tban just buying into spurts ofrapid expansion. Such high-velocity ending May 31, 2007.) Sure, those triple-digit explosions can't risers have often been favorites of momentum investors, who bail continu~-lhe law of large numbers has begun to kick in-lml out at the first sign of trouble. And with the market's whipsaws this analysts expect a still-enticing 50% rise in earnings per share in summer, there have been plenty of signs of trouble lately. 2007, followed by a 20% increase in 2008. And with the stock That's why it seemed a particularly propitious time to use trading near its recent lows (12 times projected 2008 earnings), FORTUN E's 100 Fastest-Growing Companies not merely as an now is a good time to gobble up some shares. opportunity to marvel at the speediest sprinters but also as a Once similar lo Weight Watchers, NutriSystem reinvented jumping-off point to discover those that, though perhaps not quite itself after going into Chapter 11 in 1993. It's now an on line op as fleet, seem poised for reliable, steady expansioti' and-dare we eration that sells packaged meals in "programs" that contain 28 DIHHER PlftHSNutr iSystem's meals have won over male dieters with endorsements from ex-jocks like Dan Marino. 172 • FORT U NE September 17, 2007 --~===:::::::::::======----7 MEC005578 Exhibit 1 Page 67 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. days' worth of food. The plans go easy on dieters. They require nothing other than eating, and one of the company's selling points is that its menus eschew spartan of ferings and let you enjoy tacos, pot roast, and "fudge graham bars." In addition, the company's direct-marketing model offers customers more anonymity and lower prices lhnn conventional weight loss centers. NutriSyslem has been beefing up its customer base with effective marketing. It supercharged its men's business with a high-profile campaign featuring Dan Marino and other former athletes pho tographed with paunches (before Nutri Systcm) and without (after). No surprise, then, that revenues and operating profits soared more than 60% in the first half Of this year, compared with the same period a year earlier. New food programs set to launch next year and expansion to Canada, Britain, Germany, Australia, and Japan should drive further gains. A few caveats: NutriSystem's shares have been volatile. Investors tend to gorge on the stock and then swear off it like yo-yo dieters after, um, a fudge graham bar. As a result, shares have bounced as high as $76 and as low as $41 over the past year. One reason: NutriSystem's business is seasonal, as New Year's resolutions jump-start the first quarter and demand tapers off by T hanksgiving. CHESAPEAKE SUNRISE The natural gas producer may soon surpass BP and ConocoPhillips. 1\vo other concerns that have been drag ging on the stock seem overstated. Shareholders worried after the based in Oklahoma City, boasts an impressive track record. Un company hinted that GlaxoSmith Kline's new over-the-counter der CEO Aubrey McClendon, the company, founded in 1989, weight-loss drug, Alli, might take a bite out of NutriSystem's sales has grown into one of the country's largest suppliers of natural growth. But the medication's unpleasant digestive side effects gas, which heats homes and fuels power plants. Through ag have analysts downplaying its long-term impact. And though gressive acquisitions (SU billion since the end of2002) and NutriSystem's customer-acquisition costs are starting to climb, active drilling, Chesapeake has increased production by about the company's long-term prospects aren't tied to maintaining 30% a year. McClendon has his sights on even greater goals. As those stratospheric rates. It has a burgeoning database of former he crowed to analysts on a recent conference call, "Given that clients, a pool of serial dieters who can be wooed back at much BP and ConocoPhillips are the only two companies that now lower cost than new customers. Says Colin Sebastian of Lazard produce more gas thnn Chesapeake does in the U.S., and given Capital Markets: "There's a long-term growth opportunity here, their production continues to decline while ours continues to particularly as they start to reactivate prior dieters." increase, it seems incviiable that sometime in 2008, CJ1esnpcakc will become the largest U.S. producer of natural gas." That position, ofcourse, means thnt Chesapeake's shares are n CHESAPEAKE ENERGY inextricably linked to natural gas prices, which are far off their TICKER CHK PRICE 8/28 $32 lHREE-Y£AR AVERAGEANrlUAL RrnJRN 34% 2005 peak nnd tumbled sharply in August, undercut by high inventories and milder weather. That has left gas trading al a trl UNIT historically large discount to oil. Given the volatility in prices, TICIIER UHT PRtC£ 8/28 $47 1l!REE-Y£AR AVERAGE AN'.UAI. RflllRN 26% the next few months may be choppy, but the long-term outlook WITH SO MANY energy companies on thisyear'slist,you might should be bright as energy demand continues to mount inexo think it would be hard for any one to stand out from the crowd. rably. Meanwhile, Chesapeake should be poised to meet lhnt But we found two natural gas plays that can heat up your portfolio: demand as it shifts from a mode of acquiring land and reserves Chesapeake Energy and Unit. lo developing its assets and ramping up production, which should Chesapeake, an exploralion and production (E&P) company stoke profit margins. 174 • F O RT U N E September 17, 2007 MEC005579 Exhibit 1 Page 68 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. With.shares trading for less than 11 times earnings, even value Robinson Humphrey energy analyst Johu Gerdes, who expects managers can get excited about the stock. "When we look at the natural gas prices to rebound next year. "We think over time this asset base and the potential growth of production, we think the value will be unlocked." company is significantly undervalued," says Arvind Sachdeva, manager ofthe Victory Value fund, who has more than 4% of his portfolio's assets in the company. CEO McClcndon, among the ru CB RICHARD ELLIS GROUP most respected executives in the business, has himself bought up llCKER CBG PRlCEB/l8 $29 THREE-YEARAVERAGEMl~UALRETURN 79% more than $20 million worth ofshares this year. That's lhckiml of vote of confidence we like, and we think Chesapeake could THESE DAYS, CB RrCHARD ELLIS must feel a bit like Yahoo help power your portfolio for some time to come. during the dot-com crash: Sure, Pets.com's stock was due for a If the energy industry were a zoo, then Unit might be the collapse, they must have thought, but why do we have to suffer too? duck-billed platypus, a hybrid creature with an unusual mix of So it goes (or CBRE. Never mind that it isn't involved in subpri111e features. Though tbe 1\1lsa-based company focuses primar mortgages. The company provides a wide array ofcommercia l real ily on natural gas, it operates a few lines of business. Founded in 1963 as a contract-drilling company, il has since diversified into exploration and production THREE WAYS TO as well as gathering and process- ing natural gas. While Milling stil l accounts for sqmc 60% o( FIND GROWTH revenues, the mix of businesses means Unit is often misunder- WITH LESS RISK stood or neglected by investors seeking pure plays, according to analysts and money manag- ers who track the stock. "Unit falls bet ween the cracks, be cause the drilling analysts don't HVESTIHG IN rapidly growing companies can be &Aluminum. George and his crew seek out unloved or really understand the E&P side," highly rewarding- and highly dangerous. One undiscovered companies with strong balance sheets, says Whitney George, portfolio lime-honored way to minimize the risk isto high returns on capital, ind market values between manager with the Royce family buy atl iversified selection through a mutual $500 million and $5 billion. They also hunt for sizable of funds. "The E&P guys don't fund. The three funds below, each of which potential, buying stocks whose prices they think will understand the drilling. So this Ihas seasoned management and modest portfolio doubleor lriple over threa to five years. Expenses, thing is neither fish nor fowl." turnover, have proved themselves adept at al 1.31%, are a shade higher lhan we'd like, but the Whatever it is, Unit has thrived. managing high-waltage slacks. managers hit their mark often enough lo make this a Revenues have j umped from S187 Under the leadership of Jonathan Coleman, JAIIUS l'IOrthwhile bet: The fund has relurned nearly 25% a million in 2002 to nearly Sl.2 bil ENTERPRISE (JAENX) has racked up annualized returns year over the past five years, lrouncing the S&P and l ion last year aud an expected of neally 18% over the past tive years, beating the putting ii in the top 1% of all small-capfunds that blend $1.36 billion in 2008. Net income S&P 500 by six percentage points ayear. Coleman growth and value approaches. has shot up from $18 million to has achieved that record by favoring rapidly expanding At T. Rowe Price IIEWH0RIZ0HS (PRNflX), veteran $312 million in 2006, or from 47 businesses-GO% of them midsized, about a third manager Jack Lapor le lo~ks for small-caps with slrong, cents a share to $6.72. Yet the large caps, and lhe rest small- with strong market sustainable earnings growth and rides them for the long stock still trades at just seven share, whether they are inlrad itional growth areas term, even if they graduate out of the tiny-company times projected 2008 earnings. such as telecom and health care or in sleepillf sectors category; the average holding period for astoc k is four "The valuation looks particularly sucll as industrial materials and years. The portfolio has swelled to compelling to us, as ifit is pricing consumer goods. The fund's JOO or more than $7.3 billion in assets, in a very dire scenario for energy so stocks include ApJ>le and Precision very large for a fund of its kind, in general," says George. Castparts, which both appear on our but Laporte keeps his holdings As with Chesapeake, Unit's list of rising companies. diversified across some 270 stocks. stock performance is closely Given its name, you might not Recent favorites include wireless linked lo the price of natural gas, expect ROYCE VALUE (FYVFX) to communications company NII so the next couple of quarters make our rosier of smart growth Holdings, dental-products distributor may be rocky. (Indeed, analysts plays, but co-manager Whitney Henry Schein, and drilling-products expect earnings per share to sag George and his colleagues run a provider Grant Prideco, No. 25 this year, before r ising to $7.21 in portfoliol oaded with corporations on lhe FORTUNE list. Laporlo's 2008.) And the longer-term pros lrom our list, including Unit, Steel mix has delivered annualized pects are appealing. "We pound Dynamics, Oil Slales International, VALUING GR0WIH Royce Funds returns of 17.7% over lhe past five the table on Unit," says SunTrust Patterson-UTI, and Reliance Steel managerWhitneyGeorge years. - Y.R. l78 • FOR T U N E September 17, 2007 MEC005580 Exhibit 1 Page 69 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ROLLING AND ROCKING Nucor has helped revive the steel industry and has made our list of fast growers fourye;irs in a row. estate services, such as selling, leasing, and managing properties. there is a slowdown in commercial real estate. Corporate clients But any real estate link is enough to earn a mark of shame in the looking to buy, lease, or manage space worldwide increasingly stock market right now. As a result, CBRE has see;, its stock sink prefer to use a one-stop shop, something only CB Richard El 33% from its 52-week high, and investors have an opportunity to lis or Jones Lang Lasalle, its smaller competitor and No. 74 on buy the shares at a discount: They're trading at just 11 times pro our list, can offer. Finally, acquisitions such as Insignia/ESG jected 2008 earnings, about 35% cheaper than the 17 P/E that the and Trammell Crow have helped the company gain share in company has maintained s.ince going publiein 2004-this for an top markets and diversify its revenues by expanding its steadier outfit that expects a 50% earnings-per-share rise in 2007. property-management bus.iness. CBRE might seem like an unusual candidate forFORTUNE's Over time, CBRE's stock price should shed the subprime list of quick-sprouting companies. It's more than a century old (it mortgage stigma and regain its luster. Says J.P. Morgan analyst has _seesawed between public and private ownership), and it's not Michael Fox, who thinks theshares will reach $46 within a year: in some trendy line ofbusiness. Bui it has posted a dazzling 370% "There has definitely been indiscriminate selling because it's total return since its IPO, even after its recent drop. Two success being lumped in with everything 'real estate.'" ful acquisitions in four years, plus double-digit organicgrowth for 19 consecutive quarters, have turned it into the industry's largest player, with S4 billion in revenues and a global footprint. r I NUCOR With the debt markets tightening, CBRE's growth won't be as TICKER HUE PRICE 8/l8 $51 THREE-YEAR AVERAGE ANNUAL ROURN 50% feverish as in the recent past-but it should be strong. Property sales, which make up about 30% of revenues, are slated to increase 6 l STEEL DYNAMICS TICKER STLO PRICE 8/28$41 TilREE-YEAR AVE!lAGEANNU.OJ.RETURN45% 6% next year. Deals are still getting done, and bullish analysis point to institutional investors' persistent appe(ite for commercial FOR AGES, IT SEEMED that growth in the steel industry had real estate as a key driver. "Transaction levels may slow, bnt there's gone the way of T. rex, but a quick scan of this year's list makes it money that needs to be put to work, and real estate is a very desir clear that those industrial dinosaurs are back, and they've been able asset class," says Will 'Marks, an analyst with JMP Securities, enjoying a new era ofgargantuan growth. With commodity prices who projects the stock will reach $48 in the next 12 months. buoyed by increased global demand and inclustrywideconsolida Moreover, the company's leasing division, which makes up Lion, revenues and earnings have jumped Uuoughout the sector another third of its revenues, may pick up some of the slac_k. in recent years. But two of the companies- mini-mill operators Revenues in that business are expected to rise J1% as a result Nucor and Steel Dy11amics-mcrit special attention because they of projected job growth around the globe. have more going for them than just improved pricing power. "The The company's reach puts ii in a powerful position, even if thing that separates these companies in my mind," says Gold- 180 • FORT U N E September 17, 2007 MEC005581 Exhibit 1 Page 70 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. man Sachs analyst Aldo Mazzaferro, "is that they are also growing their unit volume rather than just [relying on] price appreciation." Nucor, for example, has ramped up shipments from I 2 million tons in 2001 lo an estimated 23 million this year. Revenues have jumped from S4.3 billion to $16 billion. Steel Dynam ics, meanwhile, bas boosted shipments from two million tons to5.5 million over that same span, and revenues have leaped from $607 million to nearly $4 billion. It has now made our list ofspeediest grow ers four years in a row. Those fabulous gains have been ac companied by equally spectacular stock ralJies, so the easy money is gone. Yet even as prices for flat-rolled steel have wobbled in recent months, analysts say Nucor and Steel Dynamicssho11ld remain strong performers as the market realizes that their newfound profitability isn't just a flash in the blast furnace. "These stocks are still undervalued in view of the new sustainability of earnings and cash flow," says Mazzaferro. Steel Dynamic.sand Nu cor trade for about nine times projected 2008 earnings. Nucor also carries a divi dend of 44 cents a share- and has been PANTRYRA ID Kangaroo Express and its parent, Pantry, are poised for a comeback. paying a supplemental dividend (now $2 a share) since 2005, bringing its overall yield to belier than 4.5%. fact, analysts say the ingredients are there for an extremely re (Steel Dynamics' effective yield is 1.4%.) So as the steel recovery warding rebound, and this looks like a great time to buy into a enters its next phase, those stocks should be rewarded with higher well-run business with alluring prospects. "Pantry, with its solid multiples, analysts say. That means there's still plenty of oppor acquisition strategy and strong in-store performance, is poised tunity. "It's growth at a value price," says Michelle Appelbaum, for tremendous growth over the long run," Morningstar analyst a veteran industry analyst who runs her own research firm in Ann Gilpin wrote receuUy, "and we think this cyclical downturn Chicago. Who doesn't like to buy quality at a discount? is providing an attractive buying opportunity." The rebound should be driven by a few factors. First, gasoline margins should climb back lo historical norms, Gilpin and oth tJl PANTRY ers say, as wholesale fuel prices stabilize. And earnings should TICKffi PTRY PRIC[ 8/28 $33 1HR£E-YEAR AVERAGE ANNUAt RETURN 28% pick up as the chain continues to acquire new stores- it added 152 in fiscal 2007 alone-and improve its operations. Pantry AFTER FIVE YEARS of stupendous expansion, Pantry, op has also been building up higher-margin businesses, such as erator of more than 1,600 convenience stores and gas stations car washes and quick-serve restaurnnts, and integrating them across 11 Southeastern states, !iasstrngglecl this year. While net into its locations. income jumped eightfold from fiscal 2003 through 2006, the Pantry management apparently believes that the future looks Sanford, N.C., company, best known for its Kangaroo Express good, and that the stock is trading at bargain prices: The com chain, expects to earn about $40 million in 2007, down Crom pany announced in August that it will use cash to buy back up $89 million last year. Margins on gasoline sales, which account to S50 million worth of shares over the next two years. "It's a for almost two-thirds of the company's revenue, got squeezed tough environment right now," says Gilpin, "but they're defi this year, the result of a lag between the time wholesale prices nitely making lemonade out of lemons tluough share buybacks, rise and when the higher prices get passed along to consumers through continuing their acquisition strategy, and through their at the pumps. Though revenues have continued to climb, those strong performance in the stores." Pantry does carry a heavy weakening margins, also hurt by an uptick in operating costs, debt load, and higher interest expense could cut into future led the company to repenteclly lower its earnings guidance. That profits. But with shares trading for less than 12 times projected violated Wall Street's cardinal rule- keep growth smooth and 2008 earnings, the risk seems limited. "There's a lot of upside steady- and shook some investors' trust. The stock has been to the stock," notes Gilpin, who values the shares at $63. "The punished accordingly; shares have fallen more than 40% from firm is spring-loaded for growth." D their 52-wcek high. Yet Pantry still has plenty of promise. In FEEOO,\CK/ortrmet11n//_/t/ltr,@forl1111t11wil.co111 182 • FORT UN E September 17, 2007 MEC005582 Exhibit 1 Page 71 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~-~~- FORTUNE'S 100 FASrfEST-GROWING COMPANIES 2007 -..:.=. -=- - -~ ~ - ~ -.- THE CLASS OF'07 :_ ~aswtesl LLGCroo,t.-vlB,·ng ACoSN 0psaun ,·'est PRc TSnEelfor anyoneee,nvlciorg'sygoetctcnr us~dcltod 1~ayindg_s3ersa g.i llfioneirsor gads: eAx s,tu n n!ng 37t ofiftrs•ORTaUtcNI ~•s1oOe r , 1• 01 0 1 001. 111 5 10 - m u mg n I1 , re n , 3 n I 10ra1 I 0 n ou . - m 1111g 1I1 record set by tech in 2000. No other industry even comes close, although b.igb commodities prices helped metals companies make ast rong showing. As the housing market reeled, homebuilders Toll 8roLhe1·s and M eritage !Jomes dropped off our 17th edition of !he list.But other seemingly fleeting trends- eoergydrinks, laser cosmetic treatments, UGG bools-prO\'Cd to have surprisingstaying power. To determine the rankings, we use data from Zacks lnvestment R esearch aud evaluate each company based on three years of re1'Cnue and profit grow th, as well as total return. For a detailed explanation of our methodology, see the note on page I 92. BY L MICHAfl CACACE (SENIOR USTEDITOR), r.<.ARILYII AOAl,\O, IEUS DEMOS, DOUGLAS (LAI.I, EIJGOIIA LEVEil SOii, CHRISTOPllER TKACl'/1(, RJCHARO It ruc~•.!11lt EARUIIIGS·PER· REVWUE TOTAl RETURII SHARE GROWTH GROIYIH llvN•)'t-3' 14\tN~ rate llvtt-ym ~oolrat, TIIIEe•)Ur ar;.ua) Hit l September 17, 2007 F O RTUN E • 185 MEC005583 Exhibit 1 Page 72 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ; ~OBJliB):/s1 9.0 f ~STE~T-GROW I_NQ £QMP~~I§S ~ - - ._._ - -- • ·~····· ~ - --:-- -~---~ ------= --.-.::.=.r----.·-- - - EARflHIGS-PER REVENUE TOTAL RETURN SHARE GROWTH GROl'ITH Tjllee•)'taraMOal rale lt•ee•)'tar annual rale Tlvee-ytai annual rale (c«or~bt,tS&P 500)' RA/lK RAHK RA/IK iiETIHCOME REVENUE P/E Pattfwr P.strou, Cvrrent 2007RANK quartei,~ quarters! r.italiw (2006 RAtlK) ffCKER STOCK PRICE 8/22101 Cmb) (mj:fo!\1) est COl,IMEH!S 15 PERFICIEIIT PRFT $22.61 59% $11,0 77% $181.3 73% J6 The IT consultant acquired E-Tech and Tier I Innovation earlier this year. AUSTIil 81 10 - 17 16 HOLLY HOC $59.44 89% $287.3 42% $4,157,5 101% 10 Another independent oil refiner rides lhe (U) DALLAS 49 51 8 boom to a record-breaking quarter. 17 SEACOR HOLDIIIGS C/(}/ $84.71 198% $222.4 59% $1,328.3 29% 10 OffshOre-services firm boasts operations (96) FOR! LAUDERDALE ll 20 79 from Santiago to Sakhalin. 18 PIOIIEER DRILLING P/JC $12.21 262% $84.2 58% $~16,2 25% 12 Service provider to oil and gas explorers won SAflAIIIO/llO 6 22 85 its first-ever international contract. 19 FREEPORT-ldCMORAII COPPER &GOLD FCX $85.59 127% $1,682.6 51% $7,007.3 44% 9 The $26 billion acquisilion or Phelps Dodge PHOEIIIX 30 34 50 made It the biggest public copper producer. 20 KAIISAS CITY SOUTHERII KSU $31.62 118% $118.2 52% $1,682.5 34% 2a Rising freight and fuel costs have helped the KAliSAS cm, MO. 14 30 72 railroad company steam ahead. 21 LAOISH LDSH $51.35 198% $26.6 28% $371.9 70% 21 Big orders from Airbus and Uncle Sam CUDAHY, 1•ns. 12 88 19 propelled this aerospace components maker. 22 GREYWOLF GI'/ $6.49 248% $224.3 51% $964.7 25% 8 The provider of oil and natural-gas drllllng IIOUSTON 8 31 84 services runs 123 rigs in North America. 23 ALLSCRIPTS HEALTHCARE SOLUTIONS UORX $23.92 138% $15,0 38% $250,8 48% 45 Physicians like the company's web-based CIIICAGO 27 ,__60__ ~--42 health-records software. 24 XTO EtlERGY xro $54.25 83% $1,71li.O 60% $4,530.0 42% 12 Property acquisilions and Increased gas (39) FORTl'/ORIH 55 19 56 prices have boosted tl1is energy outfit. 25 GRAIIT PRIDECO GRP $52.74 300% $503.7 33% $1,91'1.7 43% 12 World's largest drill-pipe maker, which also (48) HOUST01I 4 73 54 makes drill bits, is enjoying robust demand. 26 HORllBECK OFFSHORE SERVICES HOS $31.33 157% $78.8 38% $281.6 44% 12 The services operator has a tanker fleet that COVIIIGTOII, LA. 18 62 SI hauls petroleum out of the Gultot Mexico. 27 DAWSON GEOPHYSICAL Dl'ISII $67.24 97% $20.0 54% $206.6 41% 20 The collector of seismic data for oil and gas explo1ers is a beneficiary of high energy prices. l,tlOLAlfO, TEXAS 46 27 - 59 28 NATIONAL OILY/Ell VARCO IIOV Sll3.48 69% $839.6 61% $7,679.7 49% 16 This oil-equipment maker's backlog Is 86% (93} HOUSIOII 75 18 40 from international markets. 29 HEll,1ERICH & PAYNE HP $29.95 202% l396.t 37% $1,437,5 ~ 8 The contract oil and gas driller has been TULSA 10 64 - 61 adding about a dozen rigs a quarter. 30 ORIL-QUIP ORQ $45.11 ll6% $93.6 32% ;462.2 69% l8 Carved a niche In ::!rilling equipment with a HOUSTO!I 36 79 20 slteam of Innovative new products. 31 KIIOT Y✓IOT 121.26 155% $2-3.4 26% $79.0 72% 52 I Connects couples tying the knot \'/itll needed IIE\'IYORK 19 100 18 services, from websites to photographers. 32 FIRST ACCEPTAUCE FAC $8.80 105% $22,0 277% $330.6 13% N.A. I Earns fat premiums for covering drivers with llASHVllLE 40 - 1 97 bad credit or a history of render-benders. 33 CB RICHARD ELLIS GROUP CBG $31.01 88% $293.6 33% $4,494.7 79% 13 The world's biggest commercial real estale - firm has leading share in New York and L.A. ELSEGUIIOO, CALIF. so 75 15 34 GULfMARKOFFSHORE GI.F $46.SO 306% $107.8 28% $26t8 I 48% 11 Leases specialized marine vessels to oil llOUSlOll 3 94 43 companies, mostly in the North Sea. N.A. Not available. 'The S&P 500 returned 11.7% annually over the same period. 'Through the quarter ended May 31, 2007. INTUITIVE SURGICALThe company's da Vinci minimally invasive surgical robot system helps doctors perform urologic, gastric bypass, heart valve, and other procedures. MEC005584 Exhibit 1 Page 73 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. EARNINGS-PER· REVEIIUE TOTAL RETURN SHARE GROWTH GROWTH Three•1~ara11nual rale lhret•)~ara1111Wlrate llm•)'t,11 anooal tale (c«or="'3tS&P 500)' RAlfK RA/lK IWIX HETiNcoi,if REVEtillf : P/l Past four PMtlour Currin! 2007RANK (l(Jarters' qua/l!IS' Jls(alyea, (2006RANIO TICKER SIOCKPRICE snuo1 (mit'oi11) (mil'ioJlS) tsL COMMEIHS 35 HELIX EIIERGY SOLUTIOHS GROUP HLX $35.69 96% $348,0 53% $1,471.3 38% II The company ls part owner of Independence {SO) Housro:f 47 28 66 Hub, the world's deepest oil production rig. 36 VALERO EIIERGY VLO $85.26 87% $5,758.0 37% $90,590.0 60% 7 Great margins translate to a profits gusher for (16) SAl!Arl fONIO - 53 63 30 leading U.S. refiner. 37 GE/lERAL CABLE BGC $58.15 76% $151.9 32% $3,870.0 107% 14 Maker of wire and fiber-optic cable products IIIGHLA/1D HEJGHIS, KY. 62 78 - formed a joint venture to operate in India. ....__ 6 38 HOLOGIC 1/0lX $51.32 74% $48,3 39% $618,0 68% 32 Develops X-ray equipment for screening and BEDFORD, I.IASS. 67 58 21 diagnosing breast cancer. · 39 LUFKIN lflDUSTRIES LUFI( $56.23 98% $15.6 33% $6.Z0.2 61% 12 Sells and services the iconic symbols of an (64) LUfXlll, !EJ(AS 4~ - 74 28 oilfield, the class:c pumping 1ig. 40 AMERICAII SCIEIICE& EIIGHIEERIIIG ASEi $64.37 169% $24.6 35% $153,2 40% 24 The Department of Homeland Security uses Bll LERICA, MASS. 15 70 ~-62 Its X-ray machines on people and cargo. 41 10¥ GLOBAL JOYG $44.99 141% $411.0 27% ~2.477.6 65% 16 The global commodities boom is boosting (23) MILWAUKEE 25 • 99 -24 this mini ng-equipment maker's bottom line. 42 RAlrnE RESOURCES RHC $35.40 66% $176,2 50% $743.5 57% 21 011 and gas play sold its offshore Gulfof (68) fORTl'IORIH ,_ 76 __38 34 Mexico interests earlier lh,s year. - 43 PALOMAR MEOICAL TECHNOLOGIES PMTI S30.54 119% $52.6 51% $135.6 27% 26 Develops laser treatments for acne, varicose (6) BURLIIIGTOII, MASS. 34 ,__33 81 veins, scars, unwanted hair, and more. 44 PATTERSOll-UTI EflERGY PTEII $21.07 136% $629,8 52% $2,496,0 17% 9 The driller completed $450 million stock (43) Sr!YOER, TEXAS 28 - 2S 92 buyback last year and will buy more. 45 UIIIT um $48,28 91% $301.7 58% $1,156.8 26% 8 Owns pipelines and drills and explo,es oil and (37) TillSA 48 21 .___82 gas fields In Texas and Oklahoma. 46 llETFllX 1/Fl.X $l7.4J 180% $54.3 49% $1,077.9 (19%) 26 The onllne DVD rental trailblazer battles [18) I0S GATOS, CALIF. 13 39 ..__91 fierce competition from Blockbuster. 47 GARDtlER DENVER G!)I $39.01 59% $145,2 57% tl.7JJ.3 45% 12 Pump maker serves red-hot Industries, from (69) QUI/ICY, ILL. 82 23 ~7 refining to mining to biofuel. 48 AKAf,IAl TECHNOLOGIES )JfAM $31.89 123% $65.1 39% $477.1 39% 35 Its streaming-video and contcnt-delive1y CAJ,IBRIDGE, l,1ASS. 33 57 63 software is used by Apple, MTV, and ot11ers. ~ - ,____ 49 PSYCHIATRIC SOLUTIOIIS PSYS $37.19 76% S6fr.6 50% $1,107.9 43% 2.S Acquisitions grew the health provider from (34) FRAIIKUN, TEllll. 63 36 65 6,500 to 10,000 beds in less than a year. -· >--- 50 F5 IIETWDRKS mv $35.91 69% $77.0 51% $459.5 45¼ 35 Its products help Internet applications run SEAffiE 74 - .___32 ----48 over corporate networks. 51 ROl'IAII COS. RDC $36.12 532% $345,S 36% $1,673,2 20% 9 Strong demand let I his oil and shallow-water HOUSTON I ..___66 - 90 drilling services company raise its rates. 52 RPC RES $13.48 106% $fl3,9 30% $631,7 ---55% 13 Much sought-alter for ~s expertise in extracting (3$) ATlAUTA 39 83 .....__JS oil from hard to reach places, 53 ATWOOD OCEAtllCS Afl'I $68.15 155% $108.8 27% $336.4 49% 17 Contract driller with eight offshore rigs has HOUSTOII 20 97 41 been buoyed by high oil and gas prices. 54 SUPERIOR El/ERG¥ SERVICES SP/I $36.53 87% $220.1 32% $1,234.3 58% II Towing and repairing oil vessels in the Gulf of IIAAVEY,LA 51 76 32 Mexico after Katrina kept Superior busy. N.A. Not available. •The S&P 500 returned 11.7% annually over the same period, 'Through lhe quarter ended May 31, 2007. APPLE The new I • iMac made its debut at Apple headquarters in August. Strong sales of iMacs and laptops helped Apple land on FORTUN E's Fastest Growing list for the first time this year. MEC005585 Exhibit 1 Page 74 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. - ---- ~ -- ; FORTUN~'~!00 FASTEST-GROWING COMPANIES 2007 - EARNINGS-PER• REVENUE TOTAL RETURN SHARE GROWTH GROWTH lhtet•)UUMl PEHH HATIOHAL GAMING The Pennsylvania company, which operates casinos and racetracks, including the Charles Town Races & Slots in West Virginia (shown here), has made the list In six of the Al past seven years. me rer an mu MEC005586 Exhibit 1 Page 75 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. EARNINGS-PER REVENUE TOTALR ETURII SHARE GROWTH GROWTH Ttwte-)Ya E' 192 • FO R TUNE September 17, 2007 MEC005587 Exhibit 1 Page 76 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Hot Growth, Against the Odds Page 1 of2 BusinessWeek HOT GROWTH May 28, 2008, 5:22PM EST Hot Growth, Against the Odds Here is BusinessWeek's list of fastest-growing small companies. Can they sustain their stratospheric growth? by Dean Foust Since 2005 online jewelry auctioneer Bidz.com (BIDZ) has seen profits soar nearly sevenfold as consumers glommed onto bargains like the $13,631 Bulgari watch that recently went for $669. But with the housing bust leaving so many so strapped, executives at the Culver City (Calif.) company realized they'd have to work harder to boost profits. So last year, Bidz.com's buyers looked beyond their usual source-jewelry makers looking lo close out excess inventory-and began scouring the country for bankruptcy auctions where it could scoop up manufacturer inventories for pennies on the dollar. Bidz.com's resourcefulness has paid off: While many other retailers began faltering earlier this year, the company reported a 34% jump in first-quarter earnings, thanks in part to this shrewd buying strategy. With several big purchases in hand, CEO David ZinbJ')J.9 recently raised his profit-growth forecast for 2008 by between 4% and 6%. SHAKING OFF A TOUGH ECONOMY Such agility has not only paid off for Bidz.com's shareholders and customers but has also helped it earn the No. 19 spot on Business Week's all-new Hot Growth list, our annual effort to identify America's preeminent small companies. This year we've tweaked our methodology to identify a smaller, more selective batch of highfliers that have outperformed their sector peers. They are the trend-spotters and innovators, the companies that have displayed an ability to thrive against multi nationals with more market clout and foreign rivals with cheaper cost structures. Above all, these companies are showing resilience in a worsening economy. Collectively, this year's Hot Growth companies saw profits rise 26% in their most recent quarters, vs. an average 27% drop in the latest quarterly results for the large-cap Standard & Poor's (MHE') 500-stock index, and a 28% drop for S&P's 4,400-stock Total Market Index. As a group, the Hot Growth Companies enjoyed average sales growth of 41.7% over the past three years and a 158% surge in profits in the past 12 months. Compare that with average sales growth of just 11.6% for the S&P 500 over the past three years, and a 20.6% increase in earnings last year. Keeping up such stratospheric growth will be even tougher for this year's class, given the economy. That's especially so for Hansen Natural (HANS). Our No. 1 company, best known for its Monster Energy drink, has long been a favorite of short-sellers. After a torrid growth trajectory- profits rose from $20 million in 2004 to $149 million last year- the company's honeymoon with investors ended abruptly last November when it missed analyst estimates, due in part lo higher costs for raw materials. The stock has tumbled 46% since. "WE CAN KEEP GROWING" But Rodney Sacks, Hansen's chief executive, says he can sustain growth and is ready to adapt to the times. That may mean more "2 for $3" and "3 for $5"-type promotions for cans of Monster. And Hansen, which has ranked on lhe Hot Growth list in three of the past four years, has rolled out new products such as its Java Monster coffee drink and a juice line aimed at kids. "The shorts had it wrong in the past and have it wrong now," says Sacks. "We believe we can keep growing." Like Hansen, many of this year's Hot Growth companies are sticking with product launches, despite the fact that consumers are on http://www.businessweek.com/magazine/content/08_ 23/b408703680207 6 .btrn MEC005588 Exhibit 1 Page 77 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Hot Growth, Against the Odds Page 2 of2 the ropes. That's the case with Under Armour (UA) (No. 34), another repeat Hot Growth performer. Even with its sports apparel business up by 37% last year, the Baltimore upstart threw down the gauntlet against Nike (~_KE) in May when it rolled out its first sneaker, a cross-trainer. Under Armour Chief Executive Kevin Plank knows that Nike will stop at nothing to protect its market share in shoes, but he believes the move into footwear was necessary to keep growing. This year's Hot Growth ranking also features a whole lot of heavy metal. Dotting the list are small manufacturers with low-cost structures and the ability to make specialized products that can't easily be copied by foreign rivals. Among the success stories: Graham (G.HM), a Batavia (N.Y.) maker of heat- transfer equipment, and Haynes International (!::Jt,YN), a Kokomo (Ind.) supplier of specialty alloys used by jetmakers and gas drillers. Because of a weak dollar and a surge in global demand, these companies could have the wind at their backs. "What the world wants from us now is [advanced] industrial products-from airplanes to drilling equipment to machine tools," says Mark Zandi, chief economist of consulting firm Economy.com. "I imagine there will be even more industrial companies on this list a year from now." Back to the Hot Growth Table of Contents Foust is chief of BuslnessWeek's Atlanta bureau http://www.businessweek.com/magazine/content/08_ 23/b408703680207 6 .btrn MEC005589 Exhibit 1 Page 78 of 78 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. EXHIBIT 2 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. SEE SOMETHING NEW, EVER Y DAY. TAKE A LOOK amazon..._., Ir; 'r11· • Discover· sma LL& me d.1um b us1nesses· l'n'I Deliver to EN Hello Sign 1n ~ "7 Chicago 60601 Departments • Your Amazon com Today's Deals ® • Account & Lists • Orders Try Prime • • • cart prime wardrobe WOMEN MEN GIRLS BOYS BABY l l'J GGAG E SALES & DEALS NEW ARRIVALS Amazon Fashion iefD'~ OJ bu, 1-48 of 658 results for Cl.othing, Shoe s & Jewe!lry : Men . 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Design huijiameikeji l\l ewEra Clint Bowye12O13 Rush Truck __ _ Authentic Kurt Busch Monster Energy __ _ Jiacool Creative 30 T Shirt Monsl er En __ _ $34 99 s11 ggg fro m $13 00 .,-prime ...-1:1** •4 Document title: Amazon.com: monster energy - Men : Clothing, Shoes & Jewelry Capture URL: https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dfashion-mens&field-keywords=monster+energy Capture timestamp (UTC): Tue, 02 Oct 2018 16:02:57 GMT Page 3 of 10 MEC017795 Exhibit 2 Page 3 of 10 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. New-Era J. H. Design huijiameikeji i'l ewEra Clint Bow,,,er 2013 Rush Truck ... Auth enlic Kurt Busch Monster Energy ... Jiaco ol Creative 3[) T Shirt Monsler En ... $34 99 $11999 from $1300 ,tprime -trlrtl** .. 4 J.H . Design NASCAR New-Era i'IASCAR Monster Energy Black Twlll J ... Monster Energy Brack and Gr,een Adj us . 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Sponsored QJ Sponsored© More Choices from $4945 Exira Stre ng tn Snots , 2.5 oz , 12 pack Pea cl1 Pear All Natura l Sparkling Energ __ 199 :0 1 9 .,tpri rne $ 1999.,, prime ••*** "' 332 ****1-r ,. 186 evilenergy Pickle Juice Checkered Flag Sponsored © Sponsored © Kurt Busch 2017 Monster Energy Spoi l Evil Energy - Turn Any [)rink Into An En __ _ O riginal Recipe Sport , 8 oz, 6 l='ack fro m s2499 .,,prime 88 99 •42 .,tprirne :0 1 2 .,,prime ••*** "' 65 ***** "' 159 ···•••1 New-Era Gygfsg iu New-Era i'lewEra Kyle Larso n 2018 DC Solar M __ _ Cool Hip-Hop Ball caps Micllael Jackso __ _ NewEra Ke vin Harvick 20 18 Jimmy Joh __ _ 99 $ 34 .,tprime :0 1899 $3499.,, pr.me Document title: Amazon.com: monster energy - Men : Clothing, Shoes & Jewelry Capture URL: https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dfashion-mens&field-keywords=monster+energy Capture timestamp (UTC): Tue, 02 Oct 2018 16:02:57 GMT Page 5 of 10 MEC017797 Exhibit 2 Page 5 of 10 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. -and NBA Properties, Inc. New-Era Gygfsg iu New-Era i'lewEra Kyle Lar.so n 2018 DC Solar M... Cool Hip-Hop Ball caps Mich ael Jackso ... New Era Kevrn Harvick 20 18 Jimmy Joh ... 99 $ 1899 99 $ 34 ./prime s34 ,/prime SMI Prnperties LVTVFNQJ New-Era Marti n Tru ex Jr Sliblimated 2017 Mons!. . Men Mo nster Energy Logo Leis ure Part ... NeWEra Erik Jones 2018 DeWalt MonsL . 99 i 35 oo ./prime More Choices lrom $ 1 5 ,95 s34 ,/prime ***** • 1 Energy Drink Tease Forthery Checkered Flag Energy Drinks - Spread ing Energy T-Shirt Cleara nce Men's Tre nch Coat Winter W . RLcky stenl1ouse Jr 2018 Monste r Ener. .. $1 4 99 ..,.p,irne $25°0 >/prime Document title: Amazon.com: monster energy - Men: Clothing, Shoes & Jewelry Capture URL: https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dfashion-mens&field-keywords=monster+energy Capture timestamp (UTC): Tue, 02 Oct 2018 16:02:57 GMT Page 6 of 10 MEC017798 Exhibit 2 Page 6 of 10 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Jorge Lorenzo Forthery JH Des ign Mo nster Energy Black Monster Energy ... Clearance Farther/ Men's Pu Leather J... Mart in Truex Jr. 2017 Monster Energy $3295 $1299 from $15599 DRAGON ENERGY SCARY . New-E ra JH Des ign Drago n Ern ergy Powerful Mo nster Drag__ _ NewEra Marti1n Tru ex J1 2013 Furn ttu re ... Manin Truex Jr 2017 Mo nster Energy N ... 49 99 $19 ,tprime More Choices lrom $2999 $ 149 Pro Circuit FFansTees Forthery Patch T-Sh[rt X-Large Ch arcoal Monster Po wer's Energy Men's S1101"1 S... Clearan ce Forth ery Men's Coat Winter $3Q40 More Choices lrom :. 21so s15 rn Document title: Amazon.com: monster energy - Men : Clothing, Shoes & Jewelry Capture URL: https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dfashion-mens&field-keywords=monster+energy Capture timestamp (UTC): Tue, 02 Oct 2018 16:02:57 GMT Page 7 of 10 MEC017799 Exhibit 2 Page 7 of 10 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Pro Ci rcuit FFansTees Fort.hery Patch T-Shlrt X-Large Cnarcoal Monster Po wer's Energy Men's s11011 S .. . Clearance Fortl1ery Men's Coat Winter $3Q40 More Choices from S2150 $1519 Gujigur DRAGON EN ERGY SCARY Gygfsg[u A dult Un is,ex 2018 Monster Energy i'las .. D ragon Energy Powerful Monster Drag __ _ Mens/\11/om ens Chauff eur hat Mon ey-S ... 149 $700 s 19 y'prime $1699 FFansTees Valentino Rossi Vega Grnen Energy 46 Monster Men's Short . Monster Energy Yamaha m ue-Ml1lti Ra .. Sponsored © Mo r,e Choices fro m $ 2115 ij s4195 S port Pre-Workout Energjrzer, Acai Berr. 3 97 32 .,-prime ~ * •961 - - I ~Tl~--- MJii_ -r1, l\\~TJ l ~-.- , _ -- ~~ Document title: Amazon.com: monster energy - Men : Clothing, Shoes & Jewelry Capture URL: https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dfashion-mens&field-keywords=monster+energy Capture timestamp (UTC): Tue, 02 Oct 2018 16:02:57 GMT Page 8 of 10 MEC017800 Exhibit 2 Page 8 of 10 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MATI Energy ?-Eleven Gas Monkey Energy Sponsored © Sponsored (L Sponsored (!_ MAl l I Natural Healltly Energy Drink I L ... 7-Select Extra Strength Energy 81101, W ... Dri nk, Re.g1Ilar, 16 Ounce, 24 Count 95 10 $26 ..,.prirne $1 9194 -,1 prime $45 ,1pr1rne (3 days ) 1rk*11* '"' 279 ***** '"' 87 ***** '"' 1 { Previous Page 11 2 3 ... 14 Next Page } Search Feedback Did you find what you were looking for? If you need help or have a question for Cu,slomer Service , please visit th e Help Section . Yo ur recently vi ewed items and featured recommendations See personaliz-e d recommen dations Sign in New couslomer? Start here Back to top Get to Know Us Make Money with Us Amazo111 Payment Products Let Us Help You Careers Sell Under Private Brands Amazon Rewards Visa Signalure Cards Your Account Blog Sell on Amazon Amazon.com Store Card Your Orders About Amazon Sell on Amazon Handmade Amazon.com Corporate Credit Line Shipping Rates & Policies Press Center Sell Your Services on Amazon Shop with Points Amazon Prime Inveslor Relations Sell on Amazon Business Cred~ Card Marketplace Returns & Replacements Amazon Devices Sell Your Apps on Amazon Reload Your Balance Manage Your Content and Devices Become an Affiliate Amazon Currency Converter Amazon Assistant Advertise Your Products Help Self-Publish with Us Document title: Amazon.com: monster energy - Men: Clothing, Shoes & Jewelry Capture URL: https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dfashion-mens&field-keywords=monster+energy Capture timestamp (UTC): Tue, 02 Oct 2018 16:02:57 GMT Page 9 of 10 MEC017801 Exhibit 2 Page 9 of 10 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. If yo111 need help or have a question for Customer Service, please visit th e Help Section. Your recently viewed items and featured recommendati ons See pers,onalized recom mendations Sign in Nevi cuslomen Start here. Document title: Amazon.com: monster energy - Men : Clothing, Shoes & Jewelry Capture URL: https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dfashion-mens&field-keywords=monster+energy Capture timestamp (UTC): Tue, 02 Oct 2018 16:02:57 GMT Page 10 of 10 MEC017802 Exhibit 2 Page 10 of 10 Testimony Declaration of Rodney Sacks 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF (;+,%,7 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~fonsrer Energy® f Products https.1/www mon..'itcrt:ncrgy,comlu.sttnlproducLs'll /26/2016 5:42:42 P~•fl MEC000001 Exhibit 3 Page 1 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~fonsrer Energy® f Products https.1/www mon..'itcrt:ncrgy,com lus/cnlproduc1<'ll /26/2016 5:42:42 PM} MEC000002 Exhibit 3 Page 2 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~fonsrer Ene_rg)·® I Products KHAo■ • ~ ~~ UVLJ'iJIU"\JICNICIIIIY + Ju IC IE https.1/www m on..'itcrt:ncrgy,com fu.sltnlprod ucl< 'll/26/2016 5:42:42 PM} MEC000003 Exhibit 3 Page 3 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~fonsrer Energy® f Products https.1/www mon..'itcrt:ncrgy,com lus/cnlproduc1<'ll /26/2016 5:42:42 PM} MEC000004 Exhibit 3 Page 4 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~fonsrer Energy® f Monster Energy https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.c~n<::rgy/#{l/26l20 16 S.:43.29 PM] MEC000005 Exhibit 3 Page 5 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Lo-Carb https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1 /producls°J"03Alo-carb[ 1/26/2016 5·44:00 PMJ MEC000007 Exhibit 3 Page 6 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Absolu1ety Zero https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aab!:.olutcly•;,.cro( lr>.hl20l6 S·4S·42 PM] MEC000009 Exhibit 3 Page 7 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Unleaded https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1 /producls°J"03Aunle:idtdl 112612016 5A6;13 PMI MEC000011 Exhibit 3 Page 8 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Zero Ultra ~~~~~y ZERO ULTRA ZERO CALORIEf ZERO fUGAR https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Azero-ultra.(lJ26/2016 S -46:38 P~·fJ MEC000013 Exhibit 3 Page 9 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Ultra Blue MWN?JrF ~~~~C@"'v" ULTRA BLUE ZEAO CALOAIEf ZEAO fUGAA https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aulu-a-bluc(lJ26/2016 S .&7:03 P~·fJ MEC000015 Exhibit 3 Page 10 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Ultra Red MWH !)TEii e:[?::!]~~(@~ ULTRA RED ZERO CALOAIU ZERO JUGAA https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aulu-a•red[ll26.'20l \5 S:47 30 P~•IJ MEC000017 Exhibit 3 Page 11 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Ultra Sunnsc https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aulu-a-sunnse( 1/2612016 5'.47:56 PM] MEC000019 Exhibit 3 Page 12 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Ultra Citron ~ El\ ENERGY ~ ULTR~ CITRON ZERO CALORIEf ZERO .fUGAA https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aulu-a-c::i1ronl l/26/2016 5·48 U P.MJ MEC000021 Exhibit 3 Page 13 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Ultra Black https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aulu-a-blackLl/26f2016 S:48·52 Pt,..-1] MEC000023 Exhibit 3 Page 14 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. A~sauh https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aassault{ 112612016 S 49-31 PMJ MEC000025 Exhibit 3 Page 15 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Cuba Luna https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Acub-a-limal 1/2612016 S 49·56 PMJ MEC000027 Exhibit 3 Page 16 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ln\pon https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aimp0rt[ 112612016 5·50'. 18 PM] MEC000029 Exhibit 3 Page 17 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Ob,ermonster https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03AubermonstCJ11126t2016 5~50·43 PM] MEC000031 Exhibit 3 Page 18 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. MJ; https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Am.31J/26120165:S I ·07 PMI MEC000033 Exhibit 3 Page 19 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. ~-fe-an Bean https.1/www mon..'itcrt:ncrgy ,comlu.stenlproducw'monstcr.c~n<::rgy/#1/producls°J"03Am¢an•bC.tml lf>..612016 S.S l :31 PM] MEC000035 Exhibit 3 Page 20 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. LocaMoca https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aloc:a•moca[ IJ2612016 5·51 .59 PMJ MEC000037 Exhibit 3 Page 21 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Kona Blend https.1/www mon..'itcrt:ncrgy, comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Akom1•blendl l/26/2016 5;52-26 P.MJ MEC000039 Exhibit 3 Page 22 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. lnsh Blend https.1/www mon..'itcrt:ncrgy ,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Amsh•bkndl l/2612016 5,S3·22 Pt,..-1] MEC000041 Exhibit 3 Page 23 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Cappuccino F'F'EE~ENERGY ~ z ' 6J/jjm --~ https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1 /producls°J"03Akonn~cappuccino[ 1126/2016 5·53:Sl PM] MEC000043 Exhibit 3 Page 24 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Va.1111\3 Light https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Avanitla.light( 112o/2016 S ·S➔; 19 Pfvf] MEC000045 Exhibit 3 Page 25 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Extra Strength • Super Dry https.1/www mon.'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Asupcr-dry[l/2612016 S:54:"'-' P'M] MEC000047 Exhibit 3 Page 26 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Extra Strength • Ant1-Gravny https.1/www mon.'itcrt:ncrgy,comlu.stenlproducw'monstcr.c~n<::rgy/#1/producls°J"03Aanti-gravit)'i 112612016 5·)5 11 P~ t1 MEC000049 Exhibit 3 Page 27 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Rehab - Tea+Lcmonade +-Energy https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Atea~lt."111001Jdt( l/26/2016 5:$)·43 PMJ MEC000051 Exhibit 3 Page 28 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Rehab - R•spber,y Tea+Ene,gy https.1/www mon..'itcrt:ncrgy, comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Arehab•mspbcrry•1C.acricrgy( I/ 2612016 5·56; 10 PM I MEC000053 Exhibit 3 Page 29 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Rehab-Tea+Pmk Lemonad~Energy https.1/www mon..'itcrt:ncrgy ,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Apink-lcmooadc{ 1/26.f2016 S 56:33 PMI MEC000055 Exhibit 3 Page 30 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Rehab - Peaeb Tea+ Energy https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1 /producls°J"03Arehab-peaeh-en.;-rgy[ 1/26/2016 5:56:)5 PMl MEC000057 Exhibit 3 Page 31 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Rehab - Tea+Orangeadc·t-Eoergy https.1/www mon..'itcrt:ncrgy ,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aorangcackl 1126/20) 6 5:57 l 8 PM] MEC000059 Exhibit 3 Page 32 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Punch :Vionsler - Ballers Blend https.1/www mon..'itcrt:ncrgy, comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Adub-ballers-blendl 1/2612016 5' 57:➔7 PMJ MEC000061 Exhibit 3 Page 33 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Punch :Vionsler • Mad Dog https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Adub•mBd--dog[ l/26/2016 5:58· 1 I PMJ MEC000063 Exhibit 3 Page 34 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Ch«olale https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03AchocolBtc[ 1/2612016 S:58:35 P'M] MEC000065 Exhibit 3 Page 35 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Va.1111\3 MusclE ~ I 25, ENERGY SHAKE -.... .,...... _ ,,...., https.1/www mon..'itcrt:ncrgy, comlu.stenlproducw'monstcr.cm<::rgy/#1 /producls°J"03Avanitla[ 112612016 S·59'.00 PMJ MEC000067 Exhibit 3 Page 36 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Strawberry https.1/www mon..'itcrt:ncrgy ,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Aslnm·bcrryf 1/2612016 5 '. )9:Z2 P~1J MEC000069 Exhibit 3 Page 37 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Banana Musel£ 0 i1 E....._NE:~ G Y S H,A..,...,l https.1/www mon..'itcrt:ncrgy, comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Abanann[ 1/26/2016 5 :S-9·45 PMJ MEC000071 Exhibit 3 Page 38 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. Khaos KHAo•• ~~ ~~ 11:NIEIIIIIY + JUICE ~~ - t~~y .. .,.,,o https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1 /producls°J"03Akhaos.! 11261.?0l 6 6;00:0.$ P~·() MEC000073 Exhibit 3 Page 39 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. R,ppe,- RIPP E R https.1/www mon..'itcrt:ncrgy,comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Am~S0( I"26120 16 6;00.2.8 PMJ MEC000075 Exhibit 3 Page 40 of 41 Testimony Declaration of Rodney Sacks TTAB Opposition No. 91222422 (Parent) Monster Energy Company v. Maple Leaf Sports & Entertainment Ltd. and NBA Properties, Inc. P1pchne Punch https.1/www mon..'itcrt:ncrgy, comlu.stenlproducw'monstcr.cm<::rgy/#1/producls°J"03Api pcline.punch[ 1/26.f2016 6:00•SO PMI MEC000077 Exhibit 3 Page 41 of 41 Testimony Declaration of Rodney Sacks 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF (;+,%,7 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt Form 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR [ )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transi t i on period from __ to _ _ Commission File Number 0-18761 HANSEN NATURA L CORPORATION (Exact name of Registrant as specified in its charter) Delaware 39-1679918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1010 Railroad Street, Corona, California 92882 (Address of pri nci pal executive offices) (Zip Code) Registrant's telephone number, including area code: (909) 739 - 6200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Not Applicable Not Applicable Secur ities registered pursuant to Section 12(g) of the Act: Title of class Common Stock, $0.005 par value per share Indicate by check mark whether the Registrant: (1) has filed all reports required to be f i led by Section 13 or lS(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days . Yes [ X ]No [ ] Indicate by check mark if disclosure of del inquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Regi strant's knowledge, in definitive proxy or information https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 1/85 MEC023437 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] The aggregate market value of the voting stock hel d by nonaffiliates of the Registrant was approximately $22,963,281 computed by reference to the sale price for such stock on the NASDAQ Small-Cap Market on March 3, 2003. The number of shares of the Registrant's common stock, $0.005 par value per share (being the only class of common stock of the Registrant), outstanding on March 3, 2003 was 10,223,203 shares. HANSEN NATURAL CORPORATION FORM 10-K TABLE OF CONTENTS Item Number Page Number PART I 1. Business 3 2. Properties 15 3. Legal Proceedings 15 4. Submission of Matters to a Vote of Security Holders 16 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters 16 6. Selected Consolidated Financial Data 18 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 7a . Qualitative and Quantitative Disclosures about Market Risks 30 8. Financial Statements and Supplementary Data 30 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30 PART III 10. Directors and Executive Officers of the Registrant 30 11. Executive Compensation 32 12. Security Ownership of Certain Beneficial Owners and Management 36 13. Certain Relationships and Related Transactions 38 14. Controls and Procedures 39 PART IV 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39 Signatures and Certifications 40 2 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 2/85 MEC023438 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt PART I ITEM 1. BUSINESS Overview Hansen Natural Corporation was incorporated in Delaware on April 25, 1990. Its principal place of business is at 1010 Rail road Street, Corona, California 92882 and its telephone number is (909) 739-6200. When this report uses the words "Hansen", "HBC", "the Company", "we", "us", and "our", these words refer to Hansen Natural Corporation and our subsidiaries other than Harde Beverage Company ("HEB"), unless the context otherwise requires. We are a holding company and carry on no operating business except through our direct wholly owned subsidiaries, Hansen Beverage Company ("HBC") which was incorporated in Delaware on June 8, 1992 and HEB which was incorporated in Delaware on April 30, 1990. HBC generates substantially all of our operating revenues. Corporate History In the 1930's, Hubert Hansen and his three sons started a business to sell fresh non-pasteurized juices in Los Angeles, California. This business eventually became Hansen's Juices, Inc., which subsequently became known as The Fresh Juice Company of California, Inc. ( "FJC") . FJC retained the right to market and sell fresh non-pasteurized Juices under the Ha nsen trademark. In 1977, Tim Hansen, one of the grandsons of Hubert Hansen, perceived a demand for pasteurized natural juices and juice blends that are shelf stable and formed Hansen Foods, Inc. ("HFI"). HFI expanded its product line from juices to include Hansen's(R) Natural Sodas . California Co-Packers Corporation (d/b/a/ Hansen Beverage Company) (''CCC") acquired certain assets of HFI, including the right to market the Hansen's(R) brand name, in January 1990. On July 27, 1992, HBC acquired the Hansen's(R) brand natural soda and apple juice business from CCC. Under our ownership, the Hansen beverage business has significantly expanded and currently includes a wide range of beverages within the growing "alternative" beverage category. As will appear more fully from the section headed "Intellectual Property" below, in September 1999 we acquired all of FJC's rights to manufacture, sell and distribute f resh non-pasteurized juice products under the Hansen's(R) trademark together with certain additional rights. In 2000, HBC, through its wholly-owned subsidiary, Blue Sky Natural Beverage Co. ("Blue Sky''), which was incorporated in Delaware on September 8, 2000, acquired the natural soda business previously conducted by Blue Sky Natural Beverage Co., a New Mexico corporation ("BSNBC"), under the Blue Sky(R) trademark. In 2001, HBC, through its wholly-owned subsidiary Hansen Junior Juice Company, ("Junior Juice"), which was incorporated in Delaware on May 7, 2001, acquired the Junior Juice business previously conducted by Pasco Juices, Inc. ("Pasco") under the Junior Juice(R) trademark. Industry Overview The alternative beverage category combines non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single serve juices, ready-to-drink iced coffees, energy drinks, sports drinks, soy drinks and singl e-serve still water (flavored and unflavored) with "new age" beverages, including sodas that are considered natural, sparkling juices and flavored sparkling waters. The alternative beverage category is the fastest growing segment of the beverage marketplace according to Beverage Marketing Corporation. Sales in 2002 for the alternative beverage category of the market are estimated at approximately $13.2 billion at wholesale, representing a growth rate of approximately 13% over the https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 3/85 MEC023439 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt estimated whol esale sales in 2001 of $11.7 billi on . (Source: Beverage Marketing Corporation) . 3 Products We market, sell and distribute "alternati ve" beverage category natural sodas, fruit juices, energy drinks and energy sports drinks, fruit juice and soy smoothies, "functional drinks'', sparkling lemonades and orangeades, non- carbonated ready-to- drink iced teas, l emonades, juice cockt ail s, chil dren' s multi-vitamin juice drinks and non-carbonated lightly f lavored energy waters under the Hansen's(R) brand name. We also market, sell and distribute energy drinks under t he Monster(TM) brand name. In addition, we market nutrition bars and cereal s under the Hansen ' s(R) brand name. We also market, sell and distribute, natural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters and energy drinks under the Blue Sky(R) brand name. Our fruit juices for toddlers a re marketed under the Junior Juice(R) brand name. Our ma l t - based dri nks are marketed under the Hard e(TM) brand name. Natural Sodas. Hansen's natural sodas have been a leading natural soda brand in Southern Cali fornia for the past 25 years. In 2002, according to Informat ion Resources, Inc . 's Anal yzer Reports for California, our natural sodas recorded the highest sales among comparable carbonated new age category beverages measured by unit volume in the California market. our natural sodas are currently available i n thirteen regular flavors consisting of mandarin l i me , key l ime , grapefruit , raspberry, creamy root beer, van i lla cola, cherry vani lla creme, orange mango, kiwi strawberry, tropical passion, black cherry, ginger ale and tangerine. In early 2001, we introduced a new line of diet sodas using Spl enda(R) sweetener as the primary sweet ener. We initially i ntroduced this l ine in four f l avors: peach, black cherry, tangeri ne lime, and kiwi strawberry and have since added a fifth flavor, ginger al e. Our natural sodas contain no preservatives, sodium, caffeine or artifi ci al coloring and are made with high quality natural flavors, citric acid and high fructose corn syrup or, in the case of diet sodas, with Splenda(R) and Acesulfame-K . We package our natural sodas in 12-ounce aluminum cans. In 2002, we introduced a line of natural mixers in 8-ounce aluminum cans comprising club soda, tonic water and ginger ale. In January 1999, we introduced a premium line of Signature Sodas in unique proprietary 14-ounce glass bottles . This l ine was marketed under the Hansen's(R) brand name, primarily through our distributor network, in six flavors. In early 2003 we repositioned this line into lower cost 12-ounce glass packaging and intend to market our repositioned Signature Soda line at lower price points directly to our retail customers such as grocery chains, club stores, specialty retail chains and mass merchandisers and to the health food sector through specialty health food distributors ( hereinafter together referred to as our" direct retail customers· ) . Signature Soda is available in 12-ounce glass bottles in five flavors: orange creme, vanilla creme, ginger beer, sarsapari lla and black cherry. In September 2000, we acquired the Blue Sky Natural Soda business from BSNBC . Our Blue Sky product line comprises natural sodas, premium sodas, organic natural sodas, seltzer water and energy drinks. Blue Sky(R) natural sodas are availabl e in t hirteen regular f l avors consisting of lemon lime, grapefruit, cola, root beer, raspberry, cherry vanilla creme, truly orange, Jamaican ginger ale, black cherry, orange creme, Or. Becker, grape and private reserve cream soda . We also offer a Blue Sky(R) product line of premium line of natural sodas, which contain supplements such as ginseng. Thi s line is currentl y available in six flavors consisting of ginseng creme, ginseng cola, ginseng root beer, ginseng very berry creme, ginseng ginger ale, and ginseng cranberry-raspberry. https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 4185 MEC023440 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt During 1999, Blue Sky(R) introduced a line of organic natural sodas, whic h are currently available in six flavors consisting of prime lime cream, new century cola, orange divine, ginger gale, black cherry cherish, and root beer. We also market a seltzer water under t he Blue Sky(R) label in three flavors : natural, lime and lemon. In 2002, we introduced a lightl y carbonated Blue Sky(R) energy drink in an 8.3-ounce slim can. The Blue Sky(R) products contain no preservatives, sodium or caffeine (other than in the case of the energy drink) or artificial coloring and are made with high quality natural flavors. Blue Sky(R) natural sodas and seltzer waters are currently packaged in 12-ounce aluminum cans and are marketed primarily to our direct retail customers. In 2001, we introduced a new line of sparkling lemonades (regular and pink) and orangeades in unique proprietary 1-liter glass bottles and towards the end of 2002, we introduced diet versions of our regular sparkling lemonades and orangeades, also in 1-liter glass bottles . The sparkling lemonades and orangeades contain real juice and pulp. In 2003, we plan to extend this line into unique proprietary 12-ounce glass bottles. This product line will be marketed to our direct retail customers. 4 Hansen's Energy Dri nks. In 1997, we introduced a lightly carbonated citrus flavored Hansen's(R) energy drink. Our energy drink competes in the "functional" beverage category, namely, beverages that provide a real or perceived benefit in addition to simply delivering refreshment. We currently offer our energy drink in three versions: original citrus, tropical and wild berry. We also offer additional functional drinks including a ginger flavored d-stress(R) drink, an orange flavored b-well(TM) drink, and a guarana berry flavored stamina(R) drink, a grape flavor power drink, and a berry-flavored slim down drink that contains no calories. Each of our energy and functi onal drinks contain different combinations of vitamins, minerals, nutri ents, herbs and supplements ("supplements'') . Our energy drinks and functional drinks are sold in 8.3-ounce cans and bottles. In 2001, we introduced Energade(R), a non-carbonated Energy sports drink in 23.S-ounce cans in two flavors, citrus and orange, and subsequently introduced a third flavor, red rocker. We also introduced E20 Energy Water(TM), a non-carbonated l ightly flavored wat er, in 24-ounce blue pol yethylene terephthalate (''P.E.T.") plastic bottles, in four flavors, tangerine, apple, berry and lemon. In 2002, we expanded our E20 Energy Water line with four additional flavors in clear P.E.T. plastic bottles, mango melon, kiwi strawberry, grapefruit and green tea. Our Energade(R) and E20 Energy Water(TM) drinks also contain different combinations and levels of supplements. At the end of 2002, we introduced a lightly carbonated diet energy drink in 8.3-ounce cans under the Hansen's(R) Diet Red brand name. Our Diet Red energy drink is sweetened with Splenda and Acesulfame-K . We market our energy, Diet Red energy, Energade and E20 Energy Water drinks in clear bottles through our full service distributor network. We market our E20 Energy Water drinks in blue bottles to our direct retail customers. Monster Energy Drinks. In 2002, we launched a new lightly carbonated energy drink under the Monster(TM) brand name, in a 16-ounce can, which is almost double the size of our regular energy drinks in 8.3-ounce cans and the vast majority of competitive energy drinks currently on the market. our Monster(TM) brand energy drink contains different types and levels of supplements than our Hansen's(R) energy drinks and is marketed through our full service distributor network . Juice Products and Smoothies. Our fruit j uice product line includes Hansen's(R) Natural Ol d Fashioned Appl e Juice which is packaged in 64-ounce P.E.T. plastic bottles and 128-ounce polypropylene bottles and Apple Strawberry, Apple Grape and Apple Cranberry juice blends in 64-ounce P.E.T. plastic bottles. https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 5'85 MEC023441 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt Mistie, Arizona, Clearly Canadian, Sobe, Stewart's, Everfresh, Nantucket Nectars, Vitamin Water, Fuse, VeryFine, V8 Spl ash, Calistoga, Propel Fitness Water, AquaFina, Dasani, Reebok, and Crystal Geyser brands. Due to the rapid growth of the alternative beverage segment of the beverage marketplace, certain large companies such as The Coca -Cola Company and PepsiCo, Inc. have introduced products in that market segment which compete directly with our products such as Nestea, Fruitopia, Lipton, Propel, AquaFina, Dasani, Adrenaline Rush, Amp, KMX and Dole. Our products also compete with private label brands such as those carried by grocery store chains and club stores. Our fruit juice smoothies compete directly with Kern's, Jumex, Jugos del Valle and Libby's nectars, VS Splash Smoothies, as well as with single serve Juice products produced by many competitors. Such competitive products are packaged in glass and P.E.T. bottles ranging from 8- to 48 ounces in size and in 11. 5-ounce aluminum cans. The juice content of such competitive products ranges from 1% to 100%. Our apple and other juice products compete directly with Tree Top, Mott ' s, Martinelli's, Welch's, Ocean Spray, Tropicana, Minute Maid, Langers, Apple and Eve, Seneca, Northland and also with other brands of apple juice and juice blends, especially store brands. 10 Our energy drinks, including Hansen's(R) Diet Red and Monster(TM) energy in 8.3- and 16-ounce cans, compete directly with Red Bull, Adrenaline Rush, Amp, 180, KMX, Venom, Extreme Energy Shot, Rockstar, Red Devil, Lipovitan, MET - Rx, Hype, XTC, and many other brands and our other functional drinks compete directly with Elix, Lipovitan, MET-Rx, Thi nk, and other brands. Our E2O Energy WaterTM and still water products compete directly with Vitamin Water, Reebok, Propel, Dasani, Evian, Crystal Geyser, Naya, Palomar Mountain, Sahara, Arrowhead, Dannon, and other brands of still water especially store brands. The nutrition food bar and cereal categories as well as flavored malt-based drink categories are also highly competitive. Principal areas of competition are pricing, packaging, development of new products and flavors and marketing campaigns. Our cereals compete with traditional cereals of companies such as Kellogg's, General Mills, Kashi and Nature Valley, and our nutrition food bars compete with products of other independent bar companies such as Power Bar, Balance Bar, Gatorade, Kashi, Cliff Bar, MET-Rx, and numerous other bars. Our Harde product competes directly with wine coolers, such as Seagram ' s and Bartles and James and flavored low alcohol beverages such as Mike's Hard Lemonade, Hooper's Hooch, Doc Otis Hard Lemonade, Smirnoff Ice, Skyy Blue/Blue Skyy, Zima and Rick's Spiked Lemonade and other flavored malt and alcohol based drinks. Many of these products are produced by large national and international manufacturers, most of which have substantially greater financial, marketing and distribution resources than Hansen. Such companies include Anheuser Busch, Miller Brewing Company, Coors, Gallo Winery, and Diageo plc. Sales and Marketing We focus on consumers who seek products that are perceived to be natural and healthy and emphasize the natural ingredients and the absence of preservatives, sodium, artificial coloring and caffeine in our beverages (other than our energy drinks) and the addition to most of our products, of one or more supplements. We reinforce this message in our product packaging. Our marketing strategy with respect to our nutrition food bars and cereals is similarly to https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 12/85 MEC023448 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt f ocus on consumers who seek bars and cereals that are perceived to be natural and healt hy. We emphasize the natur al ingredients and the absence of preservat ives and, in t he case of the cereals, t he fact t hat they are G.M . O. free. Our marketing strategy with respect to our Harde product is to focus on adult consumer s who seek an alcohol- based beverage that is good tasting, fashionable and meets consumers' needs. Our sales and marketing strategy is to focus our efforts on developing brand awareness and trial through sampling both in stores and at events in respect of all our beverage, food and alcoholic beverage products. We use our branded vehicles and other promotional vehicles at events at which we distribute our products to consumers for sampling. We utilize ''push-pull" tactics to achieve maximum shelf and display space exposure in sales outlets and maximum demand from consumers for our products incl uding advertising, in store promotions and in store placement of point of sale materials and racks, prize promotions, price promotions, competitions, endorsements from selected public figures, coupons, sampling and sponsorship of selected causes such as breast cancer research as wel l as sport s figures and sporti ng events such as the Hansen ' s Energy Pro Pipeline Surfing competition, marathons, 10k runs, bicycle races, volleyball tournaments and other health and sports related activities, i ncluding extreme sports, particularly supercross, freestyle motor cross, surfing, skateboa rding, wakeboarding, skiing, snowboardi ng, BMX, Mountain Biking, etc. and also participate in product demonstrations, food tasting and other related events. Posters, print, radio and television advertising together with price promotions and coupons are also used extensively to promote t he Hansen ' s(R) brand. Management continues to believe that one of the keys to success in the beverage industry is differentiation; such as making Hansen's(R) product s clearly distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different, better and unique. The labels and graphics for many of our products were redesigned in an endeavor to develop a new system to maximize their visibility and identification, wherever they may be placed in stores and we will continue to reevaluate the same from time to time. 11 Where appropriate we partner with retailers to assist our marketing efforts. For example, while we retain responsibility for the marketing of the Juice Slam(TM) line of chi ldren's multi-vitamin Juice drinks, Cost co has undertaken sole responsibility for the marketing of the Juice Blast(R) line. We increased expenditures for our sal es and marketing programs by approximately 26% in 2002 compared to 2001. As of February 28, 2003, we employed 63 employees in sales and marketing activities. Customers Our customers are typically retail and specialty chains, club stores, mass merchandisers, ful l service beverage di stributors and health food distributors. In 2002, sales to retailers represented 56% of our revenue, sales to full service distributors represented 26% of our revenue, and sales to health food distributors represented 11% of our revenue. Our major customers include Costco, Trader Joe's, Sam ' s Club, Vons, Ralph's, Wal-Mart, Safeway and Albertson's. One customer, Costco (which purchases different products of Hansen's regionally and one product nationally), accounted for approximately 18% of our sales in 2002. A decision by that https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 13/85 MEC023449 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt customer or any other ma j or customer to decrease amounts purchased from t he Company or t o cease carrying our products could have a material negative effect on ou r financial condition and consolidat ed resul ts of operations . Seasonality Sales of ready-to-drink beverages are somewhat seasonal , with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage business may be aff ected by weather conditions. Sales of our beverage products may become i ncreasingly subj ect to seasonal fluctuations as more sales occur outside of California. Certain beverages are more seasonal than others i.e. E20 Energy Water and natural sodas as compared to apple juice and children's multi-vitamin juices. Intellectual Property We own numerous trademarks that are very important to our business. Depending upon the j urisdiction, trademarks are valid as long as they are i n use and/or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can generally be renewed as long as the trademarks are in use. We also own the copyright in and to numerous stat ement s made and cont ent appeari ng on t he packaging of our products. The Hansen's(R) trademark is crucial to our business. This trademark is registered in the U.S. Pat ent and Trademark Office and in various countries t hroughout the world. The Hansen ' s(R) t rademark is owned by us and was acqui red from a trust (the "Trust'') which was created by an agreement between HBC and t he predecessor company of Fresh Juice Company of California {"FJC") (the "Agreement of Trust"). The Trust l icensed to HBC in perpetuity on an exclusive world-wide royalty-free basis t he r i ght to use the Hansen ' s(R) trademark in connection with the manufacture, sale and distribution of carbonated beverages and waters and shelf stable fruit juices and drinks containing fruit juices. In addition, t he Trust licensed to HBC, in perpetui ty, on an exclusive world-wide basis, t he right to use t he Hansen's(R) trademark in connection with the manufacture, sale and distribution of certain non-carbonated beverages and water in considerati on of royalty payments. There was a similar license agreement between the Trust and HBC with regard to non-beverage products. No royalties were payable on sodas, Energy drinks, juices, lemonades, juice cocktails, fruit juice Smoothies, t he Signature Soda line or on the children ' s multi-vitamin juice drinks . As explained below, no royalty expenses were incurred during 2002, 2001 or 2000. 12 HBC , FJC ' s predecessor and the Trust also entered into a Royalty Sharing Agreement pursuant to which royalties payable by third parties procured by FJC or its predecessor or HBC are initially shared between the Trust and HBC and, after a specified amount of royal ties have been received, are shared equally between HBC and FJC. Under the t erms of t he Agreement of Trust, FJC receives royalty income paid to the Trust in excess of Trust expenses and a reserve therefor. Effective Sept ember 22, 1999, we entered i nto an Assignment and Agreement with FJC pursuant to whic h we acquired exclusive ownership of the Hansen's(R) trademark and trade names. Under the Assignment and Agreement, among other matters, we acquired all FJC's r i ghts as granter and beneficiary of the Trust, all FJC's rights as licensee under certain license agreement pursuant to which FJC has the right to manufacture, sell and distribute fresh juice products under the Hansen's(R) trademark and all FJC's rights under the Royalty Sharing Agreement referred to above, as well as certain additional rights, for a total https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 14185 MEC023450 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt consideration of $775, 010, payable over three years. FJC is permitted to conti nue to manufact ure, sel l and di stribute f resh juice products under t he Hansen ' s(R) trademark for a peri od of f i ve years. Consequentl y, we now have full ownership of t he Hansen's(R) trademark and our obligation to pay royalties to, and to share royalties with, FJC has been terminated. As of December 31, 2002, t he t otal consi derat ion had been paid t o FJC and no f urther amounts are payable to FJC. We have applied to register a number of trademarks in the United States incl udi ng, but not limi t ed t o, Hard e(TM), A New Kind a Buzz (TM), Monst er(TM) , Monster Energy (TM), Unleash the Beast (TM), Blue energy(TM) and Energy hydration system(TM). We own in our own right , a number of trademarks i ncluding, but not l imi ted to, Hansen's(R), Hansen's energy(R), Energade(R), Hansen's E20 Energy Water(R), Hansen's slim-down(R), THE REAL DEAL(R), LIQUIDFRUIT(R), Imported from Nature(R), California's Natural Choice(R), California's Choice(R), Medicine Man(R), Dyna J uice(R), Equator(R), Hansen's power(R) , bewell(R), anti-ox(R), d- stress(R), stamina(R), Aqua Blast(R), Antioxjuice(R) Intellijuice(R), Defense(R), Immunejuice(R), Hansen's Natural Multi-Vitamin Juice Slam(R) and Juice Blast(R) in the United States and the Hansen's(R) and "Smoothie(R)" trademarks i n a number of count ries around the world. In September 2000, in connection with the acquisition of the Blue Sky Natural Beverage business, we, through our wholly owned subsidiary Blue Sky, acquired the Blue Sky trademark, which is registered in the Un i ted States and Canada. In May 2001, in connection with the acquisition of t he Junior Juice Beverage business, we, through our wholly owned subsidiary Junior Juice, acquired the Junior Juice(R) trademark, wh i ch is registered in the United States. On April 4, 2000, t he United States Patent and Trademark Office issued a patent to us for an invention related to a shelf structure (rolling rack) and, more particularly, a shelf structure for a walk-in cooler. Such shelf structure is utilized by us to secure shelf space for and to merchandise our energy and functional drinks in 8 . 3- ounce sl im cans in refrigerated Vi si cool ers and walk-in coolers in retail stores. Government Regulation The production, distribution and sale in the United States of many of our products is subject to the Federal Food, Drug and Cosmetic Act; the Dietary Supplement Health and Educat ion Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products. In connection with Harde, the production and marketing of alcoholic beverages is subject to the rules and regulations of the Bureau of Alcohol, Tobacco and Firearms and in each state, is also subject to the rules and regulations of state regulatory agenci es. The Bureau of Al cohol , Tobacco and Firearms and stat e regulatory agencies also regulate the labeli ng of containers containing alcoholic beverages including, without limitation, statements concerning product name and ingredients as well as advertising and marketing, in connection therewith. 13 MEC023451 ([KLELW3DJH RI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt by security holders Equity compensation plans not approved by security hol ders Total 1,501,900 $3.29 1,497,500 17 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The consolidated statements of operations data set forth below with respect to each of the years ended December 31, 1998 through 2002 and the balance sheet data as of December 31, for the years indicated, are derived from our consolidated financial statements audited by Deloitte & Touche LL P, independent auditors, and should be read in conjunction with those financial statements and notes thereto included elsewhere in this and in the 1998, 1999, 2000 and 2001 Forms 10-K. (in thousands, except per share information) 2002 2001 2000 1999 1998 ------Gross Sales $115,490 $99,693 $86,072 $77,793 $58,479 Net sales $92,046 $80,658 $71,706 $66,184 $48,628 Net income $ 3,029 $ 3,019 $ 3,915 $4,478 $ 3,563 Net income per Common share Basic $ 0.30 $ 0.30 $ 0. 39 $ 0.45 $ 0.38 Diluted $ 0.29 $ 0.29 $ 0.38 $ 0.43 $ 0.34 Total assets $40,102 $38,561 $38,958 $28,709 $22,557 Long-term debt $ 3,606 $ 5,851 $ 9, 732 $ 903 $1,335 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion together with the financial statements and the related notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements that are based on management ' s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. General During 2002, we continued to expand our existing product lines and further develop our markets. In particular, we conti nue to focus on developing and marketing beverages that fall within the category generally described as the "alternative" beverage category, with particular emphasis on energy type drinks. We achieved record sales in 2002. The increase in gross and net sales in 2002 was primarily attributable to sales of our Monster (TM) energy drink, which was introduced in April 2002, as well as increased sales of Natural Sodas, E2O https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 20/85 MEC023456 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt Energy WaterTM, which was int roduced in J une 2001, Energade(R) energy sports drinks which were introduced in July 2001, apple juice, and Soy Smoothies, which were introduced in December 2001. We also benefited to a lesser extent from increased sales of the children's mu l ti-vitamin juice dri nks and Junior Jui ce(R), which trademark was acquired in May 2001 . The increase in gross and net sales was partially offset by decreased sales of Signature Soda, Smoothies, Harde, functional drinks and teas, lemonades and cocktails. During 2002, sales outsi de of Cal ifornia represented 42% of our aggregat e sales, as compared to approximately 39% of our aggregate sales in 2001. Sales to distributors outside the United States during 2002 amounted to $1,242,000 compa red to $1,233,000 i n 2001. 18 In 2002, we introduced a diet ginger ale, natural mixers, Monster(TM) energy, E20 Energy Water in 24-ounce clear P.E .T. plastic bottles, a 100% sparkli ng Apple Cider, a Di et Red energy drink, a Bl ue Sky(R) energy dri nk and diet sparkling Lemonades and Orangeades. We also introduced a line of diet Natural Sodas in 12-ounce cans at the end of 2000/beginning of 2001 and an additional flavor, Ginger Ale, to our regular natural soda line in 2001. In addi t i on , i n 2001, we al so i ntroduced our ori ginal energy dri nk in 8.3-ounce glass bottles, two additional energy drinks in 8.3-ounce slim- cans, sparkling lemonades and orangeades in 1-liter glass bottles, Medicine Man(R) in glass bottles, Energade(R) in 23 . 5-ounce cans, E20 Energy Water in 24-ounce blue P. E. T. plastic bottles, Soy Smoothi es in 1-li ter and 11-ounce aseptic packagi ng, additional juice blends in 64-ounce P.E.T. bottles, fruit juice Smoothies in 16-ounce P.E.T. bottles, functional nutrition bars and active nutrition bars. In 2002, we discontinued our smoothie line i n 64-ounce P.E.T. bottles and converted our smoothie products i n 12-ounce gl ass bottl es to 16-ounce P. E.T. plastic bottles . We also discontinued our entire Healthy Start/Silver Foxes 100% juice line in gl ass and P. E.T. plasti c bottl es and the Medicine Man(R) line. At the beginning of 2003, we repackaged our Signature Soda line into new lower cost glass packaging. Sales of our dual-branded 100% juice line named ''Juice Blast(R)", which was launched in conjunction with Costco and is sold nationally through Costco stores, were slightly higher in 2002 than in 2001. We have, in conjunction with Costco, introduced new flavors in place of certain of the existing flavors and will conti nue to introduce new flavors in an effort to ensure that the variety pack remains fresh and different for consumers. In September 2000, HBC, through its wholly owned subsidiary Blue Sky, acquired the Blue Sky(R) Natural Soda business. The Blue Sky(R) Natural Soda brand is the leading natural soda in the health food trade. Blue Sky offers natural sodas, premium natural sodas with added ingredients such as Ginseng and anti-oxidant vitamins, organic sodas and seltzer waters in 12-ounce cans. In May 2001, HBC, through its wholly owned subsidiary Junior Jui ce, acquired the J uni or Juice(R) beverage busi ness. The J unior Juice(R) product l ine is comprised of a line of 100% juices packed in 4.23-ounce aseptic packages and is targeted at toddlers. During 2002, we entered into several new distribution agreements for t he sale of our products, both within and outside the United States. As discussed under "ITEM 1 BUSINESS - MANUFACTURE and DISTRIBUTION", we anticipate that we wil l cont inue building our national sal es force in 2003 to support and grow the sal es of our products . https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 21/85 MEC023457 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt Further, during 2002, we , through our wholly owned subsidi ary, HEB, continued to market a malt- based beverage called Harde, which contains up to 5% alcohol. The Harde product is not marketed under the Hansen's(R) name. We continue to incur expendi tures in connection wit h the development and i ntroduction of new products and flavors . Results of Operations for the Year Ended December 31 , 2002 Compared t o the Year Ended December 31, 2001 Gross Sales. For the year ended December 31, 2002, gross sales were $115.5 million, an i ncrease of $15 .8 million or 15. 8% higher than gross sales of $80.7 million for the year ended December 31, 2001. The increase in gross sales is primarily attributable to the introduction of new products and increased sales of certain of our existing products as discussed below in "Net Sales". Net Sales . For the year ended December 31, 2002, net sales were $92.0 million, an increase of $11.3 million or 14.1% higher than net sales of $80.7 million f or the year ended December 31 , 2001. The increase in net sales was pri maril y attributable to sales of our Monster (TM) energy dri nk, which was introduced in April 2002, as well as increased sales of Natural Sodas, E2O Energy Water, which was introduced in June 2001, Energade(R) energy sports 19 dri nks, wh i ch were introduced i n July 2001, apple jui ce, and Soy Smoothi es, which were introduced in December 2001. We also benefited to a lesser extent from increased sales of the children's multi-vitamin juice drinks, Junior Juice(R), which was acquired in May 2001, and smoothies in P. E.T. plastic bottles. The increase i n net sales was partiall y offset by decreased sales of Signature Soda, Harde, functional drinks, teas, lemonades and cocktails and smoothies in cans as well as an increase in discounts, allowances and promotional payments, notably higher coupon costs. Gross Profit. Gross profit was $33.2 mill ion for the year ended December 31, 2002, an increase of $4.3 million or 15.2% over the $28.9 million gross profit for the year ended December 31, 2001. Gross profit as a percentage of net sal es was 36.1% for the year ended December 31, 2002 which was s l ightly higher than gross profit as a percentage of net sales of 35.8% for the year ended December 31, 2001. The increase in gross profit was primarily attributable to increased net sales. Although a greater percentage of our sales comprised products having higher gross margins t han the prior year, the increase in profit margins was reduced by higher promotional payments and allowances to promote our products notably higher coupon costs. Total Operating Expenses. Total operati ng expenses were $28.0 mi l lion for the year ended December 31, 2002, an increase of $4.7 million or 19. 9% over total operating expenses of $23.3 million for the year ended December 31, 2001. Total operating expenses as a percentage of net sales increased to 30.4 % for the year ended December 31, 2002, from 28.9% for the year ended December 31, 2001 . The increase in total operating expenses was primarily attributable to increased selling, general and administrative expenses. The increase in total operating expenses as a percentage of net sales was primaril y attributable t o the comparatively larger increase in selling, general and administrative expenses than the increase in net sales. Sel ling, General and Administrative. Sell ing, general and administrative expenses were $27.9 million for the year ended December 31, 2002, an increase of $5.1 million or 22.3% over selling, general and administrative expenses of $22.8 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt Z2185 MEC023458 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt million f or the year ended December 31, 2001. Selling, general and administrative expenses as a percentage of net sales increased to 30. 3% for t he year ended December 31, 2002 from 28.3% for the year ended December 31, 2001. Selling expenses we re $16.1 mil lion for t he year ended December 31, 2002, an increase of $3.7 mi llion or 29.9% over sel ling expenses of $12.4 million for the year ended December 31, 2001. Selling expenses as a percentage of net sales increased to 17.4% for the year ended December 31, 2002 from 15.3% for the year ended December 31, 2001 . The increase in selling expenses was primarily attributable to increased distribution (freight) and st orage expenses, advertising, point-of-sale materials and merchandise displays, in-store demonstrations and graphic design. The increase in selling expenses was partiall y offset by a decrease i n expendi tur es for premiums . General and administrative expenses were $11.8 million for the year ended December 31, 2002, an increase of $1.4 mill ion or 13.3% over general and administrative expenses of $10.4 million for the year ended December 31, 2001 . General and administrative expenses as a percentage of net sal es were 12.9% for t he year ended December 31, 2002 which was comparable to the year ended December 31, 2001 . The increase in general and administrative expenses was primaril y attributable to an increase in payroll costs, charitable contributions, fees paid for legal and accounting services and i ncreased travel expenses as well as other general and administrative expenses. The decrease in general and administrative expenses as a percentage of net sales was primarily attributable to the increase in net sales and the comparatively lower increase in payroll costs. Amortization of Trademark License and Trademarks. Amortization of trademark license and trademarks was $55,000 for the year ended December 31, 2002, a decrease of $452,000 from amortization of t r ademark license and trademarks of $507,000 for the year ended December 31, 2001. The decrease i n amortizati on of trademark license and trademarks was due to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 in the first quarter of 2002 (Note 2 of the financial statements) which eliminated amortization on indefini te-lived intangi ble assets . 20 Operating Income. Operating income was $5.3 million for the year ended December 31, 2002, compared to $5.6 million for the year ended December 31, 2001. The $258,000 decrease in operating income was primarily attributable to increased operating expenses, which was partially offset by increased gross profit. Net Non- operati ng Expense. Net non -operating expense was $228,000 for the year ended December 31, 2002, which was $291,000 lower than net non- operating expense of $S19,000 for the year ended December 31, 2001. Net non- operating expense consists of interest and financing expense and interest income. Interest and financing expense for the year ended December 31, 2002 was $231,000, as compared to $528,000 for the year ended December 31, 2001. The decrease in interest and financing expense was primarily attributable to decreased interest expense incurred on our borrowings which was primarily attributable to t he decrease i n outstanding loan ba l ances and lower interest rates. Interest i ncome for the year ended December 31, 2002 was $3,000, as compared to interest income of $9,000 f or the year ended December 31, 2001. The decrease in interest income was primarily attributable to a reduction in the cash avail able for investment during the year ended December 31, 2002 . Provision for I ncome Taxes. Provision f or income taxes for the year ended December 31, 2002 was $2.0 milli on which was comparable to the provision for income taxes of $2.0 million for the year ended December 31, 2001. The effective combined federal and state tax rate for 2002 was 40.2%, which was comparable to https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 23/85 MEC023459 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt the effective tax rate of 40.0% for 2001 . Net Income. Net income was $3.0 million for the year ended December 31, 2002, which was comparable to net income for the year ended December 31, 2001. The $4.3 million increase in gross profit and decrease in nonoperating expense of $291,000 for the year ended December 31, 2002 was offset by increased operating expenses of $4.7 million . Results of Operations for the Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000 Gross Sales. For the year ended December 31, 2001, gross sales were $99.7 million, an increase of $13.6 million or 15.8% higher than gross sales of $86.1 million for the year ended December 31, 2000. The increase in gross sales is primarily attributable to the introduction of new products and increased sales of certain of our existing products as discussed below in "Net Sales" . Net Sales. For the year ended December 31, 2001, net sales were $80.7 million, an increase of $9.0 million or 12.5% higher than gross sales of $71.7 million for the year ended December 31, 2000. The increase in net sales was primarily attributable to increased sales of natural sodas, Blue Sky(R) soda, which was acquired in September 2000, apple juice and sales of Junior Juice, which was acquired in May 2001. The increase in sales was attributable to a lesser extent to sales of Energade(R), which was introduced in July 2001 and E2O Energy Water, which was introduced in June 2001. The increase in net sales was partially offset by decreased sales of smoothies in glass and P.E.T. bottles, Signature Sodas, children's multi-vitamin juice drinks, and teas, lemonade and juice cocktails as well as increased discounts, allowances and promotional payments. Gross Prof it. Gross profit was $28.9 mill ion for the year ended December 31, 2001, a decrease of $64,000 or 0.2% from the $29.0 million gross profit for the year ended December 31, 2000. Gross profit as a percentage of net sales decreased to 35.8% for the year ended December 31, 2001 from 40.3% for the year ended December 31, 2000. The decrease in gross profit was primarily attributable to increases in discounts, all owances and promotional payments as well as increased cost of goods sold which was almost wholly offset by increased net sales. The decrease in gross profit as a percentage of net sales is primarily attributable to slightly lower margins achieved as a result of a change in our product and customer mix . Total Operating Expenses . Total operating expenses were $23.3 million for the year ended December 31, 2001, an increase of $1 . 3 million or 5.8% over total operating expenses of $22.0 mi llion for the year ended December 31, 2000. Total 21 operating expenses as a percentage of net sales decreased to 28.9% for the year ended December 31, 2001, from 30.7% for the year ended December 31, 2000. The increase in total operating expenses was primarily attributable to increased selling, general and administrative expenses. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the increase in net sales and the comparatively lower increase in selling, general and administrative expenses. Selling, General and Administrative expenses. Selling, general and administrative expenses were $22 .8 million for the year ended December 31, 2001, an increase of $1.1 million or 5.3% over selling, general and administrative expenses of $21.7 million for the year ended December 31, 2000. Selling, general https://www.sec.gov/Archives/edgar/data/865752/000086575203000004/k10.txt 24185 MEC023460 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt Form 10-K (Mark one) [ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 OR [ )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to __ Commi ssi on Fi le Number 0-18761 HANSEN NATURAL CORPORATION (Exact name of Registrant as specified in its charter) Delaware 39-1679918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1010 Railroad Street, Corona, California 92882 (Address of pri nci pal executive offices) (Zip Code) Registrant's telephone number, including area code: (909) 739 - 6200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Not Applicable Not Applicable Securi ties registered pursuant to Section 12(g) of the Act : Title of class Common Stock, $0.005 par val ue per share Indicate by check mark whether the Registrant: (1) has fil ed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that t he Regi strant was requi red to file such reports), and (2) has been subject t o such fil ing requirements for t he past 90 days . Yes [ X ]No [ ] Indicate by check mark if disclosure of del inquent filers pursuant to Item 405 of Regul ation S-K is not contai ned herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10 - K. [ ] https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 1/89 MEC023522 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt Indicate by check mark whether the Regi strant is an accelerated filer (as defined i n Exchange Act Rule 12b- 2) . Yes [ ] No [X] The aggregate market value of the voting stock held by nonaffiliates of t he Registrant was $78,990,346 comput ed by reference to the sale price for such stock on the NASDAQ Small-Cap Market on March 11, 2004. The number of s hares of the Registrant's common stock, $0. 005 par value per share (being t he only class of common stock of the Registrant), outstanding on March 11, 2004 was 10,448,417 shares. HANSEN NATURA L CORPORATION FORM 10- K TABLE OF CONTENTS Item Number Page Number PART I 1. Business 3 2. Properties 16 3. Legal Proceedings 16 4. Submission of Matters to a Vote of Security Holders 17 PART II 5. Market for the Registrant's Common Equity and Relat ed Shareholder Matters 17 6. Selected Consolidated Financial Data 18 7. Management's Di scussion and Analysis of Financial Condition and Results of Operat ions 19 7a. Qualitative and Quantitative Disclosures about Market Risks 35 8. Financial Statements and Supplementary Data 35 9. Changes in and Disagreement s wit h Accountants on Accounting and Financial Disclosure 35 9a. Controls and Procedures 35 PART III 10. Directors and Executive Officer s of the Registrant 36 11. Executive Compensation 38 12. Securi ty Ownership of Certai n Beneficial Owners and Management 43 13. Certain Relationships and Related Transactions 46 14. Principal Accountant Fees and Services 46 PART IV 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 47 Signatures 48 2 https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 2/89 MEC023523 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt PART I ITEM 1. BUSINESS overview Hansen Natural Corporation was incorporated in Delaware on April 25, 1990. Its principal place of business is at 1010 Railroad Street, Corona, Californi a 92882 and its t elephone number is (909) 739-6200. When this report uses t he words "Hansen", "HBC", "the Company", "we", "us", and "our", these words refer to Hansen Natural Corporation and our subsidiaries other than Harde Beverage Company ("HEB") , unless the context otherwise requires. We are a holding company and carry on no operating business except through our direct wholly owned subsidiaries, Hansen Beverage Company ("HBC") which was incorporated in Delaware on June 8, 1992, and HEB, formerly known as Hard Energy Company, and previously known as CVI Vent ures, I nc., which was incorporated in Delaware on April 30, 1990. HBC generates substantially all of our operating revenues. Corporat e Hi story In the 1930's, Hubert Hansen and his three sons started a business to sell fresh non - pasteurized JLI1ces i n Los Angeles, California. This business eventual ly became Ha nsen's Jui ces, Inc . , wh i ch subsequently became known as The Fresh Juice Company of California, Inc. ("FJC"). FJC retained the right to market and sell fresh non-pasteurized Juices under the Hansen trademark. In 1977, Ti m Hansen, one of the grandsons of Hubert Hansen, percei ved a demand for pasteurized natural jui ces and juice bl ends that are shelf stable and formed Hansen Foods, Inc. ("HFI'') . HFI expanded its product line from juices to incl ude Hansen ' s(R) Natural Sodas. Ca l ifor ni a Co- Packers Corporation (d/ b/a/ Hansen Beverage Company) ("CCC") acquired certain assets of HFI, including the right to market the Ha nsen's(R) brand name, in January 1990. On July 27, 1992, HBC acquired the Hansen's(R) brand natural soda and apple j uice business from CCC. Under our ownership, the Hansen beverage business has signifi cantl y expanded and includes a wide range of beverages within the growing "alternative" beverage category. As will appear more fully from the section headed "Intellectual Propert y" below, in September 1999 we acquired all of FJC's r i ghts t o manufacture, sell and distribute fresh non-pasteurized juice products under the Hansen's(R) trademark together with certain additional rights. In 2000, HBC, t hrough its wholly-owned subsidiary, Blue Sky Natural Beverage Co. ("Blue Sky''), wh i ch was i ncorporated in Delaware on September 8, 2000, acquired the natural soda business previously conducted by Blue Sky Natural Beverage Co., a New Mexico corporation ("BSNBC"), under the Blue Sky(R) trademark. In 2001, HBC , t hrough its wholly-owned subsidiary Hansen Junior Juice Company, ("Junior Juice"), which was incorporated in Delaware on May 7, 2001, acqui red the Junior Juice business previously conducted by Pasco Juices, Inc. ("Pasco") under t he Junior Juice(R) trademark. Industry Overview The al ternative beverage category combi nes non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single serve juices, ready-to-drink iced coffees, energy drinks, sports drinks, soy dri nks and single-serve still water (fl avored and unflavored) with "new age" beverages, including sodas that are considered natural, sparkling juices and flavored sparkling waters. The alternative beverage category is the fastest growing segment of the beverage marketplace according to Beverage Marketing Corporation. Sales in 2003 for the https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 3/89 MEC023524 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt alternative beverage category of the market are estimated at approximately $14.1 billion at wholesale, representing a growth rate of approximately 5.9% over the revised estimated wholesale sales in 2002 of approximately $13.3 billion. (Source: Beverage Marketing Corporation). 3 Products We develop, market, sell and distribute "alternative" beverage category natural sodas, fruit juices, energy drinks and energy sports drinks, fruit juice and soy smoothies, "functional drinks", sparkling lemonades and orangeades, non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, children's multi-vitamin juice drinks and non-carbonated lightly flavored energy waters under the Hansen's(R) brand name. We also market, sell and distribute energy drinks under the Monster(TM) brand name. In addition, we market nutrition bars and cereals under the Hansen's(R) brand name. We also market, sell and distribute, natural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters and energy drinks under the Blue Sky(R) brand name. Our fruit juices for toddlers are marketed under the Junior Juice(R) brand name. our malt-based drinks are marketed under the Hard e(R) brand name. Natural Sodas. Hansen 's natural sodas have been a leading natural soda brand in Southern California for the past 25 years. In 2003, according to Information Resources, Inc. 's Analyzer Reports for California, our natural sodas recorded the highest sales among comparable carbonated new age category beverages measured by unit volume in the California market. Our natural sodas are available in thirteen regular flavors consisting of mandarin lime, key lime, grapef ruit, raspberry, creamy root beer, vanilla cola, cherry vanilla creme, orange mango, kiwi strawberry, tropical passion, black cherry, ginger ale and tangerine. In early 2001, we introduced a new line of diet sodas using Splenda(R) sweetener as the primary sweetener. We initially introduced this line in four flavors: peach, black cherry, tangerine lime, and kiwi strawberry and have since added two additional flavors, ginger ale and creamy root beer. Our natural sodas contain no preservatives, sodium, caffeine or artificial coloring and are made with high quality natural flavors, citric acid and high fructose corn syrup or, in the case of di et sodas, with Splenda(R) and Acesulfame-K. We package our natural sodas in 12-ounce aluminum cans. In 2002, we introduced a line of natural mixers in 8-ounce aluminum cans comprising club soda, tonic water and ginger ale. In January 1999, we introduced a premium l ine of Signature Sodas in unique proprietary 14-ounce glass bottles. This line was marketed under the Hansen's(R) brand name, primarily through our distributor network, in six flavors. In early 2003 we repositioned this line into lower cost 12- ounce glass packaging and intend to market our repositioned Signature Soda line at lower price points directly to our retail customers such as grocery chains, club stores, specialty retail chains and mass merchandisers and to the health food sector through specialty and health food distributors (collectively referred to as our "direct retail customers"). Signature Soda is available in 12-ounce glass bottles in five flavors: orange creme, vanilla creme, ginger beer, sarsaparilla and black cherry. In September 2000, we acquired the Blue Sky Natural Soda business from BSNBC. Our Blue Sky product line comprises natural sodas, premium sodas, organic natural sodas, seltzer water and energy drinks. Blue Sky(R) natural sodas are available in thirteen regular flavors consisting of lemon lime, grapefruit, col a, root beer, raspberry, cherry vanill a creme, truly orange, Jamaican ginger ale, black cherry, orange creme, Dr. Becker, grape and private reserve cream soda. We also offer a Blue Sky(R) product line of premium line of natural sodas https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 4189 MEC023525 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt which contain supplements such as ginseng. This line is available in six flavors consisting of ginseng creme, ginseng cola, ginseng root beer, ginseng very berry creme, ginseng ginger ale, and ginseng cranberry-raspberry. During 1999, Blue Sky(R) introduced a line of organic natural sodas, which are available in six flavors consisting of prime lime cream, new century cola, orange divine, ginger gale, black cherry cherish, and root beer. We also market a seltzer water under the Blue Sky(R) label in three flavors: natural, lime and lemon. In 2002, we introduced a lightly carbonated Blue Sky(R) energy drink in an 8.3-ounce slim can. The Blue Sky(R) products contain no preservatives, sodium or caffeine (other than the energy drink) or artificial coloring and are made with high quality natural flavors. Blue Sky(R) natural sodas and seltzer waters are packaged in 12-ounce aluminum cans and are marketed primarily to our direct retail customers. 4 In 2001, we introduced a new line of sparkling lemonades (regular and pink) and orangeades in unique proprietary 1-liter glass bottles and towards the end of 2002, we introduced diet versions of our regular sparkling lemonades and orangeades, also in 1-liter glass bottles. The sparkling lemonades and orangeades contain real juice and pulp. In 2003, we extended this line into unique proprietary 12-ounce glass bottles in both regular and diet versions. This product line is marketed to our direct retail customers. Hansen's Energy Drinks. In 1997, we introduced a lightly carbonated citrus flavored Hansen's(R) energy drink. Our energy drink competes in the "functional" beverage category, namel y, beverages that provide a real or perceived benefit in addition to simply delivering refreshment. We offer our energy drink in three versions: original citrus, tropical and wild berry. We also offer additional functional drinks including a ginger flavored d-stress(R) drink, an orange f lavored b-well(TM) drink, a guarana berry flavored stamina(R) drink, a grape flavor power drink, and a berry-flavored "slim-down" drink that contains no calories. Each of our energy and functional drinks contain different combinations of vitamins, minerals, nutrients, herbs and supplements ("supplements''). Our energy drinks and functional drinks are sold in 8.3-ounce cans and bottles. In 2001, we introduced Energade(R), a non-carbonated energy sports drink in 23.5-ounce cans in two flavors, citrus and orange, and subsequently introduced a third flavor, red rocker. We also introduced E20 Energy Water(R), a non-carbonated lightly flavored water, in 24-ounce blue polyethylene terephthalate ("P.E.T.") plastic bottles, in four flavors, tangerine, apple, berry and lemon. In 2002, we expanded our E20 Energy Water(R) line with four additional flavors in clear P.E.T. plastic bottles, mango melon, kiwi strawberry, grapefruit and green tea. Our Energade(R) and E20 Energy Water(R) drinks also contain different combinations and levels of supplements. At the end of 2002, we introduced a lightly carbonated diet energy drink in 8.3-ounce cans under the Hansen ' s(R) Diet Red brand name . Our Diet Red energy drink is sweetened with Splenda and Acesulfame-K. We market our energy, Diet Red energy, Energade and E20 Energy Water(R) drinks in clear bottles through our full service distributor network. We market our E20 Energy Water(R) drinks in blue bottles to our direct retail customers. In 2003 we introduced a new carbonated energy drink under the Hansen's(R) Deuce brand name, in a 16-ounce can, but with a different flavor than our existing Hansen's(R) Energy drinks in 8. 3-ounce cans. Monster Energy(TM) Drinks. In 2002, we launched a new carbonated energy drink under the Monster Energy(TM) brand name, in 16-ounce cans, which is almost double the size of our regular energy drinks in 8.3-ounce cans and the vast majority of competitive energy drinks currently on the market. Our Monster Energy(TM) drink contains different types and levels of supplements than our Hansen's(R) energy drinks and is marketed through our full service distributor https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 5'89 MEC023526 ([KLELW3DJH RI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt Customers Our customers are typically retail and specialty chains, club stores, mass merchandisers, convenience chains, full service beverage distributors and health food distributors. In 2003, sales to retailers represented 47% of our revenues, sales to full service distributors represented 37% of our revenues, and sales to health food distributors represented 10% of our revenues. Our major customers include Costco, Trader Joe's, Sam's Club, Vons, Ra lph's, Wal-Mart, Safeway and Albertson 's . One customer, Costco (which purchases a number of different products from Hansen's regionally and one product nationally), accounted for approximately 15% of our sales in 2003. A decision by Costco or any other major customer to decrease amounts purchased from the Company or to cease carrying our products could have a material negative effect on our financial condition and consolidated results of operations. Seasonality Sales of ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions. Sales of our beverage products may become increasingly subject to seasonal fluctuations as more sales occur outside of California. Intellectual Property We own numerous trademarks that are very important to our business. Depending upon the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can generally be renewed as long as the trademarks are in use. We also own the copyright in and to numerous statements made and content appearing on the packaging of our products. The Hansen's(R) trademark is crucial to our business. This trademark is registered in the U.S. Patent and Trademark Office and in various countries throughout the world. The Han sen ' s(R) trademark is owned by us and was acquired from a trust (the "Trust") which was created by an agreement between HBC and the predecessor company of Fresh Juice Company of California ("FJC") (the "Agreement of Trust"). The Trust licensed to HBC in perpetuity on an exclusive world-wide royalty-free basis the right to use the Hansen's(R) trademark in connection with the manufacture, sale and distribution of carbonated beverages and waters and shelf stable fruit juices and drinks containing fruit juices. In addition, the Trust licensed to HBC, in perpetuity, on an exclusive world-wide basis, the right to use the Hansen ' s(R) trademark in connection with the manufacture, sale and distribution of certain non-carbonated beverages and water in consideration of royalty payments. There was a similar license agreement between the Trust and HBC with regard to non-beverage products. No royalties were payable on sodas, energy drinks, juices, lemonades, juice cocktails, fruit juice Smoothies, the Signature Soda line or on the children's multi-vitamin Juice drinks. As explained below, no royalty expenses were incurred during 2003, 2002 or 2001 . 13 HBC, FJC's predecessor and the Trust also entered into a Royalty Sharing Agreement pursuant to which royalties payable by third parties procured by FJC or its predecessor or HBC are initially shared between the Trust and HBC and, after a specified amount of royalties have been received, are shared equally between HBC and FJC. Under the terms of the Agreement of Trust, FJC receives royalty income paid t o the Trust in excess of Trust expenses and a reserve https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 15'89 MEC023536 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt therefor. Effective September 22, 1999, we entered into an Assignment and Agreement with FJC pursuant to which we acquired exclusive ownership of the Hansen's(R) trademark and trade names. Under the Assignment and Agreement, among other matters, we acquired all FJC's rights as grantor and beneficiary of the Trust, all FJC's rights as licensee under certain license agreement pursuant to which FJC has the right to manufacture, sell and distribute fresh juice products under the Hansen's(R) trademark and all FJC's rights under the Royalty Sharing Agreement referred to above, as well as certain additional rights, for a total consideration of $775, 010, payable over three years. FJC is permitted to continue to manufacture, sell and distribute fresh juice products under the Hansen's(R) trademark for a period of five years i.e. until September 2004. Consequently, we now have full ownership of the Hansen's(R) trademark and our obligation to pay royalties to, and to share royalties with, FJC has been terminated. As of December 31, 2002, the total consideration had been paid to FJC and no further amounts are payable to FJC. We have applied to register a number of trademarks in the United States including, but not limited to, Hard e(TM), Monster(TM), Monster Energy(TM) and M (stylized) Monster(TM). We own in our own right, a number of trademarks including, but not limited to, Hansen's(R), A New Kind a Buzz(R), Un l eash the Beast(R), Hansen's energy(R), Blue Energy(R), Energade(R), Hansen ' s E2O Energy Water(R), Hansen ' s slim-down(R), Power Formula(R), THE REAL DEAL(R), LIQUIDFRUIT(R), Imported from Nature(R), California's Natural Choice(R), California's Choice(R), Medicine Man(R), Dyna Juice(R), Equator(R), Hansen's power(R), bewell(R), anti-ox(R), d-stress(R), stamina(R), Aqua Blast(R), Antioxjuice(R) Intellijuice(R), Defense(R), Immunejuice(R), Hansen's Natural Multi-Vitamin Juice Slam(R), Juice Blast(R) and Red Rocker(R) in the United States and the Hansen's(R) and "Smoothie(R)" trademarks in a number of countries around the world. In September 2000, in connection with the acquisition of the Blue Sky Natural Beverage business, we, through our wholly owned subsidiary Blue Sky, acquired the Blue Sky(R) trademark, which is registered in the United States and Canada. In May 2001, in connection with the acquisition of the Junior Juice Beverage business, we, through our wholly owned subsidiary Junior Juice, acquired the Junior Juice(R) trademark, which is registered in the United States. On April 4, 2000, the United States Patent and Trademark Office issued a patent to us for an invention related to a shel f structure (rolling rack) and, more particularly, a shelf structure for a walk-in cooler. Such shelf structure is utilized by us to secure shelf space for and to merchandise our energy and functional drinks in cans in refrigerated Visi coolers and walk- in coolers in retail stores. 14 Government Regulation The production, distribution and sale in the United States of many of our products is subject to the Federal Food, Drug and Cosmetic Act; the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products. https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 16189 MEC023537 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt Total 1,469,800 $3.87 1,148,500 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The consolidated statements of operations data set forth below with respect to each of the years ended December 31, 1999 through 2003 and the balance sheet data as of December 31, for the years indicated, are derived from our consolidated financial statements audited by Deloitte & Touche LLP, independent auditors, and should be read in conjunction with those financial statements and notes thereto, and with the Management's Discussion and Analysis of Financial Condition and Results of Operations included as Item 7 of this Annual Report on Form 10-K. 18 (in thousands, except per share information) 2003 2002 2001 2000 1999 Gross Sales $138,454 $115,490 $99,693 $ 86,072 $ 77,793 Net sales $110,352 $92,046 $80,658 $ 71,706 $66,184 Net income $ 5,930 $ 3,029 $ 3,019 $ 3,915 $ 4,478 Net income per common share Basic $ 0.58 $ 0.30 $ 0.30 $ 0.39 $ 0.45 Diluted $ 0.55 $ 0.29 $ 0.29 $ 0.38 $ 0.43 Total assets $ 47,997 $ 40,464 $ 38,561 $ 38,958 $ 28,709 Long-term debt $ 358 $ 3,606 $ 5,851 $ 9,732 $ 903 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion ("MD&A") is provided as a supplement to - and should be read in conjunction with - our financial statements and the accompanying notes ("Notes") included elsewhere in this Form 10-K. This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. This overview provides our perspective on the individual sections of MD&A. MD&A includes the following sections: o Our Business - a general description of our business; the value drivers of our business; and opportunities and risks; o Results of Operations - an analysis of our consolidated results of operations for the three years presented in our financial statements; o Liquidity and Capital Resources - an anal ysis of our cash flows, sources and uses of cash and contractual obligations; o Application of Critical Accounting Policies and Pronouncements - a discussion of accounting policies that require critical judgments and estimates including newly issued accounting pronouncements; o Sales - details of our sales measured on a quarterly basis in both dollars and cases; https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 21/89 MEC023542 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt o I nflati on - information about the i mpact that i nflation may or may not have on our results; o Forward Looking Statements - cautionary i nformation about forward looking st at ements and a description of cert ai n risks and uncert ainti es that could cause our actual resul t s to di ffer mat eri al l y from the company's histori cal results or our current expectations or projections; and o Market Risks - Inf ormation about market risks and risk management. See "Forward Looking Statement s" and "ITEM 7A. - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS" 19 Our Business Overview We develop, ma r ket, sell and distribute, i n t he main, a wide range of branded beverages. The majority of our beverages fall within the growing "alternative" beverage category. The principal brand names under which our beverages are market ed are Hansen ' s(R), Monster Energy(TM), Blue Sky(R), Junior Juice(R), and Lost(R). We own all of our above- listed brand names other than Lost(R) which we produce, market, sell and distribute under an exclusive licensing arrangement with Lost International LLC. Our company principally generates revenues, income and cash flows by developing, producing, marketing, selling and distributing finished beverage products. We generally sell these products to retailers as well as distr ibutors . We incur significant marketing expenditures to support our brands including advertising costs, sponsorship fees and special promotional events. We focus on developing brand awareness and trial through sampling both in stores and at events. Retailers and distri butors receive rebates, promotions, point of sale mat erials, merchandise displays and coolers. We also use in-store promotions and in-store placement of point-of-sale materials and racks, prize promotions, price promotions, competitions, and sponsorship of, and endorsements from, selected public and extreme sports figures and causes. Consumers receive coupons, discounts and promotional incentives. These marketing expenditures help to enhance distribution and availability of our products as well as awareness and increase consumer preference for our brands . Greater distribution and availability, awareness and preference promotes long term growth. During 2003, we continued to expand our exi sting product lines and further develop our markets. In particular, we conti nue to focus on developing and marketing beverages that fall within the category generall y described as t he ''alternative" beverage category, with particular emphasis on energy type drinks . We believe that one of t he keys to success in the beverage industry is different iation; such as maki ng Hansen ' s(R) product s visual ly di st inctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different, better and unique. The labels and graphics for many of our products are redesigned from time to time to max1m1ze t heir visibility and identification, wherever they may be placed in stores and we will continue to reevaluate the same from time to time. We again achieved record sales in 2003 . The increase in gross and net sales i n 2003 was primarily attributable to sales of our Monster Energy(R) drink, which was introduced in April 2002, including our low carbohydrate ("lo-carb") Monster Energy(R) drink which was i ntroduced in 2003, as well as i ncreased sales of Natural Sodas, in particular Diet Natural Sodas, our Energy Deuce drink, Junior Juice, Diet Energy, apple juice and, to a lesser extent, sparkling https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt Z2/89 MEC023543 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt beverages. The increase in gross and net sales was partially offset by decreased sales primarily of energy drinks in 8.3-ounce cans, Smoothies, E20 Energy Water(R), Soy Smoothies, Energade(R) energy sports drinks, and teas, lemonades and cocktails. During 2003, sales outside of California represented 47% of our aggregate sales, as compared to approximately 42% of our aggregate sales in 2002. Sales to distributors outside the United States during 2003 amounted to $1,612,000 compared to $1,242,000 in 2002. Our customers are typically retail and specialty chains, club stores, mass merchandisers, convenience chains, full service beverage distributors and health food distributors. In 2003, sales to retailers represented 47% of our revenues, sales to full service distributors represented 37% of our revenues and sales to health food distributors represented 10% of our revenues. 20 In 2003, we introduced a carbonated lo-carb Monster Energy(R) drink in 16-ounce cans, a carbonated energy Deuce drink in 16-ounce cans, a diet root beer Natural Soda, a 100% Apple Juice in aseptic pouches, and regular and diet sparkling Lemonades and Orangeades in 12-ounce glass bottles. Sales of our dual-branded 100% juice line named ''Juice Blast(R)", which was launched in conjunction with Costco and is sold nationally through Costco stores, were lower in 2003 than in 2002. We have, in conjunction with Costco, introduced new flavors in place of certain of the existing flavors and will continue to introduce new flavors in an effort to ensure that the variety pack remains fresh and different for consumers. In September 2000, HBC, through its wholly owned subsidiary Blue Sky, acquired the Blue Sky(R) Natural Soda business. The Blue Sky(R) Natural Soda brand is the leading natural soda in the health food trade. Blue Sky offers natural sodas, premium natural sodas with added ingredients such as Ginseng and anti-oxidant vitamins, organic sodas and seltzer waters in 12-ounce cans and a Blue Energy drink in 8.3-ounce cans. During the year, we continued to expand distribution of the Blue Sky products into mainstream grocery chain stores throughout the country. In May 2001, HBC, through its wholly owned subsidiary Junior Juice, acquired the Junior Juice(R) beverage business. The Junior Juice(R) product line is comprised of a line of 100% juices packed in 4.23-ounce aseptic packages and is targeted at toddlers. During 2003, we entered into several new distribution agreements for the sale of our products, both within and outside the United States. As discussed under "ITEM 1 BUSINESS - MANUFACTURE and DISTRIBUTION", we anticipate that we will continue building our national sales force in 2004 to support and grow the sales of our products. A chain grocery store strike in Southern California, which commenced during the last quarter of 2003, adversely affected sales of those of our products that are carried by the stores concerned. However, the drop in sales of such products was partially offset by increased sales of certain of those products that are carried by other retailers in Southern California. In 2002, we introduced a Sparkling Cider 100% Juice drink in a 1.5 liter Magnum glass bottle. However, due to limited reports of some bottles breaking, we promptly recalled the product. We are pursuing a claim for the costs and losses incurred by us. We will reevaluate relaunching this product once certain https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 23/89 MEC023544 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt production issues are resolved to our satisfacti on. At the beginning of 2004, we launched a new carbonated energy drink under the Lost(R) brand name, in a 16-ounce can. The Lost(R) brand name is owned by Lost International LLC and the drinks are produced, sold and distributed by us under exclusive license from Lost International LLC. During 2004, we were awarded an exclusive contract by the State of California, Department of Health Services Women, Infant and Children Supplemental Nutrition Branch, to supply 100% Apple juice and 100% Apple Grape juice in 64-ounce PET plastic bottles. See "ITEM 1 BUSINESS - MANUFACTURE and DISTRIBUTION." We continue to incur expenditures in connection with the development and introduction of new products and flavors. Value Drivers of our Business We believe that the key value drivers of our business include the following: o Profitable Growth - We believe healthy brands - properly supported by marketing and innovation, targeted to a broad consumer base-drive profitable growth. We continue to broaden our family of brands. In particular, we are expanding and growing our specialty beverages and energy drinks to provide more alternatives to consumers. We are focused on maintaining or increasing profit margins. We believe that tailored brand, package, price and channel strategies help achieve profitable growth. We are implementing these strategies with a view to accelerating profitable growth. 21 o Cost Management - The principal focus of cost management will continue to be on supplies and cost reduction. One key area of focus, for example, is to decrease raw material costs, co-packing fees and general and administrative costs as a percentage of net operating revenues. Another key area of focus is the reduction in inventory levels. However, due to the expansion in the number of our products as well as increased sales levels in 2003, overall inventory levels increased. o Efficient Capital Structure - Our capital structure is intended to optimize our costs of capital. We believe our strong capital position, our ability to raise funds at low effective cost and overall low costs of borrowing provide a competitive advantage. We believe that these value drivers, when properly implemented, will result in (1) maintaining and improving our gross profit margin; (2) providing additional leverage over time through reduced expenses as a percentage of net operating revenues; and (3) optimizing our cost of capital. The ultimate measure of success is and will be reflected in our current and future results of operations. Gross and net operating revenues, gross profits, operating income, and net income and net income per share represent key measurements of the above value drivers. In 2003, gross operating revenues totaled $138 .S million, a 19.9% increase from 2002. Net operating revenues totaled $110.4 million, an increase of 19.9% over 2002. Gross profit totaled $43.8 million in 2003, a 31.7% increase from 2002 . Operating income was $9.8 million compared to $5.3 million for 2002. Net income was $5.9 million as compared to $3.0 million for 2002. Net income per https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 24189 MEC023545 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt share (diluted) was $0.SS from $0.29 per diluted share in 2002. These measurements will continue to be a key management focus in 2004 and beyond. See also "Results of Operations for the Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002. In 2003, the Company had working capital of $17.2 million compared to $1S million as of December 31, 2002. In 2003, our net cash provided by operating activities was approximately $5.S million, a 101% increase from 2002. Principal uses of cash flows are purchases of inventory, increases in accounts receivable and other assets, acquisition of property and equipment and trademark licenses and trademarks. Repayment of our debt and accounts payable are expected to be and remain our principal recurring use of cash and working capital funds. See also LIQUIDITY ANO CAPITAL RESOURCES. Opportunities, Challenges and Risks Looking forward, our management has identified certain challenges and risks that demand the attention of the beverage industry and our company. Increase in consumer and regulatory awareness of the health problems arising from obesity and inactive lifestyles represents a challenge. We recognize that obesity is a complex and serious public health problem. Our commitment to consumers begins with our broad product line and a wide selection of diet, light and lo-carb beverages, juices and juice drinks, sports drinks and waters and energy drinks. We continuously strive to meet changing consumer needs through beverage innovation, choice and variety. Our historical success is attributable, in part, to our introduction of different and innovative beverages. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages, although there can be no assurance of our ability to do so. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of quality, health, method of distribution, brand image and intellectual property protection. The beverage industry is subject to changing consumer preferences and shifts in consumer preferences may adversely affect companies that misjudge such preferences. 22 In addition, other key challenges and risks that could impact our company's future financial results include, but are not limited to: o maintenance of our brand images and product quality; o profitable expansion and growth of our family of brands in t he competitive market place (See also "ITEM 1 BUSINESS - COMPETITION" and "SALES AND MARKETING"); o restrictions on imports and sources of supply; duties or tariffs; changes in government regulations; o protection of our existing intellectual property portfolio of trademark licenses and trademarks and the continuous pursuit of new and innovative trademarks for our expanding product lines; and o the imposition of additional restrictions. We believe that the following opportunities exist for us: o growth potential for non-alcoholic beverage categories including - energy drinks, carbonated soft drinks, juices and juice drinks, sports https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 25/89 MEC023546 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt drinks and wat er; o new product intr oductions i ntended to contribute to higher gross profits; o premium packages intended to generate strong revenue growth; o si gnif icant package, prici ng and channel opportunities to maximize profitable growth; and o proper positioning to capture i ndustry growth. 23 Results of Operations Percentage Change 2003 2002 2001 03 vs. 02 02 vs . 01 ------Gross sales $ 138,454,345 $ 115,490,019 $ 99,693,390 19. 9% 15.8% Less: Discounts, allowances and promotional payments 28,102,149 23,443,657 19,035,073 19.9% 23.2% ------Net sales 110,352,196 92,046,362 80,658,317 19.9% 14.1% Cost of sal es 66,577, 168 58,802, 669 51,796,539 13.2% 13.5% ------Gross profi t 43,775,028 33,243,693 28,861,778 31. 7% 15. 2% Gross profit margin 39.7% 36.1% 35.8% Selling, general and 33,887,045 27,896,202 22,803,433 21 .5% 22.3% administrative expenses Amortizat ion of trademark license and trademarks 61,888 54,558 507,488 13.4% (89.2%) ------Operating income 9,826,095 5,292,933 5,550,857 85.6% (4.6%) Operating income as a percent of net sales 8 . 9% 5. 8% 6.9% Net nonoperating expense 67,013 227,758 518,602 https:/lwww.sec.gov/Archivesledgarldata/865752/000086575204000022/k123103.txt 26'89 MEC023547 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575204000022/k123103.txt (70.6%) (56.1%) Income before provisi on for income taxes 9,759,082 5,065,175 5,032,255 92.7% 0. 7% Provision for income taxes 3,828,678 2,035,980 2,012,902 88 . 1% 1.1% Effective tax rate 39 . 2% 40.2% 40.0% Net income $ 5, 930,404 $ 3, 029,195 $ 3,019,353 95.8% 0. 3% Net income as a percent of net sales 5.4% 3.3% 3.7% Net income per common share: Basic $ 0.58 $ 0.30 $ 0.30 93.3% 0.0% Diluted $ 0.55 $ 0.29 $ 0.29 89.7% 0.0% Results of Operations for the Year Ended December 31 , 2003 Compared to the Year Ended December 31 , 2002 Gross Sales. For the year ended December 31, 2003, gross sales were $138.5 mil lion, an increase of $23.0 million or 19. 9% higher than gross sales of $115.S million for the year ended December 31, 2002. The increase in gross sales is primarily attributable to the introduction of new products and increased sales of certain of our exi sti ng products as discussed below i n "Net Sal es ." Net Sales. For the year ended December 31, 2003, net sales were $110.4 million, an i ncrease of $18.3 million or 19. 9% higher than net sales of $92.0 mil lion for the year ended December 31, 2002. The i ncrease in net sales was primarily attributable to sales of our Monster Energy(TM) drink, which was introduced in April 2002, as well as increased sales of Natural Sodas, Junior J uice and, to a lesser extent, sparkling beverages . The increase in net sales was partially offset by decreased sales of functional drinks, smoothies, E20 Energy Water, Energade(R) energy sports drinks, and children's multi-vitamin j uice drinks as well as an increase in discounts, allowances and promotional payments . Gross Profit. Gross profit was $43 .8 million for the year ended December 31, 2003, an increase of $10. 5 million or 31.7% over the $33.2 million gross profit for the year ended December 31, 2002. Gross profit as a percentage of net sales was 39.7% for the year ended December 31, 2003 which was higher than gross profit as a percentage of net sales of 36.1% for the year ended December 31, 2002. The increase i n gross profit was primarily attributable to increased net sales . Although a greater percentage of our sales comprised products having higher gross margins than the prior year, the increase in profit margins was partially reduced by higher promotional payments and allowances to promote our products. 24 MEC023548 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt Form 10- K (Mark one) [ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 OR ( )TRANSITION RE PORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to __ Commi ssi on Fi le Number 0-18761 HANSEN NATURAL CORPORATION (Exact name of Registrant as specified in its charter) Delaware 39-1679918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1010 Railroad Street, Corona, California 92882 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (951) 739 - 6200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Not Applicable Not Applicable Securities r egistered pursuant to Section 12(g) of the Act: Title of class Common Stock, $0.005 par value per share Indicate by check mark whether t he Registrant: (1) has filed all reports required to be f i led by Sect ion 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days . Yes [X] No [ ] Indicate by check mark if disclosure of del inquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Regi strant' s knowledge, in definitive proxy or information https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 1/79 MEC023611 ([KLELW3DJH RI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant was $317,035,186 computed by reference to the sale price for such stock on the NASDAQ Small-Cap Market on February 23, 2005. The number of shares of the Registrant's common stock, $0.005 par value per share (being the only class of common stock of the Registrant), outstanding on February 23, 2005 was 10,935,189 shares . HANSEN NATURAL CORPORATION FORM 10-K TABLE OF CONTENTS Item Number Page Number PART I 1. Business 3 2. Properties 15 3. Legal Proceedings 15 4. Submission of Matters to a Vote of Security Holders 15 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters 16 6 . Selected Consolidated Financial Data 17 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 7a. Qualitative and Quantitative Disclosures about Market Risks 33 8. Financial Statements and Suppl ementary Data 33 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33 9a. Controls and Procedures 33 PART III 10. Directors and Executive Officers of the Registrant 35 11. Executive Compensation 38 12. Security Ownership of Certain Beneficial Owners and Management 42 13. Certain Relationships and Related Transactions 44 14. Principal Accountant Fees and Services 45 PART IV 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 46 https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 2179 MEC023612 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt Signatures 47 2 PART I ITEM 1. BUSINESS Overview Hansen Natural Corporation was incorporated in Delaware on April 25, 1990. Its principal place of business is at 1010 Railroad Street, Corona, California 92882 and its telephone number is (951) 739-6200. When this report uses the words "Hansen", "HBC", "the Company", "we", "us", and "our", these words refer to Hansen Natural Corporation and our subsidiaries other than Harde Beverage Company ("HEB"), unless the context otherwise requires. We are a holding company and carry on no operating business except through our direct wholly owned subsidiaries, Hansen Beverage Company ("HBC") which was incorporated in Delaware on June 8, 1992, and HEB, formerly known as Hard Energy Company, and previously known as CVI Ventures, Inc., which was incorporated in Delaware on April 30, 1990. HBC generates substantially all of our operating revenues. Corporate History In the 1930's, Hubert Hansen and his three sons started a business to sell fresh non-pasteurized Juices in Los Angeles, California. This business eventually became Hansen's Juices, Inc., which subsequently became known as The Fresh Juice Company of California, Inc. ("FJC"). FJC retained the right to market and sell fresh non-pasteurized Juices under the Hansen trademark. In 1977, Tim Hansen, one of the grandsons of Hubert Hansen, perceived a demand for pasteurized natural juices and juice blends that are shelf stable and formed Hansen Foods, Inc. ("HFI''). HFI expanded its product line from juices to include Hansen's(r) Natural Sodas. California Co-Packers Corporation (d/b/a/ Hansen Beverage Company) (''CCC") acquired certain assets of HFI, including the right to market the Hansen's(r) brand name, in January 1990. On July 27, 1992, HBC acquired the Hansen's(r) brand natural soda and apple juice business from CCC. Under our ownership, the Hansen beverage business has significantly expanded and includes a wide range of beverages within the growing "alternative" beverage category. In September 1999 we acquired all of FJC's rights to manufacture, sell and distribute fresh non-pasteurized Juice products under the Hansen's(r) trademark together with certain additional rights. In 2000, HBC, through its wholly-owned subsidiary, Blue Sky Natural Beverage Co. ("Blue Sky"), which was incorporated in Delaware on September 8, 2000, acquired the natural soda business previously conducted by Blue Sky Natural Beverage Co., a New Mexico corporation ("BSNBC"), under the Blue Sky(r) trademark. In 2001, HBC, through its wholly-owned subsidiary Hansen Junior Juice Company, ("Junior Juice"), which was incorporated in Delaware on May 7, 2001, acquired the Junior Juice business previously conducted by Pasco Juices, Inc. ("Pasco'') under the Junior Juice(r) trademark. Industry Overview The alternative beverage category combines non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single serve juices, ready-to-drink iced coffees, energy drinks, sports drinks, soy drinks and single-serve still water (flavored and unflavored) with "new age" beverages, including sodas that are considered natural, sparkling Juices and flavored sparkling waters. The alternative beverage category is the fastest growing segment of the beverage https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 3/79 MEC023613 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt marketplace according to Beverage Marketing Corporation. Sales in 2004 for the alternative beverage category of the market are estimated at approximately $16.3 billion at wholesale, representing a growth rate of approximately 10.7% over the revised estimated whol esale sales in 2003 of approximately $14.8 billion. (Source: Beverage Marketing Corporation) . 3 Products We develop, market, sell and distribute "alternative" beverage category natural sodas, fruit juices, energy drinks and energy sports drinks, fruit juice and soy smoothies, "functional drinks", sparkling lemonades and orangeades, non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, children's mu lti-vitamin juice dri nks and non-carbonated lightly flavored energy waters under the Hansen's(r) brand name. We also market, sell and distribute energy drinks under the MonsterTM brand name. In addition, we market nutrition food bars under the Hansen's(r) brand name . We also market, sell and distribute, natural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters and energy drinks under the Blue Sky(r) brand name. Our fruit juices for toddlers are marketed under the Junior Juice(r) brand name. Natural Sodas. Hansen 's natural sodas have been a leading natural soda brand in Southern California for the past 25 years. In 2004, according to Information Resources, Inc. 's Analyzer Reports for California, our natural sodas recorded the highest sales among comparable carbonated new age category beverages measured by unit volume in the California market. Our natural sodas are available in thirteen regular flavors consisting of mandarin lime, key lime, grapef ruit, raspberry, creamy root beer, vanilla cola, cherry vanilla creme, orange mango, kiwi strawberry, tropical passion, black cherry, ginger ale and tangerine. In early 2001, we introduced a new line of diet sodas using Splenda(r) sweetener as the primary sweetener. We initially introduced this line in four flavors: peach, black cherry, tangerine lime, and kiwi strawberry and have since added two additional flavors, ginger ale and creamy root beer. Our natural sodas contain no preservatives, sodium, caffeine or artificial coloring and are made with high quality natural flavors, citric acid and high fructose corn syrup or, in the case of di et sodas, with Splenda(r) and Acesulfame-K. We package our natural sodas in 12-ounce aluminum cans. In 2002, we introduced a line of natural mixers in 8-ounce aluminum cans comprising club soda, tonic water and ginger ale. In January 1999, we introduced a premium l ine of Signature Sodas in unique proprietary 14-ounce glass bottles. This line was marketed under the Hansen's(r) brand name, primarily through our distributor network, in six flavors. In early 2003 we repositioned this line into lower cost 12- ounce glass packaging to market our repositioned Signature Soda line at lower price points directly to our retail customers such as grocery chains, club stores, specialty retail chains and mass merchandisers and to the health food sector through specialty and health food distributors (collectively referred to as our "direct retail customers'' ). Signature Soda is available in 12-ounce glass bottles in five flavors: orange creme, vanilla creme, ginger beer, sarsaparilla and black cherry. In September 2000, we acquired the Blue Sky Natural Soda business from BSNBC. Our Blue Sky product line comprises natural sodas, premium sodas, organic natural sodas, seltzer water, energy drinks and tea sodas. Blue Sky(r) natural sodas are available in thirteen regular flavors consisting of lemon lime, grapefruit, cola, root beer, raspberry, cherry vanilla creme, truly orange, Jamaican ginger ale, black cherry, orange creme, Dr. Becker, grape and private reserve cream soda. We also offer a Blue Sky(r) product line, a premium line of https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 4179 MEC023614 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt natural sodas which contain supplements such as ginseng. This l i ne is avai lable in six flavors consisting of ginseng creme, ginseng cola, ginseng root beer, ginseng very berry creme, ginseng ginger ale, and ginseng cranberry- raspberry. During 1999, Blue Sky(r) int roduced a l ine of organic natural sodas, which are availabl e in six flavors consisting of prime lime cream, new century cola, orange divine, ginger gale, black cherry cherish, and root beer. We also market a seltzer water under the Blue Sky(r) label in three flavors: natural, lime and lemon . I n 2002, we int roduced a l ightl y carbonated Blue Sky(r) energy drink in an 8. 3-ounce slim can . In 2004 we introduced a new line of Blue Sky natural tea sodas in four flavors consisting of Imperial Lime Green Tea, Peach Mist Green Tea, Pomegranate White Tea and Raspberry Red Tea. The Blue Sky(r) products contain no preservat ives, sodium or caffeine (other than t he energy drink) or artificial coloring and are made with high quali ty natural flavors . Blue Sky(r) natural sodas, seltzer waters and tea sodas are all packaged in 12-ounce aluminum cans and are marketed pr imarily to our direct retail customers . 4 In 2001, we introduced a new line of s parkling lemonades (regular and pi nk) and orangeades in unique proprietary 1-liter glass bottles and towards the end of 2002, we introduced diet versions of our regular sparkling lemonades and orangeades, also in 1-liter glass bottles. The sparkl ing lemonades and orangeades cont ain real jui ce and pul p. In 2003, we extended this l ine i nt o unique proprietary 12-ounce glass bottles in both regular and diet versions. This product line is marketed to our direct retail customers. The contract packer who produced these products on our behalf underwent a change of ownership and experi enced production diffi culties wh i ch adversel y affected this product line. We expect to reevaluate this product line once production issues are resolved. Additionally, we are cur rently eval uating alternative packages f or thi s l i ne. Hansen's Energy Drinks. In 1997, we introduced a lightly carbonated citrus flavored Hansen's(r) energy drink. Our energy drink competes in the "functional" beverage category, namely, beverages that provide a real or perceived benefit in addition to simply delivering refreshment. We offer our energy drink in three versions : ori ginal citrus, tropi cal and wi ld berry. We also offer addi tional functional drinks incl uding a ginger f l avored d- stress(r) dri nk, an orange flavored b-well(tm) drink, a guarana berry flavored stamina(r) drink, a grape flavored power drink, and a berry flavored "s lim-down" drink that contains no cal ories. Each of our energy and f unctional drinks contain different combinations of vitamins, minerals, nutri ents, herbs and supplements ("supplements''). our energy drinks and functional drinks are sold in 8.3-ounce cans and bottl es. I n 2004 we commenced to off er our Hansen's energy drink in 16-ounce cans as well. In 2001, we introduced Energade(r), a non-carbonated energy sports drink in 23.5-ounce cans in two flavors, citrus and orange, and subsequently introduced a third flavor, red rocker. We al so introduced E2O Energy Water(r), a non-carbonated l i ghtly flavored water, in 24-ounce blue polyethylene terephthalate ("P . E.T.") plastic bottles, in four flavors, tangerine, apple, berry and lemon. In 2002, we expanded our E2O Energy Water(r) line with four additional flavors in clear P.E.T. plastic bottles, mango mel on, kiwi strawberry, grapefruit and green tea. Our Energade(r) and E2O Energy Water(r) drinks also contain different combinations and levels of supplements. At the end of 2002, we introduced a lightly carbonated diet energy drink in 8.3-ounce cans under t he Hansen's(r) Diet Red brand name. Our Di et Red energy drink is sweetened with Splenda and Acesulfame-K. We market our energy, and Energade drinks through our full service distributor network. We market our E2O Energy Water(r) drinks in blue bottles to our direct retail customers. In 2003 we introduced a new carbonated energy drink under the Hansen's(r) Deuce brand name, in a 16-ounce can, but with a different flavor than our existing Hansen's(r) Energy drinks in 8.3-ounce cans. https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 5/79 MEC023615 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt Monster EnergyTM Drinks. In 2002, we launched a new carbonated energy drink under the Monster EnergyTM brand name, in 16-ounce cans, which is almost double t he size of our r egul ar energy dri nks in 8.3-ounce cans and the vast major i ty of competitive energy dr inks currently on the market. Our Monster EnergyTM drink contains different types and levels of s upplements than our Hansen's(r) energy drinks and is marketed through our full service distributor network. In 2003, we introduced a low carbohydrate ("Lo-Carb") version of our Monster EnergyTM energy drink. In 2004 we introduced 4- packs of our Monster Energy(tm) drinks including our Lo-Carb version thereof and, towards the end of 2004, we launched a new Monster Energy(tm) "Assault" (tm) energy drink in 16-ounce cans . Lost(r) Energy Drinks . In 2004, we launched a new carbonated energy drink under the Lost(r) brand name, in 16-ounce cans. The Lost(r) brand name is owned by Lost International LLC and the drinks are produced, sold and distributed by us under exclusive license from Lost International LLC. Rumba(tm) Energy Juice. In December 2004, we launched a new non-carbonated energy juice under the Rumba(tm) brand name i n 16 ounce cans. Rumba(tm) i s a 100% jui ce product t hat targets male and female morning beverage consumers and is positioned as a substitute for coffee, caffeinated sodas and 100% orange or other juices. s Jui ce Products and Smoothies. Our fruit juice product line includes Hansen ' s(r) Natural Ol d Fashi oned Appl e Jui ce which is packaged in 64-ounce P.E.T. plastic bottles and 128-ounce polypropyl ene bottles and White Grape and Concord Grape and Pomegranate juice, and Apple Strawberry, Apple Grape and Apple Cranberry juice blends, in 64-ounce P.E.T. plasti c bottles . These Hansen's(r) jui ce products contain 100% juice (except Apple Cranberry and Pomegranate which contain 27% juice) as well as Vitamin C. Certain of these products also contain added calcium. Hansen's(r) juice products compete i n the shelf- stable Juice category. In 2002, we extended our fruit juice and j uice blend product line by introducing certain of these products in 10-ounce P.E.T. plastic bottles and in 2003 further extended our fruit j uice product l ine by introducing a 100% Apple Jui ce in aseptic pouches in a 6.75-ounce size. I n March 1995, we introduced a line of fruit juice smoothie drinks in 11.5-ounce aluminum cans . Certain flavors were subsequently offered in glass and P.E.T. plastic bottles. Hansen's fruit juice smoothies have a smooth texture that is thick but lighter than a nectar. Hansen's smoothies in 11.5-ounce aluminum cans contain approximatel y 35% juice while the juice levels of Hansen ' s smoothies in glass and P. E.T. plastic bottles is 25%. Our fruit juice smoothies provide 100% of the recommended daily intake for adults of Vitamins A, C & E and represented Hansen ' s entry into what is commonly referred to as the "functional" beverage category. Hansen's(r) fruit Juice smoothies are available in 15 flavors: strawberry banana, peach berry, mango pineapple, guava strawberry, pineapple coconut, apricot nectar, tropical passion, whipped orange, cranberry twi st, as well as the bl ast line comprising I s l and Blast, Colada Blast, Power Berry Blast, Vita Blast and Banana Blast. In 2004, we repositioned our cranberry raspberry lite smoothie as part of our new lo-carb line of smoothies. Our lo-carb smoothie line currently consists of peach, mango and cran-raspberry f l avors in 12- ounce cans . In 2001, we introduced a new line of soy smoothies in 32 - and 11-ounce aseptic packaging in five flavors: berry splash, tropical breeze, orange dream, lemon chiffon and peach passion . The soy smoothies contain soy protein and fruit juices. During 2004 we discontinued all of our soy smoothies in 32-ounce asceptic packaging and four of the five flavors in 11- ounce aseptic packaging, https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 6/79 MEC023616 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt Company, PepsiCo, Inc., Cadbury Schwepps, which includes Dr . Pepper/Seven-up, RC Col a, Snappl e, Mist ie and St ewar t ' s brands, Nestle Beverage Company, Anheuser Busch and Ocean Spray. More specificall y, our products compete wit h other alternative beverages, including new age beverages, such as Snapple, Elements, Mistie, Arizona, Clearly Canadian, Sobe, Stewart's, Everfresh, Nantucket Nectars, Vitamin Water , Fuse, VeryFine, V8 Splash and Smoot hies, Calistoga, Propel Fitness Water, AquaFina, Dasani, Reebok, and Crystal Geyser brands. Due to the rapid growth of the alternative beverage segment of the beverage marketplace, certain large companies such as The Coca-Cola Company and PepsiCo, Inc. have i ntroduced product s in that market segment which compete directly wi th our products such as Nestea, Fruitopia, Lipton, Propel, AquaFina, Dasani, Adrenaline Rush, Amp, KMX and Dole . Our products also compete with private label brands such as those carried by grocery store chains and club stores. Our fruit juice smoothies compete directly with Kern's, Jumex, Jugos del Valle and Libby's nectars, V8 Smoothies, as well as with single serve Juice products produced by many competitors. Such competitive products are packaged in gl ass and P. E.T . bot tles ranging from 8- to 48-ounces in size and in 11 . 5-ounce aluminum cans. The juice content of such competi tive products ranges from 1% to 100%. Our apple and other juice products compete di rect ly wit h Tree Top, Mott ' s, Martinelli's, Welch's, Ocean Spray, Tropicana, Minute Maid, Langers, Apple and Eve, Seneca, Northland and also with other brands of apple juice and juice blends, especially store brands. Our energy drinks, including Hansen's(r) energy, Diet Red, Hansens(r) energy Deuce, Monster EnergyTM, Lost(r) Energy and Rumba(tm) Energy Juice in 8.3- and 16-ounce cans, compete directly wi th Red Bull, Adrenal ine Rush, Amp, 180, KMX, Venom, Extreme Energy Shot, Rockstar, No Fear, Full Throttle, US energy, Red Devil, Lipovitan, MET -Rx, Hype, XTC, and many other brands and our other functional drinks compete directly with El ix, Lipovitan, MET-Rx, Think, and other brands. 11 Our E2O Energy Water(r) and still water products compete directly with Vitamin Water, Reebok, Propel, Dasani, Aquafina, Fruit2O, Evian, Crystal Geyser, Naya, Palomar Mountain, Sahara, Arrowhead, Dannon, and other brands of still water especially store brands. The nutrition food bar category is also highly competitive. Principal areas of competition are pricing, packaging, development of new products and flavors and market ing campaigns . our nutrition food bars compete with products of other independent bar companies such as Power Bar, Ba l ance Bar, Gatorade, Kashi, Cl iff Bar, MET -Rx, and numerous other bars. Sa l es and Marketing We focus on consumers who seek products that are perceived to be natural and healthy and emphasize the natural ingredients and the absence of preservatives, sodium, artificial coloring and caffeine in our beverages (other t han our energy drinks) and the addition to most of our products, of one or more supplements. We reinforce this message in our product packaging. Our marketing strategy with respect to our nutrition food bars is similarly to focus on consumers who seek bars that are perceived to be natural and healt hy. We emphasize the natural ingredients and the absence of preservatives. our sales and marketing strategy is to focus our efforts on developing brand awareness and t r i al through sampling both in stores and at events in https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 13/79 MEC023623 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt respect of all our beverage and food products. We use our branded vehicles and ot her promotional vehicles at events at which we dist ribute our products to consumers for sampling. We util ize "push-pul l" methods to achieve maximum shelf and display space exposure in sales outlets and maximum demand from consumers for our products including advertising, in store promotions and in store placement of point of sale material s and racks, prize promot ions, pri ce promotions, competitions, endorsements from selected public and extreme sports figures, coupons, sampling and sponsorship of selected causes such as breast cancer research and SPCA's as well as extreme sports teams such as the Pro Circui t - Kawasaki Motocross team, extreme sports figures and sporting events such as the Energy Pro Pipeline Surfing competition, marathons, 10k runs, bicycle races, volleyball tournaments and other health and sports related activities, i ncluding extreme sports, particularly supercross, freestyle motor cross, surfing, skat eboardi ng, wakeboarding, ski ing, snowboarding, BMX, mountain biking, snowmobile racing, etc. and also participate in product demonstrations, food tasting and other related events. Posters, print, radio and television advertising together with price promotions and coupons are also used to promote the Hansen's(r) brand . Additionally, in 2003 we entered into a multi-year sponsorship agreement to advertise on the new Las Vegas Monorail ("Monorail Agreement") with the Las Vegas Monorail Company ( "LVMC ") which i ncludes t he r i ght to vend our Monster EnergyTM drinks and natural sodas on all stations. The initial term of the Monorail Agreement commenced in July 2004. For technical reasons the Monorail did not operate for some months in 2004 but recommenced carrying passengers at t he end of December 2004 . The initi al term of the Monorai l Agreement ends on the first anniversary of its commencement date. Not less than 120 days before t he expiration of the initial term and each renewal term, as the case may be, we have the right to renew the Monorail Agreement f or a f urther one year term up t o a maximum of nine additi onal one year terms and the LVMC has the right, not withstanding such election by us, to terminate the Monorail Agreement at t he expiration of the then current term. Due to the interruption in operations of the Monorail, it is likely that the commencement date of the initial term will be extended. We believe that one of t he keys to success in t he beverage industry is differentiation such as making Hansen's(r) products visuall y distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different, better and unique. The labels and graphics for many of our products are redesigned from time to time to maximize their visibility and identification, wherever they may be placed in stores and we wil l continue to reevaluate the same from time to time. 12 Where appropriate we partner with retailers to assist our marketing efforts. For example, while we retain responsibility for the marketing of the Juice Slam(r) line of children's multi-vitamin Juice drinks, Costco has undertaken partial responsibility for the marketing of the Juice Blast(r) line. We increased expenditures for our sal es and marketing programs by approximately 75% in 2004 compared to 2003. As of December 31, 2004, we employed 217 employees in sales and marketing activities. Customers Our customers are typically retail and specialty chains, club stores, mass merchandisers, convenience chains, food service and full service beverage distribut ors and health food di stribut ors . In 2004, sales to retail ers https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 14ll9 MEC023624 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt represented 35% of our revenues, sales to full service distributors represented 52% of our revenues, and sales to health food distributors represented 6% of our revenues. Our major customers include Costco, Trader Joe's, Sam's Club, Vons, Ra lph's, Wal-Mart, Safeway and Albertson 's. A decision by any major customer t o decrease amounts purchased from the Company or to cease carrying our products could have a material negative effect on our financial condition and consolidated results of operations. Seasonality Sales of ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions. Sales of our beverage products may become increasingly subject to seasonal fluctuations as more sales occur outside of California. Intellectual Property We own numerous trademarks that are very important to our business. Depending upon the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can generally be renewed as long as the trademarks are in use. We also own the copyright in and to numerous statements made and content appearing on the packaging of our products. We own the Hansen's(r) trademark. This trademark is crucial to our business and is registered in the U.S. Patent and Trademark Office and in various countries throughout the world. We own a number of other trademarks including, but not limited to, A New Kind a Buzz(r), Unleash the Beast(r), Hansen ' s energy(r), Blue Energy(r), Energade(r), Hansen's E2O Energy Water(r), Hansen ' s slim-down(r), Power Formula(r), THE REAL DEAL(r), LIQUIDFRUIT(r), Imported from Nature(r), California's Natural Choice(r), California's Choice(r), Medicine Man(r), Dyna Juice(r), Equator(r), Hansen's power(r), b*well(r), anti-ox(r), d-stress(r), stamina(r), Aqua Blast(r), Antioxjuice(r) Intellijuice(r), Defense(r), Immunejuice(r), Hansen's Natural Multi-Vitamin Juice Slam(r), Juice Blast(r) and Red Rocker(r) in the United States and the Hansen's(r) and "Smoothie(r)" trademarks in a number of countries around the world . We have applied to register a number of trademarks in the United States and elsewhere including, but not limited to, Monster EnergyTM, M (stylized) MonsterTM, M (stylized) Monster EnergyTM, M (stylized) TM, Assault(tm), Energy Pro(tm) and Rumba(tm). In September 2000, in connection with the acquisition of the Bl ue Sky Natural Beverage business, we, through our wholly owned subsidiary Blue Sky, acquired the Blue Sky(r) trademark, which is registered in the United States and Canada. 13 In May 2001, in connecti on with the acquisition of the Junior Juice beverage business, we, through our wholly owned subsidiary Junior Juice, acquired the Junior Juice(r) trademark, which is registered in the United States. On April 4, 2000, the United States Patent and Trademark Office issued a patent to us for an invention related to a shelf structure (rolling rack) and, more particularly, a shelf structure for a walk-in cooler. Such shelf structure https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 15'79 MEC023625 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt commissions and bid quotations may not necessarily represent actual transactions and "real time" sale prices. The source of the bid information is the NASDAQ Stock Market, Inc. 16 We have not paid dividends to our stockholders since our inception and do not anticipate paying dividends in the foreseeable future. Equity Compensation Plan Information The following table sets forth information as of December 31, 2004 with respect to shares of our common stock that may be issued under our equity compensation plans. Number of securities Number remaining available of securities Weighted-average for future issuance to be issued exercise price of under equity upon exercise of outstanding compensation plans outstanding options, options, warrants (excluding securities warrants and rights and rights reflected in column (a)) Plan category (a) (b) (c) Equity compensation plans approved by stockholders 1,298,400 $ 6.09 824,900 Equity compensation plans not approved by stockholders Total 1,298,400 $ 6.09 824,900 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The consolidated statements of operations data set forth below with respect to each of the years ended December 31, 2000 through 2004 and the balance sheet data as of December 31, for the years indicated, are derived from our consolidated financial statements audited by Deloitte & Touche LLP, independent auditors, and should be read in conjunction with those financial statements and notes thereto, and with the Management's Discussion and Analysis of Financial Condition and Results of Operations included as Item 7 of this Annual Report on Form 10-K. (in thousands, except per share information) 2004 2003 2002 2001 2000 Gross Sales $226,984 $138,454 $115,490 $99,693 $86,072 Net sales $180,341 $110,352 $92,046 $80,658 $71,706 Net income $ 20,387 $ 5,930 $ 3,029 $ 3,019 $ 3,915 Net income per common share https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 19f79 MEC023629 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt Basic $ 1.91 $ 0.58 $ 0.30 $ 0.30 $ 0.39 Diluted $ 1. 73 $ 0.55 $ 0.29 $ 0.29 $ 0.38 Total assets $ 82,022 $ 47,997 $ 40,464 $38,561 $38,958 Long-term debt $ 146 $ 358 $ 3,606 $ 5,851 $9,732 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion ("MD&A'') is provided as a supplement to - and should be read in conjunction with - our financial statements and the accompanying notes ("Notes") included elsewhere in this Form 10- K. This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements. This overview provides our perspective on the individual sections of MD&A. MD&A includes the following sections: * Our Business - a general description of our business; the value drivers of our business; and opportuni ties and risks; * Results of Operations - an analysis of our consolidated results of operations for the three years presented in our financial statements; * Liquidity and Capital Resources - an analysis of our cash flows, sources and uses of cash and contractual obligations; * Application of Critical Accounting Policies and Pronouncements - a discussion of accounting policies that require critical judgments and estimates including newly issued accounting pronouncements; * Sales - details of our sales measured on a quarterly basis in both dollars and cases; * Inflation - information about the impact that inflation may or may not have on our results; * Forward Looking Statements - cautionary information about forward looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from the company's historical results or our current expectations or projections; and * Market Risks - Information about market risks and risk management. See "Forward Looking Statements" and "ITEM 7A . - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS." Our Business Overview We develop, market, sell and distribute, in the main, a wide range of branded beverages. The majority of our beverages fall within the growing ''alternative" beverage category. The principal brand names under which our beverages are marketed are Hansen's(r), Monster Energy(tm), Blue Sky(r), Junior Juice(r), Lost(r) and Rumba(tm). We own all of our above-listed brand names other than Lost(r) which we produce, market, sell and distribute under an https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 20/79 MEC023630 ([KLELW3DJH RI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt exclusive licensing arrangement with Lost International LLC. Our company principally generates revenues, income and cash flows by developing, producing, marketing, selling and distributing finished beverage products. We generally sell these products to retailers as well as distributors. We incur significant marketing expenditures to support our brands including advertising costs, sponsorship fees and special promotional events. We focus on developing brand awareness and trial through sampling both in stores and at events. Retailers and distributors receive rebates, promotions, point of sale materials, merchandise displays and coolers. We also use in-store promotions and in-store placement of point-of-sale materials and racks, prize promotions, price promotions, competitions, and sponsorship of, and endorsements from . selected public and extreme sports teams and figures and causes. Consumers receive coupons, discounts and promotional incentives. These marketing expenditures help to enhance distribution and availability of our products as well as awareness and increase consumer preference for our brands. Greater distribution and availability, awareness and preference promotes long term growth. 18 During 2004, we continued to expand our existing product lines and further develop our markets. In particular, we conti nue to focus on developing and marketing beverages that fall within the category generally described as the "alternative" beverage category, with particular emphasis on energy type drinks. We believe that one of the keys to success in the beverage industry is differentiation; such as making Hansen's(r) products visually distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different, better and unique. The labels and graphics for many of our products are redesigned from time to time to maximize their visibility and identification, wherever they may be placed in stores and we will continue to reevaluate the same from time to time. We again achieved record sales in 2004. The increase in gross and net sales in 2004 was primarily attributable to increased sales of our Monster Energy(r) drink, which was introduced in April 2002, including our low carbohydrate ("lo-carb") Monster Energy(r) drink which was introduced in 2003 and sales of Lost(r) energy drinks which were introduced at the beginning of 2004, as well as increased sales of apple juice and apple grape juice, private label beverages and our Energade(r) energy sports drinks. The increase in gross and net sales was partially offset by decreased sales primarily of energy drinks in 8.3-ounce cans, children's multi-vitamin juice drinks, and teas, lemonades and cocktails. During 2004, sales outside of California represented 56 % of our aggregate sales, as compared to approximately 47 % of our aggregate sales in 2003. Sales to distributors outside the United States during 2004 amounted to $2,282,000 compared to $1,612,000 in 2003. Our customers are typically retail and specialty chains, club stores, mass merchandisers, convenience chains, full service beverage distributors and health food distributors. In 2004, sales to retailers represented 35% of our revenues, sales to full service distributors represented 52% of our revenues and sales to health food distributors represented 6 % of our revenues. In 2004, we introduced a carbonated Lost(r) Energy drink in 16-ounce cans, a carbonated Monster Energy "Assault"(tm) drink in 16-ounce cans, a new line of Blue Sky natural tea sodas in 12-ounce cans, Hansen's Energy Drinks in 16-ounce cans, Rumba(tm) Energy Juice in 15.5-once cans and also introduced a new line of https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 21/79 MEC023631 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt l o- carb smoothies in 11.5-ounce cans. Sales of our dual-branded 100% juice line named ''Juice Blast(r)", which was launched in conjunction with Cost co and i s sold through Cost co stores, were $2.0 milli on in 2004 as compared to $6.0 mi lli on in 2003, pri maril y due to l ost distribution in certain regions . We have since managed to resecure distribution of such juice line in certain of those regions. We have, in conjunction with Costco, introduced new flavors in pl ace of certain exi sting f l avors and will continue to introduce new flavors in an effort to ensure that the variety pack remains fresh and different for consumers and retain and if possible increase current distribution levels. In September 2000, HBC, through its wholly owned subsidiary Blue Sky, acquired the Blue Sky(r) Natural Soda business. The Blue Sky(r) Natural Soda brand is the leading natural soda in the health food trade. Blue Sky offers natural sodas, premium natural sodas with added ingredi ents such as Ginseng and anti-oxidant vitamins, organic sodas and seltzer waters in 12-ounce cans and a Blue Energy drink in 8.3-ounce cans and in 2004 introduced a new line of Blue Sky natural tea sodas in 12-ounce cans. We plan to introduce a new line of Blue Sky Lite natural sodas i n 2005. 19 In May 2001, HBC, through its wholly owned subsidiary Junior Juice, acquired the J unior Juice(r) beverage business. The Junior Juice(r) product line is comprised of a line of 100% juices packed in 4.23-ounce aseptic packages and is targeted at toddlers. During 2004, we entered into several new distribution agreements for t he sale of our products both within and outside the United States and substantially expanded our nati onal sales force and marketing and support staff. As discussed under "ITEM 1 BUSINESS - MANUFACTURE and DISTRIBUTION", we anticipate t hat we will continue building our national sales force in 2005 as well as our marketing and support staff to support and grow the sales of our products. A chain grocery store strike in Southern California, wh i ch commenced during the last quarter of 2003 and terminated in the first quarter of 2004, adversely affected sales of those of our products that were carried by the stores concerned. However, the drop i n sales of such products was partially offset by increased sales of certain of those products that are carried by other r etailers in Southern California. In 2002, we introduced a Sparkling Cider 100% juice drink in a 1.5-liter Magnum glass bottle. However, due to limited reports of some bottles breaking in 2003, we promptly recalled the product. We are pursuing a claim for the costs and losses incurred by us. We will reevaluate relaunching this product once certain producti on issues are resolved to our sati sfact ion and a suitable co- packer has been identified. During 2004, we concluded exclusive contracts with the State of California, Department of Health Services Women , Infant and Children Supplemental Nutrition Branch, to supply 100% Apple juice and 100% blended Juice in 64-ounce PET plastic bottles. The contracts commenced on Jul y 12, 2004. See "ITEM 1 BUSINESS - MANUFACTURE and DISTRIBUTION." We continue to incur expenditures in connection with the development and introduction of new products and flavors. Value Drivers of our Business https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 'Z2/79 MEC023632 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt We believe that the key value drivers of our business include the following: * Profitable Growth - We believe natural , better for you brands properly supported by marketing and innovation, targeted to a broad consumer base-drive profitable growth. We continue to broaden our family of brands. In particular, we are expanding and growing our specialty beverages and energy drinks to provide more alternatives to consumers. We are focused on maintaining or increasing profit margins. We believe that tailored brand, package, price and channel strategies help achieve profitable growth. We are implementing these strategies with a view to accelerating profitable growth. * Cost Management - The principal focus of cost management will continue to be on supplies and cost reduction. One key area of focus, for example, is to decrease raw materi al costs, co -packing fees and general and administrative costs as a percentage of net operating revenues. Another key area of focus is the reduction in inventory levels. However, due to the expansion in the number of our products as well as increased sales levels in 2004, overall inventory levels increased. Additionally, the costs of aluminum cans and PET plastic bottles which represent a large portion of our ingredient costs, increased in 2004 and could continue to rise during 2005. * Efficient Capital Structure - Our capital structure is intended to optimize our costs of capital. We believe our strong capital position, our ability to raise funds at low effective cost and overall low costs of borrowing provide a competitive advantage. 20 We believe that, subject to increases in the costs of certain raw materials being contained, these value drivers, when properly implemented, will result in (1) maintaining and improving our gross profit margin; {2) providing additional leverage over time through reduced expenses as a percentage of net operating revenues; and (3) optimizing our cost of capital. The ultimate measure of success is and will be reflected in our current and future results of operations. Gross and net operating revenues, gross profits, operating income, and net income and net income per share represent key measurements of the above value drivers. In 2004, gross operating revenues totaled $227 . 0 million, a 63.9% increase over 2003. Net operating revenues totaled $180.3 million, an increase of 63 .4% over 2003. Gross profit totaled $83.5 million in 2004, a 90.7% increase from 2003. Operating income was $33.9 million compared to $9.8 million for 2003. Net income was $20.4 million as compared to $5.9 million for 2003. Net income per share (diluted) was $1.73 from $0.55 per diluted share in 2003. These measurements will continue to be a key management focus in 2005 and beyond . See also "Results of Operations for the Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003." In 2004, the Company had working capital of $41.6 million compared to $17.2 million as of December 31, 2003. In 2004, our net cash provided by operating activities was approximately $20.1 million, a 265.6% increase from 2003. Principal uses of cash flows are purchases of inventory, increases in accounts receivable and other assets, acquisition of property and equipment and trademark licenses and trademarks. Repayment of our debt and accounts payable are expected to be and remain our principal recurring use of cash and working capital funds. See also "--LIQUIDITY AND CAPITAL RESOURCES. " https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 23/79 MEC023633 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt Opportunities, Challenges and Risks Looking forward, our management has identified certain challenges and risks that demand the attention of the beverage industry and our company. Increase in consumer and regulatory awareness of the health problems arising from obesity and inactive lifestyles represents a challenge. We recognize that obesity is a complex and serious public health problem. Our commitment to consumers begins with our broad product line and a wide selection of diet, light and lo-carb beverages, juices and juice drinks, sports drinks and waters and energy drinks. We continuously strive to meet changing consumer needs through beverage innovation, choice and variety. Our historical success is attributable, in part, to our introduction of different and innovative beverages. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages, although there can be no assurance of our ability to do so. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of quality, health, method of distribution, brand image and intellectual property protection. The beverage industry is subject to changing consumer preferences and shifts in consumer preferences may adversely affect companies that misjudge such preferences. In addition, other key challenges and risks that could impact our company's future financial results include, but are not l imited to: * maintenance of our brand images and product quality; * profitable expansion and growth of our family of brands in the competitive market place (See also Item 1 "BUSINESS - COMPETITION and "SALES AND MARKETING"); * restrictions on imports and sources of supply; duties or tariffs; changes in government regulations; 21 * protection of our existing intellectual property portfolio of trademark licenses and trademarks and the continuous pursuit of new and innovative trademarks for our expanding product lines; and * limitations on available quantities of sucralose, a non-caloric sweetener that is used in many of our beverage products, during 2005, due to demand for such sweetener exceeding the supplier's production capacity * the imposition of additional restrictions. We believe that the following opportunities exist for us: * growth potential for non-alcoholic beverage categories including energy drinks, carbonated soft drinks, juices and juice drinks, sports drinks and water; * new product introductions intended to contribute to higher gross profits; * premium packages intended to generate strong revenue growth; * significant package, pricing and channel opportunities to maximize https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 24179 MEC023634 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt profitable growth; and * proper positioning to capture industry growth . 22 Results of Operations Percentage Change 2004 2003 2002 04 vs . 03 03 vs . 02 Gross sales $226,984,231 $138, 454,345 $115,490,019 63.9% 19.9% Less: Discounts, allowances and promotional payments 46,643,096 28, 102,149 23,443,657 66.0% 19.9% Net sales 180,341,135 110,352,196 92,046,362 63.4% 19.9% Cost of sal es 96,874,750 66,577,168 58,802,669 45.5% 13.2% Gross profit 83,466,385 43,775,028 33,243,693 90.7% 31. 7% Gross profi t margin 46.3% 39 . 7% 36 . 1% Selling, general and 49,507,137 33 , 887,045 27,896, 202 46.1% 21. 5% administrative expenses Amortization of trademark license and trademarks 73,046 61,888 54, 558 18.0% 13.4% Operating income 33,886,202 9,826,095 5,292,933 244.9% 85.6% Operating income as a percent of net sales 18.8% 8.9% 5.8% Net nonoperating (income) expense (51,995) 67,013 227, 758 (177.6%) (70.6%) Income before provision for income taxes 33,938,197 9,759,082 5,065,175 247.8% 92 . 7% Provision for income taxes 13,551,393 3, 828,678 https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 25/79 MEC023635 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt 2,035,980 253.9% 88. 1% Effective tax rate 39.9% 39 . 2% 40 . 2% Net income $ 20,386,804 $ 5,930,404 $ 3,029,195 243.8% 95.8% Net income as a percent of net sales 11.3% 5.4% 3.3% Net income per commo n share: Basic $ 1.91 $ 0 . 58 $ 0.30 229.3% 93.3% Diluted $ 1. 73 $ 0.55 $ 0. 29 214. 5% 89.7% Results of Operations for the Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003 Gross Sales. For the year ended December 31, 2004, gross sal es were $227.0 million, an increase of $88.5 million or 63.9% higher than gross sales of $138.5 million for the year ended December 31, 2003. The increase in gross sales is primarily attributable to increased sales of certain of our existing products and the introduction of new products as di scussed below in "Net Sal es ." Net Sales. For the year ended December 31, 2004, net sales were $180.3 mil lion, an increase of $70.0 million or 63 . 4% higher t han net sales of $110.4 million for the year ended December 31, 2003. We again achieved record sales in 2004. The increase i n gross and net sales in 2004 was primarily attributable to increased sales by volume of our Monster Energy(r) drink, which was int roduced in April 2002, including our low carbohydrate (''lo- carb") Monster Energy(r) drink which was introduced in 2003 and sales by volume of Lost(r) energy drinks which were introduced at the beginning of 2004, as well as increased sales by vol ume of appl e j uice and apple grape juice, private label beverages and our Energade(r) energy sports drinks. Additionally, the increase in gross and net sales was attributable to the increased sales prices and reduced allowances of smoothies in cans and natural sodas . The increase in gross and net sales was partially offset by decreased sales by vol ume pri marily of Hansens energy dri nks in 8.3- ounce cans, children's multi-vitamin juice drinks, and teas, lemonades and cocktails. 23 Gross Profit. Gross profit was $83.5 mill ion for the year ended December 31, 2004, an increase of $39.7 million or 90.7% over the $43.8 million gross profit for the year ended December 31, 2003. Gross profit as a percentage of net sales was 46.3% for the year ended December 31, 2004 which was higher than gross profit as a percentage of net sales of 39 . 7 % for the year ended December 31 , 2003, due primarily to higher gross profit margins achieved on the increased sales of Monster Energy(r) and Lost(r) energy drinks. Although a greater percentage of our sales comprised products havi ng higher gross margins than t he prior year, the increase in profit margins was parti ally reduced by higher promotional payments and allowances to promote our products. https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 26/79 MEC023636 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt Total Operating Expenses. Total operati ng expenses were $49.6 mi lli on for the year ended December 31, 2004, an increase of $15.6 million or 46 . 0% over total operating expenses of $33 . 9 million for the year ended December 31, 2003. Total operating expenses as a percentage of net sales decreased slightly to 27.5% for the year ended December 31, 2004, from 30.8% for the year ended December 31, 2003. The increase in tot al operating expenses was primarily attributabl e to increased selling, general and administrative expenses. The decrease in total operating expenses as a percentage of net sales was primarily attributable to the comparatively lower increase in selling, general and administrative expenses than the increase in net sales. Selling, General and Administrative. Selling, general and administrative expenses were $49 . 5 million for the year ended December 31, 2004, an increase of $15.6 mil lion or 46.1% over sell ing, general and administrative expenses of $33. 9 mill ion for t he year ended December 31 , 2003 . Sel ling, general and administrative expenses as a percentage of net sales decreased to 27 . 5% for t he year ended December 31, 2004 from 30.7% f or the year ended December 31, 2003. Sel ling expenses were $29.2 mil lion for the year ended December 31, 2004, an increase of $9.1 million or 45 . 5% over selling expenses of $20.1 million for t he year ended December 31, 2003. Selling expenses as a percentage of net sales decreased to 16.2% for the year ended December 31, 2004 from 18.2% for the year ended December 31, 2003. The i ncrease in selling expenses was primarily attributable to increased distribution (freight) and storage expenses which increased by $4.1 million, increased expenditures for trade development activities and cooperative arrangements with our customers and distributors, and royalti es whi ch i ncreased by $2.4 mil l i on, and increased expenditures for merchandise displays, point-of- sale materials, and premiums, which increased by $2.0 million. General and administrative expenses were $20.3 million for the year ended December 31, 2004, an increase of $6.5 million or 47.0% over general and admini strati ve expenses of $13.8 mi lli on for t he year ended December 31, 2003 . General and administrative expenses as a percentage of net sales decreased to 11.2% for the year ended December 31, 2004 from 12.5% for the year ended December 31, 2003 . The increase in general and administrat ive expenses was primarily attributable to payroll expenses which increased by $3.3 million, professional services, consisting of legal, consulting and accounting services pri marily related to the i mpl ementation and testing required by the Sarbanes-Oxley Act of 2002, and legal services related to protecting trademarks which increased by $1.5 million, and travel and entertainment expenses which increased by $622,000. Amortization of Trademark License and Trademarks. Amortization of trademark license and trademarks was $73,000 for the year ended December 31, 2004, an increase of $11,000 over amort ization of trademark license and trademarks of $62,000 for the year ended December 31, 2003. The increase in amortizat ion of trademark license and trademarks was due to the acquisition of trademarks during the year ended December 31, 2004. Operating Income. Operati ng income was $33.9 million for the year ended December 31, 2004, compared to $9.8 million for the year ended December 31, 2003. The $24.1 million increase in operating income was primaril y attributable to increased gross profits, which was partially offset by increased operating expenses. 24 Net Nonoperating Income/Expense. Net nonoperating income was $52,000 for the year ended December 31, 2004, as compared to net nonoperating expense of $67,000 for the year ended December 31, 2003. Net nonoperating income/expense consists of interest income and interest and financing expense. Interest and financing expense for the year ended December 31, 2004 was $42,000 as compared https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 27/79 MEC023637 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/1512016 https://www.sec.gov/Archives/edgarldata/865752/000086575205000008/k123104.txt to $73,000 for the year ended December 31, 2003. The decrease in interest and financing expense was primarily attributable to the decrease in outstanding loan balances and lower interest rates. Interest income for the year ended December 31, 2004 was $94,000, as compared to interest income of $6,000 for the year ended December 31, 2003. The increase in interest income was primarily attributable to an increase in the cash investment in interest bearing accounts during the year ended December 31, 2004. Provision for Income Taxes. Provision for income taxes for the year ended December 31, 2004 1~as $13. 6 million which was an increase of $9. 7 million as compared to the provision for income taxes of $3.8 million for the year ended December 31, 2003. The increase in provision for income taxes was primarily attributable to the increase in operating income. The effective combined federal and state tax rate for 2004 was 39.9%, which was higher than the effective tax rate of 39 . 2% for 2003 due to the increase in the statutory federal income tax rate applicable to the Company's pre-tax income. Net Income. Net income was $20.4 million for the year ended December 31, 2004, which was an increase of $14.5 million as compared to net income of $5.9 million for the year ended December 31, 2003. The increase in net income was primarily attributable to the $39.7 million increase in gross profit and decrease in nonoperating expense and increase in nonoperating income of $119,000 for the year ended December 31, 2004 which was partially offset by increased operating expenses of $15.6 million and an increase in the provision for income taxes of $9.7 million. Results of Operations for the Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002 Gross Sales. For the year ended December 31, 2003, gross sales were $138.5 million, an increase of $23.0 million or 19.9% higher than gross sales of $115.5 million for the year ended December 31, 2002. The increase in gross sales is primarily attributable to the introduction of new products and increased sales of certain of our existing products as discussed below in "Net Sales." Net Sales. For the year ended December 31, 2003, net sales were $110.4 million, an increase of $18.3 million or 19.9% higher than net sales of $92.0 million for the year ended December 31, 2002. The increase in net sales was primarily attributable to sales of our Monster EnergyTM drink, which was introduced in April 2002, as well as increased sales of Natural Sodas, Junior Juice and, to a lesser extent, sparkling beverages. The increase in net sales was partially offset by decreased sales of functional drinks, smoothies, E2O Energy Water, Energade(r) energy sports drinks, and children's multi-vitamin juice drinks as well as an increase in discounts, allowances and promotional payments. Gross Profit. Gross profit was $43.8 mill ion for the year ended December 31, 2003, an increase of $10.5 million or 31.7% over the $33.2 million gross profit for the year ended December 31, 2002. Gross profit as a percentage of net sales was 39.7% for the year ended December 31, 2003 which was slightly higher than gross profit as a percentage of net sales of 36.1% for the year ended December 31, 2002. The increase in gross profit was primarily attributable to increased net sales. Although a greater percentage of our sales comprised products having higher gross margins than the prior year, the increase in profit margins was partially reduced by higher promotional payments and allowances to promote our products. Total Operating Expenses. Total operating expenses were $33.9 million for the year ended December 31, 2003, an increase of $6.0 million or 21.5% over total operating expenses of $28.0 million for the year ended December 31, 2002. Total operating expenses as a percentage of net sales slightly increased to https:/lwww.sec.gov/Archivesledgarldata/865752/000086575205000008/k123104.txt 2Br19 MEC023638 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/15/2016 https://www.sec.gov//J.lchives/edgar/data/865752/000086575206000099/k123005b.txt Form 10-K (Mark One) ( X) ANNUAL REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-18761 HANSEN NATURAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 39-1679918 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1010 Railroad Street, Corona, California 92882 (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code: (951) 739 - 6200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Not Applicable Not Applicable Securities registered pursuant to Section 12(g) of the Act: Title of class Common Stock, $0.005 par value per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes[X) No[ ]. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes[ ] No(X ]. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the https:/lwww .sec.govl/lJ'chivesledgar/ data/865752/000086575206000099lk123005b.bcl 1/102 MEC023690 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/15/2016 https://www.sec.gov//J.lchives/edgar/data/865752/000086575206000099/k123005b.txt registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X) No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K . [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. Large accelerated filer [ X] Accelerated filer [ ] Non- accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.) Yes [ ] No [X] The aggregate market value of the common equity held by nonaffiliates of the registrant was $717,931,877 computed by reference to the closing sale price for such stock on the NASDAQ Capital Market on June 30, 2005, the last business day of the registrant's most recently completed second fiscal quarter. The number of shares of the registrant's common stock, $0.005 par value per share (being the only class of common stock of the registrant), outstanding on February 10, 2006 was 22,307,006 shares. 2 HANSEN NATURAL CORPORATION FORM 10-K TABLE OF CONTENTS Item Number Page Number PART I 1. Business 4 lA. Risk Factors 18 lB. Unresolved Staff Comments 23 2. Properties 23 3. Legal Proceedings 23 4. Submission of Matters to a Vote of Security Holders 24 PART II 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 6. Selected Financial Data 26 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 7A. Qualitative and Quantitative Disclosures about Market Risks 45 https:/lwww .sec.govl/lJ'chivesledgar/ data/865752/000086575206000099lk123005b.bcl 21102 MEC023691 ([KLELW3DJH RI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNV 77$%2SSRVLWLRQ1R 3DUHQW 0RQVWHU(QHUJ\&RPSDQ\Y0DSOH/HDI6SRUWV (QWHUWDLQPHQW/WGDQG1%$3URSHUWLHV,QF 3/15/2016 https://www.sec.gov//J.lchives/edgar/data/865752/000086575206000099/k123005b.txt 8. Financial Statements and Supplementary Data 45 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45 9A. Controls and Procedures 46 9B . Other Information 48 PART III 10. Directors and Executive Officers of the Registrant 49 11. Executive Compensation 52 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 58 13. Certain Relationships and Related Transactions 61 14. Principal Accountant Fees and Services 62 PART IV 15. Exhibits, Financial Statement Schedules 63 Signatures 64 3 PART I ITEM 1. BUSINESS Overview Hansen Natural Corporation was incorporated in Delaware on April 25, 1990. Its principal place of business is at 1010 Railroad Street, Corona, California 92882 and its telephone number is (951) 739-6200. When this report uses the words "Hansen", "HBC", "the Company", "we", "us", and "our", these words refer to Hansen Natural Corporati on and our subsidiaries other than Monst er LOA Company ("MLDA"), unless the context otherwise requires. We are a holding company and carry on no operating business except through our direct wholly owned subsidiaries, Hansen Beverage Company ("HBC") which was incorporated in Delaware on June 8, 1992, and MLDA, formerly known as Harde Beverage Company, and previously known as Hard Energy Company and as CVI Ventures, Inc., which was incorporated i n Delaware on April 30, 1990. HBC generates substantially all of our operating revenues. We develop, market, sell and distribute "alternative" beverage category natural sodas, fruit juices, energy drinks and energy sports drinks, fruit juice smoothies and, "functional drinks", sparkling lemonades and orangeades, non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, children's multi-vitamin juice drinks and non-carbonated lightly flavored energy waters under the Hansen's(R) brand name. We also develop, market, sell and distribute energy drinks under the Monster Energy(R), Lost(R) Energy, Rumba(TM) and Joker Mad Energy(TM) brand names. We also market, sell and distribute, nat ural sodas, premium natural sodas with supplements, organic natural sodas, seltzer waters and energy drinks under the Blue Sky(R) brand name. Our fruit juices for toddlers are marketed under the Junior Juice(R) brand name. We also market, sell and distribute vitamin and mineral drink mixes in powdered form under the Fizzit(TM) brand name. The Company has two reportable segments, namely Direct Store Delivery ("DSD"), whose principal products comprise energy drinks, and Warehouse, whose principal products comprise juice based and soda beverages. The DSD segment https:/lwww .sec.govl/lJ'chivesledgar/data/865752/000086575206000099lk 123005b.bcl 3/102 MEC023692 ([KLELW3DJHRI 7HVWLPRQ\'HFODUDWLRQRI5RGQH\6DFNVt."'-~I dNg .Mxl n~ 11w..wh.ulil.li..~ Uli.lkb UlCl~)JcO( SUI!. '- CH.l.MGf V, Nil~l'lt f foC' $7l mdUoo. 8-RAJtD 11" $Wllll0HSI usr fiAA SHAii£ dul'lfl8, the r,WI )\."'~ n.~.'ltiwlt 5M.6 nul• 0.SJ,'t'C\.~ltl Arl1.4n.\ t,.,i~ pl(W tl,on. ~ oo.'ffol.ll<1'k''5Y 1hW.1.;.Mt.'gi.My C«:.l·CoU" IR.odauc1 $688 40..c-. 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