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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIESEXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________________ to ____________________
Commission file number 0-15712
HERBALIFE INTERNATIONAL, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 22-2695420
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1800 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067
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(Address of principal executive offices) (Zip Code)
(310) 410-9600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 Par Value
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
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. X
-----
Based upon the closing price of its Common Stock at February 29, 1996 of
$12 per share, the aggregate market value of Registrant's outstanding
Common Stock held by non-affiliates was approximately $174,860,940.
(Determination of stock ownership by non-affiliates was made solely for the
purpose of responding to the requirements of this Form and the Registrant
is not bound by this determination for any other purpose.)
APPLICABLE ONLY TO REISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
----- -----
The number of outstanding shares of the registrant's Common Stock, as of
February 29, 1996 was 29,887,864.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after the close of the Registrant's
fiscal year ended December 31, 1995, are incorporated by reference in Part
III of this Form.
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ITEM 1. BUSINESS
BACKGROUND AND CORPORATE ORGANIZATION
GENERAL
Herbalife International, Inc. (the "Company") markets weight control
products, food and dietary supplements and a new line of personal care
products worldwide through a network marketing system. Herbalife uses
network marketing as a way to describe its marketing and sales programs as
opposed to multi-level marketing because multi-level marketing has had a
negative connotation in certain countries in which Herbalife does business.
The Company emphasizes the herbs and other natural ingredients in its 62
products in order to appeal to consumer demand for products including such
ingredients. The Company currently conducts business in 32 countries located
in The Americas, Europe and Asia/Pacific Rim. Retail sales derived from The
Americas, Europe and Asia/Pacific Rim represented 44.0%, 40.5% and 15.5%,
respectively, of the Company's total retail sales for the year ended December
31, 1995.
The Company's products are marketed exclusively through a network marketing
system in which independent distributors purchase products for resale to
retail consumers and other distributors. Management believes that its
network marketing system is ideally suited to marketing its products, which
emphasize "lifestyle", because sales of such products are strengthened by
ongoing personal contact between retail consumers and distributors, many of
whom use the Company's products themselves. The Company's network marketing
system appeals to a broad cross-section of people worldwide, particularly
those looking to supplement family income or who are unable or choose not to
devote full-time to more conventional employment.
HISTORY AND ORGANIZATION
The Company began operations in February 1980 as a California limited
partnership and operated in that form through December 1985, with the
exception of an interim period from October 1981 through August 1983 when the
business was operated through a California corporation. In January 1986, the
Company's business was transferred from the California limited partnership to
its corporate general partner, Herbalife International of America, Inc.
("Herbalife of America"). In November 1986, Herbalife of America was
acquired in a stock-for-stock reorganization by Sage Court Ventures, Inc.
("Sage Court"). As a result of the acquisition, Herbalife of America became
a wholly-owned subsidiary of Sage Court and the former stockholders of
Herbalife of America acquired a controlling interest in Sage Court. Sage
Court's name was formally changed to Herbalife International, Inc. in
December 1986.
In October 1993, the Company and certain selling stockholders sold a total of
6,047,000 shares of Common Stock in a Public Offering (the "1993 Offering").
The Company issued and sold 2,647,000 shares as part of this transaction.
Herbalife International, Inc. operates through 37 wholly-owned domestic and
foreign subsidiaries. Except as the context otherwise requires, references
to the "Company" include Herbalife International, Inc. and its operating
subsidiaries.
EXECUTIVE OFFICES
The Company's executive offices are located at 1800 Century Park East, Los
Angeles, California 90067. The Company's telephone number is (310) 410-9600.
BUSINESS STRATEGY
The Company's business strategy consists of three principal elements: (1)
expansion into new markets, (2) continued growth in existing markets, and (3)
management initiatives designed to support future growth and increase
operating efficiencies.
EXPANSION INTO NEW MARKETS
The opening of new markets is an important part of the Company's business
strategy. Since the beginning of 1989, the Company has commenced operations
in 27 countries, which in 1995 accounted for 57.3% of the Company's total
retail sales. From the beginning of 1992 to date, the Company entered 21
countries, and these markets, while certain of them are still in the early
stages of their development, are already contributing significantly to retail
sales and net income. The Company currently plans to enter between three to
five new countries in 1996.
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An important factor in the success of the Company's recent market openings
has been its international sponsorship program. This program permits
distributors in any country to sponsor distributors in other countries and
earn royalties and bonuses on sales by those distributors. International
sponsorship provides distributors with an incentive to build distributor
organizations in each of the Company's new markets. The Company has
permitted international sponsorship since the commencement of operations in
its first international market in 1982. In deciding which countries to enter
and the timing of entry, the Company considers, among other things, the
contacts its distributors may have in potential new markets. Through its
experience in starting operations in new countries, the Company's approach
generally is to introduce as many of its four principal weight control and
nutritional products as possible upon commencing operations in a new market
and thereafter to introduce additional products over time.
GROWTH IN EXISTING MARKETS
The Company attempts to expand its business in each of its markets by
introducing additional products, attracting new distributors and further
motivating existing distributors. The continued introduction of products is
designed to generate additional revenue, encourage growth in the number of
distributors and serve as an important promotional tool to assist
distributors in selling products and recruiting new distributors.
In May 1992 a new product, Thermojetics-Registered Trademark-, was introduced
in the United States. This weight control system, which includes herbal
tablets, has resulted in an expansion of the Company's United States
business by generating significant sales itself, stimulating sales of the
Company's other products and contributing to an increase in the number of
active distributors. These initial Thermojetics-Registered Trademark-
products were marketed during 1992 and 1993 in the United States, Canada and
Mexico only, and helped U.S. retail sales increase almost six-fold in 1993
versus 1991 levels. In 1994, the second major product in the
Thermojetics-Registered Trademark- family was introduced,
Thermojetics-Registered Trademark- Instant Herbal Beverage, in a total of 18
countries. The Thermojetics-Registered Trademark- Instant Herbal Beverage
introduction assisted in the increase in worldwide Thermojetics-Registered
Trademark- products retail sales to $165.1 million, which represented 17.9%
of total worldwide retail sales during 1995. Thermojetics-Registered
Trademark- products represented 35.0%, 33.4% and 27.8% of total retail sales
in the U.S. market in 1993, 1994 and 1995, respectively.
In May 1994, Herbalife began the development of a new product line, Personal
Care. The Personal Care line is designed to complement Herbalife's
traditional weight control and food and dietary products, by emphasizing
personal lifestyle and health awareness. Significant development efforts in
1994 culminated in the January 1995 launch of The Skin Survival Kit, the
first line of Personal Care products. Further personal care products were
launched in 1995: the fragrances, Parfums Vitessence-TM- in April, and the
facial products, Nature's Mirror-TM-in October. All personal care products
developed by Herbalife are grouped under the name of Dermajetics-Registered
Trademark-. The Company plans to emphasize the development of additional new
products to supplement its existing product line.
EXPANSION INTO CATALOG SALES
In March 1994, the Company expanded into catalog sales with the "Art of
Promotion" catalog. Management believes that this strategic move is
compatible with the existing network marketing system. This initiative
involves marketing products that supplement existing product lines, and that
can be used as tools to enable distributors to grow their businesses.
Distributors are motivated to participate by earning commissions. Management
believes that the diversification of the Company's product line and marketing
systems resulting from the establishment of the catalog sales business should
benefit the Company by providing, among other things, valuable marketing
information regarding the retail consumers of existing products.
PRODUCT DEVELOPMENT
The Company's products include weight control products and food and dietary
supplements. In addition, supplementing its existing operations, in 1995 the
Company expanded its business into personal care products. The Company
currently markets 62 products, exclusive of variations in product flavors,
reformulations of products to satisfy regulatory requirements or similar
variations of the Company's basic product line.
A majority of the Company's sales are derived from its four principal weight
control products, which consist of Formula #1, a protein powder in five
different flavors designed as a meal replacement, and Formulas #2, #3 and #4,
all tablets that contain herbs, vitamins and minerals designed to assist in
weight control and satisfy certain nutritional requirements, and from
Thermojetics-Registered Trademark-, a weight control system that includes
herbal tablets and a beverage. The Company's other food and dietary
supplements include a variety of products, each containing herbs, vitamins,
minerals and other natural ingredients. Such
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products are sold under various names, including Cell-U-Loss-Registered
Trademark-, Activated Fiber, N.R.G. (Nature's Raw Guarana), Herbal-Aloe,
Florafiber, Xtra-Cal, Herbalifeline-Registered Trademark-, and Schizandra
Plus-Registered Trademark-.
In 1995, the company entered a new category of products - the
Dermajetics-Registered Trademark- personal care line. Three initial phases
of the new line of personal care products were introduced: Skin Survival Kit
in January 1995, Parfums Vitessence-TM- in April, 1995, and Nature's
Mirror-TM- in October, 1995. The Skin Survival Kit consists of four skin care
products packaged in a vinyl cosmetic bag: a day moisturizer, a night
moisturizer, a mask and an eye gel. Parfums Vitessence-TM- consist of six eau
d'toilettes, three for men and three for women. The Nature's Mirror-TM-
facial products consist of nine products: cleanser, toner and moisturizer for
three skin types.
In September 1995, six Dermajetics-Registered Trademark- skin care products
were launched specifically for the Japanese market. These products, which
are a combination of the Skin Survival Kit products and Nature's Mirror-TM-,
are manufactured in Japan and have been reformulated and re-packaged for the
Japanese market.
In January 1996, eight new products for nutrition and weight management were
launched as a part of a newly developed Health & Fitness Program and Bulk &
Muscle Program. The two programs consist of a protein powder
Multivitamin-Mineral, Herbal Tablet and a Cell Activator. Initially, the
products have been introduced into the United States. The Company also
introduced an A.M. Replenishing and a P.M. Cleansing formula as part of a
21-Day herbal cleaning program.
Weight control products (including Thermojetics-Registered Trademark-), food
and dietary supplements and personal care and all other products accounted
for approximately 71%, 16% and 12% of total retail sales, respectively, for
1995, and approximately 77%, 17% and 4% of total retail sales, respectively,
for 1994. In addition, the Company's educational and promotional materials
accounted for approximately 1% and 2% of total retail sales in 1995 and 1994,
respectively.
The Thermojetics-Registered Trademark- weight control system includes herbal
tablets designed to aid in weight control in conjunction with the Herbalife
Cellular Nutrition-Registered Trademark- Health and Weight Management System,
the Thermojetics-Registered Trademark- Energy Guide or alternative weight
control programs. The introduction of Thermojetics-Registered Trademark-
into the United States has contributed significantly to the increase in
United States sales. Following the introduction of Thermojetics-Registered
Trademark- into the United States in May 1992, the product was introduced
into Mexico and Canada. In 1994 Thermojetics-Registered Trademark- Instant
Herbal Beverage was initially introduced in 18 countries, but in 1995 it was
sold in 28 countries. Worldwide retail sales of the Thermojetics-Registered
Trademark- family of products represented 17.9% of total retail sales in 1995.
An important ingredient in one of the tablets included in the
Thermojetics-Registered Trademark- system is a Chinese herb known as "Ma
Huang," which contains naturally-occurring ephedrine in small quantities and
which has been the subject of adverse publicity in the United States. As
with the Company's other food and dietary supplements, the Company makes no
therapeutic claims with respect to Thermojetics-Registered Trademark- or any
of its ingredients, including Ma Huang. Accordingly, prior to initiating
sales of the product in the United States, the Company did not, and believes
it was not required to, obtain prior regulatory approval from the FDA or
other regulatory agencies. While the Company was likewise not required to
obtain prior approval in Canada, following the introduction of
Thermojetics-Registered Trademark- in that country in February 1993, the
Company received informal notice from a local regulatory authority that the
Canadian Department of Health and Welfare was investigating the existence of
ephedrine in food products. As a result, the Company suspended shipment of
Thermojetics-Registered Trademark- into Canada in March 1993. The Company
then reformulated the product to reduce its ephedrine level and upon
obtaining notice that the reformulated product was acceptable to Canadian
authorities, renewed sales of Thermojetics-Registered Trademark- in June
1993. In February 1994, Canadian authorities again suspended sales of
products containing ephedrine. This suspension is indefinite and may be
permanent. As a result, the Company has responded by selling in Canada only
the Thermojetics-Registered Trademark- tablets that do not contain Ma Huang
and otherwise comply with the new directions. There is a risk that Ma Huang
may be subject to regulation in the United States in the future, as a result
of FDA action or otherwise. The Company believes that the product could be
reformulated, if necessary, with reduced ephedrine levels or with an
acceptable substitute for Ma Huang, although there can be no assurance in
this regard. In the event that a food product containing Ma Huang was found
to be unacceptable for sale in additional markets in which
Thermojetics-Registered Trademark- is currently sold and the Company was
unable to effectively reformulate the product in those markets, there could
be an adverse effect on the Company.
In April, 1995, in anticipation of upcoming FDA actions regarding Ma Huang,
the Company decided to temporarily stop sales of Thermojetics-Registered
Trademark-Green tablets in the United States. At that time the Company
introduced its reformulated tablets that did not include Ma Huang. In the
fourth quarter of 1995, the Company reintroduced the Thermojetics-Registered
Trademark- Green tablets (containing Ma Huang), as no regulation had been
enacted concerning Ma Huang.
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During the third quarter of 1995, the Company received inquiries from
certain governmental agencies within Germany and Portugal relating to the
Company's product, Thermojetics-Registered Trademark- Instant Herbal
Beverage. Pending resolution of these inquiries, the sale of this product in
these countries was suspended. The Company is engaged in ongoing
consultation with the appropriate authorities, and the resumption of sales of
this product is dependent upon the satisfactory outcome of these
consultations.
The Company expands its product line through the development of new products.
New product ideas are derived from a number of sources, including trade
publications, scientific and health journals, the Company's executives and
consultants and outside parties. When introducing products into its markets,
local counsel and other representatives retained by the Company investigate
product formulation matters as they relate to regulatory compliance and other
issues. To the extent possible, the Company's products are then reformulated
to suit both the regulatory and marketing requirements of the particular
market.
All of the Company's nutritional products are manufactured by outside
companies. Raven Industries Inc. ("Raven") manufactures the Company's powder
products, and D&F Industries, Inc. ("D&F") manufactures substantially all of
the Company's tablet and capsule products. The Company does not maintain its
own product research, development and formulation staff and relies on Raven
and D&F for such services. When the Company, one of its consultants or
another party (including, in many instances, Raven or D&F) identifies a new
product concept or when an existing product must be reformulated for
introduction into a new or existing market, the new product concept or
reformulation project is generally submitted to D&F or Raven for
technological development and implementation. The Company does not own the
proprietary rights to its weight management products and its food and dietary
supplements. However, the developer and supplier of all these products has
granted the Company the exclusive right to market any product which the
Company purchases from the suppliers thereby granting the Company the
practical equivalent of ownership of the formulations of these products
during the term of the supply agreements. The Company has obtained or has
applications pending for trademark registration of certain of its tradenames
in certain jurisdictions. However, there can be no assurance that another
company will not replicate one of the Company's products. In addition, Raven
and D&F own certain product formulations and manufacturing processes relating
to the Company's products.
The Company's business relationship with Raven and D&F represents an
important source of income to these manufacturers, as sales to the Company
comprise a substantial portion of the total sales of Raven and D&F. In
addition, in May 1993, the Company entered into requirements contracts with
Raven, D&F and Dynamic Products, Inc. ("Dynamic," the licensor of one of the
Company's tablet products), that extend to January 1998. Pursuant to these
contracts, each manufacturer has agreed, among other things, not to sell the
products sold to the Company to third parties, and the Company has agreed to
purchase all of its requirements for powder products from Raven and all of
its requirements for tablet, capsule, liquid, cream and lotion products from
D&F or Dynamic, to the extent each such manufacturer is capable or becomes
capable of manufacturing such products. The manufacturers have waived that
requirement as it relates to the Skin Survival Kit, Parfums Vitessence-TM-
and Nature's Mirror-TM-. The contracts also provide Raven, D&F and Dynamic a
right of first refusal to establish any manufacturing facility outside of
North America that the Company proposes to develop or acquire, and the right
to receive certain royalty payments in the event that such a manufacturing
facility were contracted or acquired and the right of first refusal was not
exercised.
Two individuals (not affiliates of the Company) are principal stockholders of
each of Raven, D&F, and Dynamic. Mark Hughes, the Company's principal
stockholder, Chairman of the Board, Chief Executive Officer and President,
owns a one-third ownership interest in Raven and a one-fifth ownership
interest in Dynamic. Dr. David Katzin, an officer of the Company and member
of the Company's Scientific Advisory Board, owns a 5% minority interest in
Dynamic.
Although the Company believes that its relationships with its outside
manufacturers are good as a result of the foregoing factors, the Company's
business could be adversely affected if its relationship with Raven or D&F
were impaired, and there can be no assurance that Raven and D&F will continue
to provide the product research, development and formulation services that
they have in the past. However, the Company interacts regularly and
extensively with (1) outside third party suppliers regarding new product
introduction ideas, (2) the distributors regarding their receptivity to
proposed product introductions and (3) the manufacturers and suppliers of
new products regarding design, formulation and other specifications for new
product introduction.
The Company owns all the formulas, processes and trade secrets with respect
to the Personal Care Line. This information with respect to these products
is made available to outside manufacturers on a strictly confidential basis
and for the limited purpose of manufacturing these products for the Company.
The Skin Survival Kit products are currently being
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manufactured by BCM Cosmetiques S.A., formerly Croda Cosmetique France S.A.
The Parfums Vitessence-TM- products are manufactured by Laboratoires Selecta
S.A. and Abodino S.A. in France. Nature's Mirror-TM- products are
manufactured by Thibiant International Inc. in the U.S.A. The Company
provides specifications to the manufacturers. The European manufacturers are
supplied components by Herbalife at no charge, then procure the raw
materials, compound the products, and fill the supplied components. The U.S.
manufacturer procures the raw materials and the components, compounds the
product and fills the components. The Company's arrangement with the
manufacturers can be terminated by either party upon the completion of any
outstanding purchase orders.
DISTRIBUTION AND MARKETING
The Company's products are distributed exclusively through a network
marketing system consisting of an extensive network of distributors.
Herbalife uses network marketing as a way to describe its marketing and sales
programs as opposed to multi-level marketing because multi-level marketing
has had a negative connotation in certain countries in which Herbalife does
business. Distributors are generally independent contractors who purchase
products directly from the Company or from other distributors for resale to
retail consumers and other distributors. Distributors may elect to work on a
full-time or part-time basis. The Company believes that its network marketing
system appeals to a broad cross-section of people worldwide, particularly
those looking to supplement family income or who are unable or choose not to
devote full-time to more conventional employment, and that a majority of its
distributors therefore, work on a part-time basis. The Company believes that
its network marketing system is ideally suited to marketing weight control
and personal care products because sales of such products are strengthened by
ongoing personal contact between retail consumers and distributors, many of
whom use the Company's products themselves. The Company encourages its
distributors to use the Company's products and to communicate the results of
their use of such products to their retail customers.
Distributors' earnings are derived from several sources. First, distributors
may earn profits by purchasing the Company's products at wholesale prices
(which are discounted 25% to 50% from suggested retail prices depending on
the distributor's level within the Company's distributor network) and selling
the Company's products to retail customers at retail prices. Second,
distributors may earn profits by selling products to other distributors who
do not qualify for the same level of discount as the selling distributor.
Third, distributors who sponsor other distributors and establish their own
distributor organizations may earn royalties of 5% to 15% and production
bonuses of up to 6% on sales generated by distributors within their
organizations. Distributors earn the right to receive royalties and
production bonuses upon attaining the level of supervisor and above.
Distributors may earn royalties on sales generated by distributors within
their organization and production bonuses on sales generated by any
distributor within their organization who is at a lower level within the
Company's distributor network. The Company believes that the right of
distributors to earn royalties and production bonuses contributes
significantly to the Company's ability to retain its productive distributors.
To become a distributor, a person must be sponsored by an existing
distributor and must purchase a distributor kit from the Company. A
distributor kit currently sells for an average of $80 and provides a sampling
of the Company's products plus aids, brochures, order forms, cassette
recordings and informational videotapes. Sales of distributor kits
(including the samples of the Company's products contained therein) and other
educational promotional materials accounted for 4.5% and 5.0% of the
Company's total retail sales for 1994 and 1995, respectively.
To become a supervisor or qualify for a higher level, distributors must
purchase a certain amount of the Company's products or earn certain amounts
of royalties during specified time periods and must re-qualify for such
levels once each year. Supervisors may then attain higher levels by earning
increasing amounts of royalties based on purchases by distributors within
their organizations. Supervisors contribute significantly to the Company's
sales and certain key supervisors who have attained the highest levels within
the Company's distributor network are responsible for generating a
substantial portion of the Company's sales and for recruiting a substantial
number of the Company's distributors. The following table sets forth the
approximate number of the Company's supervisors at the dates indicated:
At February 28, *
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1992 1993 1994 1995 1996
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Approximate Number of 18,000 41,000 75,000 85,000 99,000
Supervisors
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*The Company determines the number of supervisors as of the end of February
each year following the conclusion of the first supervisor qualification
period of the year and deletes supervisors who fail to meet the supervisor
qualifications at that time. The Company relies on distributors'
certifications as to the amount and source of their product purchases from
other distributors. Although the Company applies certain review procedures
with respect to such certifications, they are not directly verifiable by the
Company.
The Company seeks to expand its distributor base in each market by offering
distributors attractive compensation opportunities. The Company believes its
unique international sponsorship program provides a significant advantage to
its
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distributors as compared with distributors in other network marketing
organizations because the program permits distributors in any country to
sponsor distributors in other countries (where the Company is licensed to do
business and where the Company has obtained required product approvals) and
to earn the same level of royalties and bonuses on sales by those
distributors as if both distributors resided in the same country.
In addition, in 1992 and 1993 the Company introduced two new compensation and
incentive programs designed to motivate distributors at both the most senior
and junior levels within the Company's distributor network. For the
Company's most senior distributors, the President's Team ("PT"), the Company
created the President's Council and President's Bonus. As of February 1996,
there were approximately 250 members. The President's Council, comprising
the most successful PT members, works closely with Mark Hughes to develop and
implement new initiatives and strategies for increasing sales and distributor
productivity throughout the Company's entire distributor organization.
Qualifying PT members have the opportunity to participate in the President's
Bonus which in 1995 consisted of a total available awards package of
three-quarter of one percent of the Company's total product retail sales.
The President's Bonus provides a direct incentive for the Company's most
productive distributors. The distribution of the President's Bonus is
determined by Mark Hughes.
For the Company's most junior distributors, those who have not yet attained
supervisor status, the Company instituted a "Success Builder" program. This
program establishes three levels of distributors below the supervisor level.
By reaching specified retail sales levels during certain time periods,
distributors become eligible to receive additional product discounts,
training tapes, manuals and other productivity awards. The Success Builder
program is designed to provide incentives to distributors who are in the
initial stages of building distributor organizations and to encourage them to
reach supervisor status.
The Company is constantly developing new programs and technologies to help
facilitate distributor recruitment, and to provide distributors with the
skills and tools to build their businesses. In March 1992, the Company
introduced its "International Success Training System" ("ISTS") in the United
States, Mexico, Canada, Australia and New Zealand. The ISTS supplements the
Company's current training and education programs. It consists of a series
of informational training messages, some live and some recorded, that are
available through telephone conference calls. Among other things, it enables
potential distributors to learn about the Company and its products and
develop the skills necessary to build their own distributor organizations
through a convenient format that can generally be accessed from their own
home or office. In 1994, the Company tested several new technologies for
communicating with, educating and motivating distributors. The first
International Success Satellite Event (ISSE) was held in December 1994 in
approximately 60 cities worldwide, in 22 countries. The ISSE represents a new
cost-effective technique of disseminating information to large audiences of
distributors simultaneously. Live distributor meeting venues are relayed via
satellite to audiences worldwide. In 1995, the Company held five ISSE events
with an audience of over 60 cities in 30 Countries. Another technology was
launched in 1995 - The Herbalife Broadcast Network. This technology allows
the Company to reach a large number of distributors, initially in North
America and Europe, with over 10 hours of training and motivational
programming per week. Throughout the year the company held leadership
meetings in key cities in the Americas, Europe and Asia/Pacific Rim. The
meetings are designed to reward important sales achievements and to help
distributors successfully build, manage and train their organization.
In August 1995, members of the top levels of distributors qualified for
Worldwide Getaway Vacations. These vacations provide an opportunity for top
producing distributors to share techniques, successes, and business advice.
The Company maintains a computerized system for processing distributor orders
and calculating distributor royalties and bonus payments which enables it to
remit such payments promptly to distributors. The Company believes that
prompt remittance of royalties is vital to maintaining a motivated network of
distributors, and that its distributors' loyalty to the Company has been
enhanced by the Company's history of consistently making royalty and bonus
payments on a scheduled basis.
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GEOGRAPHIC AREAS OF OPERATIONS
The following chart sets forth the countries in which the Company currently
operates, the year operations were commenced in each country, and product and
retail sales information by country during the past five years.
<TABLE>
<CAPTION>
Year Number of
Products
Country Entered Offered at Total Retail Sales (in thousands)
------------------------------------------------
(1) (2) 12/31/95 1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C> <C> <C>
United States 1980 51 $42,008 $86,258 $246,984 $294,987 $333,595
Canada 1982 36 4,629 4,815 10,100 10,789 12,042
Mexico 1989 41 8,569 11,088 16,784 25,422 15,125
Dominican Republic (3) 1994 7 2,500 101
Venezuela 1994 4 1,527 11,152
Argentina 1994 16 19,061 10,006
Brazil 1995 6 24,183
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THE AMERICAS: $55,206 $102,161 $273,868 $354,286 $406,204
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
United Kingdom 1983 34 $6,365 $9,770 $24,930 $30,769 $15,296
Israel (4) 1989 18 1,410 3,831 30,359 73,278 30,133
Spain 1989 26 70,462 87,469 47,662 30,733 15,730
France 1990 21 28,040 96,773 97,306 46,968 13,129
Germany 1991 19 10,981 66,775 83,068 159,482 115,555
Italy 1992 20 903 77,842 72,009 56,687
Portugal 1992 24 4,075 13,328 11,073 8,934
Czech Republic 1992 7 9,938 10,005 24,423 15,112
Netherlands 1993 19 7,009 17,581 18,237
Belgium 1994 19 1,965 3,775
Poland 1994 11 792 6,238
Denmark 1994 20 2,377 11,263
Sweden 1994 20 1,799 17,845
Russia 1995 10 29,593
Switzerland 1995 12 4,911
Austria 1995 15 3,134
Norway 1995 13 367
Finland 1995 17 300
South Africa (5) 1995 6 7,707
-------- -------- -------- -------- --------
EUROPE: $117,258 $279,534 $391,509 $473,249 $373,946
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Australia 1982 36 $16,802 $20,419 $20,602 $29,155 $30,803
New Zealand 1988 36 1,710 2,695 2,497 3,206 2,535
Japan (6) 1989 21 686 18,759 81,730
Hong Kong 1992 18 283 3,853 5,323 10,783
Philippines 1994 7 80 13,219
Taiwan 1995 14 4,424
-------- -------- -------- -------- --------
ASIA/PACIFIC RIM: $18,512 $23,397 $27,638 $56,523 $143,494
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
- -------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
(1) The Company records sales data based on the country from which distributor
orders are shipped by the Company. Sales by distributors to other
distributors or retail consumers may occur in other countries, although
such sales generally violate geographic limitations imposed by the Company
on product sales.
(2) Throughout this annual report, "entering", "opening", "commencing
operations" or "doing business" in a market or country means that the
Company has obtained either regulatory approval of, or the favorable
opinion of local legal counsel with respect to, its network marketing
plan and has obtained all requisite regulatory approvals of at least one
product and has commenced sales and shipment of that product within the
market or country.
(3) Sales in the Dominican Republic are shipped from the United States.
(4) The Company initiated operations in Israel in 1989 through a licensing
arrangement that was terminated in 1990. In 1991, the Company began
operating in Israel through a wholly-owned subsidiary. Accordingly, sales
data for Israel are reported only for 1991 and subsequent periods.
(5) Because sales in South Africa are not large enough to be treated as a
separate segment, they are included with sales from the European region.
(6) In 1991 and 1992 the Company operated under a licensing arrangement in
Japan. No retail sales revenue was recorded for those periods. A new
wholly-owned Japanese subsidiary was formed in November 1993 whose results
from that date are reported above.
The Company commenced operations in the United States in 1980 and, by 1983,
had expanded its operations to three additional English speaking countries:
Australia, Canada and the United Kingdom. Beginning in 1989, the Company
began to expand to non-English speaking countries, starting with Spain and
Mexico because of the substantial number of the Company's distributors who
spoke Spanish and had friends, relatives and other acquaintances in those
countries. Focusing on Europe, but expanding into other non-English speaking
countries, the Company commenced operations in France and Germany in 1990 and
1991, respectively, in 1992 opened Italy, Portugal and The Czech Republic, in
1993 opened The Netherlands, in 1994 opened Belgium, Poland, Denmark and
Sweden, and in 1995 opened Russia, Switzerland, Austria, Norway, Finland and
South Africa. The Company's expansion into these countries contributed
significantly to the Company's financial performance. The Company expanded
its Asia/Pacific Rim operations with the opening of Hong Kong in 1992, the
formation of a new Japanese subsidiary in 1993, the opening of the
Philippines in 1994, and Taiwan in 1995. The Americas saw expansion in 1994
with the opening of the Dominican Republic, Venezuela and Argentina, and
Brazil in 1995.
As the Company's entry into Spain and France indicates, since 1989 the
Company has generally experienced an initial period of rapid growth in sales
after entering a country as new distributors were recruited and the Company's
principal weight control products were introduced. Following this initial
growth period, the Company has generally experienced a decline in the rate of
growth and, in several instances, a decline in sales. The Company believes
that a significant factor affecting these markets has been the opening of
other new markets within the same geographic region or with the same or
similar language or cultural bases, and the inclination of some distributors
to focus their attention on business opportunities provided by new markets
which can have a negative impact on existing markets.
In late 1994 through 1995 the sales of the Company were negatively impacted
by an adverse business environment in France. That environment included the
publication of reports that the Company's distributors are members of a
disfavored religious group, and the negative impact from governmental action
against distributors for allegedly failing to pay certain taxes. While the
Company is taking steps to restore sales in France, at present, French sales
and sales in other countries continue to be adversely affected. In July 1995
the sale of Thermojetics-Registered Trademark- Instant Herbal Beverage was
suspended in Germany. This situation has led to an increase in product
returns and distributor resignations, as well as a decline in the sale of
other products.
The Company's business strategy continues to be to support growth in existing
markets. This strategy includes increased compensation for the Company's
distributors, increased emphasis on distributor training, as well as the
product introduction strategies discussed above. In certain of its larger
international markets, the Company has appointed sales managers responsible
for providing ongoing assistance to distributors in the development,
expansion and management of their distributor organizations. In addition,
the Company has recruited and appointed vice presidents responsible for
corporate marketing and business development, public relations, and sales
incentive, premium and recognition programs. The Company also appointed new
Regional Vice Presidents in Europe, responsible for marketing and sales,
oversight of day-to-day operations, public relations (including advertising
and media communications), and legal affairs. This European upper management
team represents the first regional administrative center for the Company.
The Company believes that the strategy of forming regional management teams
will help sustain growth in existing markets, and it anticipates the creation
of similar regional administrative centers in the future.
The Company's five largest markets (the United States, Germany, Japan, Italy
and Israel), accounted for 70.4% and 66.9%, respectively, of the Company's
total retail sales for 1994 and 1995.
8
<PAGE>
Beginning in the mid-1980's, the Company experienced a decline in United
States sales that was attributable in large part to regulatory scrutiny
related to claims and representations about the Company's products as well as
increased competition from weight control products that were lower priced
than the Company's four principal weight control products. In 1992, the
Company sought to reverse this trend in United States sales by introducing
the "International Success Training System" and new production bonuses for
supervisors who attained certain levels of royalty earnings. These
innovations resulted in increases both in the size of the Company's
distributor base in the United States and in the productivity of the
Company's most successful United States distributors. Subsequently, in 1992,
the Company introduced Thermojetics-Registered Trademark-, which generated
significant sales itself and stimulated sales of the Company's four principal
weight control products despite continuing competition from lower-priced
weight control products. In 1995 the Company introduced the personal care
products grouped under the name of Dermajetics-Registered Trademark-, which
further stimulated sales by $48.8 million in the United States. As a result
of these initiatives, retail sales in the United States increased over
eight-fold to $333.6 million in 1995 from $42.0 million in 1991. In 1995,
retail sales in The Americas region grew $51.9 million, or 14.7% over 1994
retail sales. The U.S. accounted for $38.6 million of this retail sales
growth, followed by Brazil, which opened in September of 1995, and accounted
for $24.2 million of the growth.
Total retail sales in the European region declined $99.3 million or 21.0% in
1995 versus 1994. The sales decrease in Germany and Israel of $43.9 and
$43.1 million respectively, together with sales decreases in Czech Republic,
France, Italy, Spain and UK, were partially offset by sales in Denmark,
Russia, South Africa and Sweden. In addition to the factors affecting sales
in France and Germany discussed above, the Company believes this decline is
attributable to the effect of new market openings in Europe, regulatory
restrictions on herbal products that have impeded the introduction of
additional products and the reduction in activity levels of certain key
distributors in those markets. The Company has sought to stimulate sales in
these countries by hiring sales managers and continuing its efforts to
introduce additional products and has undertaken marketing assessments of the
factors affecting sales. Furthermore, regional management personnel
responsible for public relations, legal affairs and marketing have been hired.
Total retail sales in the Asia/Pacific Rim region grew 153.9% in 1995 versus
1994. This $87.0 million increase included retail sales increases of $63.0
million in Japan and $13.1 million in the Philippines. 1995 was the first
full year of operation of Herbalife business in the Philippines. The growth
in Japan resulted from new products and marketing initiatives.
When the Company decides to enter a new market, it first hires local legal
counsel to help ensure that the Company's multilevel marketing system and
products comply with all applicable regulations and that the Company's
profits may be expatriated. In addition, local counsel helps to establish
favorable public relations in the new market by acting as an intermediary
between the Company and local regulatory authorities, public officials and
business people. Local counsel is also responsible for explaining the
Company's products and products ingredients to appropriate regulators and,
when necessary, arranging for local technicians to conduct required
ingredient analysis tests of the Company's products.
Where regulatory approval in a foreign market is required, the Company's
local counsel work with regulatory agencies to confirm that all of the
ingredients of the Company's products are permissible within the new market.
During the regulatory compliance process, the Company may alter the
formulation, packaging or labeling of its products to conform to applicable
regulations as well as local variations in customs and consumer habits, and
the Company may modify certain aspects of its network marketing system as
necessary to comply with applicable regulations. Where reformulations of the
Company's four principal weight control products are required, the Company
has historically found substitute or replacement ingredients to be readily
available, though there can be no assurance in this regard in the future.
Where regulatory approval in a foreign market is not required, the Company
obtains the favorable opinion of local counsel as to compliance with all
applicable regulations.
Following completion of the regulatory compliance phase, the Company
undertakes the steps necessary to meet the operational requirements of the
new market. In the majority of its markets, the Company establishes either a
distribution center or a sales center; in countries without a distribution or
sales center, the Company generally arranges for its products to be
distributed from distribution or sales centers in the same region. In
addition, the Company initiates plans to satisfy the inventory, personnel and
transportation requirements of the new market, and the Company modifies its
distributor manuals, cassette recordings, video cassettes and other training
materials as necessary to be suitable for the new market.
Although the Company intends to expand into new markets, there can be no
assurance that the Company can open markets on a timely basis or that such
new markets will prove to be profitable. Significant regulatory and legal
barriers must be overcome before marketing can begin in any new market.
Also, before marketing has commenced, it is difficult to assess the
9
<PAGE>
extent to which the Company's products and sales techniques will be
successful in any given country. In addition, expansion of the Company's
operations into new markets entails substantial working capital and capital
expenditure requirements associated with both the regulatory compliance and
operations phases of the process. The lead-time and costs associated with
opening anticipated new markets may significantly exceed those of entering
new markets in the past due to greater regulatory barriers, the necessity of
adapting to entirely new regulatory systems and problems related to entering
new markets with different cultural bases and political systems from those
encountered in the past. The lead-time necessary to open a new market has
generally been up to two years or more.
PRODUCT DISTRIBUTION
The Company's weight control, nutritional, and some personal care products
are distributed to foreign markets either from the facilities of the
Company's manufacturers or from the Company's Los Angeles distribution
center. Products are distributed in the United States market from one of
those locations or from the Company's Memphis distribution center. Products
are generally transported by cargo ship or plane to the Company's
international markets and are warehoused in one of the Company's foreign
distribution centers. After arrival of the products in a foreign market,
distributors purchase the products from the local distribution center or the
associated sales center. The Company's Dermajetics-Registered Trademark-
personal care products, are predominantly manufactured in France. The
products are shipped to the Company's Strasbourg distribution center, from
which delivery by ship or plane to other international markets occurs.
REGULATION
In both its United States and foreign markets, the Company may be subject to
or affected by extensive laws, regulations, administrative determinations and
similar constraints (as applicable, at the federal, state and local levels)
(hereinafter "regulations") including, among other things, regulations
pertaining to (i) product formulation, labeling and packaging, (ii) product
claims and advertising, whether made by the Company or its distributors,
(iii) the Company's network marketing system, and (iv) transfer pricing and
similar regulations that affect the level of foreign taxable income and
customs duties.
PRODUCT FORMULATION, LABELING AND PACKAGING
Because the Company's products are food and dietary supplements and the
Company makes no therapeutic claims for its products, the Company believes
that its product formulations do not require approval by the FDA prior to
sale. The Company continuously monitors FDA regulations with respect to the
ingredients contained in its products. Based upon such regulations and
communications with FDA staff members, on occasion the Company has
reformulated a product to eliminate, substitute or modify an ingredient, and
such reformulations may be required with respect to additional products in
the future. Further, although the Company believes its product formulations
comply with all applicable regulations, the FDA is authorized at any time to
impose various restrictions on or affecting the Company and its products that
may prohibit the Company from selling any one or more of its products in the
United States, impair the production of the Company's products, or impede the
importation of ingredients for the Company's products.
Currently, in order for the Company to market its products, such products
must be "safe" within the meaning of the United States laws and regulations,
including the Food, Drug and Cosmetic Act, as amended. The Company believes
that all of its products are safe within that meaning. In particular, the
Company believes that Thermojetics-Registered Trademark-, which includes a
Chinese herb known as "Ma Huang" that contains naturally-occurring ephedrine
in small quantities, is safe based upon the common use of Ma Huang in foods
for many years. Under the applicable laws and regulations, the general
recognition of a substance's safety can be based upon experience obtained
through its common use in foods.
In October 1994, Congress passed the Dietary Supplement Health and Education
Act. The Act established a commission on dietary supplement labels to study
and make recommendations for the regulation of label claims and statements
for dietary supplements.
The Company cannot determine the effect that future governmental regulations
or administrative orders may have on the Company's business. However, such
regulations and orders could require the reformulation of certain products to
meet new standards, the recall or discontinuance of certain products not
capable of reformulation, expanded documentation of the properties of certain
products, expanded or different labeling, and scientific substantiation
regarding product ingredients, safety or usefulness. Any or all such
requirements could have an adverse effect on the Company.
In foreign markets, prior to commencing operations and prior to making or
permitting sales of its products in the market, the Company may be required
to obtain an approval, license or certification from the country's ministry
of health or comparable
10
<PAGE>
agency. Where a formal approval, license or certification is not required,
the Company nonetheless seeks a favorable opinion of counsel regarding the
Company's compliance with applicable laws. Prior to entering a new market in
which a formal approval, license or certificate is required, the Company
works extensively with local authorities in order to obtain the requisite
approvals. The approval process generally requires the Company to present
each product and product ingredient to appropriate regulators and, in some
instances, arrange for testing of products by local technicians for
ingredient analysis. Such approvals may be conditioned on reformulation of
the Company's products or may be unavailable with respect to certain products
or certain ingredients. Product reformulation or the inability to introduce
certain products or ingredients into a particular market may have an adverse
effect on sales.
The Company must also comply with product labeling and packaging regulations
that vary from country to country. The Company's failure to comply with such
regulations can result in, among other things, a product being removed from
sale in a particular market, either temporarily or permanently.
Advertisements and claims made with respect to the Company's products,
whether by the Company or its distributors, are strictly regulated. The
Company is affected by regulations applicable to the activities of its
distributors because in some countries the Company is, or regulators may
assert that the Company is, responsible for its distributors' conduct, or
such regulators may request or require that the Company take steps to ensure
its distributors' compliance with regulations. The types of regulated
conduct include, among other things, representations concerning the Company's
products (including therapeutic claims, which are generally prohibited),
public media advertisements (which in foreign markets may require prior
approval by regulators) and sales of products in markets in which such
products have not been approved, licensed or certified for sale. In certain
markets, it is possible that improper product claims by distributors could
result in the Company's products being reviewed or re-reviewed by regulatory
authorities and, as a result, being classified or placed into another
category as to which stricter regulations are applicable. In addition,
certain labeling changes might be required.
Through its manuals, seminars and other training materials and programs, the
Company attempts to educate its distributors as to the scope of permissible
and impermissible activities in each market. The Company also investigates
allegations of distributor misconduct. However, the Company's distributors
are generally independent contractors, and the Company is not able to monitor
directly all distributor activities. As a consequence, there can be no
assurance that the Company's distributors comply with applicable regulations.
Misconduct by distributors has in the past and could again have a material
adverse effect on the Company in a particular market or in general.
NETWORK MARKETING SYSTEM
The Company's network marketing system is subject to a number of federal and
state regulations administered by the Federal Trade Commission and various
state agencies as well as regulations in foreign markets administered by
foreign agencies.
Regulations applicable to network marketing organizations are generally
directed at ensuring that product sales are ultimately made to retail
consumers (as opposed to other distributors) who consume the product and that
advancement within such organizations be based on sales of the organizations'
products rather than investments in the organizations or other non-retail
sales related criteria. For instance, in certain markets there are limits on
the extent to which distributors may earn royalties on sales generated by
distributors that were not directly sponsored by the distributor. Where
required by law, the Company obtains regulatory approval of its network
marketing system or, where such approval is not required, the favorable
opinion of local counsel as to regulatory compliance.
However, the Company remains subject to the risk that, in one or more of its
markets, its marketing system could be found not to be in compliance with
applicable regulations. Failure by the Company to comply with these
regulations could have an adverse material effect on the Company in a
particular market or in general.
TRANSFER PRICING AND SIMILAR REGULATIONS
In many foreign countries, the Company is subject to transfer pricing
regulations, restrictions on management fees charged by the Company to its
local subsidiary and similar regulations and restrictions designed to ensure
that appropriate levels of income are reported as earned by the local
subsidiary and taxed by the foreign governmental authorities. In addition,
the Company's operations in foreign countries are subject to regulations
designed to ensure that appropriate levels of customs duties are assessed on
the importation of the Company's products.
While the Company believes it is in compliance with all applicable
regulations and restrictions, it is subject to the risk that foreign
governmental authorities could audit its transfer pricing and related
practices and assert that additional taxes are
11
<PAGE>
owed. In the event that such audits were concluded adversely to the Company,
the Company believes that it could generally offset or mitigate the
consolidated effect of foreign taxes required to be paid through the use of
U.S. foreign tax credits. However, depending upon the years at issue, the
Company might not be able to amend prior U.S. tax returns to obtain the
benefit of such credits. Furthermore, because the laws and regulations
governing U.S. foreign tax credits are complex and depend, among other
things, on tax treaties with foreign nations in addition to U.S. tax laws,
there can be no assurance that the Company would in fact be able to take
advantage of any tax credits.
OTHER REGULATIONS
The Company is also subject to a variety of other regulations in various
foreign markets, including regulations pertaining to social security
assessments and value added taxes, employment and severance pay requirements,
import/export regulations and antitrust issues. As an example, in many
markets, the Company is substantially restricted in the amount and types of
rules and termination criteria that it can impose on distributors without
causing social security assessments to be payable by the Company on behalf of
such distributors and without incurring severance obligations to terminated
distributors. In some countries, the Company may be subject to such
obligations in any event.
Failure by the Company to comply with such regulations could have a material
adverse effect on the Company in a particular market or in general. Such
assertions or the effect of adverse regulations in one market could adversely
affect the Company in other markets as well by causing increased regulatory
scrutiny in those other markets or as a result of the negative publicity
generated in those other markets.
COMPLIANCE PROCEDURES
As indicated above, the Company, its products and its network marketing
system are subject, both directly and indirectly through distributors'
conduct, to numerous federal, state and local regulations both in the United
States and foreign markets. In the mid-1980's, the Company's products and
network marketing system became the subject of regulatory scrutiny in the
United States resulting in large part from claims and representations about
the Company's products. In connection with such regulatory scrutiny by the
California Attorney General and other state authorities that resulted in a
lawsuit being filed by such authorities, in 1986 the Company voluntarily
stipulated to a judgment and permanent injunction that, among other things,
prevents the Company from making certain specified claims in future product
advertisements and requires the Company to implement certain documentation
systems with respect to payments to the Company's distributors. The Company
believes that it is in compliance with the terms of the injunction.
In addition, beginning in 1985, the Company began to institute formal
regulatory compliance measures by developing a system to identify specific
complaints against distributors and to remedy any violations by distributors
through appropriate sanctions, including warnings, suspensions and, when
necessary, terminations. In its manuals, seminars and other training
programs and materials, the Company emphasizes that distributors are
prohibited from making therapeutic claims for the Company's products.
The Company's general policy regarding acceptance of distributor applications
from individuals who do not reside in one of the Company's markets is to
refuse to accept such individual's distributor application. From time to
time, exceptions to the policy are made on a country by country basis.
In order to comply with regulations that apply to both the Company and its
distributors, the Company conducts considerable research into the applicable
regulatory framework (typically, with the assistance of local legal counsel
and other representatives) prior to entering any new market to identify all
necessary licenses and approvals and applicable limitations in the Company's
operations in that market. The Company devotes substantial resources to
obtaining such licenses and approvals and bringing its operations into
compliance with such limitations. The Company also researches laws
applicable to distributor operations and revises or alters its distributor
manuals and other training materials and programs to provide distributors
with guidelines for operating a business, marketing and distributing the
Company's products and similar matters, as required by applicable regulations
in each market. However, the Company is not able to monitor its distributors
effectively to ensure that they refrain from distributing the Company's
products in countries where the Company has not commenced operations, and the
Company does not devote significant resources to such monitoring.
In addition, regulations in existing and new markets are often ambiguous and
subject to considerable interpretive and enforcement discretion by the
responsible regulators. Moreover, even when the Company believes that it and
its distributors are initially in compliance with all applicable regulations,
new regulations are regularly being added and the interpretation of existing
regulations is subject to change. Further, the content and impact of
regulations to which the Company is subject may
12
<PAGE>
be influenced by public attention directed at the Company, its products or
its network marketing system, so that extensive adverse publicity about the
Company, its products or its network marketing system may result in increased
regulatory scrutiny.
It is an ongoing part of the Company's business to anticipate and respond to
such new and changing regulations and make corresponding changes in the
Company's operations to the extent practicable. However, while the Company
devotes considerable resources to maintaining its compliance with regulatory
constraints in each of its markets, there can be no assurance that the
Company would be found to be in full compliance with applicable regulations
in all of its markets at any given time or that the regulatory authorities in
one or more markets will not assert, either retroactively or prospectively or
both, that the Company's operations are not in full compliance. Such
assertions or the effect of adverse regulations in one market could
negatively affect the Company in other markets as well by causing increased
regulatory scrutiny in those other markets or as a result of the negative
publicity generated in those other markets. Such assertions could have a
material adverse effect on the Company in a particular market or in general.
Furthermore, depending upon the severity of regulatory changes in a
particular market and the changes in the Company's operations that would be
necessitated to maintain compliance, such changes could result in the Company
experiencing a material reduction in sales in such market or determining to
exit such market altogether. In such event, the Company would attempt to
devote the resources previously devoted to such market to a new market or
markets or other existing markets, but there can be no assurance that such
transition would not have an adverse effect on the Company's business and
results of operations either in the short or long term.
TRADEMARKS
The Company uses the umbrella trademarks Herbalife-Registered Trademark-,
Thermojetics-Registered Trademark-, Dermajetics-Registered Trademark- and
several other trademarks and tradenames in connection with its products and
operations. Trademark registrations are either issued or pending in the
United States Patent and Trademark Office and in comparable agencies in many
other countries. The Company considers its trademarks and tradenames to be
an important factor in its business. The Company's product formulations are
not protected by patents and are generally not patentable.
COMPETITION
The Company is subject to significant competition from other network
marketing organizations, including those that market food and dietary
supplements, for the recruitment of distributors. Some of the Company's
competitors are substantially larger and have available considerably greater
financial resources than the Company. The Company's ability to remain
competitive depends, in significant part, on the Company's success in
recruiting and retaining distributors through an attractive compensation plan
and other incentives. The Company believes that its production bonus
program, international sponsorship program and other compensation and
incentive programs provide its distributors with significant earning
potential. However, there can be no assurance that the Company's programs
for recruitment and retention of distributors will be successful.
In addition, the business of marketing food and dietary supplements, in
particular weight control products, is highly competitive. This market
segment includes numerous manufacturers, distributors and marketers that
actively compete for the business of consumers both in the United States and
abroad. The market is highly sensitive to the introduction of new products
or weight control plans that may rapidly capture a significant share of the
market. As a result, the Company's ability to remain competitive depends in
part upon the successful introduction of new products, such as
Thermojetics-Registered Trademark- and Dermajetics-Registered Trademark-.
In addition, the Company's ability to stimulate sales through new market
expansion and new product introduction in existing markets is dependent upon
the Company's ability to reformulate products from its existing product line
in order to comply with applicable regulations in each market. The Company
believes it has developed a sophisticated, systematic approach to new market
expansion and new product introduction. However, there can be no assurance
that the Company's new market expansion and new product introduction plans
will be successful in the future.
EMPLOYEES
On December 31, 1995, the Company had 1060 full-time employees. This number
does not include the Company's distributors, who are generally independent
contractors rather than employees of the Company. The Company considers its
employee relationships to be satisfactory. Except for certain employees in
Mexico, none of the Company's employees is a
13
<PAGE>
member of any labor union, and the Company has never experienced any business
interruption as a result of any labor disputes.
ITEM 2. PROPERTIES
The Company leases all of its physical properties located in the United
States. The Company's executive offices, re-located to Century City,
California in February 1996, include approximately 81,000 square feet of
general office space under a lease that expires in January 2006. The Company
leases an aggregate of approximately 130,000 square feet of office space,
computer facilities and conference rooms at the Operations Center in
Inglewood, California, under leases that expire in October 1996, and
approximately 96,000 square feet of warehouse space in two separate
facilities located in Los Angeles and Memphis. The Los Angeles agreement has
terms through August 1996 and the Memphis facility is leased on a
month-to-month basis. The Company also leases warehouse and office space in a
majority of its other geographic areas of operations. The Company believes
that its existing facilities are adequate to meet its current requirements
and that comparable space is readily available at each of these locations.
ITEM 3. LEGAL PROCEEDINGS
In 1995, the Company and certain of its officers and directors were served
with three complaints alleging violation of federal securities laws.
PLATTUS V. GERRITY ET AL. USDC C.D. Cal. 95-0400 SVW (January 20, 1995)
RESPLER V. HUGHES ET AL. USDC C.D. Cal. 95-0447 KN (January 24, 1995)
ALTMAN V. HUGHES ET AL. USDC C.D. Cal. 95-1027 ABC (February 17, 1995)
Generally, the plaintiffs in the lawsuits alleged that certain public reports
and statements made by or attributable to the Company between October 1993
and January 1995 were materially false or misleading and thereby had the
effect of artificially inflating the trading price of the Company's stock.
Each of the lawsuits named, in addition to the Company, certain of the
Company's officers and directors alleged to be responsible for, or to have
knowledge of the false or misleading disclosures and to have sold stock at
allegedly inflated prices with knowledge of material information not then
known to the public. The Company has certain indemnity obligations to the
named officers and directors. The Company has directors and officers
liability insurance which, subject to certain customary exceptions and
exclusions, is expected to cover a portion or all of any such obligations
less the Company's self-retention amount. In March 1995, the court
consolidated the three complaints. In January 1996, the court dismissed in
its entirety the plaintiffs' consolidated complaint. In February 1996, the
plaintiffs filed a Notice of Appeal of the court's order of dismissal.
The Company's French subsidiary has been subject to a tax audit by French tax
authorities, who are proposing that significant value added, withholding, and
income taxes are due. The Company and its tax advisors believe that the
Company has substantial defenses and the Company is vigorously contesting
these and other potential assessments. However, the ultimate resolution of
this matter may take several years.
Furthermore, the Company is from time to time engaged in routine litigation
incident to the conduct of its business. The Company regularly reviews all
pending litigation matters in which it is involved and establishes reserves
deemed appropriate by management for such litigation matters. The Company
believes that no litigation currently pending against it will have a material
adverse effect on its consolidated financial position and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the National Market System of
the National Association of Securities Dealers Automated Quotation System
("NASDAQ-NMS") under the symbol "HERB" since April 21, 1992. The table below
sets forth, for the periods indicated, the high and low closing bid prices of
the Common Stock, as reported on NASDAQ-NMS.
<TABLE>
<CAPTION>
BID/CLOSING PRICES*
-------------------
High Low
---- --
<S> <C> <C>
1994
First Quarter $31 $17 1/8
Second Quarter 27 1/2 18
Third Quarter 23 1/4 16
Fourth Quarter 19 1/8 14 1/4
1995
First Quarter $17 3/4 $10 1/4
Second Quarter 13 1/4 10 1/8
Third Quarter 15 1/2 9 3/4
Fourth Quarter 9 7/8 6 3/4
</TABLE>
___________
*The bid/closing prices in the table were taken from a written summary
provided to the Company by NASDAQ. Prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
At February 29, 1996, 29,887,864 shares of the Company's Common Stock were
issued and outstanding, and were held by 1348 stockholders of record.
Prior to the third quarter of 1992, the Company had never paid a dividend on
its Common Stock. In June 1992, the Company announced the adoption of a cash
dividend practice. The Company paid quarterly dividends of $0.18 per share
for the dividends paid on February 11, 1994, May 5, 1994 and August 4, 1994,
increased the dividend to $0.22 per share for the dividends paid on November
3, 1994, February 2, 1995, May 4, 1995 and August 3, 1995, and reduced the
dividend to $0.15 per share for the dividends paid on November 2, 1995 and
February 15, 1996. The declaration of dividends in the future will be
determined by the Board of Directors in its discretion and the amount of
dividends declared and paid in future quarters will depend, among other
factors, on increased levels of profitability, as well as other planned uses
of the Company's cash resources.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below for each of the
years in the five-year period ended December 31, 1995 are derived from the
audited consolidated financial statements of the Company. The selected
financial and operating data should be read in conjunction with Management's
Discussion and Analysis of Results of Operations and Financial Condition and
the consolidated financial statements and related notes.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(In thousands of dollars, except per share & other data amounts)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Retail sales $190,976 $405,092 $693,015 $884,058 $923,644
Less-Distributor allowances on
product purchases 88,407 190,669 328,270 417,177 434,640
-------- -------- -------- -------- --------
Net Sales 102,569 214,423 364,745 466,881 489,004
Cost of sales 33,892 63,138 103,834 130,707 143,557
Royalty overrides 28,312 60,851 107,381 125,820 138,940
-------- -------- -------- -------- --------
Operating margin 40,365 90,434 153,530 210,354 206,507
Marketing, distribution and
administrative expenses 31,737 59,583 88,918 139,629 176,046
Restructuring Expenses 2,300
Interest income-net 118 689 1,729 2,919 3,404
-------- -------- -------- -------- --------
Income before income taxes 8,746 31,540 66,341 73,644 31,565
Income taxes 1,663 11,464 25,160 27,616 11,837
-------- -------- -------- -------- --------
Net income $ 7,083 $ 20,076 $ 41,181 $ 46,028 $ 19,728
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
SHARE DATA:
Earnings per share:
Primary $ 0.33 $ 0.79 $ 1.47 $ 1.50 $ 0.65
Fully-diluted $ 0.27 $ 0.74 $ 1.47 $ 1.50 $ 0.65
Cash dividends per common share $ 0.15 $ 0.49 $ 0.80 $ 0.74
FINANCIAL CONDITION:
Working capital $ 5,519 $ 18,732 $ 72,723 $ 89,825 $ 85,126
Total assets 27,912 61,089 130,820 174,057 207,690
Long term obligations 324 1,045 994 1,014 1,779
Stockholders' equity 8,871 23,913 81,202 109,815 109,530
OTHER DATA:
Number of Countries 11 15 16 24 32
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Throughout this report "retail sales" are determined as the gross sales
amounts reflected on the Company's invoices to its distributors. The Company
does not receive the amount reported as "retail sales", and the Company does
not monitor the actual retail prices charged for the Company's products.
"Net sales" represent the actual purchase prices paid to the Company by its
distributors, after giving effect to distributor discounts (referred to as
"distributor allowances"), which total approximately 50% of suggested retail
sales prices. The Company receives its net sales price in cash or through
credit card payments upon receipt of orders from distributors. The Company's
"operating margin" consists of net sales less (i) "cost of sales," consisting
of the prices paid by the Company to its manufacturers for products and costs
related to product shipments, foreign duties and tariffs and similar
expenses, and (ii) "royalty overrides," currently consisting of (a) royalties
(5% to 15%) and bonuses (up to 6%) on the suggested retail sales prices of
products earned by qualifying distributors on the sales of other distributors
within their distributor organizations, and (b) the President's Team Bonus
payable to certain of the Company's most senior distributors in the aggregate
amount of up to an additional 1% of product retail sales. Royalty overrides
as reported in the Consolidated Statements of Income are net of a handling
fee (6% of retail sales effective April 1, 1994, previously 5%) charged by
the Company to its distributors on purchases of products from the Company.
The Company's use of "retail sales" in reporting financial and operating data
reflects the fundamental role of "retail sales" in the Company's accounting
systems, internal controls and operations, including the basis upon which
distributor bonuses are paid. The retail sales price of the Company's
products is reflected in distributor invoices as the price charged to
distributors together with, in most cases, a deduction for the corresponding
distributor allowance. The retail sales price is used by the Company to
calculate, among other things, royalty overrides and "volume points" earned
by distributors. Volume points are point values assigned to each of the
Company's products that are equal in all countries, and are used as a
supervisor qualification criteria. In addition, management relies upon
"retail sales" data reflected in daily sales reports to monitor results of
operations in each of the Company's markets.
The significance of the Company's "net sales" is to reflect, generally, the
prices actually received by the Company after deducting the basic distributor
allowance, but before deducting royalty overrides and bonuses. The ratio of
the Company's "retail sales" to "net sales" is relatively constant because
distributor allowances historically total approximately 50% of suggested
retail sales prices. Accordingly, factors that affect "retail sales"
generally have a corresponding and proportionate effect on "net sales." To
the extent the ratio of "retail sales" to "net sales" varies from period to
period, such variances have resulted principally from sales of the Company's
distributor kits and other educational and promotional materials, for which
there are no distributor allowances. Sales of such items initially decreased
and thereafter stabilized as a percentage of total retail sales since 1991,
but such decreases have not had a material impact on the ratio of the
Company's "retail sales" to "net sales" or on the Company's operating margin.
The Company's results of operations for the periods described below are not
necessarily indicative of results of operations for future periods, which
depend upon numerous factors including the Company's ability in the future to
enter new markets and introduce additional and new products into its markets.
1995 COMPARED TO 1994
Retail sales increased 4.5% to $923.6 million in 1995 from $884.1 million in
1994. Regionally, retail sales in the year ended December 31, 1995 compared
to the year ended December 31, 1994 increased 153.9% and 14.7% in
Asia/Pacific Rim and The Americas, respectively; and decreased 21.0% in
Europe. In The Americas, retail sales increased from $354.3 million in 1994
to $406.2 million in 1995. In Asia/Pacific Rim, retail sales increased from
$56.5 million in 1994 to $143.5 million in 1995. In Europe, retail sales
decreased from $473.3 million in 1994 to $373.9 million in 1995. Contributing
to 1995 consolidated retail sales was the introduction of the first three
phases of products in the company's new line of personal care products, the
Skin Care Kit in January 1995, the fragrances, Parfums Vitessence-TM-, in
April 1995 and the facial products, Nature's Mirror-TM-, in October 1995.
The new products accounted for $107.4 million of consolidated retail sales in
1995. The products were introduced extensively in Europe and The Americas
where they accounted for $49.2 million and $50.7 million, or 13.2% and
12.5%, of those regions' retail sales in 1995. For the fourth quarter ended
December 31,1995 retail sales rose to $257.4 million compared with $230.3
million for the comparable period in 1994, due primarily to increased sales
in Japan and the start of operations in Brazil.
17
<PAGE>
In The Americas, combined retail sales in 1995 increased $51.9 million, or
14.7% when compared to 1994, which was due to (i) sales increase in the U.S.
of $38.6 million or 13.1% when compared to 1994, and (ii) the opening of
Brazil in October 1995 which reported retail sales of $24.2 million. The
increases were partly offset by a reduction in sales in Mexico resulting from
devaluation of the Mexican peso. Within The Americas, U.S. retail sales
accounted for $333.6 million or 36.1% of total worldwide retail sales in
1995, compared to $295.0 million or 33.4% of total worldwide retail sales in
1994. The increase in U.S. retail sales as a percentage of worldwide retail
sales resulted from increased U.S. sales and approximately constant foreign
sales in 1995 as compared to 1994. Also during the fourth quarter the Company
reintroduced the sale of Thermojetics-Registered Trademark-Green tablets in
the U.S. which contain, among other ingredients, the Chinese herb known as Ma
Huang which contains small quantities of naturally occurring ephedrine.
In Europe, the decrease in German sales of $43.9 million, together with sales
decreases in the Czech Republic, France, Israel, Italy, Spain and the U.K,
were partially offset by sales in Belgium, Denmark, Poland, Sweden, all of
which opened in the second half of 1994, and sales in Austria, Russia, South
Africa and Switzerland which opened in the second and third quarters of 1995.
The decrease in sales in Germany was part due to the suspension of sales of
Thermojetics-Registered Trademark-Instant Herbal Beverage in that country in
July 1995. The suspension led to an increase in product returns and
distributor resignations, as well as a decline in sales of other products.
Sales in France were negatively impacted by an adverse business environment
in late 1994, while 1995 sales were stable but at lower levels. The Company
believes that a significant factor affecting these markets has been the
opening of other new markets within the same geographic region or with the
same or similar language or cultural bases, and the inclination of some
distributors to focus their attention on business opportunities provided by
new markets which can have a negative impact on existing markets.
The Asia/Pacific Rim growth was due to (i) sales increases in Japan of $63.0
million, or 335.7% when compared to 1994, and (ii) the opening of the
Philippines in December 1994 and Taiwan in July 1995, which reported combined
retail sales of $17.6 million for 1995.
Operating margin decreased 1.8% to $206.5 million in 1995 from $210.4 million
in 1994. As a percentage of retail sales, operating margin for 1995 decreased
to 22.4% from 23.8% in 1994. The decreased operating margins are due to
higher cost of sales and royalty overrides as a percentage of retail sales.
The cost of sales percentage increased to 15.5% in 1995 from 14.8% in 1994.
Such increase includes higher freight costs resulting from (i) redeployment
of inventories to meet demand patterns and (ii) provisions made against slow
moving inventory. Royalty overrides as a percentage of retail sales increased
to 15.0% in 1995 from 14.2% in 1994. This increase includes primarily the
effect of a modification to the marketing plan made in June 1995, which
increased the royalties earned by distributors and increased bonuses payable
to certain of the Company's senior distributors.
Marketing, distribution and administrative expenses increased 26.1% to $176.0
million in 1995 from $139.6 million in 1994. As a percentage of retail sales,
these expenses increased to 19.1% in 1995 from 15.8% in 1994. Selling
expenses increased $5.1 million, corporate expenses increased $18.6 million
and distribution expenses increased $12.7 million. The increased selling
expenses were instrumental in an effort to increase International Business
Package (distributor kit) sales, stimulate new distributor sponsoring rates
and expand distributor training. The increase was also due to introductions
of new technologies such as International Satellite Supervisor Training and
The Herbalife Broadcast Network, a home based satellite television program.
The corporate expenses increased due to (i) initiatives taken in new product
introductions and marketing activities, (ii) intensified government and media
relations and other business related functions and (iii) foreign exchange
losses which increased $2.5 million in 1995, when compared to 1994. The
increase in distribution expense was due to new country openings and facility
and staff expansions in Japan and Germany.
During 1995, the Company made a detailed study of its European warehousing
and distribution systems to identify possible areas of cost savings. As a
result, the Company will make a number of changes in its European
infrastructure in order to enhance operating efficiencies. In connection
with this change, the Company recorded a restructuring charge of $2.3
million, primarily relating to lease termination costs. Infrastructure
modifications are scheduled to take place in the second half of 1996.
Income taxes decreased to $11.8 million in 1995 from $27.6 million in 1994.
As a percentage of pre-tax income, income taxes remained constant at 37.5%.
Net income decreased 57.1% to $19.7 million in 1995 from $46.0 million in
1994, as a result of the factors described above. However, net income in the
quarter ended December 31, 1995 increased 11.8% to $5.0 million from $4.5
million in the quarter
18
<PAGE>
ended December 31, 1994. The increase primarily resulted from decreased
marketing, distribution and administrative expenses which were partly offset
by higher corporate expenses.
1994 COMPARED TO 1993
Retail sales increased 27.6% to $884.1 million from $693.0 million for 1994
as compared to 1993. Regionally, retail sales in the year ended December 31,
1994 compared to the year ended December 31, 1993 increased 104.5%, 29.4% and
20.9% in Asia/Pacific Rim, The Americas and Europe, respectively. In
Asia/Pacific Rim, retail sales in 1994 increased from $27.6 million to $56.5
million compared to 1993. This growth was due to the opening of Japan in late
1993, to the successful introduction of Thermojetics-Registered Trademark-
products in a number of markets, and the positive impact that sales of
Thermojetics-Registered Trademark- products had on sales of the Company's
other principal weight control products. In The Americas, retail sales in
1994 increased from $273.9 million to $354.3 million compared to 1993. This
growth was due to three factors: (i) the continued strength of the
Thermojetics-Registered Trademark- family of products in North America,
including the positive impact such sales have on sales of the Company's other
weight control products, (ii) the successful opening of Argentina in
mid-1994, resulting in sales of $19.1 million in that country, and (iii)
improved distribution of product in Mexico with the opening of the Company's
second distribution center in that country in 1994. In Europe, retail sales
increased from $391.5 million in 1993 to $473.2 million in 1994. The most
important factor impacting the growth in this region was the introduction of
the first Thermojetics-Registered Trademark- product, Thermojetics-Registered
Trademark- Instant Herbal Beverage, in 12 of the region's countries during
1994, and its positive effect on sales of the other weight control products.
Partially offsetting this gain in Europe was an adverse business environment
facing distributors in France. That environment included negative publicity
regarding the Company's distributors and had the effect of reducing France's
fourth quarter sales by approximately $9.8 million and $14.5 million compared
to the third quarter of 1994 and the fourth quarter of 1993, respectively.
Within The Americas, U.S. retail sales grew to $295.0 million or 33.4% of
total worldwide retail sales in 1994, compared to $247.0 million or 35.6% of
total worldwide retail sales in 1993. The decrease in U.S. retail sales as a
percentage of worldwide retail sales resulted from a greater increase in
foreign sales, in relation to U.S. sales, in 1994 as compared to 1993.
Operating margin increased 37.0% to $210.3 million in 1994 from $153.5
million in 1993. As a percentage of retail sales, operating margin for 1994
increased to 23.8% from 22.2% in 1993. The principal reasons for the improved
operating margin were (i) a reduced royalty override expense effective April
1, 1994 as a result of increasing the handling fee (6% of retail product
sales effective on that date, up from 5%), which fee is incorporated in
royalty override expense, and (ii) a reduction in costs of sales expense as a
percentage of retail sales from 15.0% in 1993 to 14.8% in 1994. The reduction
in costs of sales as a percentage of retail sales reflects the favorable
effects of a duty reduction initiative implemented by the Company in Europe
in 1994 overcoming increased freight costs associated with (i) the increase
in foreign sales as a percentage of total retail sales in 1994 when compared
to 1993, and (ii) excess air freight usage for new product introductions and
new country openings.
Marketing, distribution and administrative expenses increased 57.0% to $139.6
million in 1994 from $88.9 million in 1993. As a percentage of retail sales,
these expenses increased to 15.8% in 1994 from 12.8% in 1993. The increase is
principally a result of (i) increased sales and marketing expenses in
connection with various sales enhancement programs, and (ii) staffing and
facilities' expansion to support new country opening initiatives and
accelerated activities in introducing new products in existing markets.
Income taxes increased 9.8% to $27.6 million in 1994 from $25.2 million in
1993. As a percentage of pre-tax income, income taxes decreased to 37.5% in
1994 from 37.9% in 1993. This reduction is due to the implementation of tax
strategies by the Company which offset the effect of a U.S. tax rate increase
resulting from the 1993 Omnibus Budget Reconciliation Act.
Net income increased 11.8% to $46.0 million in 1994 from $41.2 million in
1993, as a result of the factors described above. However, net income in the
quarter ended December 31, 1994 decreased 54.7% to $4.5 million from $9.9
million in the quarter ended December 31, 1993. The decrease primarily
resulted from the decline in sales in France in the quarter ended December
31, 1994, referred to above, and increased marketing, distribution and
administrative expenses as a result of (i) expenditures made to counteract
the France sales decline, and (ii) investment in sales enhancement programs
to increase sales worldwide.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital and capital expenditure
requirements, including funding for expansion of operations, through net cash
provided by operating activities. For the year ended December 31, 1995, net
cash provided by operating activities was $77.9 million, compared to $14.8
million and $36.5 million for the years ended December 31, 1994 and
19
<PAGE>
1993, respectively. Although net income in 1995 decreased $26.3 million when
compared to 1994, net cash provided by operating activities increased by
$63.0 million. This increase resulted primarily from reductions in
inventories, prepaid expenses and other current assets, increases in advanced
sales deposits and royalty override accruals and reduced taxable income and
the timing of income tax payments.
Stockholders' equity decreased $0.3 million to $109.5 million at December 31,
1995 from $109.8 million at December 31,1994. In 1995, net income of $19.7
million was offset by $22.2 million of dividends declared. The dividend in
the third and fourth quarters of 1995 was reduced to $0.15 per share from
$0.22 per share in the prior four quarters. The payment of dividends is
determined by the Board of Directors at its discretion and the amounts of
dividends declared and paid in future quarters will depend, among other
factors, on increased levels of profitability, as well as other planned uses
of the Company's cash resources.
Capital expenditures for the year ended December 31, 1995 were $7.2 million
compared to $8.6 million and $4.1 million for the years ended December 31,
1994 and 1993, respectively. The majority of the 1995 expenditures were made
to upgrade computer and office equipment, and to expand facilities to support
growth. For 1996, the Company is planning to invest up to $7 million in
management information systems including hardware and software. In
connection with its entry into each new market, the Company funds inventory
requirements and typically establishes either a full-service distribution
center, sales office, a fulfillment center or compliance office, or a
combination of the foregoing. While the capital requirements associated with
entry into new markets vary, the Company estimates that approximately $7
million will be required for pre-opening expenses and capital expenditures
associated with its 1996 new market expansion activities.
On January 12, 1996, the Company announced that its Board of Directors had
approved a share repurchase program pursuant to which up to $5 million could
be expended to repurchase shares of the Company's common stock. As of March
13, 1996, the Company had expended $1.7 million to make repurchases of its
shares in the public market.
In total, cash and cash equivalents increased $34.9 million in 1995 to $69.2
million at December 31, 1995. At December 31, 1995, the Company's cash, cash
equivalents and marketable securities aggregate balance was $104.2 million,
which represents a $45.1 million increase from the balance as of December 31,
1994.
The Company has not been subjected to material price increases by its
suppliers for several years. The Company believes that it has the ability to
respond to a portion or possibly all of any price increases by raising the
price of its products. Purchases by the Company from its suppliers are made
in U.S. dollars, while sales to distributors are generally made in local
currencies. Consequently, strengthening of the U.S. dollar versus a foreign
currency can have a negative impact on operating margins and can generate
transaction losses on intercompany transactions. The Company enters into
forward exchange contracts to manage its foreign exchange risk on
intercompany transactions. Transaction losses totaled $3.3 million, $0.1
million and $2.6 million in the years ended December 31, 1993, 1994 and 1995,
respectively.
For a discussion of certain contingencies that may impact liquidity and
capital resources, see "Note 9, Contingencies," in the Company's consolidated
financial statements included herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the
Report thereon of Deloitte & Touche LLP, independent auditors, are included
elsewhere herein on pages 25 through 40.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 of Part III is incorporated by reference to
the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 1995.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 of Part III is incorporated by reference to
the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 12 of Part III is incorporated by reference to
the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 of Part III is incorporated by reference to
the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 1995.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. FINANCIAL STATEMENTS
The following financial statements of the Company are filed with this
report and can be found on the pages indicated below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Description Page No.
- --------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report 25
Consolidated Balance Sheets - December 31, 1994 and 1995 26 - 27
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995 28
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1993, 1994, and 1995 29
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
and 1995 30
Notes to Consolidated Financial Statements 31 - 40
- --------------------------------------------------------------------------------------------------
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
None.
3. EXHIBITS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Exhibit Page No./
Number Description (Footnote)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation (2)
3.2 Articles of Amendment to the Articles of Incorporation dated December 10, 1986 (2)
3.3 Articles of Amendment to the Articles of Incorporation dated November 22, 1989 (2)
3.4 Certificate of Determination relating to the Company's Senior Convertible
Preferred Stock dated February 11, 1993 (7)
3.5 Certificate of Amendment to Articles of Incorporation dated May 14, 1993 (7)
3.6 Amended and Restated Bylaws (7)
4.1 Form of Common Stock Certificate (7)
10.1 Agreement between Herbalife International of America, Inc. and D&F Industries, Inc.
dated May 12, 1993 (7)
10.2 Agreement between Herbalife International of America, Inc. and Raven
Industries, Inc. dated May 12, 1993 (7)
10.3 Agreement between Herbalife International of America, Inc. and Dynamic
Products, Inc. dated May 12, 1993 (7)
10.4 Master Lease between the Company and Trizec Properties, Inc. dated July 17, 1991 (4)
10.5 Equipment Lease Agreement between the Company and Hewlett Packard dated May 21, 1992 (5)
10.6 Final Judgment and Permanent Injunction, entered into on October, 1986 by the
parties to that action entitled People of the State of California, et al.,v Herbalife
International, Inc. et al., Case No. 92767 in the Superior Court of the State of
California for the County of Santa Cruz (1)
10.7 Permitting Agreement between the Company and Nippon Herbalife K.K. effective
July 27, 1988 (3)
10.8 Exclusive License Agreement between the Company and Nippon Herbalife K.K. dated
August 25, 1988 (3)
10.9 First Addendum to Exclusive License Agreement between the Company and Nippon
Herbalife K.K. dated April 10, 1991 (7)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Exhibit Page No./
Number Description (Footnote)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.10 Second Addendum to Exclusive License Agreement dated between the Company and
Nippon Herbalife K.K. dated May 22, 1992 (5)
10.11 The Company's 1988 Incentive Plan (1)
10.12 The Company's 1991 Stock Option Plan, as amended (6), (12)
10.13 The Company's Executive Incentive Compensation Plan, as amended (7), (12)
10.14 Form of Individual Participation Agreement relating to the Company's Executive
Compensation Plan (7)
10.15 Employment Agreement between the Company and Norman Friedmann dated August 1, 1992 (5)
10.17 Amendment to Employment Agreement between the Company and Norman Friedmann
dated July 27, 1993 (7)
10.18 Amendment to Employment Agreement between the Company and David Addis dated
June 29, 1993 (7)
10.19 Form of Letter Agreement between the Compensation Committee of the Board of
Directors of the Company and Mark Hughes (7)
10.20 Form of Indemnity Agreement between the Company and certain officers and directors
of the Company (7)
10.21 Trust Agreement among the Company, Citicorp Trust, N.A. and certain officers and
directors of the Company (7)
10.22 Form of Stock Appreciation Rights Agreement between the Company and certain
directors of the Company (7)
10.23 1994 Performance Based Annual Incentive Compensation Plan (9), (12)
10.24 Form of Promissory Note for Advances under the Company's 1994 Performance Based
Annual Incentive Compensation Plan (10)
10.25 Employment Agreement between the Company and Chris Pair dated April 3, 1994 (8)
10.26 Deferred Compensation Agreement between the Company and Michael Rosen (10)
10.27 Office lease agreement between the Company and State Teacher's Retirement System,
dated July 20, 1995 (11)
10.28 Form of stock appreciation rights agreements between the Company and certain
directors of the Company (11)
10.29 The Company's Senior Executive Deferred Compensation Plan, effective January 1, 1996 (11)
10.30 The Company's Management Deferred Compensation Plan, effective January 1, 1996 (11)
10.31 Matter Trust Agreement between the company and Imperial Trust Company, Inc.,
effective January 1, 1996 (11)
10.32 The Company's 401K Plan (11)
21 List of subsidiaries of the Company (11)
23.1 Independent Auditors' Consent (11)
27 Financial Data Schedule (11)
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.
(6) Incorporated by reference to the Company's definitive Proxy Statement
relating to its annual meeting of shareholders held May 20, 1993.
(7) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-66576) declared effective by the Securities and
Exchange Commission on October 8, 1993.
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the three months ended June 30, 1994.
(9) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1994 Annual Meeting of Stockholders.
23
<PAGE>
(10) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(11) Filed herewith
(12) Form of the amended and restated plan, to be submitted for shareholder
approval at the 1996 Annual Meeting of Shareholders, will be attached
as an appendix to the Proxy Statement relating to such meeting.
(b) REPORTS ON FORM 8-K:
None.
(c) OTHER EXHIBITS:
See "Item 14(a)3. Exhibits."
(d) OTHER FINANCIAL STATEMENT SCHEDULES:
None.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Herbalife International, Inc.:
We have audited the accompanying consolidated balance sheets of Herbalife
International, Inc. and subsidiaries (the "Company") as of December 31, 1994 and
1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Herbalife International, Inc. and
subsidiaries at December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 12, 1996
25
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
NOTES 1994 1995
--------- ---------------- ----------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 2 $ 34,284,000 $ 69,176,000
Marketable securities 2 24,829,000 35,050,000
Receivables, including related parties 7 13,648,000 18,617,000
Inventories 2, 3 50,096,000 40,904,000
Prepaid income taxes 6,714,000 1,457,000
Prepaid expenses and other current assets 2 9,221,000 5,763,000
Deferred income taxes 2, 12 12,595,000 7,818,000
---------------- ----------------
Total current assets 151,387,000 178,785,000
---------------- ----------------
PROPERTY - AT COST: 2, 5
Furniture and fixtures 7,766,000 9,402,000
Equipment 11,501,000 16,399,000
Leasehold improvements and building 12,358,000 13,836,000
---------------- ----------------
31,625,000 39,637,000
Less accumulated depreciation and amortization (19,287,000) (23,036,000)
---------------- ----------------
12,338,000 16,601,000
---------------- ----------------
OTHER ASSETS 6,355,000 8,500,000
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $910,000 (1994) AND
$1,083,000 (1995) 2 3,977,000 3,804,000
---------------- ----------------
TOTAL $ 174,057,000 $ 207,690,000
---------------- ----------------
---------------- ----------------
</TABLE>
See the accompanying notes to consolidated financial statements
26
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES 1994 1995
--------- ---------------- ----------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable 7 $ 17,163,000 $ 18,667,000
Royalty overrides 2 23,351,000 32,366,000
Accrued expenses 9,748,000 17,275,000
Dividends payable 6,593,000 4,542,000
Current portion of bank loans and contracts payable 4, 5 476,000 1,185,000
Advance sales deposits 2 4,231,000 16,572,000
Income taxes payable 12 3,052,000
---------------- ----------------
Total current liabilities 61,562,000 93,659,000
---------------- ----------------
BANK LOANS AND CONTRACTS PAYABLE 4, 5 1,014,000 1,779,000
---------------- ----------------
DEFERRED INCOME TAXES 2, 12 1,666,000 2,722,000
---------------- ----------------
COMMITMENTS AND CONTINGENCIES 5, 9
STOCKHOLDERS' EQUITY: 10
Common Stock, $0.01 par value; authorized 100,000,000 shares, issued
29,967,954 (1994) and 29,887,864 (1995) shares 300,000 300,000
Paid-in capital in excess of par value 41,117,000 40,417,000
Retained earnings, includes cumulative translation adjustment of
$250,000 (1994) and $1,194,000 (1995) 72,034,000 70,517,000
Unearned compensation 10 (3,364,000) (1,716,000)
Unrealized gain (loss) on marketable securities 2 (272,000) 12,000
---------------- ----------------
Total stockholders' equity 109,815,000 109,530,000
---------------- ----------------
TOTAL $ 174,057,000 $ 207,690,000
---------------- ----------------
---------------- ----------------
</TABLE>
See the accompanying notes to consolidated financial statements
27
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
NOTES 1993 1994 1995
--------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Retail sales 2 $693,015,000 $884,058,000 $923,644,000
Less -- Distributor allowances on product purchases 2 328,270,000 417,177,000 434,640,000
-------------- ------------- -----------
Net sales 2 364,745,000 466,881,000 489,004,000
Cost of sales, includes purchases from related parties
of $44,787,000 (1993), $47,569,000 (1994) and
$29,340,000 (1995) 7 103,834,000 130,707,000 143,557,000
Royalty overrides 2 107,381,000 125,820,000 138,940,000
-------------- ------------- -----------
Operating margin 153,530,000 210,354,000 206,507,000
Marketing, distribution and administrative expenses 5, 6, 7 88,918,000 139,629,000 176,046,000
Restructuring expenses 8 2,300,000
Interest income - net 1,729,000 2,919,000 3,404,000
-------------- ------------- -----------
Income before income taxes 66,341,000 73,644,000 31,565,000
Income taxes 2, 12 25,160,000 27,616,000 11,837,000
-------------- ------------- -----------
NET INCOME $41,181,000 $46,028,000 $19,728,000
-------------- ------------- -----------
-------------- ------------- -----------
EARNINGS PER SHARE $1.47 $1.50 $0.65
-------------- ------------- -----------
-------------- ------------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 28,036,000 30,768,000 30,313,000
-------------- ------------- -----------
-------------- ------------- -----------
CASH DIVIDENDS PER COMMON SHARE $0.49 $0.80 $0.74
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
See the accompanying notes to consolidated financial statements
28
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
UNREALIZED
PAID IN GAIN (LOSS)
CAPITAL IN CUMULATIVE ON TOTAL
COMMON EXCESS OF PAR RETAINED TRANSLATION TREASURY UNEARNED MARKETABLE STOCKHOLDERS'
STOCK VALUE EARNINGS ADJUSTMENT STOCK COMPENSATION SECURITIES EQUITY
--------- -------------- ----------- ----------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 $ 266,000 $ 6,235,000 $22,358,000 ($104,000) ($667,000) ($4,175,000) $ 0 $ 23,913,000
Issuance of Common
Stock to employees 1,000 1,299,000 (1,300,000) 0
Repurchase of
18,971 shares
of Common Stock (320,000) (320,000)
Issuance of
Common Stock
in Public Offering 26,000 28,240,000 28,266,000
Issuance of
173,200 shares of
Common Stock under
the 1991 Stock
Option Plan 2,000 236,000 238,000
Additional capital
from tax benefit
of 1991 Stock Option
Plan and vesting
of employee
restricted stock 1,377,000 1,377,000
Amortization of
unearned compensation 980,000 980,000
Net income for
the year 41,181,000 41,181,000
Translation adjustments (645,000) (645,000)
Dividends (13,788,000) (13,788,000)
--------- -------------- ----------- ----------- --------- ------------- ----------- -------------
Balance at
December 31, 1993 295,000 37,387,000 49,751,000 (749,000) (987,000) (4,495,000) 0 81,202,000
Retire Treasury
Stock (1,000) (986,000) 987,000 0
Issuance of Common
Stock to Outside
Firm (Note 10) 1,000 1,313,000 1,314,000
Issuance of
488,661 shares of
Common Stock under
the 1991 Stock
Option Plan 5,000 35,000 40,000
Additional capital
from tax benefit
of 1991 Stock
Option Plan and
vesting of
employee restricted
stock 3,368,000 3,368,000
Amortization of
unearned compensation 1,131,000 1,131,000
Net income for
the year 46,028,000 46,028,000
Translation adjustments 999,000 999,000
Unrealized loss on
Marketable Securities (272,000) (272,000)
Dividends (23,995,000) (23,995,000)
--------- -------------- ----------- ----------- --------- ------------- ----------- -------------
Balance at
December 31, 1994 300,000 41,117,000 71,784,000 250,000 $ 0 (3,364,000) (272,000) 109,815,000
---------
---------
Issuance of
42,000 shares of
Common Stock under
the 1991 Stock
Option Plan 1,000 92,000 93,000
Retire 7,090
Shares of
Common Stock (89,000) (89,000)
Additional capital
from tax benefit
of 1991 Stock
Option Plan and
vesting of employee
restricted
stock and other 275,000 275,000
Amortization of
unearned compensation 805,000 805,000
Cancellation of
135,000 shares
of restricted
stock (1,000) (978,000) 843,000 (136,000)
Net income for
the year 19,728,000 19,728,000
Translation adjustments 944,000 944,000
Unrealized gain
on Marketable
Securities 284,000 284,000
Dividends (22,189,000) (22,189,000)
--------- -------------- ----------- ----------- --------- ------------- ----------- -------------
Balance at
December 31, 1995 $ 300,000 $ 40,417,000 $69,323,000 $1,194,000 ($1,716,000) $ 12,000 $ 109,530,000
--------- -------------- ----------- ----------- ------------- ----------- -------------
--------- -------------- ----------- ----------- ------------- ----------- -------------
</TABLE>
See the accompanying notes to consolidated financial statements
29
<PAGE>
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 41,181,000 $ 46,028,000 $ 19,728,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 943,000 3,458,000 8,104,000
Deferred income taxes (863,000) (5,125,000) 5,775,000
Amortization of unearned compensation 980,000 1,131,000 805,000
Foreign exchange (gain) loss 1,540,000 (1,105,000) (1,112,000)
Other 5,000 12,000 149,000
Changes in operating assets and liabilities:
Receivables (3,220,000) (6,726,000) (4,968,000)
Inventories (7,405,000) (26,186,000) 10,903,000
Prepaid expenses and other current assets (3,286,000) (4,577,000) 4,881,000
Other assets (285,000) (5,436,000) (5,909,000)
Accounts payable 503,000 6,106,000 1,740,000
Royalty overrides 11,758,000 (581,000) 9,154,000
Accrued expenses (833,000) 6,821,000 7,495,000
Advance sales deposits 1,357,000 1,357,000 12,640,000
Income taxes payable (5,828,000) (332,000) 8,486,000
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,547,000 14,845,000 77,871,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (4,056,000) (8,648,000) (7,243,000)
Proceeds from sale of property 25,000 143,000 462,000
Changes in marketable securities (23,627,000) (1,475,000) (9,937,000)
Notes receivable from related parties (3,815,000)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (27,658,000) (13,795,000) (16,718,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to bank loans and contracts payable 458,000
Principal payments on bank loans and contracts payable (655,000) (457,000) (1,433,000)
Proceeds from public offering 29,579,000
Exercise of stock options, net of stock repurchases 238,000 236,000 3,000
Treasury Stock acquired (320,000)
Dividends paid (10,320,000) (22,646,000) (24,240,000)
Other (215,000) 9,000
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,980,000 (23,082,000) (25,661,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (989,000) 589,000 (600,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26,880,000 (21,443,000) 34,892,000
CASH AND CASH EQUIVALENTS AT JANUARY 1, 28,847,000 55,727,000 34,284,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, $ 55,727,000 $ 34,284,000 $ 69,176,000
------------ ------------ ------------
------------ ------------ ------------
INTEREST PAID $ 240,000 $ 202,000 $ 715,000
------------ ------------ ------------
------------ ------------ ------------
INCOME TAXES PAID ( REFUNDED ) $ 29,433,000 $ 33,683,000 ($ 4,012,000)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See the accompanying notes to consolidated financial statements.
30
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Herbalife International, Inc. (the Company) has thirty-seven active
subsidiaries, which are wholly owned by the Company.
The Company markets weight control products, other food and dietary
supplements and personal care products worldwide. The Company's products,
which consist of herbs and other natural ingredients, are marketed through a
network marketing system in which "distributors" who are generally
independent contractors purchase products for resale to retail consumers and
other distributors. As of December 31, 1995, the Company conducted business
in thirty-two countries located in the Americas, Europe and Asia/Pacific Rim.
In the Company's foreign markets, distributors market the same (or
essentially the same) products as those sold in the United States and in
fundamentally the same manner.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Company and
its subsidiaries; all significant intercompany transactions and accounts have
been eliminated.
TRANSLATION OF FOREIGN CURRENCIES
Each foreign subsidiary's asset and liability accounts, which are originally
recorded in the appropriate local currencies, are translated, for
consolidated financial reporting purposes, into U.S. dollar amounts at
year-end exchange rates. Revenue and expense accounts are translated at the
average rates during the year. Transaction losses, which totaled $3,299,000,
$111,000 and $2,573,000 in the years ending December 31, 1993, 1994 and
1995, respectively, are included in marketing, distribution and
administrative expenses. Foreign exchange translation adjustments are
accumulated in a separate component of stockholders' equity.
FORWARD EXCHANGE CONTRACTS
The Company enters into forward exchange contracts in managing its foreign
exchange risk on intercompany transactions and does not use the contracts
for trading purposes. Gain and losses on forward exchange contracts are
recorded when incurred. Premiums on such contracts are amortized into income
over the life of the contracts.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents. Cash and cash equivalents
comprise primarily money market accounts, foreign and domestic bank accounts
and tax-exempt municipal bonds with short-term maturities. To reduce its
credit risk, the Company monitors the credit standing of the financial
institutions that hold the Company's cash and cash equivalents.
MARKETABLE SECURITIES
The Company's marketable securities are classified as "available for sale".
Fluctuations in fair value are included in a separate component of
stockholders' equity. Marketable securities comprise primarily tax-exempt
municipal bonds with contractual maturities of up to five years.
INVENTORIES
Inventories are stated at lower of cost (on the first-in, first-out basis) or
market.
ADVERTISING COSTS
The Company expenses advertising costs in the period incurred. Literature
and promotional items are sold to distributors to support them in their sales
efforts. Such items are included in inventories and are charged to cost of
sales as they are sold.
31
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-LIVED ASSETS
Depreciation of furniture, fixtures and other equipment is computed on a
straight-line basis over the estimated useful lives of the related assets,
which range from three to six years. Leasehold improvements are amortized on
a straight-line basis over the life of the related asset or the term of the
lease whichever is shorter. Maintenance and repairs are charged to income as
incurred while major improvements are capitalized.
Costs incurred in advance of commencing operations in a new country are
capitalized. These costs comprise direct, incremental costs such as
incorporation fees, product licenses, business permits, and establishing
facilities in advance of selling product. These costs are amortized over a
period not exceeding twenty-four months.
Goodwill is being amortized over periods ranging from fifteen to forty years.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Impairment losses would be recognized if the carrying amount of
the asset exceeds the fair value of the asset.
INCOME TAXES
Income tax expense includes income taxes payable for the current year and the
change in deferred income tax assets and liabilities for the future tax
consequences of events that have been recognized in the Company's financial
statements or income tax returns. A valuation allowance is recognized to
reduce the carrying value of the deferred tax assets if it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
ROYALTY OVERRIDES
An independent distributor may earn commissions called royalty overrides or
production bonuses based on retail volume. Such commissions are based on the
retail sales volume of certain other members of the independent sales force
who are sponsored by the distributor.
REVENUE RECOGNITION
The Company records its retail sales based upon suggested retail prices as
reflected on the Company's sales invoices to its distributors. The Company
does not receive the amount reported as retail sales, but generally receives
the net sales price in cash or through credit card payments upon receipt of
orders from distributors. The net sales price is the suggested retail price
less a distributor allowance approximating 50%. Sales and related royalty
overrides are recorded when the merchandise is shipped. Advance sales
deposits represent prepaid orders for which the Company has not shipped the
merchandise.
SOURCES OF SUPPLY AND PRODUCT DEVELOPMENT
A large majority of the Company's products are produced by two manufacturers,
who also perform substantially all of the Company's research and development
functions and own certain product formulations and manufacturing processes
relating to the Company's products. The Company has requirements contracts
with these companies that extend to January 1998, whereby the Company has
agreed to purchase all of its requirements for these products from the
manufacturers, and the manufacturers have agreed to sell these products only
to the Company.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". As permitted by SFAS No.
123, the Company expects to continue to apply Accounting Principles Board
Opinion 25 and related interpretations in accounting for its stock-based
compensation. Accordingly, the adoption of SFAS
32
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No. 123, which is required beginning in 1996, will expand disclosure of the
Company's stock option plans but is not expected to have a material effect on
the consolidated financial statements of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories comprise the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
----------- -----------
<S> <C> <C>
Product $43,607,000 $35,099,000
Literature 4,225,000 3,375,000
Promotional items 2,264,000 2,430,000
----------- -----------
Total $50,096,000 $40,904,000
----------- -----------
----------- -----------
</TABLE>
4. BANK LOANS AND CONTRACTS PAYABLE
Bank loans and contracts payable consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
---------- ----------
<S> <C> <C>
Capitalized leases, due in monthly
installments through 2000 (Note 5) 1,162,000 2,398,000
Other 328,000 566,000
---------- ----------
Total 1,490,000 2,964,000
Less current portion 476,000 1,185,000
---------- ----------
Long-term portion $1,014,000 $1,779,000
---------- ----------
---------- ----------
</TABLE>
Annual scheduled payments of bank loans and contracts payable are:
$1,185,000 (1996), $752,000 (1997), $453,000 (1998), $324,000 (1999), and
$250,000 (2000).
33
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LEASE OBLIGATIONS
The Company has warehouse and office facilities, furniture and fixtures and
equipment under leases which expire at various dates through 2009. Under the
lease agreements, the Company is also obligated to pay property taxes,
insurance, and maintenance costs. Certain of the leases contain renewal
options. Future minimum rental commitments for non-cancelable operating leases
and capital leases at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Operating Capital
----------- ----------
<S> <C> <C>
1996 $ 7,753,000 $ 860,000
1997 4,868,000 846,000
1998 4,123,000 506,000
1999 3,589,000 345,000
2000 3,290,000 145,000
Thereafter 14,352,000
----------- ----------
Total $37,975,000 2,702,000
-----------
-----------
Less: Amounts included above representing interest 304,000
----------
Present value of net minimum lease payments $2,398,000
----------
----------
</TABLE>
Rental expense for the years ended December 31, 1993, 1994 and 1995 was
$3,539,000, $5,120,000, and $7,126,000, respectively.
Property under capital leases is included in property in the accompanying
balance sheets at December 31, 1994 and 1995 as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Equipment $1,599,000 $3,756,000
Less: accumulated amortization 703,000 1,443,000
---------- ----------
Total $ 896,000 $2,313,000
---------- ----------
---------- ----------
</TABLE>
6. EMPLOYEE COMPENSATION PLANS
The Company adopted an incentive compensation and production bonus plan in
1992 for officers, directors and key employees. Bonuses were awarded in 1993
and 1994 within the framework of this plan, except for the bonus paid to the
Chief Executive Officer in 1993, which was determined in accordance with the
formula in his Compensation Agreement of $20,000 for each one percent
increase in the Company's primary earnings per share in 1993 as compared to
1992, and except for 1994 bonuses paid to a number of senior executives,
which were determined under the Plan described below. Under the plan, up to
20% of earnings before bonuses and income taxes could be awarded based on the
attainment of certain sales goals and net income. The expenses under the
plans for 1993 and 1994 totaled $4,965,000 and $830,000, respectively. No
bonuses were awarded under these plans for 1995.
In 1994, the Company adopted the 1994 Performance Based Annual Incentive
Compensation Plan ("the Plan"). The purpose of the Plan is to provide
additional compensation as an incentive to key executives and consultants to
attain certain specified performance objectives of the Company. The amount of
the available awards to individual participants and the aggregate amount to all
participants is determined based upon objective performance goals as determined
by the Compensation Committee of the Board of Directors. The amounts awarded
under the Plan for 1994 totaled $3,160,000. No amounts were awarded under this
plan for 1995.
34
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also maintains a savings plan pursuant to Sections 401 (k) and (m)
of the Internal Revenue Code. The plan is available to substantially all
employees who meet length and service requirements. Employees may elect to
contribute 2% to 15% of their compensation, and the Company will match a portion
of the participant's contribution. Participants are partially vested in
contributions, made on their behalf by the Company, after three years, and fully
vested after seven years. Employer contributions were $144,000, $203,000 and
$284,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
7. TRANSACTIONS WITH RELATED PARTIES
The majority stockholder and director of the Company owns a one-third interest
in Raven Industries, a major supplier of one of the Company's products, and a
one-fifth interest in Dynamic Products, Inc., a supplier of one of the Company's
products. Another director of the Company owns a five percent interest in
Dynamic Products, Inc. Total purchases from Raven Industries under a contract
which expires in 1998 were $42,436,000, $41,801,000 and $26,246,000 for the
years ended December 31, 1993, 1994 and 1995, respectively. Total purchases
from Dynamic Products, Inc. were $2,351,000, $5,768,000 and $3,094,000 for the
years ended December 31, 1993, 1994 and 1995, respectively. At December 31,
1994 and 1995, the aggregate amounts due to these suppliers were $1,062,000 and
$971,000, respectively.
The Company engages Nutrient Research Consultants, Ltd., which is wholly owned
by an officer, to perform consulting services related to the formulation and
testing of nutritional products. For the years ended December 31, 1993, 1994
and 1995, payments by the Company to this consulting firm amounted to $967,000,
$1,294,000 and $1,003,000, respectively.
During 1994 and 1995, the Company advanced amounts to officers and directors
under promissory notes that bear interest at various rates ranging from 5.75% to
7.93% per annum and are due and payable two years from the date of issuance. At
December 31, 1994 and 1995, the total amount receivable from officers and
directors was $3,815,000 and $1,269,000, respectively. Such notes were reduced
in 1995 by $3,160,000 following ratification by the Compensation Committee of
the Board of Directors of awards under the Company's 1994 Performance Based
Annual Incentive Compensation Plan
(see Note 6).
8. RESTRUCTURING EXPENSES
In connection with the Company's plan to modify its European infrastructure in
order to enhance operating efficiencies, the Company recorded a restructuring
charge of $2,300,000 in the year ended December 31, 1995. The restructuring
charge included expected termination costs for certain leases and a reduction in
certain asset carrying values. The plan to modify the infrastructure will be
implemented in the second half of 1996.
9. CONTINGENCIES
In January 1995, the Company and certain of its officers and directors were
served with three complaints alleging violation of federal securities laws.
In March 1995, the court consolidated the three complaints. In January 1996,
the court dismissed in its entirety the plaintiffs' consolidated complaint.
In February 1996, the plaintiffs filed a notice of appeal of the court's
order of dismissal. The Company has certain indemnity obligations to the
named officers and directors. The Company has directors' and officers'
liability insurance which, subject to certain customary exceptions and
exclusions, is expected to cover a portion or all of any such obligations
less the Company's self-retention amount. Based upon a review of the
allegations of the complaints, the court's dismissal of the complaints and
analysis by litigation counsel, the Company believes that it has substantial
and meritorious defenses to the asserted claims and is vigorously contesting
these claims.
The Company's French subsidiary has been subject to a tax audit by French tax
authorities, who are proposing that significant value added, withholding, and
income taxes are due. The Company and its tax advisors believe that the
Company has substantial defenses and the Company is vigorously contesting
these and other potential assessments. However, the ultimate resolution of
this matter may take several years.
During the third quarter of 1995, the Company received inquiries from certain
governmental agencies within Germany and Portugal relating to the Company's
product, Thermojetics-Registered Trademark- Instant Herbal Beverage. Pending
resolution of these inquiries, the sale of this product in these countries was
suspended. The Company is engaged in ongoing consultation with the
35
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
appropriate authorities, and the resumption of sales of this product is
dependent upon the satisfactory outcome of these consultations.
Furthermore, the Company is from time to time engaged in routine litigation
incident to the conduct of its business. The Company regularly reviews all
pending litigation matters in which it is involved and, estimating the impact
of such litigation matters, establishes reserves considered appropriate by
management. The Company's estimates of the impact of these matters may
change as the matters progress and are ultimately resolved.
10. STOCKHOLDERS' EQUITY
In October 1993, the Company offered and sold 2,647,000 shares of Common
Stock. Proceeds to the Company net of underwriting commissions were $31.1
million and, after cash offering costs, net proceeds were $29.6 million. In
addition, 75,588 shares of Common Stock with a value of $1,314,000 were
issued in January 1994 to the firm of Mallory Factor, Inc. for their work on
the offering.
The Company's 1991 Stock Option Plan as amended permits the granting of
non-qualified stock options to key employees and consultants to purchase
3,500,000 shares of the Company's Common Stock at prices not less than 85% of
the fair market value of such shares on the date the option is granted. The
options vest ratably over a maximum of 5 years in minimum installments of 20%
of the number of shares covered by the option. Summarized information related
to the Company's 1991 Stock Option Plan and other separate stock option
agreements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at January 1 1,160,000 2,367,000 2,144,000
Granted 1,380,000 400,000 1,053,000
Exercised (173,000) (518,000) (42,000)
Canceled (105,000) (239,000)
---------- ---------- ----------
Outstanding at December 31 2,367,000 2,144,000 2,916,000
Available for grant at December 31 1,239,000 944,000 330,000
---------- ---------- ----------
Total reserved shares 3,606,000 3,088,000 3,246,000
---------- ---------- ----------
---------- ---------- ----------
Exercisable at December 31 412,000 333,000 776,000
---------- ---------- ----------
---------- ---------- ----------
Option prices per share
Granted $9.00-$15.25 $15.38-$21.88 $7.38-$11.63
Exercised $0.88-$3.60 $0.88-$9.00 $0.88-$3.63
</TABLE>
In 1992 and 1993, three key management employees were issued a total of
525,000 restricted shares of Common Stock. The employees are entitled to
receive dividends, but assumption of full beneficial ownership vests ratably
over five years and is contingent upon remaining in continuous employment for
the vesting period. Paid-in Capital in Excess of Par Value and Unearned
Compensation were recorded for the market value of the shares issued.
Unearned Compensation is being amortized over the vesting period and is shown
as a reduction of stockholders' equity.
36
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. OPERATIONS IN FOREIGN COUNTRIES
The Company has subsidiaries in Argentina, Australia, Austria, Belgium,
Brazil, Canada, Czech Republic, Denmark, Dominican Republic, Finland, France,
Germany, Hong Kong, Israel, Italy, Japan, Mexico, Netherlands, New Zealand,
Norway, Philippines, Poland, Portugal, Russia, South Africa, Spain, Sweden,
Switzerland, Taiwan, United Kingdom, Venezuela and the United States. The
following is a summary of the financial activity of the Company by
geographical area:
<TABLE>
<CAPTION>
ASIA/ ELIMINATIONS/ TOTAL
(Amounts in thousands) THE AMERICAS EUROPE PACIFIC RIM ADJUSTMENTS CONSOLIDATED
------------ -------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1993
Retail sales to unaffiliated customers $273,868 $391,509 $27,638 $693,015
Operating margin 55,656 48,091 6,865 42,918 153,530
Identifiable assets at December 31, 1993 23,191 37,469 4,694 65,466 130,820
1994
Retail sales to unaffiliated customers $354,286 $473,249 $56,523 $884,058
Operating margin 77,841 61,066 12,244 59,203 210,354
Identifiable assets at December 31, 1994 48,965 63,533 8,937 52,622 174,057
1995
Retail sales to unaffiliated customers $406,204 $373,946 $143,494 $923,644
Operating margin 96,342 37,708 28,654 43,803 206,507
Identifiable assets at December 31, 1995 85,710 49,691 22,684 49,605 207,690
</TABLE>
12. INCOME TAXES
The components of income before income taxes were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Domestic $57,542,000 $62,369,000 $29,735,000
Foreign 8,799,000 11,275,000 1,830,000
----------- ----------- -----------
$66,341,000 $73,644,000 $31,565,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT:
Foreign $3,885,000 $4,950,000 $4,498,000
Federal 19,380,000 25,951,000 937,000
State 2,652,000 2,167,000 29,000
DEFERRED:
Foreign 30,000 350,000 (511,000)
Federal (814,000) (6,007,000) 6,834,000
State 27,000 205,000 50,000
----------- ----------- -----------
$25,160,000 $27,616,000 $11,837,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
37
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences which gave rise to deferred income tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS:
Intercompany profit in inventory $11,764,000 $4,373,000
Accruals not currently deductible 1,249,000 3,662,000
Tax loss carryforwards of certain foreign subsidiaries 810,000 2,635,000
Less valuation allowance (757,000) (2,232,000)
Accrued state income taxes 795,000 67,000
Other 119,000 831,000
----------- -----------
13,980,000 9,336,000
----------- -----------
DEFERRED TAX LIABILITIES:
Depreciation/Amortization $318,000 $2,031,000
Payments to former partners 1,053,000 1,009,000
Inventory deductibles 308,000 533,000
Deductible deferred costs 1,295,000 452,000
Other 77,000 215,000
----------- -----------
3,051,000 4,240,000
----------- -----------
NET $10,929,000 $5,096,000
----------- -----------
----------- -----------
</TABLE>
At December 31, 1995, the Company's deferred income tax asset for tax loss
carryforwards of certain foreign subsidiaries totaling $2,635,000 was reduced
by a valuation allowance of $2,232,000. The tax loss carryforwards expire in
varying amounts between 1996 and 2005. Realization of the tax loss
carryforwards is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net carrying value
of the tax loss carryforwards will be realized. The amount of the tax loss
carryforwards that is considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward
period are reduced.
The tax expense differs from the "expected" income tax expense by applying
the United States statutory rate of 35% as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Tax expense at United States statutory rate $23,219,000 $25,775,000 $11,048,000
Increase (decrease) in tax resulting from:
Foreign Sales Corporation (1,312,000) (542,000) (963,000)
Net losses for which no tax benefit was recorded 25,000 214,000 1,725,000
Differences between U.S. and foreign tax rates
on foreign income 901,000 648,000 846,000
State and other taxes, net of federal benefit 1,657,000 1,467,000 41,000
Other 670,000 54,000 (860,000)
----------- ----------- -----------
TOTAL $25,160,000 $27,616,000 $11,837,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Cumulative undistributed earnings of foreign subsidiaries for which no
deferred taxes have been provided approximated $14,405,000 at December 31,
1995. The additional taxes payable on the earnings of foreign subsidiaries,
if remitted, would be substantially offset by U.S. tax credits for foreign
taxes paid.
38
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. FINANCIAL INSTRUMENTS
The company enters into forward exchange contracts in managing its foreign
exchange risk on intercompany transactions and does not use the contracts for
trading purposes. The Company's goal is to protect the Company from the risk
that the eventual dollar net cash inflows from the intercompany transactions
will be adversely affected by changes in exchange rates. At December 31,
1995, the Company had $10,000,000 in notional amounts of foreign exchange
contracts with short-term maturities through February 22, 1996. Gains and
losses on the forward exchange contracts are recognized currently into income
and, along with contract premiums, are included in marketing, distribution
and administrative expenses. A summary of the forward exchange contracts is
as follows:
<TABLE>
<CAPTION>
CONTRACT $U.S. RECOGNIZED
TYPE EQUIVALENT MATURITY GAIN
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forward exchange contracts:
German marks Sell $8,000,000 2/22/96 $177,000
Japanese yen Sell 2,000,000 2/22/96 53,000
----------- --------
$10,000,000 $230,000
----------- --------
----------- --------
</TABLE>
The Company is exposed to credit losses in the event of nonperformance by
counterparties to its foreign exchange contracts but has no off-balance-sheet
credit risk of accounting loss. The Company anticipates, however, that the
counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral or other security to
support the foreign exchange contracts subject to credit risk but monitors
the credit standing of the counterparties. The Company is required by the
counterparty to provide $1,500,000 of collateral for the Company's
obligations in the contracts.
39
<PAGE>
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY INFORMATION (UNAUDITED)
Quarterly information presented here is unaudited.
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
FIRST QUARTER ENDED MARCH 31
Retail sales $191,721,000 $229,166,000
Net sales 101,310,000 121,613,000
Operating margin 44,372,000 52,449,000
Net income 12,287,000 6,301,000
Net income per common share 0.40 0.21
Dividends per share 0.18 0.22
SECOND QUARTER ENDED JUNE 30
Retail sales $227,198,000 $235,396,000
Net sales 120,520,000 124,827,000
Operating margin 54,132,000 53,499,000
Net income 15,351,000 8,055,000
Net income per common share 0.50 0.27
Dividends per share 0.18 0.22
THIRD QUARTER ENDED SEPTEMBER 30
Retail sales $234,852,000 $201,661,000
Net sales 125,231,000 107,257,000
Operating margin 56,831,000 45,774,000
Net income 13,886,000 335,000
Net income per common share 0.45 0.01
Dividends per share 0.22 0.15
FOURTH QUARTER ENDED DECEMBER 31
Retail sales $230,287,000 $257,421,000
Net sales 119,820,000 135,307,000
Operating margin 55,019,000 54,785,000
Net income 4,504,000 5,037,000
Net income per common share 0.15 0.17
Dividends per share 0.22 0.15
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.
Dated: March 29, 1996
HERBALIFE INTERNATIONAL, INC.
TIM GERRITY
By:_______________________________________
Tim Gerrity
Senior Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
MARK HUGHES
___________________________________ Chairman of the Board and March 29, 1996
Mark Hughes President, Chief Executive Officer
(Principal Executive Officer)
CHRISTOPHER PAIR
___________________________________ Director and Executive Vice March 29, 1996
Christopher Pair President International and Corporate
Administration and Secretary
MICHAEL ROSEN Director and Executive Vice March 29, 1996
___________________________________ President Corporate Marketing
Michael Rosen
PAUL BUXBAUM
___________________________________ Director March 29, 1996
Paul Buxbaum
EDWARD HALL
___________________________________ Director March 29, 1996
Edward Hall
ALAN LIKER
___________________________________ Director March 29, 1996
Alan Liker
CHRISTOPHER M. MINER
___________________________________ Director March 29, 1996
Christopher M. Miner
</TABLE>
41
<PAGE>
HERBALIFE INTERNATIONAL, INC.
EXHIBITS
TO
ANNUAL REPORT
ON
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31, 1995
<PAGE>
HERBALIFE INTERNATIONAL, INC.
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
EXHIBIT NUMBER DESCRIPTION PAGE NO./(FOOTNOTE)
- -----------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation (2)
3.2 Articles of Amendment to the Articles of Incorporation dated (2)
December 10, 1986
3.3 Articles of Amendment to the Articles of Incorporation dated (2)
November 22, 1989
3. 4 Certificate of Determination relating to the Company's Senior (7)
Convertible Preferred Stock dated February 11, 1993
3.5 Certificate of Amendment to Articles of Incorporation dated May 14, (7)
1993
3.6 Amended and Restated Bylaws (7)
4.1 Form of Common Stock Certificate (7)
10.1 Agreement between Herbalife International of America, Inc. and D&F (7)
Industries, Inc. dated May 12, 1993
10.2 Agreement between Herbalife International of America, Inc. and Raven (7)
Industries, Inc. dated May 12, 1993
10.3 Agreement between Herbalife International of America, Inc. and (7)
Dynamic Products, Inc. dated May 12, 1993
10.4 Master Lease between the Company and Trizec Properties, Inc. dated (4)
July 17, 1991
10.5 Equipment Lease Agreement between the Company and Hewlett Packard (5)
dated May 21, 1992
10.6 Final Judgment and Permanent Injunction, entered into on October, (1)
1986 by the parties to that action entitled People of the State of
California, et al., v Herbalife International, Inc. et al., Case No.
92767 in the Superior Court of the State of California for the
County of Santa Cruz
10.7 Permitting Agreement between the Company and Nippon Herbalife K.K. (3)
effective July 27, 1988
10. 8 Exclusive License Agreement between the Company and Nippon Herbalife (3)
K.K. dated August 25, 1988
10.9 First Addendum to Exclusive License Agreement between the Company (7)
and Nippon Herbalife K.K. dated April 10, 1991
10.10 Second Addendum to Exclusive License Agreement dated between the (5)
Company and Nippon Herbalife K.K. dated May 22, 1992
10.11 The Company's 1988 Incentive Plan (1)
10.12 The Company's 1991 Stock Option Plan, as amended (6), (12)
10.13 The Company's Executive Incentive Compensation Plan, as amended (7), (12)
10.14 Form of Individual Participation Agreement relating to the Company's (7)
Executive Compensation Plan
10.15 Employment Agreement between the Company and Norman Friedmann dated (5)
August 1, 1992
10.17 Amendment to Employment Agreement between the Company and Norman (7)
Friedmann dated July 27, 1993
10.18 Amendment to Employment Agreement between the Company and David (7)
Addis dated June 29, 1993
10.19 Form of Letter Agreement between the Compensation Committee of the (7)
Board of Directors of the Company and Mark Hughes
10.20 Form of Indemnity Agreement between the Company and certain officers (7)
and directors of the Company
10.21 Trust Agreement among the Company, Citicorp Trust, N.A. and certain (7)
officers and directors of the Company
10.22 Form of Stock Appreciation Rights Agreement between the Company and (7)
certain directors of the Company
10.23 1994 Performance Based Annual Incentive Compensation Plan (9), (12)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
EXHIBIT NUMBER DESCRIPTION PAGE NO./(FOOTNOTE)
- -----------------------------------------------------------------------------------------------------------------
10.24 Form of Promissory Note for Advances under the Company's 1994 (10)
Performance Based Annual Incentive Compensation Plan
10.25 Employment Agreement between the Company and Chris Pair dated April (8)
3, 1994
10.26 Deferred Compensation Agreement between the Company and Michael (10)
Rosen
10.27 Office lease agreement between the Company and State Teacher's (11)
Retirement System, dated July 20, 1995
10.28 Form of stock appreciation rights agreements between the Company and (11)
certain directors of the Company
10.29 The Company's Senior Executive Deferred Compensation Plan, effective (11)
January 1, 1996
10.30 The Company's Management Deferred Compensation Plan, effective (11)
January 1, 1996
10.31 Matter Trust Agreement between the company and Imperial Trust (11)
Company, Inc., effective January 1, 1996
10.32 The Company's 401K Plan (11)
21 List of subsidiaries of the Company (11)
23.1 Independent Auditors' Consent (11)
27 Financial Data Schedule (11)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
(6) Incorporated by reference to the Company's definitive Proxy Statement
relating to its annual meeting of shareholders held May 20, 1993.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-66576) declared effective by the Securities and Exchange
Commission on October 8, 1993.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended June 30, 1994.
(9) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1994 Annual Meeting of Stockholders.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(11) Filed herewith
(12) Form of the amended and restated plan, to be submitted for shareholder
approval at the 1996 Annual Meeting of Shareholders, will be attached as an
appendix to the Proxy Statement relating to such meeting.
<PAGE>
OFFICE LEASE
1800 CENTURY PARK EAST
STATE TEACHERS' RETIREMENT SYSTEM,
A RETIREMENT SYSTEM CREATED UNDER THE LAWS OF THE STATE OF CALIFORNIA,
AS LANDLORD,
AND
HERBALIFE INTERNATIONAL OF AMERICA, INC.,
A CALIFORNIA CORPORATION,
AS TENANT.
<PAGE>
1800 CENTURY PARK EAST
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Office Lease (this Summary and the Office
Lease to be known collectively as the "Lease") which pertains to the office
building (the "Building") which is located at 1800 Century Park East, Los
Angeles, California. Each reference in the Office Lease to any term of this
Summary shall have the meaning as set forth in this Summary for such term. In
the event of a conflict between the terms of this Summary and the Office Lease,
the terms of the Office Lease shall prevail. Any capitalized terms used herein
and not otherwise defined herein shall have the meaning as set forth in the
Office Lease.
TERMS OF LEASE
(References are to
The Office Lease) DESCRIPTION
- ------------------- -----------
1. Date: July 11, 1995.
2. Landlord: STATE TEACHERS' RETIREMENT
SYSTEM, a retirement system created
under the laws of the State of
California
3. Address of Landlord
(SECTION 29.19): c/o TCW Realty Advisors
865 S. Figueroa Street
Suite 3500
Los Angeles, California 90017
Attention: Mr. Hugh Dirstine
Facsimile Number: (213) 683-4201
4. Tenant: HERBALIFE INTERNATIONAL OF AMERICA,
INC., a California corporation.
5. Address of Tenant
(SECTION 29.19): 9800 La Cienega Boulevard
Inglewood, California 90301
Attention: Mr. Chris Pair and Legal
Department
(Prior to Lease Commencement Date)
Facsimile Number: (310) 258-7001
and
1800 Century Park East
Suite 1500
Los Angeles, California 90067
Attention: Mr. Chris Pair and Legal
Department
(After Lease Commencement Date)
Facsimile Number: TO BE SUPPLIED BY
TENANT BY NOTICE TO LANDLORD
in both cases with a copy to:
Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue Of The Stars, Suite 1800
Los Angeles, California 90067-6050
Attention: Anton N. Natsis, Esq.
Facsimile Number: (310) 788-2410
(ii)
<PAGE>
6. Premises
(Article 1): 80,927 rentable square feet of space
(76,988 usable) in aggregate consisting
of (i) 15,989 rentable square feet of
space (15,209 usable) located on the
15th floor of the Building, (ii) 16,480
rentable square feet of space (15,681
usable) located on the 14th floor of the
Building, (iii) 15,989 rentable square
feet of space (15,208 usable) located on
the 13th floor of the Building, (iv)
16,480 rentable square feet of space
(15,681 usable) located on the 12th
floor of the Building, and (v) 15,989
rentable square feet of space (15,209
usable) located on the 11th floor of the
Building, all as set forth in Exhibit A
attached hereto.
7. Term (Article 2).
7.1 Lease Term: Ten (10) years.
7.2 Lease Commencement Date: January 22, 1996 (as may be extended
pursuant to the terms of the Lease and
the Tenant Work Letter).
7.3 Lease Expiration Date: January 21, 2006 (as may be extended
pursuant to the terms of the Lease and
the Tenant Work Letter).
8. Base Rent (Article 3):
<TABLE>
<CAPTION>
Annual
Annual Monthly Installment Rental Rate per
Lease Year Base Rent of Base Rent Rentable Square Foot
- ---------- --------- ------------------- --------------------
<S> <C> <C> <C>
1 -5 $1,748,023.20 $145,668.60 $21.60
6-10 $2,039,360.40 $169,946.70 $25.20
</TABLE>
9. Additional Rent (Article 4).
9.1 Base Year: The calendar year 1996.
9.2 Tenant's Share: 33.059%
10. Security Deposit
(Article 21): $169,946.70.
11. Parking Pass Ratio
(Article 28): Up to three (3) parking passes for every
1,000 rentable square feet of the Premises.
12. Brokers
(SECTION 29.25): Cushman Realty, Inc.
601 South Figueroa Street
47th Floor
Los Angeles, California 90017
and
CB Commercial Real Estate Group, Inc.
1840 Century Park East
Suite 700
Los Angeles, California 90067
(iii)
<PAGE>
EXHIBITS
A OUTLINE OF PREMISES
A-1 OUTLINE OF EXPANSION SPACE
B TENANT WORK LETTER
c FORM OF NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E FORM OF ESTOPPEL CERTIFICATE
F EXPANSION SPACE - SUPERIOR TENANTS' RIGHTS
G SPECIFICATIONS - BUILDING TOP SIGNAGE AND MONUMENT SIGNAGE
H HVAC SPECIFICATIONS
I CLEANING SPECIFICATIONS
J INTENTIONALLY DELETED
K DETERMINATION OF RENTABLE SQUARE FEET FOR PARTIAL FLOORS
L FORM OF MEMORANDUM OF LEASE
M OUTLINE OF PARKING AREA
(v)
<PAGE>
1800 CENTURY PARK EAST
INDEX OF MAJOR DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION
OF DEFINITIONS
DEFINED TERMS IN OFFICE LEASE
- ------------- ---------------
<S> <C>
AAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Abatement Event. . . . . . . . . . . . . . . . . . . . . . . . .22
Acceptance Notice. . . . . . . . . . . . . . . . . . . . . . . . 4
Actual Cost. . . . . . . . . . . . . . . . . . . . . . . . . . .22
Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . . 8
Affected Area. . . . . . . . . . . . . . . . . . . . . . . . . .22
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Air Quality Standards. . . . . . . . . . . . . . . . . . . . . .19
Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . .25
Arbitration Notice . . . . . . . . . . . . . . . . . . . . . . .42
Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . .42
ASHRAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Availability Notice. . . . . . . . . . . . . . . . . . . . . . . 4
Availability Rent. . . . . . . . . . . . . . . . . . . . . . . . 4
Available Electricity. . . . . . . . . . . . . . . . . . . . . .19
Available Space. . . . . . . . . . . . . . . . . . . . . . . . . 4
Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Base Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
BOMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Building HVAC System . . . . . . . . . . . . . . . . . . . . . .19
Building Structure . . . . . . . . . . . . . . . . . . . . . . .23
Building Systems . . . . . . . . . . . . . . . . . . . . . . . .23
Building Top Signage . . . . . . . . . . . . . . . . . . . . . .41
Cleaning Specifications. . . . . . . . . . . . . . . . . . . . .20
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Commission Agreement . . . . . . . . . . . . . . . . . . . . . .48
Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Comparable Buildings . . . . . . . . . . . . . . . . . . . . . .50
Comparable Systems Buildings . . . . . . . . . . . . . . . . . .19
Cure Notice. . . . . . . . . . . . . . . . . . . . . . . . . . .22
Cut. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Damage Termination Date. . . . . . . . . . . . . . . . . . . . .30
Damage Termination Notice. . . . . . . . . . . . . . . . . . . .30
Delivery Date. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Direct Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 8
Early Put. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Early Put Dates. . . . . . . . . . . . . . . . . . . . . . . . . 2
Ed Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Emergency Cure Period. . . . . . . . . . . . . . . . . . . . . .24
Emergency Notice . . . . . . . . . . . . . . . . . . . . . . . .24
Essential Services . . . . . . . . . . . . . . . . . . . . . . .22
Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Estimate Statement . . . . . . . . . . . . . . . . . . . . . . .16
Estimated Excess . . . . . . . . . . . . . . . . . . . . . . . .16
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Excess Consumption . . . . . . . . . . . . . . . . . . . . . . .19
Expansion Rent . . . . . . . . . . . . . . . . . . . . . . . . . 3
Expansion Rent Notice. . . . . . . . . . . . . . . . . . . . . . 2
Expansion Space. . . . . . . . . . . . . . . . . . . . . . . . . 2
Expansion Space Commencement Date. . . . . . . . . . . . . . . . 3
Expense Year . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Extended Outside Date . . . . . . . . . . . . . . . . . . . . . 5
Fair Market Rent . . . . . . . . . . . . . . . . . . . . . . . . 6
Fair Market Rent Expansion Notice . . . . . . . . . . . . . . . 2
First Option Rent . . . . . . . . . . . . . . . . . . . . . . . 6
First Option Term . . . . . . . . . . . . . . . . . . . . . . . 5
Fixed Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . .47
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . .49
Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
(vi)
<PAGE>
Initial Audit . . . . . . . . . . . . . . . . . . . . . . . . .17
Intention to Transfer Notice . . . . . . . . . . . . . . . . . .34
Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . .51
JAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Landlord Affiliates . . . . . . . . . . . . . . . . . . . . . .50
Landlord's Broker. . . . . . . . . . . . . . . . . . . . . . . .48
Landlord's Group . . . . . . . . . . . . . . . . . . . . . . . .27
Landlord's Security. . . . . . . . . . . . . . . . . . . . . . .20
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lease Commencement Date. . . . . . . . . . . . . . . . . . . . . 5
Lease Expiration Date. . . . . . . . . . . . . . . . . . . . . . 5
Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Legal Requirements . . . . . . . . . . . . . . . . . . . . . . .25
Monument Signage . . . . . . . . . . . . . . . . . . . . . . . .41
Necessary Action . . . . . . . . . . . . . . . . . . . . . . . .24
Nine Month Period. . . . . . . . . . . . . . . . . . . . . . . .34
Notice Date. . . . . . . . . . . . . . . . . . . . . . . . . . .24
Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Offset Right . . . . . . . . . . . . . . . . . . . . . . . . . .24
On . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . 8
Option Notice. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Option Notice Period . . . . . . . . . . . . . . . . . . . . . . 6
Option Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Option Rent Notice . . . . . . . . . . . . . . . . . . . . . . . 6
Option Term. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Passenger Elevator Specifications. . . . . . . . . . . . . . . .20
Passenger Elevators. . . . . . . . . . . . . . . . . . . . . . .20
Personal Property. . . . . . . . . . . . . . . . . . . . . . . .36
Possessory Interest Tax. . . . . . . . . . . . . . . . . . . . .14
Pre-Occupancy Period . . . . . . . . . . . . . . . . . . . . . . 5
Pre-Occupancy Space. . . . . . . . . . . . . . . . . . . . . . . 5
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Proposition 13 . . . . . . . . . . . . . . . . . . . . . . . . .14
Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Reassessment . . . . . . . . . . . . . . . . . . . . . . . . . .17
Recognition Agreement . . . . . . . . . . . . . . . . . . . . .35
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Repair Invoice . . . . . . . . . . . . . . . . . . . . . . . . .24
Repair Notice. . . . . . . . . . . . . . . . . . . . . . . . . .23
Request Notice . . . . . . . . . . . . . . . . . . . . . . . . . 4
Required Action. . . . . . . . . . . . . . . . . . . . . . . . .23
Rules and Regulations. . . . . . . . . . . . . . . . . . . . . .18
Second Notice. . . . . . . . . . . . . . . . . . . . . . . . . .24
Second Option Rent . . . . . . . . . . . . . . . . . . . . . . . 6
Second Option Term . . . . . . . . . . . . . . . . . . . . . . . 5
Security Area. . . . . . . . . . . . . . . . . . . . . . . . . .20
Security Deposit . . . . . . . . . . . . . . . . . . . . . . . .40
Services Termination Notice. . . . . . . . . . . . . . . . . . .22
Sick Building . . . . . . . . . . . . . . . . . . . . . . . . .19
Single Policy. . . . . . . . . . . . . . . . . . . . . . . . . .13
Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Subject Space. . . . . . . . . . . . . . . . . . . . . . . . . .32
Subleasing Costs . . . . . . . . . . . . . . . . . . . . . . . .33
Suite 1000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Suite 1050 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Superior Right Holders . . . . . . . . . . . . . . . . . . . . . 3
Supplemental Parking Area. . . . . . . . . . . . . . . . . . . . 1
Systems and Equipment. . . . . . . . . . . . . . . . . . . . . .13
Tax Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .13
Tax Increase . . . . . . . . . . . . . . . . . . . . . . . . . .17
Telecommunications System. . . . . . . . . . . . . . . . . . . .21
Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Tenant HVAC System . . . . . . . . . . . . . . . . . . . . . . .19
Tenant's Broker. . . . . . . . . . . . . . . . . . . . . . . . .48
Tenant's Group . . . . . . . . . . . . . . . . . . . . . . . . .27
Tenant's Property. . . . . . . . . . . . . . . . . . . . . . . .26
Tenant's Security. . . . . . . . . . . . . . . . . . . . . . . .20
(vii)
<PAGE>
Tenant's Share . . . . . . . . . . . . . . . . . . . . . . . . .15
Termination Cure Period. . . . . . . . . . . . . . . . . . . . .22
Third Party Lease. . . . . . . . . . . . . . . . . . . . . . . . 3
Transfer Notice. . . . . . . . . . . . . . . . . . . . . . . . .32
Transfer Premium . . . . . . . . . . . . . . . . . . . . . . . .33
Transfer Space . . . . . . . . . . . . . . . . . . . . . . . . .34
Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Variable Components. . . . . . . . . . . . . . . . . . . . . . . 9
Ventilation for Acceptable Indoor Air Quality . . . . . . . . .19
</TABLE>
(viii)
<PAGE>
1800 CENTURY PARK EAST
OFFICE LEASE
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "SUMMARY") attached hereto and incorporated herein by this
reference (the Office Lease and Summary to be known collectively as the
"LEASE"), dated as of the date set forth in SECTION 1 of the Summary, is made by
and between STATE TEACHERS' RETIREMENT SYSTEM, a retirement system created under
the laws of the State of California ("LANDLORD"), and HERBALIFE INTERNATIONAL OF
AMERICA, INC., a California corporation ("TENANT").
ARTICLE 1
REAL PROPERTY, BUILDING AND PREMISES
1.1 REAL PROPERTY, BUILDING AND PREMISES. Upon and subject to the
terms, covenants and conditions hereinafter set forth in this Lease, Landlord
hereby leases to Tenant and Tenant hereby leases from Landlord the premises set
forth in SECTION 6 of the Summary (the "PREMISES"), which Premises are located
in the "Building," as that term is defined in this SECTION 1.1. The outline of
the floor plan of the Premises is set forth in EXHIBIT A attached hereto. The
Premises are a part of the building (the "BUILDING") located at 1800 Century
Park East, Los Angeles, California. The Building contains 244,792 rentable
square feet. Tenant's rights to the Premises do not include the right to use
the janitorial closet and the fan, electrical, and telephone rooms on the floors
of the Building containing all or a portion of the Premises (provided that
Tenant shall be permitted to use the telephone room on the floor or floors of
the Premises to terminate its telephone cable in the same and install and
maintain Tenant's telephone equipment but only to the extent such equipment does
not interfere with normal operation of the Building telephone equipment in such
room, and thereafter Tenant shall have access thereto upon prior notice to
Landlord and, except in emergencies, when accompanied by a representative of
Landlord), and do not include the right to use, or access to, any ceilings or
space above the ceilings on the floors of the Building containing the Premises
(provided that Tenant shall be allowed to use such space on the floor or floors
of the Premises as necessary for providing utility services such as the
installation of computer cable conduits, as approved by Landlord, and thereafter
Tenant shall have access to such space upon prior notice to Landlord and, except
in emergencies, when accompanied by a representative of Landlord), nor do
Tenant's rights to the Premises include the right to use, or access to, any
floors or walls on the floor or floors containing the Premises (with the
exception of the inner surfaces thereof and with the further exception of any
walls which are constructed solely to partition space within the Premises). The
Building, the parking structure beneath the Building (the "MAIN PARKING AREA")
and the parking structure adjacent to the Building (the "SUPPLEMENTAL PARKING
AREA") (collectively, the "ON-SITE PARKING AREA"), the land upon which the
Building stands and the land and improvements surrounding the Building which are
common areas appurtenant to or servicing the Building are herein sometimes
collectively referred to as the "REAL PROPERTY."
1.2 COMMON AREAS. Tenant is hereby granted the right to the
nonexclusive use of the common corridors and hallways, stairwells, elevators,
restrooms and other public or common areas located on the Real Property
designated by Landlord for the common use of the tenants of the Building
(collectively, the "COMMON AREAS"); provided, however, that the manner in which
such Common Areas are maintained and operated shall be at the reasonable
discretion of Landlord, and the use thereof by Tenant and other persons and
entities shall be subject to the Rules and Regulations (as the same may be
modified from time to time in a reasonable, non-discriminatory manner) and as
required by local governmental and quasi-governmental authorities. Landlord
reserves the right to make alterations or additions to or to change the location
of elements of the Real Property and the Common Areas; provided, however, that,
if there is no emergency condition requiring such alteration or change, Landlord
shall provide Tenant with fifteen (15) business days prior notice of any of the
actions set forth in this SECTION 1.2, above, to be taken by Landlord if such
action will substantially interfere with Tenant's ability to (i) conduct
business in the Premises, (ii) gain access to and from the On-site Parking Area
and adjacent streets, or (iii) use the On-site Parking Area. Landlord shall at
all times during the Lease Term, maintain and operate the Common Areas in a
first-class manner customary to Comparable
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<PAGE>
Buildings. Subject to the terms of this Lease (including any provisions hereof
which cover impairment of access), Tenant shall have the right of access to the
Premises, the Building and the On-site Parking Area 24-hours per day, 7-days per
week during the "Lease Term" as that term is defined in SECTION 2.1 of this
Lease.
1.3 VERIFICATION OF RENTABLE SQUARE FEET OF PREMISES AND BUILDING.
For purposes of this Lease, "usable square feet" shall be calculated pursuant to
Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1 - 1980
("BOMA"). Landlord and Tenant agree that the number of usable and rentable
square feet contained in the Premises initially leased by Tenant pursuant to
this Lease are as set forth in SECTION 6 of the Summary and the number of
rentable square feet in the Building is as set forth in SECTION 1.1, above.
Rentable square feet for any full floors leased by Tenant of any Expansion Space
or Available Space shall be the product of (i) 1.051 and (ii) the number of
usable square feet contained in such space, measured pursuant to BOMA. Rentable
square feet for any partial floors leased by Tenant as Expansion Space or
Available Space shall be the product of (A) the number of usable square feet
contained in such space measured pursuant to BOMA, and (B) the load factor for
the floor such space is located on, as determined in Landlord's reasonable
discretion. The current load factors for the Building are as set forth in
EXHIBIT K attached hereto.
1.4 BASE BUILDING. Landlord shall complete or cause to be completed,
at its own cost and expense, the "Base Building," as that term is defined in the
Tenant Work Letter, attached hereto as EXHIBIT B. Except as specifically set
forth in this Lease and in the Tenant Work Letter, Landlord shall not provide or
pay for any improvement work or services related to the improvement of the
Premises. Tenant also acknowledges that Landlord has made no representation or
warranty regarding the condition of the Premises or the Building except as
specifically set forth in this Lease and the Tenant Work Letter.
1.5 EXPANSION SPACE. Landlord hereby grants to Tenant the option
to lease approximately 8758 rentable square feet of space known as Suite 1000
("SUITE 1000") and 6748 rentable square feet of space known as Suite 1050
("SUITE 1050"), located on the tenth (10th) floor of the Building
(collectively, the "EXPANSION SPACE"), as set forth in EXHIBIT A-1 attached
hereto, upon the terms and conditions set forth in this SECTION 1.5 and this
Lease. Notwithstanding the foregoing, Tenant's right to lease Expansion Space
shall be subordinate to, and shall commence only after the expiration of, the
"Existing Tenant's Rights", as that term is defined in Section 1.6, below..
1.5.1 METHOD OF EXERCISE. Tenant's option to lease any of the
Expansion Space shall be exercised in the following manner. Landlord shall
inform Tenant prior to the date a particular Expansion Space will become
available to occupy by Tenant, which notice in any event may not be delivered
before July 31, 1998 as to Suite 1000 and November 30, 1998 as to Suite 1050.
Tenant shall, within fifteen (15) business days thereafter, deliver written
notice to Landlord stating that Tenant is interested in exercising its right
to lease the applicable Expansion Space. Landlord, within fifteen (15)
business days after receipt of Tenant's notice, shall deliver notice to
Tenant (the "EXPANSION RENT NOTICE"), setting forth the "Expansion Rent", as
that term is defined in SECTION 1.5.2 hereof. If Tenant wishes to exercise
such option, Tenant shall, on or before the date occurring fifteen (15)
business days after Tenant's receipt of the Expansion Rent Notice, exercise
Tenant's option to lease by delivering written notice thereof to Landlord.
Concurrent with such exercise Tenant may object to the Expansion Rent set
forth in the Expansion Rent Notice, in which case Landlord and Tenant shall
use good faith efforts to agree on the Expansion Rent. In the event that
Landlord and Tenant do not agree to the Expansion Rent within fifteen (15)
days of Tenant's election to lease any of the Expansion Space, Tenant shall
deliver a notice to Landlord (the "FAIR MARKET RENT EXPANSION NOTICE")
electing to submit the Expansion Rent to arbitration, and the Expansion Rent
shall be determined as set forth in SECTION 2.2.2 of this Lease.
1.5.1.1 LANDLORD'S EARLY PUT RIGHT. If for any reason
Landlord is able to offer Tenant occupancy of the Expansion Space earlier
than November 30, 1997 for Suite 1000, or March 31, 1998 for Suite 1050, (the
"EARLY PUT DATES"), Landlord shall notify Tenant of such availability (the
"EARLY PUT"), and Tenant shall then have fifteen (15) business days after
Tenant's receipt of Landlord's notice to notify Landlord of its interest in
exercising its option on the offered
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<PAGE>
Expansion Space. If Tenant elects to exercise its option pursuant to the Early
Put the parties shall follow the procedures set forth in sentences three, four
and five of SECTION 1.5.1 above.
1.5.1.2 RIGHTS FOLLOWING EARLY PUT. If Tenant declines to then
exercise its rights under SECTION 1.5.1.1 with respect to the Early Put, or
fails to respond within the fifteen (15) business day period, Landlord shall
have the right to lease such Expansion Space to a third party (the "THIRD PARTY
LEASE") for a term with an expiration date which occurs on or before the earlier
of (i) the last day of the fifth year of such term and (ii) November 30, 2000,
as to Suite 1000 and March 31, 2001, as to Suite 1050. Following the expiration
of the Third Party Lease, Landlord shall notify Tenant of the availability of
the Expansion Space and Tenant shall then have fifteen (15) days after Tenant's
receipt of Landlord's notice to notify Landlord of its interest in exercising
its option on such Expansion Space. If Tenant elects to exercise its option,
the parties shall follow the procedures set forth in sentences three, four and
five of Section 1.5.1 above.
1.5.2 EXPANSION RENT. The Rent payable by Tenant for Expansion
Space leased by Tenant (the "EXPANSION RENT") shall be equal to the then
"Fair Market Rent," as that term is defined in SECTION 2.2.1.1, below, for
the applicable Expansion Space.
1.5.3 CONSTRUCTION OF EXPANSION SPACE. Except as otherwise set
forth in this SECTION 1.5 or as otherwise agreed to by Landlord and Tenant,
the construction of improvements in the Expansion Space shall be governed by
the applicable terms of the Expansion Rent and the Tenant Work Letter
attached hereto as EXHIBIT B, and for such purposes all references in the
Tenant Work Letter to the "Premises" shall mean and refer to the applicable
Expansion Space. Tenant shall receive an improvement allowance for the
Expansion Space as determined as a component of the applicable Expansion Rent.
1.5.4 AMENDMENT TO LEASE. If Tenant timely exercises Tenant's
right to lease Expansion Space as set forth herein, Landlord and Tenant shall
within a reasonable after determination of the Expansion Rent, execute an
amendment adding such Expansion Space to the Lease upon the same terms and
conditions as the initial Premises, except as other-wise set forth in this
SECTION 1.5. Tenant shall commence payment of Rent for the Expansion Space
and the term of the Expansion Space shall commence upon a date (the
"EXPANSION SPACE COMMENCEMENT DATE") determined as a component of the
applicable Expansion Rent. The lease term of the Expansion Space shall
expire on the Lease Expiration Date.
1.5.5 TERMINATION OF EXPANSION SPACE RIGHT. Tenant shall not have the
right to lease the Expansion, as provided in this SECTION 1.5, if Tenant, as of
the date of the attempted exercise of any right to lease the Expansion Space by
Tenant, or as of the date of delivery of such Expansion Space to Tenant, is in
"Material Default" under this Lease beyond applicable notice and cure periods.
For the purposes of this Lease, a "Material Default" shall consist of any
default under SECTION 19.1.1., or 19.1.5, below, or a material default under
SECTION 19.1.2, below. The rights contained in this SECTION 1.5 shall be
personal to the Tenant named in the Summary and its "Affiliates," as that term
is defined in SECTION 14.6 of this Lease, and to any assignee (and not by any
sublessee or other Transferee) of the Lease approved by Landlord pursuant to the
terms of ARTICLE 14, and may only be exercised by such Tenant, an Affiliate, or
an assignee (and not any sublessee or other Transferee) if Tenant and its
Affiliates, or the assignee occupies at least four (4) full floors of the
Premises. Time is of the essence of the right of exercising Tenant's option as
to the Expansion. Failure by Tenant to exercise its rights in a timely manner
shall terminate the right with respect to the affected space. In addition, the
right of Tenant's exercising option as to the Expansion offer shall expire if
Tenant does not exercise the First Option or the Second Option as set forth in
SECTION 2.2.
1.6 RIGHT OF AVAILABILITY. Subject to the terms set forth in this
SECTION 1.6, Landlord hereby grants to Tenant a continuing right of availability
to the "Available Space," as that term is defined below, on the terms and
conditions set forth in this SECTION 1.6. Such right of availability shall be
subject to the terms and conditions (including expansion and first offer rights)
of leases existing in the Building as of the date of this Lease as such rights
are set forth in EXHIBIT F attached hereto (the "EXISTING TENANT'S RIGHTS"), and
further subject and subordinate to any and all present and future rights of
other current and future tenants of the Building (collectively the "SUPERIOR
RIGHT HOLDERS") with respect to such space, other than rights of first offer,
first
-3-
<PAGE>
refusal, first availability or any right to expand which does not contain the
right to expand into a predetermined amount of space at a predetermined time
period benefiting future tenants or benefitting current tenants (unless
contained in leases in existence as of the date of this Lease).
1.6.1 PROCEDURE FOR AVAILABILITY RIGHT. Tenant may inform
Landlord (the "REQUEST NOTICE"), not more than twice in any Lease Year, that
Tenant desires to lease additional space in the Building. Landlord shall,
within ten (10) business days of receiving the Request Notice, deliver to
Tenant a notice (the "AVAILABILITY NOTICE"), which Availability Notice shall
describe all space in the Building, other than on the first floor, which will
become available (including space which will become available only following
a tenant's failure to exercise an option to extend its term or expand its
premises) for lease to Tenant within the three (3) year period commencing on
the date of the Availability Notice, the lease rights relating to such space,
and the projected dates upon which such space will become available to lease
(the "AVAILABLE SPACE"), as well as the rentable square footage of the
Available Space, and Landlord's determination of the "Availability Rent," as
that term is defined in SECTION 1.6.3, below, for each such space,
1.6.2 PROCEDURE FOR ACCEPTANCE. If Tenant wishes to exercise
its right of first availability, then within ten (10) business days of
delivery of the Availability Notice to Tenant, Tenant shall deliver notice
(the "ACCEPTANCE NOTICE") to Landlord exercising Tenant's right of
availability as to all or any portion of the space described in the
Availability Notice. If Tenant timely exercises its right of availability as
set forth herein, Landlord and Tenant shall, within thirty (30) days after
Landlord's receipt of the Acceptance Notice, execute an amendment to this
Lease adding the space described in the Acceptance Notice to the Premises
upon the terms and conditions as determined as a component of the
"Availability Rent" as that term is defined in Section 1.6.3, BELOW. If
Tenant does not timely deliver the Acceptance Notice, then Landlord shall be
free to lease any of the space described in the Availability Notice to anyone
to whom Landlord desires and on any terms Landlord desires. Notwithstanding
the foregoing, Tenant shall not have a right to lease less than an entire
portion of Available Space offered to Tenant by Landlord in any particular
Availability Notice except as follows.
1.6.2.1 AVAILABLE SPACE ON MULTI-TENANT FLOORS. In the case
of an Available Space which does not consist of all the space located on a
floor, Tenant shall have the right to lease any or all of the Available Space
on such floor, so long as any space remaining on such floor after Tenant's
lease of the applicable Available Space remains, in Landlord's reasonable
determination, in a leasable configuration,
1.6.2.2 Available Space ON FULL FLOORS. In the case where
any Available Space consists of an entire floor of the Building, Tenant shall
not have the right to lease less than the full floor, unless (i) Tenant shall
lease at least 10,000 rentable square feet of such floor, and (ii) Landlord
is unable to deliver to Tenant a comparable amount of space on a multi-tenant
floor within nine (9) months after the date the space on such full floor will
be delivered to Tenant.
1.6.3 AVAILABILITY RENT. The Rent payable by Tenant for the
Available Space (the "AVAILABILITY RENT") shall be the "Fair Market Rental
Value" for such space, as that term is defined in SECTION 2.2.1.1 of this
Lease. In the event that, concurrently with Tenant's delivery of the
Acceptance Notice, Tenant notifies Landlord that it does not accept the
Availability Rent set forth in the Availability Notice, the Availability Rent
shall be determined in accordance with the procedures set forth in SECTION
2.2.2 of this Lease, otherwise, the Availability Rent shall be as set forth
in Landlord's Availability Notice.
1.6.4 TERMINATION OF RIGHT OF AVAILABILITY. Tenant shall not
have the night to lease Available Space, as provided in this SECTION 1.6, if
Tenant, as of the date of the attempted exercise of such right by Tenant, or
as of the date of delivery of such Available Space to Tenant, is in Material
Default under this Lease beyond applicable notice and cure periods. The
rights contained in this SECTION 1.6 shall be personal to the Tenant named in
the Summary, its Affiliates, and to any assignee (but not to any sublessee or
other Transferee) of the Lease approved by Landlord pursuant to the terms of
Article 14, and may only be exercised by such Tenant, an Affiliate or an
assignee (and not any sublessee or other Transferee) if Tenant and its
Affiliates, or the assignee occupies at least four (4) full floors of the
Premises. Time is of the essence of the right of availability. Failure by
Tenant to exercise its rights in a timely manner shall terminate the
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right with respect to the affected space. In addition, the right shall
expire if Tenant does not exercise the First Option or the Second Option as
set forth in SECTION 2.2.
ARTICLE 2
LEASE TERM
2.1 INITIAL TERM.
2.1.1 LEASE TERM. The terms and provisions of this Lease shall
be effective as of the date of this Lease except for the provisions of this
Lease relating to the payment of Rent. The term of this Lease (the "LEASE
TERM") shall be as set forth in Section 7.1 of the Summary and shall commence
on the date (the "LEASE COMMENCEMENT DATE") set forth in Section 7.2 of the
Summary (subject, however, to the terms of Section 5 of the Tenant Work
Letter), and shall terminate on the date (the "LEASE EXPIRATION DATE") set
forth in SECTION 7.3 of the Summary, unless this Lease is sooner terminated
as hereinafter provided. For purposes of this Lease, the term "Lease Year"
shall mean each consecutive twelve (12) month period during the Lease Term
commencing on the Lease Commencement Date; provided that the last Lease Year
shall end on the Lease Expiration Date. The taking of possession of the
Premises by Tenant shall conclusively establish that the Premises and the
Base Building were in satisfactory condition at such time, provided that
Tenant shall have the right to submit a punch list within thirty (30) days of
Landlord's delivery of the Base Building to Tenant detailing any Base
Building items which fail to comply with the Tenant Work Letter. Landlord
shall then complete said punch list items as required in the Tenant Work
Letter. Notwithstanding the definition of the Lease Commencement Date for
the Premises set forth above, if Tenant commences business operations from
any portion of the Premises prior to the occurrence of the Lease Commencement
Date (each space occupied to be known as the "PRE-OCCUPANCY SPACE"), all of
the terms and conditions of this Lease shall apply to that portion of the
Premises containing the Pre-Occupancy Space, except that Tenant shall have no
obligation to pay any Base Rent or Direct Expenses during the period
commencing on the date Tenant commences business operations from the
applicable Pre-Occupancy Space and continuing until the Lease Commencement
Date (the "PRE-OCCUPANCY PERIOD"). Tenant shall however be obligated to pay
parking charges during the Pre-Occupancy Period for any parking spaces used
by Tenant other than in connection with the construction of the Premises.
Tenant shall have the right to commence business operations from any portion
of the Premises during the Pre-Occupancy Period, provided that a certificate
of occupancy or its equivalent permitting occupancy shall have been issued by
the appropriate governmental authorities for the Pre-Occupancy Space.
2.1.2 Intentionally Deleted.
2.2 OPTION TERMS.
2.2.1 OPTION RIGHTS. Tenant shall have two (2) options to
extend the Lease Term for a period of five (5) years each (the "FIRST OPTION
TERM" and the "SECOND OPTION TERM," respectively), (the foregoing option
terms shall be referred to hereinafter sometimes individually or collectively
as the "OPTION TERM"), which options shall be exercisable by notice delivered
by Tenant to Landlord as provided below. Upon the proper exercise of each
such option to extend, the initial Lease Term or First Option Term, as
applicable, shall be extended by the Option Term, subject to every term and
condition of this Lease, except that the applicable "Option Rent," as that
term is defined in SECTION 2.2. 1. 1, below, shall be determined as set forth
in SECTION 2.2. 1. 1, below. Tenant shall have the right, exercisable
concurrently with Tenant's delivery of the "OPTION NOTICE," as that term is
defined below, to reduce the number of rentable square feet of office space
which Tenant shall rent during the ensuing Option Term; provided, however,
that Tenant may only reduce the size of the Premises in full floor increments
(or so much of a floor as shall be leased by Tenant in the event of less that
full floor leasing), and in no event shall Tenant be allowed to reduce the
Premises to less than four (4) full contiguous floors. Tenant shall incur
no penalty or charge in connection with the reduction in the size of the
Premises during the ensuing Option Term.
2.2.1.1 OPTION RENT. The rent payable by Tenant during the
First Option Term (the "FIRST OPTION RENT") or the Second Option Term ( the
"SECOND OPTION RENT"), as
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the case may be (collectively, the "OPTION RENT"), shall be equal to the then
"Fair Market Rent." "FAIR MARKET RENT," as used in this Lease, shall be equal
to (a) ninety-five percent (95%) (or, in the case of Expansion Space,
Available Space, or an Option Term for less than all of the Premises, 100%)
of the face or stated rental rate (including all escalations thereto) and (b)
one hundred percent (100%) of the other non-discounted economic terms at
which tenants comparable to Tenant, as of the first day of the applicable
Option Term or expansion term, are leasing for a comparable term,
non-sublease, non-encumbered, non-equity space comparable in size, location
and quality to the Premises, Expansion Space or Available Space, as
applicable, from a willing, comparable landlord, at arm's length in
transactions where the tenant's were represented by a third party, arms
length broker that received a customary commission from the landlord, which
comparable space is located in the Building or in the "Comparable Buildings,"
as that term is defined in SECTION 29.35 hereof, taking into consideration
(i) a new base year in connection with the payment of operating and tax
expenses, (ii) rental abatement concessions being given such tenants, if any,
in connection with such comparable space and, except with respect to any
Option Term, in connection with the period of construction of such space,
(iii) tenant improvement allowances and the value of tenant improvement work
provided or to be provided for such comparable space taking into account and
deducting the value of the existing improvements in the Premises, such value
to be based upon the age, quality and layout of the improvements and the
extent to which the same can be utilized by Tenant, and in the case of any
Option Term, taking into account the fact that such improvements were
specifically suitable to Tenant at the time they were constructed, and, (lv)
other monetary concessions, if any, paid to such tenants.
2.2.1.2 EXERCISE OF OPTIONS, Each option shall be exercised
by Tenant in the following manner: (i) Tenant shall deliver notice to
Landlord (the "OPTION NOTICE") not more than twenty-one (21) months and not
less than eighteen (18) months prior to the expiration of the initial Lease
Term or the First Option Term, as the case may be, stating that Tenant is
interested in exercising its option, (ii) Landlord, after receipt of Tenant's
notice, shall deliver notice (the "OPTION RENT NOTICE") to Tenant not more
than eighteen (18) months and not less than sixteen (16) months prior to the
expiration of the initial Lease Term or the First Option Term, as the case
may be (the "OPTION NOTICE PERIOD"), setting forth the proposed First Option
Rent or the proposed Second Option Rent, as the case may be, which shall be
applicable to this Lease during the applicable Option Term; and (iii) if
Tenant elects to exercise the option, then on or before the later of (A)
sixty (60) days after delivery of the Option Rent Notice, and (B) the date
which is fourteen (14) months prior to the expiration of the initial Lease
Term or First Option Term, as applicable, Tenant shall deliver notice to
Landlord's exercising the option and, concurrent with such exercise, Tenant
may object to the Option Rent contained in the Option Rent Notice, in which
case the parties shall follow the procedure, and the applicable Option Rent
shall be determined, as set forth in SECTION 2.2.2 of this Lease.
Notwithstanding the foregoing, if Tenant fails to deliver the Option Notice
during the Option Notice Period, Tenant may nevertheless, on or before the
date which is fourteen (14) months prior to the expiration of the initial
Lease Term or First Option Term, as the case may be, deliver to Landlord
notice that Tenant elects to exercise its option to extend the Lease Term, in
which case the Option Rent shall be determined as set forth in Section 2.2.2,
below,
2.2.2 DETERMINATION OF OPTION RENT BY ARBITRATION. In the event
Tenant timely objects to the applicable Option Rent, Landlord and Tenant
shall in good faith attempt to agree upon the applicable Option Rent. If
Landlord and Tenant fail to reach agreement within ten (10) days following
Tenant's objection to the applicable Option Rent (the "OUTSIDE AGREEMENT
DATE"), then Tenant shall make a separate determination of the applicable
Option Rent (and notify Landlord of such determination), within ten (10)
days, and such determination, together with Landlord's determination of the
Option Rent (which may or may not be as set forth in the Option Rent Notice),
shall be submitted to arbitration in accordance with SECTIONS 2.2.2.1 through
2.2.2.7 below. Failure of Tenant to make a determination of the applicable
Option Rent within the ten-day period shall conclusively be deemed Tenant's
approval of the applicable Option Rent determined by Landlord as set forth in
the Option Rent Notice.
2.2.2.1 Landlord and Tenant shall each appoint one arbitrator
who shall have been active over the five (5) year period ending on the date
of such appointment in the leasing (or appraisal or investing, as the case
may be) of commercial high-rise properties in the
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Century City, California area. Each such arbitrator shall be appointed
within fifteen (15) days after the applicable Outside Agreement Date.
2.2.2.2 The two arbitrators so appointed shall within ten
(10) days of the date of the appointment of the last appointed arbitrator
agree upon and appoint a third arbitrator who shall be qualified under the
same criteria set forth hereinabove for qualification of the initial two
arbitrators.
2.2.2.3 The three arbitrators shall within thirty (30) days
of the appointment of the third arbitrator reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted Option Rent, and shall
notify Landlord and Tenant thereof The determination of the arbitrators shall
be limited solely to the issue of whether Landlord's or Tenant's submitted
Option Rent is the closest to the actual Option Rent as determined by the
arbitrators, taking into account the requirements of SECTION 2.2.1 of this
Lease.
2.2.2.4 The decision of the majority of the three arbitrators
shall be binding upon Landlord and Tenant.
2.2.2.5 If either Landlord or Tenant fails to appoint an
arbitrator within (15) days after the applicable Outside Agreement Date, the
arbitrator appointed by one of them shall reach a decision, and notify
Landlord and Tenant thereof, and such arbitrator's decision shall be binding
upon Landlord and Tenant.
2.2.2.6 If the two arbitrators fail to agree upon and appoint
a third arbitrator, or both parties fail to appoint an arbitrator, then the
appointment of the third arbitrator or any arbitrator shall be dismissed and
the matter to be decided shall be forthwith submitted to arbitration under
the provisions of the American Arbitration Association, but subject to the
instruction set forth in this SECTION 2.2.3.
2.2.2.7 The cost of arbitration shall be paid by Landlord and
Tenant equally.
2.2.3 TERMINATION OF OPTIONS. Tenant shall not have the right
to exercise any Option granted in SECTION 2.2 IF Tenant, as of the date of
the attempted exercise of any Option, or as of the date of commencement of
the applicable Option Term, is in Material Default under this Lease beyond
applicable notice and cure periods. The rights contained in this SECTION 2.2
are personal to the Tenant named in the Summary, its Affiliates, and to any
assignee (but not to any sublessee or Transferee) of the Lease approved by
Landlord pursuant to the terms of Article 14, and may only be exercised by
such Tenant, an Affiliate, or an assignee (and not any sublessee or other
Transferee) if Tenant and its Affiliate, or such assignee occupies at least
four (4) full floors of the Premises. Time is of the essence of the Options.
Failure by Tenant to exercise its rights in a timely manner shall terminate
the Options. In addition, the Second Option shall terminate immediately if
the First Option is not exercised.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord's
agent at the management office of the Building, or at Landlord's option, at
such other place in the city of Los Angeles as Landlord may from time to time
designate in writing, in United States currency or a good check for United
States currency, base rent ("BASE RENT") as set forth in Section 8 of the
Summary, payable in equal monthly installments as set forth in Section 8 of
the Summary in advance on or before the first day of each and every month
during the Lease Term, without any setoff or deduction whatsoever, except as
otherwise specifically provided in this Lease. The Base Rent for the first
full month of the Lease Term, which occurs after the expiration of any free
rent period, shall be paid at the time of Tenant's execution of this Lease.
If any rental payment date (including the Lease Commencement Date) falls on a
day of the month other than the first day of such month or if any rental
payment is for a period which is shorter than one month, the rental for any
fractional month shall accrue on a daily basis for the period from the date
such payment is due to the end of such calender month or to the end of the
Lease Term at a rate per day which is equal
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to 1/365 of the Base Rent. All other payments or adjustments required to be
made under the terms of this Lease that require proration on a time basis
shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 ADDITIONAL RENT. In addition to paying the Base Rent specified in
Article 3 of this Lease, Tenant shall pay as additional rent "Tenant's Share"
of the annual "Direct Expenses," as those terms are defined in SECTIONS 4.2.7
and 4.2.2 of this Lease, respectively, which are in excess of the amount of
Direct Expenses attributable to the "Base Year," as that term is defined in
SECTION 4.2.1 of this Lease. Such additional rent, together with any and all
other amounts payable by Tenant to Landlord pursuant to the terms of this
Lease (other than Base Rent and any Security Deposit), shall be hereinafter
collectively referred to as the "ADDITIONAL RENT." The Base Rent and
Additional Rent are herein collectively referred to as the "RENT." All
amounts due under this ARTICLE 4 as Additional Rent shall be payable for the
same periods and in the same manner, time and place as the Base Rent.
Without limitation on other obligations of Tenant which shall survive the
expiration of the Lease Term, the obligations of Landlord and Tenant provided
for in this ARTICLE 4 shall survive the expiration of the Lease Term, to the
extent the same is attributable to the time period prior to the expiration of
the Lease Term.
4.2 DEFINITIONS. As used in this Article 4, the following terms shall
have the meanings hereinafter set forth:
4.2.1 "BASE YEAR" shall mean the period set forth in SECTION 9.1
of the Summary.
4.2.2 "DIRECT EXPENSES" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.3 "EXPENSE YEAR" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.4 "OPERATING EXPENSES" shall mean all reasonable and actual
expenses, costs and amounts of every kind and nature which Landlord shall pay
during any Expense Year because of or in connection with the ownership,
management, maintenance, repair, replacement, restoration or operation of the
Real Property, including, without limitation, any amounts paid for (i) the
cost of supplying all utilities, the cost of operating, maintaining,
repairing, renovating and managing the utility systems, mechanical systems,
sanitary and storm drainage systems, and escalator and elevator systems, and
the cost of supplies and equipment and maintenance and service contracts in
connection therewith; (ii) the cost of licenses, certificates, permits and
inspections and the cost of contesting the validity or applicability of any
governmental enactments which may affect Operating Expenses, and the costs
incurred in connection with the implementation and operation of a
governmentally mandated transportation system management program or similar
program; (iii) the cost of insurance carried by Landlord, in such amounts as
Landlord may reasonably determine; (iv) the cost of landscaping, maintenance,
relamping, and all supplies, tools, equipment and materials used in the
operation, repair and maintenance of the Building; (v) the cost of utilities,
insurance and normal repairs and maintenance, together with those items
included in item (xiii), below, incurred in connection with the On-Site
Parking Area (provided that, to the extent in any Expense Year following the
Base Year any such expenses are incurred by Landlord which in the Base Year
were not included in Operating Expenses, the Base Year parking costs shall be
deemed to be retroactively adjusted to the amount they would have been had
Landlord included such expenses in the Base Year); (vi) fees, charges and
other costs, including consulting fees, legal fees and accounting fees, of
all contractors engaged by Landlord or otherwise reasonably incurred by
Landlord in connection with the management, operation, maintenance and repair
of the Building and Real Property; (vii) any equipment rental agreements or
management agreements (including the cost of any management fee and the fair
rental value of any office space provided thereunder); (viii) wages, salaries
and other compensation and benefits of all persons engaged in the operation,
management, maintenance or security of the Building, and employer's Social
Security taxes, unemployment taxes or insurance, and any other taxes which
may be levied on such wages, salaries, compensation and benefits; provided,
that if any employees of Landlord provide services for more than one building
of Landlord, then a prorated portion of such employees' wages, benefits and
taxes shall be included in Operating Expenses based on the
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portion of their working time devoted to the Building; (xi) payments under
any easement, license, operating agreement, declaration, restrictive
covenant, instrument or agreement pertaining to the Building which comes into
existence after the date of this Lease and which is approved or agreed to by
Tenant;(x) operation, repair, replacement and maintenance of all "Systems and
Equipment," as that term is defined in SECTION 4.2.5 hereof, and components
thereof; (xi) the cost of janitorial service, alarm and security service,
window cleaning, trash removal, replacement of wall and floor coverings,
ceiling tiles and fixtures in lobbies, corridors, restrooms and other common
or public areas or facilities, maintenance and replacement of curbs and
walkways, repair to roofs and re-roofing; (xii) amortization (including
interest at the Interest Rate, on the unamortized cost) of the cost of
acquiring or the rental expense of personal property used in the maintenance,
operation and repair of the Building and Real Property; and (xiii) cost of
capital improvements or other costs incurred in connection with the Real
Property (A) which are reasonably intended to reduce Operating Expenses,
provided that such costs shall be included in Operating Expenses only to the
extent of Landlord's reasonably anticipated yearly reduction of Operating
Expenses for that particular Expense Year caused by such capital improvement,
or (B) that are required under any governmental law or regulation that was
not enacted prior to the Lease Commencement Date; provided, however, that any
capital expenditure shall be amortized (including interest on the unamortized
cost) over its reasonable useful life. If Landlord is not furnishing any
particular work or service (the cost of which, if performed by Landlord,
would be included in Operating Expenses) to a tenant who has undertaken to
perform such work or service in lieu of the performance thereof by Landlord,
Operating Expenses shall be deemed to be increased by an amount equal to the
additional Operating Expenses which would reasonably have been incurred
during such period by Landlord if it had at its own expense furnished such
work or service to such tenant. Notwithstanding anything to the contrary set
forth herein, for any Expense Year in which other than one hundred percent
(100%) of the rentable space in the Building is leased during the entire
Expense Year all "Variable Components," as that term is defined in this
SECTION 4.2.4, below, of Operating Expenses for such Expense Year shall be
grossed-up, employing sound accounting and property management principles, to
the amount such Variable Components would have been in the event the Building
has been one hundred percent (100%) leased during the entire Expense Year and
the adjusted amount of the Variable Components shall be used in determining
Operating Expenses for such Expense Year. Such adjustment, however shall not
result in Landlord receiving from Tenant and other tenants in connection
with the Variable Components more than one hundred percent (100%) of the cost
of such Variable Components. "VARIABLE COMPONENTS" shall be those
componenets that vary based upon occupancy levels and shall specifically
exclude Fixed Costs. "FIXED COSTS" means (a) premiums incurred by Landlord
for liability insurance and property damage insurance relating to Landlord's
ownership and/or operation of the Building to the extent such rates are not
affected by occupancy rates, (b) landscaping costs relating to the Building,
(c) Building management office rent, (d) exterior window washing costs and
(e) to the extent the same are not affected by the occupancy level of the
Building, costs, including janitorial and utility costs, relating to
portions of the Common Areas located outside the Building and portions of the
Common Area located within the Building, which Common Areas are not located
on floors of the Building above the lobby level of the Building.
Notwithstanding the foregoing provisions of this SECTION 4.2.4, for
purpose of this Lease Operating Expenses shall not, however, include:
(1) any payments under a ground lease or master lease relating to
the Building;
(2) except as provided in item (xiii), above, costs of capital
nature (including amortization payments and depreciation), including but not
limited to capital improvements, replacements, alterations and additions;
provided, however, that whether a cost is capital shall be determined
according to the sound real estate accounting principles consistently applied
by Comparable Buildings;
(3) rentals for items which if purchased, rather than rented, would
constitute a non-expensable capital improvement under item (2) above;
(4) the cost of any item (including costs incurred for the repair
of damage to the Building pursuant to the terms of Article 11 of this Lease
or otherwise) to the extent Landlord receives reimbursement from insurance or
condemnation proceeds or which would be
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reimbursable from insurance required (but failed) to be maintained by
Landlord under this Lease, (provided that as to any deductible amount paid by
Landlord in connection with damage and destruction, which deductible amount
is not excluded from Operating Expenses under item (2), above, up to $75,000
of such deductible amount related to any one or more damage and destruction
events may be included as an Operating Expense provided that in no event
shall more than $25,000 in the aggregate relating to deductible amounts be
included in Operating Expenses in any single Expense Year);
(5) costs, including permit, license and inspection costs, incurred
with respect to the installation of tenants' or other occupants' improvements
made for tenants or other occupants in the Building or incurred in renovating
or otherwise improving, decorating, painting or redecorating space for
tenants or other occupants of the Building;
(6) except as otherwise permitted in this Section 4.2.4,
depreciation and amortization;
(7) marketing and promotional costs, including but not limited to
leasing commissions, real estate brokerage commissions, and attorneys' fees
in connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments, space planning
costs, and other costs and expenses incurred in connection with lease,
sublease and/or assignment negotiations and transactions with present or
prospective tenants or other occupants of the Building;
(8) costs of services, utilities, or other benefits which are not
offered to Tenant or for which Tenant is charged for directly but which are
provided to another tenant or occupant of the Building free of charge,
including, but not limited to, above Building standard heating, ventilation
and air-conditioning and Janitorial services (but only to the extent Tenant
is charged for the identical benefit);
(9) costs incurred by Landlord due to any violation of the terms
and conditions of any lease of space or occupancy agreement in the Building;
(10) costs of overhead or fees paid to Landlord, to affiliates or
partners of Landlord, partners or affiliates of such partners, or affiliates
of Landlord for goods and/or services in the Building to the extent the same
exceeds the costs or fees of such goods and/or services rendered by
unaffiliated third parties on a competitive basis in Comparable Buildings;
(11) interest, principal, attorneys' fees, environmental
investigations or reports, points, fees and other lender costs and closing
costs on debts or amortization on any mortgage or mortgages or any other debt
instrument encumbering the Building or any part thereof or on any unsecured
debt;
(12) Landlord's general corporate overhead and general, non-Building
related administrative expenses,
(13) salaries of officers, executives or other employees of
Landlord, any affiliate of Landlord, or partners or affiliates of such
partners or affiliates, other than any personnel engaged in the management,
operation, maintenance, and repair of the Building (and only to the extent
they are so engaged) who are working in the Building management office and
whose salaries are not typically included in the management fee being paid
and included in Operating Expenses; provided Operating Expenses shall in no
event include salaries of individuals who hold a position which is generally
considered to be higher in rank than the position of the manager of the
Building or the chief engineer of the Building;
(14) all items and services for which Tenant or any other tenant in
the Building reimburses Landlord (other than through Tenant's Share or any
other tenant's share of Operating Expenses);
(15) advertising and promotional expenditures, including but not
limited to tenant newsletters and Building promotional gifts, events or
parties for existing or future occupants, and the costs of signs (other than
the Building directory) in or on the Building
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identifying the owner of the Building or other tenants' signs and any
unreasonable costs related to the celebration or acknowledgment of Holidays;
(16) electric power or other utility costs for which any tenant
directly contracts with the local public service company and pays directly
therefore;
(17) except as specifically set forth in item number (v) of the
inclusions to Operating Expenses, above, and except as included in Tax
Expenses, cost and expenses relating to the On-Site Parking Area;
(18) costs incurred in complying with any governmental laws and
regulations applicable to the Building and enacted prior to Lease
Commencement Date, including, but not limited to life, fire and safety codes,
environmental and "Hazardous Materials," as that term is defined in Section
29.33, below, laws and federal, state or local laws or regulations relating
to disabled access, including, but not limited to, the Americans With
Disabilities Act;
(19) costs, penalties, fines, or awards and interest incurred as a
result of Landlord's negligence in Landlord's operation of the Building,
Landlord's violations of law, negligence or inability or unwillingness to
make payments and/or to file any income tax, other tax or informational
returns when due;
(20) costs which are covered by and have been reimbursed under any
contractor, manufacturer or supplier warranty,
(21) costs arising from the negligence or intentional acts of
Landlord or its agents, or of any other tenant, or any vendors, contractors,
or providers of materials or services selected, hired or engaged by Landlord
or its agents;
(22) costs arising from Landlord's charitable or political
contributions;
(23) costs for sculpture, paintings or other objects of art or the
insuring, repair or maintenance thereof,
(24) costs (including in connection therewith all attorneys fees and
costs of settlement judgments and payments in lieu thereof arising from
claims, disputes or potential disputes in connection with potential or actual
claims, litigation or arbitrations pertaining to Landlord and/or the
Building, except that any such costs directly relating to the operation of
the Building for the general benefit of the tenants may be included in
Operating Expenses;
(25) costs, including but not limited to attorneys' fees associated
with the operation of the business of the partnership or entity which
constitutes Landlord as the same are distinguished from the costs of
operation of the Building, including partnership accounting and legal
matters, costs of defending any lawsuits with any mortgagee, costs of
selling, syndicating, financing, mortgaging or hypothecating any of
Landlord's interest in the Building or any part thereof, costs of any
disputes between Landlord and its employees, disputes of Landlord with
Building management or personnel, or outside fees paid in connection with
disputes with other tenants;
(26) costs incurred in removing and storing the property of former
tenants or occupants of the Building;
(27) the cost of any work or services performed for any tenant
(including Tenant) at such tenant's cost;
(28) the cost of any parties, ceremonies or other events for tenants
or third parties which are not tenants of the Building, whether conducted in
the Building or in any other location, which are in excess of similar costs
included in operating expenses by Comparable Buildings;
(29) the cost of installing, operating and maintaining any specialty
service, observatory, broadcasting facilities, luncheon club, museum,
athletic or recreational club, or child care facility;
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(30) the cost of furnishing and installing non-Building standard
replacement bulbs and ballasts in tenants' spaces, provided that at any one
time the Building may have several types of Building standard replacement
bulbs;
(31) the cost of correcting latent defects in the design,
construction or equipping of the Base Building;
(32) reserves, and reserves for bad debts or lost rent or any
similar charge;
(33) costs incurred by Landlord in connection with rooftop
communications equipment of Landlord which is not generally available to all
tenants;
(34) costs relating to any management office for the Building,
including rent, in excess of management office charges charged by Comparable
Buildings, provided that Landlord's management office may contain a maximum
of 3,000 usable square feet and the rent charged for the management office
must be comparable to the rent then being received by Landlord for comparable
space in the Building;
(35) payment of any management fee, whether paid to Landlord or an
outside managing agent, in excess of the prevailing management fee per
rentable square foot charged in the Comparable Buildings, provided that,
regardless of the management fee percentage used in the Base Year, Landlord
shall not increase, during any Expense Year, the percentage of such fee from
the Base Year unless (i) Landlord adjusts the Base Year to such new
percentage or (ii) such increase is limited to and in accordance with the
actual increase in percentage in Comparable Buildings, and provided further
that during the Base Year, Landlord shall gross-up the gross revenues used to
calculate the management fee based on an occupancy level of one hundred
percent (100%) (with all tenants deemed to be paying full rent);
(36) any costs expressly excluded from Operating Expenses or Tax
Expenses elsewhere in this Lease or included as Tax Expenses,
(37) costs for services not included in the Base Year and normally
provided by a property manager in return for a management fee;
(38) "takeover" expenses, including, but not limited to, the
expenses incurred by Landlord with respect to space located in another
building of any kind or nature in connection with the leasing of space in the
Building;
(39) costs incurred in connection with the original construction of
the Building or any addition to the Building or in connection with any
renovation, alteration or major change in the Building for which Operating
Expense treatment is not specifically permitted in SECTION 4.2.4(x) or (xii);
(40) any costs, fees, dues, contributions or similar expenses for
industry associations or similar organizations;
(41) any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord in the Building;
(42) insurance costs in excess of the costs incurred in the Base
Year of any earthquake insurance policies caused by (and only to the extent
caused by) a material decrease in the deductible amount of such policy, or by
a change from a so-called "blanket" policy to a single building policy
(provided that, in the event a subsequent purchaser of the Property shall
carry a single building earthquake policy (The "SINGLE POLICY"), increases in
the cost of such single policy, except those relating to a material increase
in the deductible amount of such single policy, may be included in Operating
Expenses provided that the Base Year Operating Expenses are retroactively
adjusted to the amount they would have been had Landlord carried a Single
Policy in the Base Year);
(43) the entertainment expenses and travel expenses of Landlord, its
employees, agents, partners and affiliates;
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(44) costs of traffic studies, environmental impact reports,
transportation system management plans and reports, and non-governmentally
mandated traffic mitigation measures,
(45) any costs recovered by Landlord to the extent such cost
recovery allows Landlord to recover more than 100% of Operating Expenses for
the same Expense Year from tenants of the Building,
(46) any costs for which Landlord has been reimbursed or receives a
credit, refund or discount;
(47) any cost incurred in Landlord's compliance with the terms of
Los Angeles Municipal Code Section 91.8908 enacted and approved by the City
Council of Los Angeles on March 1, 1995, as in effect on or before the Lease
Commencement Date; and
(48) any costs related to inspections, repairs, improvements,
alterations or modifications made to investigate and/or correct damage to the
Building specifically attributable to and caused by the "Northridge
Earthquake" of January 17, 1994.
Operating Expenses relating to periods of the Lease Term that fall
partly within any Expense Year shall be reasonably allocated when determining
Tenant's Share of Operating Expenses. In the event any portion of the
Building is covered by a warranty at any time during the Base Year, Operating
Expenses for the Base Year shall be deemed increased by such amount as
Landlord would have incurred during the Base Year with respect to the items
or matters covered by the subject warranty, had such warranty not been in
effect during the Base Year (provided that no such increase shall be required
if such item or matters are not treated or passed through as Operating
Expenses in subsequent Expense Years). Any additional annual premium
resulting from any new forms of insurance (which are not in replacement of
previous coverage), any commercially unreasonable increase in insurance
limits or coverage, or any commercially unreasonable decrease in deductibles
in any year after the Base Year, shall be deemed to be included in Operating
Expenses for the Base Year. The foregoing, however, shall not prevent
Landlord from revising its insurance coverages in the normal course of
business in accordance with Comparable Buildings, and in such event, there
shall be no Base Year adjustment.
4.2.5 "SYSTEMS AND EQUIPMENT" shall mean any plant, machinery,
transformers, elevators, duct work, cable, wires, and other equipment,
facilities, and systems designed to supply heat, ventilation, air
conditioning and humidity or any other services or utilities, or comprising
or serving as any component or portion of the electrical, gas, steam,
plumbing, sprinkler, communications, alarm, security, or fire/life safety
systems or equipment, or any other mechanical, electrical, electronic,
computer or other systems or equipment which serve the Building in whole or
in part.
4.2.6 "TAX EXPENSES" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, charges or other impositions of
every kind and nature, whether general, special, ordinary or extraordinary,
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the receipt
of rent, including gross receipts or sales taxes applicable to the receipt of
rent, unless required to be paid by Tenant, personal property taxes imposed
upon the fixtures, machinery, equipment, apparatus, systems and equipment,
appurtenances, furniture and other personal property used in connection with
the Building), which Landlord shall pay during any Expense Year (without
regard to any different fiscal year used by such governmental or municipal
authority) because of or in connection with the ownership, leasing and
operation of the Real Property. For purposes of this Lease, Tax Expenses
shall be calculated as if the tenant improvements in the Building were fully
constructed and the Real Property, Building, Base, Shell, and Core, and all
tenant improvements in the Building were fully assessed for real estate tax
purposes, and accordingly, during any Expense Year, Tax Expenses shall be
deemed to be increased appropriately.
4.2.6.1 Tax Expenses shall include, without limitation:
(i) Any tax on Landlord's rent, right to rent or
other income from Real Property or as against Landlord's business of leasing
any of the Real Property;
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(ii) Any assessment, tax, fee, levy or charge in addition
to, or in substitution, partially or totally, of any assessment, tax, fee,
levy or charge previously included within the definition of real property
tax, it being acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June 1978 election
("PROPOSITION 13") and that assessments, taxes, fees, levies and charges may
be imposed by governmental agencies for such services as fire protection,
street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants, and, in further recognition of the decrease in the level and
quality of governmental services and amenities as a result of Proposition 13,
Tax Expenses shall also include any Governmental or private assessments or
the Building's contribution towards a governmental or private cost-sharing
agreement for the purpose of augmenting or improving the quality of services
and amenities normally provided by governmental agencies. It is the
intention of Tenant and Landlord that all such new and increased assessments,
taxes, fees, levies, and charges and all similar assessments, taxes, fees,
levies and charges be included within the definition of Tax Expenses for
purposes of this Lease;
(iii) Any assessment, tax, fee, levy, or charge allocable
to or measured by the area of the Premises or the rent payable hereunder,
including, without limitation, any gross income tax with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operating-, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof;
(lv) Any assessment, tax, fee, levy or charge, upon this
transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; and
(v) So long as the Building is owned by the State of
California or any local public entity of government, including, without
limitation, a state public retirement system, this Lease and the Tenant's
interest hereunder may constitute a possessory interest subject to the
payment of property taxes levied on the "full cash value" of that interest
(the "POSSESSORY INTEREST TAX"). The full cash value, as defined in Sections
110 and 110.1 of the California Revenue and Taxation Code, of the possessory
interest, upon which property taxes will be based will equal the greater of
(A) the full cash value of the possessory interest, or (B) if Tenant has
leased less than all of the Real Property, Tenant's Proportionate Share of
the full cash value of the Real Property that would have been enrolled if the
Real Property had been subject to property tax upon acquisition by the state
public retirement system; provided, however, that Landlord agrees that the
Possessory Interest Tax allocable to Tenant shall not exceed Tenant's
Proportionate Share of the ad valorem real property taxes that would have
otherwise been payable by Tenant under this Lease had Landlord not been a
governmental entity (the "Ad Valorem Taxes").
4.2.6.2 With respect to any assessment that may be levied
against, upon, or in connection with, the Real Property, or any portion
thereof, and may be evidenced by improvement or other bonds, or may be paid
in annual installments, there shall be included within the definition of Tax
Expenses with respect to any tax fiscal year only the amount currently
payable on such bonds, including interest, for such tax fiscal year, or the
current annual installment for such tax fiscal year.
4.2.6.3 If the method of taxation of real estate prevailing
at the time of execution hereof shall be, or has been, altered so as to cause
the whole or any part of the taxes now, hereafter or heretofore levied,
assessed or imposed on real estate to be levied, assessed, or imposed upon
Landlord, wholly or partially, as a capital levy or otherwise, or on or
measured by the rents received therefrom, then such new or altered taxes
attributable to the Real Property shall be included within the term "Tax
Expenses" except that the same shall not include any enhancement of said tax
attributable to other income of Landlord.
4.2.6.4 Any expenses incurred by Landlord in attempting to
protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in
the Expense Year such expenses are paid.
4.2.6.5 Tax refund received by Landlord shall be
retroactively deducted from Tax Expenses for the Expense Year to which they
apply.
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4.2.6.6 If Tax Expenses for any period during the Lease Term
or any extension thereof are increased after payment thereof by Landlord for
any reason, including, without limitation, error or reassessment by
applicable governmental or municipal authorities, Tenant shall pay Landlord
within thirty (30) days of demand Tenant's Share of such increased Tax
Expenses.
4.2.6.7 Notwithstanding anything to the contrary set forth in
this Lease, Tax Expenses shall not include (1) any excess profits taxes,
franchise taxes, gift taxes, capital stock taxes, inheritance and succession
taxes, estate taxes, federal and state income taxes, and other taxes to the
extent applicable to Landlord's general or net income (as opposed to rents or
receipts), (ii) taxes on tenant improvements in any space in the Building
based on an assessed level in excess of the assessed level for which Tenant
is individually and directly responsible under this Lease, (iii) penalties
incurred as a result of Landlord's negligence, inability or unwillingness to
make payments of, and/or to file any tax or informational returns with
respect to, any Tax Expenses, when due, (lv) any real estate taxes directly
payable by Tenant or any other tenant in the Building under the applicable
provisions in their respective leases, (v) any items included as Operating
Expenses or specifically excluded from Operating Expenses (other than Tax
Expenses permitted in Article 4).
4.2.6.8 The Tax Expenses for the Base Year shall be
calculated without regard to any reduction to such taxes pursuant to the
terms of Proposition 8, and if the Tax Expenses are calculated using a
Possessory Interest Tax, the Tax Expenses for the Base Year shall be
calculated as if they were Ad Valorem Taxes, without regard to any reduction
to such taxes pursuant to the terms of Proposition 8. Tenant, however, shall
have no right to credits or offsets against Rent, Operating Expenses or Tax
Expenses by reason of Proposition 8 reductions obtained by Landlord in any
other Expense Year.
4.2.6.9 During the Base Year, the amount of Tax Expenses
shall be determined using Ad Valorem Taxes as if the Real Property, the
Building, the Base Building and all "Tenant Improvements," as that term is
defined in Section 2.1 of the Tenant Work Letter, were fully constructed,
occupied and assessed for real estate tax purposes, and shall be increased to
reflect any real estate tax assessments relating to building renovations
commenced or complete prior to the Lease Commencement Date, and any gross
receipts tax which is part of Direct Expenses for the Base Year shall be
grossed up during the Base Year as though the Building was fully occupied
with rent paying tenants.
4.2.7 "TENANT'S SHARE" shall mean the percentage set forth in
Section 9.2 of the Summary. Tenant's Share was calculated by multiplying the
number of rentable square feet of the Premises by 100 and dividing the
product by the total rentable square feet in the Building. In the event
either the rentable square feet of the Premises and/or the total rentable
square feet of the Building is changed pursuant to the terms of this Lease,
Tenant's Share shall be appropriately adjusted, and, as to the Expense Year
in which such change occurs, Tenant's Share for such year shall be determined
on the basis of the number of days during such Expense Year that each such
Tenant's Share was in effect.
4.3 CALCULATION AND PAYMENT OF ADDITIONAL RENT.
4.3.1 CALCULATION OF EXCESS. If for any Expense Year ending or
commencing within the Lease Term, Tenant's Share of Direct Expenses for such
Expense Year exceeds Tenant's Share of the Direct Expenses attributable to
the Base Year, then Tenant shall pay to Landlord, in the manner set forth in
SECTION 4.3.2, below, and as Additional Rent, an amount equal to the excess
(the "EXCESS").
4.3.2 STATEMENT OF ACTUAL DIRECT EXPENSES AND PAYMENT BY TENANT.
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of April following the end of each Expense Year, a
statement (the "STATEMENT") which shall state the Direct Expenses incurred or
accrued for such preceding Expense Year, and which shall indicate the amount,
if any, of any Excess. Upon receipt of the Statement for each Expense Year
ending during the Lease Term, if an Excess is present, Tenant shall pay, with
its next installment of Base Rent due (but not prior to thirty (30) days
after Tenant's receipt of the Statement), the full amount of the Excess for
such Expense Year, less the amount, if any, paid during such Expense Year as
"Estimated Excess", as
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that term is defined in SECTION 4.3.3., below. If the amount of Tenant's
Share of Direct Expenses is less than the amount paid by Tenant as Estimated
Excess during the applicable Expense Year, Landlord shall credit such amount
against the next Rent due or pay the difference to Tenant within thirty (30)
days if this Lease has terminated or expired (other than pursuant to a
default by Tenant). The failure of Landlord to timely furnish the Statement
for any Expense Year shall not prejudice Landlord from enforcing its rights
under this Article 4. Even though the Lease Term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's Share
of the Direct Expenses for the Expense Year in which this Lease terminates,
if an Excess is present, Tenant shall within thirty (30) days after Tenant's
receipt of the Statement pay to Landlord an amount as calculated pursuant to
the provisions of Section 4.3 of this Lease. The provisions of THIS SECTION
4.3.2 shall survive the expiration or earlier termination of the Lease Term.
4.3.3 STATEMENT OF ESTIMATED DIRECT EXPENSES. In addition,
Landlord shall give Tenant a yearly expense estimate statement (the "ESTIMATE
STATEMENT") which shall set forth Landlord's reasonable estimate (the
"ESTIMATE") of what the total amount of Direct Expenses for the then-current
Expense Year shall be and the estimated Excess (the "ESTIMATED EXCESS") as
calculated by comparing Tenant's Share of Direct Expenses attributable to the
then-current Expense Year, which shall be based upon the Estimate, to the
amount of Direct Expenses attributable to the Base Year. The failure of
Landlord to timely furnish the Estimate Statement for any Expense Year shall
not preclude Landlord from enforcing its rights to collect any Estimated
Excess under this Article 4. If pursuant to the Estimate Statement an
Estimated Excess 'is calculated for the then-current Expense Year, Tenant
shall pay, with its next installment of Base Rent due, a fraction of the
Estimated Excess for the then-current Expense Year (reduced by any amounts
paid pursuant to the last sentence of this Section 4.3.3). Such fraction
shall have as its numerator the number of months which have elapsed in such
current Expense Year to the month of such payment, both months inclusive, and
shall have twelve (12) as its denominator. Until a new Estimate Statement is
furnished, Tenant shall pay monthly, with the monthly Base Rent installments,
an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth
in the previous Estimate Statement delivered by Landlord to Tenant.
4.4 ALLOCATION OF DIRECT EXPENSES. Certain of the Direct Expenses are
determined annually in the aggregate for the Real Property and the building
located at 1840 Century Park East (collectively, the "PROJECT"). Such Direct
Expenses shall be separately allocated by Landlord to each building. The
portion of Direct Expenses allocated to the Building shall consist of (i) all
Direct Expenses attributable solely to the Building and (11) an equitable
portion (either split evenly among the two buildings of the Project or
divided based upon the ratio of the number of rentable square feet in the
Building to the total number of rentable square feet in the Project) of
Direct Expenses attributable to the Project as a whole and not attributable
solely to either building.
4.5 TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY RESPONSIBLE.
Tenant shall reimburse Landlord upon demand for any and all taxes required to
be paid by Landlord (except to the extent included in Tax Expenses),
excluding state, local and federal personal or corporate income taxes
measured by the net income of Landlord from all sources and estate and
inheritance taxes, whether or not now customary or within the contemplation
of the parties hereto, when-.
4.5.1 Said taxes are measured by or reasonably attributable to
the cost or value of Tenant's equipment, furniture, fixtures and other
personal property located in the Premises, or by the cost or value of any
leasehold improvements made in or to the Premises by or for Tenant, to the
extent the leasehold improvements regardless of whether title to such
improvements shall be vested in Tenant or Landlord are assessed for real
property tax purposes at a valuation higher than $40.00 per usable square
foot of the Premises (the "CUT-OFF POINT"), provided that any amount of real
estate taxes attributable to tenant improvements made in or to the Premises
or in or to any other premises in the Building paid directly by Tenant and
such other tenants in excess of the Cut-Off Point shall not be included in
Tax Expenses;
4.5.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Premises or any portion of the Real
Property, including Taxes on Tenant's right to use the On-site Parking Area; or
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4.5.3 Said taxes are assessed upon this transaction or any
document to which Tenant is a party creating or transferring an interest or
an estate in the Premises.
4.6 TENANT'S PAYMENT OF CERTAIN TAX EXPENSES. Notwithstanding anything
to the contrary contained in this Lease, in the event that after the
commencement of the Lease Term any sale, refinancing, or change in ownership
of the Real Property is consummated, and as a result thereof, and to the
extent that in connection therewith, the Real Property is reassessed (the
"Reassessment") for real estate tax purposes by the appropriate governmental
authority pursuant to the terms of Proposition I') (as adopted by the voters
of the State of California in the June, 1978 election), then the terms of
this Section I shall apply.
4.6.1 THE TAX INCREASE. For purposes of this SECTION 4.6, the
term "Tax INCREASE" shall mean that portion of the Tax Expenses, as
calculated immediately following the Reassessment, which is attributable
solely to the Reassessment. Accordingly, the term Tax Increase shall not
include any portion of the Tax Expenses, as calculated immediately following
the Reassessment, which (i) is attributable to the initial assessment of the
value of the Real Property, the base, shell and core of the Building, or the
tenant improvements located in the Building, (11) is attributable to
assessments pending immediately prior to the Reassessment, which assessments
were conducted during, and included in, such Reassessment, or which
assessments were otherwise rendered unnecessary following the Reassessment,
or (iii) is attributable to the annual inflationary increase to real estate
taxes.
4.6.2 TENANT'S Protection. During the first five (5) years of
the Lease Term, Tenant shall not be obligated to pay any portion of the Tax
Increase relating to any Reassessment. 4.7 LANDLORD'S BOOKS AND RECORDS,
TENANT AUDIT.
4.7.1 In connection with each Statement of Direct Expenses,
Tenant's professional audit or accounting staff shall have the right, after
reasonable notice and at reasonable times, to inspect and photocopy
Landlord's accounting records at the office in the Building and Landlord
shall reasonably cooperate with such staff to adequately substantiate such
expenses. If, after such inspection and photocopying, Tenant continues to
dispute the amount due, Tenant shall be entitled to retain, on a
non-contingency fee basis, an independent, certified public accountant of
regional or national prominence, or the real estate audit service known as
Kislak, to audit and/or review Landlord's records to determine the proper
amount of Direct Expenses (the "INITIAL AUDIT"). Tenant may exercise such
audit night only once per year and any such audit must be completed by Tenant
within one hundred eighty (180) days after commencement thereof If such audit
or review- reveals an overpayment and if Landlord does not reasonably dispute
the result of such audit or review, then Tenant shall provide Landlord a copy
of such audit or review and within thirty (30) days after the results of such
audit or review are made available to Landlord, Landlord shall credit the
next monthly rent payment of Tenant (or if the Term has expired, refund the
overpayment) in the amount of the overpayment. If the audit or review (or
any other audit or review) reveals an underpayment, then within thirty (30)
days after the results of the audit or review are made available to Tenant,
Tenant shall reimburse Landlord the amount of such underpayment. If Landlord
or Tenant disagrees with respect to such audit or review results, and
notifies the other party of such disagreement or dispute within thirty (30)
days of receipt of the results of such audit or review, either party may
submit the results of the audit or review to arbitration pursuant TO ARTICLE
24 hereof Tenant agrees to pay the costs of such audit or review, provided
that, if the audit or review reveals that Landlord's determination sent to
Tenant was in error in Landlord's favor by more than two percent (2%) in the
aggregate, Landlord shall pay the reasonable cost of such audit or review.
Landlord shall be required to maintain records of all Direct Expenses for two
(2) years after the completion of each Lease Year provided that Landlord
shall maintain a reasonable Base Year records (but not invoices) throughout
the Lease Term. The payment by Tenant of any Direct Expenses shall not
preclude Tenant or Landlord from questioning the correctness of any actual
statement provided by Landlord at any time during the period ending two (2)
years after receipt of Landlord's Statement, but the failure of Tenant to
object thereto within two (2) years after receipt of Landlord Statement for a
particular Expense Year shall be conclusively deemed Tenant's approval of the
actual Statement. The failure of Landlord to question any statement within
(2) years after Tenant's receipt thereof for a particular Expense Year shall
be conclusively deemed Landlord's approval of the actual statement.
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4.7.2 Landlord shall have the right to recover from Tenant the
amount of Tenant's Share of any Direct Expenses attributable to a Expense
Year, but paid in a subsequent Expense Year; provided, however, that except
as set forth below in this Section 4 7.2, Landlord may only adjust the Direct
Expenses for any given Expense Year within two (2) years after the expiration
of such Expense Year. Notwithstanding the foregoing, Landlord may adjust
Direct Expenses more than two (2) years after the expiration of any given
Expense Year in connection with Tax Expenses or other governmental or public
sector charges (including, but not limited to utility charges) first billed
to Landlord after such two (2) year period but which relate to Direct
Expenses for such Expense Year.
4.7.3 If Landlord has acknowledged in writing an error in the
computation of Direct Expenses to another tenant, Landlord shall correct such
error to the extent it appears in Tenant's Direct Expenses computation for
the same Expense Year.
ARTICLE 5
USE OF PREMISES
5.1 PERMITTED USE. Tenant shall use the Premises solely for general
business and professional offices, all as shall be consistent with the
character of the Building as a first-class office building, and Tenant shall
not use or permit the Premises to be used for any other purpose or purposes
whatsoever without the prior written consent of Landlord, which consent may
be withheld in Landlord's sole and absolute discretion.
5.2 PROHIBITED USES. Tenant further covenants and agrees that it shall
not use, or suffer or pen-nit any person or persons to use, the Premises or
any part thereof for any use or purpose contrary to the provisions of Exhibit
D, attached hereto (the "RULES AND REGULATIONS"), or in violation of the laws
of the United States of America, the State of California, or the ordinances,
regulations or requirements of the local municipal or county governing body
or other lawful authorities having jurisdiction over the Building. Tenant
shall not at any time use or occupy knowingly or allow any person to use or
occupy the Premises or the Building or do or knowingly permit anything to be
done or kept in the Premises or the Building or perform any other action in
any manner which: (1) violates any certificate of occupancy in force for the
Premises, or the Building; (ii) causes or is likely to cause damage to the
Building, the Premises or any equipment, facilities or other systems therein;
(iii) results in repeated demonstrations, bomb threats or other events which
require evacuation of the Building or otherwise unreasonably disrupt the use,
occupancy or quiet enjoyment of the Building by other tenants and occupants
(provided that this clause (iii) is not intended to prohibit the customary
and foreseeable practices of Tenant); or (iv) unreasonably interferes (after
notice of such interference) with the transmission or reception of microwave,
television, radio or other communications signals by antennae located on the
roof of the Building or elsewhere in the Building. Tenant shall not use or
allow another person or entity to use any part of the Premises for the
storage (no matter how temporary), use, treatment, analysis, manufacture or
sale of any Hazardous Materials. Landlord acknowledges, however, that Tenant
will maintain products in the Premises which are incidental to the operation
of its offices, such as photocopy supplies, secretarial supplies and limited
janitorial supplies, which products contain chemicals which are categorized
as Hazardous Materials. Landlord agrees that the use of such products in the
Premises in compliance with all applicable laws and in the manner in which
such products are designed to be used shall not be a violation by Tenant of
this SECTION 5.2.
ARTICLE 6
SERVICES AND UTILITIES
6.1 STANDARD TENANT SERVICES. Landlord shall provide the following
services on all days during the lease term, unless otherwise stated below.
6.1.1 Subject to all governmental rules, regulations and
guidelines applicable thereto, Landlord shall provide heating, ventilation
and air conditioning ("HVAC") when necessary for normal comfort for normal
office use in the Premises, from Monday through Friday, during the period
from 8 A.M. to 6 P.M. and on Saturday during the period from 9 A.M. to 1
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P.M., except for the date of observation of New Year's Day, Independence Day,
Labor Day, Memorial Day, Thanksgiving Day, and Christmas Day and other
holidays generally recognized by Comparable Buildings (collectively, the
"HOLIDAYS"). The HVAC equipment in the Building (the "BUILDING HVAC SYSTEM")
is designed to perform substantially in accordance with the HVAC
specifications attached to this Lease as EXHIBIT H (the "HVAC
SPECIFICATIONS"). Landlord shall maintain and repair the Building HVAC
System in a manner reasonably calculated to conform to the HVAC
Specifications; provided, however, in no event shall Landlord be liable to
Tenant for any failure of the Building HVAC System to conform to the HVAC
Specifications due to (i) any normal wear and tear or obsolescence of the
Building HVAC System, or (ii) Tenant's particular use of the Premises, or
Tenant's actions or omissions which causes such non-conformance (including,
without limitation Tenant's use of heat-generating machines, equipment or
lighting which is not standard for the Building, and/or use of the Premises
by greater than the typical amount of persons commonly using comparable space
in the Building). Tenant shall have the right, at Tenant's sole expense and
in accordance with plans and specifications therefor approved in writing by
Landlord, to install, maintain and replace a private HVAC system or systems
(the "TENANT HVAC SYSTEM") separate from the Building HVAC System, in
Tenant's computer rooms, user rooms and other areas contained wholly within
the Premises, provided that (1) such Tenant HVAC System does not interfere
with the operation, maintenance, or replacement of the Building HVAC System
and (ii) Landlord's contractor (or a contractor approved by Landlord in
writing), shall install the Tenant HVAC System. Landlord shall also cause
the Building HVAC System and indoor air quality of the Common Areas within
the Building and the Premises to meet, for the entire Lease Term and the
Pre-Occupancy Period, the standards (the "AIR QUALITY STANDARDS") which are
the lesser of (i) those standards set forth in Standard 62-1989 ("VENTILATION
FOR ACCEPTABLE INDOOR AIR QUALITY"), including both the requirements of the
Ventilation Rate Procedure and Indoor Air Quality Procedure and the
maintenance requirements, recommendations and guidelines contained therein,
promulgated by the American Society of Heating, Refrigerating and Air
Conditioning Engineers ("ASHRAE"), and any laws, ordinances, rules or
regulations now in effect or hereafter promulgated by any governmental
authority having jurisdiction over the Building or persons occupying or
working in the Building relating to office building indoor air quality, or
(ii) the level of indoor air quality maintained in the buildings located at
2020 and 2040 Century Park East, 1900 and 1901 Avenue of the Stars, 1875 and
1925 Century Park East, and 10100 Santa Monica Boulevard, all in Los Angeles,
California (the "COMPARABLE SYSTEMS BUILDINGS"). In the event the indoor air
quality of the Premises or the Building Common Areas does not meet the Air
Quality Standards, such condition shall be referred to as a "SICK BUILDING."
6.1.2 Landlord shall at all times provide electricity to the
Premises (including adequate electrical wiring and facilities for connection
to Tenant's lighting fixtures and other equipment) for lighting and power
suitable for the use of the Premises up to seven (7) watts per rentable
square foot demand load on a continuous annualized basis (the "AVAILABLE
ELECTRICITY"). Such electrical usage, to the extent the same exceeds four and
one half (4.5) watts per rentable square foot of the Premises demand load on
a continuous, annualized basis shall be known as "EXCESS CONSUMPTION." The
amount of Excess Consumption used within the Premises shall be verifiable by
meters or submeters, installed at Tenant's sole cost and expense upon
Landlord's veri reasonable expectation of Excess Consumption. Landlord shall
charge Tenant for its Excess Consumption at Landlord's actual average cost
per kilowatt-hour therefor. Tenant shall pay Landlord, as Additional Rent,
the cost of its Excess Consumption within ten (10) days of billing. The cost
of the Excess Consumption shall not be charged to Operating Expenses.
Landlord shall bear the cost of making the Available Electricity available at
the bus riser on each floor of the Premises. Tenant shall bear the cost of
horizontally distributing the Available Electricity to the Premises,
including costs related to transformers and disconnect switches necessitated
by Tenant's Excess Consumption. Tenant shall bear the cost of replacement of
nonstandard lamps and/or starters and ballasts for lighting fixtures within
the Premises.
6.1.3 Landlord shall provide city water from the regular
Building outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide janitorial services five (5) days a
week except the days of observation of the Holidays, in and about the
Premises substantially in accordance with the cleaning specifications
attached hereto as EXHIBIT I (the "CLEANING SPECIFICATIONS") and shall
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provide exterior window washing services not less than two (2) times per year
and interior window washing services no less than one (1) time per year.
Landlord shall provide janitorial services in a manner reasonably calculated
to conform to the Cleaning Specifications; provided, however, Landlord shall
have the right to change the Cleaning Specifications from time to time so
long as the janitorial services and window washing services of the Building
remain consistent with that of Comparable Buildings. Notwithstanding the
foregoing, Tenant reserves the right to provide, at its own cost and expense,
its own Janitorial service to any part of the premises designated in writing
to Landlord as a high-security area, as determined by Tenant ("SECURITY
AREA").
6.1.5 Except as otherwise provided in the "Passenger Elevator
Specifications," as that term is defined below, Landlord shall provide
nonexclusive automatic passenger elevator service. At least four (4)
passenger elevators serving the Premises shall be operational during normal
business hours (subject to normal servicing and repair) and at least one (1)
passenger elevator shall be operational at all other times. The passenger
elevators located in the Building (collectively, the "PASSENGER ELEVATORS")
are designed to substantially comply with the passenger elevator
specifications dated as of August 16, 1993, prepared for Landlord by Lerch,
Bates & Associates, Inc. (the "PASSENGER ELEVATOR SPECIFICATIONS"). Landlord
shall maintain and repair the Passenger Elevators in a manner reasonably
calculated to conform to the Passenger Elevator Specifications; provided,
however, in no event shall Landlord be liable to Tenant for any failure of
the Passenger Elevators to conform to the Passenger Elevator Specifications
due to any normal wear and tear or obsolescence of the Passenger Elevators.
6.1.6 Landlord shall provide, at no charge, nonexclusive
freight elevator service during the normal business hours, subject to
reasonable AND nondiscriminatory scheduling by Landlord. Tenant shall also
be entitled to non-exclusive use of the freight elevator service, at no
charge, at all times other than normal business hours, subject to reasonable
and nondiscriminatory scheduling by Landlord.
6.1.7 Landlord shall provide, twenty-four (24) hours per day,
seven (7) days per week, throughout the Lease Term, including the periods of
occupancy by Tenant prior to the Lease Commencement Date, security for the
Building, and the On-site Parking Area, including all pedestrian and
vehicular entries thereto in a manner consistent with the security personnel
and equipment maintained at Comparable Buildings ("LANDLORD'S SECURITY").
Landlord's Security shall provide Tenant, upon Tenant's request and subject
to availability, on weekdays after normal Building hours, with an escort to
the vehicles of Tenant's employees located in the On-site Parking Area
through the use of Landlord's Security personnel. Tenant may, at its own
expense, install its own security system ("TENANT'S SECURITY") in the
Premises and common stairwells of the Building (which Tenant's Security shall
not include any armed security personnel); provided, however, that Tenant
shall coordinate the installation and operation of Tenant's Security with
Landlord to assure that Tenant's Security is compatible with Landlord's
Security. Tenant shall be solely responsible for the monitoring and
operation of Tenant's Security system. Tenant shall have the right to refuse
admission of persons to the Premises, except for Landlord's representatives
in the event of an emergency or pursuant to Landlord's entry fights set forth
in this Lease.
6.1.8 Landlord shall provide, maintain, and repair during the
Lease Term the currently existing telephone and telecommunications systems
and equipment from the minimum point of entry of the Building through the
Building telephone risers to the Building telephone closets located on each
floor of the Building containing the Premises, as set forth in Section 1. I
of the Tenant Work Letter (the "TELECOMMUNICATIONS SYSTEM"). Tenant shall
have access at all times (accompanied, except in the case of an emergency, by
a representative of Landlord to the extent such representative is reasonably
available) to the Building telephone closets on the floors of the Building
containing the Premises. Landlord shall notify Tenant, except in case of
emergency, prior to any work requiring access to any Building telephone
closets located on floors containing the Premises. Landlord shall allow
Tenant to observe any work performed by Landlord in such telephone closets.
6.2 OVERSTANDARD TENANT USE. Tenant shall not, without Landlord prior
written consent, use heat-generating machines or equipment or lighting which
(i) causes Tenant to use Excess Consumption if such Excess Consumption
affects the temperature maintained
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by the air conditioning system or (II) increases the water normally furnished
for the Premises by Landlord pursuant to the terms of Section 6.1 of this
Lease. If such consent is given, Landlord shall have the right to install
supplementary air conditioning units or other facilities in the Premises,
including supplementary or additional metering devices, and the cost thereof,
including the cost of installation, operation and maintenance, increased wear
and tear on existing equipment, and other similar charges, including the
removal thereof upon the expiration or earlier termination of the Lease Term,
shall be paid by Tenant to Landlord within ten (10) days after Tenant's
receipt of invoice. If Tenant uses water in excess of that supplied by
Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord,
within ten (10) days after Tenant's receipt of an invoice therefor, the
Actual Cost of such excess consumption, and the Actual Cost of the
installation, operation, and maintenance of equipment which is installed in
order to supply such excess consumption, and the cost of the increased wear
and tear on existing equipment caused by such Excess Consumption; and
Landlord may install devices to separately meter any increased use and in
such event Tenant shall pay the increased cost directly to Landlord on
demand, including the cost of such additional metering devices and the cost
of the removal thereof upon the expiration or earlier termination of the
Lease Term. If Tenant desires to use heat, ventilation or air conditioning
during hours other than those for which Landlord is obligated to supply such
utilities pursuant to the terms of Section 6.1 of this Lease (the "AFTER
HOURS HVAC"), Tenant shall give Landlord such prior notice, as Landlord shall
from time to time reasonably and on a non-discriminatory basis establish as
appropriate (which may be no prior notice at all during such times as
Landlord may keep in effect an automated system that requires no prior
notice), of Tenant's desired use and Landlord shall supply such utilities to
Tenant at Landlord's Actual Cost therefor. Amounts payable by Tenant to
Landlord for such use of additional utilities shall be deemed Additional Rent
hereunder and shall be billed on a monthly basis, Notwithstanding the
foregoing, in no event shall the amount paid by Tenant for After Hours HVAC
exceed $50.00 per hour for each floor for which After Hours HVAC is ordered
by Tenant (the "AFTER HOURS HVAC CAP"), during the first (1st) through fifth
(5th) Lease Years. On the first day of the sixth (6th) Lease Year and on the
first day of each Lease Year thereafter, the After Hours HVAC Cap may
increase to an amount equal to the product of (1) the After Hours HVAC Cap
for the prior Lease Year, and (ii) 1.05. Landlord may increase the hours or
days during which air conditioning, heating and ventilation are provided to
the Premises and the Building to conform to practices of Comparable Buildings.
6.3 INTERRUPTION OF USE. Tenant agrees that, except as otherwise
provided in this Lease, Landlord shall not be liable for damages, by
abatement of Rent or otherwise, for failure to furnish or delay in furnishing
any service (including telephone and telecommunication services), or for any
diminution in the quality or quantity thereof, when such failure or delay or
diminution is occasioned, in whole or in part, by repairs, replacements, or
improvements, by any strike, lockout or other labor trouble, by inability to
secure electricity, gas, water, or other fuel at the Building after
reasonable effort to do so, by any accident or casualty whatsoever, by act or
default of Tenant or other parties, or by any other cause beyond Landlord's
reasonable control; and such failures or delays or diminution shall never be
deemed to constitute an eviction or disturbance of Tenant's use and
possession of the Premises or relieve Tenant from paying Rent or performing
any of its obligations under this Lease. Furthermore, Landlord shall not be
liable under any circumstances for a loss of, or injury to, or interference
with, Tenant's business, including, without limitation, loss of profits,
however occurring, through or in connection with or incidental to a failure
to furnish any of the services or utilities as set forth in this ARTICLE 6.
6.3.1 Notwithstanding anything to the contrary contained in this
Lease (except for Articles I I and 13 which shall govern and control the
rights and remedies of the parties incident to damage, destruction and
condensation), if Tenant IS prevented from using the Premises or any portion
thereof (the "AFFECTED AREA") to conduct its normal business operations and
Tenant does not, in fact, use the Affected Area due to any of the following
(not caused by the acts or omissions of Tenant or Tenant's employees, agents,
contractors or subtenants except to the extent covered by Landlord's
insurance): (i) any service required to be provided by landlord to Tenant
hereunder (including but not limited to passenger elevator service, the
Telecommunications Systems, janitorial service, HVAC, electricity or water)
(collectively, the "ESSENTIAL SERVICES") not being provided to the Affected
Area as required by the terms of this Lease, (ii) the presence, in a form or
concentration in violation of applicable law then in effect, of Hazardous
Materials (which Hazardous Materials were not brought onto the Premises by
Tenant
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or Tenant's employees, agents, licensees or invitees), (111) a Sick Building
condition, or (iv) Force Majeure, the following shall apply (collectively,
the "Abatement Event").
6.3.1.1 Tenant shall promptly deliver to Landlord notice
(the "CURE NOTICE") of the Abatement Event and if Landlord fails to cure such
condition within five (5) consecutive business days after the subject loss of
use of the Affected Area, then Rent applicable to the Affected krea (and to
the extent parking passes rented by Tenant pursuant to this Lease correspond
to the Affected Area and are not used by Tenant, then fees for such
applicable parking passes) shall be abated from the date which is three (3)
days after delivery of the Cure Notice (the "Abatement Start Date") until the
date when such failure is cured-, provided, however, that if Tenant has
previously paid Rent, including parking fees to Landlord for a period of time
subsequent to the Abatement Start Date, then Landlord shall, within ten (10)
business days following the Abatement Start Date, reimburse to Tenant the
amount of such excess payments.
6.3.1.2 If any Abatement Event shall not be cured within one
hundred eighty (I 80) days after the Abatement Start Date, then Tenant, upon
notice to Landlord (the "SERVICES TERMINATION Notice") delivered within
thirty (30) days after the expiration of such one hundred eighty (180) day
period after the Abatement Start Date (the "TERMINATION CURE PERIOD"), may
terminate this Lease as to the entire Premises, which termination shall be
deemed effective upon Tenant's vacation of the entire Premises.
Notwithstanding anything to the contrary contained herein, the Termination
Cure Period shall be extended for each day Landlord is delayed by Force
Majeure, for a maximum of ninety (90) days, from curing the event which gave
rise to the rent abatement pursuant to SECTION 6.3.1 hereof
6.3.2 If any governmental entity promulgates or revises any
statute, ordinance, building code, fire code or other code or imposes
mandatory controls on Landlord or the Real Property or any part thereof,
relating to the use or conservation of energy, water, gas, light or
electricity or the reduction of automobile or other emissions or the
provision of any other utility or service provided with respect to this Lease
or if Landlord is required to make alterations to the Building or any other
part of the Real Property in order to comply with such mandatory or voluntary
controls or guidelines, then Landlord shall comply with such mandatory
controls and may, in its sole election, comply with voluntary controls or
make such alterations to the Building or any other part of the Real Property
related thereto without creating any liability of Landlord to Tenant under
this Lease, provided that the Premises are not thereby rendered untenantable.
Such compliance and the making of such permitted alterations shall, except
as provided in SECTION 6.3. 1, not entitle Tenant to any damages, relieve
Tenant of the obligation to pay the full Rent reserved hereunder or
constitute or be construed as a constructive or other eviction of Tenant.
The cost of such compliance and/or alterations (whether mandatory or
voluntary) shall be included in Operating Expenses to the extent allowed
pursuant to Section 4.2.4, above.
6.4 ADDITIONAL SERVICES. Landlord shall also have the
non-exclusive right, but not the obligation, to provide any additional
services which may be required by Tenant, including, without limitation,
locksmithing, lamp replacement, additional 'anitorial service, and additional
repairs and maintenance, provided that Tenant shall pay to Landlord upon
billing, Landlord's Actual Costs of such additional services.
6.5 ACTUAL COST. As used herein, "ACTUAL COST" shall be (i)
the actual costs paid or incurred by Landlord (unless such actual costs paid
or incurred cannot be readily ascertained, in which event actual costs shall
be the amount reasonably estimated by Landlord), and (ii) a percentage of the
cost thereof, as reasonably established by Landlord, sufficient to reimburse
Landlord for all overhead, fees and other costs or expenses incurred by third
parties that are not paid for through Operating Expenses, which third parties
are involved in such repairs, replacements, administration, furnishing of
goods and material and the like. In the event that more than one tenant
orders any extra service or utility, if any cost item is applicable to more
than one tenant, such cost shall be equitably apportioned by Landlord. Any
Actual Cost, to the extent reimbursed to Landlord by Tenant and/or other
tenants, shall be netted out of Operating Expenses to the extent previously
charged to Operating Expenses or to the extent that the work was performed by
individuals whose entire salaries or charge for the subject services are
included in Operating Expenses.
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ARTICLE 7
REPAIRS
7.1 LANDLORD AND TENANT REPAIR OBLIGATIONS. Landlord shall, as part of
Operating Expenses to the extent permitted under Article 4 of this Lease,
maintain and repair the structural portions of the Building in a manner
substantially consistent with the Comparable Buildings, including the
foundation, floor/ceiling slabs, roof, curtain wall, exterior glass and
mullions, columns, beams, shafts (including elevator shafts), stairs, parking
garage, stairwells, elevator cabs, plazas, art work, sculptures, washrooms,
Building mechanical, electrical and telephone closets, and all common and
public areas (collectively, "BUILDING STRUCTURE") and the Base Building
mechanical, electrical, life safety, plumbing, sprinkler systems and HVAC
systems (the "BUILDING SYSTEMS"). Notwithstanding anything in this Lease to
the contrary, Tenant shall not be required to make any repair to,
modification of, or addition to the Building Structure and/or the Building
Systems except and to the extent required because of (i) Tenant's use of the
Premises for other than normal and customary business office operations or
(II) Tenant's construction or installation of the Tenant Improvements, any
Alterations, or the "Building Top Signage" or "Monument Signage" (as those
ten-ns are defined in SECTION 23.4, below). Tenant shall, at Tenant's own
expense, pursuant to the terms of this Lease, including without limitation
Article 8 hereof, keep the Premises, including all improvements, fixtures and
furnishings therein, in good order, repair and condition at all times during
the Lease Term. In addition, except as provided as part of Landlord's repair
obligations set forth above or elsewhere in this Lease, Tenant shall, at
Tenant's own expense but under the supervision and subject to the prior
written approval of Landlord, and within any reasonable period of time
specified by Landlord, pursuant to the terms of this Lease, including without
limitation Article 8 hereof, promptly and adequately repair all damage to the
Premises and replace or repair all damaged or broken fixtures and
appurtenances; provided however, that, at Landiord's option, or if Tenant
fails to make such repairs, Landlord may, but need not, make such repairs and
replacements, and Tenant shall pay Landlord the cost thereof, including a
percentage of the cost thereof (to be uniformly established for the Building)
sufficient to reimburse Landlord for all overhead, general conditions, fees
and other costs or expenses arising from Landlord's involvement with such
repairs and replacements forthwith upon being billed for same. Landlord may,
but shall not be required to, enter the Preraises at all reasonable times to
make such repairs, alterations, improvements and additions to the Premises or
to the Building or to any equipment located in the Building as Landlord shall
desire or deem necessary or as Landlord may be required to do by governmental
or quasi-govemmental authority or court order or decree; provided, however,
except for (i) emergencies, (ii) repairs, alterations, improvements or
additions required by governmental or quasi-governmental authorities or court
order or decree, or (iii) repairs which are the obligation of Tenant
hereunder, any such entry into the Premises by Landlord shall be performed in
a manner so as not to materially interfere with Tenant's use of, or access
to, the Premises. Tenant hereby waives and releases its right to make
repairs at Landlord's expense under Sections 1941 and 1942 of the California
Civil Code or under any similar law, statute, or ordinance now or hereafter
in effect.
7.2 TENANT SELF-HELP AND OFFSET RIJZHTS.
7.2.1 If Tenant provides notice (the "REPAIR NOTICE") to
Landlord of an event or circumstance which pursuant to the terms of this
Lease requires Landlord to fulfill an obligation, including, without
lirm'tation, to provide services or utilities, or repair, alter, improve
and/or maintain the Premises or to comply with law (a "REQUIRED ACTION"), and
Landlord fails to provide the Required Action within the time period required
by this Lease, or a reasonable period of time, if no specific time period is
specified in this Lease, after the receipt of the Repair Notice (the "NOTICE
DATE"), or, in any event, does not commence the Required Action within ten
(10) davs after the Notice Date and complete the Required Action within
thirty (30) days after the Notice Date (provided that if the nature of the
Required Action is such that the same cannot reasonably be completed within a
thirty (30) day period, Landlord's time period for completion shall not be
deemed to have expired if Landlord diligently commences such cure within such
period and thereafter diligently proceeds to rectify and complete the
Required Action, as soon as possible), then, provided that the Required
Action is limited to the floors on which full floors of the Premises are
located, Tenant may proceed to take the Required Action, pursuant to and in
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accordance with all of the terms of this Lease, and shall deliver a second
notice to Landlord specifying that Tenant is taking the Required Action (the
"SECOND NOTICE").
7.2.2 Notwithstanding the foregoing, and except as provided in
Articles 11 and 13), below, if there exists an emergency such that the
Premises or a portion thereof are rendered untenantable and Tenant's
personnel are forced to vacate the Premises or such portion thereof and if
Tenant gives the Building's management office notice (the "EMERGENCY NOTICE")
of Tenant's intention to take action with respect thereto (the "NECESSARY
ACTION") and the Necessary Action is also a Required Action, then, provided
that the Necessary Action is limited to the floors on which full floors of
the Premises are located, Tenant may take the Necessary Action if Landlord
does not commence the Necessary Action within two (2) business days after the
Emergency Notice (the "EMERGENCY CURE PERIOD") and thereafter use its best
efforts and due diligence to complete the Necessary Action as soon as
possible.
7.2.3 If any Necessary Action will affect the Building Systems,
the Building Structure or the structural integrity of the Building, Tenant
shall use only those contractors used by Landlord in the Building for work on
the Building Systems, or its structure, and Landlord shall provide Tenant
(when available and upon Tenant's request) with notice identifying such
contractors and any changes to the list of such contractors, unless such
contractors are unwilling or unable to perform such work or the cost of such
work is not competitive, in which event Tenant may utilize the services of
any other qualified contractors which normally and regularly performs similar
work in the Comparable Buildings and which Landlord reasonably approves in
writing, provided that Landlord's failure to approve or disapprove such
contractors within five (5) business days of Landlord's receipt of a Repair
Notice or within two (2) business days of Landlord's receipt of an Emergency
Notice such contractors shall be deemed to be approved.
7.2.4 If any Required Action or Necessary Action is taken by
Tenant pursuant to the terms of this Section 7.2, then Landlord shall
reimburse Tenant for its reasonable and documented actual costs and expenses
in taking the Required Action or Necessary Action within thirty (30) days
after receipt by Landlord of an invoice from Tenant which sets forth a
reasonably particularized breakdown of its costs and expenses in connection
with taking the Required Action or Necessary Action on behalf of Landlord
(the "REPAIR INVOICE"). In the event Landlord does not reimburse Tenant for
the Repair Invoice within thirty (30) days of receipt, then Tenant may deduct
from the next Rent payable by Tenant under this Lease, the amount set forth
in the Repair Invoice plus interest at the Interest Rate (the "OFFSET
RIGHT"). Notwithstanding the foregoing, if Landlord delivers to Tenant
within thirty (30) days after receipt of the Repair Invoice, a written
objection to the payment of such invoice, setting forth with reasonable
particularity Landlord's reason for its claim that the Required Action
or Necessary Action did not have to be taken by Landlord pursuant to the
terms of this Lease or that Tenant breached the terms of this Section 7.2, or
that the charges are excessive (in which case Landlord shall pay the amount
it contends would not have been excessive), then Tenant shall not be entitled
to deduct such amount from Rent, but the dispute may be submitted to
arbitration in accordance with the terms of Section 29.32 of this Lease for
resolution.
7.3 COMPLIANCE WITH LAW BY LANDLORD AND TENANT. Landlord shall keep and
maintain the Building Structure and Building Systems, the Building (excluding
those portions of the Building required to be maintained by tenants and other
occupants), the Base Building and the On-site Parking Area in compliance with
any law, statute, ordinance or other governmental rule, regulation or
requirement now in force or which may hereafter be enacted or promulgated,
including any standard or regulation now or hereafter imposed on Landlord by
a state, federal or local governmental body charged with the establishment,
regulation and enforcement of occupational health or safety standards for
employers, employees, landlords or tenants, that relates to the operation of
the Building (collectively, "LEGAL REQUIREMENTS"); provided, however, that
tenant hereby covenants and agrees that if such compliance is required with
respect to the Tenant Improvements or Alterations or such compliance is
required in any part of the Building or Base Building as a result of any
Tenant Improvements, Alterations or Personal Property of Tenant which are not
general office improvements or as a result of the Building Top Signage,
Monument Signage, or any other Tenant Signage , Tenant shall be responsible
for the cost of causing, and Tenant shall cause, the Premises, the Building
and the Base Building, as the case may be, to comply with such legal
requirements. Without limiting the foregoing, Tenant shall not do anything
or suffer anything to be done in or about the Premises which will in any way
conflict
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with any law, statute, ordinance or other governmental rule, regulation or
requirement now in force or which may hereafter be enacted or promulgated.
The judgment of any court of competent jurisdiction or the admission of
Tenant in any judicial action, regardless of whether Landlord is a party
thereto, that Tenant has violated any of said governmental measures, shall be
conclusive of that fact as between Landlord and Tenant.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 LANDLORD'S CONSENT TO ALTERATIONS. Tenant may not make any
improvements, alterations, additions or changes to the Premises
(collectively, the "ALTERATIONS") without first procuring the prior written
consent of Landlord to such Alterations, which consent shall be requested by
Tenant not less than thirty (30) days prior to the requested commencement
thereof, and which consent shall not be unreasonably withheld by Landlord;
provided however, that Tenant may make changes in the Premises, not requiring
any structural modifications to the Premises or any modifications to the
Systems and Equipment upon fifteen (15) days prior notice to Landlord. The
construction of the initial improvements to the Premises shall be governed by
the terms of the Tenant Work Letter and not the terms of this ARTICLE 8.
8.2 MANNER OF CONSTRUCTION. Landlord may impose, as a condition of its
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its reasonable discretion may deem
desirable, including, but not limited to, the requirement that Tenant perform
any work which in Landlord's judgment is likely to disturb other tenants of
the Building only during non-business hours, and/or the requirement that
Tenant utilize for such purposes only contractors, materials, mechanics and
materialmen reasonably approved by Landlord. Tenant shall construct such
Alterations and perform such repairs in conformance with any and all
applicable rules and regulations of any federal, state, county or municipal
code or ordinance and pursuant to a valid building permit, issued by the City
of Los Angeles, in conformance with Landlord's reasonable and
nondiscriminatory construction rules and regulations. All work with respect
to any Alterations must be done in a good and workmanlike manner and
diligently prosecuted to completion. In performing the work of any such
Alterations, Tenant shall have the work performed in such manner as not to
unreasonably obstruct access to the Building or the common areas for any
other tenant of the Building, and as not to unreasonably obstruct the
business of Landlord or other tenants in the Building. Upon completion of
any Alterations, Tenant agrees to cause a Notice of Completion to be recorded
in the office of the Recorder of the County of Los Angeles in accordance with
Section 3093 of the Civil Code of the State of California or any successor
statute, and Tenant shall deliver to the Building management office a
reproducible copy of the "as built" drawings of the Alterations, if any,
provided, however, that if Tenant does not cause a timely Notice of
Completion to be recorded, such failure shall not constitute a default under
this Lease but Tenant shall protect, defend, indemnify and hold Landlord
harmless from any loss, cost, damage, claim or expense incurred by Landlord
in connection with Tenant's failure to record the Notice of Completion.
8.3 PAYMENT FOR IMPROVEMENTS. In the event Tenant orders any Alteration
or repair work directly from Landlord, the charges for such work shall be
deemed Additional Rent under this Lease, payable upon billing therefor,
either periodically during construction or upon the substantial completion of
such work, at Landlord's option. Upon completion of such work not ordered
from Landlord, Tenant shall deliver to Landlord, if payment is made directly
to contractors, evidence of payment, contractors' affidavits and full and
final waivers of all liens for labor, services or materials. In the event of
any work ordered directly from Landlord, Tenant shall pay to Landlord a
percentage of the cost of such work (such percentage, which shall vary
depending on whether or not Tenant orders the work directly from Landlord, to
be established by Landlord on a uniform basis for the Building) sufficient to
compensate Landlord for all overhead, general conditions, fees and other
costs and expenses arising from Landlord's involvement with such work.
8.4 CONSTRUCTION INSURANCE. In the event that Tenant makes any
Alteration, Tenant agrees to carry "Builder's All Risk" insurance in an
amount reasonably approved by Landlord covering the construction of such
Alterations, and such other as Landlord may reasonably require, it being
understood and agreed that all of such Alterations shall be insured by
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Tenant pursuant to ARTICLE 10 of this Lease immediately upon completion
thereof In addition, the original Landlord under this Lease may, in its
discretion, require Tenant or its contractor to obtain a lien and completion
bond or some alternate form of security satisfactory to Landlord in an amount
sufficient to ensure the lien-free completion of such Alterations and naming
Landlord as a co-obligee; provided that no such bond shall be required for
the Tenant named in the Summary unless legally mandated by the California
Public Contracts Code.
8.5 LANDLORD'S PROPERTY, All Tenant Improvements and Alterations which
may be installed or placed in or about the Premises or the Real Property, and
all signs installed in, on or about the Premises or the Real Property, from
time to time, shall be at the sole cost of Tenant and (except for any signs)
shall be and become the property of Landlord, except that Tenant may remove
any signs and any Improvements and Alterations which Tenant can substantiate
to Landlord have not been paid for with any tenant improvement allowance
funds provided to Tenant by Landlord, (collectively, the "TENANT'S PROPERTY")
and Tenant may also remove any Personal Property, provided, in each instance,
Tenant repairs any damage to the Premises and Building caused by such
removal. Furthermore, Landlord may, at the time of granting Landlord's
consent to any Alteration which is atypical for normal and customary office
purposes, require that Tenant, at Tenant's expense (i) remove such Alteration
upon the expiration or early termination of the Lease Term and (11) repair
any damage to the Premises and Building caused by such removal. If Tenant
falls to complete such removal and/or to repair any damage caused by the
removal of such Alterations, Landlord may do so and may charge the cost
thereof to Tenant.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant,
operation of law or otherwise, to attach to or be placed upon the Real
Property, Building or Premises, and any and all liens and encumbrances
created by Tenant shall attach to Tenant's interest only. Landlord shall
have the right at all times to post and keep posted on the Premises any
notice which it deems necessary for protection from such liens. Tenant
covenants and agrees not to suffer or permit any lien of mechanics or
materialmen or others to be placed against the Real Property, the Building or
the Premises with respect to work or services claimed to have been performed
for or materials claimed to have been furnished to Tenant or the Premises,
and, in case of any such lien attaching or notice of any lien, Tenant
covenants and agrees to cause it to be released and removed of record within
thirty (30) days after Tenant's receipt of notice from Landlord regarding the
existence of such lien. Notwithstanding anything to the contrary set forth
in this Lease, in the event that such lien is not released and removed on or
before the date occurring thirty (30) days after notice of such lien is
delivered by Landlord to Tenant, Landlord, at its sole option, may
immediately take all reasonable action necessary to release and remove such
lien, without any duty to investigate the validity thereof, and all sums,
costs and expenses, including reasonable attorneys' fees and costs, incurred
by Landlord in connection with such lien shall be deemed Additional Rent
under this Lease and shall be due and payable by Tenant within ten (10)
business days after Tenant's receipt of an invoice therefor.
ARTICLE 10
INSURANCE
10.1 INDEMNIFICATION AND WAIVER. To the extent not prohibited by law,
and except to the extent caused by the negligence or willful misconduct of
Landlord, its agents and employees, neither Landlord nor any member of the
"Landlord's Group" (as defined in this Section 10.1) shall be liable for
any damage either to persons or property or resulting from the loss of use
thereof, which damage is sustained by Tenant or by other persons claiming
through Tenant, due to the Building, the On-site Parking Area, the Real
Property or any part of any of the foregoing or any appurtenances thereof
becoming out of repair (including any improvements, materials, or equipment
relating to telephone or telecommunication systems), or due to the occurrence
of any accident or event in or about the Building, the On-site Parking Area,
the Real Property, or any part of any of the foregoing or any appurtenances
thereof or due to any act or neglect of any tenant or occupant of the
Building, including the Premises, or of any other person. The provisions of
this
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SECTION 10.1 shall apply particularly, but not exclusively, to damage caused
by gas, electricity, steam, sewage, sewer gas or odors, fire, water or by the
bursting or leaking of pipes, faucets, sprinklers, plumbing fixtures and
windows, and shall apply without distinction as to the person whose act or
neglect was responsible for the damage and whether the damage was due to any
of the causes specifically enumerated above or to some other cause of an
entirely different nature. Tenant further agrees that all Personal Property
upon the Premises, or upon loading docks, receiving and holding areas, or
freight elevators of the Building, shall be at the risk of Tenant only, and
that Landlord shall not be liable for any loss or damage thereto or theft
thereof Tenant shall indemnify, defend, protect, and hold harmless Landlord,
and its parent, subsidiary and affiliate companies, including but not limited
to their respective directors, officers, agents, servants, employees and
independent contractors and other entities constituting "Landlord
Affiliates," as defined in SECTION 29.33, (both groups, collectively, the
"LANDLORD'S GROUP") from any and all loss, cost, damage, expense and
liability (including without limitation court costs and reasonable attorneys'
fees) incurred in connection with or arising from any of the followings (i)
any default by Tenant in the observance or performance of any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed; (ii) the use or occupancy of the Premises by Tenant or any person
claiming by, through or under Tenant; (iii) the condition of the Premises or
any occurrence or happening on the Premises from any cause whatsoever; (iv)
any acts of Tenant pursuant to Section 7.2, above, and (v) any acts,
omissions or negligence of Tenant or any person claiming by, through or under
Tenant, or of the contractors, agents, servants, employees, visitors or
licensees of Tenant or any such person, in, on or about the Premises or the
Real Property, either prior to, during, or after the expiration of the Lease
Term, including, without limitation, any acts, omissions or negligence in the
making or performance of any Alterations, provided that the terms of the
foregoing indemnity shall not apply to the negligence or willful misconduct
of Landlord or its agents, contractors, employees or licensees (except for
damage to the Tenant Improvements, Alterations and Personal Property, and
damage covered by Tenant's insurance). Should Landlord be named as a
defendant in any suit brought against Tenant in connection with or arising
out of Tenant's occupancy of the Premises, Tenant shall pay to Landlord its
costs and expenses incurred in such suit, including without limitation, its
actual professional fees such as appraisers', accountants' and attorneys'
fees. Landlord shall indemnify, defend, protect, and hold harmless Tenant
and its parent, subsidiary and affiliated companies, including but not
limited to their respective directors, officers, agents, servants, employees
and independent contractors (collectively, the "TENANT'S GROUP"), from any
and all loss, cost, damage, expense and liability (including, without
limitation, court costs and reasonable attorneys' fees) incurred in
connection with or arising from any of the following: (i) any default by
Landlord in the observance or performance of any of the terms, covenants or
conditions of this Lease on Landlord's part to be observed or performed; and
(ii) any acts, omissions or negligence of Landlord or of the contractors,
agents, servants or employees of Landlord in, on or about the Building,
either prior to, during, or after the expiration of the Lease Term, provided
that the terms of the foregoing indemnity shall not apply to the negligence
or willful misconduct of Tenant (except as to damages covered by Landlord's
insurance). Should Tenant be named as a defendant in any suit brought
against Landlord in connection with the Building, Landlord shall pay to
Tenant its costs and expenses incurred in such suit, including without
limitation, its actual professional fees such as appraisers', accountants'
and attorneys' fees if the claim is one to which Tenant is entitled to be
indemnified by Landlord under this SECTION 10.1. The provisions of this
SECTION 10.1 shall survive the expiration or sooner termination of this Lease
with respect to any claims or liability occurring prior to such expiration or
termination.
10.2 LANDLORD'S INSURANCE. From and after the date hereof and throughout
the Lease Term, Landlord shall maintain in full force and effect the policies
of insurance set forth below in SECTIONS 10.2.1 THROUGH 10.2.2.
10.2.1 A policy or policies of insurance insuring the Building and
On-site Parking Area against loss or damage due to fire and other casualties
covered within the classification of fire and extended coverage, vandalism
coverage and malicious mischief, sprinkler leakage, water damage, and special
extended coverage on building. Such coverage shall be in amounts as Landlord
may from time to time determine, but in no event less than one hundred
percent (100%) of the full insurable value of the Building and the On-site
Parking Area. Additionally, at the option of Landlord, such insurance
coverage may include the risks of earthquakes and/or flood damage and
additional hazards, a rental loss endorsement and one or more loss payee
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endorsements in favor of the holders of any mortgages or deeds of trust
encumbering the interest of Landlord in the Real Property or the ground or
underlying lessors of the Real Property, or any portion thereof. Tenant shall
neither use the Premises nor permit the Premises to be used or acts to be
done therein which will (i) increase the premium of any insurance described
in this SECTION 10.2; (ii) cause a cancellation of or be in conflict with any
such insurance policies; (iii) result in a refusal by insurance companies of
good standing to insure the Building or On-site Parking Area in amounts
reasonably satisfactory to Landlord; or (iv) subject Landlord to any
liability or responsibility for injury to any person or property by reason of
any operation being conducted in the Premises. Tenant shall, at Tenant's
expense, comply as to the Premises with all reasonable insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or
use of the Premises causes any increase in the premium for such insurance
policies, then Tenant shall reimburse Landlord for any such increase.
Tenant, at Tenant's expense, shall comply with all rules, orders, regulations
or requirements of the American Insurance Association (formerly the National
Board of Fire Underwriters) and with any similar body.
10.2.2 Commercial liability in at least those amounts customarily
carried by landlords of Comparable Buildings.
10.3 TENANT'S INSURANCE. Tenant shall maintain the following coverages
in the following amounts:
10.3.1 Comprehensive General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations, assumed liabilities or use of the
Premises, including a Broad Form Comprehensive General Liability endorsement
covering the insuring provisions of this Lease and the performance by Tenant
of the indemnity agreements set forth in SECTION 10.1 of this Lease, for
limits of liability not less than:
Bodily Injury and
Property Damage Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
Personal Injury Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
10.3.2 Physical Damage Insurance covering (i) the Tenant
Improvements, and (ii) all Building Top Signage and Monument Signage. Such
insurance shall be written on an "all risks" of physical loss or damage
basis, for the full replacement cost value new without deduction for
depreciation of the covered items and in amounts that meet any co-insurance
clauses of the policies of insurance and shall include a vandalism and
malicious mischief endorsement, sprinkler leakage coverage and earthquake
sprinkler leakage coverage.
10.4 FORM OF POLICIES. The minimum limits of policies of insurance
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall (i) name Landlord, and any
other party Landlord may reasonably specify, as an additional insured; (ii)
specifically cover the liability assumed by Tenant under this Lease,
including, but not limited to, Tenant's obligations under SECTION 10.1 of
this Lease; (iii) be issued by an insurance company having a rating of not
less than A-X in Best's Insurance Guide or which is otherwise reasonably
acceptable to Landlord and licensed to do business in the State of
California; (iv) be primary insurance as to all claims thereunder arising
within the Premises and provide that any insurance carried by Landlord with
respect to claims arising within the Premises is excess and is
non-contributing with any insurance requirement of Tenant; (v) provide that
said insurance shall not be canceled or coverage changed unless thirty (30)
days' prior written notice shall have been given to Landlord or any mortgagee
of Landlord whose names and addresses have been provided by Landlord together
with a specific reference to this requirement; and (vi) contain a
cross-liability endorsement or severability of interest clause reasonably
acceptable to Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Lease Commencement Date and
at least thirty (30) days before the expiration date thereof. In the event
Tenant shall fail to procure such insurance, or to deliver such policies or
certificate, Landlord may, upon five business days prior notice to Tenant, at
its option, procure such
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policies for the account of Tenant, and the cost thereof shall be paid to
Landlord as Additional Rent within ten (10) days after delivery to Tenant of
bills therefor.
10.5 SUBROGATION. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the
case may be, so long as the insurance carried by Landlord and Tenant,
respectively, is not invalidated thereby, As long as such waivers of
subrogation are contained in their respective insurance policies, Landlord
and Tenant hereby waive any right that either may have against the other on
account of any loss or damage to their respective property to the extent such
loss or damage is insurable under policies of insurance for fire and all risk
coverage, theft, public liability, or other similar insurance. If either
party fails to carry the amounts and types of insurance required to be
carried by it pursuant to this ARTICLE 10, such failure shall be deemed to be
a covenant and agreement by such party to self-insure with respect to the
type and amount of insurance which such party so failed to carry, with full
waivers of subrogation with respect thereto.
10.6 ADDITIONAL INSURANCE OBLIGATIONS. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage which may
replace the types currently required to be carried by Tenant, as may be
reasonably requested by Landlord; provided that such types and/or amounts of
insurance are comparable to that being required by other landlords of their
tenants in Comparable Buildings and are also comparable to that being
generally required of other tenants in the Building.
ARTICLE II
DAMAGE AND DESTRUCTION
11.1 REPAIR OF DAMAGE TO PREMISES BY LANDLORD. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any
other casualty. If the Premises or any Common Areas of the Building serving
or providing access to the Premises shall be damaged by fire or other
casualty, Landlord shall promptly and diligently, subject to reasonable
delays for insurance adjustment or other matters beyond Landlord's reasonable
control, and subject to all other terms of this ARTICLE 11, restore the Base
Building, the Premises, and such Common Areas. Such restoration shall at
least be to substantially the same condition of the Base Building, the
Premises, and Common Areas prior to the casualty, except for modifications
required by zoning and building codes and other laws. Notwithstanding any
other provision of this Lease, upon the occurrence of any damage to the
Premises, to the extent this Lease is not terminated, Tenant shall assign to
Landlord (or to any party designated by Landlord) all insurance proceeds
payable to Tenant under Tenant's insurance required under SECTION 10.3 of
this Lease, and Landlord shall thereupon repair any injury or damage to the
Tenant Improvements and Alterations installed in the Premises and shall
return such Tenant Improvements and Alterations to their original condition;
provided that if the cost of such repair by Landlord exceeds the amount of
insurance proceeds received by Landlord from Tenant's insurance carrier, as
assigned by Tenant, the cost of such repairs shall be paid by Tenant to
Landlord as construction progresses on a reasonable basis. In connection
with such repairs and replacements, Tenant shall, prior to the commencement
of construction, submit to Landlord, for Landlord's review and approval, all
plans, specifications and working drawings relating thereto, and Tenant and
Landlord shall select the contractors to perform such improvement work. Such
submittal of plans and construction of improvements shall be performed in
substantial compliance with the terms of the Tenant Work Letter as though
such construction of improvements were the initial construction of the Tenant
Improvements. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting
in any way from such damage or the repair thereof; provided however, that if
such fire or other casualty shall have damaged the Premises or Common Areas
necessary to Tenant's occupancy, and if such damage is not the result of the
gross negligence or willful misconduct of Tenant or Tenant's employees,
contractors, lisencees, or invitees, and is not covered by Tenant's or
Landlord's insurance, Landlord shall allow Tenant a proportionate abatement
of Rent during the time and to the extent the Premises are unfit for
occupancy for the purposes permitted under this Lease, and not occupied by
Tenant as a result thereof; provided, however, that if more than 60,000
usable square feet of the Premises is damaged and the remaining portion of
the Premises is not reasonably sufficient to allow Tenant or
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an independent unit of Tenant to conduct its business operations from such
remaining portion and Tenant does not conduct its business operations
therefrom, Landlord shall allow Tenant a total abatement of Rent during the
time and to the extent the Premises are unfit for occupancy for the purposes
permitted under this Lease, and not occupied by Tenant as a result of the
subject damage.
11.2 LANDLORD'S OPTION TO REPAIR. Notwithstanding the terms of SECTION
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and instead terminate this Lease by notifying Tenant
in writing of such termination within sixty (60) days after the date of
damage, such notice to include a termination date giving Tenant ninety (90)
days to vacate the Premises, but Landlord may so elect only if the Building
shall be damaged by fire or other casualty or cause and one or more of the
following conditions is present: (i) repairs cannot reasonably be completed
within two hundred seventy (270) days of the date of damage (when such
repairs are made without the payment of overtime or other premiums) certified
by a contractor mutually acceptable to Landlord and Tenant; or (ii) the
dollar amount of the damage or condition arising as a result of such damage
not covered, including deductible amounts, by Landlord's insurance policies
is equal to or greater than Five Million Dollars ($5,000,000.00); provided,
however, that Landlord shall only have the right to terminate this Lease
under items (i) and (ii), above, if Landlord terminates the leases of tenants
occupying at least seventy-five percent (75%) of the rentable square footage
of the Building (inclusive of the square footage of the Premises) and
Landlord does not, in good faith, intend to relet such space so terminated
for a period of twelve (12) months after the date of such termination;
provided, further, however, that if Landlord's general contractor within
sixty (60) days after the date of the damage fails to certify in writing to
Tenant (after written request by Tenant to Landlord for such certification)
that the Building can be restored within two hundred seventy (270) days after
the date of the damage, Tenant shall then have the right, to be exercised not
later than ninety (90) days after the date of such damage, to elect to
terminate this Lease by written notice to Landlord on the date specified in
the notice, which date shall not be less than thirty (30) days nor more than
sixty (60) days after the date such notice is given by Tenant. Furthermore,
if neither Landlord nor Tenant have terminated this Lease, and the repairs
are not actually completed within such two hundred seventy (270) day period,
Tenant shall have the right to terminate this Lease, which right if exercised
must be exercised by Tenant in writing (the "DAMAGE TERMINATION NOTICE")
within the thirty (30) day period immediately following the expiration of the
foregoing two hundred seventy (270) day period, and which termination shall
be effective as of a date set forth in the Damage Termination Notice (the
"DAMAGE TERMINATION DATE"), which Damage Termination Date shall not be
earlier than thirty (30) days nor more than sixty (60) days after the sending
of such Damage Termination Notice. Notwithstanding the foregoing, if Tenant
delivers a Damage Termination Notice to Landlord, then Landlord shall have
the right to suspend the occurrence of the Damage Termination Date for a
period ending sixty (60) days after the Damage Termination Date set forth in
the Damage Termination Notice by delivering to Tenant, within five (5)
business days of Landlord's receipt of the Damage Termination Notice, a
certificate of Landlord's contractor responsible for the repair of the damage
certifying that it is such contractor's good faith judgment that the repairs
shall be substantially completed within sixty (60) days after the Damage
Termination Date. If repairs shall be substantially completed prior to the
expiration of such sixty-day period, then the Damage Termination Notice shall
be of no force or effect, but if the repairs shall not be substantially
completed within such sixty-day period, then this Lease shall terminate upon
the expiration of such sixty-day period. At any time, from time to time,
after the date of the damage, Tenant may request that Landlord inform Tenant
of Landlord's reasonable opinion of the date of completion of the repairs and
Landlord shall reasonably respond to such request within ten (10) days.
11.3 WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including this ARTICLE 11, constitute an express agreement between Landlord
and Tenant with respect to any and all damage to, or destruction of, all or
any part of the Premises, the Building or any other portion of the Real
Property, and any statute or regulation of the State of California,
including, without limitation, Sections 1932(2) and 1933(4) of the California
Civil Code, with respect to any rights or obligations concerning damage or
destruction in the absence of an express agreement between the parties, and
any other statute or regulation, now or hereafter in effect, shall have no
application to this Lease or any damage or destruction to all or any part of
the Premises, the Building or any other portion of the Real Property.
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11.4 DAMAGE NEAR END OF TERM. In the event that the Premises or the
Building is destroyed or damaged to any substantial extent during the last
twenty-four (24) months of the Lease Term, and Tenant has not previously or
within sixty (60) days after the date of the casualty duly exercised an
available option to extend the Lease Term pursuant to SECTION 2.2 of this
Lease, then notwithstanding anything contained in this ARTICLE 11, either
Landlord or Tenant shall have the option to terminate this Lease by giving
written notice to the other party of the exercise of such option within sixty
(60) days after such damage or destruction, in which event this Lease shall
cease and terminate as of the date of such notice.
11.5 TERMINATION. Except as set forth in Section 11.1, above, in the
event of any termination of this Lease under this ARTICLE 11, Tenant shall
pay the Base Rent and Additional Rent, properly apportioned up to such date
of termination, and both parties hereto shall thereafter be freed and
discharged of all further obligations hereunder, except as provided for in
provisions of this Lease which by their terms survive the expiration or
earlier termination of the Lease Term, and each party shall retain the
insurance proceeds from policies carried by each party.
ARTICLE 12
NONWAIVER
No waiver of any provision of this Lease shall be implied by (i) any
failure of either party to insist in any instance on the strict keeping,
observance or performance of any covenant or agreement contained in this
Lease or to exercise any election contained in this Lease or (ii) any failure
of either party to enforce any remedy on account of the violation of such
provision, even if such violation shall continue or be repeated subsequently.
Any waiver by either party of any provision of this Lease may only be in
writing, and no express waiver shall affect any provision other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term
or of Tenant's right of possession hereunder or after the giving of any
notice shall reinstate, continue or extend the Lease Term or affect any
notice given Tenant prior to the receipt of such monies, it being agreed that
after the service of notice or the commencement of a suit or after final
judgment for possession of the Premises, Landlord may receive and collect any
Rent due, and the payment of said Rent shall not waive or affect said notice,
suit or judgment.
ARTICLE 13
CONDEMNATION
13.1 PERMANENT TAKING. If ten percent (10%) or more of any of the
Premises or Building shall be taken by power of eminent domain or condemned
by any competent authority for any public or quasi-public use or purpose, or
if Landlord shall grant a deed or other instrument in lieu of such taking by
eminent domain or condemnation, Landlord shall have the option to terminate
this Lease upon ninety (90) days' notice, provided such notice is given no
later than one hundred eighty (180) days after the date of such taking,
condemnation, reconfiguration, vacation, deed or other instrument. If so
much of the Premises is taken so as to substantially interfere with the
conduct of Tenant's business from the Premises, or if access to the Premises
is substantially impaired, Tenant shall have the option to terminate this
Lease upon ninety (90) days' notice, provided such notice is given no later
than one hundred eighty (180) days after the date of such taking. Landlord
shall be entitled to receive the entire award or payment in connection
therewith, except that Tenant shall have the right to file any separate claim
available to Tenant for any taking of Tenant's personal property and fixtures
belonging to Tenant and removable by Tenant upon expiration of the Lease Term
pursuant to the terms of this Lease, and for moving expenses, so long as such
claim does not diminish the award available to Landlord, its ground lessor
with respect to the Real Property or its mortgagee, and such claim is payable
separately to Tenant and Tenant shall be entitled to receive fifty percent
(50%) of the "Bonus Value" of the leasehold estate in connection with this
Lease, which Bonus Value shall be equal to the sum paid by the condemning
authority as the award for compensation for taking the leasehold created by
this Lease. All Rent shall be apportioned as of the date of such
termination, or the date of such taking, whichever shall first occur. If any
part of the Premises shall be taken, and this Lease shall not be so
terminated, the Rent shall be proportionately abated. Tenant hereby waives
any and all
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rights it might otherwise have pursuant to Section 1265.130 of The California
Code of Civil Procedure.
13.2 TEMPORARY TAKING,. Notwithstanding anything to the contrary
contained in this ARTICLE 13, in the event of a temporary taking of all or
any portion of the Premises for a period of one hundred and eighty (180) days
or less, then this Lease shall not terminate but the Base Rent and the
Additional Rent shall be abated for the period of such taking in proportion
to the ratio that the number of rentable square feet of the Premises taken
bears to the total rentable square feet of the Premises. Landlord shall be
entitled to receive the entire award made in connection with any such
temporary taking, except that Tenant shall have the right to file any
separate claim available to Tenant for claims made by Tenant as a result of
the necessity of Tenant's moving to temporary space during the period of such
temporary taking.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFERS. Tenant acknowledges that the economic concessions and
rental rates set forth in this Lease were negotiated by Landlord and Tenant
in consideration of, and would not have been granted by Landlord but for, the
specific nature of the leasehold interest granted to Tenant hereunder, as
such interest is limited and defined by various provisions throughout this
Lease, including, but not limited to, the provisions of this ARTICLE 14 which
define and limit the transferability of such leasehold interest. Tenant
shall not, without the prior written consent of Landlord, assign, mortgage,
pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise
transfer, this Lease or any interest hereunder, permit any assignment or
other such foregoing transfer of this Lease or any interest hereunder by
operation of law, sublet the Premises or any part thereof, or permit the use
of the Premises by any persons other than Tenant and its employees (all of
the foregoing are hereinafter sometimes referred to collectively as
"TRANSFERS" and any person to whom any Transfer is made or sought to be made
is hereinafter sometimes referred to as a "TRANSFEREE"). If Tenant shall
desire Landlord's consent to any Transfer, Tenant shall notify Landlord in
writing, which notice (the "TRANSFER NOTICE") shall include (i) the proposed
effective date of the Transfer, which shall not be less than 15 business days
nor more than one hundred eighty (180) days after the date of delivery of the
Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "SUBJECT SPACE"), (iii) all of the terms of the proposed
Transfer and the consideration therefor, including a calculation of the
"Transfer Premium", as that term is defined in SECTION 14.3 below, in
connection with such Transfer, the name and address of the proposed
Transferee, and a copy of all existing and/or proposed documentation
pertaining to the proposed Transfer, including all existing operative
documents to be executed to evidence such Transfer or the agreements
incidental or related to such Transfer, and (iv) such other information as
Landlord may reasonably require. Any Transfer made without Landlord's prior
written consent shall, at Landlord's option, be null, void and of no effect.
Tenant shall pay Landlord, in connection with any request for consent to a
Transfer a processing fee of Five Hundred Dollars ($500.00).
14.2 LANDLORD'S CONSENT. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on
the terms specified in the Transfer Notice. Landlord shall notify Tenant in
writing within ten (10) business days after Landlord's receipt of a Transfer
Notice as to whether Landlord consents to the proposed Transfer or withholds
its consent thereto; failure of Landlord to so notify Tenant in writing
within five (5) business days of a second Transfer Notice delivered after the
ten (10) business day period set forth above, which second notice indicates
that failure to respond will be deemed approval, shall be deemed to
constitute Landlord's consent to the proposed Transfer. The parties hereby
agree that it shall be reasonable under this Lease and under any applicable
law for Landlord to withhold consent to any proposed Transfer where one or
more of the following apply, without limitation as to other reasonable ground
for withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged in
a business which is not consistent with the quality of the Building, or would
be a significantly less prestigious occupant of the Building than Tenant;
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14.2.2 The Transferee intends to use the Subject Space for
purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof of a type which does not then occupy space in the
Building and (i) which is capable of exercising the power of eminent domain
or condemnation, or (ii) which is of a character or reputation, is engaged in
a business, or is of, or is associated with, a political orientation or
faction, which is not consistent with the quality of the Building, or which
would reasonably offend Landlord or a tenant which leases one or more floors
of the Building or which (in Landlord's reasonable judgment) may cause or
present a possible security threat to the Building (e.g., bomb threats and
the like);
14.2.4 The Transfer will result in more than a reasonable and safe
number of occupants per floor within the Subject Space;
14.2.5 Unless Tenant will continue to occupy at least four (4)
full floors of the Building (in which case this Section 14.2.5 will not
apply), the Transferee is not a party of reasonable financial worth and/or
financial stability in light of the responsibilities involved under the Lease
on the date consent is requested; or
14.2.6 The proposed Transfer would cause Landlord to be in
violation of any current or future lease or agreement for space on the ground
floor of the Building to which Landlord is a party, or would give any current
or future tenant of the ground floor of the Building a right to cancel its
lease.
If Landlord consents to any Transfer pursuant to the terms of this SECTION
14.2 (and does not exercise any recapture rights Landlord may have under
SECTION 14.4 of this Lease), Tenant may within six (6) months after
Landlord's consent, but not later than the expiration of said six-month
period, enter into such Transfer of the Premises or portion thereof, upon
substantially the same terms and conditions as are set forth in the Transfer
Notice furnished by Tenant to Landlord pursuant to SECTION 14.1 of this
Lease, provided that if there are any changes in the terms and conditions
from those specified in the Transfer Notice such that Landlord would
initially have been entitled to refuse its consent to such Transfer under
this SECTION 14.2, Tenant shall again submit the Transfer to Landlord for its
approval and other action under this ARTICLE 14 (including Landlord's right
of recapture, if any, under SECTION 14.4 of this Lease).
14.3 TRANSFER PREMIUM. If Landlord consents to a Transfer, as a
condition thereto which the parties hereby agree is reasonable, Tenant shall
pay to Landlord fifty percent (50%) of the amount of any "Transfer Premium,"
as that term is defined in this SECTION 14.3, received by Tenant from such
Transferee. Notwithstanding the foregoing, during any period in which Tenant
fails to occupy at least four (4) full floors of the Building, Tenant shall
pay to Landlord one hundred percent (100%) of the amount of any Transfer
Premium received by Tenant during such period. "TRANSFER PREMIUM" shall mean
all rent, additional rent or other consideration payable by such Transferee
in excess of the Rent and Additional Rent payable by Tenant under this Lease
on a per rentable square foot basis if less than all of the Premises is
transferred, after deducting the reasonable expenses actually incurred by
Tenant for the following costs (collectively, the "SUBLEASING COSTS"): (i)
any changes, alterations and improvements to the Premises in connection with
the Transfer which comply with the terms of this Lease, (ii) any brokerage
commissions in connection with the Transfer, (iii) reasonable legal fees
incurred in connection with the Transfer, including those fees and costs
reimbursed to Landlord pursuant to the last sentence of SECTION 14.1, (iv)
the amount of any Base Rent and Additional Rent paid by Tenant to Landlord
with respect to the Subject Space during the period commencing on the later
of (a) the date Tenant contracts with a reputable broker to market the
Subject Space, or (b) the date Tenant vacates the Subject Space, until the
commencement of the term of the Transfer, and (v) any other "out-of-pocket"
monetary concessions reasonably provided in connection with the Transfer,
including, but not limited to, tenant improvement or decorating allowances.
"TRANSFER PREMIUM" shall also include, but not be limited to, key money and
bonus money paid by Transferee to Tenant in connection with such Transfer,
and any payment in excess of fair market value for services rendered by
Tenant to Transferee or for assets, fixtures, inventory, equipment, or
furniture transferred by Tenant to Transferee in connection with such
Transfer. If part of the Transfer Premium shall be payable to the Transferee
other than in cash, Landlord's share of such non-cash consideration shall be
in such form as is reasonably satisfactory to Landlord. The
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determination of the amount of the Transfer Premium shall be made on an
annual basis in accordance with the terms of this SECTION 14.3.1, but an
estimate of the amount of the Transfer Premium shall be made each month and
one-twelfth of such estimated amount shall be paid to Landlord promptly, but
in no event later than the next date for payment of Base Rent hereunder,
subject to an annual reconciliation on each anniversary date of the Transfer.
If the payments to Landlord under this SECTION 14.3.1 during the twelve (12)
months preceding each annual reconciliation exceed the amount of Transfer
Premium determined on an annual basis, then Landlord shall credit the
overpayment against Tenant's future obligations under this SECTION 14.3.1 or
if the overpayment occurs during the last year of the Transfer in question,
refund the excess to Tenant. If Tenant has underpaid Landlord's share of the
Transfer Premium, as determined by such annual reconciliation, Tenant shall
pay the amount of such deficiency to Landlord promptly, but in no event later
than the next date for payment of Base Rent hereunder,
14.4 LANDLORD'S OPTION AS TO SUBJECT SPACE. Notwithstanding
anything to the contrary contained in this ARTICLE 14, if during any Option
Term Tenant desires to transfer a portion of the Premises (the "TRANSFER
SPACE"), other than pursuant to any "Non-Transfer" as that term is defined in
Section 14.6, below, which Non-Transfer shall not be subject to the terms of
this Section 14.4, for all or substantially all of the balance of the Lease
Term, including the Second Option Term if the same shall have been exercised
(I.E., a Transfer so that six (6) months or less of the Lease Term remains
after the expiration of the term of such Transfer), Tenant shall give
Landlord notice (the "INTENTION TO TRANSFER NOTICE") of any contemplated
Transfer (whether or not the contemplated Transferee or the terms of such
contemplated Transfer have been determined) and the Intention to Transfer
Notice shall specify that the same is delivered pursuant to this SECTION 14.4
in order to allow Landlord to elect to recapture the Transfer Space for the
remainder of the Lease Term. Thereafter, Landlord shall have the option, by
giving written notice to Tenant within thirty (30) days after receipt of the
Intention to Transfer Notice, to recapture the Transfer Space. Such
recapture notice shall cancel and terminate this Lease with respect to the
Transfer Space as of the expiration of such thirty-day period (or such later
date as Tenant may specify in the Intention to Transfer Notice as the
effective date of the contemplated Transfer). In the event of a recapture by
Landlord-of less than a full floor, Landlord shall, at its sole cost and
expenses, cause a demising wall to be erected between the Subject Space and
the Premises and shall perform all other work necessary to separate such
spaces in accordance with plans approved by Tenant, and Tenant shall
reimburse Landlord for one-half of its partitioning costs. In the event of a
recapture by Landlord, if this Lease shall be canceled with respect to less
than the entire Premises, the Rent reserved herein shall be prorated on the
basis of the number of rentable square feet retained by Tenant in proportion
to the number of rentable square feet contained in the Premises, and this
Lease as so amended shall continue thereafter in full force and effect, and
upon request of either party, the parties shall execute written confirmation
of the same. Notwithstanding the foregoing, any Transfer Space recaptured by
Landlord shall, for the purposes of Section 11 of Exhibit G attached hereto
only, be deemed to be space leased by Tenant. If and to the extent Landlord
declines, or falls to elect in a timely manner to recapture under this
SECTION 14.4 within such thirty-day period, then, Landlord shall not have the
right to recapture any of the Transfer Space described in the Intention to
Transfer Notice for a period of nine (9) months (the "NINE MONTH PERIOD") and
commencing on the expiration of such thirty-day period, Tenant shall have the
right (subject to all the terms and conditions of this ARTICLE 14) to
consummate a Transfer of the Transfer Space within the Nine Month Period,
and, if a Transfer of all of the Transfer Space is not consummated within the
Nine Month Period (or if a Transfer is so consummated, then upon the
expiration of the term of any such Transfer), if the provisions of this
SECTION 14.4 are applicable, Tenant shall again be required to submit a new
Intention to Transfer Notice to Landlord with respect to any contemplated
Transfer of such Transfer Space.
14.5 EFFECT OF TRANSFER. If Landlord consents to a Transfer, (i)
the terms and conditions of this lease shall in no way be deemed to have been
waived or modified, (ii) such consent shall not be deemed consent to any
further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver
to Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) tenant shall furnish upon Landlord's request a complete
statement, certified by an officer of Tenant, setting forth in detail the
computation of any Transfer Premium Tenant has derived and shall derive from
such Transfer, (v) no Transfer relating to this lease or agreement entered
into with respect thereto. whether with or without Landlord's consent, shall
relieve tenant or any guarantor of the Lease
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from liability under this Lease, and (vi) such Transfer shall at all times be
subject and subordinate to the terms of this Lease. Landlord or its
authorized representatives shall have the right at all reasonable times to
audit the books, records and papers of Tenant relating to any Transfer, and
shall have the right to make copies thereof. If the Transfer Premium
respecting any Transfer shall be found understated, Tenant shall, within ten
(10) days after demand, pay the deficiency and if understated by more than
two percent (2%), Landlord's reasonable cost of such audit.
14.6 NON-TRANSFERS. Notwithstanding anything to the contrary
contained in this ARTICLE 14, an assignment or subletting of all or a portion
of the Premises to an entity which is controlled by, controls, or is under
common control with, Tenant, or to a purchaser of all or substantially all of
the assets of Tenant, or to an entity resulting, by operation of law or
otherwise, from the merger, consolidation or other reorganization of Tenant
(any such entity, an "AFFILIATE") shall not be deemed a Transfer (for such
purposes, a "NON-TRANSFER") under this ARTICLE 14, provided that Tenant
notifies Landlord of any such assignment or sublease and promptly supplies
Landlord with any documents or information reasonably requested by Landlord
regarding such assignment or sublease or such affiliate, and further provided
that such assignment or sublease is not a subterfuge by Tenant to avoid its
obligations under this Lease. "Control," as used in this SECTION 14.6, shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person or entity, or ownership
of any sort, whether through the ownership of voting securities, by contract
or otherwise.
14.7 LANDLORD'S RECOGNITION OF SUBLEASES UPON LEASE TERMINATION.
At Tenant's request, Landlord shall execute a recognition agreement (the
"RECOGNITION AGREEMENT") in favor of any sublessee of a sublease, which
sublessee is otherwise approved by Landlord pursuant to the terms of this
Article 14, which Recognition Agreement shall provide that in the event this
Lease is terminated, Landlord shall recognize the Transfer and not disturb
such Transferee's possession of the Premises, or applicable portion thereof,
due to such termination; provided that: (1) such sublease is made upon the
same terms and conditions set forth in this Lease, subject to equitable
modifications based on the number of rentable square feet contained in the
Subject Space-, provided, however, the economic terms of such sublease may be
more favorable to Landlord than those set forth in this Lease, (ii) the
Subject Space shall contain either (1) one or more contiguous full floors in
the Building, or (II) one or more contiguous floors along with space on any
partial floor located immediately above or below the full floor or floors
included in such sublease, (in either of I or II, above, such Subject Space
shall not vertically bisect the initial Premises) (iii) all Subject Space
which is located on the same floor is contiguous, (iv) Landlord shall not be
liable for any act or omission of Tenant, (v) Landlord shall not be subject
to any offsets or defenses which the sublessee might have as to Tenant or to
any claims for damages against Tenant, nor shall Landlord be obligated to
fund to, or for the benefit of, such sublessee, any undisbursed tenant
improvement or refurbishment allowance or other allowances or monetary
concessions, (vi) Landlord shall not be required or obligated to credit the
sublessee with any rent or additional rent or security deposit paid by the
sublessee to Tenant, (vii) Landlord shall not be bound by any terms or
conditions of the sublease which are inconsistent with the terms and
conditions of this Lease, (viii) such recognition shall be effective upon,
and Landlord shall be responsible for performance of only those covenants and
obligations of Tenant pursuant to the sublease accruing after, the
termination of this Lease and the vacation by Tenant of the entire Premises,
(ix) as a condition to Landlord's obligation to enter into the Recognition
Agreement, Landlord shall have the right to reasonably approve the
creditworthiness and financial strength of the sublessee, which reasonable
approval shall be based upon the creditworthiness and financial strength then
generally required by Landlord and landlords of the Comparable Buildings of
new tenants leasing space of a rentable area comparable to the rentable area
of the Subject Space for a term equal to the remaining Lease Term and at a
rental rate equal to that payable under the sublease, (x) the sublessee shall
make full and complete attornment to Landlord, as lessor, pursuant to a
written agreement executed by Landlord and the sublessee, and (xi) the term
of such sublease shall not be less than eighteen (18) months. Upon Landlord's
written request given any time after the termination of this Lease, the
sublessee shall execute a lease for the space subject to the applicable
sublease upon the same terms and conditions as set forth in the Recognition
Agreement. Tenant agrees to pay Landlord's reasonable legal fees incurred in
Landlord's preparation and approval of such Recognition Agreement.
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ARTICLE 15
SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES
15.1 SURRENDER OF PREMISES. No act or thing done by Landlord or
any agent or employee of Landlord during the Lease Term shall be deemed to
constitute an acceptance by Landlord of a surrender of the Premises unless
such intent is specifically acknowledged in a writing signed by Landlord.
The delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease
shall have been properly terminated. The voluntary or other surrender of
this Lease by Tenant, whether accepted by Landlord or not, or a mutual
termination hereof, shall not work a merger, and at the option of Landlord
shall operate as an assignment to Landlord of all subleases or subtenancies
affecting the Premises,
15.2 REMOVAL OF PERSONAL PROPERTY BY TENANT. Upon the expiration
of the Lease Term, or upon any earlier termination of this Lease, Tenant
shall, subject to the provisions of this ARTICLE 15 and SECTION 8.5, above,
quit and surrender possession of the Premises to Landlord in as good order
and condition as when Tenant took possession and as thereafter improved by
Landlord and/or Tenant, reasonable wear and tear and repairs which are
specifically made the responsibility of Landlord hereunder excepted. Upon
such expiration or termination, Tenant shall, without expense to Landlord,
remove or cause to be removed from the Premises all debris and rubbish, and
such items of furniture, equipment, free-standing cabinet work, and other
articles of personal property owned by Tenant or installed or placed by
Tenant at its expense in the Premises, and Tenant shall remove those items of
furniture, furnishings, business machines and equipment, communications
equipment and other articles of personal property owned by Tenant or
installed or placed by Tenant at its expense in the Premises and such similar
articles of any other persons or entities claiming under Tenant
(collectively, "PERSONAL PROPERTY") and Tenant shall remove Personal Property
at times reasonably acceptable to Landlord and subject to the availability of
freight elevator(s), provided that Landlord shall use good faith efforts to
make the freight elevator(s) reasonably available to Tenant for such removal.
Tenant shall repair at its own expense all damage to the Premises and
Building resulting from such removal.
15.3 REMOVAL OF TENANT'S PROPERTY BY LANDLORD. Whenever Landlord
shall re-enter the Premises as provided in this Lease, any Personal Property
not removed by Tenant upon the expiration of the Lease Term, or within
forty-eight (48) hours after a termination by reason of Tenant's default as
provided in this Lease, shall be deemed, abandoned by Tenant and may be
disposed of by Landlord in accordance with Sections 1980 through 1991 of the
California Civil Code and Section 1 174 of the California Code of Civil
Procedure, or in accordance with any laws or Judicial decisions which may
supplement or supplant those provisions from time to time.
15.4 LANDLORD'S ACTIONS ON PREMISES. Tenant hereby waives all
claims for damages or other liability in connection with Landlord's
reentering and taking possession of the Premises or removing, retaining,
storing or selling the property of Tenant as herein provided, and Tenant
hereby indemnifies and holds Landlord harmless from any such damages or other
liability, and no such re-entry shall be considered or construed to be a
forcible entry.
ARTICLE 16
HOLDING OVER
If tenant holds over after the expiration of the Lease term hereof,
with or without the express or implied consent of Landlord, such tenancy
shall be from month-to-month only, and shall not constitute a renewal hereof
or an extension for any further term, and (i) for the first two (2) months of
such month-to-month tenancy, Base Rent shall be payable at a monthly rate
equal to one hundred ten percent (110%) of the Base rent applicable during the
last rental period of the Lease Term under this Lease, and (ii) for the
remainder of such month-to-month tenancy, Base Rent shall be payable at a
monthly rate equal to one hundred fifty percent (150%) of the Base rent
applicable during the last rental period of the Lease Term under this Lease.
Such month-to-
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month tenancy shall be subject to every other term, covenant and agreement
contained herein. Nothing contained in this ARTICLE 16 shall be construed as
consent by Landlord to any holding over by Tenant, and Landlord expressly
reserves the right to require Tenant to surrender possession of the Premises
to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this ARTICLE 16 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including
reasonable attorneys' fees) and liability resulting from such failure,
including, without limiting the generality of the foregoing, any claims made
by any succeeding tenant founded upon such failure to surrender, and any lost
profits to Landlord resulting therefrom.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within fifteen (15) days following a request in writing by Landlord,
Tenant shall execute and deliver to Landlord an estoppel certificate, which,
as submitted by Landlord, shall be substantially in the form of EXHIBIT E,
attached hereto, (or such other form as may be required by any prospective
mortgagee or purchaser of the Building, or any portion thereof, indicating
therein any exceptions thereto that may exist at that time, and shall also
contain any other information reasonably requested by Landlord or Landlord's
mortgagee or prospective mortgagee. Tenant shall execute and deliver
whatever other instruments may be reasonably required for such purposes.
Failure of Tenant to timely execute and deliver such estoppel certificate or
other instruments shall constitute an acceptance of the Premises and an
acknowledgment by Tenant that statements made in good faith included in the
estoppel certificate are true and correct, without exception. Landlord
hereby agrees to provide to Tenant an estoppel certificate signed by
Landlord, containing the same types of information, and within the same
period of time, as set forth above, with such changes as are reasonably
necessary to reflect that the estoppel certificate is being granted and
signed by Landlord to Tenant, rather than from Tenant to Landlord or a lender
of Landlord.
ARTICLE 18
SUBORDINATION
This Lease is subject and subordinate to all present and future ground
or underlying leases of the Real Property and to the lien of any mortgages or
trust deeds, now or hereafter in force against the Real Property and the
Building, if any, and to all renewals, extensions, modifications,
consolidations and replacements thereof, and to all advances made or
hereafter to be made upon the security of such mortgages or trust deeds,
unless the holders of such mortgages or trust deeds, or the lessors under
such ground lease or underlying leases, require in writing that this Lease be
superior thereto. In consideration of, and as a condition precedent to,
Tenant's agreement to permit its interest pursuant to this Lease to be
subordinated to any particular future ground or underlying lease of the
Building or the Real Property or to the lien of any first mortgage or trust
deed hereafter enforced against the Building or the Real Property and to any
renewals, extensions, modifications, consolidations and replacements thereof,
Landlord shall deliver to Tenant a commercially reasonable non-disturbance
agreement executed by the landlord under such ground lease or underlying
lease or the holder of such mortgage or trust deed, which agreement shall
contain a mutually agreeable provision granting such mortgage holder a right
to cure a Landlord default under this Lease. Additionally, each such
non-disturbance agreement provided by landlord shall acknowledge that tenant
may offset against Rent next owing under this Lease (i) any improvement
allowance granted pursuant to the Tenant Work Letter or this Lease, including
Sections 1.5 or 1.6 of this Lease, to the extent they have not been paid when
due, (ii) any unpaid commission due and owing to Tenant Broker as set forth
in SECTION 29.95, (iii) any abatements of Rent as allowed pursuant SECTION
6.3.1 of this Lease, and (iv) any abatements of rent as allowed pursuant to
SECTION 7.2 of this Lease. Tenant covenants and agrees in the event any
proceedings are brought for the foreclosure of any such mortgage, to attorn,
without any deductions or offsets whatsoever, to the purchaser upon any such
foreclosure sale if so requested to do so by such purchaser, and to recognize
such purchaser as lessor under this Lease.
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Tenant shall, within ten (10) days of request by Landlord, execute such
further instruments or assurances as Landlord may reasonably deem necessary
to evidence or confirm the subordination or superiority of this Lease to any
such mortgages, trust deeds, ground leases or underlying leases.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute a default of this Lease by Tenant-.
19.1.1 Any failure by Tenant to pay any Rent or any other
charge required to be paid under this Lease, or any part thereof, on or
before (i) fifteen (15) business days after notice that the same is overdue,
or (ii) where Tenant has failed to pay such amounts within five (5) business
days of notice that the same was overdue on two prior occasions in any twelve
(12) month period, five (5) business days after notice that the same is over
due, which notices shall be in lieu of any notice required under California
Code of Civil Procedure Section 1161 or any similar or successor law; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California
Code of Civil Procedure Section 1161 or any similar or successor law; and
provided further that if the nature of such default is such that the same
cannot reasonably be cured within a thirty (30)-day period, Tenant shall not
be deemed to be in default if it diligently commences such cure within such
period and thereafter diligently proceeds to rectify and cure said default as
soon as possible; or
19.1.3 To the extent permitted by law, a general assignment
by Tenant or any guarantor of the Lease for the benefit of creditors, or the
filing by or against Tenant or any guarantor of any proceeding under an
insolvency or bankruptcy law, unless in the case of a proceeding filed
against Tenant or any guarantor the same is dismissed within ninety (90)
days, or the appointment of a trustee or receiver to take possession of all
or substantially all of the assets of Tenant or any guarantor, unless
possession is restored to Tenant or such guarantor within ninety (90) days,
or any execution or other judicially authorized seizure of all or
substantially all of Tenant's assets located upon the Premises or.- of
Tenant's interest in this Lease, unless such seizure is discharged within
ninety (90) days; or
19.1.4 The failure by Tenant to observe or perform according
to the provisions of Article 5 of this Lease where such failure continues for
more than (i) fifteen (15) business days of notice of such failure, or (ii)
where Tenant has failed to cure such failures within five (5) business days
after notice of the same on two prior occasions in any twelve (12) month
period, five (5) business days after notice of such failure; or
19.1.5 The hypothecation or assignment of this Lease or
subletting of the Premises, or attempts at such actions, in violation of
Article 14 hereof where such violation has not been cured within five (5)
business days after notice from Landlord.
19.2 REMEDIES UPON DEFAULT. Upon the occurrence of any event of
default by Tenant, Landlord shall have, in addition to any other remedies
available to Landlord at law or in equity, the option to pursue any one or
more of the following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever:
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the
Premises and expel or remove tenant and any other person who may be occupying
the Premises or any part thereof, without being liable for prosecution or any
claim or damages therefor; and Landlord may recover from Tenant the following:
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(i) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by
which the unpaid rent for the balance of the Lease Term after the time of
award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom (as allowed by applicable law); and
(v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.
The term "rent" as used in this SECTION 19.2 shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. As used in Paragraphs
19.2. 1 (i) and (ii), above, the "worth at the time of award" shall be
computed by allowing interest at the Interest Rate. As used in Paragraph
19.2. 1 (iii) above, the "worth at the time of award" shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (I%).
19.2.2 Landlord shall have the remedy described in California
Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's
breach and abandonment and recover rent as it becomes due, if lessee has
the right to sublet or assign, subject only to reasonable notations).
Accordingly, if Landlord does not elect to terminate this Lease on account of
any default by Tenant, Landlord may, from time to time, without terminating
this Lease, enforce all of its rights and remedies under this Lease,
including the right to recover all rent as it becomes due.
19.3 SUBLESSEES OF TENANT. If Landlord elects to terminate this
Lease on account of any default by Tenant, as set forth in this ARTICLE 19,
Landlord shall have the night to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises except as to a Transfer subject to a
Recognition Agreement pursuant to SECTION 14.7 of this Lease, Alternately,
Landlord may, in Landlord's sole discretion, except as to a Transfer subject
to a Recognition Agreement pursuant to Section 14.7 of this Lease, succeed to
Tenant's interest in such subleases, licenses, concessions or arrangements;
provided however, that in such event (i) Landlord shall not be liable for any
previous act or omission of Tenant under such sublease or agreement, (ii)
Landlord shall not be subject to any defense or offset previously accrued in
favor of the Transferee against Tenant, (iii) Landlord shah not be bound by
any previous amendment or modification of any sublease or agreement made
without Landlord's prior written consent, and (iv) Landlord shall not be
required to acknowledge any prepayment by Transferee of more than one month's
rent.
19.4 WAIVER OF DEFAULT. No waiver by Landlord or Tenant of any
violation or breach of any of the terms, provisions and covenants herein
contained shall be deemed or construed to constitute a waiver of any other or
later violation or breach of the same or any other of the terms, provisions,
and covenants herein contained. Forbearance by Landlord or Tenant in
enforcement of one or more of the remedies available to such party upon an
event of default shall not be deemed or construed to constitute a waiver of
such default. The acceptance of any Rent hereunder by Landlord following the
occurrence of any default, whether or not known to Landlord, shall not be
deemed a waiver of any such default, except only a default in the payment of
the rent so accepted.
19.5 EFFORTS TO RELET. For the purposes of this ARTICLE 19,
Tenant's right to possession shall not be deemed to have been terminated by
efforts of Landlord to relet the Premises, by its acts of maintenance or
preservation with respect to the Premises, or by appointment of a receiver
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to protect Landlord's interests hereunder. The foregoing enumeration is not
exhaustive, but merely illustrative of acts which may be performed by
Landlord without terminating Tenant's right to possession.
ARTICLE 20
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for
services and other payments herein reserved and on keeping, observing and
performing all the other terms, covenants, conditions, provisions and
agreements herein contained on the part of Tenant to be kept, observed and
performed, shall, during the Lease Term, peaceably and quietly have, hold and
enjoy the Premises subject to the terms, covenants, conditions, provisions
and agreements hereof without interference by any persons lawfully claiming
by or through Landlord. The foregoing covenant is in lieu of any other
covenant express or implied.
ARTICLE 21
SECURITY DEPOSIT
Concurrent with the full execution and delivery of this Lease, Tenant
shall deposit with Landlord a security deposit (the "SECURITY DEPOSIT") in
the amount set forth in Section 10 of the Summary. The Security Deposit
shall be held by Landlord as security for the faithful performance by Tenant
of all the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the Lease Term. The Security Deposit shall not be
mortgaged, assigned or encumbered in any manner whatsoever by either party
without the prior written consent of the other. If Tenant defaults with
respect to any provisions of this Lease, Landlord may, but shall not be
required to, use, apply or retain all or any part of the Security Deposit for
the payment of any Rent or any other sum in default, or for the payment of
any amount that Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or damage that
Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used or applied, Tenant shall, within five (5) days
after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount, and
Tenant's failure to do so shall be a default under this Lease. The use,
application or retention of the Security Deposit, or any portion thereof, by
Landlord shall not (a) prevent Landlord from exercising any other right or
remedy provided by this Lease or by law, it being intended that Landlord
shall not first be required to proceed against the Security Deposit, nor (b)
operate as a limitation on any recovery to which Landlord may otherwise be
entitled. Tenant acknowledges that Landlord has the right to transfer or
mortgage its interest in the Real Property and the Building and in this Lease
and Tenant agrees that in the event of any such transfer or mortgage,
Landlord shall have the right to transfer or assign the Security Deposit to
the transferee or mortgagee. Upon such transfer or assignment of the
Security Deposit, provided that the transferee acknowledges receipt of the
Security Deposit, Landlord shall thereby be released by Tenant from all
liability or obligation for the return of such Security Deposit and Tenant
shall took solely to such transferee or mortgagee for the return of the
Security Deposit. Tenant shall earn interest on the unapplied Security
Deposit at the rate of 6% per annum; provided that, at Landlord's option,
Landlord may elect (which election must be made, if at all, within thirty
(30) business days after Landlord's receipt of the Security Deposit) to
deposit the Security Deposit in a bank and account mutually acceptable to
Landlord and Tenant, in which case the Security Deposit shall earn interest
at the rate earned in such account. Within thirty (30) days after the
expiration or earlier termination of this Lease, any unapplied portion of the
Security Deposit plus accrued interest shall be returned to Tenant.
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ARTICLE 22
INTENTIONALLY DELETED
ARTICLE 23
SIGNS
23.1 FULL FLOOR Tenants. Tenant and its Affiliates, on each
full-floor portion of the Premises, at its sole cost and expense, may install
identification signage anywhere in the Premises including in the elevator
lobby of the Premises, provided that such signs must not be visible from the
exterior of the Building.
23.2 MULTI-TENANT FLOOR TENANTS. If other tenants occupy space on
the floor on which the Premises is located, Tenant's identifying signage
shall be provided by Landlord, at Tenant's cost, and such signage shall be
comparable to that used by Landlord for other similar floors In the Building
and shall comply with Landlord's Building standard signage program, or, if no
such program exists, shall be subject to the reasonable approval of Landlord.
23.3 PROHIBITED SIGN AGE AND OTHER ITEMS. Any signs, notices,
logos, pictures, names or advertisements which are installed and that have
not been individually approved by Landlord may be removed without notice by
Landlord at the sole expense of Tenant. Except to the extent specifically
set forth herein, Tenant may not install any signs on the exterior or roof of
the Building or the Common Areas of the Building or the Real Property. Any
signs, window coverings, or blinds (except if the same are located behind the
Landlord approved window coverings for the Building), or other items visible
from the exterior of the Premises or Building are subject to the prior
approval of Landlord, in its sole discretion.
23.4 BUILDING TOP SIGN AGE. Subject to all the terms and
conditions set forth in Exhibit G. Tenant shall be entitled to design and
install, at Tenant's sole cost (subject to the Tenant Improvement Allowance),
signage identifying Tenant at the top of the exterior of the Building, with
such signs to be located on the north end of each of the eastern and western
faces of the Building (the "BUILDING TOP SIGN AGE") and signage identifying
Tenant (the "MONUMENT SIGN AGE") on each of two (2) of the Building's seven
(7) existing monument signs. The first such sign shall face Santa Monica
Boulevard and be located on the existing monument, situated on the planter,
which is closest to the corner of Santa Monica Boulevard and Century Park
East. The second sign shall face Century Park East and be located on the
existing monument, situated on the planter, which is the center monument sign
of the three (3) monument signs, situated on the planter, which face Century
Park East. Landlord reserves the right to maintain the existing monument
signs at the Building, and to install, from time to time, other monument
signs, which are not larger than either of Tenant's monument signs (except as
needed to accommodate the signage of a tenant with a longer name than Tenant)
and which do not contain signage that identifies an entity, which signage
uses lettering larger than the lettering in Tenant's Monument Signage.
Except as provided below with respect to the name of the Project, Landlord
will not use the name of another company to identify the Building or install
any exterior tenant identification signs on the Building (other than signs
identifying tenants occupying all or any part of the first floor of the
Building, in which case such signs shall be located on such tenant's
storefront or on a monument as permitted above) so long as Tenant retains its
rights hereunder to and maintains in existence pursuant to the terms and
conditions of Exhibit G, the Building Top Signage and Monument Signage.
Tenant understands and consents to the fact that the Project is currently
referred to as "Northrop Plaza". Landlord reserves the right, from time to
time, to change the name of the Project in Landlord's sole discretion.
23.5 DIRECTORY BOARD SPACE. A building directory is located in the
lobby of the building. Tenant shall have the right, at no cost to tenant, to
designate names to be displayed under Tenant's entry in such directory at the
rate of two (2) names per each 1,000 rentable square feet of the Premises;
provided, however, any changes made to such names (which Tenant may make from
time to time) shall be made at Tenant's cost.
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ARTICLE 24
ARBITRATION
24.1 SUBMITTALS TO ARBITRATION. The parties agree that disputes
between Landlord and Tenant arising under the terms of SECTIONS 1.3 (as to
measurement of space not included in initial Premises), 6.3, or 7.2, ARTICLES
4 (following Tenant's "Initial Audit," as that term is defined in SECTION
4.7, above), 11 or 14, or the Tenant Work Letter shall be settled by
arbitration in accordance with the terms of this ARTICLE 24 and, therefore,
this ARTICLE 24 shall be the sole and exclusive method, means and procedure
to resolve each such dispute. The parties hereby irrevocably waive any and
all rights to the contrary and shall at all times conduct themselves in
strict, full, complete and timely accordance with the terms of this ARTICLE
24 and all attempts to circumvent the terms of this ARTICLE 24 shall be
absolutely null and void and of no force or effect whatsoever. As to any
matter submitted to arbitration (except with respect to the payment of money)
to determine whether a matter would, with the passage of time, constitute a
default, such passage of time shall not commence to run until any such
affirmative arbitrated determination, as long as it is simultaneously
determined in such arbitration that the challenge of such matter as a
potential Tenant default was made in good faith. As to any matter submitted
to arbitration with respect to the payment of money, to determine whether a
matter would, with the passage of time, constitute a default, such passage of
time shall not commence to run in the event that the party which is obligated
to make the payment does in fact make the payment to the other party. Such
payment can be made "under protest," which shall occur when such payment is
accompanied by a good faith notice stating the reasons that the party has
elected to make a payment under protest. Such protest will be deemed waived
unless the subject matter identified in the protest is submitted to
arbitration as set forth in this ARTICLE 24.
24.2 JAMS. Any dispute to be arbitrated pursuant to the provisions
of this Article 24 shall be determined by binding arbitration before a
retired judge of the Superior Court of the State of California (the
"ARBITRATOR") under the auspices of Judicial Arbitration & Mediation
Services, Inc. ("JAMS"). Such arbitration shall be initiated by the parties,
or either of them, within ten (10) days after either party sends written
notice (the "ARBITRATION NOTICE") of a demand to arbitrate by registered or
certified mail to the other party and to JAMS. The Arbitration Notice shall
contain a description of the subject matter of the arbitration, the dispute
with respect thereto, the amount involved, if any, and the remedy or
determination sought. The parties may agree on a retired judge from the JAMS
panel. If they are unable to promptly agree, JAMS will provide a list of
three available judges and each party may strike one. The remaining judge
(or if there are two, the one selected by JAMS) will serve as the Arbitrator.
In the event that JAMS shall no longer exist or if JAMS fails or refuses to
accept submission of such dispute, then the dispute shall be resolved by
binding arbitration before the American Arbitration Association ("AAA") under
the AAA's commercial arbitration rules then in effect.
24.3 ARBITRATION PROCEDURE.
24.3.1 PRE-DECISION ACTIONS. The Arbitrator shall schedule a
pre-hearing conference to resolve procedural matters, arrange for the
exchange of information, obtain stipulations, and narrow the issues. The
parties will submit proposed discovery schedules to the Arbitrator at the
pre-hearing conference. The scope and duration of discovery will be within
the sole discretion of the Arbitrator. The Arbitrator shall have the
discretion to order a pre-hearing exchange of information by the parties,
including, without limitation, production of requested documents, exchange of
summaries of testimony of proposed witnesses, and examination by deposition
of parties and third-party witnesses. This discretion shall be exercised in
favor of discovery reasonable under the circumstances. Discovery as
reasonably necessary shall be permitted, the type and quantity therof to be
agreed upon by the parties, or if the parties fail to so agree, by the
Arbitrator.
24.3.2 THE DECISION The arbitration shall be conducted in Los
Angeles, California. Any party may be represented by counsel or other authorized
representative. In rendering a decision(s), the Arbitrator shall determine the
rights and obligations of the parties according to the substantive procedural
laws of the State of California and the terms and provisions of this Lease. The
Arbitrator's decision shall be based on the evidence introduced at the hearing,
including all logical and reasonable inferences therefrom. The Arbitrator may
make
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any determination, and/or grant any remedy or relief that is just and
equitable with respect to the subject dispute. The decision must be based
on, and accompanied by, a written statement of decision explaining the
factual and legal basis for the decision as to each of the principal
controverted issues. The decision shall be conclusive and binding, and it
may thereafter be confirmed as a judgment by the Superior Court of the State
of California, subject only to challenge on the grounds set forth in the
California Code of Civil Procedure Section 1286.2. The validity and
enforceability of the Arbitrator's decision is to be determined exclusively
by the California courts pursuant to the provisions of this Lease. The
Arbitrator may award costs, including without limitation attorneys' fees, and
expert and witness costs, to the prevailing party, if any, as determined by
the Arbitrator in his discretion. The Arbitrator's fees and costs shall be
paid by the non-prevailing party as determined by the Arbitrator in his
discretion. A party shall be determined by the Arbitrator to be the
prevailing party if its proposal for the resolution of dispute is the closer
to that adopted by the Arbitrator.
ARTICLE 25
LATE CHARGES
Tenant hereby acknowledges that late payment by Tenant to Landlord of
Rent or other sums due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which is extremely difficult
to ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed upon Landlord by
the terms of any mortgage or deed of trust covering the Premises.
Accordingly, if any installment of Rent or any other sum due from Tenant
shall not be received by Landlord or Landlord's designee within ten (10) days
after Tenant's receipt of notice from Landlord that said amount is overdue,
then Tenant shall pay to Landlord a late charge equal to $400; provided,
however, that if such failure of receipt within such time occurs three (3) or
more times in any twelve (12) month period, then for such third and any
subsequent occurrence in such twelve (12) month period the late charge shall
be the greater of $1,000 or two percent (2%) of the amount due. The parties
hereby agree that such late charge represents a fair and reasonable estimate
of the costs that Landlord will incur by reason of the late payment of Rent
by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount,
nor prevent Landlord from exercising any of the other rights and remedies
granted hereunder. The late charge shall be deemed Additional Rent and the
right to require it shall be in addition to all of Landlord's other rights
and remedies hereunder or at law and shall not be construed as liquidated
damages or as limiting Landlord's remedies in any manner. In addition to the
late charge described above, any Rent or other amounts owing hereunder which
are not paid within five (5) days after the date they are due shall
thereafter bear interest (commencing as of the date due notwithstanding the
foregoing five (5) day grace period) until paid at the Interest Rate.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 LANDLORD'S CURE. All covenants and agreements to be kept or
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent, except as otherwise
expressly provided in this Lease. If Tenant shall fail to perform any of its
obligations under this Lease, within a reasonable time after such performance
is required by the terms of this Lease (and after the expiration of any
applicable cure period provided for herein), Landlord may, but shall not be
obligated to, after reasonable prior notice to Tenant (except in the event of
an emergency, Landlord shall only give notice when and if feasible under the
circumstances), make any such payment or perform any such act on Tenant's
part without waiving its right based upon any default of Tenant and without
releasing Tenant from any obligations hereunder.
26.2 TENANT'S REIMBURSEMENT. Except as may be specifically
provided to the contrary in this Lease, Tenant shall pay to Landlord, within
ten (10) days after delivery by Landlord to Tenant of statements therefor;
sums equal to expenditures reasonably made and obligations incurred by
Landlord in connection with the remedying by Landlord of Tenant's defaults
pursuant to the provisions of SECTION 26.1. Tenant's obligations under this
SECTION 26.2 shall survive expiration or sooner termination of the Lease Term.
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ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times, and with
reasonable frequency, upon reasonable notice to the Tenant, and in compliance
with all other terms of this Lease, to enter the Premises to (i) inspect
them; (ii) show the Premises to prospective purchasers, mortgagees or ground
or underlying lessors, or during the last twelve (12) months of the initial
Lease Term (or Option Term, as applicable), to prospective tenants; (iii)
post notices of nonresponsibility or (iv) alter, improve or repair the
Premises or the Building if necessary to comply with current building codes
or other applicable laws, or for structural alterations, repairs or
improvements to the Building. Notwithstanding anything to the contrary
contained in this ARTICLE 27, Landlord may enter the Premises at any time to
(A) perform services required of Landlord; (B) take possession due to any
breach of this Lease in the manner provided herein; and (C) perform any
covenants of Tenant which Tenant falls to perform. Landlord may make any such
entries without the abatement of Rent (except as otherwise provided herein)
and may take such reasonable steps as required to accomplish the stated
purposes; provided, however, that any such entry shall be accomplished as
expeditiously as reasonably possible and in a manner so as to cause as little
interference to Tenant as reasonably possible. Tenant hereby waives any
claims for any injuries or inconvenience to or interference with Tenant's
business, lost profits, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. For each of the above
purposes, Landlord shall at all times have a key with which to unlock all the
doors in the Premises, excluding Tenant's vaults, safes and special security
areas designated in advance by Tenant. In an emergency, Landlord shall have
the right to use any means that Landlord may deem proper to open the doors in
and to the Premises. Any entry into the Premises by Landlord in the manner
hereinbefore described shall not be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an actual or constructive eviction
of Tenant from any portion of the Premises.
ARTICLE 28
TENANT PARKING
28.1 PARKING. Tenant shall be entitled to rent parking passes on a
monthly basis throughout the Lease Term up to the amount set forth in SECTION
11 of the Summary, which parking passes shall pertain to the On-site Parking
Area. Tenant shall be required to rent, at a minimum, one (1) pass per one
thousand (1,000) rentable square feet of the Premises on a monthly basis
throughout the Lease Term. At Tenant's option, up to ten (10) of such
parking passes shall be reserved parking passes located within the "Special
Valet" parking area of the Main Building Parking Area as that area is set
forth in Exhibit M attached hereto. In addition, also at Tenant's option, up
to twenty-five (25) of the parking passes shall be designated "Valet" parking
passes for parking on Level P-1 of the Main Building Parking Area. The
remainder of such parking passes shall provide for non-reserved parking in
the Main Building Parking Area and/or Supplemental Parking Area, as Landlord
may designate from time to time to Tenant. Tenant shall be entitled to vary
the number of parking passes rented by Tenant (up to the maximum amount set
forth in SECTION 11 of the Summary but in any event no less than the minimum
amount set forth in this ARTICLE 28) upon at least thirty (30) days notice to
Landlord. Tenant shall pay to Landlord for automobile parking passes on a
monthly basis the prevailing rate charged for such parking passes; provided,
however, that during the first three (3) Lease Years, the monthly rates for
such parking passes, inclusive of all taxes, shall not exceed, for reserved
parking passes, $250.00; for "Special Valet" and "Valet" parking passes,
$160.00; and for unreserved parking passes, $110.00. Commencing in the
fourth (4th) Lease Year such rates may be subject to annual adjustment, but
in no event shall such rates be greater than the product of (i) the
applicable rate during the prior Lease Year, and (ii) 1.05. Tenant shall
instruct its employees to abide by all rules and regulations which are
prescribed from time to time for the orderly operation and use of the On-site
Parking Area. Landlord specifically reserves the right to reasonably change
the size, configuration, design, layout and all other aspects of the On-site
Parking Area at any time and Tenant acknowledges and agrees that Landlord
may, without incurring any liability to Tenant and without any abatement of
Rent under this Lease, from time to time, temporarily close-off or restrict
access to the On-site Parking Area for purposes of permitting or facilitating
any such construction, alteration or improvements so long as Landlord
provides adequate substitute parking reasonably acceptable to Tenant.
Landlord may delegate its
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responsibilities hereunder to a parking operator in which case such parking
operator shall have all the rights of control attributed hereby to the
Landlord. The parking passes rented by Tenant pursuant to this Article 28 are
provided to Tenant solely for use by Tenant's own personnel and such passes
may not be transferred, assigned, subleased or otherwise alienated by Tenant
without Landlord's prior approval; provided, however, Tenant may transfer a
reasonable allocation of such spaces to an assignee or subtenant permitted
pursuant to Article 14 of this Lease. Landlord shall provide adequate
visitor parking for Tenant's visitors, subject to their payment of an hourly
rate which shall not exceed the hourly rate generally charged in Comparable
Buildings. Landlord shall provide Tenant with parking validations for such
visitors at a rate not to exceed ninety percent (90%) of Landlord's
prevailing rate for such validations.
28.2 PARKING CREDIT. Notwithstanding anything to the contrary set
forth in Section 28. 1, above, Landlord hereby grants Tenant a credit for the
parking charges first due Landlord under the terms of this Lease, which
credit shall be in the amount of $31,321.28.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 TERMS. The necessary grammatical changes required to make the
provisions hereof apply either to corporations or partnerships or
individuals, men or women, as the case may require, shall in all cases be
assumed as though in each case fully expressed.
29.2 BINDING EFFECT. Each of the provisions of this Lease shall
extend to and shall, as the case may require, bind or inure to the benefit
not only of Landlord and of Tenant, but also of their respective successors
or assigns, provided this clause shall not permit any assignment by Tenant
contrary to the provisions of Article 14 of this Lease.
29.3 NO AIR RIGHTS. No rights to any view or to light or air over
any property, whether belonging to Landlord or any other person, are granted
to Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason
of any repairs, improvements, maintenance or cleaning in or about the
Building, the same shall be without liability to Landlord and without any
reduction or diminution of Tenant's obligations under this Lease.
29.4 MODIFICATION OF LEASE. Should any current or prospective
mortgagee or ground lessor for the Building require a modification or
modifications of this Lease, which modification or modifications will not
cause an increased cost or expense to Tenant or in any other way adversely
change the rights and obligations of Tenant hereunder, or diminish the
obligations of Landlord hereunder, then and in such event, Tenant agrees that
this Lease may be so modified and agrees to execute whatever documents are
required therefor and deliver the same to Landlord within ten (10) days
following the request therefor. Should Landlord or any such prospective
mortgagee or ground lessor require execution of a short form of Lease for
recording, containing, among other customary provisions, the names of the
parties, a description of the Premises and the Lease Term, Tenant agrees to
execute such short form of Lease and to deliver the same to Landlord within
ten (10) days following the request therefor.
29.5 TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that
Landlord has the right to transfer all or any portion of its interest in the
Real Property and Building and in this Lease, and Tenant agrees that in the
event of any such transfer, provided and to the extent that the transferee
has agreed to assume liability (subject to the next succeeding sentence),
Landlord shall automatically be released from all further liability under
this Lease arising after the date of such transfer and Tenant agrees to look
solely to such transferee for the performance of Landlord's obligations
hereunder after the date of transfer. The liability of any transferee of
Landlord shall be limited as provided in SECTION 29.14 below. Tenant further
acknowledges that Landlord may assign its interest in this Lease to a
mortgage lender as additional security and agrees that such an assignment
shall not release Landlord from its obligations hereunder and that Tenant
shall continue to look to Landlord for the performance of its obligations
hereunder.
29.6 MEMORANDUM OF LEASE. Concurrently with the execution and
delivery of this Lease by Landlord and Tenant, Landlord shall execute and
notarize a short form Memorandum of
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Lease, in recordable form, and shall deliver same to Tenant for Tenant's
recording in the form attached hereto as EXHIBIT L.
29.7 LANDLORD'S TITLE. Landlord's title is and always shall be
paramount to the title of Tenant. Nothing herein contained shall empower
Tenant to do any act which can, shall or may encumber the title of Landlord.
29.8 CAPTIONS. The captions of Articles and Sections are for
convenience only and shall not be deemed to limit, construe, affect or alter
the meaning of such Articles and Sections.
29.9 RELATIONSHIP OF PARTIES. Nothing contained in this Lease
shall be deemed or construed by the parties hereto or by any third party to
create the relationship of principal and agent, partnership, joint venturer
or any associations between Landlord and Tenant, it being expressly
understood and agreed that neither the method of computation of Rent nor any
act of the parties hereto shall be deemed to create any relationship between
Landlord and Tenant other than the relationship of landlord and tenant.
29.10 APPLICATION OF PAYMENTS. Landlord shall have the right to
apply payments received from Tenant pursuant to this Lease, regardless of
Tenant's designation of such payments, to satisfy any obligations of Tenant
hereunder, in such order and amounts as Landlord, in its sole discretion, may
elect.
29.11 TIME OF ESSENCE. Time is of the essence of this Lease and
each of its provisions.
29.12 PARTIAL INVALIDITY. If any term, provision or condition
contained in this Lease shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term, provision or
condition to persons or circumstances other than those with respect to which
it is invalid or unenforceable, shall not be affected thereby, and each and
every other term, provision and condition of this Lease shall be valid and
enforceable to the fullest extent possible permitted by law.
29.13 NO WARRANTY. In executing and delivering this Lease, Tenant
has not relied on any representation, including, but not limited to, any
representation whatsoever as to the amount of any item comprising Additional
Rent or the amount of the Additional Rent in the aggregate or that Landlord
is furnishing the same services to other tenants, at all, on the same level
or on the same basis, or any warranty or any statement of Landlord which is
not set forth herein or in one or more of the exhibits attached hereto.
29.14 LANDLORD AND TENANT EXCULPATIONS. It is expressly understood
and agreed that notwithstanding anything in this Lease to the contrary, and
notwithstanding any applicable law to the contrary, neither Landlord
(including any successor landlord) nor any members of Landlord's Group shall
have any liability whatsoever under this Lease and the liability of Landlord
hereunder and any recourse by Tenant against Landlord shall be limited solely
and exclusively to the interest of Landlord in and to the Real Property and
Building including Landlord's interests in any proceeds resulting from any
sale or condemnation of the Building or insurance payments made to Landlord
in connection with the Building, and neither Landlord (including any
successor landlord) nor any members of Landlord's Group shall have any
personal liability therefor, and Tenant hereby expressly waives and releases
such personal liability on behalf of itself and all persons claiming by,
through or under Tenant. It is further expressly understood and agreed that,
notwithstanding anything in this Lease to the contrary, and notwithstanding
any applicable law to the contrary, the obligations of the Tenant named in
the Summary (the "Original Tenant") under this Lease do not constitute
personal obligations of the individual partners, directors, officers or
shareholders of Original Tenant, and Landlord will not seek recourse against
the individual partners, directors, officers or shareholders of Original
Tenant or any of their personal assets for satisfaction of any liability of
Original Tenant in respect of this Lease. This Lease is being executed by
Trust Company of the West on behalf of Landlord. No present or future
officer, director, employee, trustee, member, retirant, beneficiary, internal
investment contractor, investment manager or agent of Landlord shall have any
personal liability, directly or indirectly, and recourse shall not be had
against any such officer, director, employee, trustee, member, retirant,
beneficiary, internal invest contractor, investment manager or agent under or
in connection with this Lease, or any other document or instrument heretofore
or hereafter executed in connection with this Lease.
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Tenant hereby waives and releases any and all such personal liability and
recourse. The limitations of liability provided in this SECTION 29.14 are in
addition to, and not in limitation of, any limitation on liability applicable
to Landlord provided by law or in any other contract, agreement or instrument.
29.15 ENTIRE AGREEMENT. It is understood and acknowledged that
there are no oral agreements between the parties hereto affecting this Lease
and this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Landlord to Tenant with respect to the subject
matter hereof, and none thereof shall be used to interpret or construe this
Lease. This Lease and any side letter or separate agreement executed by
Landlord and Tenant in connection with this Lease and dated of even date
herewith contain all of the terms, covenants, conditions, warranties and
agreements of the parties relating in any manner to the rental, use and
occupancy of the Premises, shall be considered to be the only agreements
between the parties hereto and their representatives and agents, and none of
the terms, covenants, conditions or provisions of this Lease can be modified,
deleted or added to except in writing signed by the parties hereto. All
negotiations and oral agreements between the parties have been merged into
and are included herein. There are no other representations or warranties
between the parties, and all reliance with respect to representations is
based totally upon the representations and agreements contained in this Lease.
29.16 RIGHT TO LEASE. Landlord reserves the absolute right to
effect such other tenancies in the Building as Landlord in the exercise of
its sole business judgment shall determine to best promote the interests of
the Building. Tenant does not rely on the fact, nor does Landlord represent,
that any specific tenant or type or number of tenants shall, during the Lease
Term, occupy any space in the Building.
29.17 FORCE MAJEURE. Any prevention, delay or stoppage due to
strikes, lockouts, labor disputes, acts of God, inability to obtain services,
labor, or materials or reasonable substitutes therefor, governmental actions,
civil commotions, fire or other casualty, and other causes beyond the
reasonable control of the party obligated to perform, except with respect to
the obligations imposed with regard to Rent and other charges to be paid by
Tenant pursuant to this Lease (collectively, the "FORCE MAJEURE"),
notwithstanding anything to the contrary contained in this Lease, shall
excuse the performance of such party for a period equal to any such
prevention, delay or stoppage and, therefore, if this Lease specifies a time
period for performance of an obligation of either party, that time period
shall be extended by the period of any delay in such party's performance
caused by a Force Majeure. Notwithstanding the foregoing, Force Majeure shall
not extend any time periods set forth in SECTION 2.1.2, 6.3, 7.2 OR 11.2.
29.18 WAIVER OF REDEMPTION BY TENANT. Tenant hereby waives for
Tenant and for all those claiming under Tenant all right now or hereafter
existing to redeem by order or judgment of any court or by any legal process
or writ, Tenant's right of occupancy of the Premises after any termination of
this Lease.
29.19 NOTICES. All notices, demands, statements or communications
(collectively, "NOTICES") given or required to be given by either party to
the other hereunder shall be in writing, shall be sent by United States
certified or registered mail, postage prepaid, return receipt requested, or
delivered personally (i) to Tenant at the appropriate address or addresses,
not to exceed two (2), set forth in Section 5 of the Summary, or to such
other place as Tenant may from time to time designate in a Notice to
Landlord; or (ii) to Landlord at the addresses set forth in SECTION 3 of the
Summary, or to such other firm or to such other place as Landlord may from
time to time designate in a Notice to Tenant. Any Notice will be deemed
given on the date (a) in the case of mailed notice, on the date which is two
(2) business days after the date it is mailed, and (b) in the case of notice
personally delivered, on the date of confirmed delivery of same to Landlord
or Tenant, as applicable. If Tenant is notified of the identity and address
of Landlord's mortgagee or ground or underlying lessor, Tenant shall give to
such mortgagee or ground or underlying lessor written notice of any default
by Landlord under the terms of this Lease by registered or certified mail. A
notice may be sent by a party or its attorneys. Any such notice shall also
be delivered via facsimile to the applicable facsimile number set forth in
the Summary.
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29.20 JOINT AND SEVERAL. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
29.21 AUTHORITY. If Landlord or Tenant is a corporation or
partnership, each individual executing this Lease on behalf of such party
hereby represents and warrants that such party is a duly formed and existing
entity qualified to do business in California and that such party has full
right and authority to execute and deliver this Lease and that each person
signing on behalf of such party is authorized to do so.
29.22 ATTORNEYS' FEES. If either party commences litigation against
the other for the specific performance of this Lease, for damages for the
breach hereof or otherwise for enforcement of any remedy hereunder, the
parties hereto agree to and hereby do waive any right to a trial by jury and,
in the event of any such commencement of litigation, the prevailing party
shall be entitled to recover from the other party such costs and reasonable
attorneys' fees as may have been incurred.
29.23 GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
29.24 SUBMISSION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or an
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
29.25 BROKERS. Landlord shall pay all brokerage commissions owing
to CB Commercial Real Estate Group, Inc. ("LANDLORD'S BROKER") and Cushman
Realty Corporation ("TENANT'S BROKER") in connection with the transaction
contemplated by this Lease. Landlord's obligation to pay Tenant's Broker
shall be pursuant to that certain letter agreement dated April 24, 1995
("COMMISSION AGREEMENT").Landlord's Broker and Tenant's Broker may be
collectively referred to herein as the "BROKERS." Landlord and Tenant each
represent and warrant to the other that other than the Brokers, no broker,
agent, or finder negotiated or was instrumental in negotiating or
consummating this Lease on its behalf and that it knows of no broker, agent,
or finder, other than the Brokers, who is, or might be, entitled to a
commission or compensation in connection with this Lease. In the event of
any such claims for additional brokers' or finders' fees or commissions in
connection with the negotiation, execution or consummation of this Lease,
then Landlord shall indemnify, save harmless and defend Tenant from and
against such claims if they shall be based upon any statement, representation
or agreement by Landlord, and Tenant shall indemnify, save harmless and
defend Landlord if such claims shall be based upon any statement,
representation or agreement made by Tenant.
29.26 INDEPENDENT COVENANTS. This Lease shall be construed as
though the covenants herein between Landlord and Tenant are independent and
not dependent and Tenant hereby expressly waives the benefit of any statute
to the contrary and agrees that if Landlord fails to perform its obligations
set forth herein, Tenant shall not be entitled to make any repairs or perform
any acts hereunder at Landlord's expense or to any setoff of the Rent or
other amounts owing hereunder against Landlord; provided, however, that the
foregoing shall in no way impair the right of Tenant to commence a separate
action against Landlord for any violation by Landlord of the provisions
hereof so long as notice is first given to Landlord and any holder of a
mortgage or deed of trust covering the Building, Real Property or any portion
thereof, of whose address Tenant has theretofore been notified, and an
opportunity is granted to Landlord and such holder to correct such violations
as provided above.
29.27 BUILDING NAME AND SIGNAGE. Subject to Tenant's rights
pursuant to ARTICLE 23, Landlord shall have the fight at any time to install,
affix and maintain any and all signs on the exterior and on the interior of
the Building as Landlord may, in Landlord's sole discretion, desire. Tenant
covenants and agrees that Tenant shall not use pictures or illustrations of
the Building in advertising or other publicity, without the prior written
consent of Landlord.
29.28 TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all
present and future governmentally mandated programs intended to manage
parking, transportation or traffic in and around the Building, and in
connection therewith, Tenant shall take responsible action for the
transportation planning and management of all employees located at the
Premises by working
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directly with Landlord, any governmental transportation management
organization or any other transportation-related committees or entities.
29.29 CONFIDENTIALITY. Landlord and Tenant acknowledge that the
content of this Lease and any related documents are confidential information.
Landlord and Tenant shall keep such confidential information strictly
confidential and shall not disclose such confidential information to any
person or entity other than their financial, legal, and space planning
consultants.
29.30 REASONABLENESS AND GOOD FAITH. Except for determinations
expressly described as being in the "absolute discretion" of the applicable
party, neither Landlord nor Tenant shall unreasonably withhold or delay any
consent, approval or other determination provided for hereunder, and
determinations subject to absolute discretion shall not be unreasonably
delayed. In the event that either Landlord or Tenant disagrees with any
determination made by the other hereunder (other than a determination in the
absolute discretion of the determining party) and reasonably requests the
reasons for such determination, the determining party shall furnish its
reasons in writing and in reasonable detail within five (5) business days
following such request. Furthermore, in addition to the foregoing, whenever
the Lease grants Landlord or Tenant the right to take action, exercise
discretion, establish rules and regulations, make allocations or other
determinations, or otherwise exercise rights or fulfill obligations,
Landlord and Tenant shall act reasonably and in good faith and take no action
which might result in the frustration of the reasonable expectations of a
sophisticated landlord and sophisticated tenant concerning the benefits to be
enjoyed under this Lease.
29.31 MINIMIZATION OF INTERFERENCE. Landlord shall exercise its
rights and perform its obligations hereunder, and otherwise operate the
Building, in a manner reasonably calculated to minimize any resulting
interference with Tenant's use of the Premises, and Tenant shall exercise its
rights and perform its obligations hereunder, and otherwise operate the
Premises in a manner reasonably calculated to minimize any resulting
interference with the operation of the Building.
29.32 HAZARDOUS MATERIALS.
29.32.1 "HAZARDOUS Materials" means any hazardous or toxic
substance, material or waste which is (1) defined as a "hazardous waste,"
"extremely hazardous waste" or "restricted hazardous waste" under Sections
25115, 25117 or 25112.7, or listed pursuant to Section 25140, of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law), (ii) defined as a "hazardous substance" under Section 25136 of
the California Health and Safety Code, Division 20, Chapter 6.8
(Carpenter-Presley-Tanner Hazardous Substance Account Act), (iii) defined as
a "hazardous material," "hazardous substance" or "hazardous waste" under
Section 25501 of the California Health and Safety Code, Division 20, Chapter
6.95 (Hazardous Materials Release Response Plans and Inventory), (iv) defined
as a "hazardous substance" under Section 25281 of the California Health and
Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous
Substances), (v) listed under ARTICLE 9 or defined as hazardous or extremely
hazardous pursuant to ARTICLE 11 of Title 22 of the California Code of
Regulations, Division 4, Chapter 20, (vi) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (vii) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 ET SEQ., (viii) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 ET SEQ., (ix) defined as a hazardous
waste, "hazardous material", "hazardous substance", "toxic chemical", "toxic
air contaminant", or "hazardous air pollutant" under the Clean Water Act, 33
U.S.C. Section 1251 ET SEQ., the Clean Air Act, 42 U.S.C. Section 7901 ET
SEQ., the Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., the
Porter-Cologne Water Quality Control Act, California Water Code Section 13000
ET SEQ., or listed as a substance known to cause cancer or reproductive
toxicity pursuant to the Safe Drinking Water and Toxic Enforcement Act of
1986 (Proposition 65), the California Health and Safety Code Section 25249.5
ET SEQ., Chapter 3.5, Division 26, the California Health and Safety Code
(Toxic Air Contaminants), Superfund Amendments and Reauthorization Act of
1986, Occupational Safety and Health Act of 1970, or California Occupational
Safety and Health Act of 1973, (x) defined as a hazardous waste, hazardous
material or hazardous substance under any regulations promulgated under any
of the foregoing laws, or (xi) any hazardous or toxic material , substance,
chemical, waste, contaminant, emission, discharge or pollutant or comparable
material listed, identified, or
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regulated pursuant to any federal, state or local law, ordinance or
regulation which has as a purpose the protection of health, safety or the
environment, including but not limited to petroleum or petroleum products or
wastes derived therefrom. Each reference to a statute, law or regulation
herein shall be deemed to include any amendments or successor statutes
thereto which are enacted from time to time.
29.32.2 COMPLIANCE COST. Tenant acknowledges that Landlord may incur
costs for complying with laws, codes, regulations or ordinances relating to
Hazardous Material, including, without limitation, the following: (1)
Hazardous Materials present in soil or ground water; (ii) Hazardous Materials
that migrates, flows, percolates, diffuses or in any way moves onto or under
the Real Property; (iii) Hazardous Materials present on or under the Real
Property as a result of any discharge, dumping or spilling (whether
accidental or otherwise) on the Real Property by other tenants of the Real
Property or their agents, employees, contractors or invitees, or by others;
and (iv) material which becomes Hazardous Materials due to a change in laws,
codes, regulations or ordinances which relate to hazardous or toxic material,
substances or waste. Notwithstanding the foregoing, the following costs shall
not be Operating Expenses and shall not be the obligation of Tenant: (i)
costs incurred to comply with laws relating to the removal or other abatement
of Hazardous Materials which were in existence on the Real Property prior to
the Lease Commencement Date and which were of such nature that (A) a federal,
state or municipal governmental authority, if it had then had knowledge of
the presence of such Hazardous Materials, in the state and under the
conditions that it existed on the Real Property, would have then required the
removal of such Hazardous Materials or other remedial or containment action
with respect thereto, or (B) reasonably prudent landlords of Comparable
Buildings would not include such compliance costs in operating expenses; (ii)
costs incurred to remove, remedy, contain, or treat Hazardous Materials,
which Hazardous Materials are brought onto the Real Property after the date
hereof by Landlord or any other tenant of the Building and are of such a
nature, at that time, that a federal, state or municipal governmental
authority, if it had then had knowledge of the presence of such Hazardous
Materials, in the state and under the conditions that they exist on the Real
Property, would require the removal, remediation, containment or treatment of
such Hazardous Materials; and (iii) costs incurred to remove, remedy,
contain, or treat Hazardous Materials, which Hazardous Materials are brought
onto the Real Property after the date hereof if reasonably prudent landlords
of Comparable Buildings would not include such costs in operating expenses.
To the extent any such Operating Expense relating to Hazardous Materials is
subsequently recovered or reimbursed through insurance, or recovery from
responsible third parties, or other action, Tenant shall be entitled to a
proportionate share of such reimbursement.
29.33 PROHIBITED TRANSACTIONS. Tenant hereby acknowledges that
Landlord is a unit of the California State and Consumer Services Agency
established pursuant to Title I, Division 1, Part 13 of the California
Education Code, Sections 22000 et seq., as amended (the "ED CODE"). As a
result, Landlord is prohibited from engaging in certain transactions with a
"school district or other employing agency" or a "member, retirant or
beneficiary" (as those terms are defined in the Ed Code). In addition,
Landlord may be subject to certain restrictions and requirements under the
Internal Revenue Code, 26 U.S.C. Section 1 et seq. (the "CODE").
Accordingly, Tenant represents and warrants to Landlord that (a) Tenant is
neither a school district or other employing agency nor a member, retirant or
beneficiary; (b) has not made any contribution or contributions to Landlord;
(c) neither a school district or other employing agency, nor a member,
retirant or beneficiary, nor any person who has made any contribution to
Landlord, nor any combination thereof, is related to Tenant by any
relationship described in Section 267(b) of the Code; (d) neither Trust
Company of the West, its affiliates, related entities, agents, officers,
directors or employees, nor any State Teachers' trustee, agent, related
entity, affiliate, employee or internal investment contractor (both groups
collectively, "LANDLORD AFFILIATES") has received or will receive, directly
or indirectly, any payment, consideration or other benefit from, nor does any
Landlord Affiliate have any agreement or arrangement with Tenant or any
person or entity affiliated with Tenant relating to the transactions
contemplated by this Lease; and (e) no Landlord Affiliate is controlled by,
controls, or is under common control with, Tenant.
29.34 As used herein, the tem "COMPARABLE BUILDINGS" means the
high-rise commercial office buildings located in Century City, California
which are of comparable size, age and quality as the Building. For purposes
of this Lease, "CENTURY CITY, CALIFORNIA" shall be
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defined as that area of Los Angeles, California which has as its Northern
boundary, the Southern most boundary of Santa Monica Boulevard, as its
Southern boundary, the Northern most boundary of Pico Boulevard, as its
Western Boundary the Eastern most boundary of Century Park West (as though
such street was extended to intersect Pico Boulevard), and as its Eastern
boundary, the Eastern most boundary of the legal lots upon which all of the
buildings and improvements which front onto the Eastern boundary of Century
Park East are located.
29.35 As used herein, the term "INTEREST RATE" shall mean the lesser
of (i) two percent (2%) over the interest rate publicly announced from time
to time by the Bank of America as its prime rate and if such term is no
longer utilized, the interest rate utilized by the Bank of America (or if the
Bank of America ceases to exist, the largest state chartered bank operating
in the State of California) to replace the prime rate, or (ii) the maximum
rate permitted by law.
29.36 WAIVER OF CONSEQUENTIAL DAMAGES. Notwithstanding anything to
the contrary contained in this Lease, and except as set forth in Article 16,
or as to damage caused during Tenant's exercise of its rights under SECTION
7.2, Tenant shall not be liable under any circumstances, for injury or damage
to, or interference with, Landlord's business, including but not limited to
loss of title to the Building or any portion thereof, loss of profits, loss
of rents or other revenues (excluding payments thereof which Tenant is
otherwise obligated to make under this Lease), loss of business opportunity,
loss of goodwill or loss of use, in each case however occurring. Likewise,
Landlord shall not be liable under any circumstances, for injury or damage
to, or interference with, Tenant's business, including but not limited to
loss of profits or revenues, loss of business opportunity, loss of goodwill
or loss of use, in each case however occurring.
29.37 TELECOMMUNICATION EQUIPMENT. At any time during the Lease
Term, Tenant may install, at Tenant's sole cost and expense,
telecommunication equipment reasonably approved by Landlord, upon the roof of
the Building in locations reasonably approved by Landlord, without the
payment of Base Rent or Operating Expenses or any charge for the same except
utilities necessary to Tenant's operation of the telecommunication equipment.
Landlord may require Tenant to install screening around such equipment, at
Tenant's sole cost and expense, as reasonably designated by Landlord. Tenant
shall maintain such equipment at Tenant's sole cost and expense. In the
event Tenant elects to exercise its right to install telecommunication
equipment as set forth in this SECTION 29.37, then Tenant shall give Landlord
prior written notice thereof and Landlord and Tenant shall execute an
amendment to this Lease covering the installation and maintenance of such
equipment, Tenant's indemnification of Landlord with respect thereto,
Tenant's obligation to remove such equipment upon the expiration or earlier
termination of this Lease, and other related matters.
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
LANDLORD:
STATE TEACHERS' RETIREMENT SYSTEM,
a retirement fund created under the
laws of the State of California
By: TRUST COMPANY OF THE WEST
a California corporation,
Its Investment Manager
By: /s/ Hugh Dirstine
------------------------------------
HUGH DIRSTINE
Its Authorized Representative
By: /s/ Gary Neumeier
------------------------------------
GARY NEUMEIER
Its Authorized Representative
TENANT:
HERBALIFE INTERNATIONAL OF
AMERICA, INC.,
a California corporation
By: /s/ Conrad Lee Klein
---------------------------
CONRAD LEE KLEIN
Its Authorized Agent
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EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
[FLOOR PLAN]
EXHIBIT A-Page 1
<PAGE>
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
[FLOOR PLAN]
EXHIBIT A-Page 2
<PAGE>
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
[FLOOR PLAN]
EXHIBIT A-Page 3
<PAGE>
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
[FLOOR PLAN]
EXHIBIT A-Page 4
<PAGE>
EXHIBIT A
OUTLINE OF FLOOR PLAN OF PREMISES
[FLOOR PLAN]
EXHIBIT A-Page 5
<PAGE>
EXHIBIT A-1
OUTLINE OF EXPANSION SPACE
[FLOOR PLAN]
EXHIBIT A-1-Page 2
<PAGE>
EXHIBIT B
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions
relating to the construction of the tenant improvements in the Premises.
This Tenant Work Letter is essentially organized chronologically and
addresses the issues of the construction of the Premises, in sequence, as
such issues will arise during the actual construction of the Premises. All
references in this Tenant Work Letter to Articles or Sections of "this Lease"
shall mean the relevant portion of the Lease to which this Tenant Work Letter
is attached and of which this Tenant Work Letter forms a part.
SECTION I
LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES
Landlord has constructed, at its sole cost and expense the base
building (i) of the Premises and (ii) of the floors of the Building on which
the Premises is located (collectively, the "BASE BUILDING"). The Base
Building shall be delivered to Tenant, and Tenant agrees to accept the same,
in its currently existing, "as-is" condition, except as set forth below;
provided, however, that the Base Building shall include the following items.
1.1 TELEPHONE ROOM AND ELECTRICAL ROOM. The telephone and electrical
rooms will include a telephone backboard and electrical distribution
panelboards, respectively. Conduit runs from the electrical closet to
individual ceiling junction boxes, as installed. The 11th and 12th floor
telephone rooms shall each contain 300 pair of telephone capacity. The 13th
floor telephone room shall contain 900 pair, currently configured as 300 pair
to be used for each of the 13th, 14th and 15th floors.
1.2 PUBLIC EXIT STAIRWAYS. Stairways in compliance with applicable
laws as of the Lease Commencement Date ("Laws") to the extent necessary for
Tenant to obtain its certificate of occupancy, assuming a standard buildout
for office space.
1.3 ACCESS TO SYSTEMS. Access to domestic cold water, drainage and
vent systems at readily accessible locations on the 11th, 13th and 15th
floors.
1.4 WINDOW COVERINGS. Building Standard draperies, cleaned and
installed on each exterior window.
1.5 FLOORING. Concrete floor with trowelled finish designed to
support a minimum live load of 70 pounds per square foot.
1.6 CHILLED WATER. Condenser and chilled water loop on the 11th,
13th and 15th floors of the Premises. If Landlord allows any other tenant to
tap into the Building's condenser and/or chilled water, Landlord shall allow
Tenant to do so on the same terms and conditions, subject to overall
restrictions on capacity, as determined in Landlord's reasonable discretion.
1.7 ACOUSTICS. To Landlord's best knowledge and belief, the
Building has been constructed in a manner and at a level at least consistent
with the sound production and vibration standards for normal office
requirements maintained in the Comparable Systems Buildings, as that term is
defined in Section 6.1 of the Lease.
1.8 BASE AND SHELL IMPROVEMENTS. The structural frame of the
Building shall be complete including finished slab.
1.9 DEMOLITION Prior to Landlord's delivery of the Premises to
Tenant, Landlord, at its sole cost and expense, shall demolish the
improvements currently located in the Premises in accordance with the
demolition plan attached to this Tenant Work Letter as Schedule 1 (the
"DEMOLITION PLAN").
EXHIBIT B-Page 1
<PAGE>
1.10 EXISTING STAIRWELLS. Except as otherwise described on the
Demolition Plan, Landlord shall deliver the internal stairways currently
located in the Premises in their currently existing, "as-is" condition.
SECTION 2
TENANT IMPROVEMENTS
2.1 ALLOWANCES.
2.1.1 TENANT IMPROVEMENT ALLOWANCE. Tenant shall be entitled
to a one-time tenant improvement allowance (the "TENANT IMPROVEMENT
ALLOWANCE") in the amount of $4,155,203.00 (composed of a core and shell
allowance in the amount of $305,803.00, and an additional allowance in the
amount of $3,849,400.00) for the costs relating to the initial design and
construction of Tenant's improvements (the "TENANT IMPROVEMENTS"). Tenant
agrees that not more than Eleven Dollars ($11.00) per usable square foot of
the Premises of the Tenant Improvement Allowance (the "Eleven Dollar Amount")
shall be spent on those items set forth in SECTIONS 2.2.1.1, 2.2.1.2, 2.2.1.7
AND 2.2.1.8, below. Additionally, the first $80,000.00 spent in connection
with items set forth in SECTION 2.2.1.9, below (the "Signage Costs"), may be
included within the Tenant Improvement Allowance. Signage Costs in excess of
$80,000.00 may be included in the Tenant Improvement Allowance to the extent
that they, together with the other items listed above, do not exceed the
Eleven Dollar Amount. Additionally, Landlord shall have no obligation to
disburse any amounts of the Tenant Improvement Allowance for costs of those
items set forth in SECTION 2.2.1.8, below, until Landlord has first disbursed
at least $40.00 per usable square foot of the Premises of the Tenant
Improvement Allowance.
2.1.2 SPACE PLANNING ALLOWANCE. Landlord shall pay $0.10 per
usable square foot of the Premises (the "DESIGN ALLOWANCE"), in addition to
the Tenant Improvement Allowance, for the cost of the "Architect" and
"Engineers," as those terms are defined in SECTION 3.1, below, to prepare the
"Final Space Plan," as those terms are defined in SECTIONS 3.1 and 3.2,
below, respectively. Any additional design costs may be deducted from the
Tenant Improvement Allowance.
2.1.3 STAIR PRESSURIZATION ALLOWANCE. Landlord agrees that it
shall pay up to $50,000.00 in aggregate (the "Pressurization Allowance"), as
necessary for the pressurization and ventilation of the existing interior
staircases connecting floors 12, 13, 14 and 15, as such pressurization and
ventilation is required by the Laws. Landlord shall have no obligation to
pay any amounts for such pressurization or ventilation in excess of the
Pressurization Allowance.
The Tenant Improvement Allowance and Design Allowance are sometimes
referred to herein collectively as the "ALLOWANCES."
2.2 DISBURSEMENT OF THE TENANT IMPROVEMENT ALLOWANCE.
2.2.1 TENANT IMPROVEMENT ALLOWANCE ITEMS. Except as otherwise
set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall
be disbursed by Landlord only for the following items and costs (collectively
the "TENANT IMPROVEMENT ALLOWANCE ITEMS"):
2.2.1.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in SECTION 3.1 of this Tenant Work
Letter;
2.2.1.2 The payment of plan check, permit and license
fees relating to construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant
Improvements, including, without limitation, testing and inspection costs,
trash removal costs and contractors' fees and general conditions;
2.2.1.4 The cost of any changes in the base building or
the floor of the Building on which the Premises is located, when such changes
are requred by the Construction Drawings (including if such changes are due
to the fact that such work is prepared on an
EXHIBIT B-Page 2
<PAGE>
unoccupied basis) or to comply with Code, such cost to include all direct
architectural and/or engineering fees and expenses incurred in connection
therewith;
2.2.1.5 The cost of any chances to the Construction
Drawings or Tenant Improvements required by Code;
2.2.1.6 Sales and use taxes and Title 24 fees;
2.2.1.7 Any moving or relocation costs incurred by
Tenant;
2.2.1.8 The cost of free-standing workstations,
furniture, fixtures and equipment for the Premises;
2.2.1.9 The cost of signs installed by Tenant in
accordance with the provisions of the Lease;
2.2.1.10 The cost of cable and other telecommunications
lines installed as part of the Tenant Improvements; and
2.2.1.11 All other costs of labor and materials approved
by or expended by Tenant directly in connection with the construction of the
Tenant Improvements.
2.2.2 DISBURSEMENT OF TENANT IMPROVEMENT ALLOWANCE. During the
construction of the Tenant Improvements, Landlord shall make monthly
disbursements of the Tenant Improvement Allowance for Tenant Improvement
Allowance Items for the benefit of Tenant and shall authorize the release of
monies for the benefit of Tenant as follows.
2.2.2.1 MONTHLY DISBURSEMENTS. On or before the first
day (the "SUBMITTAL DATE") of each calendar month commencing with the first
calendar month following the execution of the Lease, Tenant shall deliver to
Landlord: (i) a request for payment of the "Contractor," as that term is
defined in SECTION 4.1 of this Tenant Work Letter, approved by Tenant, on the
standard AIA (G702) form showing, by trade, the percentage of completion of
the Tenant Improvements in the Premises (as reasonably extrapolated by Tenant
through the end of the applicable month), and detailing the portion of the
work completed; (ii) invoices from all of "Tenant's Agents," as that term is
defined in SECTION 4.1.2 of this Lease, for labor rendered and materials
delivered to the Premises for the applicable payment period; (111) executed
conditional mechianic's lien releases from all of Tenant's Agents which shall
comply with the appropriate provisions of California Civil Code Section
3262(d); provided, however, that with respect to fees and expenses of the
Architect or Engineers, the FF&E Costs items, or any other pre-construction
items for which the payment scheme set forth in items (i) through (iii),
above, is not applicable (collectively, the "NON-CONSTRUCTION ALLOWANCE
ITEMS"), Tenant shall only be required to deliver to Landlord on or before
the applicable Submittal Date, reasonable evidence of having paid the cost
for the applicable Non-Construction Allowance Items (unless Landlord has
received a preliminary notice in connection with such costs in which event
conditional lien releases must be submitted in connection with such costs);
and (iv) all other information reasonably requested in good faith by
Landlord. Tenant's request for payment shall be deemed Tenant's acceptance
and approval of the work furnished and/or the materials supplied as set forth
in Tenant's payment request vis-a-vis the Landlord, On or before the
twenty-fifth (25th) day of each such calendar month (the "PAYMENT DATE"), and
assuming Landlord receives the applicable information described in Items (i)
through (iv), above, and unconditional lien releases, as applicable, for all
work paid for from the Tenant Improvement Allowance as of the previous
Payment Date, Landlord shall deliver a check to Tenant made jointly payable
to Contractor, or any other provider of goods and services designated by
Tenant to Landlord, and Tenant in payment of the lesser of: (A) the amounts
so requested by Tenant, as set forth in this SECTION 2.2.2.1, above, less a
ten percent (10%) retention (the aggregate amount of such retentions to be
known as the "FINAL RETENTION," but in no event shall the Final Retention be
in excess of ten percent (10%), inclusive of the retention amount provided
pursuant to the Standard AIA (G702) Form); provided, however, that no such
retention shall be applicable to Non-Construction Allowance Items or, in
Landlord's resonable discretion, other Tenant Improvement Allowance Items in
connection with the payment of suppliers for materials delivered to the
Premises and subcontractors for completing performance of their work
substantially in advance of the substantial completion of the
EXHBIT B-Page 3
<PAGE>
Tenant Improvements, and (B) the balance of any remaining available portion
of the Tenant Improvement Allowance (not including the Final Retention),
provided that Landlord does not dispute any request for payment based on
material non-compliance of any work with the "Approved Working Drawings", as
that term is defined in SECTION 3.4 below, or due to any materially
substandard work as identified in good faith by Landlord. In the event that
Landlord identifies any material non-compliance with the Approved Working
Drawings or substandard work, Tenant shall be provided a detailed statement
identifying such material non-compliance or substandard work. Landiord's
payment of such amounts shall not be deemed Landlord's approval or acceptance
of the work furnished or materials supplied as set forth in Tenant's payment
request.
2.2.2.2 FINAL RETENTION. Subject to the provisions of this
Tenant Work Letter, a check for the Final Retention payable jointly to Tenant
and Contractor shall be delivered by Landlord to Tenant following the
completion of construction of the Premises, provided that (1) Tenant delivers
to Landlord properly executed mechanics lien releases in compliance with both
California Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or
Section 3262(d)(4), and (ii) Landlord has reasonably determined that no
materially substandard work exists which materially and adversely affects the
mechanical, electrical, plumbing, heating, ventilating and air conditioning,
life-safety or other systems of the Building, the curtain wall of the
Building, or the structure or exterior appearance of the Building.
2.2.3 FAILIURE TO DISBURSE TENANT IMPROVEMENT ALLOWANCE. In the
event that Landlord fails to fulfill its obligation to disburse the Tenant
Improvement Allowance in accordance with the terms of SECTION 2.2.2, above,
following five (5) business days notice from Tenant and Landlord's failure to
cure within such period, Tenant shall have the right, at Tenant's option, in
addition to any rights or remedies available to Tenant under this Lease, at
law or in equity, to continue to perform the work of the Tenant Improvements,
and offset any unpaid portions of the Tenant Improvement Allowance plus
interest at the Interest Rate against Tenant's obligation for Rent next
coming due under this Lease.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Tenant shall
retain an architect/space planner reasonably approved by Landlord (the
"ARCHITECT") to prepare the Construction Drawings, which approval shall be
granted or denied by Landlord within five (5) business days after Tenant has
submitted the proposed architect to Landlord. Tenant shall retain an
engineering consultant reasonably approved by Landlord (the "ENGINEER") to
prepare all plans and engineering working drawings relating to the
structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler
work of the Tenant Improvements. The plans and drawings to be prepared by
Architect and the Engineer hereunder shall be known collectively as the
"CONSTRUCTION DRAWINGS." All Construction Drawings shall be subject to
Landlord's approval pursuant to the terms set forth in SECTIONS 3.2 and 3.3,
below. Landlord's review of the Construction Drawings as set forth in this
SECTION 3, shall be for its sole purpose and shall not imply Landiord's
review of the same, or obligate Landlord to review the same, for quality,
design, Laws compliance or other like matters.
3.2 FINAL SPACE PLAN. Tenant and the Architect shall prepare the
final space plan for Tenant Improvements in the Premises (collectively, the
"Final Space Plan"), and shall deliver the Final Space Plan to Landlord for
Landlord's approval. Landlord shall, within eight (8) business days after
Landlord receives such Final Space Plan, (i) approve the Final Space Plan,
(ii) approve the Final Space Plan subject to specified conditions to be
complied with when the Final Working Drawings are submitted by Tenant to
Landlord, or (iii) disapprove the final space plan and return the same to
Tenant with requested revisions; provided however that Landlord shall only be
entitled to dispprove the Final Space Plan for the following reasons: (i) an
adverse effect on the structural integrity of the Building; (ii)
non-compliance with Laws; (iii) an adverse effect on the systems and
equipment of the Building; or (iv) an adverse effect on the exterior
apperance of the Building (individually or collectively, a "DESIGN PROBLEM").
If Landlord disapproves the Final Space Plan, Tenant may resubmit the Final
Space Plan to Landlord at any time, and Landlord shall approve or disapprove
of the resubmitted Final Space Plan, based upon the criteria set forth in this
EXHIBIT B-Page 4
<PAGE>
SECTION 3.2, within two (2) business days after Landlord receives such
resubmitted Final Space Plan.
3.3 FINAL WORKING DRAWINGS. Tenant, the Architect and the Engineer
shall complete the architectural and engineering drawings for the Premises in
a form which is complete to allow subcontractors to bid on the work and to
obtain all applicable permits (collectively, the "FINAL WORKING DRAWINGS")
and shall submit the same to Landlord for Landlord's approval. The Final
Working Drawings may be submitted in one or more stages at one or more times,
provided that Tenant shall ultimately supply Landlord with four (4) completed
copies signed by Tenant of such Final Working Drawings. Landlord shall,
within ten (10) business days after Landlord receives the Final Working
Drawings, either (i) approve the Final Working Drawings, (ii) approve the
Final Working Drawings subject to specified conditions to be satisfied by
Tenant prior to submitting the Approved Working Drawings for permits as set
forth in SECTION 3.4, below, if the Final Working Drawings do not comply with
the Final Space Plan or contain a Design Problem, or (iii) disapprove and
return the Final Working Drawings to Tenant with requested revisions if the
Final Working Drawings do not comply with the Final Space Plan or contain a
Design Problem. If Landlord disapproves the Final Working Drawings, Tenant
may resubmit the Final Working Drawings to Landlord at any time, and Landlord
shall approve or disapprove of the resubmitted Final Working Drawings, based
upon the criteria set forth in this SECTION 3.3, within two (2) business days
after Landlord receives such resubmitted Final Working Drawings.
3.4 PERMITS. The Final Working Drawings shall be approved by
Landlord (the "APPROVED WORKING DRAWINGS") prior to the commencement of the
construction of the Tenant Improvements. Architect shall submit the Approved
Working Drawings to the appropriate municipal authorities for all applicable
building permits necessary to allow "Contractor," as that term is defined in
SECTION 4.1, below, to commence and fully complete the construction of the
Tenant Improvements. Tenant shall be responsible for obtaining any building
permit or certificate of occupancy for the Premises; provided however that
Landlord shall cooperate with Tenant in executing permit applications and
performing other ministerial acts reasonably necessary to enable Tenant to
obtain any such permit or certificate of occupancy.
3.5 CHANGE ORDERS. In the event Tenant desires to change the
Approved Working Drawings, Tenant shall deliver notice (the "DRAWING CHANGE
NOTICE") of the same to Landlord, setting forth in detail the changes (the
"TENANT CHANGE") Tenant desires to make to the Approved Working Drawings.
Landlord shall, within three (3) business days of receipt of the Drawing
Change Notice, either (i) approve the Tenant Change, or (ii) disapprove the
Tenant Change and deliver a notice to Tenant specifying in detail the reasons
for Landlord's disapproval; provided, however, that Landlord may only
disapprove of the Tenant Change if the Tenant Change contains a Design
Problem. Any additional costs which arise in connection with such Tenant
Change shall be paid by Tenant.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 TENANT'S SELECTION OF CONTRACTORS.
4.1.1 THE CONTRACTOR. Tenant shall retain a licensed general
contractor (the "CONTRACTOR"), as contractor for the construction of the
Tenant Improvements, which Contractor shall be selected by Tenant pursuant to
a competitive bidding of the general conditions, profit and overhead fees for
construction of the Tenant Improvements, and which Contractor shall be
subject to Landlord's approval, which approval shall not be unreasonably
withheld or conditioned, and which approval or refusal shall be granted or
denied within five (5) business days after Tenant has submitted the name of
the contractor.
4.1.2 TENANT'S AGENTS. Tenant agrees to cause Contractor to
solicit bids from at least three (3) subcontractors for each item or trade
involved in the construction of the Tenant improvements, which subcontractors
shall be subject to Landlord's approval within five (5) business days after
Tenant has submitted the name of a subcontractor. All of the subcontractors
selected by Tenant, together with the laborers, materialmen, suppliers and
the Contractor shall be known collectively as "TENANT'S AGENTS."
EXHIBIT B-Page 5
<PAGE>
4.2 NOTICE OF COMPLETION. Within ten (10) days after the issuance of
the permanent or temporary certificate of occupancy for the Tenant
Improvements, Tenant shall cause a Notice of Completion to be recorded in the
office of the Recorder of the County of Los Angeles in accordance with
Section 3093 of the Civil Code of the State of California or any successor
statute, and shall furnish a copy thereof to Landlord upon such recordation.
4.3 LIEN AND COMPLETION BOND. Prior to the commencement of
construction of the Tenant Improvements, Landlord shall require that Tenant
or Contractor post a lien and completion bond or some alternative form of
security to ensure the lien free completion of the Tenant Improvements.
4.4 OVER-ALLOWANCE AMOUNT. Prior to the commencement of the
construction of the Tenant Improvements, and after Tenant has accepted all
bids for the Tenant Improvements, Tenant shall provide Landlord with a
detailed breakdown, by trade, of the final costs to be incurred or which have
been incurred, as set forth more particularly in SECTIONS 2.2.1.1 THROUGH
2.2.1.11, above, in connection with the design and construction of the Tenant
Improvements to be performed by or at the direction of Tenant or the
Contractor, which costs form a basis for the amount of Tenant's contract with
Contractor (the "Final Costs"). Prior to the commencement of construction of
the Tenant Improvements, Tenant shall supply Landlord with cash in an amount
(the "Over-Allowance Amount") equal to the amount by which the Final Costs
exceed, by more than One Million Dollars ($1,000,000.00), the Tenant
Improvement Allowance (less any portion thereof already disbursed by
Landlord, or in the process of being disbursed by Landlord, on or before the
commencement of construction of the Tenant Improvements). The Over-Allowance
Amount shall be disbursed by Landlord prior to the disbursement of any of the
then remaining portion of the Tenant Improvement Allowance, and such
disbursement shall be pursuant to the same procedure as the Tenant
Improvement Allowance. In the event that, after the Final Costs have been
delivered by Tenant to Landlord, the costs relating to the design and
construction of the Tenant Improvements shall change, any additional costs
necessary to such design and construction in excess of the Final Costs, shall
be paid by Tenant to Landlord immediately as an addition to the
Over-Allowance Amount or at Landlord's option, Tenant shall make payments for
such additional costs out of its own funds.
SECTION 5
MISCELLANEOUS
5.1 LEASE COMMENCEMENT DATE DELAYS. The Lease Commencement Date
shall occur as provided in Article 2 of this Lease, provided that the Lease
Commencement Date shall be delayed by the number of days of delay of the
"substantial completion of the Tenant Improvements," as that term 'is defined
below in this SECTION 5, in the Premises to the extent caused by a
"Commencement Date Delay," provided that a Commencement Date Delay shall only
occur to the extent the substantial completion of the Tenant Improvements is
delayed beyond January 1, 1996. In addition, the Lease Expiration Date shall
be automatically extended one day for each day the Lease Conunencement Date
is delayed. As used herein, the term "COMMENCEMENT DATE DELAY" shall mean
only a "Force Majeure Delay" or a "Landlord Caused Delay," as those terms are
defined below in this Section 5.1. As used herein, the term "FORCE MAJEURE
DELAY" shall mean only an actual delay resulting from fire, earthquake,
explosion, flood, hurricane, the elements, acts of God or the public enemy,
war, invasion, insurrection, rebellion, riots, industry-wide labor strikes or
lockouts (which objectively preclude Tenant from obtaining from any
reasonable source of labor or substitute materials at a reasonable cost
necessary for completing the Tenant Improvements), or governmental acts,
including law changes, changes in interpretation of laws or the construction
rules and regulations, delays attributable to the acts of third parties not
under contract with Tenant in obtaining the issuance of permits and the
obtaining of inspections beyond customary time periods, which objectively
preclude construction of tenant improvements in the Building by any person.
As used in this Tent Work Letter, "LANDLORD CAUSED DELAY" shall mean actual
delays to the extent resulting from the acts or omissions of Landlord (which
acts are not expressly permitted by the terms of the Lease or this Tenant
Work Letter) including, but not limited to, (i) failure of Landlord to timely
approve or disapprove any Construction Drawings; (ii) subject to Landlord's
reasonable construction rules and regulations and reasonable notice
requirements contained therein, material interference by Landlord, its agents
or contractors with the completion of the Tenant Improvements and which
objectively preclude
EXHIBIT B-Page 6
<PAGE>
construction of tenant improvements in the Building by any person, which
interference relates to access by Tenant, its agents and contractors to the
Building or any Building facilities (including loading docks and freight
elevators) or service (including temporary power and parking areas as
provided herein) during normal construction hours, or the use thereof during
normal construction hours; (iii) delays due to the acts or failures to act of
Landlord, its agents or contractors with respect to payment of the Tenant
Improvement Allowance and/or any cessation of work upon the Tenant
Improvements as a result thereof; and (iv) Landlord's failure to complete and
deliver the Base Building on or before the date which is thirty (30) days
after the full execution and delivery of this Lease.
Landlord hereby agrees that, notwithstanding the occurrence of the Lease
Commencement Date, Landlord shall use commercially reasonable efforts to
avoid any Landlord Caused Delay.
5.2 DETERMINATION OF COMMENCEMENT DATE DELAY. If Tenant contends that a
Commencement Date Delay has occurred, Tenant must notify Landlord in writing
(the "DELAY NOTICE") of the event which constitutes such Commencement Date
Delay, and, assuming such event qualifies as a Commencement Date Delay, a
Commencement Date Delay shall be deemed to have occurred commencing as of the
date of Landlord's receipt of the Delay Notice.
5.3 DEFINITION OF SUBSTANTIAL COMPLETION OF THE TENANT IMPROVEMENTS.
For purposes of this SECTION 5, "substantial completion of the Tenant
Improvements" shall mean completion of construction of the Tenant
Improvements in the Premises pursuant to the "Approved Working Drawings,"
with the exception of any punch list items, but including any furniture,
fixtures, workstations, built-in furniture or equipment.
SECTION 6
MISCELLANEOUS
6.1 TENANT'S REPRESENTATIVE. Tenant has designated Conrad Lee Klein as
its sole representative with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Landlord, shall have full authority
and responsibility to act on behalf of the Tenant as required in this Tenant
Work Letter.
6.2 LANDLORD'S REPRESENTATIVE. Landlord has designated Hank Metzger as
its sole representative with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Tenant, shall have full authority
and responsibility to act on behalf of the Landlord as required in this
Tenant Work Letter.
6.3 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer
to calendar days. In all instances where Tenant is required to approve or
deliver an item, if no written notice of approval is given or the item is not
delivered within the stated time period, at the end of such period the item
shall automatically be deemed disapproved by Tenant.
6.4 MISCELLANEOUS CHARGES. Prior to the Lease Commencement Date,
Tenant or Tenant's agents shall not be charged for, directly or indirectly,
Landlord's supervision and/or overhead, parking, restrooms, HVAC usage,
electricity, water, elevator usage, hoists, access to loading docks, freight
elevator usage, or security. After the Lease Commencement Date, the terms of
the Lease shall govern the payment of such charges. Parking for Tenant's
Agents shall be in an area designated by Landlord and subject to Landlord's
reasonable procedures regarding the same.
6.5 MOVE-IN PRIORITY. Subject to mutually agreeable scheduling and use
procedures, Tenant shall have the exclusive right to use one passenger
elevator and the freight elevator during the weekend days that it moves into
the Building.
6.6 CLEAN-UP. Prior to the delivery of the Premises to Tenant for the
commencement of the construction of the Tenant Improvements, Landlord shall
remove all rubbish and debris therefrom and reasonably clean the premises.
EXHIBIT B - Page 7
<PAGE>
6.7 PUNCH LIST ITEMS. Within thirty (30) days of Landlord's delivery of
the Base Building to Tenant, Tenant shall Provide Landlord a punch list
(latent and hidden defects excepted), which punch list shall consist of those
mechanical type adjustments which vary materially from the Demolition Plan
and the terms of SECTION I of this Tenant Work Letter. Upon receipt of the
punch list, Landlord shall, at Landlord's sole cost and expense, proceed to
diligently remedy all such items. Landlord shall not be responsible for any
damage to the Base Building caused by Tenant or its agents.
6.8 HAZARDOUS MATERIALS. In the event that during construction of the
Tenant Improvements, the Premises and/or the Common Areas are determined to
contain hazardous or toxic materials, and to the extent such actions are
required by Law, Tenant shall have the right to cause Landlord to remove,
encapsulate, contain, or otherwise dispose of such hazardous or toxic
materials, and the cost incurred in connection therewith shall be paid by
Landlord. The amount of such payment shall be separate and apart from, and
in addition to, the Tenant Improvement Allowance and shall not be deducted
from the Tenant Improvement Allowance.
EXHIBIT B - Page 8
<PAGE>
SCHEDULE 1
DEMOLITION PLAN
TENANT SPACE:
Landlord shall demolish and/or remove the following:
1. Gypsum board partitions and ceilings, including metal studs, black iron,
above ceiling bracing and support of same.
2. Doors, frames and hardware.
3. Ceiling tiles and grid, including suspension, hang wires and bracing.
4. Light fixtures, controls and switching, power and data outlets, and all
conduit and cables which are not a part of the fire-life safety system.
All conduit, wiring and cables shall be removed back to their respective
panels, backboards and punchdown blocks.
5. HVAC supply and return air diffusers, ductwork (excluding main loop),
mixing boxes and all controls. All mixing boxes shall be held for possible
reuse by tenant.
6. All millwork, cabinetry and paneling, including hand rail at connecting
stair.
7. All decorative metals, including stair railing at connecting stair.
8. All pluming fixtures, including supply, waste and vent lines back to their
connections with base building systems. Cap off all exposed base building
connections. This shall include all auxiliary restrooms.
9. Kitchen on 12th floor, including fire suppression system, gas lines,
exhaust/grease ducts, and equipment.
10. Pre-action fire sprinkler systems.
11. All floor finishes including raised floors and concrete curbs, leaving
floors in a broom clean condition.
12. All wall finishes on existing core and shell walls.
13. All decorative and functional finishes at connecting stair , including wood
paneling and gypsum board.
Additionally, all electrical work remaining in electrical rooms shall be left
in a safe condition and Landlord shall be responsible for the removal and
disposal of all Hazardous Materials in a safe and approved manner, as
required by law. Landlord shall not encapsulate or contain any Hazardous
Materials.
SCHEDULE 1 - Page 1
<PAGE>
EXHIBIT C
NOTICE OF LEASE TERM DATES
To:
-------------------------
-------------------------
-------------------------
-------------------------
Re: Office Lease dated ____________, 19__, between ______________________
a _______________________ ("Landlord"), and ______________________, a
_______________________ ("Tenant") concerning Suite _____ on floor(s)
______ of the office building located at ____________________, Los
Angeles, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise you
and/or confirm as follows:
That the Substantial Completion of the Premises has occurred, and that the
Lease Term shall commence as of _______________ for a term of ________________
ending on ________________.
That in accordance with the Lease, Rent commenced to accrue on
_________________.
If the Lease Commencement Date is other than the first day of the month,
the first billing will contain a pro rata adjustment. Each billing thereafter,
with the exception of the final billing, shall be for the full amount of the
monthly installment as provided for in the Lease.
Rent is due and payable in advance on the first day of each and every month
during the Lease Term. Your rent check should be made payable to
_____________________ at _________________________________.
The exact number of rentable square feet within the Premises is _________ square
feet.
Tenant's Share as adjusted based upon the exact number of rentable square
feet within the Premises is ______%.
"Landlord":
------------------------------
------------------------------
By:
---------------------------
Its:
--------------------------
By:
---------------------------
Its:
-------------------------
EXHIBIT C - Page 1
<PAGE>
Agreed to and Accepted as
of ______________, 1995
"Tenant"
By:
-----------------------------
Its:
--------------------------
By:
-----------------------------
Its:
--------------------------
EXHIBIT C - Page 2
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the
nonperformance of any of said Rules and Regulations by any other tenants or
occupants of the Building except to the extent such noncompliance
unreasonably and materially interferes with Tenant's use of the Building,
Real Property, or Premises.
1. Tenant shall not alter any lock or install any new or additional
locks or bolts on any doors or windows of the Premises without obtaining
Landlord's prior written consent. Tenant shall bear the cost of any lock
changes or repairs required by Tenant. Two keys will be furnished by
Landlord for the Premises, and any additional keys required by Tenant must be
obtained from Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises, unless electrical
hold backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance
and exit doors of the Building during such hours as are customary for
Comparable Buildings. Tenant shall cause its employees and agents (and those
holding under or through Tenant) to use their respective reasonable efforts
to ensure that the doors to the Premises are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be
required to sign the Building register when so doing. Access to the Building
may be refused unless the person seeking access has proper identification or
has a previously arranged pass for access to the Building. The Landlord and
its agents shall in no case be liable for damages for any error with regard
to the admission to or exclusion from the Building of any person (unless due
to Landlord's or such agent's negligence or intentional misconduct). In case
of invasion, mob, riot, public excitement, or other commotion, Landlord
reserves the right to prevent access to the Building during the continuance
of same by any means it deems appropriate for the safety and protection of
life and property.
4. No furniture, freight or equipment which requires use of the
Building's freight elevator shall be brought into or removed from the
Building without prior notice to Landlord. All moving of the same into or
out of the Building shall be scheduled with Landlord and done only at such
time and in such manner as Landlord shall reasonably designate. Landlord
shall have the right to reasonably approve the weight, size and position of
all safes and other heavy property brought into the Building and also the
times and manner of moving the same in and out of the Building. Safes and
other heavy objects shall, if reasonably considered necessary by Landlord,
stand on supports of such thickness as is necessary to properly distribute
the weight. Landlord will not be responsible for loss of or damage to any
such safe or property in any case. All damage done to any part of the
Building, its contents, occupants or visitors by moving or maintaining any
such safe or other property of Tenant or its agents, employees or contractors
shall be the sole responsibility of Tenant and any expense of said damage or
injury shall be borne by Tenant.
5. No furniture, packages, supplies, equipment or merchandise will be
carried up or down in the elevators, except between such hours and in such
specific elevator as shall be designated by Landlord.
6. Subject to the terms of the Lease, Landlord shall have the right to
control and operate the public portions of the Building, the public
facilities, the heating and air conditioning, and any other facilities
furnished for the common use of tenants, in such manner as is customary for
Comparable Buildings.
7. The requirements of Tenant will be attended to only upon application
at the Office of the Building or at such office location designated by
Landlord. Employees of Landlord shall not perform any work or do anything
outside their regular duties unless under specific instructions from Landlord.
EXHIBIT D - Page 1
<PAGE>
8. Tenant shall not disturb, solicit or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent
same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed, and
no foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or agents,
shall have caused it.
10. Tenant shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof without Landlord's consent first had
and obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description
other than office machines shall be installed, maintained or operated upon
the Premises without the written consent of Landlord.
12. Tenant shall not use or keep in or on the Premises or the Building
any kerosene, gasoline or other inflammable or combustible fluid or material.
13. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written
consent of Landlord.
14. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors, or
vibrations, or interfere in any way with other tenants or those having
business therein.
15. Tenant shall not bring into or keep within the Building or the
Premises any animals (except seeing-eye dogs), birds, bicycles or other
vehicles.
16. No cooking shall be done or permitted by any tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, inventory or
for lodging. Notwithstanding the foregoing, Underwriters'
laboratory-approved equipment and microwave ovens may be used in the Premises
for heating food and brewing coffee, tea, hot chocolate and similar
beverages, provided that such use is in accordance with all applicable
federal, state and city laws, codes, ordinances, rules and regulations, and
does not cause odors which are objectionable to Landlord and other tenants.
17. Landlord will reasonably approve where and how telephone and
telegraph wires are to be introduced to the Premises. No boring or cutting
for wires shall be allowed without the consent of Landlord. The location of
telephone, call boxes and other office equipment affixed to the Premises
shall be subject to the reasonable approval of Landlord.
18. Landlord reserves the right to exclude or expel from the Building
any person who, in the reasonable judgment of Landlord, is intoxicated or
under the influence of liquor or drugs, or who shall in any manner do any act
in violation of any of these Rules and Regulations.
19. Tenant, its employees and agents shall not loiter in the entrances
or common area corridors, nor in any way obstruct the sidewalks, lobby,
common area halls, stairways or elevators, and shall use the same only as a
means of ingress and egress for the Premises.
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles
if such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and garbage
in the Los Angeles area without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entry-ways and elevators provided for such purposes at such times as
Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations reasonably established by Landlord or established
by any governmental agency.
EXHIBIT D - Page 2
<PAGE>
EXHIBIT E
FORM OF ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of ____________, 19__ and between __________________
a ________________, as Landlord, and the undersigned as Tenant, for Premises
on the ________ floor(s) of the Office Building located at _________________,
Los Angeles, California, certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the
Lease and all amendments and modifications thereto. The documents contained
in Exhibit A represent the entire agreement between the parties as to the
Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
_________________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Tenant shall not modify the documents contained in Exhibit A or
prepay any amounts owing under the Lease to Landlord in excess of thirty (30)
days without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on _________________.
7. The current Lease Term (including all exercised options) expires on
___________________.
8. To the best of Tenant's knowledge, all conditions of the Lease to be
performed by Landlord necessary to the enforceability of the Lease have been
satisfied and to Tenant's actual knowledge, Landlord is not in default
thereunder.
9. To the best of Tenant's knowledge, all initial improvement work
required to be performed by Landlord under the Lease has been performed.
10, No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
11. As of the date hereof, to the best of Tenant's knowledge, there are
no existing defenses or offsets that the undersigned has, which preclude
enforcement of the Lease by Landlord.
12. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through __________________. The current monthly installment of Base Rent is
$__________.
13. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser,
and acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a
condition of making of the loan or acquisition of such property.
14. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in
California and that Tenant has full right and authority to execute and
deliver this Estoppel Certificate and that each person signing on behalf of
Tenant is authorized to do so.
EXHIBIT E - Page 1
<PAGE>
EXHIBIT F
EXISTING SUPERIOR TENANTS' RIGHTS
Tenant Option Summary
2ND FLOOR:
A. YOUNG & RUBICAM - 10,556 r.s.f. lease with one option to renew at market
for one 5 year period beyond an initial 10 year term that commenced 3/l/95.
B. 1st offer on balance of floor - PLUS OR MINUS 6,000 s.f.
C. Options to expand on 1,934 s.f. (NP Building office) at anytime and on
1,000 s.f. after a lease that will be between 48 and 72 months in length.
3RD FLOOR:
A. BIERRE & MILLER - 6,271 r.s.f., expires 5/31/99, plus one 5 year renewal at
market and no expansion rights.
B. QUEENSLAND TOURIST AND TRAVEL CORPORATION - 2,795 r.s.f., expires 4/30/96,
plus one 5 year renewal at market and no expansion rights.
C. AFG SERVICES - 3,336 r.s.f., expires 5/31/99 - no renewal or expansion
rights.
D. KORN FERRY INTERNATIONAL - 3,449 r.s.f., see 9th floor for expiration,
renewal and expansion information.
4TH FLOOR:
A. CHEMICAL BANK - 10,422 r.s.f., expires 2/29/2000, plus one 5 year renewal
at market and no expansion rights.
B. NORMAN ROBERTS - 2,419 r.s.f., expires 6/30/96, plus one 3 year renewal at
market and no expansion rights.
C. HEARST/ABC-NBC - 3,404 r.s.f., expires 10/31/95, no options to renew or
expand.
8TH FLOOR:
A. WINSFORD CORPORATION - 5,939 r.s.f., expires 6/30/96, plus one 5 year
market renewal, no expansion rights.
B. KORN FERRY INTERNATIONAL - 10,389 r.s.f., see 9th floor for expansion,
renewal and expansion information.
9TH FLOOR:
A. KORN FERRY INTERNATIONAL - 15,989 r.s.f., expires 5/31/2002, plus one 5
year option at market and First Right of Offer on 8th floor space at
market.
10TH FLOOR:
A. AURORA CAPITAL PARTNERS (SUITE 1000) - 9,037 r.s.f., expires 1/31/99, no
renewal or expansion rights.
B. DRESSLER, REIN & RAYLE (SUITE 1050)- Expires 5/31/99, plus one 5 year
market renewal, expansion rights are 1st right of offer on balance of floor
and 5,871 r.s.f. on the 11th floor or another space in the building if
landlord has a full floor tenant for the 11th floor.
C. DRESSLER, REIN & RAYLE STORAGE (SUITES 1098 & 1099) - 791 r.s.f., expires
6/30/97, no renewal or expansion rights. This space will be offered at the
same time as Suite 1000.
EXHIBIT F - Page 1
<PAGE>
1ST FLOOR/MEZZANINE:
A. CNB - 8,024 r.s.f., expires 6/30/05, plus one 5 year market renewal
option. Right of Offer to expand between 7/l/97 and 6/30/2000 into
2,400-3,600 r.s.f. on either the 2nd, 3rd or 4th floor. If tenant does
not expand at that time, landlord must reoffer the same size space on one
of the same floors between 7/l/2000 and 6/30/2003.
B. HAMBURGER HAMLET - 9,811 r.s.f. expires 10/31/99, plus one 5 year market
renewal option.
EXHIBIT F - Page 2
<PAGE>
EXHIBIT G
SPECIFICATIONS - BUILDING TOP SIGNAGE AND MONUMENT SIGNAGE
1 . The Building Top Signage shall bear the logo and name "Herbalife",
provided that the Building Top Signage may be changed, subject to Landlord's
approval, upon Tenant's assignment of the Lease as set forth below. The
location of the Building Top Signage shall be at the upper north end of the
eastern and western faces of the Building, or as otherwise reasonably
approved by Landlord. The Building Top Signage may, at Tenant's discretion,
be up to the lesser of (i) 9 feet or (ii) the distance between the top two
horizontal joints in the masonry columns of the Building, in height, and of a
length to be reasonably agreed upon by the parties. The color of the
Building Top Signage shall be "Herbalife Green," or, subject to Landlord's
prior reasonable approval, any other color as determined by Tenant. Tenant's
Monument Signage (on each of the two existing monuments) shall be in Building
standard materials, and shall contain Tenant's name and logo, in Tenant's
type style, all as reasonably approved by Landlord.
2. Tenant shall not install the Building Top Signage or thereafter
replace or make alterations to the Building Top Signage until: (a) Landlord
has approved in writing, which approval shall not be unreasonably withheld or
delayed, the sign planner, engineer and installation company and
professionally prepared sign plans submitted by Tenant showing the design,
size, content, color, illumination and quality of materials and placement of
the sign, all required engineering and, as to the Monument Signage, any
required modifications to either of the two existing monuments (which
modification, if approved by Landlord, which approval shall not be
unreasonably withheld or delayed, shall be performed at Tenant's sole cost
and expense), and (b) Tenant has obtained and submitted to Landlord evidence
of the insurance required hereunder and under the Lease and any permits or
approvals required by law. The original installation work for the Building
Top Signage shall be performed pursuant to a design-build contract between
Tenant and a contractor approved by Landlord, which approval shall not be
unreasonably withheld or delayed. Such work shall be performed in a manner
so as to minimize damage to the Building and interference with the operation
of the Building or any of its occupants (including without limitation,
minimizing any noise and other disruptions caused by the construction),
Subject to the terms of Sections 6 and 8 of this Exhibit G, Landlord agrees
that Tenant's contractor may utilize the Building's window washing equipment
for the installation and maintenance of the Building Top Signage. Without
limiting the generality of the foregoing, Landlord shall have the right to
approve all staging and other construction procedures, which approval shall
not be unreasonably withheld or delayed, and Tenant shall be responsible for
assuring that such installation or other work does not affect any of
Landlord's then existing warranties and does not damage the Building
(including, without limitation, the roof membrane). All installation or
other work hereunder shall be performed in a good and workmanlike manner, in
accordance with all governmental requirements, and at Tenant's sole cost and
expense. If Tenant is required to remove any glass or other material from
the Building, Tenant will obtain Landlord's prior written approval to such
removal, which approval shall not be unreasonably withheld or delayed,
(unless such removal is shown on the plans previously approved by Landlord)
and shall store all such material with appropriate care and replace it when
the Building Top Signage is removed. If the window washing equipment for the
Building or any other Building equipment requires modification to accommodate
installation or repair of the Building Top Signage, Tenant shall perform such
modification at its sole cost and expense, subject to Landlord's approval of
the nature and scope of such modification. Tenant shall promptly repair, to
the extent reasonably practical, at its sole cost and expense, any and all
damage to the Building and the Real Property (including damage for any
landscaping) caused by the installation or subsequent removal, of the
Building Top Signage and Monument Signage.
3. Once installation of an of the Building Top Signage has commenced it
shall be completed as soon as possible, and (subject to Force Majeure and
delays caused by Landlord) in no event later than (1) month thereafter.
4. The Building Top Signage shall, at all time, be fully and completely
illuminated each night between sunset and sunrise, at Tenant's sole cost and
expense, based on separate meters (to be installed at Tenant's sole cost and
expense), and Tenant shall pay any meter-reading charges in connection
therewith. Tenant shall not be permitted to illuminate the Building Top
EXHIBIT G - Page 1
<PAGE>
Signage until the foregoing described separate meters have been installed.
Such illumination shall be in compliance with applicable governmental
requirements.
5. Tenant shall maintain the Building Top Signage in good, sightly and
first-class appearance, condition and repair, and so as not to detract from
the appearance of the Building. Landlord shall have the right to reasonably
approve the maintenance personnel. If Tenant shall fail to maintain, repair,
or illuminate Tenant's Exterior Signs in the condition required hereunder
within three (3) business days after written notice by Landlord, Landlord may
so repair, maintain and illuminate the Building Top Signage, at Tenant's sole
cost and expense (which Tenant shall pay to Landlord as Additional Rent when
billed by Landlord), without limiting Landlord's other rights and remedies.
6. Landlord shall permit Tenant reasonable access to the roof and
Building window washing equipment for the purposes permitted hereunder, upon
reasonable advance notice (except in cases of emergency, in which case only
such notice as is feasible under the circumstances shall be given) and
scheduling through Landlord's management and security personnel. Access
after normal business hours may be granted or required by Landlord in its
reasonable discretion, and for such reasonable charges as Landlord shall
impose to cover any out-of-pocket costs incurred by Landlord in connection
therewith. Tenant shall properly engineer its use of Landlord's equipment
for the installation and maintenance of the Building Top Signage, and
Landlord does not represent or warrant the condition of such equipment or its
suitability for Tenant's intended use.
7. Landlord does not represent or warrant that installation of the
Building Top Signage hereunder will comply with any applicable federal,
state, county or local law or ordinances or the regulations of any of their
agencies or any quasi-governmental requirements or any other applicable
agreements; however, Landlord has no actual knowledge (with no duty to
investigate) that the Building Top Signage will violate any such laws,
ordinances, regulations or other agreements. Landlord shall use its good
faith efforts (without the expenditure of any money unless paid by Tenant in
advance of the required expenditure) to assist Tenant in obtaining such
approvals. Tenant shall at all times comply with any applicable laws,
ordinances, regulations and requirements pertaining to the Building Top
Signage.
8. Except to the extent arising out of the negligence or willful
misconduct of Landlord, its agents or employees, Tenant shall defend,
indemnify and hold Landlord and all persons and entities comprising
Landlord's Group harmless from and against any and all loss, cost, claim,
damage, liability or expense which Landlord may incur as a result of the
Building Top Signage and Monument Signage or Tenant's installation,
maintenance or other activities in connection therewith, including but not
limited to Tenant's use of the roof or Landlord's scaffolding, window washing
equipment, or other Landlord equipment. Tenant shall maintain commercial
general liability insurance covering risks of bodily injury, death or
property damage arising directly or indirectly out of the Building Top
Signage and Monument Signage or Tenant's installation, maintenance or other
activities in connection therewith, including but not limited to, Tenant's
use of the roof or scaffolding or other equipment, as set forth in Article 10
of the Lease. Tenant shall provide a certificate of such insurance to
Landlord prior to commencing the installation work for the Building Top
Signage and Monument Signage, and such insurance policy shall not be
cancelable without at least fifteen (15) days' written notice to Landlord.
Except to the extent arising out of the negligence or willful misconduct of
Landlord, its agents and employees, Landlord shall not be responsible for the
Building Top Signage or Monument Signage in the event of loss or damage
thereto from any cause whatsoever. Tenant, on behalf of its insurers, hereby
waives any rights of subrogation against Landlord and any persons and
entities comprising Landlord's Group.
9. Landlord shall have the right to use photographs of the Building,
including the Buildings Top Signage and Monument Signage, in Landlords
brochures and or other materials without compensation to Tenant.
10. Upon the earlier of termination of the Lease or the termination of
Tenant's sign rights hereunder, by expiration of the Lease or otherwise,
Tenant shall (and may at any time during the Lease Term upon three (3)
months' prior written notice) disconnect and remove the Building Top Signage
and Monument Signage and, to the extent reasonably practical, repair and
restore the building and monuments. Tenant shall promptly and properly repair
(or at Landlord's
EXHIBIT G - Page 2
<PAGE>
option, pay Landlord's reasonable charges for repairing) during the Lease
Term and upon termination of the Lease or the sign rights hereunder, any roof
leaks or other damage or injury to the roof, or the Building (or any portion
thereof, contents thereof or equipment associated therewith) caused by the
Building Top Signage and Monument Signage or their installation, use,
maintenance or removal, except to the extent arising out of the negligence or
willful misconduct of Landlord, its agents or employees. If Tenant does not
commence to repair any such leaks, damage or injury, or does not commence to
remove (after Tenant's sign rights hereunder have terminated) the Building
Top Signage and Monument Signage within seven (7) business days after written
request, or if Tenant does not thereafter proceed to diligently complete such
work, Tenant hereby authorizes Landlord to make such repairs or remove the
Building Top Signage and Monument Signage, and Tenant shall promptly pay
Landlord's reasonable charges for doing so as Additional Rent. With respect
to any property so removed by Landlord, Landlord shall comply with applicable
law.
11. Tenant may not assign, sublease, or otherwise transfer such Signage
rights to any third party or transferee or change the name on any of the
Building Top Signage or Monument Signage without the prior written consent of
the Landlord, which consent shall not be unreasonably withheld if the
transaction is a permitted Non-Transfer with an Affiliate of Tenant; in the
event of any other transaction (including a permitted Non-Transfer
transaction with an entity not affiliated with Tenant), Landlord's consent
may be withheld in its sole and absolute discretion. In the event Landlord
is subject to a reasonability standard, the parties agree that it shall be
reasonable for Landlord to withhold consent to any transfer or name change
where one or more of the following apply, without limitation as to other
reasonable grounds for withholding consent:
(a) The transfer or name change may have a materially greater
detrimental effect on the Building, its reputation, value, quality or
prestige than the Signage existing on the Building prior to such name change
or transfer; or
(b) The transfer is not permitted pursuant to another lease in the
Building.
In the event of any change of name on any of the Building Top Signage or
Monument Signage: even if Landlord would otherwise be subject to a
reasonability standard, Landlord's consent to use of the word "Center" or any
other word when used in a manner implying that the Building is taking on the
name of the transferee shall be subject to Landlord's sole and absolute
discretion.
Not withstanding anything to the contrary in the Lease or this Exhibit G,
Tenant's Building Top Signage rights and the Signage restrictions on Landlord
(contained in Section 23.4 of the Lease) shall automatically terminate under
the following circumstances:
(i) Tenant (or its assignee or sublessee to whom Tenant's sign
rights have been validly transferred under this Exhibit G) fails, in the
aggregate, to occupy at least three (3) full floors of the Premises, (ii)
Tenant (or its assignee or sublessee to whom Tenant's sign rights have been
validly transferred under this Exhibit G) fails to maintain the Premises as
its world headquarters or (iii) Tenant (or its assignee or sublessee to whom
Tenant's sign rights have been validly transferred under this Exhibit G)
fails, in the aggregate, to occupy at least four (4) full floors of the
Premises and another tenant in the Building at such time or any time
thereafter occupies (pursuant to a direct lease or a sublease) more rentable
square footage in the Building than Tenant occupies.
Landlord Tenant
initials pp initials ck
---------- --------
qm
---------- --------
12. Except as expressly set forth in the Lease, including the Tenant Work
Letter, or this Exhibit G, Tenant shall pay all costs directly or indirectly
related to the Building Top Signage and Monument Signage, including, but not
limited to their design, installation, maintenance, replacement, lighting and
removal, and except as expressly set forth in the Lease, including the Tenant
Work Letter, or this Exhibit shall reimburse Landlord for any costs reasonably
incurred by Landlord that Landlord would not have incurred but for Tenant's
exercise of its rights with respect to the Building Top Signage and Monument
Signage.
EXHIBIT G - Page 3
<PAGE>
EXHIBIT H
HVAC SPECIFICATIONS
<TABLE>
<CAPTION>
OUTSIDE DESIGN CONDITIONS: DRY BULB WET BULB
- ------------------------- -------- --------
<S> <C> <C>
Summer Outside Air Temperature 95 72
Winter Outside @r Temperature 55 50
COOLING INSIDE DESIGN CONDITIONS:
Inside Temperature (Offices) 73 N/A
Inside Temperature (Lobbies) 75 N/A
HEATING INSIDE DESIGN CONDITIONS:
Inside Temperature (Offices) 73 N/A
Inside Temperature (Lobbies) 73 N/A
</TABLE>
EXHIBIT H - Page 1
<PAGE>
[CB LETTERHEAD] EXHIBIT I [LOGO]
NORTHROP PLAZA
1800 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
JANITORIAL SPECIFICATIONS
I. SCOPE
A. COVERAGE
The Contractor shall perform the following specified services
throughout the entire premises, including but not limited to all
office space, lobbies, corridors, plaza area, roof areas, stairways,
restrooms, passageways, service and utility areas, elevator cabs,
computer rooms and private restrooms, as requested by Owner.
B. QUALITY
The intent of this specification is that the Contractor will provide
cleaning services of a character customarily provided in first class
office buildings whether such services are included in the
specifications or are special services required by the Owner or a
tenant of the Owner and that the building be kept neat and clean at
all times. Owner shall be sole judge of said quality and required
frequency of services to be provided. These minimum specifications
should, therefore, be referred to as a guide for, rather than a
limitation to, the services required to effectively maintain the
building. The building is to be staffed to maintain an optimum
condition of cleanliness. If the level of cleaning at any time is
considered to be unacceptable to Owner, then the Contractor will be
required to overcome this unacceptable situation and any additional
cost resulting from actions so taken shall be borne by the Contractor.
II. GENERAL
A. SCHEDULE
All nightly cleaning services shall be performed five nights per week,
Sunday through Thursday (except as stated below). Required make up
work will be performed on Saturdays, Sundays or legal holidays, if so
directed by Owner. Nightly cleaning operations will begin at 5:30
p.m. This schedule may be adjusted by Owner to meet requirements by
tenants.
B. SUPERVISION
1. Contractor shall employ competent supervisory personnel, and place in
the building one a qualified foreman who will be capable of, and will
provide, all reports required by Owner and will have the authority to
immediately execute orders given by Owner's representatives.
(1)
<PAGE>
2. The foreman shall not leave the premises until all work is completed
each night.
In addition to the supervision of all cleaning services, Contractor's
supervisory staff will be responsible for the following:
a. Instruct personnel and ensure their compliance in shutting off
all lighting as soon as possible each night.
b. Instruct janitorial personnel and assure their compliance in
securing all suite entrances and building entrances in
conjunction with the building security staff.
c. Immediate transmittal of all accident and/or damage reports to
the security staff.
d. Become familiar with the emergency, fire and disaster plans for
the building.
e. Comply with and assist the building security staff in enforcing
the security plan relating to the activities of the janitorial
crew.
f. Be available on request by the Owner during the normal hours of
the building to visit with any tenant to answer complaints of any
nature relating to the janitorial staff.
g. Turn in all "Lost and Found" items to the Office of the Building.
3. In addition to the foreman assigned to the direct supervision of the
janitorial crew, Contractor shall maintain and show evidence of an
adequate management level supervisory staff who shall make periodic
scheduled and unscheduled visits to the building, both during the
normal business hours and when the nightly janitorial services are
being performed. The purpose of these visits is to insure the
maintenance of an optimum level of cleanliness.
C. STAFFING AND BACK-UP STAFF REQUIREMENTS
1. Normal Working Staff
a. Staffing shall be sufficient to perform the necessary work
to maintain the optimum level of cleanliness as set forth in
these specifications (see Section III E).
b. Staffing shall be increased as required to accomplish any
periodic maintenance herein specified without decreasing the
nightly janitorial services. All costs for such increased
staffing are considered to be included in the initial bid
submittal. No allowances will be granted to compensate for
extra personnel required to adequately perform any portion
of the work included in this specification.
(2)
<PAGE>
MISSING HARDCOPY FOR FOLIO (3)
(3)
<PAGE>
F. UNIFORMS AND EQUIPMENT
Contractor shall furnish proper cleaning materials, implements,
machinery, supplies and uniforms for the satisfactory performance of
all services. All Contractor personnel shall be properly uniformed
and display identification of the Contractor and/or such additional
identification badges as the Owner may specify, at all times. Owner
shall have the right to select and/or approve uniforms worn by
personnel in the building. Day personnel shall have at least five
uniform changes per week. Night personnel shall have at least three
uniform changes per week. The Contractor shall supply all equipment,
appliances and supplies of every description unless stated otherwise
in this specification. Cart equipment shall be approved by Owner.
G. INSPECTION
At Owner's direction and in the company of Owner's appointed
representative, monthly inspections of the premises serviced hereunder
shall be made by the Contractor's field executive manager with
thorough written reports submitted no more than ten calendar days
later.
H. RULES
Contractor shall at all times maintain good order among its employees
and shall insure compliance with building rules and regulations,
copies of which will be provided by the Owner's representative from
time-to-time.
I. SECURITY
While cleaning the building, Contractor's personnel will not admit
anyone into an area except those authorized by Contractor or Owner
personnel, or employees having keys to the area and proper
identification. On completion of nightly chores, all lights will be
turned off, doors locked, blinds closed, and offices left in a neat
and orderly condition. Contractor and Contractor's personnel shall
abide by all security regulations of the Owner transmitted by Owner to
the Contractor, either orally or in writing. The Building Manager
will be promptly notified of any irregularities.
J. SAFETY
Contractor shall insure that its agents, employees and operation
conform to all Federal, State and Municipal Safety and Health
Regulations (OSHA) and shall assume full responsibility for any
violations and/or non-compliance with such regulations.
Contractor shall insure that all of its employees and or agents shall
abide by all safety rules and regulations which may be promulgated
from time-to-time by either party as they pertain to the Contractor's
operations.
(4)
<PAGE>
IV. STANDARDS
The following standards shall be used in evaluating custodial services.
A. DUSTING - A properly dusted surface is free of all dirt and dust
streaks, lint, cobwebs and residue ("oily film").
B. PLUMBING FIXTURE AND DISPENSERS CLEANING - Plumbing fixtures and
dispensers are clean when free of all deposits and stains so that item
is left without dust streaks, film, odor or stains.
C. SWEEPING - A properly swept floor is free of all loose dirt, dust,
lint and debris, except imbedded dirt and grit.
D. SPOT-CLEANING - A surface adequately spot-cleaned is free of all
stains, deposits and is substantially free of cleaning marks.
E. DAMP MOPPING - A satisfactorily damp mopped floor is without dirt,
dust, marks, film, streaks or standing water.
F. METAL CLEANING - All cleaned metal surfaces are without deposits or
tarnish, and with a uniformly bright appearance. Cleaner is removed
from adjacent surface.
G. GLASS CLEANING - Glass is clean when all glass surfaces are without
streaks, film, deposits and stains, and have a uniformly bright
appearance and adjacent surfaces have been wiped clean.
H. WAX REMOVAL (STRIPPING) - Wax removal is accomplished when surfaces
have all wax removed down to the flooring material, floor is left free
of all dirt, stains, deposits, debris, cleaning solution and standing
water and the floor has a uniform appearance when dry. Plain water
rinse and pick-up must follow wax removal operation immediately.
I. SCRUBBING - Scrubbing is satisfactorily performed when all surfaces
are without imbedded dirt, cleaning solution, film, debris, stains,
marks and standing water, and floor has a uniformly clean appearance.
A plain water rinse must follow the scrubbing process immediately.
J. WALL WASHING - After cleaning, the surfaces of all walls, ceilings,
exposed pipes and equipment will have a uniformly clean appearance,
free of dirt, stains, streaks, lint and cleaning marks. Painted
surfaces must not be unduly damaged. Hard finish wainscot or glazed
ceramic tile surfaces must be bright, free of film, streaks and
deposits.
K. WAXED SURFACES - Manager shall determine type of floor finish to be
used where necessary.
L. CARPET CLEANING - Periodic cleaning of carpets shall be accomplished
by steam cleaning or any other method now in use, or which may be
developed in the future as directed by Owner.
(6)
<PAGE>
V. INSURANCE REQUIREMENTS
A. Contractor shall, at Contractor's expense, obtain and keep in force
during the term of his contract, a policy of Comprehensive General
Liability (Bodily Injury and Property Damage) Insurance of $1,000,000
umbrella, insuring Contractor and the Owner against any liability
arising out of the maintenance of the premises and all areas
appurtenant thereto. Such insurance shall be in an amount not less
than $1,000,000 Combined Single Limit. The limits of said insurance
shall not, however, limit the liability of the Contractor hereunder.
B. INSURANCE CERTIFICATES - Contractor shall deliver to Building Office
certificates evidencing the existence and amounts of such insurance
with Owner being named as additional insured. No such policy shall be
cancellable or subject to reduction of coverage or other modification
except after thirty (30) days prior written notice to Owner and
Owner's agent. Contractor shall within ten (10) days prior to the
expiration of such policies furnish Owner with renewals or binders
thereof. The Contractor shall not do or permit to be done anything
which shall invalidate the insurance policies.
C. WORKERS COMPENSATION - The Contractor will maintain statutory limits
of Workers Compensation Insurance covering his employees for injuries
arising out of and in the course of their employment. Contractor
shall provide Owner with copies of said policy or a certificate of
insurance. No such policy shall be cancellable except after thirty
(30) days prior written notice to Owner.
VI. INDEMNIFICATION
The Contractor shall indemnify and hold harmless the Owner, its
agents, servants, and employees from and against all losses, claims,
demands, payments, suits, actions, recoveries, and judgments of every
nature and description brought or recoverable against it or them by
reason of any act or omission of the Contractor, his agents, or
employees in the execution of the work or in consequence of any
negligence or carelessness in guarding the same.
The Contractor shall assume all risk and bear any loss or injury to
property or persons occasioned by neglect or accident during the
progress of work until the same shall have been completed and
accepted. He shall also assume all blame or loss by reason of neglect
or violation of any state or federal law or municipal rule, regulation
or order. The Contractor shall give to the proper authorities all
required notices relating to the work, obtaining all official permits
and licenses and pay all proper fees. He shall make good any injury
that may have occurred to any adjoining buildings, structures, or
utilities in consequence of the work.
(7)
<PAGE>
VII. RATES FOR HOURLY SERVICE
On Exhibit "A", "B" and "C" Contractor is to propose wage rates, other
costs and hourly billing rates.
1. Wage rates are to be proposed by Contractor, based on Contractor's
labor market knowledge for current wage and estimates, through
December 31, 1990.
2. Payroll taxes, Workers' Compensation, an Contractor's insurance are to
be shown as a cost per hour.
3. Uniform costs per hour are to be shown. Contractor will not make
uniform cleaning, mending, and replacement an employee responsibility
under any circumstances.
4. Employee benefits provided by the Contractor for its employees are to
be shown as a cost per hour. Contractor must attach full support to
justify all cost shown; for example, if Contractor provides medical
insurance, give details of coverage, deductible amounts, and
exclusions, etc.
5. Overhead, expressed as a cost per hour, is to include all items not
charged above but which are required to fully accomplish all
requirements of these specifications. Examples include field
supervision costs; personnel, accounting, and administrative costs;
and general overhead.
6. Contractor's profit.
VIII. VACATION COST
Hourly vacation costs are to be included in the Employee Benefits
section of Exhibit "A" as a separate item.
IX. INVOICING
Contractor shall invoice Manager monthly for the cost of janitorial
services in the preceding calendar month. The monthly invoice shall be
rendered by Contractor no later than the 10th day of the following
month. Payment shall be made by Manager within thirty (30) days of
receipt of invoice. Contractor shall attach as support for the invoice
daily hours worked, the hours attributable to each post, and the total
Contractor hours each day.
X. RECORDS
Contractor shall retain in his corporate office, personnel records of
each employee assigned to the Project. Such records shall be made
available to Owner and/or Manager or its authorized agent upon
reasonable notice for audit purposes.
(8)
<PAGE>
1800 Building Specs
Floors 2 through 15
General Services
January 18,1989
SPECIFICATION SHEET #1
NIGHTLY SERVICES
A. Secure all entry doors from suite to corridor upon entering suite.
b. Secure all lights and drapes as soon as possible each night.
c. ALL UNCARPETED FLOORS - All tile and composition floors, will be dust
mopped, using a treated mop to remove dirt, then wet mopped and dried.
d. ALL CARPETED FLOORS - Will be vacuumed nightly. Vacuuming includes
detailing and moving of small furniture. Vacuuming will be performed
with a Eureka 16" #899 vacuum, or comparable machine.
e. WOOD FLOORS - Dust mop all wood floors.
f. DOORS AND WALLS - Remove finger prints, dirt smudges, graffiti, etc.,
from all doors, frames, glass partitions/doors, windows, light
switches and walls.
g. DUSTING - Using a treated dust cloth, wipe all furniture tops, legs
and sides. Move lamps, ash trays and other accessories. Papers and
folders on desks are to be handled with extreme care.
h. WASTE PAPER BASKETS - Empty all waste paper baskets and other trash
containers and replace liners, wet wipe clean inside and out.
i. Return all chairs, desk accessories and waste baskets to proper
positions.
j. TELEPHONES - Sanitize all telephone receivers.
k. ASH TRAYS AND ASH URNS - Empty all ash trays and ash urns. Clean and
sanitize inside and out.
l. TRASH REMOVAL - All trash from wastebaskets, ashtrays, and other
debris will be removed from the premises and deposited in the trash
bins. Break down all boxes before placing in the dumpster or trash
compactor.
m. DRINKING FOUNTAINS - Clean and sanitize drinking fountains by washing
with mild soap solution and clean cloths and carefully rinsing with
clean water and wiping dry with soft clean cloths.
n. MISCELLANEOUS METAL WORK - All metal work will be wiped down and
polished and left in a bright condition free of dust and streaks.
(9)
<PAGE>
o. DOORS AND JAMBS - All doors and jambs will be spot-cleaned to remove
any dirt, debris, gum and stains. Door edges and jambs will be dusted
where necessary. When completed, doors and jambs shall have a
uniformly clean appearance.
p. LIGHTS AND LEAKS - Check for burned out lights and water leaks
(kitchens, private rest rooms, etc.) and report them to Supervisor.
Janitorial Supervisor to leave a list of burned out lights and water
leaks in the Janitor's log, located in Building Office, on a nightly
basis.
q. COFFEE STATIONS - floor/counter tops - spot clean/damp mop.
r. FIRE HOSE CABINETS - Police fire hose cabinets.
s. ELEVATOR EXTERIORS - Damp wipe/dust exterior elevator door and door
frames.
t. SIDE LIGHTS - Spot clean all side lights in corridors.
WEEKLY SERVICES
a. DUSTING - Dust all LOW REACH areas including, but not limited to
structural and furniture ledges, base boards/carpet cove caps, window
sills, door louvers, wood paneling/molding in elevator lobbies, desks,
credenzas, shelves and tables.
b. MISCELLANEOUS METALWORK - All metalwork, such as mail chutes, door
hardware, frames and elevator thresholds will be wiped clean and
polished and left in a bright condition.
c. CARPETED FLOORS - All carpeted areas are to be vacuumed and edged with
a small broom or edging tool, moving all sand urns, furniture and
accessories.
d. UNCARPETED FLOORS - All building STANDARD resilient and/or composition
flooring are to be mopped with a treated dust mop. Spot-clean where
necessary to remove all spills and smudges and spray buff.
e. INTERIOR STAIRWELLS - Vacuum the interior of all stairwells. Wet wipe
with treated cloth interior stair railings, wood strips, trims,
ledges, etc
MONTHLY SERVICES
a. HIGH DUSTING - Dust/remove dirt smudges from all HIGH REACH areas
including, but not limited to tops of doors, door closers, structural
and furniture ledges, air conditioner and light diffusers, return
grills, tops of partitions, picture frames, library shelves, wood
paneling/molding in elevator lobbies, etc.
b. FURNITURE - Vacuum upholstered chairs and sofas as well as lampshades
with appropriate attachment.
(10)
<PAGE>
MISSING HARDCOPY FOR FOLIO (11)
(11)
<PAGE>
f. TRASH - Rest room trash to be removed to designated area. All waste
receptacles are to be thoroughly cleaned and washed inside and out and
new liners installed.
g. WALLS - Spot clean finger prints, marks and graffiti from walls,
partitions, glass, aluminum and light switches.
h. CARPETED ENTRIES - Vacuum and spot clean all entry carpets.
i. Note any water leaks nightly and report them to the Building Office
(flush valves, base of toilets, aerators/faucet, pipes, etc.).
j. FLOOR DRAINS - Pour clean water down floor drains to prevent sewer gas
from escaping through trap.
k. ENTRY DOORS - Wipe clean door handles, push plates, kick plates, Mens
and Womens door signs and door vent grills.
WEEKLY SERVICES
a. DUSTING - Dust and wet wipe all low reach and high reach areas
including, but not limited to structural ledges, mirror tops,
partition tops and edges, air conditioning diffusers and return air
grills, protection around pipes under sinks and light fixtures.
b. TILE FLOORS - All restroom floors including drains will be machine
scrubbed, using a germicidal solution, detergent and water. After
scrubbing, floors will be rinsed with clear water and dried. All water
marks will be removed from walls, partitions and fixtures. Floor
finish will be applied and buffed.
c. TOILET PARTITIONS - Damp wipe all metal toilet partitions and tiled
walls, using approved germicidal solution. All surfaces are to be
wiped dry so that all wipe marks are removed and surface has a
uniformly bright appearance.
MONTHLY SERVICES
a. METAL FIXTURES - Use scrub brush and cleaning solution (appropriate
for stainless steel) on metal soap dispensers and containers
underneath towel holder and remove build up of soap and paper towel
lint/fibers.
b. DOORS - Wet wipe/dust all doors, door jambs and door closers.
SEMI ANNUAL SERVICES
a. Light fixtures - Remove light lenses wash throughly, dry and replace.
(12)
<PAGE>
PASSENGER ELEVATOR LOBBIES
NIGHTLY SERVICES
a. CARPETS - All carpets will be vacuumed and spot-cleaned nightly, using
particular care to clean in corners and along edges.
b. ASH URNS - Empty ash urns and wet wipe exterior. Replace unclean sand
and wet wipe interior.
c. EXIT SIGNS - Wipe/clean all exit signs.
d. DUSTING - Dust all evacuation signs, wood paneling and moldings.
e. ELEVATORS - Wet wipe elevator doors, frames and call buttons (water
only) leaving free of streaks.
FREIGHT ELEVATOR LOBBIES (EVERY FLOOR)
NIGHTLY SERVICES
a. FLOORS - Wet mop including detailing corners, behind doors and
removing all spills and stains on flooring.
b. ELEVATOR - Spot clean and wet wipe elevator doors and frames. Clean
elevator cab and individual elevator thresholds.
c. ELEVATOR FLOOR AND WALLS - Sweep/wet mop cab flooring and wipe down
walls.
d. ELEVATOR DOORS - Wet wipe both sides of doors in each elevator landing
and door thresholds.
e. ASH URNS - empty ash urns and wet wipe exterior. Replace and when
unclean and wet wipe interior.
MONTHLY SERVICES
a. ELEVATOR FLOORS - Wax and buff floors.
(13)
<PAGE>
PASSENGER ELEVATOR CLEANING (SIX ELEVATORS)
NIGHTLY SERVICES
a. ELEVATOR DOORS - Using ONLY approved method and/or products, spot
clean interior and exterior surfaces of elevators, doors, including
door frames, jambs and elevator tracks.
b. CARPETS - Spot clean elevator cab floor carpeting. Vacuum and
thoroughly edge all cab floor carpeting.
c. ELEVATOR THRESHOLDS - Vacuum and/or clean all debris from elevator
thresholds.
d. LIGHT AND CEILING FIXTURES - Wipe/dust cab light lenses and ceiling
panels.
e. WOOD - Wipe down wood with approved product.
f. ELEVATOR BUTTONS - Report any/all cab hall button lights
out/malfunctions.
BI-WEEKLY SERVICES
a. ELEVATOR THRESHOLDS - Will be throughly cleaned (may need to use stiff
brush) to remove all dirt and debris from tracks. Polish all elevator
thresholds leave in a bright condition free of all dust and streaks.
b. Wipe clean all cab lamps.
c. Wipe clean entire cab ceiling fixtures.
MONTHLY SERVICES
a. clean elevator exhaust vents.
NIGHTLY SERVICES
a. TRASH - Place all building trash and debris into dumpsters located in
the Loading Dock service area. Fill dumpsters to water level only. For
all excess trash (overflow) use the trash compactor at the loading
dock. Clean around compactor after use.
(14)
<PAGE>
JANITORS STORAGE ROOM AND JANITORS CLOSETS
NIGHTLY SERVICES
a. All trash and debris will be removed from these areas.
b. Spot clean walls, doors and frames with disinfectant cleaner.
c. Scrub all sinks and floors with disinfectant cleaners.
d. Maintain orderly arrangement of all janitorial supplies and paper
products.
e. All janitorial cleaning equipment and implements are to be cleaned
thoroughly before storing.
f. Sweep and mop clean floor (with disinfectant solution) spot clean
walls-corridor (mezzanine).
BI-MONTHLY SERVICES
a. High dusting of these areas including any exposed pipes, ducts, vents
and grills.
(15)
<PAGE>
1800 Building specs
Common areas
Specification Sheet #2
TRASH AREA, FREIGHT ELEVATOR SERVICE ENTRANCE BRICK WALKWAY EAST ALLEY
NIGHTLY SERVICES
a. SWEEPING - Sweep all areas.
b. FLOORS - Mop and deoderize entire trash and service area (use clean
water and a disinfectant cleaning solution).
c. WALLS - All walls will be spot cleaned to remove all smudges. stains.
and handmarks, using only clean water and a disinfectant cleaning
solution.
d. FREIGHT ELEVATOR - Spot clean freight elevator doors and frames in
freight trash and service area, using only clean water and a
disinfectant cleaning solution.
e. FREIGHT ELEVATOR THRESHOLDS - Clean freight elevator thresholds (both
sides) removing all dirt and stains and all debris removed from door
tracks, using vacuum and edging tool.
WEEKLY SERVICES
a. TRASH DUMPSTER - Check dumpster and make sure it is clean - rinse out.
FLOOR AND WALKWAY - Degrease floor and walkway removing all dirt and
stains.
ROLLING DOOR - Wet wipe both sides of rolling door and the casing
above.
MONTHLY SERVICES
a. PRESSURE CLEAN - Pressure clean freight elevator service area,
concrete curb and brick walkway.
b. WALLS - Wash completely with disinfectant solution in freight elevator
services/trash area.
c. LIGHT LENSES - Wash thoroughly, dry and replace.
d. DUSTING - Dust all high and low reach areas.
(16)
<PAGE>
P-1 LOBBY
NIGHTLY SERVICES
a. FLOOR - Vacuum carpet and spot clean brick flooring.
b. ELEVATORS - Damp wipe (warm water only) with clean cloth exterior
elevator doors and frames. Clean elevator thresholds with vacuum or
stiff scrub brush to remove debris and stains.
c. ASH URNS - Empty and wet wipe inside and out ash trays and trash cans
and replace trash can liners.
d. FURNITURE - Dust furniture, ledges and counter areas.
e. CASHIER'S BOOTH - Clean and vacuum Cashier's booth, spot clean
Cashier's booth carpet and sanitize booth telephone. Squeege glass
both sides.
f. WALLS - Spot clean walls with approved products and/or method and damp
wipe hallcall button panels.
g. ELEVATOR DOORS - Spot clean botton portion of P-1 elevator doors make
sure when P-1 lobby is waxed to remove any excess wax from doors - do
not allow buildup.
h. NOMAD MAT - Shake nomad mat (roll up while cleaning area) at Valet
parking entrance.
i. CONCRETE - Remove and spot clean concrete around mat area - then
replace mat.
k. GLASS DOORS - Spot/clean glass doors, glass partition and aluminum
frame (both sides) at North end of elevator lobby.
l. CONCRETE - Clean concrete side of P-1 lobby - 6 feet and length of
core.
m. CONCRETE - Sweep and spot clean concrete around area where parking
attendants wait.
WEEKLY SERVICE
a. DOORS - Wipe core doors and frames.
b. FLOORS - Buff floors - spray wax.
c. NOMAD MATS - Hose down nomad mats.
d. GLASS DOORS - Clean all glass (doors and partitions) both sides
including aluminum frame at north end of elevator lobby.
(17)
<PAGE>
QUARTERLY SERVICE
a. FLOORS - Scrub and rewax P-1 lobby floors with machine.
P-1 PARKING ATTENDANTS LOCKER ROOM AREA
NIGHTLY SERVICE
a. Vacuum carpet.
b. Dust door and frame and spot clean walls.
c. Empty trash wet wipe trash cans inside and out - replace trash liners.
d. Wipe down counters and ledges.
PARKING ATTENDANTS REST ROOM
NIGHTLY SERVICES
a. Stock rest room with paper supplies and soap.
b. Wash and scrub rest room floors with disinfectant cleaning solution.
c. Wash rest room partition with disinfectant cleaning solution. Wash and
sanitize sink and toilet with disinfectant cleaner.
d. Empty all trash, wet wipe trash cans both inside and out and replace
liners.
e. Clean mirror. Put water down drain.
f. Spot clean walls and around switch plates.
g. Sweep concrete area outside rest room. Clean threshold with vacuum or
stiff scrub brush to remove debris.
h. Report all broken fixtures (water leaks, burned out lights, etc.) to
Building Office via janitorial log book.
WEEKLY SERVICES
a. Wet wipe all ledges.
b. Clean exhaust vent.
c. Wash down door (both sides).
d. Sweep and wet mop concrete area outside of rest room.
(18)
<PAGE>
MONTHLY SERVICES
a. Seal floor with scuff and stain resistant sealer.
b. Clean light lenses.
P-2 & P-3 ELEVATOR LOBBIES
NIGHTLY SERVICES
a. LOBBY CARPET - Vacuum carpeted areas.
b. ELEVATORS - Clean elevator thresholds, wipe all doors both sides.
c. DUSTING - Dust all exit signs, hallcall buttons and base coves.
d. ASH/TRASH CANS - Empty ash/trash cans and wipe inside and out.
e. WOOD WALLS - Wipe with clean cloth using Mohawk Woodwash the wood
walls.
f. LOBBY FLOORS - Sweep 10 X 25 concrete area each side of carpet. Spot
clean concrete in 10 X 25 concrete area.
WEEKLY SERVICES
a. EDGES - Wet wipe rubber edges on carpet.
b. LOBBY FLOOR - Wash 10 X 25 concrete area each side of carpet.
c. DOORS - Wet wipe core doors (both sides) and frames, stairwell doors,
parking attendants access/exit doors.
(19)
<PAGE>
IV. GROUND FLOOR LOBBY/ENTRY PLAZA
A. NIGHTLY SERVICES
a. MAIN LOBBY - Brick floor shall be dust mopped, using a treated mop to
remove all loose dirt and grit, and then damp mopped with clear water
and dried. All spills and stains will be removed. All mop marks and
water splashes will be removed from walls and basesboards.
b. LOBBY GLASS - All glass windows, doors and directory board glass will
be wiped clean, using an approved glass cleaner, and all glass will be
left in a bright condition, free of streaks and dust.
c. MISCELLANEOUS METALWORK - All metalwork, such as door handles and
thresholds/kick plates, etc., will be wiped clean and polished and
left in a bright condition, free of all dust and streaks.
d. ELEVATOR DOORS AND SADDLES - Elevator doors will be wiped down and
polished and left in a bright condition free of all dust and streaks.
Elevator saddles will be wiped clean and all dirt and debris removed
from door tracks, using vacuum crevice tool. Spills and smudges will
be removed so that the saddles and tracks are left in a bright, clean
condition.
e. CIGARETTE URNS - Clean all cigarette urns, wet wipe clean inside and
out, removing all butts and debris and replace sand as necessary.
Materials to be furnished by Contractor.
f. ATM MACHINE -Damp wipe Wells Fargo ATM Machine area - glass and frame.
g. DUSTING - Dust all low reach areas including furniture, ledges, vases,
etc.
h. LIGHTS - Report any light out in ground floor lobby and front and back
entrances.
i. MISCELLANOUS CLEANING - Clean mail chute/boxes, lock box, light
lenses, hallcall buttons, directory board glass and ledges. Damp wipe
lobby security counter top and top of file cabinets. Clean public
telephone with treated cloth, damp wipe (disinfect) telephone
receivers.
j. CLEANING OF MAILROOM - Dust mop and spot clean mail room. Wipe with
treated cloth mail room doors, (both sides).
k. TRASH DISPOSAL - Empty security trash and trash container by public
telephones. Replace trash liners, wet wipe both inside and out.
(20)
<PAGE>
B. WEEKLY SERVICES
a. BRICK FLOORS - Lobby floors will be machine buffed, using an electric
rotary buffing machine to obtain maximum shine, including mail room
floor.
b. HIGH DUSTING - Dust all horizontal surfaces and ledges that are not
accessible for normal daily dusting, including lights.
c. LOBBY GLASS - Clean interior lobby glass, excluding Bank doors.
C. MONTHLY SERVICES
a. LIGHT LENSES - Clean ground floor light lenses.
b. AIR DIFFUSERS - Damp wipe ceiling air diffusers.
D. QUARTERLY SERVICES
a. WALLS - Walls in Ground Floor Lobby shall be vacuumed to remove lint
and dust.
b. AIR DIFFUSERS AND LIGHT FIXTURES - All air diffusers shall be vacuumed
with a brush attachment to remove dust and lint. Light fixtures will
be washed as tubes or bulbs are replaced by day porter.
(21)
<PAGE>
1800 NORTHROP PLAZA
1800 CENTURY PARK EAST
LOS ANGLES, CALIFORNIA 90067
Company: ____________________________________ Phone:_________________________
Address: ____________________________________ City: _________________________
I. BASE BID
A. Cost per month to clean the interior of
Building I. Tenant floors 2 through 15.
Rentable Square Feet 220,929. This excludes
Wells Fargo Bank, Hamburger Hamlet, 12th
floor gym, 12 floor kitchen.
(Fill out Exhibit A) $______________________
B. Cost per month to clean Common Areas:
Ground Lobby: 1,445 Square Feet
Trash Area/Alley 331 Square Feet
P1, P2, P3, Elevator Lobbies 1,422 Square Feet
Freight Elevator/Cashier Booth 187 Square Feet
P1 Restroom 85 Square Feet
Security Room 505 Square Feet
(Fill out Exhibit B) $______________________
C. Amount per square foot to be deducted
monthly from base bid for uncleaned
areas: $______________________
I hereby certify that the above bid conforms with the specifications provided by
Coldwell Banker Real Estate Management Service and that these prices are firm
through February 28, 1990.
Date:__________ By:___________________________ Title:________________________
(22)
<PAGE>
COST BREAKDOWN
JANITORIAL SERVICE
Building: __________________________________________________________
Bidder: ____________________________________ Date: ______________
No. Job Classification Hours Hours Rate Monthly Cost
Week Month
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Total Monthly Hours ___________% Total Labor A. $______
Vacations ___________% of Labor A. $______
Sick Leave ___________% of Labor A. $______
Payroll Taxes ___________% of Labor A. $______
Insurance ___________% of Labor A. $______
Uniforms ___________Per month Labor A. $______
Total Cost $______
Supervision and Overhead _______% of Total Cost $______
Subtotal $______
Profit _______% of Total Cost $______
Total Charges $______
Exhibit A
(23)
<PAGE>
COST BREAKDOWN
JANITORIAL SERVICE
Building :____________________________________________________________________
Bidder: __________________________________________Date:_____________________
No. Job Classification Hours Hours Rate Monthly Cost
Week Month
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Total Monthly Hours ___________% Total Labor B. $______
Vacations ___________% of Labor B. $______
Sick Leave ___________% of Labor B. $______
Payroll Taxes ___________% of Labor B. $______
Insurance ___________% of Labor B. $______
Uniforms ___________Per month Labor B. $______
Total Cost $______
Supervision and Overhead _______% of Total Cost $______
Subtotal $______
Profit _______% of Total Cost $______
Total Charges $______
Exhibit B
(24)
<PAGE>
EXHIBIT J
INTENTIONALLY DELETED
EXHIBIT J - Page 1
<PAGE>
EXHIBIT K
DETERMINATION OF RENTABLE SQUARE FEET
FOR PARTIAL FLOORS
Floor Load Factor
- ----- -----------
2nd Floor 1.173 (multi-tenant)
3rd Floor 1.172 (multi-tenant)
4th Floor 1.177 (multi-tenant)
5th Floor N/A (full floor)
6th Floor N/A (full floor)
7th Floor N/A (full floor)
8th Floor 1.184 (multi-tenant)
9th Floor N/A (full floor)
EXHIBIT K - Page 1
<PAGE>
EXHIBIT L
1800 CENTURY PARK EAST
FORM OF MEMORANDUM OF LEASE
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
Herbalife International of America, Inc.
c/o Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Anton N. Natsis. Esq.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MEMORANDUM OF OFFICE LEASE
THIS MEMORANDUM OF OFFICE LEASE (this "Memorandum") is entered into as
of the _____ day of July, 1995, by and between STATE TEACHERS' RETIREMENT
SYSTEM, a retirement fund created under the laws of the State of California
("Landlord"), and HERBALIFE INTERNATIONAL OF AMERICA, INC., a California
corporation ("Tenant").
1. TERMS AND PREMISES. Landlord leases to Tenant, and Tenant
leases from Landlord, certain premises (the "Premises") to be located on a
portion of the real property (the "Property") legally described on Exhibit
"A" attached hereto (including parking areas) pursuant to the provisions of
that certain Office Lease between the parties hereto, dated of even date (the
"Lease"). The provisions of the lease are incorporated herein.
2. TERM. The initial term of the Lease expires January 21, 2006,
unless earlier terminated as set forth in the Lease. Tenant also has two (2)
options to extend the Lease for a period of five (5) years each.
3. PROVISIONS BINDING ON PARTIES. The provisions of the Lease to
be performed by Landlord or Tenant, whether affirmative or negative in
nature, are intended to and shall bind or benefit the respective parties and
their assigns or successors, as applicable, at all times.
EXHIBIT L - Page 1
<PAGE>
5. PURPOSE OF MEMORANDUM OF LEASE. This Memorandum is prepared
solely for purposes of recordation, and in no way modifies the provisions of
the Lease.
"Landlord":
STATE TEACHERS' RETIREMENT SYSTEM,
a retirement fund created under the laws of
the State of California
By: Trust Company of the West,
a California corporation
Its Investment Manager
By:
---------------------------------
Its: ---------------------------
"Tenant":
HERBALIFE INTERNATIONAL OF AMERICA,
INC., a california Corporation
By:
---------------------------------
Its: ---------------------------
By:
---------------------------------
Its: ---------------------------
EXHIBIT L - Page 2
<PAGE>
STATE OF ______________________)
) ss.
COUNTY OF______________________)
On ________________________________, before me, ___________________, a
Notary Public in and for said state, personally appeared ___________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------
Notary Public in and for said State
STATE OF ______________________)
) ss.
COUNTY OF______________________)
On ________________________________, before me, ___________________, a
Notary Public in and for said state, personally appeared ___________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------
Notary Public in and for said State
EXHIBIT L - Page 3
<PAGE>
STATE OF ______________________)
) ss.
COUNTY OF______________________)
On ________________________________, before me, ___________________, a
Notary Public in and for said state, personally appeared ___________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------
Notary Public in and for said State
STATE OF ______________________)
) ss.
COUNTY OF______________________)
On ________________________________, before me, ___________________, a
Notary Public in and for said state, personally appeared ___________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------
Notary Public in and for said State
EXHIBIT L - Page 4
<PAGE>
EXHIBIT A TO EXHIBIT L
LEGAL DESCRIPTION OF PROPERTY
THE LAND REFERRED TO HEREIN IS DESCRIBED AS FOLLOWS:
PARCEL 1:
PARCEL "A" OF PARCEL MAP L.A. NO. 1483, IN THE CITY OF LOS ANGELES, IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, FILED IN BOOK 16 PAGE 62 OF
PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT ALL MINERALS, OIL, GAS, AND HYDROCARBONS AND RIGHT TO EXPLORE FOR,
DEVELOP, PRODUCE AND EXTRACT SAME, BUT WITHOUT RIGHT OF ENTRY UPON THE
SURFACE OR UPPER 500 FEET, MEASURED FORM THE OF SAID LAND, AS RESERVED BY FOX
REALTY CORPORATION OF CALIFORNIA, A CORPORATION, IN DEED RECORDED APRIL 17,
1961 IN BOOK D-1190 PAGE 104, OFFICIAL RECORDS, OF SAID COUNTY.
THE ABOVE DESCRIBED PARCEL "A", AS SHOWN ON SAID PARCEL MAP, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
THAT PORTION OF LOT 4 OF TRACT NO. 26196, IN THE CITY OF LOS ANGELES, IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 684
PAGE 82 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, AS MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEING AT THE MOST SOUTHERNLY CORNER OF SAID LOT 4, SAID CORNER BEING ALSO THE
MOST WESTERLY CORNER OF LOT 5 OF SAID TRACT; THENCE NORTH 35 DEGREES 46
MINUTES 43 SECONDS WEST, A DISTANCE OF 1084.39 FEET ALONG THE WESTERLY LINE
OF LOT 4, SAID LINE BEING THE NORTHEASTERLY LINE OF CENTURY PARK EAST, TO THE
TRUE POINT OF BEGINNING; THENCE NORTH 50 DEGREES 30 MINUTES 34 SECONDS EAST,
A DISTANCE OF 220.06 FEET TO A POINT; THENCE NORTH 39 DEGREES 30 MINUTES 47
SECONDS WEST 0.75 FEET TO A CORNER OF SAID TRACT; THENCE ALONG THE
NORTHEASTERLY LINE OF SAID TRACT, NORTH 39 DEGREES 30 MINUTES 47 SECONDS
WEST, A DISTANCE OF 280.82 FEET TO THE SOUTHEASTERLY LINE OF SANTA MONICA
BOULEVARD SOUTH ROADWAY; THENCE SOUTH 50 DEGREES 28 MINUTES 43 SECONDS WEST
ALONG SAID SOUTHEASTERLY LINE OF SANTA MONICA BOULEVARD SOUTH ROADWAY, A
DISTANCE OF 182.95 FEET, TO THE BEGINNING OF A TANGENT CURVE CONCAVE TO THE
SOUTHEAST HAVING A RADIUS OF 20.00 FEET AND A CENTRAL ANGLE OF 86 DEGREES 15
MINUTES 26 SECONDS; THENCE SOUTHWESTERLY ALONG SAID CURVE, A DISTANCE OF
30.11 FEET TO A POINT OF TANGENCY, SAID POINT BEING ON THE NORTHEASTRLY LINE
OF CENTURY PARK EAST; THENCE ALONG SAID TANGENT LINE OF CENTURY PARK EAST,
SOUTH 35 DEGREES 46 MINUTES 43 SECONDS EAST 263.32 FEET TO THE TRUE POINT OF
BEGINNING.
PARCEL 2:
PARCEL "B" OF PARCEL MAP L.A. NUMBER 1483, IN THE CITY OF LOS ANGELES, IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, FILED IN BOOK 16 PAGE 62 OF
PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT ALL MINERALS, OIL, GAS, AND HYDROCARBONS AND RIGHT TO EXPLORE FOR,
DEVELOP, PRODUCE AND EXTRACT SAME, BUT WITHOUT RIGHT OF ENTRY UPON THE
SURFACE OR UPPER 500 FEET, MEASURED FORM THE OF SAID LAND, AS RESERVED BY FOX
REALTY CORPORATION OF CALIFORNIA, A CORPORATION, IN DEED RECORDED APRIL 17,
1961 IN BOOK D-1190 PAGE 104, OFFICIAL RECORDS, OF SAID COUNTY.
EXHIBIT A TO EXHIBIT L - Page 1
<PAGE>
TO ABOVE DESCRIBED PARCEL "B" AS SHOWN ON SAID PARCEL MAP, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
THAT PORTION OF LOT 4 OF TRACT NO. 26196, IN THE CITY OF LOS ANGELES, IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 684
PAGE 82 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, AS MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST SOUTHERLY CORNER OF SAID LOT 4, SAID CORNER BEING ALSO
THE MOST WESTERLY CORNER OF LOT 5 OF SAID TRACT; THENCE NORTH 35 DEGREES 46
MINUTES 43 SECONDS WEST, A DISTANCE 905.11 FEET ALONG THE WESTERLY LINE OF
LOT 4, SAID LINE BEING THE NORTHEASTERLY LINE OF CENTURY PARK EAST, TO THE
TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID NORTHEASTERLY LINE OF
CENTURY PARK EAST, NORTH 35 DEGREES 46 MINUTES 43 SECONDS WEST, A DISTANCE OF
179.28 FEET TO A POINT; THENCE NORTH 50 DEGREES 30 MINUTES 34 SECONDS EAST, A
DISTANCE OF 220.06 FEET TO A POINT; THENCE NORTH 39 DEGREES 30 MINUTES 47
SECONDS WEST, A DISTANCE OF 0.75 OF A FOOT TO A CORNER OF SAID TRACT; THENCE
ALONG THE NORTHWESTERLY LINE OF SAID TRACT, NORTH 50 DEGREES 30 MINUTES 34
SECONDS EAST, A DISTANCE OF 138.39 FEET TO A CORNER OF SAID TRACT; THENCE
ALONG THE NORTHEASTERLY LINE OF SAID TRACT, SOUTH 30 DEGREES 46 MINUTES 43
SECONDS EAST, A DISTANCE OF 204.01 FEET; THENCE SOUTH 54 DEGREES 13 MINUTES
17 SECONDS WEST, A DISTANCE OF 339.87 FEET TO THE TRUE POINT OF BEGINNING.
EXHIBIT A TO EXHIBIT L - Page 2
<PAGE>
[FLOOR PLAN]
EXHIBIT M - Page 1
<PAGE>
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement ("Agreement") is made as of this
lst day of November, between HERBALIFE INTERNATIONAL, INC., a Nevada
corporation ("Corporation"), and Alan Liker ("Grantee").
RECITALS
A. The members of the Board of Directors of this Corporation, other than
the Grantee ("Board"), have determined that it is to the advantage and best
interests of the Corporation and its shareholders to grant ten thousand (10,000)
stock appreciation rights ("SARs") to the Grantee as an inducement to remain as
a member of the Board of Directors of the Corporation and as an incentive for
continued effort during such service, and has approved the terms and the
execution of this Agreement between the Corporation and the Grantee.
B. The terms of this Agreement shall be administered by the Board.
C. The SARs granted hereunder are intended to satisfy the requirements of
Rule 16a-l(c) (3) (ii) promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and, therefore, may be redeemed or exercised only (a)
for cash and do not permit the receipt of equity securities in lieu of cash, AND
(b) upon a fixed date or dates at least six months after award, or incident to
death, retirement, disability or termination of employment; and thus it is
further intended that the SARs granted hereunder shall constitute neither
"derivative securities" nor "equity securities" for purposes of Section 16 of
the Exchange Act.
NOW, THEREFORE, the parties hereto agree as follows:
1. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions hereinafter stated, the Corporation hereby grants to Grantee as of
November 1, 1995 (the "Date of Grant") ten thousand (10,000) SARs. For purposes
of the SARs granted hereunder, the fair market value of one share of common
stock of the Corporation as of the Date of Grant is $7.375 ("Date of Grant
Value"), subject to adjustment as set forth in paragraph 7 hereof.
2. VESTING OF RIGHTS. Subject to paragraph 4, on each of the next five
anniversaries of the Date of Grant, twenty percent (20%) of the Grantee's rights
with respect to the SARs granted hereunder shall vest.
<PAGE>
3. TIME AND MANNER OF REDEMPTION. The Grantee will be deemed to have
automatically exercised the SARs and the Corporation shall redeem the SARs on
the day such SARs become vested (or the closest preceding business day thereto)
("Exercise Dates"), in whole and not in part, but only if, at the time of
exercise, Grantee continues to be a director of the Corporation or any present
or future parent or subsidiary of the Corporation ("Affiliates") or is employed
by the Corporation or any Affiliate, or is providing consulting or any other
bona fide services to the Corporation or Affiliate (such service as director,
employee, consultant or otherwise shall be referred to as "Service").
4. GRANTEE'S DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT. On the
thirtieth day(or the closest preceding business day thereto) following Grantee's
death (an "Exercise Date"), the SARs granted hereunder which have not been
exercised and redeemed shall be deemed to be automatically exercised by
Grantee's successor in interest by will or the laws of descent and distribution
and redeemed by the Corporation, notwithstanding the vesting and exercise
schedules set forth in paragraphs 2 and 3. Upon cessation of Services by Grantee
for any reason (including permanent disability) other than death, the SARs
granted hereunder which have not been exercised and redeemed shall immediately
expire and be void and of no further force of effect.
5. PAYMENT UPON EXERCISE. Upon the automatic exercise of an SAR:
(i) if the fair market value of one share of the Corporation's common stock on
the Exercise Date is less than or equal to the Date of Grant Value, the SARs
vested on such Exercise Date shall be redeemed for no payment; and (ii) if the
fair market value of one share of the Corporation's common stock on the Exercise
Date exceeds the Date of Grant Value, the SARs being redeemed on such Exercise
Date shall be redeemed for a cash payment of an amount equal to the positive
difference between such fair market value on the Exercise Date and the Date of
Grant Value, multiplied by the number of SARs being redeemed. Such cash
payments shall be made within fifteen days of the date of redemption.
For purposes of this paragraph, the fair market value of a share of common
stock shall be determined by reference to the closing price on the principal
stock exchange on which such shares are then listed or, if such shares are not
then listed on a stock exchange, by reference to the closing price (if approved
for quotation on the NASDAQ National Market System) or the mean between the bid
and asked price (if other over-the-counter issue) of a share as supplied by the
National Association of Securities Dealers, Inc. through NASDAQ (or its
successor in function), in each case as reported by THE WALL STREET JOURNAL,
(or, if for any reason no such price is available, in such other manner as the
Board may deem appropriate to reflect the then fair market value thereof).
In the event that the date of exercise of an SAR is a date for which there
is no published price, such fair market value shall be determined by referring
to the next preceding business day on which trading occurs or on which published
prices are available.
<PAGE>
6. NON-TRANSFERABLE. Other than by will or the laws of descent and
distribution, the right of Grantee to receive any payment hereunder shall not be
subject to alienation, sale, transfer, assignment, pledge, attachment,
garnishment, or encumbrance of any kind, and no payments due hereunder shall in
any manner be subject to the debts or liabilities of Grantee. Any attempt to
alienate, sell, transfer, assign, pledge or otherwise encumber any such
payments, whether presently or thereafter payable, shall be null and void and
without any legal effect.
7. ADJUSTMENT OF SARs AND DATE OF GRANT VALUE. The SARs shall be subject
to adjustment by the Board in its sole discretion as to the number, kind and
Date of Grant Value of shares subject thereto in the event of changes in the
outstanding common stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in corporate structure or capitalization
occurring after the Date of Grant, provided that if the Corporation shall change
its common stock into a greater or lesser number of shares through a stock
dividend, stock split, reverse stock split or combination of shares, outstanding
SARs shall be adjusted proportionately, consistent with existing law and
regulation, to prevent inequitable results.
8. NOR RIGHTS AS A SHAREHOLDER. Grantee shall not have any rights of any
kind as a shareholder of the Corporation with respect to any of the SARs.
9. NO RIGHTS TO CONTINUED SERVICE. The granting of SARs shall not be
deemed to confer upon Grantee any right to continue to provide Services to the
Corporation or any of its Affiliates or to limit or diminish in any way the
right of the Corporation or any Affiliate to terminate Grantee's Services at any
time with or without cause.
10. WITHHOLDING. Prior to and as a condition of making any cash payment
pursuant to any exercise of the SARS, the Corporation may require Grantee to pay
to the Corporation (by deduction or otherwise) the amount of any tax required by
law to be withheld with respect to such exercise, and to provide to the
Corporation such information and data as the Board shall reasonably require.
11. ASSUMPTION BY SUCCESSOR CORPORATION OF STOCK APPRECIATION RIGHT IN
EVENT OF MERGER, ETC. OF CORPORATION. Nothing contained in this agreement shall
in any way prohibit the corporation from merging with or consolidating into
another corporation, or from selling or transferring all or substantially all of
its assets, or from distributing all or substantially all of its assets to its
stockholders in liquidation, or from dissolving and terminating its corporate
existence; provided, however, that in case of merger, consolidation, or sale or
transfer of substantially all assets or a similar restructuring, the successor
corporation shall assume all obligations of the Corporation under this Agreement
and shall provide for the continuation of the SARs without changing the Exercise
Dates set forth in Section 5, subject to appropriate adjustment in the sole
judgment of the Board to take account of the conversion or sale price in such
transaction and any
<PAGE>
other pertinent factors. Upon liquidation of the Corporation or similar event
where there is no successor corporation, the SARs granted hereunder which have
not been exercised and redeemed shall immediately expire and be void and of no
further force or effect.
12. BOARD'S INTERPRETATION BINDING. The Board shall have the authority to
interpret the terms of the SARs and to determine all questions which may arise
in connection with any exercise thereof, and all such interpretations and
determinations shall be conclusive and binding on all persons.
13. BINDING EFFECT. The terms of the SARs shall be binding upon, and
shall inure to the benefit of, the Corporation, Grantee, the successors and
assigns of the Corporation, and any person acquiring any rights in the SARs upon
the death of Grantee.
14. GOVERNING LAW. The terms of the SARs shall be construed under and
governed by the laws of the State of California.
15. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute on and the same instrument.
IN WITNESS WHEREOF, this Stock Appreciation Rights Agreement has been duly
executed and delivered by the parties hereto as of the date first above written.
HERBALIFE INTERNATIONAL, INC.
BY: /s/Christopher Pair
------------------------------
Christopher Pair
Executive Vice President
International and Corporate
Administration
/s/Alan Liker
-------------------------------
Alan Liker
<PAGE>
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement ("Agreement") is made as of this
lst day of November, between HERBALIFE INTERNATIONAL, INC., a Nevada
corporation ("Corporation"), and Paul Buxbaum ("Grantee").
RECITALS
A. The members of the Board of Directors of this Corporation, other than
the Grantee ("Board"), have determined that it is to the advantage and best
interests of the Corporation and its shareholders to grant ten thousand (10,000)
stock appreciation rights ("SARs") to the Grantee as an inducement to remain as
a member of the Board of Directors of the Corporation and as an incentive for
continued effort during such service, and has approved the terms and the
execution of this Agreement between the Corporation and the Grantee.
B. The terms of this Agreement shall be administered by the Board.
C. The SARs granted hereunder are intended to satisfy the requirements of
Rule 16a-l(c) (3) (ii) promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and, therefore, may be redeemed or exercised only (a)
for cash and do not permit the receipt of equity securities in lieu of cash, AND
(b) upon a fixed date or dates at least six months after award, or incident to
death, retirement, disability or termination of employment; and thus it is
further intended that the SARs granted hereunder shall constitute neither
"derivative securities" nor "equity securities" for purposes of Section 16 of
the Exchange Act.
NOW, THEREFORE, the parties hereto agree as follows:
1. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions hereinafter stated, the Corporation hereby grants to Grantee as of
November 1, 1995 (the "Date of Grant") ten thousand (10,000) SARs. For purposes
of the SARs granted hereunder, the fair market value of one share of common
stock of the Corporation as of the Date of Grant is $7.375 ("Date of Grant
Value"), subject to adjustment as set forth in paragraph 7 hereof.
2. VESTING OF RIGHTS. Subject to paragraph 4, on each of the next five
anniversaries of the Date of Grant, twenty percent (20%) of the Grantee's rights
with respect to the SARs granted hereunder shall vest.
<PAGE>
3. TIME AND MANNER OF REDEMPTION. The Grantee will be deemed to have
automatically exercised the SARs and the Corporation shall redeem the SARs on
the day such SARs become vested (or the closest preceding business day thereto)
("Exercise Dates"), in whole and not in part, but only if, at the time of
exercise, Grantee continues to be a director of the Corporation or any present
or future parent or subsidiary of the Corporation ("Affiliates") or is employed
by the Corporation or any Affiliate, or is providing consulting or any other
bona fide services to the Corporation or Affiliate (such service as director,
employee, consultant or otherwise shall be referred to as "Service").
4. GRANTEE'S DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT. On the
thirtieth day (or the closest preceding business day thereto) following
Grantee's death (an "Exercise Date"), the SARs granted hereunder which have
not been exercised and redeemed shall be deemed to be automatically exercised
by Grantee's successor in interest by will or the laws of descent and
distribution and redeemed by the Corporation, notwithstanding the vesting and
exercise schedules set forth in paragraphs 2 and 3. Upon cessation of
Services by Grantee for any reason (including permanent disability) other
than death, the SARs granted hereunder which have not been exercised and
redeemed shall immediately expire and be void and of no further force of
effect.
5. PAYMENT UPON EXERCISE. Upon the automatic exercise of an SAR:
(i) if the fair market value of one share of the Corporation's common stock on
the Exercise Date is less than or equal to the Date of Grant Value, the SARs
vested on such Exercise Date shall be redeemed for no payment; and (ii) if the
fair market value of one share of the Corporation's common stock on the Exercise
Date exceeds the Date of Grant Value, the SARs being redeemed on such Exercise
Date shall be redeemed for a cash payment of an amount equal to the positive
difference between such fair market value on the Exercise Date and the Date of
Grant Value, multiplied by the number of SARs being redeemed. Such cash
payments shall be made within fifteen days of the date of redemption.
For purposes of this paragraph, the fair market value of a share of common
stock shall be determined by reference to the closing price on the principal
stock exchange on which such shares are then listed or, if such shares are not
then listed on a stock exchange, by reference to the closing price (if approved
for quotation on the NASDAQ National Market System) or the mean between the bid
and asked price (if other over-the-counter issue) of a share as supplied by the
National Association of Securities Dealers, Inc. through NASDAQ (or its
successor in function), in each case as reported by THE WALL STREET JOURNAL,
(or, if for any reason no such price is available, in such other manner as the
Board may deem appropriate to reflect the then fair market value thereof).
In the event that the date of exercise of an SAR is a date for which there
is no published price, such fair market value shall be determined by referring
to the next preceding business day on which trading occurs or on which published
prices are available.
<PAGE>
6. NON-TRANSFERABLE. Other than by will or the laws of descent and
distribution, the right of Grantee to receive any payment hereunder shall not be
subject to alienation, sale, transfer, assignment, pledge, attachment,
garnishment, or encumbrance of any kind, and no payments due hereunder shall in
any manner be subject to the debts or liabilities of Grantee. Any attempt to
alienate, sell, transfer, assign, pledge or otherwise encumber any such
payments, whether presently or thereafter payable, shall be null and void and
without any legal effect.
7. ADJUSTMENT OF SARs AND DATE OF GRANT VALUE. The SARs shall be subject
to adjustment by the Board in its sole discretion as to the number, kind and
Date of Grant Value of shares subject thereto in the event of changes in the
outstanding common stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in corporate structure or capitalization
occurring after the Date of Grant, provided that if the Corporation shall change
its common stock into a greater or lesser number of shares through a stock
dividend, stock split, reverse stock split or combination of shares, outstanding
SARs shall be adjusted proportionately, consistent with existing law and
regulation, to prevent inequitable results.
8. NOR RIGHTS AS A SHAREHOLDER. Grantee shall not have any rights of any
kind as a shareholder of the Corporation with respect to any of the SARs.
9. NO RIGHTS TO CONTINUED SERVICE. The granting of SARs shall not be
deemed to confer upon Grantee any right to continue to provide Services to the
Corporation or any of its Affiliates or to limit or diminish in any way the
right of the Corporation or any Affiliate to terminate Grantee's Services at any
time with or without cause.
10. WITHHOLDING. Prior to and as a condition of making any cash payment
pursuant to any exercise of the SARs, the Corporation may require Grantee to pay
to the Corporation (by deduction or otherwise) the amount of any tax required by
law to be withheld with respect to such exercise, and to provide to the
Corporation such information and data as the Board shall reasonably require.
11. ASSUMPTION BY SUCCESSOR CORPORATION OF STOCK APPRECIATION RIGHT IN
EVENT OF MERGER, ETC. OF CORPORATION. Nothing contained in this agreement shall
in any way prohibit the corporation from merging with or consolidating into
another corporation, or from selling or transferring all or substantially all of
its assets, or from distributing all or substantially all of its assets to its
stockholders in liquidation, or from dissolving and terminating its corporate
existence; provided, however, that in case of merger, consolidation, or sale or
transfer of substantially all assets or a similar restructuring, the successor
corporation shall assume all obligations of the Corporation under this Agreement
and shall provide for the continuation of the SARs without changing the Exercise
Dates set forth in Section 5, subject to appropriate adjustment in the sole
judgment of the Board to take account of the conversion or sale price in such
transaction and any
<PAGE>
other pertinent factors. Upon liquidation of the Corporation or similar event
where there is no successor corporation, the SARs granted hereunder which have
not been exercised and redeemed shall immediately expire and be void and of no
further force or effect.
12. BOARD'S INTERPRETATION BINDING. The Board shall have the authority to
interpret the terms of the SARs and to determine all questions which may arise
in connection with any exercise thereof, and all such interpretations and
determinations shall be conclusive and binding on all persons.
13. BINDING EFFECT. The terms of the SARs shall be binding upon, and
shall inure to the benefit of, the Corporation, Grantee, the successors and
assigns of the Corporation, and any person acquiring any rights in the SARs upon
the death of Grantee.
14. GOVERNING LAW. The terms of the SARs shall be construed under and
governed by the laws of the State of California.
15. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute on and the same instrument.
IN WITNESS WHEREOF, this Stock Appreciation Rights Agreement has been duly
executed and delivered by the parties hereto as of the date first above written.
HERBALIFE INTERNATIONAL, INC.
BY: /s/Christopher Pair
-----------------------------
Christopher Pair
Executive Vice President
International and Corporate
Administration
/s/Paul Buxbaum
------------------------------
Paul Buxbaum
<PAGE>
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement ("Agreement") is made as of this
lst day of November, between HERBALIFE INTERNATIONAL, INC., a Nevada
corporation ("Corporation"), and Edward Hall ("Grantee").
[cad 131]
RECITALS
A. The members of the Board of Directors of this Corporation, other than
the Grantee ("Board"), have determined that it is to the advantage and best
interests of the Corporation and its shareholders to grant ten thousand (10,000)
stock appreciation rights ("SARs") to the Grantee as an inducement to remain as
a member of the Board of Directors of the Corporation and as an incentive for
continued effort during such service, and has approved the terms and the
execution of this Agreement between the Corporation and the Grantee.
B. The terms of this Agreement shall be administered by the Board.
C. The SARs granted hereunder are intended to satisfy the requirements of
Rule 16a-l(c) (3) (ii) promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and, therefore, may be redeemed or exercised only (a)
for cash and do not permit the receipt of equity securities in lieu of cash, AND
(b) upon a fixed date or dates at least six months after award, or incident to
death, retirement, disability or termination of employment; and thus it is
further intended that the SARs granted hereunder shall constitute neither
"derivative securities" nor "equity securities" for purposes of Section 16 of
the Exchange Act.
NOW, THEREFORE, the parties hereto agree as follows:
1. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions hereinafter stated, the Corporation hereby grants to Grantee as of
November 1, 1995 (the "Date of Grant") ten thousand (10,000) SARs. For purposes
of the SARs granted hereunder, the fair market value of one share of common
stock of the Corporation as of the Date of Grant is $7.375 ("Date of Grant
Value"), subject to adjustment as set forth in paragraph 7 hereof.
2. VESTING OF RIGHTS. Subject to paragraph 4, on each of the next five
anniversaries of the Date of Grant, twenty percent (20%) of the Grantee's rights
with respect to the SARs granted hereunder shall vest.
<PAGE>
3. TIME AND MANNER OF REDEMPTION. The Grantee will be deemed to have
automatically exercised the SARs and the Corporation shall redeem the SARs on
the day such SARs become vested (or the closest preceding business day thereto)
("Exercise Dates"), in whole and not in part, but only if, at the time of
exercise, Grantee continues to be a director of the Corporation or any present
or future parent or subsidiary of the Corporation ("Affiliates") or is employed
by the Corporation or any Affiliate, or is providing consulting or any other
bona fide services to the Corporation or Affiliate (such service as director,
employee, consultant or otherwise shall be referred to as "Service").
4. GRANTEE'S DEATH, DISABILITY OR TERMINATION OF EMPLOYMENT. On the
thirtieth day(or the closest preceding business day thereto) following Grantee's
death (an "Exercise Date"), the SARs granted hereunder which have not been
exercised and redeemed shall be deemed to be automatically exercised by
Grantee's successor in interest by will or the laws of descent and distribution
and redeemed by the Corporation, notwithstanding the vesting and exercise
schedules set forth in paragraphs 2 and 3. Upon cessation of Services by Grantee
for any reason (including permanent disability) other than death, the SARs
granted hereunder which have not been exercised and redeemed shall immediately
expire and be void and of no further force of effect.
5. PAYMENT UPON EXERCISE. Upon the automatic exercise of an SAR:
(i) if the fair market value of one share of the Corporation's common stock on
the Exercise Date is less than or equal to the Date of Grant Value, the SARs
vested on such Exercise Date shall be redeemed for no payment; and (ii) if the
fair market value of one share of the Corporation's common stock on the Exercise
Date exceeds the Date of Grant Value, the SARs being redeemed on such Exercise
Date shall be redeemed for a cash payment of an amount equal to the positive
difference between such fair market value on the Exercise Date and the Date of
Grant Value, multiplied by the number of SARs being redeemed. Such cash
payments shall be made within fifteen days of the date of redemption.
For purposes of this paragraph, the fair market value of a share of common
stock shall be determined by reference to the closing price on the principal
stock exchange on which such shares are then listed or, if such shares are not
then listed on a stock exchange, by reference to the closing price (if approved
for quotation on the NASDAQ National Market System) or the mean between the bid
and asked price (if other over-the-counter issue) of a share as supplied by the
National Association of Securities Dealers, Inc. through NASDAQ (or its
successor in function), in each case as reported by THE WALL STREET JOURNAL,
(or, if for any reason no such price is available, in such other manner as the
Board may deem appropriate to reflect the then fair market value thereof).
In the event that the date of exercise of an SAR is a date for which there
is no published price, such fair market value shall be determined by referring
to the next preceding business day on which trading occurs or on which published
prices are available.
<PAGE>
6. NON-TRANSFERABLE. Other than by will or the laws of descent and
distribution, the right of Grantee to receive any payment hereunder shall not be
subject to alienation, sale, transfer, assignment, pledge, attachment,
garnishment, or encumbrance of any kind, and no payments due hereunder shall in
any manner be subject to the debts or liabilities of Grantee. Any attempt to
alienate, sell, transfer, assign, pledge or otherwise encumber any such
payments, whether presently or thereafter payable, shall be null and void and
without any legal effect.
7. ADJUSTMENT OF SARs AND DATE OF GRANT VALUE. The SARs shall be subject
to adjustment by the Board in its sole discretion as to the number, kind and
Date of Grant Value of shares subject thereto in the event of changes in the
outstanding common stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in corporate structure or capitalization
occurring after the Date of Grant, provided that if the Corporation shall change
its common stock into a greater or lesser number of shares through a stock
dividend, stock split, reverse stock split or combination of shares, outstanding
SARs shall be adjusted proportionately, consistent with existing law and
regulation, to prevent inequitable results.
8. NOR RIGHTS AS A SHAREHOLDER. Grantee shall not have any rights of any
kind as a shareholder of the Corporation with respect to any of the SARs.
9. NO RIGHTS TO CONTINUED SERVICE. The granting of SARs shall not be
deemed to confer upon Grantee any right to continue to provide Services to the
Corporation or any of its Affiliates or to limit or diminish in any way the
right of the Corporation or any Affiliate to terminate Grantee's Services at any
time with or without cause.
10. WITHHOLDING. Prior to and as a condition of making any cash payment
pursuant to any exercise of the SARs, the Corporation may require Grantee to pay
to the Corporation (by deduction or otherwise) the amount of any tax required by
law to be withheld with respect to such exercise, and to provide to the
Corporation such information and data as the Board shall reasonably require.
11. ASSUMPTION BY SUCCESSOR CORPORATION OF STOCK APPRECIATION RIGHT IN
EVENT OF MERGER, ETC. OF CORPORATION. Nothing contained in this agreement shall
in any way prohibit the corporation from merging with or consolidating into
another corporation, or from selling or transferring all or substantially all of
its assets, or from distributing all or substantially all of its assets to its
stockholders in liquidation, or from dissolving and terminating its corporate
existence; provided, however, that in case of merger, consolidation, or sale or
transfer of substantially all assets or a similar restructuring, the successor
corporation shall assume all obligations of the Corporation under this Agreement
and shall provide for the continuation of the SARS without changing the Exercise
Dates set forth in Section 5, subject to appropriate adjustment in the sole
judgment of the Board to take account of the conversion or sale price in such
transaction and any
<PAGE>
other pertinent factors. Upon liquidation of the Corporation or similar event
where there is no successor corporation, the SARs granted hereunder which have
not been exercised and redeemed shall immediately expire and be void and of no
further force or effect.
12. BOARD'S INTERPRETATION BINDING. The Board shall have the authority to
interpret the terms of the SARs and to determine all questions which may arise
in connection with any exercise thereof, and all such interpretations and
determinations shall be conclusive and binding on all persons.
13. BINDING EFFECT. The terms of the SARs shall be binding upon, and
shall inure to the benefit of, the Corporation, Grantee, the successors and
assigns of the Corporation, and any person acquiring any rights in the SARs upon
the death of Grantee.
14. GOVERNING LAW. The terms of the SARs shall be construed under and
governed by the laws of the State of California.
15. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute on and the same instrument.
IN WITNESS WHEREOF, this Stock Appreciation Rights Agreement has been duly
executed and delivered by the parties hereto as of the date first above written.
HERBALIFE INTERNATIONAL, INC.
BY: /s/Christopher Pair
---------------------------------
Christopher Pair
Executive Vice President
International and Corporate
Administration
/s/Edward Hall
---------------------------------
Edward Hall
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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TABLE OF CONTENTS
ARTICLE 1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2 Selection, Enrollment, Eligibility . . . . . . . . . . . . . .5
2.1 Selection by Committee. . . . . . . . . . . . . . . . . . . .5
2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . .6
2.3 Eligibility; Commencement of Participation . . . . . . . . . .6
2.4 Termination of Participation and/or Deferrals . . . . . . . .6
ARTICLE 3 Deferral Commitments/Interest Crediting . . . . . . . . . . .6
3.1 Minimum Deferral . . . . . . . . . . . . . . . . . . . . . . .6
3.2 Maximum Deferral . . . . . . . . . . . . . . . . . . . . . . .7
3.3 Election to Defer; Effect of Election Form . . . . . . . . . .7
3.4 Withholding of Deferral Amounts . . . . . . . . . . . . . . .7
3.5 Company Matching Contribution . . . . . . . . . . . . . . . .7
3.6 Interest Crediting Prior to Distribution . . . . . . . . . . .8
3.7 Interest Crediting for Installment Distributions . . . . . . .8
3.8 FICA Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election . . . . . . . . . . . . . . . . . . . . .9
4.1 Short-Term Payout . . . . . . . . . . . . . . . . . . . . . .9
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies . . . . . . . . . . . . . . . . . . . . . . . . .9
4.3 Withdrawal Election . . . . . . . . . . . . . . . . . . . . .9
ARTICLE 5 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . 10
5.1 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . 10
5.2 Payment of Retirement Benefits . . . . . . . . . . . . . . . 10
5.3 Death Prior to Completion of Retirement Benefits . . . . . . 10
ARTICLE 6 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . 10
6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . 10
6.2 Payment of Pre-Retirement Survivor Benefits. . . . . . . . . 10
ARTICLE 7 Termination Benefit . . . . . . . . . . . . . . . . . . . . 11
7.1 Termination Benefits . . . . . . . . . . . . . . . . . . . . 11
7.2 Payment of Termination Benefit . . . . . . . . . . . . . . . 11
7.3 Death Prior to Completion of Termination Benefits . . . . . 11
ARTICLE 8 Disability Waiver and Benefit . . . . . . . . . . . . . . . 11
8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . 11
8.2 Benefit Eligibility . . . . . . . . . . . . . . . . . . . . 12
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 9 Beneficiary Designation . . . . . . . . . . . . . . . . . . 12
9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2 Beneficiary Designation; Change; Spousal Consent . . . . . . 12
9.3 Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . 12
9.4 No Beneficiary Designation . . . . . . . . . . . . . . . . . 13
9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . 13
9.6 Discharge of Obligations . . . . . . . . . . . . . . . . . . 13
ARTICLE 10 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . 13
10.1 Paid Leave of Absence . . . . . . . . . . . . . . . . . . . 13
10.2 Unpaid Leave of Absence . . . . . . . . . . . . . . . . . . 13
ARTICLE 11 Termination, Amendment or Modification . . . . . . . . . . . 14
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 14
11.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.4 Effect of Payment . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 12 Administration . . . . . . . . . . . . . . . . . . . . . . . 14
12.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . 14
12.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . 15
12.4 Indemnity of Committee . . . . . . . . . . . . . . . . . . . 15
12.5 Employer Information . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 13 Claims Procedures . . . . . . . . . . . . . . . . . . . . . 15
l3.l Presentation of Claim . . . . . . . . . . . . . . . . . . . 15
l3.2 Notification of Decision . . . . . . . . . . . . . . . . . . 15
13.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . 16
13.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . 16
13.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . 16
l3.6 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 14 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.1 Establishment of Trust . . . . . . . . . . . . . . . . . . . 18
14.2 Interrelationship of the Plan and the Trust . . . . . . . . 18
ARTICLE 15 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 18
15.1 Unsecured General Creditor . . . . . . . . . . . . . . . . . 18
15.2 Employer's Liability . . . . . . . . . . . . . . . . . . . . 18
15.3 Nonassignability . . . . . . . . . . . . . . . . . . . . . . 18
15.4 Coordination with Other Benefits . . . . . . . . . . . . . . 18
15.5 Not a Contract of Employment . . . . . . . . . . . . . . . . 19
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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15.6 Furnishing Information . . . . . . . . . . . . . . . . . . . 19
15.7 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 19
15.10 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.12 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . 20
15.13 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.14 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . 20
15.15 Distribution in the Event of Taxation . . . . . . . . . . . 20
15.16 Legal Fees to Enforce Rights After Change in Control . . . . 21
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<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE
DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1996
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group of
management or highly compensated employees who contribute materially to the
continued growth, development and future business success of HERBALIFE
INTERNATIONAL OF AMERICA, INC., a California corporation, and its subsidiaries.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, the sum of
(a) his or her Elective Deferral Account plus (b) his or her Employer
Matching Contribution Account. This account shall be a bookkeeping
entry only and shall be utilized solely as a device for the measurement
and determination of the amounts to be paid to or in respect of a
Participant pursuant to the Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary, paid annually in respect of a Plan Year to a Participant as an
employee under the Company's Management Incentive Plan. An annual Bonus
for a Plan Year may, but need not, be paid during such Plan Year.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and/or Annual Bonus that a Participant elects to have and
is deferred, in accordance with Article 3, for any one Plan Year.
1.4 "Base Annual Salary" shall mean the annual compensation (excluding
bonuses, commissions, overtime. incentive payments, non-monetary awards,
Directors Fees and other fees, stock options and grants, and car
allowances) paid to a Participant for services rendered to any Employer,
before reduction for compensation deferred pursuant to all qualified,
non-qualified and Code Section 125 plans (other than compensation
deferred under individual employment Contracts) of any Employer. The
Committee may, in its discretion, with respect to any one or more
Participants establish for any Plan Year a limit on the amount of Base
Annual Salary to be taken into account under this
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1
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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Plan. Such limitation shall be reflected in the Participant's Plan
Agreement, as it may be amended from time to time.
1.5 "Beneficiary" shall mean one or more persons, trusts. estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under the Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Change in Control" shall mean the first to occur of any of the
following events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of
the Securities Exchange Act of 1934 ("Exchange Act")), other than
Mark Hughes, the Hughes Family Trust or any entity with respect
to which Mark Hughes has investment or dispositive power or
authority, after the date hereof becomes the beneficial owner (as
that term is used in Section 13(d) of the Exchange Act), directly
or indirectly, of 50 percent or more of the Company's capital
stock entitled to vote in the election of directors;
(b) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof. unless the
election or the nomination for election by the Company's
shareholders of each new director was approved by a vote of at
least three-quarters of the directors still in office who were
directors at the beginning of the period;
(c) Any consolidation or merger of the Company, other than a
consolidation or merger of the Company in which the holders of
the common stock of the Company immediately prior to the
consolidation or merger hold more than 50 percent of the common
stock of the surviving corporation immediately after the
consolidation or merger;
(d) The shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(e) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a
"controlled group of corporations" (as defined in Section 1563 of
the Code) in which the Company is a member.
1.9 "Claimant" shall have the meaning set forth in Section 13.1.
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2
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.11 "Committee" shall mean the administrative committee appointed to manage
and administer the Plan in accordance with its provisions pursuant to
Article 12.
1.12 "Company" shall mean HERBALIFE INTERNATIONAL OF AMERICA, INC., a
California corporation.
1.13 "Company Matching Contribution" shall mean any contribution made and
credited to Employer Matching Contribution Accounts by the Company in
accordance with Section 3.5 below.
1.14 "Crediting Rate" shall mean, for each plan year, an interest rate equal
to 120 percent of the "Moody's Corporate Bond Rate" in effect for
September (and published in the immediately following October) of the
prior year. The "Moody's Corporate Bond Rate" is an arithmetic average
of yields of representative bonds, including industrials, public
utilities, Aaa, Aa, A and Baa bonds, published by Moody's Investors
Service, Inc. or any successor to that service.
1.15 "Deduction Limitation" shall mean the following described limitation on
the annual benefit that may be distributed pursuant to the provisions of
this Plan. The limitation shall be applied to distributions under this
Plan as expressly set forth in this Plan. If the Company determines in
good faith prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a taxable
year of the Company would not be deductible by the Company solely by
reason of the limitation under Code Section 162(m), then to the extent
deemed necessary by the Company to ensure that the entire amount of any
distribution to the Participant pursuant to this Plan prior to the
Change in Control is deductible, the Company may defer all or any
portion of the distribution. Any amounts deferred pursuant to this
limitation shall continue to be credited with interest in accordance
with Section 3.6 below. The amounts so deferred and interest thereon
shall be distributed to the Participant or his or her Beneficiary (in
the event of the Participant's death) at the earliest possible date, as
determined by the Company in good faith, on which the deductibility of
compensation paid or payable to the Participant for the taxable year of
the Company during which the distribution is made will not be limited by
Section 162(m), or if earlier, the effective date of a Change in
Control.
1.16 "Deferral Amount" shall mean the sum of all of a Participant's Annual
Deferral Amounts.
1.17 "Directors Fees" shall mean the annual cash fees paid by any Employer,
including retainer fees and meetings fees, as compensation for serving
on the board of directors of an Employer.
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3
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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1.18 "Disability" shall mean where, because of injury or sickness, a
Participant cannot perform each of the material duties of his or her
regular occupation.
1.19 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.20 "Elective Deferral Account" shall mean the sum of (a) a Participant's
Deferral Amount, plus (b) interest thereon credited in accordance with
all the applicable interest crediting provisions of the Plan, net of all
distributions from such Account. This account shall be a bookkeeping
entry only and shall be utilized solely as a device for the measurement
and determination of the amounts to be paid to the Participant pursuant
to the Plan.
1.21 "Employer" shall mean the Company and/or any of its subsidiaries that
have been selected by the Board to participate in the Plan.
1.22 "Employer Matching Contribution Account" shall mean the sum of (a)
Participant's share of Company Matching Contributions plus (b) interest
thereon credited in accordance with the applicable interest crediting
provisions of the Plan, net of all distributions from such Account.
This Account shall be a bookkeeping entry only and shall be utilized
solely as a device for the measurement and determination of the amounts
to be paid to the Participant pursuant to the Plan.
1.23 "Participant" shall mean any employee (a) who is selected to participate
in the Plan, (b) who elects to participate in the Plan, (c) who signs a
Plan Agreement, an Election Form and a Beneficiary Designation Form, (d)
whose signed Plan Agreement, Election Form and Beneficiary Designation
Form are accepted by the Committee, (e) who commences participation in
the Plan, and (f) whose Plan Agreement has not terminated.
1.24 "Plan"shall mean the Company's Senior Executive Deferred Compensation
Plan. which shall be evidenced by this instrument and, with respect to
each Participant, by his or her Plan Agreement, as each may be amended
from time to time.
1.25 "Plan Agreement" shall mean a written agreement. as may be amended from
time to time, which is entered into by and between one or more Employers
and a Participant. Each Plan Agreement executed by a Participant shall
provide for the entire benefit to which such Participant is entitled to
under the Plan, and shall specify, the Employer or Employers liable for
the Participant's benefits hereunder and the magnitude or extent of such
liability. The Plan Agreement bearing the latest date of acceptance by
the Committee shall govern such entitlement and each Employer's
liability. Upon the complete payment of a Participant's Account
Balance, each individual's Plan Agreement and his or her status as a
Participant shall terminate.
1.26 "Plan Year" shall be the calendar year, starting, with 1996.
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4
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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1.27 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.28 "Retirement," "Retire," "Retires," or "Retired" shall mean severance
from employment or service with all Employers for any reason other than
a leave of absence on or after the attainment of (a) age fifty (50) and
the completion of ten (10) Years of Service, (b) age fifty-five (55) and
the completion of five (5) Years of Service. (c) age sixty-five (65),
whichever is earliest.
1.29 "Retirement Benefit" shall mean the benefit set forth in Article 5.
l.30 "Short-Term Payout" shall mean the payout set forth in Section 4. 1.
l.31 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.32 "Termination of Employment" shall mean the ceasing of employment with
all Employers, voluntarily or involuntarily, for any reason other than
Retirement. death or an authorized leave of absence.
1.33 "Trust" shall mean the trust established pursuant to that certain Trust
Agreement. dated as of January 1, 1996, between the Company and the
trustee named therein. as amended from time to time.
l.34 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the
Participant resulting from (a) a sudden and unexpected illness or
accident of the Participant or a dependent of the Participant, (b) a
loss of the Participant's property due to casualty, or (c) such other
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant, all as determined in the
sole and absolute discretion of the Committee.
1.35 "Years of Service" shall mean the total number of years in which a
Participant has been employed by or in the service of an Employer. For
purposes of this definition only, a year of employment or service shall
be a 365 day period (or 366 day period in the case of a leap year) that,
for the first year of employment, commences on the Participant's date of
hire (or engagement) and that, for any subsequent year, commences on an
anniversary of that hiring date.
ARTICLE 2
SELECTION, ENROLLMENT. ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to
employees of an Employer who are (a) part of a select group of
management or highly compensated employees and (b) at the rank of Senior
Vice President or higher. From the foregoing, the Committee shall
select, in its sole and absolute discretion. employees to participate in
the Plan.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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2.2 ENROLLMENT REQUIREMENTS. As a condition to participation. each selected
employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form. In
addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole and absolute
discretion are necessary.
2.3 ELIGIBILITY: COMMENCEMENT OF PARTICIPATION. An employee selected to
participate herein may commence participation upon the January 1 or July
1 immediately following or coinciding with the date he or she has
completed all enrollment requirements set forth herein and required by
the Committee, including returning all required documents to the
Committee and the Committee's acceptance of all submitted documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee
determines in good faith that a Participant no longer meets the
requirement of Sections 2. 1 (a) and (b) hereof. the Committee shall
have the right, in its sole discretion, to (i) terminate any deferral
election the Participant has made for the Plan Year in which the
Participant's membership status changes, (ii) prevent the Participant
from making future deferral elections and/or (iii) immediately
distribute the Participant's then Account Balance as a Termination
Benefit and terminate the Participant's participation in the Plan. If
the Committee chooses not to terminate the Participant's participation
in the Plan, the Committee may, it its sole discretion, reinstate the
Participant to full Plan participation at such time in the future as the
Participant again meets the requirements of Sections 2.1(a) and (b).
ARTICLE 3
DEFERRAL COMMITMENTS/INTEREST CREDITING.
3.1 MINIMUM DEFERRAL.
(a) MINIMUM. For each Plan Year, a Participant may elect to defer Base
Annual Salary and/or Annual Bonus paid in respect of such Plan
Year in the following minimum amounts for each deferral elected:
Minimum
Deferral Amount
-------- ------
Base Annual Salary $2,000
Annual Bonus $2,000
If no election is made, the amount deferred shall be zero.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1996
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(b) SHORT PLAN YEAR. If a Participant first becomes a
Participant after the first day of a Plan Year, the
minimum Base Annual Salary and/or Annual Bonus
deferral shall be an amount equal to the minimum set
forth above, multiplied by a fraction, the numerator
of which is the number of complete months remaining in
the Plan Year and the denominator of which is 12.
3.2 MAXIMUM DEFERRAL. For each Plan Year, a Participant may elect to defer
Base Annual Salary and/or Annual Bonus up to the following maximum
amounts for each deferral elected:
Maximum
Deferral Amount
-------- ------
Base Annual Salary 50%
Annual Bonus 100%
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM. In connection with a
Participant's commencement of participation in the Plan, the Participant
shall make a deferral election by delivering to the Committee a
completed and signed Election Form, which election and form must be
accepted by the Committee for a valid election to exist. For each
succeeding Plan Year, a new Election Form must be delivered to the
Committee, in accordance with its rules and procedures, before the end
of the Plan Year preceding the Plan Year for which the election is made.
If no Election Form is timely delivered for a Plan Year, no Annual
Deferral Amount shall be withheld for that Plan Year.
3.4 WITHHOLDING OF DEFERRAL AMOUNTS. For each Plan Year, the Base Annual
Salary portion of the Annual Deferral Amount shall be withheld each
payroll period in equal amounts from the Participant's Base Annual
Salary. The Annual Bonus portion of the Annual Deferral Amount shall be
withheld at the time the Annual Bonus is or otherwise would be paid to
the Participant. The Annual Deferral Amount shall be credited to the
Participant's Elective Deferral Account. A Participant shall at all
times have a fully vested and nonforfeitable interest in his or her
Elective Deferral Account.
3.5 COMPANY MATCHING CONTRIBUTION. Each Plan Year, the Company shall make a
Company Matching Contribution on behalf of a Participant. Such
contribution shall be equal to 100 percent of the Participant's Annual
Deferral Amount that does not exceed 10 percent of the sum of the
Participant's Base Annual Salary. These contributions shall be credited
to the Participant's Employer Matching Contribution Account. A
Participant will at all times have a fully vested and nonforfeitable
interest in each year's contribution (including interest to be credited
thereto).
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1996
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3.6 INTEREST CREDITING PRIOR TO DISTRIBUTION. Prior to any distributions of
benefits under Articles 4, 5, 6 or 7, interest shall be credited and
compounded annually on a Participant's Account Balance as though the
Annual Deferral Amount and the Company Matching Contribution for that
Plan Year was withheld or contributed, as the case may be, at the
beginning of the Plan Year or, in the case of the first year of Plan
participation, was withheld as contributed, as the case may be, on the
date that the Participant commenced participation in the Plan; provided
that interest shall be credited on the portion of the Annual Deferral
Amount attributable to the Annual Bonus as of the last day of the pay
period ending closest to the date the Annual Bonus is actually paid.
The rate of interest for crediting shall be the Crediting Rate. In the
event of Retirement, death or a Termination of Employment prior to the
end of a Plan Year, the basis for that year's interest crediting will be
a fraction of the full year's interest, based on the number of full
months that the Participant was employed with the Employer during the
Plan Year prior to the occurrence of such event. If a distribution is
made under this Plan, for purposes of crediting interest, the Account
Balance shall be reduced as of the first day of the month in which the
distribution is made.
3.7 INTEREST CREDITING FOR INSTALLMENT DISTRIBUTIONS. In the event a
benefit is paid in installments under Article 5 or 6, interest shall be
credited and compounded on the undistributed portion of the
Participant's Account Balance commencing on the first day of the month
in which the Participant terminates employment, using a fixed interest
rate that is determined by using the average of the Crediting Rates for
the Plan Year in which installment payments commence and the four
preceding Plan Years. If a Participant has participated in the Plan for
less than five Plan Years, this average shall be determined using the
Crediting Rates for the Plan Years during which the Participant actually
participated in the Plan.
3.8 FICA TAXES. For each Plan Year in which an Annual Deferral Amount is
being withheld, the Participant's Employer(s) shall ratably withhold
from that portion of the Participant's Base Annual Salary and/or Annual
Bonus that is not being deferred, the Participant's share of FICA taxes
on deferred amounts. If necessary, the Committee shall reduce the
Annual Deferral Amount in order to comply with this Section.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
WITHDRAWAL ELECTION
4.1 SHORT-TERM PAYOUT. Subject to the Deduction Limitation, in connection
with each election to defer an Annual Deferral Amount, a Participant
may elect to receive a future "Short-Term Payout" from the Plan with
respect to that Annual Deferral Amount. The Short-Term Payout shall be
a lump sum payment in an amount that is equal to the Annual Deferral
Amount plus interest credited at the Crediting Rate on that amount.
Subject to the other terms and conditions of this Plan, each Short-Term
payout elected shall be paid within 60 days of the first day of the Plan
Year that is five or more years after the first day of the Plan Year in
which the Annual Deferral Amount is actually deferred. Notwithstanding
the foregoing, should an event occur that triggers a benefit under
Article 5, 6. or 7, any Annual Deferral Amount, plus interest thereon,
that is subject to a Short-Term Payout election under this Section 4.1
shall not be paid in accordance with Section 4.1, but shall be paid in
accordance with the other applicable Article.
4.2 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.
If the Participant experiences an Unforeseeable Financial Emergency,
the Participant may petition the Committee to (a) suspend any deferrals
required to be made by a Participant and/or (b) receive partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency. If, subject to the sole
and absolute discretion of the Committee, the petition for a suspension
and/or payout is approved, suspension shall take effect upon the date of
approval and any payout shall be made within 60 days of the date of
approval.
4.3 WITHDRAWAL ELECTION. A Participant may elect, at any time, to withdraw
all of his or her Account Balance, calculated as if such Participant
were receiving a Termination Benefit, less a 10 percent withdrawal
penalty (the net amount shall be referred to as the "Withdrawal
Amount"). No partial withdrawals of that balance shall be allowed. The
Participant shall make this election by giving the Committee advance
written notice of the election in a form determined from time to time by
the Committee. The penalty shall be equal to 10 percent of the
Participant's Account Balance determined immediately prior to the date
of his or her election. Once the Withdrawal Amount is paid, the
Participant shall be suspended permanently from further participation in
the Plan.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant
who retires shall receive, as a Retirement Benefit, his or her Account
Balance.
5.2 PAYMENT OF RETIREMENT BENEFITS. A Participant, in connection with his
or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or in
equal monthly payments over a period of 60 months. The Participant may
change this election to an allowable alternative payout period by
submitting a new Election Form to the Committee, provided that any such
Election Form is submitted at least three years prior to the
Participant's Retirement. The Election Form most recently accepted by
the Committee shall govern the payout of the Retirement Benefit. The
lump sum payment shall be made, or installment payments shall commence,
no later than 60 days from the date the Participant Retires.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and
shall be paid to the Participant's Beneficiary (a) over the remaining
number of months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b) in a lump
sum. if requested by the beneficiary and allowed at the sole and
absolute discretion of the Committee. The lump sum payment will be the
Participant's Account Balance at the time of his or her death.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation,
if a Participant dies before he or she Retires, the Participant's
Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the
Participant's Account Balance.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFITS. The Pre-Retirement
Survivor Benefit shall be paid in the payment period previously elected
by the Participant for the payment of the Retirement Benefit, or, if no
election was made, monthly for 5 Years. However, the Pre-Retirement
Survivor Benefit payment may be made as a lump sum at the request of the
Beneficiary and at the sole and absolute discretion of the Committee.
The first (or only payment, if made in lump sum) shall be made within 60
days of the Committee's receiving proof of the Participant's death.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFITS. Subject to the Deduction Limitation, if a
Participant experiences a Termination of Employment prior to his or her
Retirement. the Participant shall receive a Termination Benefit, which
shall be equal to the Participant's Account Balance, with interest
credited in the manner provided in Section 3.6 hereof.
7.2 PAYMENT OF TERMINATION BENEFIT. A Participant's Termination Benefit
shall be paid in a lump sum no later than 60 days following the date of
the Participant's Termination of Employment.
7.3 DEATH PRIOR TO COMPLETION OF TERMINATION BENEFITS. If a Participant
dies after Termination of Employment, but before the Termination Benefit
is paid, the Participant's unpaid Termination Benefit shall be paid to
the Participant's Beneficiary.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) ELIGIBILITY. By participating in the Plan, all
Participants are eligible for this waiver.
(b) WAIVER OF DEFERRAL: CREDIT FOR PLAN YEAR OF DISABILITY.
A Participant who is determined by the Committee to be
suffering from a Disability shall be excused from
fulfilling that portion of the Annual Deferral Amount
commitment that would otherwise have been withheld from
a Participant's Base Annual Salary and/or Annual Bonus
for the Plan Year during which the Participant first
suffers a Disability. During the period of Disability,
the Participant shall not be allowed to make any
additional deferral elections.
(c) RETURN TO WORK. If a Participant returns to employment
or service as a director with an Employer after a
Disability ceases, the Participant may elect to defer
an Annual Deferral Amount for the Plan Year following
his or her return to employment or service and for
every Plan Year thereafter while a Participant in the
Plan; provided such deferral elections are otherwise
allowed and an Election Form is delivered to and
accepted by the Committee for each such election in
accordance with Section 3.3 above.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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8.2 BENEFIT ELIGIBILITY. A Participant suffering a Disability shall, for
benefit purposes under this Plan but subject to Section 8. 1, above,
continue to be considered to be employed and shall be eligible for the
benefits provided for in Articles 4, 5, 6 and 7 in accordance with the
provisions of those Articles. Employee shall be considered an active
employee for purposes of Section l.35 hereof during a Disability.
Notwithstanding the above, the Committee shall have the right, in its
sole and absolute discretion and for purposes of this Plan only, to
terminate a Participant's employment at any time after such Participant
is determined to be permanently and totally disabled under the
Participant's Employer's long-term disability plan or would have been
determined to be permanently and totally disabled had he or she
participated in such plan.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent) to
receive any benefits payable under the Plan to a Beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may
be the same as or different from the Beneficiary designation under any
other plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall
designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. Where required by law or by
the Committee, in its sole and absolute discretion, if the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee. must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance
by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and acknowledged
in writing by the Committee or its designated agent.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above, or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be his or her surviving
spouse. If the Participant has no surviving spouse, the benefits
remaining under the Plan shall be paid to the Participant's issue upon
the principle of representation and if there is no such issue, to the
Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its sole and absolute
discretion, to cause the Participant's Employer to withhold such
payments until this matter is resolved to the Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to
the Participant, and that Participant's Plan Agreement shall terminate
upon such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered actively employed by the Employer for purposes of Section
1.35 hereof and the Annual Deferral Amount shall continue to be withheld
during such paid leave of absence in accordance with Section 3.3
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered actively employed by the Employer for purposes of Section
l.35 hereof, but the Participant shall be excused from making deferrals
until the earlier of the date the leave of absence expires or the date
the Participant returns to paid employment status. Upon such expiration
or return, deferrals shall resume for the remaining portion of the Plan
Year in which the expiration or return occurs, based on the deferral
election, if any, made for that Plan Year. If no election was made for
that Plan Year, no deferral shall be withheld.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 TERMINATION. Any Employer reserves the right to terminate the Plan at
any time with respect to Participants employed by the Employer. Upon
the termination of the Plan, the Participant's Account Balance shall be
paid out as though the Participant had experienced a Termination of
Employment on the date of Plan termination, or. if Plan termination
occurs after the date upon which the Participant was eligible to Retire,
the Participant had Retired on the date of Plan termination, or, if Plan
termination occurs after the Participant Retired and commenced (but not
completed) distribution hereunder, benefits shall continue to the
Participant pursuant to the terms hereof without regard to the
termination. Prior to a Change in Control, an Employer shall have the
right, in its sole and absolute discretion, and notwithstanding any
elections made by the Participant to pay all such benefits in a lump
sum.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer; provided, however, that
no amendment or modification shall be effective to decrease a
Participant's Account Balance, calculated as though the Participant had
experienced a Termination of Employment as of the effective date of the
amendment or modification, or, if the amendment or modification occurs
after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification. In addition, no amendment or modification of the Plan
shall affect the right of any Participant or Beneficiary who was
eligible to or did Retire on or before the effective date of such
amendment or modification to receive benefits in the manner he or she
elected.
11.3 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Articles 4, 5, 6, or 7 of the Plan shall completely discharge all
obligations to a Participant under this Plan and the Participant's Plan
Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee, to be
known as the Herbalife Deferred Compensation Plan Committee. which shall
consist of individuals approved by the Board. Members of the Committee
may be Participants under this Plan. The Committee shall also have the
discretion and authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Plan
and decide or resolve any and all questions including interpretations of
this Plan, as may arise in connection with the Plan. Any Committee
member must recuse himself or herself on any matter of personal interest
to such member that comes before the Committee.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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12.2 AGENTS. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel who
may be counsel to any Employer.
12.13 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee against any and all claims, losses,
damages, expenses or liabilities arising from any action or failure to
act with respect to this Plan, except in the case of willful misconduct
by the Committee or any of its members.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee
on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement. Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
ARTICLE 13
CLAIMS PROCEDURE
13.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as
a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after
such notice was received by the Claimant. All other claims must be made
within 180 days of the date on which the event that caused the claim to
arise occurred. The claim must state with particularity the
determination desired by the Claimant.
13.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
claim within 60 days of the making of the claim, and shall notify the
Claimant in writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by
the Claimant:
(i) the specific reason(s) for the denial of the claim. or
any part of it:
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 13.3 below.
13.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure begins, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent Documents;
(b) may submit written comments or other Documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
l3.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
13.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 13 is a mandatory prerequisite to a Claimant's right to
commence any arbitration under Section 13.6 with respect to any claim
for benefits under this Plan.
13.6 ARBITRATION. If, after the review process, a claimant seeks further
redress, the subject of the dispute shall be submitted to arbitration in
accordance with the procedures hereinafter provided in this Section 13.6
(the "Procedures"), which arbitration shall be the exclusive remedy, of
the parties hereto. The resulting arbitration award shall be
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SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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deemed a final order of a court having jurisdiction over the subject
matter and shall not be appealable.
(a) Should any controversy arise between the parties as to which the
parties are unable to effect a satisfactory resolution, upon
demand of any party, such controversy shall be submitted to
arbitration in Los Angeles County, California, in accordance with
the terms and provisions of these Procedures and the rules then
prevailing of the American Arbitration Association (or any
successor organization) to the extent that such rules are not
inconsistent with the provisions of these Procedures.
(b) A party desiring to submit to arbitration any such controversy
shall furnish its demand for arbitration in writing to the other
party, which demand shall contain a brief statement of the matter
in controversy, as well as a list containing the names of three
(3) suggested arbitrators from which list, or from other sources,
the parties shall choose one (1) mutually acceptable arbitrator.
If the parties are unable to agree upon the identity of a single
arbitrator within ten (10) days from the receipt of such demand,
then any party, on behalf of and upon notice to the other party,
may request appointment of a single arbitrator by the American
Arbitration Association (or any organization successor thereto)
in accordance with its rules then prevailing. If the American
Arbitration Association (or any organization successor thereto)
should fail to appoint the arbitrator within fifteen (15) days
after such request is made, then any party, may apply upon notice
to the other party, to the court as provided in California Code
of Civil Procedure Section 1281.6 or any successor provision for
the appointment of such arbitrator. The arbitrator chosen or
appointed pursuant to these Procedures ("Arbitrator") shall not
be a past or present officer, director or employee of any party
to the dispute or any of its affiliates.
(c) The parties shall be entitled to conduct discovery as permitted
under Section 1283.05 of the California Code of Civil Procedure.
(d) Each party shall furnish the Arbitrator and the other party with
a written statement of matters it deems to be in controversy for
purposes of the arbitration procedures. Such statement shall
also include all arguments, contentions and authorities which it
contends substantiate its position. Each party shall also submit
a proposed award to the Arbitrator and the other party.
(e) Such Arbitrator shall render this decision as soon as possible
but not later than thirty (30) days after conclusion of hearings
before such Arbitrator. The decision shall be in writing, and
counterpart copies thereof shall be delivered to each of the
parties. The decision shall adopt, unchanged and in its
entirety, the award proposed by, one of the parties.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 14
TRUST
14.1 ESTABLISHMENT OF TRUST. The Company shall establish the Trust, and the
Employers shall transfer over to the Trust such assets. if any, as the
Committee determines, from time to time and in its sole discretion, are
appropriate.
14.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Participant and the creditors of the Employers to the
assets transferred to the Trust. The Employers shall at all times
remain liable to carry out their obligations under the Plan. The
Employers' obligations under the Plan may be satisfied with Trust assets
distributed pursuant to the terms of the Trust.
ARTICLE 15
MISCELLANEOUS
15.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable right,
interest or claim in any property or assets of an Employer. Any and all
of an Employer's assets shall be, and remain, the general, unpledged and
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
15.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
benefits shall be defined only by the Plan. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided
in the Plan.
15.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are expressly
declared to be unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payments be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person. nor be
transferable by operation of law in the event of a Participant's or any
other person's bankruptcy or insolvency.
15.4 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in addition
to any other benefits available to such Participant under any other plan
or program for employees of the Participant's Employer. The Plan shall
supplement and shall not supersede, modify, or amend any other such plan
or program except as may otherwise be expressly provided.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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15.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
shall not be deemed to constitute a Contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any
time for any reason, with or without cause, unless expressly provided in
a written employment agreement. Nothing in this Plan shall be deemed to
give a Participant the right to be retained in the service of any
Employer, either as an employee or a director, or to interfere with the
right of any Employer to discipline or discharge the Participant at any
time.
15.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking such
physical examinations as the Committee may deem necessary.
15.7 TERMS. Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural
or the singular, as the case may be, in all cases where they would so
apply. The masculine pronoun shall be deemed to include the feminine
and VICE VERSA, unless the context clearly indicates otherwise.
15.8 CAPTIONS. The captions of the articles. sections and paragraphs of this
Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
15.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the laws of the State of
California.
15.10 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and hand-
delivered, or sent by registered or certified mail. to:
Mr. Brian Kane
Senior Vice President of Human Resources
HERBALIFE INTERNATIONAL OF AMERICA, INC.
Post Office Box 80210
Los Angeles, CA 90080-0210
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered,
or sent by, mail, to the last known address of the Participant.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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15.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant, the Participant's Beneficiaries, and their permitted
successors and assigns.
15.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in
any manner, including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
15.13 VALIDITY. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been inserted
herein.
15.14 INCOMPETENT. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to
the guardian, legal representative or person having the care and custody
of such minor, incompetent or incapable person. The Committee may
require proof of minority, incompetency, incapacity or guardianship, as
it may deem appropriate prior to distribution of the benefit. Any
payment of a benefit shall be a payment for the account of the
Participant and the Participant's Beneficiary, as the case may be, and
shall be a complete discharge of any liability under the Plan for such
payment amount.
15.15 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any
portion of a Participant's benefit under this Plan becomes taxable to
the Participant prior to receipt, a Participant may petition the
Committee for a distribution of assets sufficient to meet the
Participant's tax liability (including additions to tax, penalties and
interest). Upon the grant of such a petition, which grant shall not be
unreasonably withheld, a Participant's Employer shall distribute to the
Participant immediately available funds in an amount equal to that
Participant's federal, state and local tax liability associated with
such taxation (which amount shall not exceed the Participant's vested
Account Balance), which liability shall be measured by using that
Participant's then current highest federal, state and local marginal tax
rate, plus the rates or amounts for the applicable additions to tax,
penalties and interest. If the petition is granted, the tax liability
distribution shall be made within 90 days of the date when the
Participant's petition is granted. Such a distribution shall reduce the
benefits to be paid under this Plan.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1996
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15.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company is
aware that upon the occurrence of a Change in Control, the Board (which
might then be composed of new members) or a shareholder of the Company,
or of any successor corporation might then cause or attempt to cause the
Company or such successor to refuse to comply with its obligations under
the Plan and might cause or attempt to cause the Company to institute,
or may institute, arbitration or litigation seeking to deny Participants
the benefits intended under the Plan. In these circumstances, the
purpose of the Plan could be frustrated. Accordingly, if, following a
Change in Control, it should appear to any Participant that the Company
or the Committee has failed to comply with any of its obligations under
the Plan or any agreement thereunder or, if the Company or any other
person takes any action to declare the Plan void or unenforceable or
institutes any arbitration, litigation or other legal action designed to
deny, diminish or to recover from any Participant or Beneficiary the
benefits intended to be provided, then the Company irrevocably
authorizes such person to retain counsel of his or her choice at the
expense of the Company to represent such person in connection with the
initiation or defense of any arbitration, litigation or other legal
action, whether by or against the Company, the Committee, or any
director, officer, shareholder or other person affiliated with the
Company or any successor thereto in any jurisdiction.
IN WITNESS WHEREOF, the Company has signed this Plan Document as of 12/29, 1995.
HERBALIFE INTERNATIONAL OF AMERICA,
INC.
a California corporation
By: /s/ illegible
----------------------
Its: /s/ Senior Vice President
---------------------
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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TABLE OF CONTENTS
ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Selection, Enrollment, Eligibility. . . . . . . . . . . . . . . . 5
2.1 Selection by Committee. . . . . . . . . . . . . . . . . . . . . . 5
2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . . . . 5
2.3 Eligibility; Commencement of Participation. . . . . . . . . . . . 6
2.4 Termination of Participation and/or Deferrals . . . . . . . . . . 6
ARTICLE 3 Deferral Commitments/Interest Crediting . . . . . . . . . . . . . 6
3.1 Minimum Deferral. . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Maximum Deferral. . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Election to Defer; Effect of Election Form. . . . . . . . . . . . 7
3.4 Withholding of Deferral Amounts . . . . . . . . . . . . . . . . . 7
3.5 Interest Crediting Prior to Distribution. . . . . . . . . . . . . 7
3.6 Interest Crediting for Installment Distributions. . . . . . . . . 8
3.7 FICA Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal
Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Short-Term Payout . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies.. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 5 Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Payment of Retirement Benefits. . . . . . . . . . . . . . . . . . 9
5.3 Death Prior to Completion of Retirement Benefits. . . . . . . . . 9
ARTICLE 6 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . 9
6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . 9
6.2 Payment of Pre-Retirement Survivor Benefits . . . . . . . . . . . 10
ARTICLE 7 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Termination Benefits. . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Payment of Termination Benefit. . . . . . . . . . . . . . . . . . 10
7.3 Death Prior to Completion of Termination Benefits . . . . . . . . 10
ARTICLE 8 Disability Waiver and Benefit . . . . . . . . . . . . . . . . . . 10
8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . . . 10
8.2 Benefit Eligibility . . . . . . . . . . . . . . . . . . . . . . . 11
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 9 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . 11
9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2 Beneficiary Designation; Change; Spousal Consent. . . . . . . . . 11
9.3 Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.4 No Beneficiary Designation. . . . . . . . . . . . . . . . . . . . 12
9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . . . 12
9.6 Discharge of Obligations. . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 10 Leave of Absence. . . . . . . . . . . . . . . . . . . . . . . . . 12
10.1 Paid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . 12
10.2 Unpaid Leave of Absence . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 11 Termination, Amendment or Modification. . . . . . . . . . . . . . 13
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11.3 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 12 Administration. . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.1 Committee Duties. . . . . . . . . . . . . . . . . . . . . . . . . 13
12.2 Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . . . . 14
12.4 Indemnity of Committee. . . . . . . . . . . . . . . . . . . . . . 14
12.5 Employer Information. . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 13 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . . . 14
13.l Presentation of Claim . . . . . . . . . . . . . . . . . . . . . . 14
13.2 Notification of Decision. . . . . . . . . . . . . . . . . . . . . 14
13.3 Review of a Denied Claim. . . . . . . . . . . . . . . . . . . . . 15
13.4 Decision on Review. . . . . . . . . . . . . . . . . . . . . . . . 15
13.5 Legal Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.6 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 14 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.1 Establishment of Trust. . . . . . . . . . . . . . . . . . . . . . 17
14.2 Interrelationship of the Plan and the Trust . . . . . . . . . . . 17
ARTICLE 15 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 17
15.1 Unsecured General Creditor. . . . . . . . . . . . . . . . . . . . 17
15.2 Employer's Liability. . . . . . . . . . . . . . . . . . . . . . . 17
15.3 Nonassignability. . . . . . . . . . . . . . . . . . . . . . . . . 18
15.4 Coordination with Other Benefits. . . . . . . . . . . . . . . . . 18
15.5 Not a Contract of Employment. . . . . . . . . . . . . . . . . . . 18
15.6 Furnishing Information. . . . . . . . . . . . . . . . . . . . . . 18
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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15.7 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15.8 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.10 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.12 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . . 19
15.13 Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.14 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.15 Distribution in the Event of Taxation . . . . . . . . . . . . . . 20
15.16 Legal Fees to Enforce Rights After Change in Control. . . . . . . 20
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1996
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group of
management or highly compensated employees who contribute materially to the
continued growth, development and future business success of HERBALIFE
INTERNATIONAL OF AMERICA, INC., a California corporation, and its subsidiaries.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, his or her
Elective Deferral Account.
1.2 "ANNUAL Bonus" shall mean any compensation, in addition to Base Annual
Salary, paid annually in respect of a Plan Year to a Participant as an
employee under the Company's Management Incentive Plan. An annual Bonus
for a Plan Year may, but need not, be paid during such Plan Year.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and/or Annual Bonus that a Participant elects to have and
is deferred, in accordance with Article 3), for any one Plan Year.
1.4 "Base Annual Salary" shall mean the annual compensation (excluding
bonuses, commissions, overtime, incentive payments, non-monetary awards,
Directors Fees and other fees, stock options and grants, and car
allowances) paid to a Participant for services rendered to any Employer,
before reduction for compensation deferred pursuant to all qualified,
non-qualified and Code Section 125 plans (other than compensation
deferred under individual employment contracts) of any Employer. The
Committee may, in its discretion, with respect to any one or more
Participants establish for any Plan Year a limit on the amount of Base
Annual Salary to be taken into account under this Plan. Such limitation
shall be reflected in the Participant's Plan Agreement, as it may be
amended from time to time.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under the Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Change in Control" shall mean the first to occur of any of the following
events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act")), other than Mark
Hughes, the Hughes Family Trust or any entity with respect to which
Mark Hughes has investment or dispositive power or authority, after
the date hereof becomes the beneficial owner (as that term is used
in Section 13(d) of the Exchange Act), directly or indirectly, of 50
percent or more of the Company's capital stock entitled to vote in
the election of directors;
(b) During, any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election or
the nomination for election by the Company's shareholders of each
new director was approved by a vote of at least three-quarters of
the directors still in office who were directors at the beginning of
the period;
(c) Any consolidation or merger of the Company, other than a
consolidation or merger of the Company in which the holders of the
common stock of the Company immediately prior to the consolidation
or merger hold more than 50 percent of the common stock of the
surviving corporation immediately after the consolidation or merger;
(d) The shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(e) Substantially all of the assets of the Company are sold or otherwise
transferred to parties that are not within a "controlled group of
corporations" (as defined in Section 1563 of the Code) in which the
Company is a member.
1.9 "Claimant" shall have the meaning set forth in Section 13.1.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.11 "Committee" shall mean the administrative committee appointed to manage
and administer the Plan in accordance with its provisions pursuant to
Article 12.
1.12 "Company" shall mean HERBALIFE INTERNATIONAL OF AMERICA, INC., a
California corporation.
1.13 "Crediting Rate" shall mean, for each plan year, an interest rate equal
to 120 percent of the "Moody's Corporate Bond Rate" in effect for
September (and published in the immediately following October) of the
prior year. The "Moody's Corporate Bond Rate" is an arithmetic average of
yields of representative bonds, including industrials, public utilities,
Aaa, Aa, A and Baa bonds, published by Moody's Investors Service, Inc. or
any successor to that service.
1.14 "Deduction Limitation" shall mean the following described limitation on
the annual benefit that may be distributed pursuant to the provisions of
this Plan. The limitation shall be applied to distributions under this
Plan as expressly set forth in this Plan. If the Company determines in
good faith prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a taxable year
of the Company would not be deductible by the Company solely by reason of
the limitation under Code Section 162(m), then to the extent deemed
necessary by the Company to ensure that the entire amount of any
distribution to the Participant pursuant to this Plan prior to the Change
in Control is deductible, the Company may defer all or any portion of the
distribution. Any amounts deferred pursuant to this limitation shall
continue to be credited with interest in accordance with Section 3.5
below. The amounts so deferred and interest thereon shall be distributed
to the Participant or his or her Beneficiary (in the event of the
Participant's death) at the earliest possible date, as determined by the
Company in good faith, on which the deductibility of compensation paid or
payable to the Participant for the taxable year of the Company during
which the distribution is made will not be limited by Section 162(m), or
if earlier, the effective date of a Change in Control.
1.15 "Deferral Amount" shall mean the sum of all of a Participant's Annual
Deferral Amounts.
1.16 "Directors Fees" shall mean the annual cash fees paid by any Employer,
including retainer fees and meetings fees, as compensation for serving on
the board of directors of an Employer.
1.17 "Disability" shall mean where. because of injury or sickness, the
Participant cannot perform each of the material duties of his or her
regular occupation.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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1.18 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.19 "Elective Deferral Account" shall mean the sum of (a) a Participant's
Deferral Amount, plus (b) interest thereon credited in accordance with
all the applicable interest crediting provisions of the Plan, net of all
distributions from such Account. This account shall be a bookkeeping
entry only and shall be utilized solely as a device for the measurement
and determination of the amounts to be paid to the Participant pursuant
to the Plan.
1.20 "Employer" shall mean the Company and/or any of its subsidiaries that
have been selected by the Board to participate in the Plan.
1.21 "Participant" shall mean any employee (a) who is selected to participate
in the Plan, (b) who elects to participate in the Plan, (c) who signs a
Plan Agreement, an Election Form and a Beneficiary Designation Form, (d)
whose signed Plan Agreement, Election Form and Beneficiary Designation
Form are accepted by the Committee, (e) who commences participation in
the Plan, and (f) whose Plan Agreement has not terminated.
1.22 "Plan" shall mean the Company's Management Deferred Compensation Plan,
which shall be evidenced by this instrument and, with respect to each
Participant, by his or her Plan Agreement, as each may be amended from
time to time.
1.23 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between one or more Employers
and a Participant. Each Plan Agreement executed by a Participant shall
provide for the entire benefit to which such Participant is entitled to
under the Plan, and shall specify the Employer or Employers liable for
the Participant's benefits hereunder and the magnitude or extent of such
liability. The Plan Agreement bearing the latest date of acceptance by
the Committee shall govern such entitlement and each Employer's
liability. Upon the complete payment of a Participant's Account Balance,
each individual's Plan Agreement and his or her status as a Participant
shall terminate.
1.24 "Plan Year" shall be the calendar year, starting with 1996.
1.25 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.26 "Retirement," "Retire," "Retires," or "Retired" shall mean severance from
employment or service with all Employers for any reason other than a
leave of absence on or after the attainment of (a) age fifty (50) and the
completion of ten (1O) Years of Service, (b) age fifty-five (55) and the
completion of five (5) Years of Service, (c) age sixty-five (65),
whichever is earliest.
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MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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1.27 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.28 "Short-Term Payout" shall mean the payout set forth in Section 4. 1.
1.29 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.3O "Termination of Employment" shall mean the ceasing of employment with all
Employers, voluntarily or involuntarily, for any reason other than
Retirement, death or an authorized leave of absence.
1.31 "Trust" shall mean the trust established pursuant to that certain Trust
Agreement, dated as of January 1, 1996, between the Company and the
trustee named therein, as amended from time to time.
1.32 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting
from (a) a sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, (b) a loss of the Participant's
property due to casualty, or (c) such other extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of the Participant, all as determined in the sole and absolute
discretion of the Committee.
1.33 "Years of Service" shall mean the total number of years in which a
Participant has been employed by or in the service of an Employer. For
purposes of this definition only, a year of employment or service shall
be a 365 day period (or 366 day period in the case of a leap year) that,
for the first year of employment, commences on the Participant's date of
hire (or engagement) and that, for any subsequent year, commences on an
anniversary of that hiring date.
ARTICLE 2
SELECTION, ENROLLMENT. ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan Shall be limited to
employees of an Employer who are (a) part of a select group of management
or highly compensated employees and (b) at the rank of either Vice
President or Director. From the foregoing, the Committee shall select, in
its sole and absolute discretion, employees to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation. each selected
employee shall complete. execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form. In
addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole and absolute
discretion are necessary.
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Effective January 1, 1996
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2.3 ELIGIBILITY: COMMENCEMENT OF PARTICIPATION. An employee selected to
participate herein may commence participation upon the January 1 or July
1 immediately following or coinciding with the date he or she has
completed all enrollment requirements set forth herein and required by
the Committee, including returning all required documents to the
Committee and the Committee's acceptance of all submitted documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee
determines in good faith that a Participant no longer meets the
requirements of Sections 2.1(a) and (b) hereof, the Committee shall have
the right, in its sole discretion, to (i)terminate any deferral election
the Participant has made for the Plan Year in which the Participant's
membership status changes, (ii)prevent the Participant from making future
deferral elections and/or (iii) immediately distribute the Participant's
then Account Balance as a Termination Benefit and terminate the
Participant's participation in the Plan. If the Committee chooses not to
terminate the Participant's participation in the Plan, the Committee may,
in its sole discretion, reinstate the Participant to full Plan
participation at such time in the future as the Participant again meets
the requirements of Sections 2.1(a)and(b).
ARTICLE 3
DEFERRAL COMMITMENTS/INTEREST CREDITING
3.1 MINIMUM DEFERRAL.
(a) MINIMUM. For each Plan Year, a Participant may elect to defer Base
Annual Salary and/or Annual Bonus paid in respect of such Plan Year
in the following minimum amounts for each deferral elected:
Minimum
Deferral Amount
-------- ------
Base Annual Salary $2,000
Annual Bonus $2.000
If no election is made, the amount deferred shall be zero.
(b) SHORT PLAN YEAR. If a Participant first becomes a Participant after
the first day of a Plan Year, the minimum Base Annual Salary and/or
Annual Bonus deferral shall be an amount equal to the minimum set
forth above, multiplied by a fraction, the numerator of which is the
number of complete months remaining in the Plan Year and the
denominator of which is 12.
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Effective January 1, 1996
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3.2 MAXIMUM DEFERRAL. For each Plan Year, a Participant may elect to defer
Base Annual Salary and/or Annual Bonus up to the following maximum
amounts for each deferral elected:
Maximum
Deferral Amount
-------- ------
Base Annual Salary 50%
Annual Bonus 100%
3.3 ELECTION TO DEFER: EFFECT OF ELECTION FORM. In connection with a
Participant s commencement of participation in the Plan, the Participant
shall make a deferral election by delivering to the Committee a completed
and signed Election Form, which election and form must be accepted by the
Committee for a valid election to exist. For each succeeding Plan Year, a
new Election Form must be delivered to the Committee, in accordance with
its rules and procedures, before the end of the Plan Year preceding the
Plan Year for which the election is made. If no Election Form is timely
delivered for a Plan Year, no Annual Deferral Amount shall be withheld
for that Plan Year.
3.4 WITHHOLDING OF DEFERRAL AMOUNTS, For each Plan Year, the Base Annual
Salary portion of the Annual Deferral Amount shall be withheld each
payroll period in equal amounts from the Participant's Base Annual
Salary. The Annual Bonus portion of the Annual Deferral Amount shall be
withheld at the time the Annual Bonus is or otherwise would be paid to
the Participant. The Annual Deferral Amount shall be credited to the
Participant's Elective Deferral Account. A Participant shall at all times
have a fully vested and nonforfeitable interest in his or her Elective
Deferral Account.
3.5 INTEREST CREDITING PRIOR TO DISTRIBUTION. Prior to any distributions of
benefits under Articles 4, 5, 6 or 7, interest shall be credited and
compounded annually on a Participant's Account Balance as though the
Annual Deferral Amount for that Plan Year was withheld at the beginning
of the Plan Year or, in the case of the first year of Plan participation,
was withheld on the date that the Participant commenced participation in
the Plan; provided that interest shall be credited on the portion of the
Annual Deferral Amount attributable to the Annual Bonus as of the last
day of the pay period ending closest to the date the Annual Bonus is
actually paid. The rate of interest for crediting shall be the Crediting
Rate. In the event of Retirement. death or a Termination of Employment
prior to the end of a Plan Year. the basis for that year's interest
crediting will be a fraction of the full year's interest, based on the
number of full months that the Participant was employed with the Employer
during the Plan Year prior to the occurrence of such event. If a
distribution is made under this Plan, for purposes of crediting interest,
the Account Balance shall be reduced as of the first day of the month in
which the distribution is made.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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3.6 INTEREST CREDITING FOR INSTALLMENT DISTRIBUTIONS. In the event a benefit
is paid in installments under Article 5 or 6, interest shall be credited
and compounded on the undistributed portion of the Participant's Account
Balance commencing on the first day of the month in which the Participant
terminates employment, using a fixed interest rate that is determined by
using the average of the Crediting Rates for the Plan Year in which
installment payments commence and the four preceding Plan Years. If a
Participant has participated in the Plan for less than five Plan Years,
this average shall be determined using the Crediting Rates for the Plan
Years during which the Participant actually participated in the Plan.
3.7 FICA TAXES For each Plan Year in which an Annual Deferral Amount is being
withheld, the Participant's Employer(s) shall ratably withhold from that
portion of the Participant's Base Annual Salary and/or Annual Bonus that
is not being deferred, the Participant's share of FICA taxes on deferred
amounts. If necessary, the Committee shall reduce the Annual Deferral
Amount in order to comply with this Section.
ARTICLE 4
SHORT-TERM PAYOUT, UNFORESEEABLE FINANCIAL EMERGENCIES;
WITHDRAWAL ELECTION
4.1 SHORT-TERM PAYOUT. Subject to the Deduction Limitation, in connection
With each election to defer an Annual Deferral Amount, a Participant may
elect to receive a future "Short-Term Payout" from the Plan with respect
to that Annual Deferral Amount. The Short-Term Payout shall be a lump sum
payment in an amount that is equal to the Annual Deferral Amount plus
interest credited at the Crediting Rate on that amount. Subject to the
other terms and conditions of this Plan, each Short-Term payout elected
shall be paid within 60 days of the first day of the Plan Year that is
five or more years after the first day of the Plan Year in which the
Annual Deferral Amount is actually deferred. Notwithstanding the
foregoing, should an event occur that triggers a benefit under Article 5,
6, or 7, any Annual Deferral Amount, plus interest thereon, that is
subject to a Short-Term Payout election under this Section 4.1 shall not
be paid in accordance with Section 4.1, but shall be paid in accordance
with the other applicable Article.
4.2 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If
the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (a) suspend any deferrals
required to be made by a Participant and/or (b) receive partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency. If, subject to the sole
and absolute discretion of the Committee, the petition for a suspension
and/or payout is approved, suspension shall take effect upon the date of
approval and any payout shall be made within 60 days of the date of
approval.
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Effective January 1, 1996
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4.3 WITHDRAWAL ELECTION. A Participant may elect, at any time, to withdraw
all of his or her Account Balance, calculated as if such Participant were
receiving a Termination Benefit, less a 10 percent withdrawal penalty
(the net amount shall be referred to as the "Withdrawal Amount"). No
partial withdrawals of that balance shall be allowed. The Participant
shall make this election by giving the Committee advance written notice
of the election in a form determined from time to time by the Committee.
The penalty shall be equal to 10 percent of the Participant's Account
Balance determined immediately prior to the date of his or her election.
Once the Withdrawal Amount is paid. the Participant shall be suspended
permanently from further participation in the Plan.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant
who retires shall receive, as a Retirement Benefit, his or her Account
Balance.
5.2 PAYMENT OF RETIREMENT BENEFITS. A Participant in connection with his or
her commencement of participation in the Plan, shall elect on an Election
Form to receive the Retirement Benefit in a lump sum or in equal monthly
payments over a period of 60 months. The Participant may change this
election to an allowable alternative payout period by submitting a new
Election Form to the Committee, provided that any such Election Form is
submitted at least three years prior to the Participant's Retirement. The
Election Form most recently accepted by the Committee shall govern the
payout of the Retirement Benefit. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days from the date
the Participant Retires.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and shall
be paid to the Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been paid to
the Participant had the Participant survived, or (b) in a lump sum, if
requested by the beneficiary and allowed at the sole and absolute
discretion of the Committee. The lump sum payment will be the
Participant's Account Balance at the time of his or her death.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, if
a Participant dies before he or she Retires, the Participant's
Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the
Participant's Account Balance.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFITS. The Pre-Retirement Survivor
Benefit shall be paid in the payment period previously elected by the
Participant for the payment of the Retirement Benefit, or, if no election
was made, monthly for 5 years. However, the Pre-Retirement Survivor
Benefit payment may be made as a lump sum at the request of the
Beneficiary and at the sole and absolute discretion of the Committee. The
first (or only payment, if made in lump sum) shall be made within 60 days
of the Committee's receiving proof of the Participant's death.
ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFITS. Subject to the Deduction Limitation, if a
Participant experiences a Termination of Employment prior to his or her
Retirement, the Participant shall receive a Termination Benefit, which
shall be equal to the Participant's Account Balance, with interest
credited in the manner provided in Section 3.5 hereof.
7.2 PAYMENT OF TERMINATION BENEFIT. A Participant's Termination Benefit shall
be paid in a lump sum no later than 60 days following the date of the
Participant's Termination of Employment.
7.3 DEATH PRIOR TO COMPLETION OF TERMINATION BENEFITS. If a Participant dies
after Termination of Employment, but before the Termination Benefit is
paid, the Participant's unpaid Termination Benefit shall be paid to the
Participant's Beneficiary.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) ELIGIBILITY. By participating in the Plan, all Participants are
eligible for this waiver.
(b) WAIVER OF DEFERRAL, CREDIT FOR PLAN YEAR OF DISABILITY. A
Participant who is determined by the Committee to be suffering from
a Disability shall be excused from fulfilling that portion of the
Annual Deferral Amount commitment that would otherwise have been
withheld from a Participant's Base Annual Salary and/or Annual Bonus
for the Plan Year during which the Participant first suffers a
Disability. During the period of Disability, the Participant shall
not be allowed to make any additional deferral elections.
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MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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(c) RETURN TO WORK. If a Participant returns to employment or service as
a director with an Employer after a Disability ceases, the Participant
may elect to defer an Annual Deferral Amount for the Plan Year following
his or her return to employment or service and for every Plan Year
thereafter while a Participant in the Plan; provided such deferral
elections are otherwise allowed and an Election Form is delivered to and
accepted by the Committee for each such election in accordance with
Section 3.3 above.
8.2 BENEFIT ELIGIBILITY. A Participant suffering a Disability shall, for
benefit purposes under this Plan but subject to Section 8.1, above,
continue to be considered to be employed and shall be eligible for the
benefits provided for in Articles 4, 5, 6 and 7 in accordance with the
provisions of those Articles. Employee shall be considered an active
employee for purposes of Section 1.33 hereof during a Disability.
Notwithstanding the above, the Committee shall have the right, in its
sole and absolute discretion and for purposes of this Plan only, to
terminate a Participant's employment at any time after such Participant
is determined to be permanently and totally disabled under the
Participant's Employer's long-term disability plan or would have been
determined to be permanently and totally disabled had he or she
participated in such plan.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent) to
receive any benefits payable under the Plan to a Beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION: CHANGE: SPOUSAL CONSENT. A Participant shall
designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms
of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. Where required by law or by
the Committee, in its sole and absolute discretion, if the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance
by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary
shall be effective until received, accepted and acknowledged in writing
by the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above, or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be his or her surviving
spouse. If the Participant has no surviving spouse, the benefits
remaining under the Plan shall be paid to the Participant's issue upon
the principle of representation, and if there is no such issue, to the
Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its sole and absolute discretion, to
cause the Participant's Employer to withhold such payments until this
matter is resolved to the Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to
the Participant, and that Participant's Plan Agreement shall terminate
upon such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered actively employed by the Employer for purposes of Section 1.33
hereof and the Annual Deferral Amount shall continue to be withheld
during such paid leave of absence in accordance with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered actively employed by the Employer for purposes of Section
hereof, but the Participant shall be excused from making deferrals until
the earlier of the date the leave of absence expires or the date the
Participant returns to paid employment status. Upon such expiration or
return, deferrals shall resume for the remaining portion of the Plan Year
in which the expiration or return occurs, based on the deferral election,
if any, made for that Plan Year. If no election was made for that Plan
Year, no deferral shall be withheld.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 TERMINATION. Any Employer reserves the right to terminate the Plan at any
time with respect to Participants employed by the Employer. Upon the
termination of the Plan, the Participant's Account Balance shall be paid
out as though the Participant had experienced a Termination of Employment
on the date of Plan termination, or, if Plan termination occurs after the
date upon which the Participant was eligible to Retire, the Participant
had Retired on the date of Plan termination, or, if Plan termination
occurs after the Participant Retired and commenced (but not completed)
distribution hereunder, benefits shall continue to the Participant
pursuant to the terms hereof without regard to the termination. Prior to
a Change in Control, an Employer shall have the right, in its sole and
absolute discretion, and notwithstanding any elections made by the
Participant, to pay all such benefits in a lump sum.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer; provided, however, that
no amendment or modification shall be effective to decrease a
Participant's Account Balance, calculated as though the Participant had
experienced a Termination of Employment as of the effective date of the
amendment or modification, or, if the amendment or modification occurs
after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification. In addition, no amendment or modification of the Plan shall
affect the right of any Participant or Beneficiary who was eligible to or
did Retire on or before the effective date of such amendment or
modification to receive benefits in the manner he or she elected.
11.3 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Articles 4, 5, 6, or 7 of the Plan shall completely discharge all
obligations to a Participant under this Plan and the Participant's Plan
Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee, to be
known as the Herbalife Deferred Compensation Plan Committee, which shall
consist of individuals approved by the Board. Members of the Committee
may be Participants under this Plan. The Committee shall also have the
discretion and authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Plan and
decide or resolve any and all questions including interpretations of this
Plan, as may arise in connection with the Plan. Any Committee member must
recuse himself or herself on any matter of personal interest to such
member that comes before the Committee.
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MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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12.2 AGENTS. In the administration of this Plan, the Committee may, from time
to time, employ agents and delegate to them such administrative duties as
it sees fit and may from time to time consult with counsel who may be
counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with
respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with
respect to this Plan, except in the case of willful misconduct by the
Committee or any of its members.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee
on all matters relating to the compensation of its Participants, the date
and circumstances of the Retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent information as
the Committee may reasonably require.
ARTICLE 13
CLAIMS PROCEDURE
13.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after
such notice was received by the Claimant. All other claims must be made
within 180 days of the date on which the event that caused the claim to
arise occurred. The claim must state with particularity the determination
desired by the Claimant.
13.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim
within 60 days of the making of the claim, and shall notify the Claimant
in writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
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Effective January 1, 1996
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(b) that the Committee has reached a conclusion contrary, in whole or in
part, to the Claimant's requested determination, and such notice
must set forth in a manner calculated to be understood by the
Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 13.3 below.
13.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file with
the Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure begins.
the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion,
may grant.
13.4 DECISION ON REVIEW. The Committee shall render its decision on
review promptly, and not later than 60 days after the filing of a
written request for review of the denial. unless a hearing is held or
other special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
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MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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13.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 13 is a mandatory prerequisite to a Claimant's right to
commence any arbitration under Section 13.6 with respect to any claim for
benefits under this Plan.
13.6 ARBITRATION. If, after the review process, a claimant seeks further
redress. the subject of the dispute shall be submitted to arbitration in
accordance with the procedures hereinafter provided in this Section 13.6
(the "Procedures"), which arbitration shall be the exclusive remedy of
the parties hereto. The resulting arbitration award shall be deemed a
final order of a court having jurisdiction over the subject matter and
shall not be appealable.
(a) Should any controversy arise between the parties as to which the
parties are unable to effect a satisfactory resolution, upon demand
of any party, such controversy shall be submitted to arbitration in
Los Angeles County, California, in accordance with the terms and
provisions of these Procedures and the rules then prevailing of the
American Arbitration Association (or any successor organization) to
the extent that such rules are not inconsistent with the provisions
of these Procedures.
(b) A party desiring to submit to arbitration any such controversy
shall furnish its demand for arbitration in writing to the other
party, which demand shall contain a brief statement of the matter in
controversy, as well as a list containing the names of three (3)
suggested arbitrators from which list, or from other sources, the
parties shall choose one (1) mutually acceptable arbitrator. If the
parties are unable to agree upon the identity of a single arbitrator
within ten (10) days from the receipt of such demand, then any
party, on behalf of and upon notice to the other party, may request
appointment of a single arbitrator by the American Arbitration
Association (or any organization successor thereto) in accordance
with its rules then prevailing. If the American Arbitration
Association (or any organization successor thereto) should fail to
appoint the arbitrator within fifteen (15) days after such request
is made, then any party, may apply upon notice to the other party,
to the court as provided in California Code of Civil Procedure
Section 1281.6 or any successor provision for the appointment of
such arbitrator. The arbitrator chosen or appointed pursuant to
these Procedures ("Arbitrator") shall not be a past or present
officer, director or employee of any party to the dispute or any of
its affiliates.
(c) The parties shall be entitled to conduct discovery as permitted
under Section 1283.05 of the California Code of Civil Procedure.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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(d) Each party shall furnish the Arbitrator and the other party with a
written statement of matters it deems to be in controversy for
purposes of the arbitration procedures. Such statement shall also
include all arguments, contentions and authorities which it contends
substantiate its position. Each party shall also submit a proposed
award to the Arbitrator and the other party.
(e) Such Arbitrator shall render this decision as soon as possible but
not later than thirty (30) days after conclusion of hearings before
such Arbitrator. The decision shall be in writing and counterpart
copies thereof shall be delivered to each of the parties. The
decision shall adopt, unchanged and in its entirety, the award
proposed by one of the parties.
ARTICLE 14
TRUST
14.1 ESTABLISHMENT OF TRUST. The Company shall establish the Trust, and the
Employers shall transfer over to the Trust such assets, if any, as the
Committee determines, from time to time and in its sole discretion, are
appropriate.
14.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the rights
of the Participant and the creditors of the Employers to the assets
transferred to the Trust. The Employers shall at all times remain liable
to carry out their obligations under the Plan. The Employers' obligations
under the Plan may be satisfied with Trust assets distributed pursuant to
the terms of the Trust.
ARTICLE 15
MISCELLANEOUS
15.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable right, interest
or claim in any property or assets of an Employer. Any and all of an
Employer's assets shall be, and remain, the general, unpledged and
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
15.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits
shall be defined only by the Plan. An Employer shall have no obligation
to a Participant under the Plan except as expressly provided in the Plan.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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15.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or any
part thereof, which are, and all rights to which are expressly declared
to be unassignable and non-transferable. No part of the amounts payable
shall, prior to actual payment, be subject to seizure or sequestration
for the payment of any debts, judgments, alimony or separate maintenance
owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency.
15.4 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under
any other plan or program for employees of the Participant's
Employer. The Plan shall supplement and shall not supersede, modify
or amend any other such plan or program except as may otherwise be
expressly provided.
15.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall
not be deemed to constitute a contract of employment between any Employer
and the Participant. Such employment is hereby acknowledged to be an "at
will" employment relationship that can be terminated at any time for any
reason, with or without cause, unless expressly provided in a written
employment agreement. Nothing in this Plan shall be deemed to give a
Participant the right to be retained in the service of any Employer,
either as an employee or a director, or to interfere with the right of
any Employer to discipline or discharge the Participant at any time.
15.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking such
physical examinations as the Committee may deem necessary.
15.7 TERMS. Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they would so apply.
The masculine pronoun shall be deemed to include the feminine and VICE
VERSA, unless the context clearly indicates otherwise.
15.8 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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15.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the laws of the State of
California.
15.10 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and hand-
delivered, or sent by registered or certified mail, to:
Mr. Brian Kane
Senior Vice President of Human Resources
HERBALIFE INTERNATIONAL OF AMERICA, INC.
Post Office Box 80210
Los Angeles, CA 90080-0210
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
15.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns
and the Participant, the Participant's Beneficiaries, and their
permitted successors and assigns.
15.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable
by such spouse in any manner, including but not limited to such
spouse's will, nor shall such interest pass under the laws of
intestate succession.
15.13 VALIDATION. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be construed
and enforced as if such illegal or invalid provision had never been
inserted herein.
15.14 INCOMPETENT. If the Committee determines in its discretion that
a benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of
that person's property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the
care and custody of such minor, incompetent or incapable person. The
Committee may require proof of minority, incompetency, incapacity or
Guardianship. as it may deem appropriate prior to distribution of the
benefit. Any payment of a benefit shall be a pavement for the account
of the Participant and the Participant's Beneficiary, as the case may
be, and shall be a complete discharge of any liability under the Plan
for such payment amount.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN
Effective January 1, 1996
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15.15 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any
portion of a Participant's benefit under this Plan becomes taxable to
the Participant prior to receipt, a Participant may petition the
Committee for a distribution of assets sufficient to meet the
Participant's tax liability (including additions to tax, penalties
and interest). Upon the grant of such a petition, which grant shall
not be unreasonably withheld, a Participant's Employer shall
distribute to the Participant immediately available funds in an
amount equal to that Participant's federal, state and local tax
liability associated with such taxation (which amount shall not
exceed the Participant's vested Account Balance), which liability
shall be measured by using that Participant's then current highest
federal, state and local marginal tax rate, plus the rates or amounts
for the applicable additions to tax, penalties and interest. If the
petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is
granted. Such a distribution shall reduce the benefits to be paid
under this Plan.
15.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company is
aware that upon the occurrence of a Change in Control, the Board
(which might then be composed of new members) or a shareholder of the
Company, or of any successor corporation might then cause or attempt
to cause the Company or such successor to refuse to comply with its
obligations under the Plan and might cause or attempt to cause the
Company to institute, or may institute, arbitration or litigation
seeking to deny Participants the benefits intended under the Plan.
In these circumstances, the purpose of the Plan could be frustrated.
Accordingly, if, following a Change in Control, it should appear to
any Participant that the Company or the Committee has failed to
comply with any of its obligations under the Plan or any agreement
thereunder or, if the Company or any other person takes any action to
declare the Plan void or unenforceable or institutes any arbitration,
litigation or other legal action designed to deny, diminish or to
recover from any Participant or Beneficiary the benefits intended to
be provided, then the Company irrevocably authorizes such person to
retain counsel of his or her choice at the expense of the Company to
represent such person in connection with the initiation or defense of
any arbitration, litigation or other legal action, whether by or
against the Company, the Committee, or any director, officer,
shareholder or other person affiliated with the Company or any
successor thereto in any jurisdiction.
IN WITNESS WHEREOF,the Company has signed this Plan document as of 12/29, 1995.
HERBALIFE INTERNATIONAL OF AMERICA, INC.
a California corporation.
By:/s/
-------------------------
Its: Senior Vice President
------------------------
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20
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE 1 Name, Intentions, Irrevocability, Deposit and Definitions.......................................... 1
1.1 Name.............................................................................................. 1
1.2 Intentions........................................................................................ 1
1.3 Irrevocability; Creditor Claims................................................................... 2
1.4 Initial Deposit................................................................................... 2
1.5 Additional Definitions............................................................................ 2
1.6 Grantor Trust..................................................................................... 3
ARTICLE 2 General Administration............................................................................. 4
2.1 Committee Directions.............................................................................. 4
2.2 Administration Upon Change in Control............................................................. 4
2.3 Contributions..................................................................................... 4
2.4 Trust Fund........................................................................................ 5
2.5 Distribution of Excess Trust Fund to Employer..................................................... 5
ARTICLE 3 Powers and Duties of Trustee....................................................................... 5
3.1 Investment Directions............................................................................. 5
3.2 Investment Upon Change in Control................................................................. 5
3.3 Management of Investments......................................................................... 6
3.4 Securities........................................................................................ 8
3.5 Substitution...................................................................................... 8
3.6 Distributions..................................................................................... 8
3.7 Trustee Responsibility Regarding Payments on Insolvency........................................... 10
3.8 Costs of Administration........................................................................... 12
3.9 Trustee Compensation and Expenses................................................................. 12
3.10 Professional Advice............................................................................... 12
3.11 Payment on Court Order............................................................................ 12
3.12 Protective Provision.............................................................................. 12
3.13 Indemnifications.................................................................................. 13
ARTICLE 4 Insurance Contracts................................................................................ 13
4.1 Types of Contracts................................................................................ 13
4.2 Ownership......................................................................................... 13
4.3 Restrictions on Trustee's Rights.................................................................. 13
</TABLE>
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<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
Effective January 1, 1996
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<TABLE>
<C> <S> <C>
ARTICLE 5 Trustee's Accounts................................................................................. 14
5.1 Records........................................................................................... 14
5.2 Annual Accounting: Final Accounting............................................................... 14
5.3 Valuation......................................................................................... 15
5.4 Delegation of Duties.............................................................................. 15
ARTICLE 6 Resignation or Removal of Trustee.................................................................. 15
6.1 Resignation Removal............................................................................... 15
6.2 Successor Trustee................................................................................. 15
6.3 Settlement of Accounts............................................................................ 16
ARTICLE 7 Controversies, Legal Actions and Counsel........................................................... 16
7.1 Controversy....................................................................................... 16
7.2 Joinder of Parties................................................................................ 16
7.3 Employment of Counsel............................................................................. 16
ARTICLE 8 Insurers........................................................................................... 16
8.1 Insurer Not a Party............................................................................... 16
8.2 Authority of Trustee.............................................................................. 17
8.3 Contract Ownership................................................................................ 17
8.4 Limitation of Liability........................................................................... 17
8.5 Change of Trustee................................................................................. 17
ARTICLE 9 Amendment and Termination.......................................................................... 17
9.1 Amendment......................................................................................... 17
9.2 Final Termination................................................................................. 19
ARTICLE 10 Miscellaneous..................................................................................... 19
10.1 Directions Following Change in Control............................................................ 19
10.2 Taxes............................................................................................. 19
10.3 Third Persons..................................................................................... 19
10.4 Nonassignability: Nonalienation................................................................... 20
10.5 The Plans......................................................................................... 20
10.6 Applicable Law.................................................................................... 20
10.7 Notices and Directions............................................................................ 20
10.8 Successors and Assigns............................................................................ 20
10.9 Gender and Number................................................................................. 20
10.10 Headings.......................................................................................... 20
10.11 Counterparts...................................................................................... 20
10.12 Third Party Beneficiaries......................................................................... 20
</TABLE>
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<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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HERBALIFE
MASTER TRUST AGREEMENT
FOR
DEFERRED COMPENSATION PLANTS
THIS MASTER TRUST AGREEMENT ("Master Trust Agreement") is made and entered
into as of January 1,1996, between Herbalife International of America, Inc.,
a California corporation (the "Company"), and Imperial Trust Company, a
California corporation (the "Trustee"), to evidence the master trust (the
"Trust") to be established, pursuant to any nonqualified deferred
compensation plan or plans of the Company now or hereafter existing (each, a
"Plan," together, the "Plans") that require or authorize the establishment of
a trust, for the benefit of a select group of management, highly compensated
employees and/or Directors who contribute materially to the continued growth
development and business success of the Company and those subsidiaries of the
Company, if any, that participate in the Plans (collectively, "Subsidiaries,"
or singularly, "Subsidiary").
ARTICLE I
NAME, INTENTIONS, IRREVOCABILITY,
DEPOSIT AND DEFINITIONS
1.1 NAME. The name of the Trust created by this Agreement (the "Trust")
shall be the Herbalife Master Deferred Compensation Trust.
1.2 INTENTIONS. The Company wishes to establish the Trust and to contribute
to the Trust assets that shall be held therein, subject to the claims of the
Company's and the Subsidiaries' creditors in the event of their Insolvency,
as herein defined, until paid to Participants and their Beneficiaries in such
manner and at such times as specified in the Plans. It is the intention of
the parties that this Trust shall not affect the status of the Plans as
unfunded plans maintained for the purpose of providing supplemental
compensation for a select group of management, highly compensated employees
and/or Directors for purposes of Title I of ERISA (as defined below). In
addition, it is the intention of the Company and the Subsidiaries to make
contributions to the Trust to provide themselves with a source of funds to
assist them in the meeting of their liabilities under the Plans.
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<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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1.3 IRREVOCABILITY; CREDIT CLAIMS. The Trust hereby established shall
be irrevocable. Except as otherwise provided in Section 2.5 and 9.2, the
principal of the Trust, and any earnings thereon, shall be held separate and
apart from other funds of the Company and the Subsidiaries and shall be used
exclusively for the uses and purposes of the Participants and general
creditors of the Company and the Subsidiaries as herein set forth. The
Participants and their Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plans and this Master Trust Agreement shall be mere
unsecured contractual rights of the Participants and their Beneficiaries
against the Company and the Subsidiaries. Any assets held by the Trust will
be subject to the claims of the Company's and the Subsidiaries' general
creditors under federal and state law in the event of Insolvency (as defined
below).
1.4 INITIAL DEPOSIT. The Company hereby deposits with the Trustee in trust
$100, which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Master Trust Agreement.
1.5 ADDITIONAL DEFINITIONS. In addition to the definitions set forth above, for
purposes hereof, unless otherwise clearly apparent from the context, the
following terms have the following indicated meanings:
(a) "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with a Plan, that are entitled to
receive benefits under a Plan upon the death of a Participant.
(b) "Board" shall mean the board of directors of the Company.
(c) "Change in Control" shall mean the first to occur of any of the
following events:
(1) Any "person" (as that term is used in Section 13 and
14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")),
after the date hereof becomes the beneficial owner (as that term is
used in Section 13(d) of the Exchange Act), directly or indirectly, of
50 percent or more of the Company's capital stock entitled to vote in
the election of directors;
(2) During any period of two consecutive years, individuals
who at the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof, under the election or
nomination for election by the Company's shareholders of each new
director was approved by a vote of at least three-quarters of the
directors then still in office who either were directors at the
beginning of the period;
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2
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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(3) Any consolidation or merger of the Company, other than a
consolidation or merger of the Company in which the holders of the
common stock of the Company immediately prior to the consolidation or
merger hold more than 50 percent of the common stock of the surviving
corporation immediately after the consolidation or merger;
(4) The shareholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; or
(5) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a "controlled
group of corporations" (as defined in Section 1563 of the Internal
Revenue Code of 1986, as amended) in which the Company is a member.
(d) "Committee" shall mean the Deferred Compensation Committee appointed
by the Board of Directors of the Company to administer the Plans.
(e) "Director" shall mean any member of the board of directors of the
Company or any Subsidiary.
(f) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as may be amended from time to time.
(g) "Insolvent" shall have the meaning set forth in Section 3.7(a) below.
(h) "Insolvent Entity" shall have the meaning set forth in Section 3.7(a)
below.
(i) "IRS" shall mean the Internal Revenue Service.
(j) "Participant" shall mean a person who is a participant in one or more
of the Plans in accordance with their terms and conditions.
(k) "Payment Schedule" shall have the meaning set forth in Section 3.6(b)
below.
(1) "Plan(s)" shall mean one or more of the executive deferral plans
established now or in the future by the Company that require or authorize
the establishment of a trust.
(m) "Trust Fund" shall mean the assets held by the Trustee pursuant to the
terms of this Master Trust Agreement and for the purposes of the Plans.
1.6 GRANTOR TRUST. The Trust is intended to be a "grantor trust," of which
the Company, and the Subsidiaries are the grantors, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal
Revenue Code of 1986, as amended. and the Trust shall be construed
accordingly.
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3
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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ARTICLE 2
GENERAL ADMINISTRATION
2.1 COMMITTEE DIRECTIONS. Until a Change in Control has occurred, this
Section 2.1 shall be effective and the Committee shall direct the Trustee as
to the administration of the Trust in accordance with the following
provisions:
(a) The Committee shall be identified to the Trustee by a written
certification of the Board. Persons authorized to give directions to the
Trustee on behalf of the Committee shall be identified to the Trustee by
written notice from the Committee, and such notice shall contain specimens
of the authorized signatures. The Trustee shall be entitled to rely on such
written notice as evidence of the identity and authority of the persons
appointed until a written cancellation of the appointment, or the written
appointment of a successor, is received by the Trustee.
(b) Directions by the Committee, or its delegate, to the Trustee shall
be in writing and signed by the Committee or persons authorized by the
Committee, or may be made by such other method as is acceptable to the
Trustee.
(c) The Trustee may conclusively rely upon directions from the
Committee in taking any action with respect to this Master Trust Agreement,
including the making of payments from the Trust Fund and the investment of
the Trust Fund pursuant to this Master Trust Agreement. The Trustee shall
have no liability for actions taken, or for failure to act, on the
direction of the Committee. The Trustee shall have no liability for failure
to act in the absence of proper written directions.
(d) The Trustee may request instructions from the Committee and shall
have no duty to act or liability for failure to act if such instructions
are not forthcoming from the Committee. If requested instructions are not
received within a reasonable time, the Trustee may, but is under no duty
to, act on its own discretion to carry out the provisions of this Master
Trust Agreement in accordance with this Master Trust Agreement and the
Plans.
2.2 ADMINISTRATION UPON CHANGE IN CONTROL. In the event of a Change in
Control, the authority of the Committee to administer the Trust and direct
the Trustee, as set forth in Section 2.1 above, shall cease, and the Trustee
shall have complete authority to administer the Trust.
2.3 CONTRIBUTIONS. The Company and the Subsidiaries, in their sole
discretion, may at any time, or from time to time, make additional deposits
of cash or other property in trust with the Trustee to augment the principal
to be held, administered and disposed of by the Trustee as provided in this
Master Trust Agreement. Neither the Trustee nor any Participant or
Beneficiary shall have any right to compel such additional deposits. The
Trustee shall have no duty to collect or enforce payment to it of any
contributions or to require that any contributions be made, and
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4
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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shall have no duty to compute any amount to be paid to it nor to determine
whether amounts paid comply with the terms of the Plans.
2.4 TRUST FUND. The contributions received by the Trustee from the Company
and the Subsidiaries shall be held and administered pursuant to the terms of
this Master Trust Agreement as a single fund without distinction between
income and principal and without liability for the payment of interest
thereon except as expressly provided in this Master Trust Agreement. During
the term of this Trust, all income received by the Trust, net of expenses and
taxes, shall be accumulated and reinvested.
2.5 DISTRIBUTION OF EXCESS TRUST FUND TO EMPLOYER. In the event that the
Committee, prior to a Change in Control, or the Trustee in its sole and
absolute discretion, after a Change in Control, determines that the Trust
Fund assets consisting solely of cash or cash equivalents exceed 120 percent
of the anticipated benefit obligations and administrative expenses that are
to be paid under the Plans, the Trustee, but only at the direction of the
Committee and only prior to a Change in Control, shall distribute to the
Company and the Subsidiaries such excess portion of the Trust Fund. After a
Change in Control, assets may be distributed to the Company or Subsidiary
only as provided in Section 9.2 hereof.
ARTICLE 3
POWERS AND DUTIES OF TRUSTEE
3.1 INVESTMENT DIRECTIONS. Except as provided in Section 3.2, the Committee
shall provide the Trustee with all investment instructions. The Trustee
shall neither affect nor change investments of the Trust Fund, except as
directed in writing by the Committee, and shall have no right, duty or
responsibility to recommend investments or investment changes; provided, that
the Trustee may (i) deposit cash on hand from time to time in any bank
savings account, certificate of deposit, or other instrument creating a
deposit liability for a bank, including the Trustee's own banking department
if the Trustee is a bank, without such prior direction, or (ii) invest in
government securities, bonds with specific ratings, or stock of "Fortune 500"
companies, all within broad investment guidelines established by the
Committee from time to time.
3.2 INVESTMENT UPON CHANGE IN CONTROL. In the event of a Change in Control,
the authority of the Committee to direct investments of the Trust Fund shall
cease and the Trustee shall have complete authority to direct investments of
the Trust Fund; provided that, except to the extent it is clearly prudent not
to do so, the Trustee shall retain any investments in life insurance policies
and do all that is necessary to maintain such policies. The president of the
Company shall notify the Trustee in writing when a Change in Control has
occurred. The Trustee has no duty to inquire whether a Change in Control has
occurred and may rely on notification by the president of the Company of a
Change in Control; provided, however, that if any officer, former officer,
director or former director of the Company or any Subsidiary (other than
the president of the Company), or any Participant notifies the Trustee that
there has been or there may be a Change in Control, the Trustee shall have
the duty to satisfy itself as to whether a Change in Control has in
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5
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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fact occurred. The Company and the Subsidiaries shall indemnify and hold
harmless the Trustee for any damages or costs (including attorneys' fees)
that may be incurred because of reliance on the president's notice or lack
thereof.
3.3 MANAGEMENT OF INVESTMENTS. Subject to Section 3.1 above, the Trustee
shall have, without exclusion, all powers conferred on the Trustee by
applicable law, unless expressly provided otherwise herein, and all rights
associated with assets of the Trust shall be exercised by the Trustee or the
person designated by the Trustee, and shall in no event be exercisable by or
rest with Participants. The Trustee shall have full power and authority to
invest and reinvest the Trust Fund in any investment permitted by law,
exercising the judgment and care that persons of prudence, discretion and
intelligence would exercise under the circumstances then prevailing,
considering the probable income and safety of their capital, including,
without limiting the generality of the foregoing, the power:
(a) To invest and reinvest the Trust Fund, together with the income
therefrom, in common stock, preferred stock, convertible preferred stock,
mutual funds, bonds, debentures, convertible debentures and bonds,
mortgages, notes, time certificates of deposit, commercial paper and
other evidences of indebtedness (including those issued by the Trustee
or any of its affiliates), other securities, policies of life insurance,
annuity contracts, options to buy or sell securities or other assets,
and other property of any kind (personal, real, or mixed, and tangible
or intangible); provided, however, that in no event may the Trustee
invest in securities (including stock or rights to acquire stock) or
obligations issued by the Company or the Subsidiaries, other than a de
minimis amount held in common investment vehicles in which the Trustee
invests;
(b) To deposit or invest all or any part of the assets of the Trust
Fund in savings accounts or certificates of deposit or other deposits which
bear a reasonable interest rate in a bank, including the commercial
department of the Trustee, if such bank is supervised by the United States
or any State;
(c) To hold, manage, improve, repair and control all property, real or
personal, forming part of the Trust Fund and to sell, convey, transfer,
exchange, partition, lease for any term, even extending beyond the duration
of this Trust, and otherwise dispose of the same from time to time in such
manner, for such consideration, and upon such terms and conditions as the
Trustee shall determine;
(d) To have, respecting securities, all the rights, powers and
privileges of an owner, including the power to give proxies, pay assessments
and other sums deemed by the Trustee to be necessary for the protection of
the Trust Fund, to vote any corporate stock either in person or by proxy,
with or without power of substitution, for any purpose; to participate in
voting trusts, pooling agreements, foreclosures, reorganizations,
consolidations, mergers and liquidations, and in connection therewith to
deposit securities with and transfer title to any protective or other
committee under such terms as the Trustee may deem advisable; to exercise or
sell stock subscriptions or conversion rights;
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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and, regardless of any limitation elsewhere in this instrument relative to
investment by the Trustee, to accept and retain as an investment any
securities or other property received through the exercise of any of the
foregoing powers;
(e) To hold in cash, without liability for interest, such portion of the
Trust Fund which, in its discretion, shall be reasonable under the
circumstances, pending investments, or payment of expenses, or the
distribution of benefits;
(f) To take such actions as may be necessary or desirable to protect the
Trust Fund from loss due to the default on mortgages held in the Trust,
including the appointment of agents or trustees in such other jurisdictions
as may seem desirable, to transfer property to such agents or trustees, to
grant such powers as are necessary or desirable to protect the Trust or its
assets, to direct such agents or trustees, or to delegate such power to
direct, and to remove such agents or trustees;
(g) To employ such agents including custodians and counsel as may be
reasonably necessary and to pay them reasonable compensation; to settle,
compromise or abandon all claims and demands in favor of or against the
Trust assets;
(h) To cause title to property of the Trust to be issued, held or
registered in the individual name of the Trustee, or in the name of its
nominee(s) or agents, or in such form that title will pass by delivery;
(i) To exercise all of the further rights, powers, options and privileges
granted, provided for, or vested in trustees generally under the laws of
the State of California, so that the powers conferred upon the Trustee
herein shall not be in limitation of any authority conferred by law, but
shall be in addition thereto;
(j) To borrow money from any source (including the Trustee) and to execute
promissory notes, mortgages or other obligations and to pledge or mortgage
any Trust assets as security;
(k) To lend certificates representing stocks, bonds, or other securities
to any brokerage or other firm selected by the Trustee;
(l) To institute, compromise and defend actions and proceedings; to pay or
contest any claim; to settle a claim by or against the Trustee by
compromise, arbitration, or otherwise; to release, in whole or in part,
any claim belonging to the Trust to the extent that the claim is
uncollectible;
(m) To use securities depositories or custodians and to allow such
securities as may be held by a depository or custodian to be registered in
the name of such depository or its nominee or in the name of such custodian
or its nominee;
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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(n) To invest the Trust Fund from time to time in one or more investment
funds, which funds shall be registered under the Investment Company Act of
1940; and
(o) To do all other acts necessary or desirable for the proper
administration of the Trust Fund, as if the Trustee were the absolute
owner thereof However, nothing in this section shall be construed to
mean the Trustee assumes any responsibility for the performance of any
investment made by the Trustee in its capacity as trustee under the
operations of this Master Trust Agreement.
Notwithstanding any powers granted to the Trustee pursuant to this Master Trust
Agreement or to applicable law, the Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code of
1986, as amended.
3.4 SECURITIES. Voting or other rights in securities shall be exercised by the
person or entity responsible for directing such investments, and the Trustee
shall have no duty to exercise voting or proxy or other rights relating to any
investment managed or directed by the Committee. If any foreign securities are
purchased pursuant to the direction of the Committee, it shall be the
responsibility of the person or entity responsible for directing such
investments to advise the Trustee in writing of any laws or regulations, either
foreign or domestic, that apply to such foreign securities or to the receipt of
dividends or interest on such securities.
3.5 SUBSTITUTION. Notwithstanding any provision of any Plan or the Trust to
the contrary, the Company and/or any Subsidiary shall at all times have the
power to reacquire the Trust Fund bv substituting readily marketable securities
(other than stock, an obligation or other security issued by the Company or any
Subsidiary) and/or cash of an equivalent value and such other property shall,
following such substitution, constitute the Trust Fund.
3.6 DISTRIBUTIONS.
(a) The establishment of the Trust and the payment or deliver, to the
Trustee of money or other property shall not vest in any Participant or
Beneficiary any right, title, or interest in and to any assets of the Trust.
To the extent that any Participant or Beneficiary acquires the right to
receive payments under any of the Plans, such right shall be no greater than
the right of an unsecured general creditor of the Company and the
Subsidiaries and such Participant or Beneficiary shall have only the
unsecured promise of the Company and the Subsidiaries that such payments
shall be made.
(b) Concurrent with the establishment of this Trust, the Company shall
deliver to the Trustee a schedule (the "Payment Schedule") that indicates
the amounts payable in respect of each Participant (and his or her
Beneficiaries) on a Plan by Plan basis, that provides a formula or formulas
or other instructions acceptable to the Trustee for determining the amounts
so payable, the form in which such amount is to be paid (as provided for or
available under the applicable Plans), and the time of commencement for
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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payment of such amounts. The Payment Schedule shall be updated from time to
time as is necessary. Except as otherwise provided herein, prior to a
Change in Control the Trustee shall make payments to the Participants
and their Beneficiaries in accordance with such Payment Schedule.
Despite the foregoing, after a Change in Control, the Trustee shall make
payments in accordance with the terms and provisions of each of the
Plans and related plan agreements. The Trustee, at the direction of the
Committee or, after a Change in Control, on its own volition, may make
any distribution required to be made by it hereunder by delivering:
(i) Its check payable to the person to whom such distribution is to be
made, to the person, or, if prior to a Change in Control, to the
Company for redelivery to such person; provided that before a
Change in Control, the Committee may direct the Trustee to deliver
one or more lump sum checks payable to the Company, and the Company
shall prepare and deliver individual checks for each Participant or
Beneficiary; or
(ii) Its check payable to an insurer for the benefit of such person,
to the insurer or, if prior to a Change in Control, to the Company
for redelivery to the insurer; or
(iii) Contracts held on the life of the Participant to whom or with
respect to whom the distribution is being made, to the Participant
or Beneficiary, or, if prior to a Change in Control, to the Company
for redelivery to the person to whom such distribution is to be
made; or
(iv) If a distribution is being made, in whole or in part, of other
assets, assignments or other appropriate documents or certificates
necessary to effect a transfer of title, to the Participant or
Beneficiary, or, if prior to a Change in Control, to the Company
for redelivery to such person.
(c) If the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of
the Plans, the Company and the Subsidiaries shall make the balance of
each such payment as it falls due. The Trustee shall notify the Company
and the Subsidiaries when principal and earnings are not sufficient.
(d) The Company and the Subsidiaries may make payment of benefits
directly to Participants or their Beneficiaries as they become due under
the terms of the Plans. The Company and the Subsidiaries shall notify
the Trustee of their decisions to make payment of benefits directly
prior to the time amounts are payable to Participants or their
Beneficiaries.
(e) Notwithstanding anything contained in this Master Trust Agreement
to the contrary, if at any time the Trust is finally determined by the
IRS not to be a "grantor trust" with the result that the income of the
Trust Fund is not treated as income of the Company or the Subsidiaries
pursuant to Sections 671 through 679 of the Internal Revenue Code of
1986, as amended or if a tax is finally determined by the IRS to be
payable by one or more Participants or Beneficiaries with respect to any
interest in the Plans or the Trust Fund prior to payment of such interest
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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to such Participant or Beneficiary, then the Trust shall immediately
terminate, the Trustee shall immediately determine each Participant's
share of the Trust Fund in accordance with the Plans, and the Trustee
shall immediately distribute such share in a lump sum to each
Participant or Beneficiary entitled thereto, regardless of whether such
Participant's employment has terminated and regardless of form and time
of payments specified in or pursuant to the Plans. Any remaining assets
(less any expenses or costs due under Sections 3.8 and 3.9 of this
Master Trust Agreement) shall then be paid by the Trustee to the Company
and the Subsidiaries in such amounts, and in the manner instructed by
the Committee. Prior to a Change in Control, the Trustee shall rely
solely on the directions of the Committee with respect to the occurrence
of the foregoing events and the resulting distributions to be made, and
the Trustee shall not be responsible for any failure to act in the
absence of such direction.
(f) The Trustee shall make provision for the reporting and withholding
of any federal, state or local taxes that may be required to be withheld
with respect to the payment of benefits pursuant to the terms of the
Plans and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld
and paid by the Company and the Subsidiaries.
(g) Prior to a Change in Control, payments by the Trustee shall be
delivered or mailed to addresses supplied by the Committee and the
Trustee's obligation to make such payments shall be satisfied upon such
delivery or mailing. Prior to a Change in Control, the Trustee shall
have no obligation to determine the identity of persons entitled to
benefits or their mailing addresses. After a Change in Control, the
Trustee shall have such obligations.
(h) Prior to a Change in Control, the entitlement of a Participant or his
or her Beneficiaries to benefits under the Plans shall be determined by the
Company and the Subsidiaries or such party as they shall designate under
the Plans, and any claim for such benefits shall be considered and reviewed
under the procedures set out in the Plans.
3.7 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS ON INSOLVENCY.
(a) As provided in Section 3.7(b), the Trustee shall cease payment of
benefits to Participants and their Beneficiaries if the Company or any
Subsidiary is Insolvent (the "Insolvent Entity"). The Insolvent Entity
shall be considered "Insolvent" for purposes of this Master Trust
Agreement if:
(i) the Insolvent Entity is unable to pay its debts as the, become
due, or
(ii) the Insolvent Entity is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
For purposes of this Section 3.7, if an entity is determined to be Insolvent,
each Subsidiary in which such entity has an equity interest shall also be
deemed to be an Insolvent Entity. However, the insolvency of a Subsidiary
will not cause a parent corporation to be deemed Insolvent.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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(b) At all times during the continuance of this Trust, as provided in Section
1.3 above, the principal and income of the Trust shall be subject to claims of
the general creditors of the Company and its Subsidiaries under federal and
state law as set forth below:
(i) The Board and the president of the Company shall have the duty to
inform the Trustee in writing of the Company's or any Subsidiary's
Insolvency. If a person claiming to be a creditor of the Company or any
Subsidiary alleges in writing to the Trustee that the Company or any
Subsidiary has become Insolvent, the Trustee shall determine whether the
Company or any Subsidiary is Insolvent and, pending such determination,
the Trustee shall discontinue payment of benefits to the Insolvent
Entity's Participants or their Beneficiaries. Prior to a Change in
Control, the Trustee may conclusively rely on any determination it receives
from the Board or the president of the Company with respect to the
Insolvency of the Company or any Subsidiary.
(ii) Unless the Trustee has actual knowledge of the Company's or a
Subsidiary's Insolvency, or has received notice from the Company, a
Subsidiary, or a person claiming to be a creditor alleging that the
Company or a Subsidiary is Insolvent, the Trustee shall have no duty to
inquire whether the Company or any Subsidiary is Insolvent. The Trustee
may in all events rely on such evidence concerning the Company's or any
Subsidiary's solvency as may be furnished to the Trustee and that
provides the Trustee with a reasonable basis for making a determination
concerning the Company's or any Subsidiary's solvency. In this
regard, the Trustee may rely upon a letter from the Company's or a
Subsidiary's auditors as to the Company's or any Subsidiary's financial
status.
(iii) If at any time the Trustee has determined that the Company or any
Subsidiary is Insolvent, the Trustee shall discontinue payments to the
Insolvent Entity's Participants or their Beneficiaries, and shall hold
the portion of the assets of the Trust allocable to the Insolvent Entity
for the benefit of the Insolvent Entity's general creditors. Nothing in
this Master Trust Agreement shall in any way diminish any rights of
Participants or their Beneficiaries to pursue their rights as general
creditors of the Insolvent Entity with respect to benefits due under the
Plans or otherwise.
(iv) The Trustee shall resume the payment of benefits to Participants
or their Beneficiaries in accordance with this Article 3 of this Master
Trust Agreement only after the Trustee has determined that the alleged
Insolvent Entity is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3.7(b) hereof
and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Participants or their Beneficiaries under the terms of the Plans for the
period of such discontinuance, less the aggregate amount of any payments
made to Participants or their Beneficiaries by the Company or any
Subsidiary in lieu of the payments provided for hereunder
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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during any such period of discontinuance. Prior to a Change in Control, the
Committee shall instruct the Trustee as to such amounts, and after a Change
in Control, the Trustee shall determine such amounts in accordance with the
terms and provisions of the Plans.
3.8 COSTS OF ADMINISTRATION. The Trustee is authorized to incur reasonable
obligations in connection with the administration of the Trust, including
attorneys' fees, administrative fees and appraisal fees. Such obligations
shall be paid by the Company and the Subsidiaries. The Trustee is authorized
to pay such amounts from the Trust Fund if the Company or the Subsidiaries fail
to pay them within 60 days of presentation of a statement of the amounts due.
3.9 TRUSTEE COMPENSATION AND EXPENSES. The Trustee shall be entitled to
reasonable compensation for its services as from time to time agreed upon
between the Trustee and the Company. If the Trustee and the Company fail to
agree upon a compensation, or following a Change in Control, the Trustee
shall be entitled to compensation at a rate equal to the rate charged by the
Trustee for similar services rendered by it during the current fiscal year
for other trusts similar to this Trust. The Trustee shall be entitled to
reimbursement for expenses incurred by it in the performance of its duties as
the Trustee, including reasonable fees for legal counsel. The Trustee's
compensation and expenses shall be paid by the Company and the Subsidiaries.
The Trustee is authorized to withdraw such amounts from the Trust Fund if the
Company or the Subsidiaries fail to pay them within 60 days of presentation
of a statement of the amounts due.
3.10 PROFESSIONAL ADVICE. The Company and the Subsidiaries specifically
acknowledge that the Trustee may find it desirable or expedient to retain
legal counsel (who may also be legal counsel for the Company generally) or
other professional advisors to advise it in connection with the exercise of
any duty under this Master Trust Agreement including, but not limited to, any
matter relating to or following a Change in Control or the Insolvency of the
Company or any Subsidiary. The Trustee shall be fully protected in acting
upon the advice of such legal counsel or advisors.
3.11 PAYMENT ON COURT ORDER. To the extent permitted by law, the Trustee
is authorized to make any payments directed by court order in any action in
which the Trustee has been named as a party. The Trustee is not obligated to
defend actions in which the Trustee is named, but shall notify the Company
or Committee of any such action and may tender defense of the action to the
Company, Committee or Participant or Beneficiary whose interest is affected.
The Trustee may in its discretion defend any action in which the Trustee is
named, and any expenses incurred by the Trustee shall be paid by the
Company and the Subsidiaries. The Trustee is authorized to pay such amounts
from the Trust Fund if the Company or the Subsidiaries fail to pay them
within sixty (60) days of presentation of a statement of the amounts due.
3.12 PROTECTIVE PROVISION. Notwithstanding any other provision contained in
this Master Trust Agreement to the contrary, the Trustee shall have no
obligation to (i) determine the existence of any conversion, redemption,
exchange, subscription or other right relating to any securities purchased of
which notice was given prior to the purchase of such securities and shall
have no obligation to exercise any such right unless the Trustee is advised
in writing by the Committee
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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both of the existence of the right and the desired exercise thereof within a
reasonable time prior to the expiration of the right to exercise, or (ii)
advance any funds to the Trust. Furthermore, the Trustee is not a party to
the Plans.
3.13 INDEMNIFICATIONS.
(a) The Company and the Subsidiaries shall indemnify and hold the
Trustee harmless from and against all loss or liability (including expenses
and reasonable attorneys' fees) to which it may be subject by reason of its
execution of its duties under this Trust, or by reason of any acts taken in
good faith in accordance with any directions, or acts omitted in good faith
due to absence of directions, from the Company, the Committee or a
Participant, unless such loss or liability is due to the Trustee's
negligence or willful misconduct. The indemnity described herein shall be
provided by the Company and the Subsidiaries.
(b) In the event that the Trustee is named as a defendant in a lawsuit
or proceeding involving one or more of the Plans or the Trust Fund, the
Trustee shall be entitled to receive on a current basis the indemnity
payments provided for in this Section, provided however that if the final
judgement entered in the lawsuit or proceeding holds that the Trustee is
guilty of gross negligence or willful misconduct with respect to the Trust
Fund, the Trustee shall be required to refund the indemnity payments that
it has received.
(c) All releases and indemnities provided in this Master Trust Agreement
shall survive the termination of this Master Trust Agreement.
ARTICLE 4
INSURANCE CONTRACTS
4.1 TYPES OF CONTRACTS. To the extent that the Trustee is directed by the
Committee prior to a Change in Control to invest part or all of the Trust
Fund in insurance contracts, the type and amount thereof shall be specified
by the Committee. The Trustee shall be under no duty to make inquiry as to
the propriety of the type or amount so specified.
4.2 OWNERSHIP. Each insurance contract issued shall provide that the
Trustee shall, subject to Section 3.7 hereof, be the owner thereof with the
power to exercise all rights, privileges, options and elections granted by or
permitted under such contract or under the rules of the insurer. The
exercise by the Trustee of any incidents of ownership under any contract
shall, prior to a Change in Control, be subject to the direction of the
Committee.
4.3 RESTRICTIONS ON TRUSTEE'S RIGHTS. The Trustee shall have no power to
name a beneficiary of the policy other than the Trust, to assign the policy
(as distinct from conversion of the policy to a different form) other than to
a successor Trustee, or to loan to any person the proceeds of any borrowing
against such policy. Except as the Committee may direct prior to a Change in
Control, the Trustee may not (i) loan to the Company or any Subsidiary the
proceeds of any
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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borrowing against an insurance policy held in the Trust Fund or (ii) except
as provided in Section 9.2 hereof, assign all, or any portion, of a policy to
the Company or any Subsidiary.
ARTICLE 5
TRUSTEE'S ACCOUNTS
5.1 RECORDS. The Trustee shall maintain accurate records and detailed
accounts of all investments, receipts, disbursements and other transactions
hereunder. Such records shall be available at all reasonable times for
inspection by the Company and Subsidiaries or their authorized representative.
The Trustee, at the direction of the Committee shall submit to the Committee
and to any insurer such valuations, reports or other information as the
Committee may reasonably require and, in the absence of fraud or bad faith, the
valuation of the Trust Fund by the Trustee shall be conclusive.
5.2 ANNUAL ACCOUNTING: FINAL ACCOUNTING.
(a) Within 60 days following the end of each Plan Year and within 60 days
after the removal or resignation of the Trustee or the termination of
the Trust, the Trustee shall file with the Committee a written account
setting forth a description of all properties purchased and sold, all
receipts, disbursements and other transactions effected by it during the
Plan Year or, in the case of removal, resignation or termination, since
the close of the previous Plan Year, and listing the properties held in
the Trust Fund as of the last day of the Plan Year or other period and
indicating their values. Such values shall be either cost or market as
directed by the Committee in accordance with the terms of the Plans.
(b) The Committee may approve such account either by written notice of
approval delivered to the Trustee or by its failure to express written
objection to such account delivered to the Trustee within 60 days after
the date of which such account was delivered to the Committee.
(e) The approval by the Committee of an accounting shall be binding as
to all matters embraced in such accounting on all parties to this Master
Trust Agreement and on all Participants and Beneficiaries, to the same
extent as if such accounting had been settled by a judgment or decree of
a court of competent jurisdiction in which the Trustee, the Committee,
the Company, the Subsidiaries and all persons having or claiming any
interest in any Plan or Trust Fund were made parties.
(d) Despite the foregoing, nothing, contained in this Master Trust
Agreement shall deprive the Trustee of the right to have an accounting
judicially settled, if the Trustee, in the Trustee's sole discretion,
desires such a settlement.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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5.3 VALUATION. The assets of the Trust Fund shall be valued at their
respective fair market values on the date of valuation, as determined by the
Trustee based upon such sources of information as it may deem reliable,
including, but not limited to, stock market quotations, statistical
evaluation services, newspapers of general circulation, financial
publications, advice from investment counselors, brokerage firms or insurance
companies, or any combination of sources. Prior to a Change in Control, the
Committee shall instruct the Trustee as to the value of assets for which
market values are not readily obtainable by the Trustee. If the Committee
fails to provide such values, the Trustee may take whatever action it deems
reasonable, including employment of attorneys, appraisers, life insurance
companies or other professionals, the expense of which shall be an expense
of administration of the Trust Fund and payable by the Company and the
Subsidiaries. The Trustee may rely upon information from the Company and the
Subsidiaries, the Committee, appraisers or other sources and shall not incur
any liability for an inaccurate valuation based in good faith upon such
information.
5.4 DELEGATION OF DUTIES. The Company or the Committee, or both, may at
any time employ the Trustee as their agent to perform any act, keep any
records or accounts and make any computations that are required of the
Company, any Subsidiary or the Committee by this Master Trust Agreement or
the Plans. The Trustee may be compensated for such employment and such
employment shall not be deemed to be contrary to the Trust. Nothing done by
the Trustee as such agent shall change or increase its responsibility or
liability as Trustee hereunder.
ARTICLE 6
RESIGNATION OR REMOVAL OF TRUSTEE
6.1 RESIGNATION REMOVAL. The Trustee may resign at any time by written
notice to the Company, which shall be effective 60 days after receipt of such
notice unless the Company and the Trustee agree otherwise. Prior to a Change
in Control, the Trustee may be removed by the Company on 60 days notice or
upon shorter notice accepted by the Trustee. After a Change in Control, the
Trustee may be removed by a majority vote of the Participants, and if a
Participant is dead, his or her Beneficiaries (who collectively shall have
one vote among them and shall vote in place of such deceased Participant), on
60 days notice or upon shorter notice accepted by the Trustee.
6.2 SUCCESSOR TRUSTEE. If the Trustee resigns or is removed, a successor
shall be appointed by the Company, in accordance with this Section, by the
effective date of the resignation or removal under Section 6.1 above. The
successor shall be a bank, trust company, or similar independent third party
that is granted corporate trustee powers under state law. After the
occurrence of a Change in Control, a successor Trustee may not be appointed
without the consent of a majority of the Participants. If no such appointment
has been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee
in connection with the proceeding shall be allowed as administrative expenses
of the Trust.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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6.3 SETTLEMENT OF ACCOUNTS. Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be completed within
90 days after receipt of notice of resignation, removal or transfer, unless
the Company extends the time limit. Upon the transfer of the assets, the
successor Trustee shall succeed to all of the powers and duties given to the
Trustee in this Master Trust Agreement. The resigning or removed Trustee
shall render to the Committee an account in the form and manner and at the
time prescribed in Section 5.2. The approval of such accounting and discharge
of the Trustee shall be as provided in such Section.
ARTICLE 7
CONTROVERSIES, LEGAL ACTIONS AND COUNSEL
7.1 CONTROVERSY. If any controversy arises with respect to the Trust, the
Trustee shall take action as directed by the Committee or, in the absence of
such direction or after a Change in Control, as it deems advisable, whether
by legal proceedings, compromise or otherwise. The Trustee may retain the
funds or property involved without liability pending settlement of the
controversy. The Trustee shall be under no obligation to take any legal
action of whatever nature unless there shall be sufficient property in the
Trust to indemnify the Trustee with respect to any expenses or losses to
which it may be subjected.
7.2 JOINDER OF PARTIES. In any action or other judicial proceedings
affecting the Trust, it shall be necessary to join as parties the Trustee,
the Committee, the Company and the Subsidiaries. No Participant or other
person shall be entitled to any notice or service of process. Any judgment
entered in such a proceeding or action shall be binding on all persons
claiming under the Trust. Nothing in this Master Trust Agreement shall be
construed as to deprive a Participant or Beneficiary of his or her right to
seek adjudication of his or her rights by administrative process or by a
court of competent jurisdiction.
7.3 EMPLOYMENT OF COUNSEL. The Trustee may consult with legal counsel (who
may be counsel for the Company or any Subsidiary) and shall be fully
protected with respect to any action taken or omitted by it in good faith
pursuant to the advice of counsel.
ARTICLE 8
INSURERS
8.1 INSURER NOT A PARTY. No insurer shall be deemed to be a party to the
Trust and an insurer's obligations shall be measured and determined solely by
the terms of contracts and other agreements executed by it.
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HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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8.2 AUTHORITY OR TRUSTEE. An insurer shall accept the signature of the
Trustee to any documents or papers executed in connection with such
contracts. The signature of the Trustee shall be conclusive proof to the
insurer that the person on whose life an application is being made is
eligible to have a contract issued on his or her life and is eligible for a
contract of the type and amount requested.
8.3 CONTRACT OWNERSHIP. An insurer shall deal with the Trustee as the sole
and absolute owner of any insurance contracts and shall have no obligation to
inquire whether any action or failure to act on the part of the Trustee is in
accordance with or authorized by the terms of the Plans or this Master Trust
Agreement.
8.4 LIMITATION OF LIABILITY. An insurer shall be fully discharged from any
and all liability for any action taken or any amount paid in accordance with
the direction of the Trustee and shall have no obligation to see the proper
application of the amounts so paid. An insurer shall have no liability for the
operation of the Trust or the Plans, whether or not in accordance with their
terms and provisions.
8.5 CHANGE OF TRUSTEE. An insurer shall be fully discharged from any and
all liability for dealing with a party or parties indicated on its records to
be the Trustee until such time as it shall receive at its home office written
notice of the appointment and qualification of a successor Trustee.
ARTICLE 9
AMENDMENT AND TERMINATION
9.1 AMENDMENT. Subject to the limitations set forth in this Section 9.1,
this Master Trust Agreement may be amended by a written instrument executed
by the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plans or shall make the Trust
revocable after it has become irrevocable in accordance with Section 1.3
above. Any amendment, change or modification shall be subject to the
following rules:
(a) GENERAL RULE. Subject to Sections 9.1(b), (c) and (d) below, this
Master Trust Agreement may be amended:
(i) By the Company and the Trustee, provided, however, that if an
amendment would in any way adversely affect the rights accrued under
the Plans in the Trust Fund by any Participant or Beneficiary, each
and every Participant and Beneficiary whose rights in the Trust
Fund would be adversely affected must consent to the amendment
before this Master Trust Agreement may be so amended; and
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17
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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(ii) By the Company and the Trustee as may be necessary to comply
with laws which would otherwise render the Trust void, voidable or
invalid in whole or in part.
(b) LIMITATION. Notwithstanding that an amendment may be permissible
under Section 9.1(a) above, this Master Trust Agreement shall not be
amended by an amendment that would:
(i) Cause any of the assets of the Trust to be used for or
diverted to purposes other than for the exclusive benefit of
Participants and Beneficiaries as set forth in the Plans, except
as is required to satisfy the claims of the Company's or a
Subsidiary's general creditors; or
(ii) Be inconsistent with the terms of any Plan, including the terms
of any plan regarding termination, amendment or modification of the
plan
(c) WRITING AND CONSENT. Any amendment to this Master Trust Agreement
shall be set forth in writing and signed by the Company and the Trustee
and, if consent of any Participant or Beneficiary is required under
Section 9.1(a), the Participant or Beneficiary whose consent is
required. Any amendment may be current, retroactive or prospective, in
each case as provided therein.
(d) THE COMPANY AND TRUSTEE. In connection with the exercise of the
rights under this Section 9.1:
(i) prior to a Change in Control, the Trustee shall have no
responsibility to determine whether any proposed amendment complies
with the terms and conditions set forth in Sections 9.1(a) and (b)
above and may conclusively rely on the directions of the Committee
with respect thereto, unless the Trustee has knowledge of a
proposed transaction or transactions that would result in a Change
in Control; and
(ii) after a Change in Control, the power of the Company to amend
this Master Trust Agreement shall cease, and the power to amend that
was previously held by the Company shall, instead, be exercised by a
majority of the Participants and, if a Participant is dead, his or her
Beneficiaries (who collectively shall have one vote among them and
shall vote in place of such deceased Participant), with the consent of
the Trustee, provided that such amendment otherwise complies with the
requirements of Sections 9.1(a), (b) and (c) above.
(e) TAXATION. This Master Trust Agreement shall not be amended,
altered, changed or modified in a manner that would cause the Participants
and/or Beneficiaries under any Plan to be taxed on the benefits under any
Plan in a year other than the year of actual receipt of benefits.
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18
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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- --------------------------------------------------------------------------------
9.2 FINAL TERMINATION. The Trust shall not terminate until the date on
which Participants and their Beneficiaries are no longer entitled to any
benefits pursuant to the terms of the Plans, and on such date the Trust shall
terminate. Upon termination of the Trust, any assets remaining in the Trust
after the satisfaction of all liabilities hereunder and under the Plans shall
be returned to the Company and the Subsidiaries. Such remaining assets shall
be paid by the Trustee to the Company and the Subsidiaries in such amounts
and in the manner instructed by the Company, whereupon the Trustee shall be
released and discharged from all obligations hereunder. From and after the
date of termination and until final distribution of the Trust Fund, the
Trustee shall continue to have all of the powers provided herein as are
necessary or expedient for the orderly liquidation and distribution of the
Trust Fund.
ARTICLE 10
MISCELLANEOUS
10.1 DIRECTIONS FOLLOWING CHANGE IN CONTROL. Despite any other provision of
this Master Trust Agreement that may be construed to the contrary, following
a Change in Control, all powers of the Committee, the Company and the Board
to direct the Trustee under this Master Trust Agreement shall terminate, and
the Trustee shall act on its own discretion to carry out the terms of this
Master Trust Agreement in accordance with the Plans and this Master Trust
Agreement.
10.2 TAXES. The Company and the Subsidiaries shall from time to time pay
taxes of any and all kinds whatsoever that at any time are lawfully levied or
assessed upon or become payable in respect of the Trust Fund, the income or
any property forming a part thereof, or any security transaction pertaining
thereto. To the extent that any taxes lawfully levied or assessed upon the
Trust Fund are not paid by the Company and the Subsidiaries, the Trustee
shall have the power to pay such taxes out of the Trust Fund and shall seek
reimbursement from the Company and the Subsidiaries. Prior to making any
payment, the Trustee may require such releases or other documents from any
lawful taxing authority as it shall deem necessary. The Trustee shall
contest the validity of taxes in any manner deemed appropriate by the Company
or its counsel, but at the Company's and the Subsidiaries' expense, and only
if it has received an indemnity bond or other security satisfactory to it to
pay any such expenses. Prior to a Change in Control, the Trustee (i) shall
not be liable for any nonpayment of tax when it distributes an interest
hereunder on directions from the Committee, and (ii) shall have no obligation
to prepare or file any tax return on behalf of the Trust Fund, any such
return being the sole responsibility of the Committee. The Trustee shall
cooperate with the Committee in connection with the preparation and filing of
any such return.
10.3 THIRD PERSONS. All persons dealing with the Trustee are released from
inquiring into the decisions or authority of the Trustee and from seeing to
the application of any moneys, securities or other property paid or delivered
to the Trustee.
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19
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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10.4 NONASSIGNABILITY: NONALIENATION. Benefits payable to Participants and
their Beneficiaries under this Master Trust Agreement may not be anticipated,
assigned (either at law or in equity), alienated, pledged, encumbered or
subjected to attachment, garnishment, levy, execution or other legal or
equitable process.
10.5 THE PLANS. The Trust and the Plans are parts of a single, integrated
employee benefit plan system and shall be construed together, except to the
extent the rights of parties to each are determined uniquely under this
Master Trust Agreement or a Plan, as the case may be. In the event of any
conflict between the terms of this Master Trust Agreement and the agreements
that constitute the Plans, such conflict shall be resolved in favor of this
Master Trust Agreement.
10.6 APPLICABLE LAW. Except to the extent, if any, preempted by ERISA, this
Master Trust Agreement shall be governed by and construed in accordance with
the laws of the State of California. Any provision of this Master Trust
Agreement prohibited by law shall be ineffective to the extent of any such
prohibition, without invalidating the remaining provisions hereof.
10.7 NOTICES AND DIRECTIONS. Whenever a notice or direction is given by the
Committee to the Trustee, it shall be in the form required by Section 2.1.
Actions by the Company shall be by the Board or a duly authorized officer,
with such actions certified to the Trustee by an appropriately certified copy
of the action taken. The Trustee shall be protected in acting upon any such
notice, resolution, order, certificate or other communication believed by it
to be genuine and to have been signed by the proper party or parties.
10.8 SUCCESSORS AND ASSIGNS. This Master Trust Agreement shall be binding
upon and inure to the benefit of the Company, the Subsidiaries and the
Trustee and their respective successors and assigns.
10.9 GENDER AND NUMBER. Words used in the masculine shall also apply to the
feminine where applicable, and when the context requires, the plural shall be
read as the singular and the singular as the plural.
10.10 HEADINGS. Headings in this Master Trust Agreement are inserted for
convenience of reference only and any conflict between such headings and the
text shall be resolved in favor of the text.
10.11 COUNTERPARTS. This Master Trust Agreement may be executed in an
original and any number of counterparts, each of which shall be deemed to be
an original of one and the same instrument.
10.12 THIRD PARTY BENEFICIARIES. It is intended that wherever the rights
and obligations of the parties hereto require, or may be exercised only with,
the consent of any Participant or Beneficiary of a Plan, such third party
shall be a third party beneficiary of the parties' agreement hereunder and
may initiate an action in law or in equity in a court of competent
jurisdiction to enforce any right granted hereunder. If any action is
initiated by a third party hereunder, he or
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20
<PAGE>
HERBALIFE INTERNATIONAL OF AMERICA, INC.
MASTER TRUST AGREEMENT
EFFECTIVE JANUARY 1, 1996
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- --------------------------------------------------------------------------------
she shall be entitled to recover reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which the trust
may be entitled.
IN WITNESS WHEREOF the Company and the Trustee have signed this Master Trust
Agreement as of the date first written above.
TRUSTEE: THE COMPANY:
Imperial Trust Company, HERBALIFE INTERNATIONAL OF
a California corporation AMERICA, INC.
a California corporation
By: [sig] By: [sig]
-------------------------------- --------------------------------
Title: Vice President Title: Sr. Vice President
----------------------------- -----------------------------
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21
<PAGE>
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HERBALIFE INTERNATIONAL, INC.
HERBALIFE INTERNATIONAL EMPLOYEES
401(K) PROFIT SHARING PLAN AND TRUST
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<PAGE>
HERBALIFE
INTERNATIONAL EMPLOYEES 401(K) PROFIT SHARING PLAN AND TRUST
I N D E X
PART I
ARTICLE DESCRIPTION PAGE
I INTRODUCTION 1
1.1.1 Adoption, and Title 1
1.1.2 Effective Date 1
1.1.3 Purpose 1
II DEFINITIONS 2
PART II
I PARTICIPATION 17
2.1.1 Eligibility Requirements 17
2.1.2 Commencement of Participation 17
2.1.3 Participation Upon Re-Employment 18
2.1.4 Termination of Participation 18
2.1.5 Determination of Eligibility 19
2.1.6 Omission of Eligible Employee 19
2.1.7 Inclusion of Ineligible Participant 19
2.1.8 Election Not to Participate 19
2.1.9 Change in Status 20
2.1.10 Existing Participants 20
CONTRIBUTIONS 21
2.2.1 Employer Contributions 21
2.2.2 Elective Contributions by the Employer
on Behalf of Electing Employees 22
2.2.3 Employee Contributions 24
2.2.4 Return of Contributions 24
Effective: January 1, 1989
<PAGE>
ARTICLE DESCRIPTION PAGE
III ALLOCATIONS 26
2.3.1 Non-Elective Contribution 26
2.3.2 Minimum Allocation 26
2.3.3 Fail-Safe Allocation 27
2.3.4 Matching Contributions 28
2.3.5 Elective Contributions 28
2.3.6 Qualified Non-Elective Contributions 28
2.3.7 Limitation 28
IV BENEFITS 29
2.4.1 Distributable Benefit 29
2.4.2 Vesting 29
2.4.3 Leave of Absence 31
2.4.4 Re-Employment 31
2.4.5 Distribution Determination Date 32
2.4.6 Forfeitures 33
V DISTRIBUTIONS 36
2.5.1 Commencement of Distribution 36
2.5.2 Method of Distribution 43
2.5.3 Nature of Distributions 48
2.5.4 Advance Distributions 49
2.5.5 In Service Distributions 51
2.5.6 Hardship Distributions 51
VI CONTINGENT TOP HEAVY PROVISIONS 53
2.6.1 Top Heavy Requirements 53
2.6.2 Top Heavy Definitions 55
VII SPECIAL CODA LIMITATIONS 61
2.7.1 Limitation on Deferral Percentage
for Highly Compensated Employees 61
2.7.2 Multiple Plan Limitations 62
2.7.3 Limitation on Matching Contribution 63
2.7.4 Special Rules 64
2.7.5 Distribution of Excess Elective
Deferrals 66
Effective: January 1, 1989
<PAGE>
ARTICLE DESCRIPTION PAGE
2.7.6 Distribution of Excess Contribution 66
2.7.7 Distribution of Excess Aggregate
Contributions 67
2.7.8 Limitation on Distributions 68
2.7.9 Limitation on Elective Deferrals 69
PART III
I ACCOUNTING 70
3.1.1 Accounts 70
3.1.2 Adjustments 70
II LIMITATIONS 74
3.2.1 Limitations on Annual Additions 74
3.2.2 Controlled Businesses 83
III FIDUCIARIES 84
3.3.1 Standard of Conduct 84
3.3.2 Individual Fiduciaries 84
3.3.3 Disqualification from Service 84
3.3.4 Bonding 84
3.3.5 Prior Acts 85
3.3.6 Insurance and Indemnity 85
3.3.7 Expenses 85
3.3.8 Agents, Accountants and Legal Counsel 86
3.3.9 Investment Manager 86
3.3.10 Finality of Decisions or Acts 87
3.3.11 Certain Custodial Accounts and
Contracts 87
IV PLAN ADMINISTRATOR 88
3.4.1 Administration of Plan 88
3.4.2 Disclosure Requirements 90
3.4.3 Information Generally Available 90
3.4.4 Statement of Accrued Benefit 90
3.4.5 Explanation of Rollover Treatment 90
Effective: January 1, 1989
<PAGE>
ARTICLE DESCRIPTION PAGE
V TRUSTEE 91
3.5.1 Acceptance of Trust 91
3.5.2 Trustee Capacity - Co-Trustee 91
3.5.3 Resignation, Removal and Successors 91
3.5.4 Consultations 91
3.5.5 Rights, Powers and Duties 92
3.5.6 Trustee Indemnification 95
3.5.7 Changes in Trustee Authority 95
VI TRUST ASSETS 96
3.6.1 Trustee Exclusive Owner 96
3.6.2 Investments 96
3.6.3 Administration of Trust Assets 98
3.6.4 Segregated Funds 100
3.6.5 Investment Control Option 101
VII LOANS 103
3.7.1 Authorization 103
3.7.2 Spousal Consent 103
3.7.3 Limitations 104
3.7.4 Availability 104
3.7.5 Prohibitions 105
VIII BENEFICIARIES 106
3.8.1 Designation of Beneficiaries 106
3.8.2 Absence or Death of Beneficiaries 106
IX CLAIMS 107
3.9.1 Claim Procedure 107
3.9.2 Appeal 108
X AMENDMENT AND TERMINATION 109
3.10.1 Right to Amend 109
3.10.2 Manner of Amending 109
3.10.3 Limitations on Amendments 109
3.10.4 Voluntary Termination 110
3.10.5 Involuntary Termination 110
3.10.6 Withdrawal By Employer 110
3.10.7 Powers Pending Final Distribution 111
3.10.8 Delegation 111
Effective: January 1, 1989
<PAGE>
ARTICLE DESCRIPTION PAGE
XI PORTABILITY 112
3.11.1 Continuance by Successor 112
3.11.2 Merger With Other Plan 112
3.11.3 Transfer From Other Plans 113
3.11.4 Transfer to Other Plans 114
XII MISCELLANEOUS 115
3.12.1 No Reversion to Employer 115
3.12.2 Employer Actions 115
3.12.3 Execution of Receipts and Releases 115
3.12.4 Rights of Participants Limited 115
3.12.5 Persons Dealing With Trustee Protected 116
3.12.6 Protection of Insurer 116
3.12.7 No Responsibility for Act of Insurer 116
3.12.8 Inalienability 117
3.12.9 Domestic Relations orders 117
3.12.10 Authorization to Withhold Taxes 120
3.12.11 Missing Persons 120
3.12.12 Notices 120
3.12.13 Governing Law 121
3.12.14 Severability of Provisions 121
3.12.15 Gender and Number 121
3.12.16 Binding Effect 121
3.12.17 Qualification Under Internal
Revenue Laws 121
XIII EXECUTION OF AGREEMENT 122
3.13.1 Counterparts 122
3.13.2 Acceptance by Trustee 122
3.13.3 Execution 122
Effective: January 1, 1989
<PAGE>
HERBALIFE
INTERNATIONAL EMPLOYEES 401 (K) PROFIT SHARING PLAN AND TRUST
THIS AGREEMENT is made this 22 day of December, 1994, by and between Herbalife
International, Inc. ("the Employer") and Christopher Pair and Timothy Gerrity
(collectively "the Trustee").
PART I
ARTICLE I
INTRODUCTION
1.1.1 ADOPTION AND TITLE. The Employer and Trustee hereby adopt
and restate the Plan and Trust to be known as HERBALIFE INTERNATIONAL EMPLOYEES
401(K) PROFIT SHARING PLAN AND TRUST.
1.1.2 EFFECTIVE DATE. The provisions of this amended and
restated Plan and Trust which was originally effective January 1, 1985 shall be
effective as of January 1, 1989, hereinafter the Effective Date.
1.1.3 PURPOSE. This Plan and Trust is established for the purpose
of providing retirement benefits to eligible employees in accordance with the
Plan and Trust. If the Plan is a cash or deferred profit sharing plan, the Plan
is also intended to enable eligible Employees to supplement their retirement by
electing to have the Employer contribute amounts to the Plan and Trust in lieu
of payments to such Employees in cash. Under such circumstances, the Plan and.
Trust are intended to satisfy the provisions of Section 401(k) of the Internal
Revenue Code of 1986, as amended.
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<PAGE>
ARTICLE II
DEFINITIONS
As used in this Plan and the Trust, the following terms shall have the
following meanings:
1.2.1 "ACCOUNT": The Employer Account, Controlled Account,
Elective Contribution Account, Matching Account, Qualified Non-Elective
Contribution Account, Voluntary Account or Segregated Account of a Participant,
as the context requires, established and maintained for accounting purposes.
1.2.2 "ACP": The average contribution percentage determined in
accordance with the provisions of Part II, Article VII.
1.2.3 "ACT": The Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.2.4 "ADP": The actual deferral percentage determined in
accordance with the provisions of Part II, Article VII.
1.2.5 "ANNIVERSARY DATE": The last day of each Plan Year.
1.2.6 "BENEFICIARY": The person or persons entitled to receive the
benefits which may be payable upon or after a Participant's death.
1.2.7 "BOARD OF DIRECTORS": The board of directors of an
incorporated Employer.
1.2.8 "BREAK IN SERVICE": The failure of a Participant to complete
more than 500 Hours of Service during any twelve (12) consecutive month Plan
Year beginning with a Participant's first computation period after becoming a
Participant. A Year of Service and a Break in Service for vesting purposes
shall be measured on the same computation period. The Eligibility Computation
Period and a Break in Service for eligibility purposes shall be measured on the
same computation period.
1.2.9 "CODE": The Internal Revenue Code of 1986, as amended from
time to time.
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<PAGE>
1.2.10 "COMPENSATION": All of a Participant's W-2 compensation (or
Earned Income in the case of a self-employed individual) which is actually paid
to the Participant by the Employer during the Limitation Year; provided that
compensation shall also include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not includible in the
gross income of the Employee under Sections 402(h)(1)(B)(SEP Deferrals),
402(a)(8) (401(k) deferrals), 403(b) and 457(b) of the Code; however,
Compensation shall not include amounts received for bonuses; provided further
that the annual gross compensation taken into account for purposes of the Plan
shall not exceed $200,000, as such amount may be adjusted by the Secretary of
the Treasury at the same time and in the same manner as under Section 415(d) of
the Code, except that the dollar increase in effect on January 1 of any calendar
year is effective for years beginning in such calendar year and the first
adjustment to the $200,000 limitation is effected on January 1, 1990. If the
plan determines compensation for a period of time that contains less than twelve
(12) calendar months, then the annual compensation limit is an amount equal to
the annual compensation limit for the calendar year in which the compensation
period begins multiplied by the ratio obtained by dividing the number of full
months in the period by 12. For purposes of this dollar limitation, the rules
of Section 414(q)(6) of the Code requiring the aggregation of the compensation
of family members shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age nineteen (19) before
the close of the year. If, as a result of the application of such rules the
adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of compensation up to the Social Security Integration
Level if this Plan provides for permitted disparity), the limitation shall be
prorated among the affected individuals in proportion to each such individuals
compensation as determined under this Section prior to the application of this
limitation.
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<PAGE>
If compensation for any prior plan year is taken into account in determining an
employee's contributions or benefits for the current year, the compensation for
such prior year is subject to the applicable annual compensation limit in effect
for that prior year. For this purpose, for years beginning before January 1,
1990, the applicable annual compensation limit is $200,000.
For the initial year of participation, Compensation from the first day of the
Plan Year shall be considered.
1.2.11 "CONTROLLED ACCOUNT": An account established and maintained
for a Participant to account for his interest in a Segregated Fund over which he
exercises investment control.
1.2.12 "DISTRIBUTABLE BENEFIT": The benefit to which a Participant
is entitled following termination of his employment.
1.2.13 "DISTRIBUTION DETERMINATION DATE": The date as of which the
Distributable Benefit of a Participant is determined.
1.2.14 "EARLY RETIREMENT AGE": The Plan does not provide an Early
Retirement Age.
1.2.15 "EARLY RETIREMENT DATE": The Plan does not provide an Early
Retirement Date.
1.2.16 "EARNED INCOME": The net earnings from self-employment in
the trade or business with respect to which the Plan is established for which
personal services of the Participant are a material income-producing factor.
Net earnings shall be determined without regard to items not included in gross
income and the deductions allocable to such items but, in the case of taxable
years beginning after 1989, with regard to the deduction allowed by Section
164(f) of the Code. Net earnings shall be reduced by contributions to a
qualified plan to the extent deductible under Section 404 of the Code.
1.2.17 "ELECTIVE CONTRIBUTION ACCOUNT": An Account established and
maintained for a Participant to account for the Elective Contributions made on
his behalf.
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<PAGE>
1.2.18 "ELECTIVE CONTRIBUTION": A contribution to the Plan by the
Employer on behalf of an electing Employee.
1.2.19 "ELECTIVE DEFERRALS": Any Employer contributions made to
the Plan at the election of the Participant, in lieu of cash compensation,
including contributions made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a Participant's Elective
Deferral is the sum of all Employer contributions made on behalf of the
Participant pursuant to an election to defer under any qualified CODA as
described in Section 401(k) of the Code, any simplified employee pension cash or
deferred arrangement as described in Section 402(h)(1)(B), any eligible deferred
compensation plan under Section 457, any plan as described under Section
501(c)(18), and any employer contributions made on the behalf of a participant
for the purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement. Elective Deferrals shall not include any deferrals
properly distributed as excess annual additions.
1.2.20 "ELIGIBILITY COMPUTATION PERIOD": For purposes of
determining Years of Service and Breaks in Service for purposes of eligibility,
the initial eligibility computation period is the twelve (12) consecutive month
period beginning with the employment commencement date on which the Employee
first renders an Hour of Service for the Employer and the subsequent eligibility
computation periods are each subsequent twelve (12) consecutive month period
commencing on the annual anniversary of such employment commencement date.
1.2.21 "EMPLOYEE": A person who is currently or hereafter employed
by the Employer, or by any other employer aggregated under Section 414(b), (c),
(m) or (o) of the Code and the regulations thereunder, including
- independent contractors;
- employees paid on a commissioned basis;
- employees paid on an hourly basis;
- employees paid on a salaried basis.
-5-
<PAGE>
but excluding:
- employees who are included in the unit of employees covered by a collective
bargaining agreement, provided that retirement benefits were the subject of
good faith negotiations;
- an employee who is a non-resident alien deriving no earned income from the
Employer which constitutes income from sources within the United States;
- self-employed individuals.
1.2.22 "EMPLOYER": The Employer and, except where the context
expressly indicates to the contrary, each Affiliate Employer that is a party to
this Agreement, or any of their respective successors or assigns which adopt the
Plan; provided, however, that no mere change in the identity, form or
organization of the Employer shall affect its status under the Plan in any
manner, and, if the name of the Employer is hereinafter changed, references
herein to the Employer shall be deemed to refer to the Employer as it is then
known.
1.2.23 "EMPLOYER ACCOUNT": An Account established and maintained
for a Participant for accounting purposes to which his share of Employer
contributions and forfeitures are added.
1.2.24 "ENTRY DATE": The first day of the successive six (6) month
periods beginning with the first day of the Plan Year.
1.2.25 "EXCESS AGGREGATE CONTRIBUTIONS": With respect to any Plan
Year, the excess of:
(a) The aggregate contribution percentage amounts taken into account
in computing the numerator of the contribution percentage actually made on
behalf of Highly Compensated Employees for such Plan Year, over
(b) The maximum contribution percentage amounts permitted by the ACP
test (determined by reducing contributions made on behalf of Highly Compensated
Employees in order of their contribution percentages beginning with the highest
of such percentages).
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<PAGE>
Such determination shall be made after first determining Excess Elective
Deferrals and then determining Excess Contributions.
1.2.26 "EXCESS CONTRIBUTIONS": With respect to any Plan Year, the
excess of:
(A) The aggregate amount of Employer Contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such Plan
Year, over
(B) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in order of the ADPs, beginning with the highest of such
percentages.
1.2.27 "EXCESSIVE ANNUAL ADDITION": The portion of the allocation
of contributions and forfeitures that cannot be added to a Participant's
Accounts due to the limitations on annual additions contained in the Plan.
1.2-28 "EXCESS ELECTIVE DEFERRALS": Those Elective Deferrals that
are includible in a Participant's gross income under Section 402(g) of the Code
to the extent such participant's Elective Deferrals for a taxable year exceed
the dollar limitation under such Code section. Excess Elective Deferrals shall
be treated as annual additions under the Plan.
1.2.29 "FAMILY": The spouse and lineal ascendants or descendants of
an Employee and the spouses of such lineal ascendants and descendants.
1.2.30 "FIDUCIARY": The Plan Administrator, the Trustee and any
other person who has discretionary authority or control in the management of the
Plan or the disposition of Trust assets.
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<PAGE>
1.2.31 "HIGHLY COMPENSATED EMPLOYEE": A highly compensated active
employee and a highly compensated former employee. A highly compensated active
employee includes: any Employee who performs service for the Employer during the
determination year and who, during the look-back year: (i) received compensation
from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d)
of the Code); (ii) received compensation from the Employer in excess of $50,000
(as adjusted pursuant to Section 415(d) of the Code) and was a member of the
top-paid group for such year; or (iii) was an officer of the Employer and
received compensation during such year that is greater than 50 percent of the
dollar limitation as in effect under Section 415(b)(1)(A) of the Code. The term
highly compensated employee also includes: (i) employees who are both described
in the preceding sentence if the term "determination year" is substituted for
the term "look-back year" and the employee is one of the 100 employees who
received the most compensation from the Employer during the determination year;
and (ii) employees who are 5 percent owners at any time during the look-back
year or determination year.
If no officer has satisfied the compensation requirement of (iii) above during
either a determination year or look-back year, the highest paid officer for such
year shall be treated as a highly compensated employee. For this purpose, the
determination year shall be the Plan Year. The look-back year shall be the
twelve-month period immediately preceding the determination year and
compensation is as defined in Section 415(c)(3) of the Code including amounts
contributed by the Employer pursuant to a salary reduction agreement and which
is not includible in gross income under Sections 125, 402(a)(8), 402(h) or
403(b) of the Code.
A highly compensated former employee includes any employee who separated from
service (or was deemed to have separated) prior to the determination year,
performs no service for the employer during the determination year, and was a
highly compensated active employee for either the separation year or any
determination year ending on or after the employee's 55th birthday.
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If an Employee is, during a Plan Year or the preceding Plan Year, a family
member of either a 5 percent owner who is an active or former employee or a
Highly Compensated Employee who is one of the 10 most highly compensated
employees ranked on the basis of compensation paid by the Employer during such
year, then the family member and the 5 percent owner or top-ten highly
compensated employee shall be aggregated. In such case, the family member and 5
percent owner or top-ten highly compensated employee shall be treated as a
single employee receiving compensation and plan contributions or benefits equal
to the sum of such compensation and contributions or benefits of the family
member and 5 percent owner or top-ten highly compensated employee. For purposes
of this section, family member includes the spouse, lineal ascendants and
descendants of the employee or former employee and the spouses of such lineal
ascendants and descendants.
An Employee is in the top-paid group of employees for any year if the Employee
is in the group consisting of the top twenty (20%) percent of the employees when
ranked on the basis of compensation paid during such year.
For purposes of determining whether an Employee is a Highly Compensated
Employee, Sections 414(b), (c), (m), (n) and (o) of the Code shall be applied.
The determination of who is a highly compensated employee, including the
determination of the number and identity of employees in the top-paid group, the
top 100 employees, the number of employees treated as officers and the
compensation that is considered, will be made in accordance with Section 414(q)
of the Code and the regulations thereunder.
1.2.32 "HOUR OF SERVICE": An hour for which (a) the Employee is
paid, or entitled to payment by the Employer for the performance of duties, (b)
the Employee is paid or entitled to payment by the Employer during which no
duties are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence, or (c) back
pay, irrespective of mitigation of damages, has been either awarded or agreed to
by the Employer.
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Hours of Service shall be credited to the Employee under (a), above, for the
period in which the duties are performed, under (b), above, in the period in
which the period during which no duties are performed occurs, beginning with the
first Hour of Service to which the payment relates, and under (c), above, for
the period to which the award or agreement pertains rather than the period in
which the award, agreement or payment is made; provided, however, that Hours of
Service shall not be credited under both (a) and (b), above, as the case may be,
and under (c) above. Notwithstanding the preceding sentences, (i) no more than
five hundred one (501) Hours of Service shall be credited under (b), above, on
account of any single continuous period during which the Employee performs no
duties-whether or not such period occurs in a single computation period, (ii) no
Hours of Service shall be credited to the Employee by reason of a payment made
or due under a plan maintained solely for the purpose of complying with
applicable worker's compensation, or unemployment compensation or disability
insurance laws, and (iii) no Hours of Service shall be credited by reason of a
payment which solely reimburses an Employee for medical or medically related
expenses incurred by the Employee. The determination of Hours of Service for
reasons other than the performance of duties and the crediting of Hours of
Service to computation periods shall be made in accord with the provisions of
Labor Regulation Sections 2530.200b-2(b) and (c) which are incorporated herein
by reference.
Solely for purposes of determining whether an Employee has incurred a Break in
Service, an Employee shall be credited with number of Hours of Service which
would otherwise have been credited to such individual but for the absence or in
any case in which such Hours cannot be determined with eight (8) Hours of
Service for any day that the Employee is absent from work by reason of the
Employee's pregnancy, the birth of a child of the Employee, the placement of a
child with the Employee in connection with the adoption of such child by the
Employee or for purposes of caring for such child for a period beginning
immediately following such birth or placement. Such Hours of Service shall be
credited only in the computation period in which the absence from work begins if
the Employee would be prevented from incurring a Break in Service in such
computation period solely because credit is given for such period of absence
and, in any other case, in the immediately following computation period.
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Notwithstanding the foregoing, no credit shall be given for such service unless
the Employee furnishes to the Plan Administrator information to establish that
the absence from work is for the reasons indicated and the number of days for
which there was such an absence.
Service with another business entity that is, along with the Employer, a member
of a controlled group of corporations, an affiliated service group or trades or
businesses under common control, as defined in the applicable sections of the
Code, or which is otherwise required to be aggregated with the Employer
pursuant to Section 414(o,) of the Code and the regulations issued thereunder
shall be treated as service for the Employer. Hours of Service shall be
credited for any individual considered an employee for purposes of this Plan
under Section 414(n) or Section 414(o) of the Code and the regulations issued
thereunder.
1.2.33 "INSURER": Any insurance company which has issued a Life
Insurance Policy.
1.2.34 "JOINT AND SURVIVOR ANNUITY": An immediate annuity for the
life of the Participant with a survivor annuity for the life of the spouse which
is not less than fifty (50%) percent and not more than one hundred (100%)
percent of the amount of the annuity which is payable during the joint lives of
the Participant and the spouse and which is the amount of benefit which can be
purchased with the Participant's vested Account balances.
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1.2.35 "LEASED EMPLOYEE": Any person (other than an employee of the
recipient) who pursuant to an agreement between the recipient and any other
person has performed services for the recipient (or for the recipient and
related persons determined in accordance with Section 414(n)(6) of the Code) on
a substantially full time basis for a period of at least one (1) year and such
services are of a type historically performed by employees in the business field
of the recipient employer; provided that any such person shall not be taken into
account if (a) such person is covered by a money purchase pension plan providing
(i) a nonintegrated employer contribution rate of at least ten (10%) percent of
compensation, as defined injection 415(c)(3) of the Code, but including amounts
contributed by the employer pursuant to a salary reduction agreement which are
excludable from the person's gross income under Sections 125, 402(a)(8), 402(h)
or 403(b) of the Code; (ii) immediate participation; and (iii) full and
immediate vesting; and (b) leased employees do not constitute more than twenty
(20%) percent of the work force of the recipient who are not Highly Compensated
Employees. Contributions or benefits provided a leased employee by the leasing
organization which are attributable to services performed for the recipient
employer shall be treated as provided by the recipient employer.
1.2.36 "LIFE INSURANCE POLICY": A life insurance, annuity or
endowment policy or contract which is owned by the Trust and is on the life of a
Participant.
1.2.37 "LIMITATION YEAR": The Plan Year; provided that all
qualified plans maintained by the Employer must use the same Limitation Year.
1.2.38 "MATCHING ACCOUNT": An Account established and maintained
for a Participant for accounting purposes to which his share of Matching
Contributions are added.
1.2.39 "MATCHING CONTRIBUTION": A contribution to the Plan by the
Employer which matches in whole or in part an Elective Contribution on behalf of
an electing Employee.
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1.2.40 "NON-ELECTIVE CONTRIBUTION": A contribution to the Plan or
any other Related Plan by the Employer which is neither a Qualified Non-Elective
Contribution, a Matching Contribution nor an Elective Contribution.
1.2.41 "NORMAL Retirement AGE": The date the Employee attains age
65 and completes 5 Years of Service while a Participant, but in no event later
than the date the Employee attains age sixty-five (65) or the fifth (5th)
anniversary of the first day of the Plan Year in which a Participant commences
participation, if later.
1.2.42 "NORMAL RETIREMENT DATE": The Anniversary Date nearest the
date on which the Participant attains his Normal Retirement Age.
1.2.43 "OWNER-EMPLOYEE": An individual who is a sole proprietor or
who is a partner owning more than ten percent (10%) of either the capital or
profits interest of the partnership.
1.2.44 "PARTICIPANT": Any eligible Employee who becomes entitled to
participate in the Plan.
1.2.45 "PLAN": The profit sharing plan for Employees as set forth
in this Agreement, together with any amendments or supplements thereto.
1.2.46 "PLAN ADMINISTRATOR": The person, persons or entity
appointed by the Employer to administer the Plan or, if the Employer fails to
make such appointment, the Employer.
1.2.47 "PLAN YEAR" OR "YEAR": The calendar year.
1.2.48 "PRERETIREMENT SURVIVOR ANNUITY": A survivor annuity for
the life of the surviving spouse of the Participant under which
(a) the payments to the surviving spouse are not less than the amounts
which would be payable under a Joint and Survivor Annuity (or the actuarial
equivalent thereof) if -
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(i) in the case of a Participant who dies after the date on which
the Participant attained the earliest retirement age under the Plan on which he
could elect to receive retirement benefits, such Participant had retired with an
immediate Joint and Survivor Annuity on the day before the Participant's date of
death; or
(ii) in the case of a Participant who dies on or before such date,
such Participant had separated from service on the date of death (except that a
Participant who had actually separated from service prior to death shall be
treated as separating on the actual date of separation), survived to the
earliest retirement age, retired with an immediate Joint and Survivor Annuity at
the earliest retirement age and died on the day after the day on which such
Participant would have attained the earliest retirement age, and
(b) The earliest period for which the surviving spouse may receive a
payment under such annuity is not later than the month in which the Participant
would have attained the earliest retirement age under the Plan; and
(c) Any security interest held by the Plan by reason of a loan
outstanding to the Participant for which a valid spousal consent has been
obtained, if necessary, shall be taken into account.
1.2.49 "QUALIFIED NON-ELECTIVE CONTRIBUTION": A contribution to
the Plan by the Employer which is neither a Matching Contribution nor an
Elective Contribution, is one hundred percent (100%) vested and nonforfeitable
when made, which a Participant may not elect to have paid in cash instead of
being contributed to the Plan and which may not be distributed from the Plan
(except in the case of a hardship distribution) prior to the termination of
employment or death of the Participant, attainment of age 59-1/2 by the
Participant or termination of the Plan without establishment of a successor
plan.
1.2.50 QUALIFIED NON-ELECTIVE CONTRIBUTION ACCOUNT":
An Account ESTABLISHED AND MAINTAINED FOR A PARTICIPANT TO ACCOUNT FOR THE
OUALIFIED NON-ELECTIVE CONTRIBUTIONS MADE ON HIS BEHALF.
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1.2.51 "QUALIFYING EMPLOYER SECURITIES OR REAL PROPERTY":
Securities or real property of the Employer which the Trustee may acquire and
hold pursuant to the applicable provisions of the Code and the Act.
1.2.52 "SEGREGATED ACCOUNT": An Account established and maintained
for a Participant to account for his interest in a Segregated Fund.
1.2.53 "SEGREGATED FUND": Assets held in the name of the Trustee
which have been segregated from the Trust Fund in accordance with any of the
provisions of the Plan.
1.2.54 "SELF-EMPLOYED INDIVIDUAL": An individual who has Earned
Income for the taxable year from the trade or business for which the Plan is
established or who would have had Earned Income but for the fact that the trade
or business had no net profit for the taxable year.
1.2.55 "SOCIAL SECURITY INTEGRATION LEVEL": Not applicable. This
Plan does not provide for integration with Social Security.
1.2.56 "TRUST FUND": ALL money and property of every kind and
character held by the Trustee pursuant to the Plan, excluding assets held in
Segregated Funds.
1.2.57 "TRUSTEE": The persons, corporations, associations or
combination of them who shall at the time be acting as such from time to time
hereunder.
1.2.58 "VALUATION DATE": The last day of each consecutive three (3)
month period beginning with the first day of the Plan Year.
1.2.59 "VOLUNTARY ACCOUNT": An Account established and maintained
for a Participant for accounting purposes to which his voluntary Employee
contributions have been added.
1.2.60 "YEAR OF SERVICE": Each 12-consecutive month Plan Year
during which the Employee completes at least 1,000 Hours of Service, including
years prior to the Effective Date.
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PART II
ARTICLE I
PARTICIPATION
2.1.lA ELIGIBILITY REQUIREMENTS - NON-ELECTIVE. Each Employee
shall be eligible to receive an allocation of Non-Elective Contributions upon
the later of the following dates, provided that he is an Employee on such date:
(a) the last day of the Eligibility Computation Period during which he
has completed 1,000 Hours of Service; or
(b) the date he completes a minimum of 12 months of service.
2.1.lB ELIGIBILITY REQUIREMENTS - ELECTIVE. Each Employee shall be
eligible to have Elective Contributions made on his behalf upon the later of the
following dates, provided that he is an Employee on such date:
(a) the last day of the Eligibility Computation Period during which he
has completed 1,000 Hours of Service; or
(b) the date he completes a minimum of 12 months of service.
2.1.lC ELIGIBILITY REQUIREMENTS - MATCHING. Each Employee shall be
eligible to receive an allocation of Matching Contributions upon the later of
the following dates, provided that he is an Employee on such date:
(a) the last day of the Eligibility Computation Period during which he
has completed 1,000 Hours of Service; or
(b) the date he completes a minimum of 12 months of service.
2.1.2 COMMENCEMENT OF PARTICIPATION. An eligible Employee shall
become a Participant in the Plan on the applicable Entry Date.
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2.1.3 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose
employment terminates and who is subsequently re-employed prior to incurring a
break in service, shall re-enter the Plan as a Participant immediately on the
date of his re-employment. In the event that an Employee completes the
eligibility requirements set forth in Section 2.1.1 above, his employment
terminates prior to becoming a Participant and he is subsequently re-employed
prior to incurring a break in service, such Employee shall be deemed to have met
the eligibility requirements as of the date of his re-employment and shall
become a Participant on the date of his re-employment; provided, however, that
if he is re-employed prior to the date he would have become a Participant if his
employment had not terminated, he shall become a Participant as of the date he
would have become a Participant if his employment had not terminated.
In the case of any Participant who has a Break in Service, Years of Service
before the Break in Service shall not be taken into account until he has
completed a Year of Service after his return to employment.
In the case of a Participant who does not have any vested and nonforfeitable
right under the Plan to an accrued benefit derived from Employer contributions,
Years of Service before any period of consecutive Breaks in Service shall not be
taken into account in the event of re-employment if the number of consecutive
Breaks in Service within the period equals or exceeds the greater of five (5) or
the aggregate number of Years of Service before such period. Any Years of
Service which are not taken into account by reason of such period of Breaks in
Service shall not be taken into account in applying the foregoing to a
subsequent period of Breaks in Service.
Any other Employee whose employment terminates and who is subsequently
re-employed shall become a Participant in accordance with the provisions of
Sections 2.1.1 and 2.1.2.
2.1.4 TERMINATION OF PARTICIPATION. An Employee who has become a
Participant shall remain a Participant until the entire amount of his
Distributable Benefit is distributed to him or his Beneficiary in the event of
his death.
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2.1.5 DETERMINATION OF ELIGIBILITY. In the event any question
shall arise as to the eligibility of any person to become a Participant or the
commencement of participation, the Plan Administrator shall determine such
question from information provided by the Employer and the Plan Administrator's
decision shall be conclusive and binding, except to the extent of a claimant's
right to appeal the denial of a claim.
2.1.6 OMISSION OF ELIGIBLE EMPLOYEE. If an Employee who should be
included as a Participant in the Plan is erroneously omitted and discovery of
the omission is made after the contribution by the Employer is made and
allocated, the Employer shall make an additional contribution on behalf of the
omitted Employee in the amount which the Employer would have contributed on his
behalf had he not been omitted.
2.1.7 INCLUSION OF INELIGIBLE PARTICIPANT. If any person is
erroneously included as a Participant in the Plan and discovery of the erroneous
inclusion is made after the contribution by the Employer is made and allocated,
the Employer may elect to treat the amount contributed on behalf of the
ineligible person plus any earnings thereon as a forfeiture for the Plan Year in
which the discovery is made and apply such amount in the manner specified in
Section 2.4.6.
2.1.8 ELECTION NOT TO PARTICIPATE. Notwithstanding anything
contained in the Plan to the contrary, an Employee may elect with the approval
of the Employer not to participate in the Plan if the tax-exempt status of the
Plan is not jeopardized by the election. The Employee shall sign such documents
as may be reasonably required by the Employer to evidence the election. If it
is subsequently determined that the tax-exempt status of the Plan has been
jeopardized, the Employer may elect to treat such Employee as having been
erroneously omitted. An Employee may revoke the election only with respect to
any subsequent Plan Year by written notice of revocation to the Employer prior
to the end of the Plan Year for which the revocation is effective.
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2.1.9 CHANGE IN STATUS. If any Participant continues in the
employ of the Employer or an affiliate for which service is required to be taken
into account but ceases to be an Employee by becoming a member of any ineligible
class for any reason (such as becoming covered by a collective bargaining
agreement unless the collective bargaining agreement otherwise provides) the
Participant shall continue to be a Participant until the entire amount of his
benefit is distributed but the individual shall not be entitled to receive an
allocation of contributions or forfeitures during the period that the
Participant is not an Employee for such reason. Such Participant shall continue
to receive credit for Years of Service completed during the period for purposes
of determining his vested and nonforfeitable interest in his Accounts. In the
event that the individual subsequently again becomes a member of an eligible
class of employees, the individual shall participate immediately upon the date
of such change in status. If such Participant incurs a Break in Service and is
subsequently reemployed, eligibility to participate shall be determined in
accordance with Section 2.1-3. In the event that an individual who is not a
member of an eligible class of employees becomes a member of an eligible class,
the individual shall participate immediately if such individual has satisfied
the eligibility requirements and would have otherwise previously become a
participant.
2.1.10 EXISTING PARTICIPANTS. An Employee who, on the Effective
Date, was a Participant under the provisions of the Plan as in effect
immediately prior to the Effective Date shall be a Participant on the Effective
Date and the provisions of Sections 2.1.1 and 2.1.2, pertaining to
participation, shall not be applicable to such Employee. The rights of a
Participant whose employment terminated prior to the Effective Date shall be
determined under the provisions of the Plan as in effect at the time of such
termination.
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ARTICLE II
CONTRIBUTIONS
2.2.1 EMPLOYER CONTRIBUTIONS.
(a) AMOUNT OF NON-ELECTIVE CONTRIBUTION. The Employer shall
contribute to the Trust Fund each Plan Year such amounts out of profits as it
may determine as a Non-Elective Contribution.
(b) AMOUNT OF MATCHING CONTRIBUTION. The Employer shall contribute
to the Trust Fund each Plan Year with respect to the amount of, Elective
Contributions on behalf of each electing Employee a Matching Contribution equal
to 100 percent of the Elective Contributions made on behalf of a Participant.
However, the Employer shall not make Matching Contributions on behalf of a
Participant for any Plan Year with respect to Elective Contributions in
excess of 3% of a Participant's Compensation. The matching contribution
shall be equal to 3% of each Participant's Compensation, provided the
Participant makes an Elective Contribution of at least 2% of Compensation.
(c) AMOUNT OF QUALIFIED NON-ELECTIVE CONTRIBUTION. The Employer
shall contribute to the Trust Fund each Plan Year such amount as a Qualified
Non-Elective Contribution as the Employer may determine. In addition, in lieu
of distributing Excess Contributions or Excess Aggregate Contributions as
provided in Article VII, below, the Employer may make Qualified Non-Elective
Contributions on behalf of Employees who are not Highly Compensated Employees me
that are sufficient to satisfy either the ADP test or the ACP test, or both,
pursuant to regulations under the Code.
(d) LIMITATION. The contribution for any Plan Year by the Employer
shall not exceed the maximum amount deductible from the Employer's income for
such Year for federal income tax purposes under the applicable sections of the
Code.
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(e) TIME OF CONTRIBUTION. All contributions by the Employer shall be
delivered to the Trustee not later than the date fixed by law for the filing of
the Employer's federal income tax return for the Year for which such
contribution is made (including any extensions of time granted by the Internal
Revenue Service for filing such return).
(f) DETERMINATION OF AMOUNT TO BE FINAL. The determination by the
Employer as to the amount to be contributed by the Employer hereunder shall be
in all respects final, binding, and conclusive on all persons or parties having
or claiming any rights under this agreement or under the Plan and Trust created
hereby. Under no circumstances and in no event shall any Participant,
Beneficiary, or other person or party have any right to examine the books or
records of the Employer.
(g) RIGHTS OF TRUSTEE AS TO CONTRIBUTIONS. The Trustee shall have no
duty to report any contribution to be made or to determine whether contributions
delivered to the Trustee by the Employer comply with the provisions of this
Agreement. The Trustee shall be accountable only for funds actually received by
the Trustee.
2.2.2 ELECTIVE CONTRIBUTIONS BY THE EMPLOYER ON BEHALF OF
ELECTING EMPLOYEES.
(a) AMOUNT OF CONTRIBUTION. Each Employee may elect to have the
Employer contribute to the Trust on his behalf for any Plan Year during which he
is a Participant such amounts expressed either in dollars or in whole
percentages of his Compensation as he may elect which would otherwise be payable
by the Employer as Compensation (but not to exceed the dollar limitation
provided by Section 402(g) of the Code as in effect at the beginning of the
taxable year); provided that the Employer may impose reasonable limitations in a
uniform, nondiscriminatory manner on the amounts which may be so contributed in
order to satisfy applicable legal requirements and to assure the deductibility
of amounts contributed by the Employer to the Plan and any other qualified plan
of deferred compensation.
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(b) ELECTION. The Plan Administrator shall determine the manner in which
a Participant may elect to have Elective Contributions made to the Plan on his
behalf. The Plan Administrator shall establish reasonable periods during which
the election may be made, modified or revoked. Unless the Plan Administrator
establishes another period during which the election may be made, modified or
revoked, any such election may be made, modified or revoked during the first and
last months of the Plan Year. An election by an Employee may not be made
retroactively and once made shall remain in effect until modified or terminated.
(c) PAYMENT OF CONTRIBUTION. Elective Contributions shall be remitted by
the Employer within two and one-half months after such amount would have
otherwise been payable to the Participant. The Employer shall designate, in
accordance with the Participant's election, the Plan Year to which any such
contributions which are made after the end of the Plan Year pertain.
(d) SEGREGATED FUND. Unless an Elective Contribution on behalf of a
Participant is received by the Trustee within the time prescribed by the Plan
Administrator prior to a Valuation Date, the Plan Administrator shall direct the
Trustee to establish a Segregated Fund with respect to such contribution. The
funds contained in such Segregated Fund shall be transferred to the Trust Fund
in accordance with the instructions of the Plan Administrator and such transfer
shall be deemed to have been made as of such next succeeding Valuation Date. If
an Elective Contribution on behalf of a Participant is received by the Trustee
within the period prescribed by the Plan Administrator, such contribution shall
be added to the Trust Fund. Notwithstanding the foregoing, if the Trust Fund is
invested in such a manner that the Plan Administrator can determine, with a
reasonable degree of certainty, that portion of the adjustment to fair market
value which is attributable to Elective Contributions received by the Trustee
other than within such period, then the Plan Administrator shall direct the
Trustee to add any such Elective Contributions to the Trust Fund at the time the
Trustee receives such Elective Contributions.
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(e) HARDSHIP DISTRIBUTIONS. An Employee may not have Elective
Contributions made on his or her behalf for the taxable year following the
taxable year of a hardship distribution in excess of the applicable limit
under Section 402(g) of the Code for such taxable year less the amount of
the Employee's Elective Deferrals' for the taxable year of the hardship
distribution.
2.2.3 EMPLOYEE CONTRIBUTIONS.
(a) AMOUNT OF CONTRIBUTION. An Employee is neither required nor
permitted to contribute to the Plan for any Plan Year beginning after 1986.
The Plan Administrator shall not accept deductible employee contributions
attributable to any Plan Year.
2.2.4 RETURN OF CONTRIBUTIONS. Qualified Non-Elective, Non-Elective
and Matching Contributions shall be returned to the Employer in the
following instances:
(a) If a Qualified Non-Elective, Non-Elective or Matching
Contribution is made by the Employer by mistake of fact, then the
contribution shall be returned within one year after its payment upon the
Employer's written request.
(b) If a Qualified Non-Elective, Non-Elective or Matching
Contribution is conditioned on initial qualification of the Plan under the
applicable sections of the Code, and the Commissioner of Internal Revenue
determines that the Plan does not qualify, then the contribution made
incident to the initial qualification by the Employer shall be returned
within one year after the date of denial of initial qualification of the
Plan; provided that the application for initial qualification is made by
the time prescribed by law for filing the Employer's tax return for the
taxable year in which the Plan is adopted, or such later date as the
Secretary of the Treasury may prescribe.
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(c) Each Qualified Non-Elective, Non-Elective and Matching
Contribution is conditioned upon the deductibility of the contribution
under the applicable sections of the Code and to the extent of a
disallowance of the deduction for part or all of the contribution, the
contribution shall be returned within one year after such disallowance upon
the Employer's written request.
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ARTICLE III
ALLOCATIONS
2.3.1 NON-ELECTIVE CONTRIBUTION. As of each Anniversary Date, the
Non-Elective Contribution made by the Employer including any forfeitures with
respect to the preceding Plan year shall be allocated among the Employer
Accounts of Participants who have completed at least 1,000 Hours of Service
during the Plan Year, in the following manner:
(a) Non-Elective Contributions and forfeitures for the Plan Year
shall be allocated to each Participant's Employer Account in the ratio that
each Participant's Compensation for the Plan Year bears to all
Participants' Compensation for that year.
(b) Notwithstanding anything contained in this Section to the
contrary, if the employment of a Participant is terminated during a Plan
year by reason of retirement, disability or death, as provided in Section
2.4.2, an allocation of contributions and forfeitures shall be made to the
Employer Account of such Participant for the Plan Year during which his
employment was so terminated, regardless of whether he has completed 1,000
Hours of Service during said Plan Year;
(c) Notwithstanding anything contained in this Section to the
contrary, if the employment of a Participant is terminated during a Plan
Year by reason of resignation or discharge as provided in Section 2.4.2(f),
no allocation of contributions or forfeitures shall be made to the Employer
Account of such Participant for the Plan Year during which his employment
is terminated.
2.3.2 MINIMUM ALLOCATION. In the event the Plan becomes
a Top-Heavy Plan during any Plan Year, the provisions of
Section 2.6.1(a) shall apply.
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2.3.3 FAIL-SAFE ALLOCATION. Notwithstanding any provision of the
Plan to the contrary, for Plan Years beginning after December 31, 1989, if the
Plan would otherwise fail to satisfy the requirements of Section 401(a)(26),
410(b)(1) or 410(b)(2)(A)(i) of the Code and the regulations thereunder because
Employer contributions have not been allocated to a sufficient number or
percentage of Participants for the Plan Year, an additional contribution shall
be made by the Employer and shall be allocated to the Employer Accounts of
affected Participants subject to the following provisions:
(a) The Participants eligible to share in the allocation of the
Employer's contribution shall be expanded to include the minimum number of
Participants who are not otherwise eligible to the extent necessary to
satisfy the applicable test under the relevant Section of the Code. The
specific Participants who shall become eligible are those Participants who
are actively employed on the last day of the Plan Year who have completed
the greatest number of Hours of Service during the Plan Year.
(b) If the applicable test is still not satisfied, the Participants
eligible to share in the allocation shall be further expanded to include
the minimum number of Participants who are not employed on the last day of
the Plan Year as are necessary to satisfy the applicable test. The
specific Participants who shall become eligible are those Participants who
have completed the greatest number of Hours of Service during the Plan
Year.
(c) A Participant's accrued benefit shall not be reduced by any
reallocation of amounts that have previously been allocated. To the extent
necessary, the Employer shall make an additional contribution equal to the
amount such affected Participants would have received if they had
originally shared in the allocations without regard to the deductibility of
the contribution. Any adjustment to the allocations pursuant to this
paragraph shall be considered a retroactive amendment adopted by the last
day of the Plan Year.
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2.3.4 MATCHING CONTRIBUTIONS. As of the next Valuation Date, the
Matching Contribution made by the Employer with respect to the preceding Plan
Year, and forfeitures, shall be allocated in the following manner:
(a) The Matching Contribution, including any forfeitures shall be
allocated among the Matching Accounts of Participants who have completed at
least an Hour of Service during the Plan Year and for whom Elective
Contributions were made in an amount equal to 100 percent of the Elective
Contributions made on behalf of each Participant.
(b) Notwithstanding anything contained in this Section to the
contrary, if the employment of a Participant is terminated during a Plan
Year by reason of death, retirement, disability, resignation or discharge
as provided in Section 2.4.2(f), an allocation of Matching Contributions or
forfeitures shall be made to the Employer Account of such Participant for
the Plan Year during which his employment is terminated.
2.3.5 ELECTIVE CONTRIBUTIONS. The Elective Contributions by the
Employer on behalf of an electing Employee shall be allocated to the Elective
Contribution Account of such electing Employee as of the Anniversary Date of the
Plan Year to which the Elective Contribution pertains.
2.3.6 QUALIFIED NON-ELECTIVE CONTRIBUTIONS. The Qualified Non-
Elective Contributions made by the Employer with respect to the preceding Plan
Year shall be allocated to the Qualified Non-Elective Contribution Account
solely on behalf of Participants who are not Highly Compensated Employees to the
extent necessary to satisfy the ACP test or the ADP test. The Qualified Non-
Elective Contributions shall be allocated among affected Participant's as needed
to satisfy the ADP/ACP test.
2.3.7 LIMITATION. The allocation of Employer contributions must
satisfy the requirements of Section 416 of the Code. Neither Elective
Contributions nor Matching Contributions may be taken into account for the
purpose of satisfying the minimum top-heavy contribution requirement imposed by
Section 416.
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ARTICLE IV
BENEFITS
2.4.1 DISTRIBUTABLE BENEFIT. At such time that the employment of a
Participant terminates for any reason, he or his Beneficiary shall be entitled
to a benefit equal to the vested and nonforfeitable interest in his Accounts as
of the Distribution Determination Date. The Accounts shall include the
allocable share of contributions and forfeitures, if any, which may be allocated
to the Accounts as of such Distribution Determination Date, and shall be
determined after making the adjustments for which provision is made in the Plan.
2.4.2 VESTING. A Participant shall at all times be one hundred
percent (100%) vested and have a nonforfeitable interest in his Elective
Contribution Account, Qualified Non-Elective Contribution Account, Voluntary
Account and Segregated Account. The vested and nonforfeitable interest of the
Participant in his Controlled Account shall be determined by reference to the
Account from which the funds were originally transferred. The vested and
nonforfeitable interest in a Participant's Employer Account and Matching Account
shall be determined as herein after provided.
(a) NORMAL RETIREMENT. If a Participant terminates employment at his
Normal Retirement Age, he shall be one hundred percent (100%) vested and
have a nonforfeitable interest in his Employer Account and Matching
Account.
(b) DEFERRED RETIREMENT. If a Participant continues in active
employment following his Normal Retirement Age, he shall continue to
participate under the Plan. From and after his Normal Retirement Age, he
shall be one hundred percent (100%) vested and have a nonforfeitable
interest in his Employer Account and Matching Account.
(c) DISABILITY. If the employment of a Participant is terminated
prior to his Normal Retirement Age as a result of a medically determinable
physical or mental impairment which may be expected to result in death or
to last for a continuous period of not less than twelve (12) months and
which renders him incapable of performing his duties, he shall be one
hundred percent (100%) vested and have a nonforfeitable interest in his
Employer Account and
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Matching Account. All determinations in connection with the permanence and
degree of such disability shall be made by the Plan Administrator in a uniform,
nondiscriminatory manner on the basis of medical evidence.
(d) DEATH. In the event of the death of a Participant, he shall be one
hundred percent (100%) vested and have a nonforfeitable interest in his Employer
Account and Matching Account.
(e) TERMINATION OF PLAN. In the event of termination of the Plan
(including termination resulting from a complete discontinuance of contributions
by the Employer), each Participant shall be one hundred percent (100%) vested
and have a nonforfeitable interest in his Employer Account and Matching Account.
In the event of a partial termination of the Plan, each Participant with
respect to whom such partial termination has occurred shall be one hundred
percent (100%) vested and have a nonforfeitable interest in his Employer Account
and Matching Account.
(f) EARLY RETIREMENT, RESIGNATION OR DISCHARGE. If the employment of a
Participant terminates by reason of early retirement, resignation or discharge
prior to his Normal Retirement Age, he shall be vested and have a nonforfeitable
interest in a percentage of his Employer Account and Matching Account
determined, except as provided below, by taking into account all of his Years of
Service as of such termination date in accordance with the following schedule:
Years of Service Percent Vested
Less than 1 0%
1 but less than 2 0%
2 but less than 3 0%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
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2.4.3 LEAVE OF ABSENCE. A temporary cessation from active
employment with the Employer pursuant to an authorized leave of absence in
accordance with the nondiscriminatory policy of the Employer, whether occasioned
by illness, military service or any other reason shall not be treated as either
a termination of employment or a Break in Service provided that the Employee
returns to employment prior to the end of the authorized leave of absence.
2.4.4 RE-EMPLOYMENT. In the event that the Participant is
re-employed during a Plan Year subsequent to the Plan Year encompassing the
Distribution Determination Date, he shall be given credit for Years of Service
preceding the Break in Service for the purpose of determining his vested and
nonforfeitable interest in his share of Employer contributions and forfeitures
allocated to his Employer Account after such re-employment. Years of Service
completed by the Participant after such re-employment shall not increase his
vested and nonforfeitable interest in his Employer Account on the Distribution
Determination Date as of which his Distributable Benefit is determined preceding
such re-employment unless the Participant is re-employed before he incurs five
(5) consecutive Breaks in Service.
In the case of any Participant who has a Break in Service, Years of Service
before the Break in Service shall not be taken into account until he has
completed a Year of Service after his return to employment.
In the case of a Participant who does not have any vested and nonforfeitable
right under the Plan to an accrued benefit derived from Employer contributions,
Years of Service before any period of consecutive Breaks in Service shall not be
taken into account in the event of re-employment if the number of consecutive
Breaks in Service within the period equals or exceeds the greater of five (5) or
the aggregate number of Years of Service before such period. Any Years of
Service which are not taken into account by reason of such period of Breaks in
Service shall not be taken into account in applying the foregoing to a
subsequent period of Breaks in Service.
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2.4.5 DISTRIBUTION DETERMINATION DATE. The Distribution
Determination Date shall be determined as hereinafter provided.
(a) LESS THAN 100% VESTED. If the employment of a Participant
terminates and the Participant has less than a one hundred percent (100%)
vested and nonforfeitable interest in his Employer Account as of the date
of such termination, the Distribution Determination Date shall be the
Valuation Date coinciding with or following the date of termination,
provided that he is not re-employed on the last day of such Plan Year.
(b) FULLY VESTED. For a Participant who is fully vested but who
terminates employment prior to death, total and permanent disability or
retirement at his retirement date, the Distribution Determination Date
shall be the Valuation Date coinciding with or following the date of
termination.
For a Participant who terminates employment as a result of death, total and
permanent disability or retirement at his retirement date, the Distribution
Determination Date shall be the Valuation Date coinciding with or following
the date of termination.
In the case of a Participant's interest in a Voluntary Account or a
Segregated Account attributable to a rollover contribution from another
plan, the Distribution Determination Date is the Valuation Date coinciding
with or following the date of termination.
(c) TERMINATION OF PLAN. In the event of termination of the Plan
(including termination resulting from a complete discontinuance of
contributions by the Employer), the Distribution Determination Date shall
be the date of such termination. In the event of a partial termination of
the Plan, as to each Participant with respect to whom such partial
termination has occurred, the Distribution Determination Date shall be the
Anniversary Date coinciding with or immediately following the date of such
partial termination.
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(d) OTHER. Except as provided above, the Distribution Determination
Date shall be the Anniversary Date coinciding with or next following the
termination of employment of the Participant.
(e) DISTRIBUTIONS FOLLOWING DISTRIBUTION DETERMINATION DATE. Subject
to the necessity, if any, of obtaining the consent of a Participant and
spouse, distribution of a Participant's Distributable Benefit shall
commence within a reasonable period a-f ter the Distribution Determination
Date, unless otherwise elected by the Participant in accordance with the
provisions of the Plan or as required by the provisions of the Plan.
2.4.6 FORFEITURES. If an Employee terminates service, and the
value of the Employee's vested account balance derived from employer and
employee contributions is not greater than $3,500 and the Employee receives a
distribution of the value of the entire vested portion of such account balance,
the nonvested portion shall be treated as a forfeiture as of the last day of the
Plan Year in which the Participant's entire nonforfeitable interest in such
Account is distributed from the Plan. If the value of an Employee's vested
account balance is zero, the Employee shall be deemed to have received a
distribution of such vested account balance. A participant's vested account
balance shall not include accumulated deductible employee contributions within
the meaning of Section 72(o)(5)(B) of the Code for plan years beginning prior to
January 1, 1989.
If an Employee terminates service, and elects, in accordance with the provisions
of the Plan, to receive the value of the employee's vested account balance, the
nonvested portion shall be treated as a forfeiture. If the Employee elects to
have distributed less than the entire vested portion of the account balance
derived from employer contributions, the part of the nonvested portion that will
be treated as a forfeiture is the total nonvested portion multiplied by a
fraction, the numerator of which is the amount of the distribution attributable
to employer contributions and the denominator of which is the total value of the
vested employer derived account balance.
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If an Employee receives a distribution and the Employee resumes employment
covered under the Plan, the Employee's employer-derived account balance shall be
restored to the amount on the date of distribution if the Employee repays to
the plan the full amount of the distribution attributable to Employer
contributions before the earlier of five (5) years after the first date on which
the Participant is subsequently re-employed by the Employer, or the date the
Participant incurs five (5) consecutive Breaks in Service following the date of
the distribution, If an Employee is deemed to receive a distribution pursuant to
this section, and the Employee resumes employment covered under the Plan before
the date the Participant incurs five (5) consecutive Breaks in Service, upon the
reemployment of such Employee, the employer-derived account balance of the
Employee will be restored to the amount on the date of such deemed distribution.
Any portion of a Participant's Employer or Matching Account with respect to
which he is not vested shall be deemed a forfeiture as of the last day of the
Plan Year in which the Participant's entire nonforfeitable interest in such
Account is distributed from the Plan.
Forfeitures from the Employer Account shall be allocated to the Employer Account
of Participants who are entitled by reason of re-employment to restoration of a
prior forfeiture and any remaining forfeitures shall be allocated in the same
manner as a contribution by the Employer.
Forfeitures from the Matching Account shall be allocated to the Matching Account
of Participants who are entitled by reason of re-employment to restoration of a
prior forfeiture and any remaining forfeitures shall in the same manner as -a
contribution by the Employer, except that the administrative expenses of the
Plan may first be deducted from the forfeitures to be allocated in any Plan Year
and the remaining forfeitures then allocated to the respective Accounts from
which they arose.
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Notwithstanding any provision herein to the contrary, forfeitures resulting from
contributions by an Employer shall not be reallocated for the benefit of another
adopting Employer. If a Participant is entitled to a restoration of a
forfeiture which has not otherwise been provided for, the amount to be restored
shall be restored BY allocating forfeitures arising in the Plan Year of
restoration to the Participant's Account to the extent thereof and an additional
contribution by the Employer allocated to the Participant's Account to the
extent that allocable forfeitures are insufficient.
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ARTICLE V
DISTRIBUTIONS
2.5.1 COMMENCEMENT OF DISTRIBUTION.
(a) IMMEDIATE DISTRIBUTION. If the employment of a Participant is
terminated for any reason other than resignation or discharge prior to his
Normal Retirement Date, distribution of his Distributable Benefit shall begin in
accordance with the Participant's election at any time after the earlier of the
date determined under subsection (b) below or within a reasonable period after
the Distribution Determination Date as of which his Distributable Benefit is
determined; provided that, if he has not incurred a Break in Service, he is not
reemployed prior to the date of the commencement of distributions.
(b) DEFERRED DISTRIBUTION. Unless the Participant elects either earlier
commencement in accordance with the provisions of the Plan or to further defer
distribution, if the employment of a Participant is terminated by reason of
resignation or discharge prior to either his Early Retirement Date or his Normal
Retirement Date, distribution of his Distributable Benefit shall be deferred and
commenced on the sixtieth (60th) day after the close of the later of the
following Plan Years:
(i) The Plan Year during which the Participant attains the earlier of
age sixty-five (65) or the Normal Retirement Age;
(ii) The Plan Year during which the tenth (10th) anniversary of the
commencement of the Participant's participation in the Plan occurs; or
(iii) The Plan Year during which the Participant terminates service
with the Employer.
If distribution is so deferred, unless otherwise determined by the Plan
Administrator, the Trustee at the Plan Administrator's direction shall transfer
the Distributable Benefit to a Segregated Fund from which distribution shall
thereafter be made.
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Such transfer shall be made as of the Distribution Determination Date.
Notwithstanding the foregoing, the failure of a Participant and spouse to
consent to a distribution while a benefit is immediately distributable, within
the meaning of Section 2.5.2, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy this section.
(c) REQUIRED DISTRIBUTION. Notwithstanding anything herein to the
contrary, unless the Participant has made an appropriate elections BY
December 31, 1983 to defer distribution which hat not been revoked or
modified, the Participant's benefit shall be distributed to the Participant
not later than April 1 of the calendar year following the calendar year in
which he attains age 70-1/2 (the required beginning date) or shall be
distributed, commencing not later than April 1 of such calendar year in
accordance with regulations prescribed by the Secretary of the Treasury over
a period not extending beyond the life expectancy of the Participant or the
life expectancy of the Participant and a beneficiary designated by the
Participant. The amount required to be distributed for each calendar year,
beginning with distributions for the first distribution calendar year, must
at least equal the quotient obtained by dividing the Participant's benefit by
the applicable life expectancy. Unless otherwise elected by the Participant
(or spouse, if distributions begin after death and the spouse is the
designated beneficiary), by the time distributions are required to begin, the
life expectancy of the Participant and the Participant's spouse shall be
recalculated annually. Other than for a life annuity, such election shall be
irrevocable as to the Participant or spouse and shall apply to all subsequent
years. The life expectancy of a non-spouse beneficiary may not be
recalculated. Life expectancy and joint and last survivor expectancy shall
be computed by use of the expected return multiples in Tables V and VI of
Section 1.72-9 of the Treasury Regulations.
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For calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with distributions for the first distribution
calendar year shall not be less than the quotient obtained by dividing the
Participant's benefit by the lesser of (1) the applicable life expectancy or (2)
if the Participant's spouse is not the designated beneficiary, the applicable
divisor then determined from the table set forth in Q&A-4 of Section
1.401(a)(9)-2 of the proposed regulations. Distributions after the death of the
Participant shall be distributed using the, applicable life expectancy as the
relevant divisor without regard to Proposed Regulations Section 1.401(a)(9)-2.
The minimum distribution for subsequent calendar years, including the minimum
distribution for the distribution calendar year in which the Participant's
required beginning date occurs, must be made on or before December 31 of that
distribution calendar year.
(d) DISTRIBUTION AFTER DEATH. Unless the Participant has made an
appropriate election by December 31, 1983 to extend the period of distribution
after his death and the election has not been revoked or modified, the following
provisions shall apply. If distribution of the Participant's benefit has begun
and the Participant dies before his entire benefit has been distributed to him,
the remaining portion of such benefit shall be distributed at least as rapidly
as under the method of distribution being used as of the date of the
Participant's death.
If the Participant dies before the distribution of his benefit has begun, the
entire interest of the Participant shall be distributed by December 31 of the
calendar year containing the fifth (5th) anniversary of the death of such
Participant, provided that if any portion of the Participants benefit is payable
to or for the benefit of a designated beneficiary and such portion is to be
distributed in accordance with regulations issued by the Secretary of the
Treasury over the life of, or over a period not extending beyond the life
expectancy of such designated beneficiary, such distributions shall begin not
later than December 31 of the calendar year immediately following the calendar
year of the Participant's death or such later date as may be provided by
regulations issued by the Secretary of the Treasury.
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If the designated beneficiary is the surviving spouse of the Participant the
date on which the distributions are required to begin shall not be earlier than
the later of December 31 of the calendar year immediately following the calendar
year in which the Participant died and December 31 of the calendar year in which
the Participant would have attained age 70-1/2. If the surviving spouse
thereafter dies before the distributions to such spouse begin and any benefit is
payable to a contingent beneficiary, the date on which distributions are
required to begin shall be determined as if the surviving spouse were the
Participant.
If the Participant has not specified the manner in which benefits are payable by
the time of his or her death, the Participant's designated beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
designated beneficiary, or if the designated beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(e) Payments to Children. In accordance with regulations issued by the
Secretary of the Treasury, any amount paid to a child shall be treated as if it
had been paid to the surviving spouse if such amount shall become payable to the
surviving spouse upon such child reaching majority (or other designated event
permitted under such regulations).
(f) Incidental Death Benefit Distributions. Any distribution required by
the rules applicable to incidental death benefits shall be treated as a
distribution required by this Section. All distributions required under this
Section shall be determined and made in accordance with the proposed regulations
under Section 401(a)(9) of the Code, including the minimum distribution
incidental benefit requirement of Section 1.401(a)(9)-2 of the proposed
regulations.
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(g) DISTRIBUTIONS. For the purposes of this section, distribution of a
Participant's interest is considered to begin on the Participant's required
beginning date or the date distribution is required to begin to the surviving
spouse. If distribution in the form of an annuity irrevocably commences to the
Participant before the required beginning date, the date distribution is
considered to begin is the date distribution actually commences.
(h) DEFINITIONS.
(1) APPLICABLE LIFE EXPECTANCY. The life expectancy (or joint and
last survivor expectancy) calculated using the attained age of the
Participant (or designated beneficiary) as of the Participant's (or
designated beneficiary's) birthday in the applicable calendar year reduced
by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated,
the applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first distribution
calendar year, and if life expectancy is being recalculated such succeeding
calendar year.
(2) DESIGNATED BENEFICIARY. The individual who is designated as the
beneficiary under the Plan in accordance with Section 401(a)(9) and the
proposed regulations thereunder.
(3) DISTRIBUTION CALENDAR YEAR. A calendar year for which a minimum
distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the calendar
year immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions beginning after
the Participant's death, the first distribution calendar year is the
calendar year in which distributions are required to begin.
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(4) PARTICIPANT'S BENEFIT.
(1) The account balance as of the last valuation date in the
calendar year immediately preceding the distribution calendar year
(valuation calendar year) increased by the amount of any contributions
or forfeitures allocated to the account balance as of dates in the
valuation calendar year after the valuation date and decreased by
distributions made in the valuation calendar year after the valuation
date.
(ii) Exception for second distribution calendar year. For
purposes of paragraph (i) above, if any portion of the minimum
distribution for the first distribution calendar year is made in the
second distribution calendar year on or before the required beginning
date, the amount of the minimum distribution made in the second
distribution calendar year shall be treated as if it had been made in
the immediately preceding distribution calendar year.
(5) REQUIRED BEGINNING DATE.
(i) GENERAL RULE. The required beginning date of a Participant
is the first day of April of the calendar year following the calendar
year in which the Participant attains age 70 1/2
(ii) TRANSITIONAL RULES. The required beginning date of a
Participant who attains age 70 1/2 before January 1, 1988, shall be
determined in accordance with (I) or (II) below:
(I) NON-5-PERCENT OWNERS. The required beginning date of a
Participant who is not a 5-percent owner is the first day of April
of the calendar year following the calendar year in which the
later of retirement or attainment of age 70 1/2 occurs.
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(II) 5-PERCENT OWNERS. The required beginning date of a
Participant who is a 5-percent owner during any year beginning
after December 31, 1979, is the first day of April following the
later of:
(A) the calendar year in which the Participant attains
age 70 1/2 or
(B) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant becomes a 5-
percent owner, or the calendar year in which the Participant
retires.
The required beginning date of a Participant who is not a 5-percent owner
who attains age 70 1/2 during 1988 and who has not retired as of January 1,
1989, is April 1, 1990.
(iii) 5-PERCENT OWNER. A Participant is treated as a 5-percent owner
for purposes of this section if such Participant is a 5-percent owner as
defined in Section 416(i) of the Code (determined in accordance with
Section 416 but without regard to whether the Plan is top-heavy) at any
time during the Plan Year ending with or within the calendar year in which
such owner attains age 66 1/2 or any subsequent Plan Year.
(iv) Once distributions have begun to a 5-percent owner under this
section, they must continue to be distributed, even if the Participant
ceases to be a 5-percent owner in a subsequent year.
(i)TRANSITIONAL RULE.
(1) Notwithstanding the other requirements of this Section and subject to
the requirements of Section 2.5.2, distribution on behalf of any employee,
including a 5-percent owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
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(a) The distribution by the trust is one which would not have
disqualified such trust under Section 401 (a)(9) of the Internal
Revenue Code as in effect prior to amendment by the Deficit
Reduction Act of 1984.
(b) The distribution is in accordance with a method of
distribution designated by the employee whose interest in the
trust is being distributed or, if the employee is deceased, by a
beneficiary of such employee.
(c) Such designation was in writing, was signed by the
employee or the beneficiary, and was made before January 1, 1984.
2.5.2 METHOD OF DISTRIBUTION. Subject to the provisions of Section
2.5.1 above and any security interest in a loan from the plan for which any
necessary spousal consent has been obtained (to the extent such security
interest is used as repayment of the loan), distribution shall be made by
one of the following methods, as determined in accordance with the election
of the Participant (or in the case of death, his Beneficiary) with such
spousal consents as may be required by law in any of the following methods:
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(a) In a single distribution; provided that if the Employer has
applied a consistent policy since the first Plan Year beginning after 1988,
the Employer may require a Participant who is a Highly Compensated Employee
or who is otherwise entitled to receive a lump sum distribution in excess
of $25,000.00 to execute a covenant not to compete with the Employer which
shall provide that the Participant agrees that he shall not solicit the
business of any person or entity doing business with the Employer at any
time within the twelve month period prior to the date of termination of his
employment and, in addition, shall not engage in any business, whether as a
sole proprietor, partner, joint venturer, shareholder, employee,
independent contractor, agent or otherwise, which is in competition with
the business of the Employer for a period not exceeding two (2) years form
the date of such distribution within fifty (50) miles of the principal
offices of the Employer or containing such alternative provisions as
determined by the Employer.
(b) Any alternative method of equivalent value contained in the Plan
at any time on or after the first day of the first Plan Year beginning
after 1988 to which the Participant consents.
(c) INCIDENTAL DEATH BENEFITS. For calendar years beginning before
January 1,1989, if the Participant's spouse is not the designated
Beneficiary, the method of distribution selected must assure that at least
fifty (50%) percent of the present value of the amount available for
distribution is paid within the life expectancy of the Participant.
(d) CONSENTS. If the value of a Participant's vested account balance
derived from Employer and Employee contributions does not exceed (and at
the time of any prior distribution did not exceed) $3,500, the consent of
the Participants and his or her spouse shall not be required; provided that
if such value exceeds $3,500, the Participant and spouse (or where either
has died, the survivor) must consent to any distribution of such account
balance.
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The consent shall be obtained in writing within the 90 day period ending on
the annuity starting date. Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent that a distribution is
required to satisfy Section 401(a)(9) or Section 415 of the Code. In
addition, upon termination of the Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the Participant's
account balance in the Plan may, without the Participant's consent, be
distributed to the Participant or transferred to another defined
contribution plan (other than an employee stock ownership plan as defined
in Section 4975(e)(7) of the Code) within the same controlled group.
(e) ZERO BENEFITS. If the value of the Participant's vested and
nonforfeitable interest in the Plan at the time of his termination of
employment is zero, the Participant shall be deemed to have received a
distribution of such interest.
(f) RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS. The Plan Administrator
shall notify the Participant and the Participant's spouse of the right to
defer any distribution until the Participant's account balance in the Plan
is no longer immediately distributable. Such notification shall include a
general description of the material features and an explanation of the
relative values of the optional forms of benefit available under the Plan
in a manner that would satisfy the notice requirements of Section 417(a)(3)
of the Code and shall be provided no less than 30 days and no more than 90
days prior to the annuity starting date. Notwithstanding the foregoing,
only the Participant need consent to the commencement of a distribution in
the form of a qualified joint and survivor annuity while the Participant's
account balance in the Plan is immediately distributable. Furthermore,, if
payment in the form of a qualified joint and survivor annuity is not
required with respect to the Participant pursuant to the Plan, only the
Participant need consent to the distribution of an account balance that is
immediately distributable.
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The Participant's account balance is immediately distributable if any part
of the Participant's account balance could be distributed to the
Participant (or surviving spouse) before the Participant attains (or would
have attained if not deceased) the later of age 62 or the Normal Retirement
Age.
(g) TRANSITIONAL RULES.
(1) Any living Participant not receiving benefits on August 23,
1984, who would otherwise not receive the benefits prescribed by
the@,previous sections of the article must be given the opportunity to
elect to have the prior sections of this article apply if such
Participant is credited with at least one hour of service under this
Plan or a predecessor plan in a Plan Year beginning on or after
January 1, 1976, and such Participant has at least 10 years of vesting
service when he or she separated from service.
(2) Any living Participant not receiving benefits on August 23,
1984, who was credited with at least one hour of service under this
Plan or a predecessor plan on or after September 2, 1974, and who is
not otherwise credited with any service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his or
her benefits paid in accordance with Section (4) below.
(3) The respective opportunities to elect (as described above)
must be afforded to the appropriate Participants during the period
commencing on August 23, 1984, and ending on the date benefits would
otherwise commence to said Participants.
(4) Any Participant who has elected pursuant to Section (2)
above and any Participant who does not elect under Section (1) or who
meets the requirements of Section (1) except that such Participant
does not have at least 10 years of vesting service when he or she
separates from service, shall have his or her benefits distributed in
accordance with all of the following requirements if benefits would
have been payable in the form of a life annuity:
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(i) AUTOMATIC JOINT AND SURVIVOR ANNUITY. If benefits in the
form a life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after
normal retirement age; or
(2) dies on or after normal retirement age while still
working for the Employer; or
(3) begins to receive payments on or after the qualified
early retirement age; or
(4) separates from service on or after attaining normal
retirement age (or the qualified early retirement age) and after
satisfying the eligibility requirements for the payment of
benefits under the plan and thereafter dies before beginning to
receive such benefits;
then such benefits will be received under this Plan in the form of a
qualified joint and survivor annuity, unless the Participant has
elected otherwise during the election period. The election period
must begin at least 6 months before the Participant attains qualified
early retirement age and end not more than 90 days before the
commencement of benefits. Any election hereunder will be in writing
and may be changed by the Participant at any time.
(ii) ELECTION OF EARLY SURVIVOR ANNUITY. A Participant who is
employed after attaining the qualified early retirement age will be
given the opportunity to elect, during the election period, to have a
survivor annuity payable on death. If the Participant elects the
survivor annuity, payments under such annuity must not be less than
the payments which would have been made to the spouse under the
qualified joint and survivor annuity if the Participant had retired on
the day before his or her death.
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Any election under this provision will be in writing and may be
changed by the Participant at any time. The election period begins on
the later of (1) the 90th day before the Participant attains the
qualified early retirement age, or (2) the date on which participation
begins, and ends on the date the Participant terminates employment.
(iii) FOR PURPOSES OF THIS SECTION (4):
(1) Qualified early retirement age is the later of:
(i) the earliest date, under the Plan, on which the
Participant may elect to receive retirement benefits,
(ii) the first day of the 120th month beginning before
the Participant reaches normal retirement age, or
(iii) the date the Participant begins
participation.
(2) Qualified joint and survivor annuity is an annuity for
the life of the Participant with a survivor annuity for the life
of the spouse as otherwise described in the Plan.
2.5.3 NATURE OF DISTRIBUTIONS. The nature of the distribution of
a Participant's Distributable Benefit shall be as hereinafter provided.
(a) TRUST FUND AND SEGREGATED FUNDS. Subject to the Joint and
Survivor Annuity requirements, except as provided in subsection (b) with
regard to Life Insurance Policies, distribution of a Participant's
Distributable Benefit shall consist of cash or property, or an annuity
contract as provided in Section 5.2 above.
(b) INSURANCE POLICIES. In the event that the Trustee has purchased
Life Insurance Policies on the life of the Participant, the values and
benefits available with respect to each such Policy shall be distributed as
follows:
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(i) If the Participant's employment terminates for any reason
other than death, then the Trustee shall either surrender the Life
Insurance Policy for its available cash value and distribute the
proceeds as provided in subsection (a) above or, at the election of
the Participant, distribute the Life Insurance Policy to the
Participant, provided the Participant has a vested and nonforfeitable
interest in his Accounts in an amount at least equal to the cash value
thereof.
(II) If the Participant's employment terminates by reason of
death, the beneficiary designated by the Participant in accordance with
the terms of the Plan shall be entitled to receive from the Trustee the
full amount of the proceeds thereof.
The Trustee shall apply for and be the owner of any Policies purchased
under the terms of the Plan. The Policies must provide that the proceeds
are payable to the Trustee subject to the Trustee's obligation to pay over
the proceeds to the designated Beneficiary. Under no circumstances shall
the trust retain any part of the proceeds. In the event of any conflict
between the terms of the Plan and the terms of any Policies purchased
hereunder, the Plan provisions shall control.
2.5.4 ADVANCE DISTRIBUTIONS. After a Participant's employment has
terminated and before he is otherwise entitled to distribution of his
Distributable Benefit but in no event earlier than the Valuation Date coincident
with or following the date of termination the Trustee upon the request of the
Participant or Beneficiary shall make advance distributions to him or to his
Beneficiary. The aggregate of such an advance distribution shall not exceed the
sum of the vested and nonforfeitable interest in the Participant's Accounts.
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An Employee who terminates service and elects to receive the value of the
Employee's vested account balance shall forfeit the nonvested portion. If the
Employee elects to have distributed less than the entire vested portion of the
account balance derived from Employer contributions, the part of the nonvested
portion that is treated as a forfeiture is the total nonvested portion
multiplied BY a fraction, the numerator of which is the amount of the
distribution attributable to Employer contributions and the denominator of which
is the total value of the vested Employer derived account balance.
Except as otherwise provided in the preceding paragraph, if a Participant
receives a distribution which reduces the balance in his Employer Account when
he has less than a one hundred percent (100%) vested and nonforfeitable interest
in the Account, the amount, if any, of the Participant's vested and
nonforfeitable interest in the undistributed balance of said Account on his
Accrual Date shall be transferred to a Segregated Account and shall not be less
than an amount ("XI") determined by the formula: X = P (AB + (R x D)) - (R x D).
For purposes of applying the formula: P is the vested percentage at the relevant
time; AB is the account balance at the relevant time; and D is the amount of the
distribution; and R is the ratio of the Account balance at the relevant time to
the Account balance after distribution.
A Participant who terminates employment and receives a distribution of an amount
deducted from his Account when he has less than a one hundred percent (100%)
vested and nonforfeitable interest in the Account and who subsequently again
becomes an Employee may repay the full amount of such distribution before he
incurs five (5) consecutive Breaks in Service following the date of the
distribution but in no event later than the fifth (5th) anniversary of the date
of his reemployment; provided, however, that in the event of repayment neither
the Trust nor the Employer shall be liable for any federal or state income tax
resulting from the distribution and the Participant shall indemnify and hold
harmless the Trust and the Employer for and from any such liability. In the
event of such repayment, the Employer Account of the Participant shall be
credited with the full amount of such repayment and the previously undistributed
balance.
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In the event the Participant fails to repay the full amount of such distribution
within the time permitted for repayment, the non-vested and forfeitable portion
of the previously undistributed balance of his Employer Account which had been
transferred to a Segregated Account shall be deemed a forfeiture as of the last
day of such period. If a Participant is deemed to receive a distribution
because his vested and nonforfeitable interest at the time of his termination of
employment is zero and the Participant resumes employment covered under the Plan
before the date the Participant incurs five (5) consecutive Breaks in Service,
upon the reemployment of such Participant, the employer-derived account balance
of the Participant shall be restored to the amount on the date of the deemed
distribution.
2.5.5 IN SERVICE DISTRIBUTIONS. In Service
Distributions are not permitted.
2.5.6 HARDSHIP DISTRIBUTIONS. A Participant may
request a distribution from the Plan as a result of immediate and heavy
financial needs of the Participant to the extent that the distribution is
necessary to satisfy such financial needs. Hardship distributions are subject
to the spousal consent requirements contained in Sections 401(a)(11) and 417 of
the Code. The determination of whether a Participant has an immediate and heavy
financial need shall be made by the Plan Administrator on the basis of all
relevant facts and circumstances. A distribution shall be deemed to be made on
account of an immediate and heavy financial need if the distribution is on
account of:
(a) Deductible medical expenses described in Section 213(d) of the
Code incurred or necessary for medical care of the Participant, his spouse
or dependents;
(b) Purchase (excluding mortgage payments) of a principal residence
for the Participant;
(c) Payment of tuition and related educational fees for the next 12
months of post-secondary education for the Participant, his spouse,
children or dependents; or
(d) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the Participant's
principal residence.
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A distribution shall be considered as necessary to satisfy an immediate and
heavy financial need of the Participant only if:
(a) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all plans maintained
by the Employer;
(b) All plans maintained by the Employer provide that the
Participant's elective Deferrals and employee contributions shall be
suspended for twelve (12) months after the receipt of the hardship
distribution;
(c) The distribution is not in excess of the amount of an immediate
and heavy financial need (including amounts necessary to pay any federal,
state, or local income taxes or penalties reasonably anticipated to result
from the distribution); and
(d) All plans maintained by the Employer provide that the Participant
may not make Elective Deferrals for the Participant's taxable year
immediately following the taxable year of the hardship distribution in
excess of the applicable limit under Section 402(g) of the Code for such
taxable year less the amount of such Participant's Elective Deferrals for
the taxable year of the hardship distribution.
In the event of such distribution, when a Participant is less than one hundred
percent (100%) vested in his Employer Account or Matching Account, the vested
interest in the Employer Account or Matching Account shall thereafter be
determined in accordance with Section 2.5.4 of the Plan.
Distributions may be taken from only the Participant's Account balances
attributable to the following:
- Elective Contribution Account
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ARTICLE VI
CONTINGENT TOP HEAVY PROVISIONS
2.6.1 TOP HEAVY REQUIREMENTS. If the Plan becomes a Top Heavy Plan
during any Plan YEAR, the following provisions shall supersede any conflicting
provisions in the Plan or Trust and apply for such Plan Year:
(a) Except as otherwise provided below, the Employer contributions
and forfeitures allocated on behalf of any Participant who is not a Key
Employee shall not be less than the lesser of 3 percent of such
Participant's Compensation or in the case where the Employer has no defined
benefit plan which designates this plan to satisfy Section 401 of the Code,
the largest percentage of Employer contributions and forfeitures, as a
percentage of the first $200,000 of the Key Employee's compensation,
allocated on behalf of any Key Employee for that year. The minimum
allocation is determined without regard to any Social Security
contribution. This minimum allocation shall be made even though, under
other plan provisions, the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the
year because of (i) the Participant's failure to complete 1,000 Hours of
Service (or any equivalent provided in the plan), or (ii) the Participant's
failure to make mandatory employee contributions to the plan, or (iii)
compensation less than a stated amount. Neither Elective Deferrals nor
Matching Contributions may be taken into account for the purpose of
satisfying the minimum allocations.
For purposes of computing the minimum allocation, Compensation shall mean
a Participant's W-2 compensation.
The minimum allocation provided above shall not apply to any Participant
who was not employed by the Employer on the last day of the Plan Year.
The minimum allocation provided above shall not apply to any Participant to
the extent the Participant is covered under any other plan or plans of the
Employer and the Employer has provided that the minimum allocation or
benefit requirement applicable to top-heavy plans will be
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met in the other plan or plans.
(b) References in Section 3.2.1(d), pertaining to combined plan
limitations, to 111.25" shall be applied by substituting 111.01, for
"1.2511 therein. Reference in Section 3.2.1(e), pertaining to a special
transition rule, to $51,875" shall be applied BY substituting "$41,500" for
"$51,8751, therein.
(c) The vested and nonforfeitable interest of each Participant shall
be-equal to the percentage determined under the following schedule if
greater than the percentage determined under Section 2.4.2:
Years of Service Percent Vested
---------------- --------------
Less than 1 0%
1 but less than 2 2%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
The top-heavy minimum vesting schedule applies to all benefits within the
meaning of Section 411(a)(7) of the Code, except those attributable to
employee contributions, including benefits accrued before the effective
date of Section 416 of the Code and benefits accrued before the Plan
becomes top-heavy.
If the Plan ceases to be a Top Heavy Plan, the vesting which occurs while
the Plan is a Top Heavy Plan shall not be cutback. Any minimum allocation
required (to the extent required to be nonforfeitable under Section 416(b))
may not be forfeited under Section 411(a)(3)(B) or (D) of the Code.
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2.6.2 TOP HEAVY DEFINITIONS. The following terms, as used in this
Plan, shall have the following meaning:
(a) "KEY EMPLOYEE": An Employee or former employee who, at any time
during the Determination Period is either:
(i) an officer of the Employer having an Annual Compensation
greater than fifty (50%) percent of the amount in effect; under
Section 415 (b) (1) (A) of the Code;
(ii) an owner (or a person considered an owner under Section 318
of the Code) of one of the ten largest interests in the Employer if
such individuals Annual Compensation from the Employer is more than
the limitation in effect under Section 415(c)(1)(A) of the Code;
(iii) any person who owns directly or indirectly more than five
(5%) percent of the outstanding stock of the Employer or stock
possessing more than five (5%) percent of the total combined voting
power of all stock of the Employer or, in the case of an
unincorporated Employer, the capital or profits interest in the
Employer;
(iv) any person who owns directly or indirectly more than one
(1%) percent of the outstanding stock of the Employer or stock
possessing more than one (1%) percent of the total combined voting
power of all stock of the Employer or, in the case of an
unincorporated Employer, the capital or profits interest in the
Employer and having an Annual Compensation from the Employer of more
than $150,000; or
(v) any beneficiary of a Key Employee.
The determination of who is a Key Employee shall be made in accordance with
Section 416(i)(1) of the Code and the regulations thereunder.
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(b) "AGGREGATION GROUP": Each qualified retirement plan of the
Employer in which a Key Employee is a participant and each other qualified
retirement plan of the Employer which enables any plan in which a Key
Employee is a participant to meet the requirements of Section 401(a)(4) or
Section 410 of the Code.
(c) "ANNUAL COMPENSATION": Compensation as defined in Section
415(c)(3) of the Code, but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludible from the
Employee's gross income under Section 125, Section 402(a)(8), Section
402(h) or Section 403(b) of the Code.
(d) "TOP-HEAVY PLAN": For any Plan Year beginning after December 31,
1983, the plan is top-heavy if any of the following conditions exists:
(i) If the top-heavy ratio for the plan exceeds 60 percent and
the plan is not part of any required aggregation group or permissive
aggregation group of plans.
(ii) If the plan is a part of a required aggregation group of
plans but not part of a permissive aggregation group and the top-heavy
ratio for the group of plans exceeds 60 percent.
(iii) If the plan is a part of a required aggregation group
and part of a permissive aggregation group of plans and the top-heavy
ratio for the permissive aggregation group exceeds 60 percent.
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(e)"TOP-HEAVY RATIO":
(i) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer has not maintained any defined benefit plan which during the
5-year period ending on the Determination Date(s) has or has had
accrued benefits, the top-heavy ratio for this plan alone or for the
required or permissive aggregation group as appropriate is a fraction,
the numerator of which is the sum of the account balances of all Key
Employees as of the Determination Date(s) (including any part of any
account balance distributed in the 5-year period ending on the
Determination Date(s)), and the denominator of which is the sum of all
account balances (including any part of any account balance
distributed in the 5-year period ending on the Determination Date(s)),
both computed in accordance with Section 416 of the Code and the
regulations thereunder. Both the numerator and denominator of the
top-heavy ratio are increased to reflect any contribution not actually
made as of the Determination Date, but which is required to be taken
into account on that date under Section 416 of the Code and the
regulations thereunder.
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(ii) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer maintains or has maintained one or more defined benefit
plans which during the 5-year period ending on the Determination
Date(s) has or has had accrued benefits, the top-heavy ratio for any
required or permissive aggregation group as appropriate is a fraction,
the numerator of which is the sum of account balances under the
aggregated defined contribution plan or plans for all Key Employees,
determined in accordance with (i) above, and the present value of
accrued benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the Determination Date(s), and the
denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all Participants,
determined in accordance with (i) above, and the present value of
accrued benefits under the defined benefit plan or plans for all
Participants as of the Determination Date(s), all determined in
accordance with Section 416 of the Code and the regulations thereunder.
The accrued benefits under a defined benefit plan in both the numerator
and denominator of the top-heavy ratio are increased for any
distribution of an accrued benefit made in the five-year period ending
on the Determination Date.
(iii) For purposes of (i) and (ii) above, the value of account
balances and the present value of accrued benefits will be determined
as of the most recent valuation date that falls within or ends with
the 12 month period ending on the Determination Date, except as
provided in Section 416 of the Code and the regulations thereunder for
the first and second plan years of a defined benefit plan. The
account balances and accrued benefits of a Participant (1) who is not
a Key Employee but was a Key Employee in a prior year, or (2) who has
not been credited with at least one hour of service with any Employer
maintaining the plan at any time during the 5-year period ending on
the Determination Date will be disregarded.
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The calculation of the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will be
made in accordance with Section 416 of the Code and the regulations
thereunder. Deductible employee contributions will not be taken into
account for purposes of computing the top-heavy ratio. When
aggregating plans, the value of account balances and accrued benefits
will be calculated with reference to the Determination Dates that fall
within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall
be determined under (a) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the
Employer, or (b) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C) of the Code.
(f) "PERMISSIVE AGGREGATION GROUP": The required aggregation group of
plans plus any other plan or plans of the Employer which, when considered
as a group with the required aggregation group, would continue to satisfy
the requirements of Sections 401(a)(4) and 410 of the Code.
(g) "REQUIRED AGGREGATION GROUP":
(i) Each qualified plan of the Employer in which at least one
Key Employee participates or participated at any time during the
Determination Period (regardless of whether the plan has terminated).
(ii) Any other qualified plan of the Employer which enables a
plan described in (i) to meet the requirements of Sections 401(a)(4)
or 410 of the Code.
(h) "DETERMINATION DATE": For any plan year subsequent to the first
plan year, the last day of the preceding plan year. For the first plan
year of the plan, the last day of that year.
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(i) "VALUATION DATE": The date elected by the Employer as of which
account balances or accrued benefits are valued for purposes of calculating
the top-heavy ratio. The top-heavy valuation date shall be the last day of
the Plan Year.
(j) "PRESENT VALUE": Present value shall be based only ON the
interest and mortality rates.
(k) "DETERMINATION PERIOD": The Plan Year containing the
Determination Date and the four (4) preceding Plan Year.
(1) "NON-KEY EMPLOYEE": An Employee who is not a Key Employee.
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ARTICLE VII
SPECIAL CODA LIMITATIONS
2.7.1 LIMITATION ON DEFERRAL PERCENTAGE FOR HIGHLY COMPENSATED
EMPLOYEES. Notwithstanding any provision herein to the contrary, the actual
deferral percentage for all Highly Compensated Employees for each Plan Year must
not exceed the actual deferral percentage for all other Employees eligible to
participate by more than the greater of:
(a) the actual deferral percentage of such other Employees multiplied
by 1.25; or
(b) the actual deferral percentage of such other Employees multiplied
by 2.0, but in no event more than two (2) percentage points greater than
the actual deferral percentage of such other Employees.
For purposes hereof, the actual deferral percentages for a Plan Year for
all Highly Compensated Employees and for all other Employees respectively
are the averages of the ratios, calculated separately for each Employee in
the respective group, of the amount of Elective Contributions and Qualified
Non-Elective Contributions paid under the Plan on behalf of each such
Employee for such Plan Year including Excess Elective Deferrals to the
Employee's Compensation for such Plan Year whether or not the Employee was
a Participant for the entire Plan Year, but excluding Elective Deferrals
that are taken into account in the Contribution Percentage test (provided
the ADP test is satisfied both with and without exclusion of those Elective
Deferrals). An Employee who would be a Participant but for the failure to
have Elective Contributions made on his behalf shall be treated as a
Participant on whose behalf no Elective Contributions are made. For
purposes of calculating the actual deferral percentages of Highly
Compensated Employees who are 5 percent owners or among the ten most highly
paid Employees, Elective Contributions and Qualified Non-Elective
Contributions on behalf of a member of the Family of such Highly
Compensated Employees shall be taken into account and Compensation of such
Employees shall include the Elective Deferrals and Qualified Non-Elective
Contributions and Compensation for the Plan Year of
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members of his Family (as determined in Section 414(q)(6) of the Code). A
member of the Family of such Highly Compensated Employees shall be
disregarded as a separate Employee in determining the actual deferral
percentage both for Participants who are Highly Compensated Employees and
for all other Employees.
For purposes of determining the actual deferral percentage test, Elective
Contributions and Qualified Non-Elective Contributions must be made before
the last day of the twelve month period immediately following the Plan Year
to which the contributions relate.
The Employer shall maintain records sufficient to demonstrate satisfaction
of the actual deferral percentage test and the amount of Qualified Non-
Elective Contributions used in such test.
The determination and treatment of the actual deferral percentage amounts
of any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
2.7.2 MULTIPLE PLAN LIMITATIONS.
(a) The actual deferral percentage for any Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible to have
Elective Contributions (and Qualified Non-Elective Contributions if treated
as Elective Deferrals for purposes of the actual deferral percentage test)
allocated to his or her Accounts under two or more arrangements described
in Section 401(k), of the Code, that are maintained by the Employer, shall
be determined as if such Elective Deferrals (and, if applicable, such
Qualified Non-Elective Contributions) were made under a single arrangement.
If a Highly Compensated Employee participates in two or more cash or
deferred arrangements that have different Plan Years, all cash or deferred
arrangements ending with or within the same calendar year shall be treated
as a single arrangement.
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(b) In the event that this Plan satisfies the requirements of Section
401(k), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then this section
shall be applied by determining the actual deferral percentage of Employees
as if all such plans were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to satisfy Section
401(k) of the Code only if they have the same Plan Year.
2.7.3 LIMITATION ON MATCHING CONTRIBUTIONS.
Notwithstanding any provision herein to the contrary, the average contribution
percentage for all Highly Compensated Employees for each Plan Year must not
exceed the average contribution percentage for all other Employees eligible to
participate by more than the greater of:
(a) the average contribution percentage of such other Employees
multiplied by 1.25; or
(b) the average contribution percentage of such other Employees
multiplied by 2.0, but in no event more than two (2) percentage points
greater than the average contribution percentage of such other Employees.
For purposes hereof, the average contribution percentages for a Plan Year
for all Highly Compensated Employees and for all other Employees
respectively are the averages of the ratios, calculated separately for each
Employee in the respective group, of the amount of Matching Contributions
paid under the Plan on behalf of each such Employee for such Plan Year, to
the Employee's Compensation for such Plan Year whether or not the Employee
was a Participant for the entire Plan Year. Such contribution percentage
amounts shall not include Matching Contributions that are forfeited either
to correct Excess Aggregate Contributions or because the contributions to
which they relate are Excess Elective Deferrals, Excess Contributions, or
Excess Aggregate Contributions.
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Such contribution percentage amounts shall include forfeitures of Excess
Aggregate Contributions or Matching Contributions allocated to the
Participant's Accounts which shall be taken into account in the Plan Year
in which such forfeiture is allocated. The Employer shall include only
those Qualified Non-Elective Contributions that are needed to meet the ACP
test.
The Employer may also use Elective Deferrals in the contribution percentage
amounts so long as the ADP test is met before the Elective Deferrals are
used in the ACP test and continues to be met following the exclusion of
those Elective Deferrals that are used to meet the ACP test. If an
Elective Contribution or other contribution by an Employee is required as a
condition of participation in the Plan, any Employee who would be a
Participant if such Employee made such a contribution shall be treated as
an eligible Participant on behalf of whom no such contributions are made.
The employer shall maintain records sufficient to demonstrate satisfaction
of the average contribution percentage test and the amount of Qualified
Non-Elective Contributions used in such test.
The determination and treatment of the contribution percentage of any
participant shall satisfy such other requirements as may be prescribed by
the Secretary of the Treasury.
2.7.4. SPECIAL RULES
(a) Multiple Use: If one or more Highly Compensated Employees
participate in both a CODA and a plan subject to the ACP test maintained by
the Employer and the sum of the ADP and ACP of those Highly Compensated
Employees subject to either or both tests exceeds the Aggregate Limit, then
the ACP of those Highly Compensated Employees who also participate in a
CODA shall be reduced (beginning with such Highly Compensated Employee
whose ACP is the highest) so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's contribution percentage amount is
reduced shall be treated as an Excess Aggregate Contribution.
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The ADP and ACP of the Highly Compensated Employees are determined after
any corrections required to meet the ADP and ACP test. Multiple use does
not occur of either the ADP or ACP of the Highly Compensated Employees does
not exceed 1.25 multiplied by the ADP and ACP of the Employees who are not
Highly Compensated Employees.
(b) The contribution percentage for any Participant who is a Highly
Compensated Employee and who is eligible to have contribution percentage
amounts allocated to his or her Accounts under two or more plans described
in Section 401 (a) of the Code, or arrangements described in Section 401(k)
of the Code that are maintained by the Employer, shall be determined as if
the total of such contribution percentage amounts was made under each plan.
If a Highly Compensated Employee participates in two or more cash or
deferred arrangements that have different plan years, all cash or deferred
arrangement ending with or within the same calendar year shall be treated
as a single arrangement.
(c) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with
one or more other plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if aggregated with this
plan, the this section shall be applied by determining the contribution
percentages of Employees as if all such plans were a single plan. For Plan
Years beginning after December 31, 1989, plans may be aggregated in order
to satisfy Section 401(m) of the Code only if they have the same Plan Year.
(d) For purposes of determining the contribution percentage of a
Participant who is a five-percent owner or one of the ten most highly-paid
Highly Compensated Employees, the contribution percentage amounts and
Compensation of such participants shall include the contribution percentage
amounts and Compensation for the Plan Year of members of the Family of such
Highly Compensated Employees. Family members, with respect to Highly
Compensated Employees, shall be disregarded as separate employees in
determining the contribution percentage both for Participants who are
Highly Compensated Employees and for all other Employees.
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(e) For purposes of determining the contribution percentage test,
Employee Contributions are considered to have been made in the Plan Year in
which contributed to the trust. Matching Contributions and Qualified
Non-Elective Contributions shall be considered made for a Plan Year if made
no later than the end of the twelve month period beginning of the day after
the close of the Plan Year.
2.7.5 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS. A Participant
may assign to the Plan any Excess Elective Deferrals made during a taxable year
of the Participant by notifying the Plan Administrator on or before March 15 of
each calendar year of the amount of the Excess Elective Deferrals to be assigned
to the Plan. A Participant is deemed to notify the Plan Administrator of any
Excess Elective Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of the Employer.
Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus
any income and minus any loss allocable thereto, shall be distributed no later
than April 15 to any Participant to whose account Excess Elective Deferrals were
assigned for the preceding year and who claims Excess Elective Deferrals for
such taxable year.
Excess Elective Deferrals distributed under this section
shall be adjusted for any income or loss based on a reasonable method of
computing the allocable income or loss. The method selected must be applied
consistently to all Participants and used for all corrective distributions under
the Plan for the Plan Year, and must be the same method that is used by the Plan
for allocating income or loss to Participants' Accounts. Income or loss
allocable to the period between the end of the taxable year and the date of
distribution may be disregarded in determining income or loss.
2.7.6 DISTRIBUTION OF EXCESS CONTRIBUTIONS. Notwithstanding any
other provision of this Plan, Excess Contributions, plus any income and minus
any loss allocable thereto, shall be distributed no later than the last day of
each Plan Year to Participants to whose Accounts such Excess Contributions were
allocated for the preceding Plan Year.
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If such excess amounts are distributed more than 2-1/2 months after the last day
of the Plan Year in which such excess amounts arose, a ten (10) percent excise
tax will be imposed on the Employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly Compensated Employees on
the basis of the respective portions of the Excess Contributions attributable to
each of such Employees. Excess Contributions of Participants who are subject to
the family member aggregation rules shall be allocated among the family members
in proportion to the Elective deferrals (and any amounts treated as Elective
Deferrals) of each family member that is combined to determine the combined ADP.
Excess Contributions distributed under this section shall be adjusted for any
income or loss based on a reasonable method of computing the allocable income or
loss. The method selected must be applied consistently to all Participants and
used for all corrective distributions under the Plan for the Plan Year, and must
be the same method that is used by the Plan for allocating income or loss to
Participants' Accounts. Income or loss allocable to the period between the end
of the taxable year and the date of distribution may be disregarded in
determining income or loss.
Excess Contributions shall be distributed from the Participant's Elective
Contribution Account in proportion to the Participant's Elective Deferrals for
the Plan Year. Excess Contributions attributable to Qualified Non-Elective
Contributions shall be distributed from the Participant's Qualified Non-Elective
Contribution Account only to the extent that such Excess Contributions exceed
the balance in the Participant's Elective Contribution Account.
2.7.7 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.
Notwithstanding any other provision of this Plan, Excess Aggregate Contributions
(including both Elective Contributions and the Employer's Matching Contributions
as well as any Voluntary Contributions), plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable,
distributed no later than the last day of each Plan Year to Participants to
whose accounts such Excess Aggregate Contributions were allocated for the
preceding Plan Year.
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Excess Aggregate Contributions of Participants who are subject to the family
member aggregation rules shall be allocated among the family members in
proportion to the Employee and Matching Contributions (or amounts treated as
Matching Contributions) of each family member that is combined to determine the
combined ACP. Such distributions shall be made to Highly Compensated Employees
on the basis of the respective portions of the Excess Aggregate Contributions
attributable to each of such Employees. If such Excess Aggregate Contributions
are distributed more than 2-1/2 months after the last day of the Plan Year in
which such excess amounts arose, a ten (10) percent excise tax will be imposed
on the Employer maintaining the Plan with respect to those amounts.
Excess Aggregate Contributions distributed under this section shall be adjusted
for any income or loss based on a reasonable method of computing the allocable
income or loss. The method selected must be applied consistently to all
Participants and used for all corrective distributions under the Plan for the
Plan Year, and must be the same method that is used by the Plan for allocating
income or loss to Participants' Accounts. Income or loss allocable to the
period between the end of the taxable year and the date of distribution may be
disregarded in determining income or loss.
Forfeitures of Excess Aggregate Contributions shall be reallocated to the
accounts of Employees who are not Highly Compensated Employees.
Excess Aggregate Contributions shall be forfeited, if forfeitable or distributed
on a pro-rata basis from the Participant's Matching Account and Voluntary
Account (and, if applicable, the Participant's Elective Contribution Account).
2.7.8 LIMITATION ON DISTRIBUTIONS. Except as otherwise provided
in this Article, Elective Deferrals and Qualified Non-Elective Contributions and
income allocable thereto are not distributable to a Participant or his or her
Beneficiary in accordance with such Participant's or Beneficiary's election
prior to separation from service, death or disability. Such amounts may,
however, be distributed upon:
(a) Termination of the Plan without the establishment of another
defined contribution plan.
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(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section 409(d)(2) of
the Code) used in a trade or business of such corporation if such
corporation continues to maintain this Plan after the disposition, but only
with respect to employees who continue employment with the corporation
acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section
409(d)(3) of the Code) if such corporation continues to maintain this Plan,
but only with respect to employees who continue employment with such
subsidiary.
(d) The attainment of age 59 1/2.
(e) The Hardship of a Participant in accordance with
Section 2.5.6.
All such distributions are subject to the spousal and Participant consent
requirements, if applicable, contained in Sections 401 (a) (11) and 417 of
the Code.
2.7.9 LIMITATION ON ELECTIVE DEFERRALS. No Participant shall be
permitted to have Elective Deferrals made under this Plan, or any other
qualified plan maintained by the Employer, during any taxable year, in excess of
the dollar limitation contained in Section 402(g) of the Code in effect at the
beginning of such taxable year.
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PART III
ARTICLE I
ACCOUNTING
3.1.1 ACCOUNTS. All income, profits, recoveries, contributions
and any and all monies, securities and properties of any kind at any time
received or held by the Trustee shall be held as a commingled Trust Fund, except
to the extent such assets are transferred to a Segregated Fund or Controlled
Fund. For accounting purposes, the Plan Administrator shall establish and
maintain certain Accounts for each Participant. An Employer Account shall be
established and maintained for each Participant to which shall be added the
Participant's share of Non-Elective Contributions and forfeitures. A Matching
Account shall be established and maintained for each Participant to which shall
be added the Participant's share of Matching Contributions and forfeitures. A
Qualified Non-Elective Contribution Account shall be established and maintained
for each Participant to which shall be added the Participant's share of
Qualified Non-Elective Contributions. If a Participant has previously made
voluntary nondeductible employee contributions, the Plan Administrator shall
establish and maintain a Voluntary Account for the Participant. If, in
accordance with any of the provisions of the Plan, assets are either deposited
initially or transferred to a Segregated Fund for the benefit of a Participant,
the Plan Administrator shall establish and maintain a Segregated Account for the
Participant. If a Participant elects to exercise investment control over all or
a portion of his Accounts, the Plan Administrator shall establish and maintain a
Controlled Account for the Participant.
3.1.2 ADJUSTMENTS. As of each Valuation Date each Participant's
Accounts shall be adjusted in the following order and manner.
(a) DISTRIBUTIONS. Any distribution made to or on behalf of a
Participant since the last preceding Valuation Date shall be deducted from
the Participant's Account from which the distribution was made.
(b) INSURANCE PREMIUMS. Payments made since the last
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preceding Valuation Date for Life Insurance Policies on the life of a
Participant (including without limitation payments of premiums and interest on
policy loans) shall be deducted from the Account of the Participant from which
the payment was made.
(c) ADJUSTMENT TO FAIR MARKET VALUE. The value of all monies, securities
and other property in the Trust Fund, excluding Life Insurance Policies, SHALL
be appraised by the Trustee at the then fair market value. In determining such
value, all income and contributions, if any, received by the Trustee from the
Employer or Participants on account of such year calculated under the method of
accounting of the Trust shall be included and there shall be deducted all
expenses determined in accordance with the method of accounting adopted by the
Plan Administrator.
If the total net value of the Trust Fund so determined exceeds (or is less than)
the total amount in the affected Accounts of all Participants, the excess (or
deficiency) shall be added to (or deducted from) the respective Accounts of all
Participants in the ratio that each such Participant's Account bears to the
total amount in all such Accounts.
(d) ADJUSTMENT OF SEGREGATED AND CONTROLLED ACCOUNTS. The value of all
monies, securities and other property in each Participant's Segregated Account
or Controlled Account, if any, but exclusive of Life Insurance Policies, shall
be appraised by the Trustee at the then fair market value. In determining such
value, all income calculated under the method of accounting of the Trust shall
be included and all expenses shall be deducted.
If the total net value of a Participant's Segregated Account or Controlled
Account, as the case may be, so determined exceeds (or is less than) the
previous balance in such Account, the excess (or deficiency) shall be added to
(or deducted from) the Participant's respective Account.
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(e) INSURANCE DIVIDENDS. Dividends or credits received since the last
preceding Valuation Date on any Life Insurance Policy on the life of a
Participant shall be added to the Account of the Participant from which the
premiums for such Life Insurance Policy have been paid.
(f) CONTRIBUTIONS AND FORFEITURES. Each Participant's Account shall be
increased BY that portion of the contribution and forfeitures which is allocated
to him.
(g) TRANSFERS FROM TRUST FUND. To the extent that funds in the Trust Fund
attributable to a Participant's Account were transferred since the last
preceding Valuation Date or are to be transferred to a Segregated Fund pursuant
to any of the provisions of the Plan, the Account from which the funds were
transferred shall be decreased and the Account to which the funds were
transferred shall be increased.
(h) TRANSFERS TO TRUST FUND. To the extent that funds are transferred
from a Segregated Fund of a Participant to the Trust Fund pursuant to any of the
provisions of the Plan, the Account from which the funds were transferred shall
be decreased and the Account of the Participant to which the funds were
transferred shall be increased.
(i) TIME OF ADJUSTMENTS. Every adjustment to be made pursuant to this
Section shall be considered as having been made as of the applicable Valuation
Date regardless of the actual dates of entries, receipt by the Trustee of
contributions by the Participant or the Employer for such Year, or the transfers
of funds to or from Segregated Funds. The Trustee's determination as to
valuation of trust assets and charges or credits to the individual Accounts of
the respective Participants shall be conclusive and binding on all persons. If
funds are transferred to a Segregated Fund as of any date other than a Valuation
Date pursuant to the terms of the Plan, the adjustments to be made pursuant to
this Section shall be made as of the date as of which the transfer is made, as
if such date is a Valuation Date. If any Participant receives a distribution
pursuant to the terms of the Plan as of any date other than a Valuation Date,
then earnings will be credited solely as of the immediately preceding Valuation
Date.
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ARTICLE II
LIMITATIONS
3.2.1 LIMITATIONS ON ANNUAL ADDITIONS. If the Participant does not
participate in, and has never participated in another qualified plan maintained
by the Employer, or an individual medical account, as defined in Section
415(l)(2) of the Code, maintained by the Employer, which provides an annual
addition, subject to the adjustments hereinafter set forth, the amount of annual
additions which may be credited to a Participant's Accounts during any
Limitation Year shall in no event exceed the lesser of (a) thirty thousand
dollars ($30,000.00) or, if greater, one-fourth of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code as in effect for the Limitation
Year or (b) twenty-five percent (25%) of the Participant's Compensation for the
Plan Year. The compensation limitation referred to in (b) shall not apply to
any contribution for medical benefits (within the meaning of Section 401(h) or
Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition
under Section 415(l)(1) or 419A(d)(2) of the Code. If the Employer contribution
that would otherwise be contributed or allocated to the Participant's Account
would cause the annual additions for the Limitation Year to exceed the maximum
permissible amount, the amount contributed or allocated shall be reduced so that
the annual additions for the Limitation Year shall equal the maximum permissible
amount. For these purposes, the maximum permissible amount is the maximum
annual additions permitted on behalf of a Participant.
(a) ANNUAL ADDITIONS. The term "annual additions" shall mean, the
sum of the following amounts credited to a Participant's Accounts for the
Limitation Year:
(i) Employer contributions;
(ii) Employee contributions;
(iii) Forfeitures; and
(iv) Amounts allocated after March 31, 1984, to an individual
medical account, as defined in Section 415(l)(2) of the Code, which
is part of a pension or
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annuity plan maintained by the Employer and amounts derived from
contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement
medical benefits, allocated to the separate account of a key employee,
as defined in Section 419A(d)(3) of the Code, under a welfare benefit
fund as defined in Section 419(e) of the Code, maintained by the
Employer.
Any excess amounts applied under subsections (b) and (c) below to
reduce Employer contributions are considered annual additions for such
Limitation Year.
(b) EXCESSIVE ANNUAL ADDITIONS. Prior to determining a
Participant's actual Compensation for a Limitation Year, the Employer
may determine the maximum permissible Annual Addition for the
Participant on the basis of a reasonable estimation of the
Participant's Compensation for the Limitation Year, uniformly
determined for all Participants similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the
maximum permissible amount for the Limitation Year shall be determined
on the basis of the Participant's actual Compensation for the
Limitation Year. Any Excessive Annual Addition attributable to
nondeductible voluntary employee contributions made by a Participant
to the extent they reduce the excess amount shall be returned to the
Participant before any other adjustments are made.
If an excess amount still exists, and the Participant is covered by
the Plan at the end of the Limitation Year, the excess amount in the
Participant's Account shall be used to reduce Employer contributions
(including any allocation of forfeitures) for such Participant in the
next Limitation Year, and each succeeding Limitation Year, if
necessary. If an excess amount still exists, and the Participant is
not covered by the Plan at the end of a Limitation Year, the excess
amount shall be held unallocated in a suspense account.
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The suspense account shall be applied to reduce future Employer
contributions for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year, if necessary.
If a suspense account is in existence at any time during a particular
Limitation Year, all amounts in the suspense account must be allocated
and reallocated to Participants' Accounts before any Employer or any
Employee contributions may be made to the Plan for that Limitation
Year. Excess amounts may not be distributed to Participants or former
Participants. If a suspense account is in existence at any time
during a Limitation Year, it shall not participate in the allocation
of the Trust's investment gains and losses.
(c) PARTICIPATION IN CERTAIN OTHER PLANS. If in addition to this
Plan, the Participant is covered under another qualified defined
contribution plan maintained by the Employer, a welfare benefit fund, as
defined in Section 419(e) of the code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2) of the Code,
maintained by the Employer, which provides an Annual Addition during any
Limitation Year, the annual additions which may be credited to a
Participant's account under this Plan for any such Limitation Year shall
not exceed the maximum permissible amount reduced by the Annual Additions
credited to a Participant's Account under the other plans and welfare
benefit funds for the same Limitation Year. If the Annual Additions with
respect to the Participant under other defined contribution plans and
welfare benefit funds maintained by the Employer are less than the maximum
permissible amount and the Employer contribution that would otherwise be
contributed or allocated to the Participant's Account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated shall be reduced so that
the Annual Additions under all such plans and funds for the Limitation Year
shall equal the maximum permissible amount.
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If the Annual Additions with respect to the Participant under such other
defined contribution plans and welfare benefit funds in the aggregate are
equal to or greater than the maximum permissible amount, no amount will be
contributed or allocated to the Participant's Account under this Plan for
the Limitation Year.
Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the maximum permissible amount
for a Participant in the manner described in subsection (b) above. As soon
as is administratively feasible after the end of the Limitation Year, the
maximum permissible amount for the Limitation Year shall be determined on
the basis of the Participant's actual Compensation for the Limitation Year.
If a Participant's Annual Additions under this Plan and such other plans
would result in an excess amount for a Limitation Year, the excess amount
shall be deemed to consist of the Annual Additions last allocated, except
that Annual Additions attributable to a welfare benefit fund or individual
medical account will be deemed to have been allocated first regardless of
the actual allocation date.
If the excess amount was allocated to a Participant on an allocation date
of this Plan which coincides with an allocation date of another plan, the
excess amount attributed to this Plan will be the product of:
(i) the total excess amount allocated as of such date, times
(ii) the ratio of (I) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this Plan to
(II) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all the other qualified
defined contribution plans. Any excess amount attributed to this Plan
will be disposed in the manner described in subsection (b), above.
For purposes hereof, the excess amount is the excess of the
Participant's annual additions for the Limitation Year over the
maximum permissible amount.
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If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum of
the Participant's defined benefit plan fraction and defined
contribution plan fraction will not exceed 1.0 in any Limitation Year.
(d) COMBINED PLAN LIMITATION. In the event that a Participant in
this Plan participates in a defined benefit plan (as defined in the
applicable sections of the Code) maintained by the Employer, the sum of
the "defined benefit plan fraction" plus the "defined contribution plan
fraction" shall at no time exceed 1.0. Except to the extent that
applicable law permits greater amounts to be provided on behalf of a
Participant, in which event such law is hereby incorporated by
reference, the foregoing fractions are defined as follows. The
"defined benefit plan fraction" for any year is a fraction (i) the
numerator of which is the projected annual benefit of the Participant
under all the defined benefit plans (whether or not terminated)
maintained by the Employer (determined as of the close of the year),
and (ii) the denominator of which is the lesser of (A) the product of
1.25 multiplied by the dollar limitation determined for the Limitation
Year under Sections 415(b) and (d) of the Code, or (B) the product of
1.4 multiplied by one hundred (100%) percent of the Participant's
average compensation for the three (3) consecutive Years of Service
with the Employer that produces the highest average, including any
adjustments under Section 415(b) of the Code. Notwithstanding the
above, if the Participant was a Participant as of the first day of the
first Limitation Year beginning after December 31, 1986, in one or more
defined benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction shall not be
less than 125 percent of the sum of the annual benefits under such
plans which the Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any
changes in the terms and conditions of the Plan after May 5, 1986.
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The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Section 415
for all Limitation Years beginning before January 1, 1987. The "defined
contribution fraction" for any year is a fraction (i) the numerator of
which is the sum of the annual additions to the Participant's accounts
under all defined contribution plans (whether or not terminated) maintained
by the Employer for the current and all prior Limitation Years, including
the annual additions attributable to the Participant's nondeductible
employee contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds and individual medical accounts
(as defined in Sections 419(e) and 415(l)(2) of the Code) maintained by the
Employer, and (ii) the denominator of which is the sum of the lesser of the
following amounts determined for the current year and for all prior
limitation years of service with the Employer, regardless of whether a
defined contribution plan was maintained by the Employer: (A) the product
of 1.25 multiplied by the dollar limitation determined under Sections
415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the
Code, or (B) thirty-five (35%) percent of the Participant's compensation
from the Employer for such plan year. If the Employee was a Participant as
of the end of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined contribution plans maintained by
the Employer which were in existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the terms of this Plan.
Under the adjustment, an amount equal to the product of (1) the excess of
the sum of the fractions over 1.0 times (2) the denominator of this
fraction, shall be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would
be computed as of the end of the last Limitation Year beginning before
January 1, 1987, and disregarding any changes in the terms and conditions
of the Plan made after May 5, 1986, but using the Section 415 limitation
applicable to the first Limitation Year beginning on or after January 1,
1987.
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The annual addition for any Limitation Year beginning before January 1,
1987, shall not be recomputed to treat all employee contributions as annual
additions.
The projected annual benefits under a defined benefit plan is the annual
retirement benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a straight life
annuity) or qualified joint and survivor annuity) to which the Participant
would be entitled under the terms of the Plan assuming the Participant
continues employment until normal retirement age under the plan (or current
age, if later), and the Participant's compensation for the current
Limitation Year and all other relevant factors used to determine benefits
under the Plan remain constant for all future Limitation Years.
(e) SPECIAL TRANSITION RULE FOR DEFINED CONTRIBUTION FRACTION. At
the election of the Plan Administrator, in applying the provisions of
subsection (d) above with respect to the defined contribution plan fraction
for any year ending after December 31, 1982, the amount taken into account
for the denominator for each Participant for all years ending before
January 1, 1983 shall be an amount equal to the product of the amount of
the denominator determined under subsection (d) above for the year ending
in 1982, multiplied by the "transition fraction". The "transition
fraction" is a fraction (i) the numerator of which is the lesser of (A)
$51,875 or (B) 1.4 multiplied by twenty-five (25%) percent of the
Participant's compensation for the year ending in 1981, and (ii) the
denominator of which is the lesser of (A) $41,500 or (B) twenty-five (25%)
percent of the Participant's compensation for the year ending in 1981.
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(f) SPECIAL TRANSITION RULE FOR EXCESS BENEFITS. Provided that the
Plan satisfied the requirements of Section 415 of the Code for the last
Plan Year beginning before January 1, 1983, an amount shall be subtracted
from the numerator of the defined contribution plan fraction (not exceeding
such numerator) so that the sum of the defined benefit plan fraction and
the defined contribution fraction computed in accordance with Section
415(e)(1) of the Code (as amended by the Tax Equity and Fiscal
Responsibility Act of 1982) does not exceed 1.0 for such year, in
accordance with regulations issued by the Secretary of the Treasury
pursuant to the applicable provisions of the Code.
(g) EMPLOYER. For purposes of this Section, employer shall mean the
Employer that adopts this Plan and all members of a group of employers
which constitutes a controlled group of corporations or trades or
businesses under common control (as defined in Sections 414(b) and (c) of
the Code, as modified by Section 415(h) of the Code), or an affiliated
service group (as defined in Section 414(m) of the Code) of which the
adopting employer is part and any other entity required to be aggregated
with the Employer under Section 414(o) of the Code and the regulations
issued thereunder.
(h) COMPENSATION. For purposes of this Section, Compensation shall
mean all of a Participant's: Section 415 Safe-harbor Compensation. Wages,
salaries and fees for professional services and other amounts received for
personal services actually rendered in the course of employment for the
Employer (including but not limited to commissions paid salesmen,
compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefit,
reimbursements and expense allowances), but excluding:
(I) Employer contributions to a plan of deferred compensation
which are not includable in the Employee's gross income for the
taxable year in which contributed, or employer contributions under a
simplified employee pension plan to the extent such contributions are
deductible by the Employee or any distributions from a plan of
deferred compensation;
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(II) Amounts realized from the exercise of a non-qualified stock
option or when restricted stock or property held by the Employee is no
longer subject to a substantial risk of forfeiture or becomes freely
transferable.
(III) Amounts realized from the sale, exchange or other
disposition of stock acquired under an incentive stock option; and
(IV) Other amounts which received special tax benefits or
contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity described in
Section 403(b) of the Code (whether or not the amounts are actually
excludable from the gross income of the Employee).
For any self-employed individual, compensation shall mean earned income.
For limitation years beginning after December 31, 1991, for purposes of
applying the limitations of this Article, Compensation for a Limitation
Year is the Compensation actually paid or includible in gross income during
such Limitation Year.
(i) SHORT LIMITATION YEAR. If the Limitation Year is amended to a
different twelve (12) consecutive month period, the new Limitation Year
must begin within the Limitation Year in which the amendment is made. If a
short Limitation Year is created because of an amendment changing the
Limitation Year to a different twelve (12) consecutive month period, the
maximum annual addition shall not exceed the defined contribution dollar
limitation determined in accordance with Section 415(c)(1)(A) of the Code
then in effect multiplied by a fraction, the numerator of which is the
number of months in the short Limitation Year and the denominator of which
is twelve (12).
3.2.2 CONTROLLED BUSINESSES. If this plan provides contributions or
benefits for one or more owner-employees who control both the business for which
this plan is established and one or more other trades or businesses, this plan
and the plan established for other trades or businesses must, when looked at as
a single plan, satisfy sections 401(a) and (d) for the employees of this and all
other trades or businesses.
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If the plan provides contributions or benefits for one or more owner-employees
who control one or more other trades or businesses, the employees of the other
trades or businesses must be included in a plan which satisfies sections 401(a)
and (d) and which provides contributions and benefits not less favorable than
provided for owner-employees under this plan.
If an individual is covered as an owner-employee under the plans of two or more
trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for him under the most favorable plan of the trade or business
which is not controlled.
For purposes of the preceding paragraphs, an owner-employee, or two or more
owner-employees, will be considered to control a trade or business if the
owner-employee, or two or more owner-employees together:
(a) own the entire interest in an unincorporated trade or business,
or
(b) in the case of a partnership, own more than 50 percent of either
the capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an
owner-employee, or two or more owner-employees shall be treated as owning
any interest in a partnership which is owned, directly or indirectly, by a
partnership which such owner-employee, or such two or more owner-employees,
are considered to control within the meaning of the preceding sentence.
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ARTICLE III
FIDUCIARIES
3.3.1 STANDARD OF CONDUCT. The duties and responsibilities of the
Plan Administrator and the Trustee with respect to the Plan shall be discharged
(a) in a non-discriminatory manner; (b) for the exclusive benefit of
Participants and their Beneficiaries; (c) by defraying the reasonable expenses
of administering the Plan; (d) with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; (e) by diversifying the
investments of the Plan so as to minimize the risk of large losses, unless under
the circumstances it is clearly prudent not to do so; and (f) in accordance with
the documents and instruments governing the Plan insofar as such documents and
instruments are consistent with the provisions of the Act.
3.3.2 INDIVIDUAL FIDUCIARIES. At any time that a group of
individuals is acting as Plan Administrator or Trustee, the number of such
persons who shall act in such capacity from time to time shall be determined by
the Employer. Such persons shall be appointed by the Employer and may or may
not be Participants or Employees of the Employer. Any action taken by a group
of individuals acting as either Plan Administrator or Trustee shall be taken at
the direction of a majority of such persons, or, if the number of such persons
is two (2), by unanimous consent.
3.3.3 DISQUALIFICATION FROM SERVICE. No person shall be permitted
to serve as a Fiduciary, custodian, counsel, agent or employee of the Plan or as
a consultant to the Plan who has been convicted of any of the criminal offenses
specified in the Act.
3.3.4 BONDING. Except as otherwise permitted by law, each
Fiduciary or person who handles funds or other property or assets of the Plan
shall be bonded in accordance with the requirements of the Act.
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3.3.5 PRIOR ACTS. No Fiduciary shall be liable for any acts
occurring prior to the period of time during which the Fiduciary was actually
serving in such capacity with respect to the Plan.
3.3.6. INSURANCE AND INDEMNITY. The Employer may purchase or cause
the Trustee to purchase and keep current as an authorized expense liability
insurance for the Plan, its Fiduciaries, and any other person to whom any
financial or other administrative responsibility with respect to the Plan and
Trust is allocated or delegated, from and against any and all liabilities, costs
and expenses incurred by such persons as a result of any act or omission to act
in connection with the performance of the duties, responsibilities and
obligations under the Plan and under the Act; provided that any such insurance
policy purchased with Plan assets permits subrogation by the Insurer against the
Fiduciary in the case of breach by such Fiduciary. Unless otherwise determined
and communicated to affected parties by the Employer, the Employer shall
indemnify and hold harmless such person, other than a corporate trustee, for and
from any such liabilities, costs and expenses which are not covered by any such
insurance, except to the extent that any such liabilities, costs or expenses are
judicially determined to be due to the gross negligence or willful misconduct of
such person. No Plan assets may be used for any such indemnification.
3.3.7 EXPENSES. Expenses incurred by the Plan Administrator or
the Trustees in the administration of the Plan and the Trust, including fees for
legal services rendered, such compensation to the Trustee as may be agreed upon
in writing from time to time between the Employer and the Trustee, and all other
proper charges and expenses of the Plan Administrator or the Trustee and of
their agents and counsel shall be paid by the Employer, or at its election at
any time or from time to time, may be charged against the assets of the Trust,
but until so paid shall constitute a charge upon the assets of the Trust. The
Trustee shall have the authority to charge the Trust Fund for its compensation
and reasonable expenses unless paid or contested by written notice by the
Employer within sixty (60) days after mailing of the written billing by the
Trustee.
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All taxes of any and all kinds whatsoever which may be levied or assessed under
existing or future laws upon the assets of the Trust or the income thereof shall
be paid from such assets. Notwithstanding the foregoing, no compensation shall
be paid to any Employee for services rendered under the Plan and Trust as a
Trustee.
3.3.8 AGENTS, ACCOUNTANTS AND LEGAL COUNSEL. The Plan
Administrator shall have authority to employ suitable agents, custodians,
investment counsel, accountants and legal counsel who may, but need not be,
legal counsel for the Employer. The Plan Administrator and the Trustee shall be
fully protected in acting upon the advice of such persons. The Trustee shall at
no time be obliged to institute any legal action or to become a party to any
legal action unless the Trustee has been indemnified to the Trustee's
satisfaction for any fees, costs and expenses to be incurred in connection
therewith.
3.3.9 INVESTMENT MANAGER. The Employer may employ as an
investment manager or managers to manage all or any part of the Trust Fund any
(i) investment advisor registered under the Investment Advisors Act of 1940;
(ii) bank as defined in said Act; or (iii) insurance company qualified to
perform investment management services in more than one state. Any investment
manager shall have all powers of the Trustee in the management of such part of
the Trust Fund, including the power to acquire or dispose of assets. In the
event an investment manager is so appointed, the Trustee shall not be liable for
the acts or omissions of such investment manager or be under any obligation to
invest or otherwise manage that part of the Trust Fund which is subject to the
management of the investment manager. The Employer shall notify the Trustee in
writing of any appointment of an investment manager, and shall provide the
Trustee with the investment manager's written acknowledgment that it is a
fiduciary with respect to the Plan.
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3.3.10 FINALITV OF DECISIONS OR ACTS. Except for the right of a
Participant or Beneficiary to appeal the denial of a claim, any decision or
action of the Plan Administrator or the Trustee made or done in good faith upon
any matter within the scope of authority and discretion of the Plan
Administrator or the Trustee shall be final and binding upon all persons. In
the event of judicial review of actions taken by any Fiduciary within the scope
of his duties in accordance with the terms of the Plan and Trust, such actions
shall be upheld unless determined, to have been arbitrary and capricious.
3.3.11 CERTAIN CUSTODIAL ACCOUNTS AND CONTRACTS. The term "Trustee"
as used herein will also include a person holding the assets of a custodial
account, an annuity Contract or other Contract which is treated as a qualified
trust pursuant to Section 401(f) of the Code and references to the Trust Fund
shall be construed to apply to such custodial account, annuity Contract or other
Contract.
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ARTICLE IV
PLAN ADMINISTRATOR
3.4.1 ADMINISTRATION OF PLAN. The Plan Administrator shall be
designated by the Employer from time to time. The primary responsibility of the
Plan Administrator is to administer the Plan for the exclusive benefit of the
Participants and their Beneficiaries, subject to the specific terms of the Plan.
The plan Administrator shall administer the Plan and shall construe and
determine all questions of interpretation or policy 'in a manner consistent with
the Plan. The Plan Administrator may correct any defect, supply any omission,
or reconcile any inconsistency in such manner and to such extent as he shall
deem necessary or advisable to carry out the purpose of the Plan; provided,
however, that any interpretation or construction shall be done in a
nondiscriminatory manner and shall be consistent with the intent that the Plan
shall continue to be a qualified Plan pursuant to the Code, and shall comply
with the terms of the Act. The Plan Administrator shall have all powers
necessary or appropriate to accomplish his duties under the Plan.
(a) The Plan Administrator shall be charged with the duties of the
general administration of the Plan, including but not limited to the
following:
(1) To determine all questions relating to the
eligibility of an Employee to participate in the Plan or to
remain a Participant hereunder.
(2) To compute, certify and direct the Trustee with
respect to the amount and kind of benefits to which any
Participant shall be entitled hereunder.
(3) To authorize and direct the Trustee with respect
to all disbursements from the Trust Fund.
(4) To maintain all the necessary records for the
administration of the Plan.
(5) To interpret the provisions of the Plan and to
make and publish rules and regulations for the Plan as the
Plan Administrator may deem reasonably necessary for the
proper and efficient administration of the Plan
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and consistent with its terms.
(6) To select the Insurer to provide any Life
Insurance Policy to be purchased for any Participant
hereunder.
(7) To advise the Fiduciary with investment authority
regarding the short and long-term liquidity needs of the
Plan in order that the Fiduciary might direct its investment
accordingly.
(8) To advise, counsel and assist any Participant
regarding any rights, benefits or elections available under
the Plan.
(9) To instruct the Trustee as to the management,
investment and reinvestment of the Trust Fund unless the
investment authority has been delegated to the Trustee or an
Investment Manager.
(b) The Plan Administrator shall also be responsible for
preparing and filing such annual disclosure reports and tax forms as
may be required from time to time by the Secretary of Labor, the
Secretary of the Treasury or other governmental authorities.
(c) Whenever it is determined by the Plan Administrator to be in
the best interest of the Plan and its Participants or Beneficiaries,
the Plan Administrator may request such variances, deferrals,
extensions, or exemptions or make such elections for the Plan as may
be available under the law.
(d) The Plan Administrator shall be responsible for procuring
bonding for all persons dealing with the Plan or its assets as may be
required by law.
(e) In the event this Plan is required to file reports or pay
premiums to the Pension Benefit Guaranty Corporation, the Plan
Administrator shall have the duty to prepare and make such filings, to
pay any premiums required, whether for basic or contingent liability
coverage, and shall be charged with the responsibility of notifying
all necessary parties of such events and under such circumstances as
may be required by law.
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3.4.2 DISCLOSURE REQUIREMENTS. Every Participant covered under the
Plan and every Beneficiary receiving benefits under the Plan shall receive from
the Plan Administrator a summary plan description, and such other information as
may be required by law or by the terms of the Plan.
3.4.3 INFORMATION GENERALLY AVAILABLE. The Plan Administrator shall
make copies of this Plan and Trust, the summary plan description, latest annual
report, Life Insurance Policies, or other instruments under which the Plan was
established or is operated available for examination by any Participant or
Beneficiary in the principal office of the Plan Administrator and such other
locations as may be necessary to make such information reasonably accessible to
all interested parties. Subject to a reasonable charge to defray the cost of
furnishing such copies, the Plan Administrator shall, upon written request of
any Participant or Beneficiary, furnish a copy of any of the above Documents to
the respective party.
3.4.4 STATEMENT OF ACCRUED BENEFIT. Upon written request to the Plan
Administrator once during any twelve (12) month period, a Participant or
Beneficiary shall be furnished with a written statement, based on the latest
available information, of his then vested accrued benefit and the earliest date
upon which the same will become fully vested and nonforfeitable. The statement
shall also include a notice to the Participant of any benefits which are
forfeitable if the Participant dies before a certain date.
3.4.5 EXPLANATION OF ROLLOVER Treatment. The Plan Administrator
shall, when making a distribution eligible for rollover treatment, provide a
written explanation to the recipient of the provisions under which such
distribution will not be subject to tax if transferred to an eligible retirement
plan within sixty (60) days after the date on which the recipient received the
distribution and, if applicable, the provisions of law pertaining to the tax
treatment of lump sum distributions.
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ARTICLE V
TRUSTEE
3.5.1 ACCEPTANCE OF TRUST. The Trustee, by joining in the execution
of the Plan, agrees to act in accordance with the express terms and conditions
hereof.
3.5.2 TRUSTEE CAPACITY - CO-TRUSTEES. The Trustee may be a bank,
trust company or other corporation possessing trust powers under applicable
state or federal law or one or more individuals or any combination thereof.
When there are two or more Trustees, they may allocate specific
responsibilities, obligations or duties among themselves by their written
agreement. An executed copy of such written agreement shall be delivered to and
retained by the Plan Administrator.
3.5.3 RESIGNATION, REMOVAL, AND SUCCESSORS. Any Trustee may resign
at any time by delivering to the Employer a written notice of resignation to
take effect at a date specified therein, which shall not be less than thirty
(30) days after the delivery thereof; the Employer may waive such notice. The
Trustee may be removed by the Employer with or without cause, by tendering to
the Trustee a written notice of removal to take effect at a date specified
therein. Upon such removal or resignation of a Trustee, the Employer shall
either appoint a successor Trustee who shall have the same powers and duties as
those conferred upon the resigning or discharged Trustee, or, if a group of
individuals is acting as Trustee, determine that a successor shall not be
appointed and the number of Trustees shall be reduced by one (1).
3.5.4 CONSULTATIONS. The Trustee shall be entitled to advice of
counsel, which may be counsel for the Plan or the Employer, in any case in which
the Trustee shall deem such advice necessary. The Trustee shall not be liable
for any action taken or omitted in good faith reliance upon the advice of such
counsel. With the exception of those powers and duties specifically allocated
to the Trustee by the express terms of the Plan, it shall not be the
responsibility of the Trustee to interpret the terms of the Plan and the Trustee
may request, and is entitled to receive, guidance and written direction from the
Plan Administrator on any point requiring construction or interpretation of the
Plan Documents.
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3.5.5 RIGHTS, POWERS AND DUTIES. The rights, powers and duties of
the Trustee shall be as follows:
(a) The Trustee shall be responsible for the safekeeping of the
assets of the Trust Fund in accordance with the provisions of the Plan
and any amendments hereto. The duties of the Trustee under the Plan
shall be determined solely by the express provisions hereof and no
other further duties or responsibilities shall be implied. Subject to
the terms of this Plan, the Trustee shall be fully protected and shall
incur no liability in acting in reliance upon the written instructions
or directions of the Employer, the Plan Administrator, a duly
designated investment manager, or any other named Fiduciary.
(b) The Trustee shall have all powers necessary or convenient
for the orderly and efficient performance of its duties hereunder,
including but not limited to those specified in this Section. The
Trustee shall have the power generally to do all acts, whether or not
expressly authorized, which the Trustee in the exercise of its
fiduciary responsibility may deem necessary or desirable for the
protection of the Trust Fund and the assets thereof.
(c) The Trustee shall have the power to collect and receive any and
all monies and other property due hereunder and to give full discharge and
release therefore; to settle, compromise or submit to arbitration any
claims, debts or damages due to or owing to or from the Trust Fund; to
commence or defend suits or legal proceedings wherever, in the Trustee's
judgment, any interest of the Trust Fund requires it; and to represent the
Trust Fund in all suits or legal proceedings in any court of law or equity
or before any other body or tribunal.
(d) The Trustee shall cause any Life Insurance Policies or
assets of the Trust Fund to be registered in its name as Trustee and
shall be authorized to exercise any and all ownership rights regarding
these assets, subject to the terms of the Plan.
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(e) The Trustee may temporarily hold cash balances and shall be
entitled to deposit any funds received in a bank account in the name
of the Trust Fund in any bank selected by the Trustee, including the
banking department of a corporate Trustee, if any, pending disposition
of such funds in accordance with the Plan. Any such deposit may be
made with or without interest.
(f) The Trustee shall pay the premiums and other charges due and
payable at any time on any Life Insurance Policies as it may be
directed, by the Plan Administrator, provided funds for such payments
are then available in the Trust. The Trustee shall be responsible
only for such funds and Life Insurance Policies as shall actually be
received by it as Trustee hereunder, and shall have no obligation to
make payments other than from such funds and cash values of Life
Insurance Policies.
(g) If the whole or any part of the Trust Fund shall become
liable for the payment of any estate, inheritance, income or other tax
which the Trustee shall be required to pay, the Trustee shall have
full power and authority to pay such tax out of any monies or other
property in its hands for the account of the person whose interest
hereunder is so liable. Prior to making any payment, the Trustee may
require such releases or other Documents from any lawful taxing
authority as it shall deem necessary. The Trustee shall not be liable
for any nonpayment of tax when it distributes an interest hereunder on
instructions from the Plan Administrator.
(h) The Trustee shall keep a full, accurate and detailed record
of all transactions of the Trust which the Employer and the Plan
Administrator shall have the right to examine at any time during the
Trustee's regular business hours. As of the close of each Plan Year,
the Trustee shall furnish the Plan Administrator with a statement of
account setting forth all receipts, disbursements and other
transactions effected by the Trustee during the year. The Plan
Administrator shall promptly notify the Trustee in writing of his
approval or disapproval of the account. The Plan Administrator's
failure to disapprove the account within sixty (60) days after receipt
shall be considered an approval.
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Except as otherwise required by law, the approval by the Plan
Administrator shall be binding as to all matters embraced in any
statement to the same extent as if the account of the Trustee had been
settled by judgment or decree of a court of competent jurisdiction
under which the Trustee, Employer and all persons having or claiming
any interest in the Trust Fund were parties; provided, however, that
the Trustee may have its account judicially settled if it so desires.
(i) The Trustee is hereby authorized to execute all necessary
receipts and releases to any parties concerned; and shall be under a
duty, upon being advised by the Plan Administrator that the proceeds
of any Life Insurance Policies are payable, to give reasonable
assistance to the Beneficiary designated therein in collecting such
sums as may appear to be due.
(j) If, at any time, as the result of the death of the
Participant there shall be a dispute as to the person to whom payment
or delivery of monies or property should be made by the Trustee, or
regarding any action to be taken by the Trustee, the Trustee may
postpone such payment, delivery or action, retaining the funds or
property involved, until such dispute shall have been resolved in a
court of competent jurisdiction or the Trustee shall have been
indemnified to its satisfaction or until it has received written
direction from the Plan Administrator.
(k) Anything in this instrument to the contrary notwithstanding,
the Trustee shall have no duty or responsibility with respect to the
determination of matters pertaining to the eligibility of any Employee
to become or remain a Participant hereunder, the amount of benefit to
which any Participant or Beneficiary shall be entitled hereunder, or
the size and type of any Life Insurance Policy to be purchased from
any Insurer for any Participant hereunder; all such responsibilities
being vested in the Plan Administrator.
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3.5.6 TRUSTEE INDEMNIFICATION. The Employer shall indemnify and hold
harmless the Trustee for and from the assertion or occurrence of any liability
to a Participant or Beneficiary for any action taken or omitted by the Trustee
pursuant to any written direction to the Trustee from the Employer or the Plan
Administrator. Such indemnification obligation of the Employer shall not be
applicable to the extent that any such liability is covered by insurance.
3.5.7 CHANGES IN TRUSTEE AUTHORITY. If a successor Trustee is
appointed, neither an Insurer nor any other person who has previously had
dealings with the Trustee shall be chargeable with knowledge of such appointment
or such change until furnished with notice thereof. Until such notice, the
Insurer and any other such party shall be fully protected in relying on any
action taken or signature presented which would have been proper in accordance
with that information previously received.
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ARTICLE VI
TRUST ASSETS
3.6.1 TRUSTEE EXCLUSIVE OWNER. All assets held by the Trustee,
whether in the Trust Fund or Segregated Funds, shall be owned exclusively by the
Trustee and no Participant or Beneficiary shall have any individual ownership
thereof. Participants and their Beneficiaries shall share in the assets of the
Trust, its net earnings, profits and losses, only as provided in this Plan.
3.6.2 INVESTMENTS. The Trustee shall invest and reinvest the Trust
Fund without distinction between income or principal in one or more of the
following ways as the Trustee shall from time to time determine:
(a) The Trustee may invest the Trust Fund or any portion thereof
in obligations issued or guaranteed by the United States of America or
of any instrumentalities thereof, or in other bonds, notes,
debentures, mortgages, preferred or common stocks, options to buy or
sell stocks or other securities, mutual fund shares, limited
partnership interests, commodities, or in such other property, real or
personal, as the Trustee shall determine.
(b) The Trustee may cause the Trust Fund or any portion thereof
to be invested in a common trust fund established and maintained by a
national bank or other for the collective investment of fiduciary
funds even though the bank is acting as the Trustee or Investment
Manager, providing such common trust fund is a qualified trust under
the applicable section of the Code, or corresponding provisions of
future federal internal revenue laws and is exempt from income tax
under the applicable section of the Code. In the event any assets of
the Trust Fund are invested in such a common trust fund, the
Declaration of Trust creating such common trust fund, as it may be
amended from time to time, shall be incorporated into this Plan by
reference and made a part hereof.
(c) The Trustee may deposit any portion of the Trust Fund in
savings accounts in federally insured banks or savings and loan
associations or invest in certificates of deposit issued by any such
bank or savings and loan association.
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The Trustee may, without liability for interest, retain any portion of
the Trust Fund in cash balances pending investment thereof or payment
of expenses.
(d) The Trustee may buy and sell put and call options, covered
or uncovered, engage in spreads, straddles, ratio writing and other
forms of options trading, including sales of options against
convertible bonds, and sales of Standard & Poor futures contracts, and
trade in and maintain a brokerage account on a cash or margin basis.
(e) The Trustee may invest any portion or all of the assets of
the Trust Fund which are attributable to the vested and nonforfeitable
interest in the Accounts of a Participant in the purchase of group or
individual Life Insurance Policies issued on the life of and for the
benefit of the Participant with the consent of the Participant,
subject to the following conditions:
(i) The aggregate premiums paid for ordinary whole
Life Insurance Policies with both nondecreasing death
benefits and nonincreasing premiums on the life of any
Participant shall not at any time exceed forty-nine percent
(49%) of the aggregate amount of Employer contributions
which have been allocated to the Accounts of such
Participant.
(ii) The aggregate Premiums paid for Life Insurance
Policies on the life of any Participant which are either
term, universal or any other Contracts which are not
ordinary whole life policies shall not at any time exceed
twenty-five percent (25%) of the aggregate amount of
Employer contributions which have been allocated to the
Accounts of such Participant.
(iii) The sum of one-half of the aggregate premiums
for ordinary whole Life Insurance Policies and all premiums
for other Life Insurance Policies shall not at any time
exceed twenty-five percent (25%) of the aggregate amount of
Employer contributions which have been allocated to the
Accounts of such Participant.
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(iv) If the Plan permits distributions to a
Participant prior to his termination of employment in
accordance with Section 2.5.5 and the Plan does not take
into account contributions to provide Social Security
Benefits in the allocation of Employer contributions, the
amount which may be distributed to the Participant may be
applied to the purchase of Life Insurance Policies.
(f) The Trustee may invest the Trust Fund or any portion thereof
to acquire or hold Qualifying Employer Securities or Real Property,
provided that the portion so invested shall not exceed the amount
allowed as an investment under the Act.
3.6.3 ADMINISTRATION OF TRUST ASSETS. Subject to the limitations
herein expressly set forth, the Trustee shall have the following powers and
authority in connection with the administration of the assets of the Trust:
(a) To hold and administer all contributions made by
the Employer to the Trust Fund and all income or other
property derived therefrom as a single Trust Fund, except as
otherwise provided in the Plan.
(b) To manage, control, sell, convey, exchange,
petition, divide, subdivide, improve, repair, grant options,
sell upon deferred payments, lease without limit as
determined for any purpose, compromise, arbitrate or
otherwise settle claims in favor of or against the Trust
Fund, institute, compromise and defend actions and
proceedings, and to take any other action necessary or
desirable in connection with the administration of the Trust
Fund.
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(c) To vote any stock, bonds, or other securities of
any corporation or other issuer; otherwise consent to or
request any action on the part of any such corporation or
other issuer; to give general or special proxies or powers
of attorney, with or without power of substitution; to
participate in any reorganization, recapitalization,
consolidation, merger or similar transaction with respect to
such securities; to deposit such stocks or other securities
in any voting trusts, or with any protective or like
committee, or with the trustee, or with the depositories
designated thereby; to exercise any subscription rights and
conversion privileges or other options and to make any
payments incidental thereto; and generally to do all such
acts, execute all such instruments, take all such
proceedings and exercise all such rights, powers and
privileges with respect to the stock or other securities or
property constituting the Trust Fund as if the Trustee were
the absolute owner thereof.
(d) To apply for and procure, at the election of any
Participant, Life Insurance Policies on the life of the
Participant; to exercise whatever rights and privileges may
be granted to the Trustee under such Policies, and to cash
in, receive and collect such Policies or the proceeds
therefrom as and when entitled to do so under the provisions
thereof;
(e) To make, execute, acknowledge and deliver any and
all Documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to
carry out the powers herein granted;
(f) To register any investment held in the Trust in
the Trustee's own name or in the name of a nominee and to
hold any investment in bearer form, but the books and
records of the Trustee shall at all times show that all such
investments are part of the Trust;
(g) To borrow money for the purposes of the Plan in
such amounts and upon such terms and conditions as the
Trustee deems appropriate;
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(h) To commingle the assets of the Trust Fund with the
assets of other similar trusts which are exempt from income
tax, whether sponsored by the Employer, an affiliate of the
Employer or an unrelated employer, provided that the books
and records of the Trustee shall at all times show the
portion of the commingled assets which are part of the
Trust; and
(i) To do all acts whether or not expressly authorized
which the, Trustee may deem necessary or proper for the
protection of, the property held hereunder.
3.6.4 SEGREGATED FUNDS. Unless otherwise determined by the Trustee
to be prudent, the Trustee shall invest and reinvest each Segregated Fund
without distinction between income or principal in one or more appropriately
identified interest-bearing accounts or certificates of deposit in the name of
the Trustee and subject solely to the dominion of the Trustee in a banking
institution (which may or may not be the Trustee, if the Trustee is a banking
institution) or savings and loan association. Any such account or certificate
shall bear interest at a rate not less than the rate of interest currently being
paid upon regular savings accounts by that banking corporation principally
situated in the community in which the Employer has its principal business
location, which has capital, surplus and undivided profits exceeding those of
any other bank so situated. Such accounts shall be held for the benefit of the
Participant for whom such Segregated Fund is established in accordance with the
terms of the Plan and the Segregated Account of the Participant shall be
credited with any interest earned in connection with such accounts. If the
Trustee determines that an alternative investment is appropriate, the Trustee
may invest the Segregated Fund in any manner permitted with respect to the Trust
Fund and such Segregated Fund shall be credited with the net income or loss or
net appreciation or depreciation in value of such investments. No Segregated
Fund shall share in any Employer contributions or forfeitures, any net income or
loss from, or net appreciation or depreciation in value of, any investments of
the Trust Fund, or any allocation for which provision is made in this Plan which
is not specifically attributable to the Segregated Fund.
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3.6.5 INVESTMENT CONTROL OPTION. Participant may elect to have
transferred to a Segregated Fund and exercise investment control with respect to
funds in the Trust Fund which do not exceed the balances in his Accounts.
To the extent that the balance in the Participant's Account with respect to
which a transfer is to be made includes his share of an Employer contribution
which has not been received by the Trustee, such transfer shall not be made
until such contribution is received by the Trustee. In addition to the
foregoing election, each Participant who has a Segregated Fund may elect to
exercise investment control over any portion or all of such Segregated Fund.
Funds so transferred to a Segregated Fund on behalf of the Participant shall be
thereafter invested by the Trustee in such bonds, notes, debentures,
commodities, mortgages, mutual funds, equipment trust certificates, investment
trust certificates, preferred or common stocks, partnership interests, life
insurance policies, including universal life insurance policies, or in such
other property, real or personal (other than collectibles), wherever situated,
as the Participant shall direct from time to time in writing; provided, however,
that the Participant may not direct the Trustee to make loans to himself, nor to
make loans to the Employer; and provided further that the Trustee may limit the
investment alternatives available to the Participant in a uniform and
nondiscriminatory manner but taking into account whether the interest of the
Participant is fully vested and nonforfeitable. Any such election shall be made
by the Participant giving notice thereof to the Trustee notice as the Trustee
deems necessary and such notice shall specify the amount of such funds to be
transferred and the Account from which the transfer is to be made. Any such
election with respect to a Segregated Fund shall be made by the Participant
giving the Trustee notice as the Trustee deems necessary and such notice shall
specify the date the transfer is to take place and the amount of funds to be
transferred. Any such election shall be at the absolute discretion of the
Individual Participant and shall be binding upon the Trustee. Upon any such
election being made, the amount of such funds to be transferred shall be
deducted from his Account as appropriate and added to a Controlled Account of
the Participant.
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All dividends and interest thereafter received with respect to such transferred
funds, as well as any appreciation or depreciation in his investments, shall be
added to or deducted from his Controlled Account. If a Participant wishes to
make such an election to transfer funds from the Trust Fund to a Segregated Fund
as of a date other than a Valuation Date, the Trustee may defer such transfer
until the next succeeding Valuation Date or, in the Trustee's discretion, make
such transfer, provided that the Trustee determines that the nature of the
assets in the Trust Fund is such that it is feasible and practical to make, as
of the date of such transfer, the adjustments to Participants' Accounts for
which provision is made in the Plan, as if such date is a Valuation Date.
The Trustee shall not have any investment responsibility with respect to a
Participant's Segregated Fund over which he exercises investment control. In
the event that a Participant elects to have any such funds transferred to a
Segregated Fund and invested in particular securities or assets pursuant to this
Section, the Trustee shall not be liable for any loss or damage resulting from
the investment decision of the Participant. As of any Valuation Date, the
Participant may elect to have all or any portion of any cash contained in his
Segregated Fund transferred back to the Trust Fund, in which case such cash
shall be invested by the Trustee together with other assets held in the Trust
Fund. Any such election shall be made by giving notice thereof to the Trustee
as the Trustee deems necessary, and the notice shall specify the amount of cash
to be transferred.
As of the said Valuation Date, the amount of such funds to be so transferred
which is attributable to the balance in the Participant's Controlled Account
shall be deducted from such Account and added to the appropriate Account of the
Participant.
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ARTICLE VII
LOANS
3.7.1 AUTHORIZATION. If the employer elects to permit loans to
Participants or Beneficiaries, the Plan Administrator shall establish a
participant loan program in compliance with Labor Regulation S2550.408b.
The terms of such participant loan program shall be in writing and shall
constitute part of the Plan. Such terms shall include:
(a) The identity of the person or positions authorized
to administer the participant loan program;
(b) A procedure for applying for loans;
(c) The basis on which loans will be approved or
denied;
(d) Limitations (if any) on the types and amounts of
loans offered;
(e) The procedure under the program for determining a
reasonable rate of interest;
(f) The types of collateral which may secure a participant
loan; and
(g) The events constituting default and the steps that
will be taken to preserve plan assets in the event of
default.
3.7.2 SPOUSAL CONSENT. A Participant must obtain the written
consent of his spouse, if any, to the use of the Participant's interest in the
Plan as security for the loan within ninety (90) days before the date on which
the loan is to be so secured. A new consent must be obtained whenever the
amount of the loan is increased or if the loan is renegotiated, extended,
renewed or otherwise revised. The form of the consent must acknowledge the
effect of such consent and be witnessed by a Plan representative or a notary
public but shall be deemed to meet any such requirements relating to the consent
of any subsequent spouse. Such consent shall thereafter be binding with respect
to the consenting spouse or any subsequent spouse with respect to that loan.
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If a valid spousal consent has been obtained, then notwithstanding any other
provision of the Plan, the portion of the Participant's vested Account balance
used as a security interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of determining the
amount of the Account balance payable at the time of death or distribution but
only if the reduction is used as repayment of the loan. If less than the entire
amount of the Participant's vested Account balance (determined without regard to
the preceding sentence) is payable to the surviving spouse, the Account balance
shall be adjusted by first reducing the vested Account balance by the amount of
the security used as repayment of the loan and then determining the benefit
payable to the surviving spouse.
3.7.3 LIMITATIONS. Except to the extent provided in the participant
loan program, in no event shall the amount loaned to any Participant or
Beneficiary exceed the lesser of (a) fifty thousand dollars ($50,000) (reduced
by the excess of the highest outstanding balance of loans from the Plan) during
the one year period ending on the day before the date on which the loan was made
over the outstanding balance of loans from the Plan on the date on which such
loan was made) or (b) one-half of the sum of the vested and nonforfeitable
interest in his Accounts, determined as of the Valuation Date coinciding with or
immediately preceding such loan. For the purposes hereof, all loans from all
plans of the Employer and other members of a group of employers described in
Sections 414(b), (c) and (m) of the Code shall be aggregated. All loans must be
adequately secured and bear a reasonable interest rate. In the event of a
default foreclosure on the note evidencing the loan and attachment of the
security shall not occur until a distributable event occurs.
3.7.4 AVAILABILITY. Loans, if any, must be available to all
Participants and Beneficiaries without regard to any individual's race, color,
religion, sex, age or national origin. Loans shall be made available to all
Participants and Beneficiaries and loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount made available to
other employees.
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3.7.5 PROHIBITIONS. A loan shall not be made to a five (5%) percent
or greater shareholder-employee of an S corporation, an owner of more than ten
(10%) percent of either the capital interest or the profits interest of an
unincorporated Employer, a family member (as defined in Section 267(c)(4) of the
Code) of such persons, or a corporation controlled by such persons through the
ownership, directly or indirectly, of fifty (50%) percent or more of the total
voting power or value of all shares of all classes of stock of the corporation,
unless an exemption for the loan is obtained pursuant to Section 408 of the Act.
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ARTICLE VIII
BENEFICIARIES
3.8.1 DESIGNATION OF BENEFICIARIES. Each Participant shall have the
right to designate a Beneficiary or Beneficiaries and contingent or successive
Beneficiaries to receive any benefits provided by this Plan which become payable
upon the Participant's death. The Beneficiaries may be changed at any time or
times by the filing of a new designation with the Plan Administrator, and the
most recent designation shall govern. Notwithstanding the foregoing and subject
to the provisions of Section 2.5.2, the designated Beneficiary shall be the
surviving spouse of the Participant, unless such surviving spouse consents in
writing to an alternate designation and the terms of such consent acknowledge
the effect of such alternate designation and the consent is witnessed by a
representative of the Plan or by a notary public. A spouse may not revoke the
consent without the approval of the Participant. The designation of a
Beneficiary other than the spouse of the Participant or a form of benefits with
the consent of such spouse may not be changed without the consent of such spouse
and any consent must acknowledge the specific non-spouse Beneficiary, including
any class of Beneficiaries or any contingent Beneficiaries.
3.8.2 ABSENCE OR DEATH OF BENEFICIARIES. Except with respect to the
process of life insurance payable upon the death of the Participant, if a
Participant dies without having a beneficiary designation then in force, or if
all of the Beneficiaries designated by a Participant predecease him, his
Beneficiary shall be his surviving spouse, or if none, his surviving children,
equally, or if none, such other heirs, or the executor or administrator of his
estate, as the Plan Administrator shall select.
If a Participant dies survived by Beneficiaries designated by him and if all
such surviving Beneficiaries thereafter dies before complete distribution of
such deceased Participant's interest, the estate of the last of such designated
Beneficiaries to survive shall be deemed to be the Beneficiary of the
undistributed portion of such interest.
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ARTICLE IX
CLAIMS
3.9.1 CLAIM PROCEDURE. Any Participant or Beneficiary who is
entitled to a payment of a benefit for which provision is made in this Plan
shall file a written claim with the Plan Administrator on such forms as shall be
furnished to him by the Plan Administrator and shall furnish such evidence of
entitlement to benefits as the Plan Administrator may reasonably require. The
Plan Administrator shall notify the Participant or Beneficiary in writing as to
the amount of benefit to which he is entitled, the duration of such benefit, the
time the benefit is to commence and other pertinent information concerning his
benefit. If a claim for benefit is denied by the Plan Administrator, in whole
or in part, the Plan Administrator shall provide adequate notice in writing to
the Participant or Beneficiary whose claim for benefit has been denied within
ninety (90) days after receipt of the claim unless special circumstances require
an extension of time for processing the claim. If such an extension of time for
processing is required, written notice indicating the special circumstances and
the date by which a final decision is expected to be rendered shall be furnished
to the Participant or Beneficiary. In no event shall the period of extension
exceed one hundred eighty (180) days after receipt of the claim. The notice of
denial of the claim shall set forth (a) the specific reason or reasons for the
denial; (b) specific reference to pertinent Plan provisions on which the denial
is based; (c) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material or
information is necessary; and (d) a statement that any appeal of the denial must
be made by giving to the Plan Administrator, within sixty (60) days after
receipt of the notice of the denial, written notice of such appeal, such notice
to include a full description of the pertinent issues and basis of the claim.
The Participant or Beneficiary (or his duly authorized representative) may
review pertinent Documents and submit issues and comments in writing to the Plan
Administrator. If the Participant or Beneficiary fails to appeal such action to
the Plan Administrator in writing within the prescribed period of time, the Plan
Administrator's adverse determination shall be final, binding and conclusive.
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3.9.2 APPEAL. If the Plan Administrator receives from a Participant
or a Beneficiary, within the prescribed period of time, a notice of an appeal of
the denial of a claim for benefit, such notice and all relevant materials shall
immediately be submitted to the Employer. The Employer may hold a hearing or
otherwise ascertain such facts as it deems necessary and shall render a decision
which shall be binding upon both parties. The decision of the Employer shall be
made within sixty (60) days after the receipt by the Plan Administrator of the
notice of appeal, unless special circumstances require an extension of time for
processing, in which case a decision of the Employer shall be rendered as soon
as possible but not later than one hundred twenty (120) days after receipt of
the request for review. If such an extension of time is required, written
notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. The decision of the Employer shall be in
writing, shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, as well as specific references to
the pertinent Plan provisions on which the decision is based and shall be
promptly furnished to the claimant.
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ARTICLE X
AMENDMENT AND TERMINATION
3.10.1 RIGHT TO AMEND. The Employer may at any time or times amend
the Plan and Trust, in whole or in part. The Employer specifically reserves the
right to amend the Plan retroactively.
3.10.2 MANNER OF AMENDING. Each amendment of this Plan shall be made
by delivery to the Trustee of a copy of the resolution of the Employer which
sets forth such amendment.
3.10.3 LIMITATIONS ON AMENDMENTS. No amendment shall be made to this
Plan which shall:
(a) Directly or indirectly operate to give the
Employer any interest whatsoever in the assets of the Trust
or to deprive any Participant or Beneficiary of his vested
and nonforfeitable interest in the assets of the Trust as
then constituted, or cause any part of the income or corpus
of the Trust to be used for, or diverted to purposes other
than the exclusive benefit of Employees or their
Beneficiaries;
(b) Increase the duties or liabilities of the Trustee
without the Trustee's prior written consent;
(c) Change the vesting schedule under the Plan if the
nonforfeitable percentage of the accrued benefit derived
from Employer contributions (determined as of the later of
the date such amendment is adopted or the date such
amendment becomes effective) of any Participant is less than
such nonforfeitable percentage computed without regard to
such amendment; or
(d) Reduce the accrued benefit of a Participant within
the meaning of Section 411(d)(6) of the Code, except to the
extent permitted under Section 412(c)(8) of the Code. An
amendment which has the effect of decreasing a Participant's
account balance or eliminating an optional form of benefit
with respect to benefits attributable to service before the
amendment shall be treated as reducing an accrued benefit.
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If a Plan amendment changes the vesting schedule or the Plan
is amended in any way that directly or indirectly affects
the computation of the Participant's nonforfeitable
percentage, each Participant who has completed three (3) or,
in the case of Participants who do not have at least one (1)
Hour of Service in any Plan Year beginning after 1988, five
(5) or more Years of Service may elect within a reasonable
period after the adoption of such amendment to have his
nonforfeitable percentage computed without regard to such
amendment or change. The period during which the election
may be made shall commence with the date the amendment is
adopted or deemed to be made and shall end on the latest of
sixty (60) days after:
(i) the amendment is adopted;
(ii) the amendment becomes effective; or
(iii) the Participant is issued written
notice of the amendment by the Employer or Plan
Administrator.
3.10.4 VOLUNTARY TERMINATION. The Employer may terminate the Plan
at any time by delivering to the Trustee an instrument in writing which
designates such termination. Following termination of the Plan, the Trust will
continue until the Distributable Benefit of each Participant has been
distributed.
3.10.5 INVOLUNTARY TERMINATION. The Plan shall terminate if (a) the
Employer is dissolved or adjudicated bankrupt or insolvent in appropriate
proceedings, or if a general assignment is made by the Employer for the benefit
of creditors, or (b) the Employer loses its identity by consolidation or merger
into one or more corporations or organizations, unless within ninety (90) days
after such consolidation or merger, such corporations or organizations elect to
continue the Plan.
3.10.6 WITHDRAWAL BY EMPLOYER. The Employer may withdraw from
participation under the Plan without terminating the Trust upon making a
transfer of the Trust assets to another Plan which shall be deemed to constitute
an amendment in its entirety of the Trust.
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3.10.7 POWERS PENDING FINAL DISTRIBUTION. Until final distribute on
of the assets of the Trust, the Plan Administrator and Trustee shall continue to
have all the powers provided under this Plan as are necessary for the orderly
administration, liquidation and distribution of the assets of the Trust.
3.10.8 DELEGATION. Each Affiliate Employer expressly delegates
authority to the Employer the right to amend any part of the Plan on its behalf.
The Employer shall submit a copy of the amendment to each Affiliate Employer who
has adopted the Plan. An Affiliate Employer may revoke the authority of the
Employer to amend the Plan on its behalf by written notice to the Employer of
such revocation.
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ARTICLE XI
PORTABILITY
3.11.1 CONTINUANCE BY SUCCESSOR. In the event of the dissolution,
consolidation or merger of the Employer, or the sale by the Employer of its
assets, the resulting successor person or persons, firm or corporations may
continue this Plan by (a) adopting the Plan by appropriate resolution; (b)
appointing a new Trustee as though the Trustee (including all members of a group
of individuals acting as Trustee) had resigned; and (c) executing a proper
agreement with the new Trustee. In such event, each Participant in this Plan
shall have an interest in the Plan after the dissolution, consolidation, merger,
or sale of assets, at least equal to the interest which he had in the Plan
immediately before the dissolution, consolidation, merger or sale of assets.
Any Participants who do not accept a position with such successor within a
reasonable time shall be deemed to be terminated. If, within ninety (90) days
from the effective date of such dissolution, consolidation, merger, or sale of
assets, such successor does not adopt this Plan, as provided herein, the Plan
shall automatically be terminated and deemed to be an involuntary termination.
3.11.2 MERGER WITH OTHER PLAN. In the event of the merger or
consolidation with, or transfer of assets or liabilities to, any other deferred
compensation plan and trust, each Participant shall have an interest in such
other plan which is equal to or greater than the interest which he had in this
Plan immediately before such merger, consolidation or transfer, and if such
other plan thereafter terminates, each Participant shall be entitled to a
Distributable Benefit which is equal to or greater than the Distributable
Benefit to which he would have been entitled immediately before such merger,
consolidation or transfer if this Plan had then been terminated.
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3.11.3 TRANSFER FROM OTHER PLANS. The Employer may cause all or any
of the assets held in connection with any other plan or trust which is
maintained by the Employer for the benefit of its employees and satisfies the
applicable requirements of the Code relating to qualified plans and trusts to be
transferred to the Trustee, whether such transfer is made pursuant to a merger
or consolidation of this Plan with such other plan or trust or for any other
allowable purpose.
In addition, the Employer, may permit rollover to the Trustee of assets held for
the benefit of an Employee in a conduit Individual Retirement Account, a
terminated plan of the Employer, or any other plan or trust which is maintained
by some other employer for the benefit of its employees and satisfies the
applicable requirements of the Code relating to qualified plans and trusts even
if the employee has not satisfied the conditions for participation in the Plan.
Any such assets so transferred to the Trustee shall be accompanied by written
instructions from the employer, or the trustee, custodian or individual holding
such assets, setting forth the name of each Employee for whose benefit such
assets have been transferred and showing separately the respective contributions
by the employer and by the Employee and the current value of the assets
attributable thereto. Upon receipt by the Trustee of such assets, the Trustee
shall place such assets in a Segregated Fund for the Participant and the
Employee shall be deemed to be one hundred percent (100%) vested and have a
nonforfeitable interest in any such assets. Notwithstanding any provisions
herein to the contrary, unless the Plan provides a life annuity distribution
option or the Participant and his spouse have signed a written waiver of their
rights to the annuity options in a form which satisfies the waiver requirements
of Section 417 of the Code, the Plan shall not be a direct or indirect
transferee of a defined benefit pension plan, money purchase pension plan,
target benefit pension plan, stock bonus or profit sharing plan which is subject
to the survivor annuity requirements of Section 401(a)(11) and Section 417 of
the Code.
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3.11.4 TRANSFER TO OTHER PLANS. The Trustee, upon written direction
by the Employer, shall transfer some or all of the assets held under the Trust
to another plan or trust of the Employer meeting the requirements of the Code
relating to qualified plans and trusts, whether such transfer is made pursuant
to a merger or consolidation of this Plan with such other plan or trust or for
any other allowable purpose. In addition, upon the termination of employment of
any Participant and receipt by the Plan Administrator of a request in writing,
the Participant may request that any distribution from the Trust to which he is
entitled shall be transferred to an Individual Retirement Account, an Individual
Retirement Annuity, or any other plan or trust which is maintained by some other
employer for the benefit of its employees and satisfies the applicable
requirements of the Code relating to qualified plans and trusts. Upon receipt
of any such written request, the Plan Administrator shall cause the Trustee to
transfer the assets so directed and, as appropriate, shall direct the Insurer to
transfer to the new trustee any applicable insurance policies issued by it.
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ARTICLE XII
MISCELLANEOUS
3.12.1 NO REVERSION TO EMPLOYER. Except as specifically provided in
the Plan, no part of the corpus or income of the Trust shall revert to the
Employer or be used for, or diverted to purposes other than for the exclusive
benefit of Participants and their Beneficiaries.
3.12.2 EMPLOYEE ACTIONS. Any action by the Employer pursuant to the
provisions of the Plan shall be evidenced by appropriate resolution or by
written instrument executed by any person authorized by the Employer to take
such action.
3.12.3 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any person
eligible to receive benefits under this Plan, in accordance with the provisions
of the Plan, shall, to the extent thereof, be in full satisfaction of all claims
hereunder. The Plan Administrator may require such person, as a condition
precedent to such payment, to execute a receipt and release therefore in such
form as he shall determine.
3.12.4 RIGHTS OF PARTICIPANTS LIMITED. Neither the creation of this
Plan and Trust nor anything contained in this Plan shall be construed as giving
any Participant, Beneficiary or Employee any equity or other interest in the
assets, business or affairs of the Employer, or the right to complain about any
action taken by or about any policy adopted or pursued by, the Employer, or as
giving any Employee the right to be retained in the service of the Employer; and
all Employees shall remain subject to discharge to the same extent as if the
Plan had never been executed. Prior to the time that distributions are made in
conformity with the provisions of the Plan, neither the Participants, nor their
spouses, Beneficiaries, heirs-at-law, or legal representatives shall receive or
be entitled to receive cash or any other thing of current exchangeable value,
from either the Employer or the Trustee as a result of the Plan or the Trust.
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3.12.5 PERSONS DEALING WITH TRUSTEE PROTECTED. No person dealing
with the Trustee shall be required or entitled to see to the application of any
money paid or property delivered to the Trustee, or determine whether or not the
Trustee is acting pursuant to the authorities granted to the Trustee hereunder
or to authorizations or directions herein required. The certificate of the
Trustee that the Trustee is acting in accordance with the Plan shall protect any
person relying thereon.
3.12.6 PROTECTION OF THE INSURER. An Insurer shall not be
responsible for the validity of the Plan or Trust and shall have no
responsibility for action taken or not taken by the Trustee, for determining the
propriety of accepting premium payments or other contributions, for making
payments in accordance with the direction of the Trustee, or for the application
of such payments. The Insurer shall be fully protected in dealing with any
representative of the Employer or any one of a group of individuals acting as
Trustee. Until written notice of a change of Trustee has been received by an
Insurer at its home office, the Insurer shall be fully protected in dealing with
any party acting as Trustee according to the latest information received by the
Insurer at its home office.
3.12.7 NO RESPONSIBILITY FOR ACT OF INSURER. Neither the Employer,
the Plan Administrator nor the Trustee shall be responsible for any of the
following, nor shall they be liable for instituting action in connection with:
(a) The validity of policies or policy provisions;
(b) Failure or refusal by the Insurer to provide benefits under
a policy;
(c) An act by a person which may render a policy invalid or
unenforceable; or
(d) Inability to perform or delay in performing an act, which
inability or delay is occasioned by a provision of a policy or a
restriction imposed by the Insurer.
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3.12.8 INALIENABILITY. The right of any Participant or his
Beneficiary in any distribution hereunder or to any separate Account shall not
be subject to alienation, assignment or transfer, voluntarily or involuntarily,
by operation of law or otherwise, except as may be expressly permitted herein.
No Participant shall assign, transfer, or dispose of such right nor shall any
such right be subjected to attachment, execution, garnishment, sequestration, or
other legal, equitable, or other process. The preceding shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified domestic relations order, as defined in
Section 414(p) of the Code, or any domestic relations order entered before
January 1, 1985.
In the event a Participant's benefits are attached by order of any court, the
Plan Administrator may bring an action for a declaratory judgment in a court of
competent jurisdiction to determine the proper recipient of the benefits to be
paid by the Plan. During the pendency of the action, the Plan Administrator
shall cause any benefits payable to be paid to the court for distribution by the
court as it considers appropriate.
3.12.9 DOMESTIC RELATIONS ORDERS. The Plan Administrator shall
adhere to the terms of any judgment, decree or order (including approval of a
property settlement agreement) which relates to the provision of child support,
alimony payments, or marital property rights to a spouse, former spouse, child
or other dependent of a Participant and is made pursuant to a state domestic
relations law (including a community property law) and which creates or
recognizes the existence of an alternate payee's right to, or assigns to an
alternate payee the right to, receive all or a portion of the benefits payable
with respect to a Participant.
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Any such domestic relations order must clearly specify the name and last known
mailing address of the Participant and the name and mailing address of each
alternate payee covered by the order, the amount or percentage of the
Participant's benefit to be paid by the Plan to each such alternate payee, or
the manner in which such amount or percentage is to be determined, the number of
payments or period to which such order applies, and each plan to which such
order applies.
Any such domestic relations order shall not require the Plan to provide any type
or form of benefit, or any option not otherwise provided under the Plan, to
provide increased benefits (determined on the basis of actuarial value) or the
payment of benefits to an alternate payee which are required to be paid to
another alternate payee under another order previously determined to be a
qualified domestic relations order. Notwithstanding the foregoing sentence, a
domestic relations order may require the payment of benefits to an alternate
payee before the Participant has separated from service on or after the date on
which the Participant attains or would have attained the earliest retirement age
under the Plan as if the Participant had retired on the date on which such
payment is to begin under such order and in any form in which such benefits may
be paid under the Plan to the Participant (other than the form of a joint and
survivor annuity with respect to the alternate payee and his or her subsequent
spouse). The interest rate assumption used in determining the present value
shall be five (5%) percent. For these purposes, the earliest retirement age
under the Plan means the earlier of: (a) the date on which the Participant is
entitled to a distribution under the Plan, or (b) the later of the date the
Participant attains age 50, or the earliest date on which the Participant could
begin receiving benefits under the Plan if the Participant separated from
service.
Distributions may be made to an alternate payee even though the Participant may
not receive a distribution because he continues to be employed by the Employer.
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To the extent provided in the qualified domestic relations order, the former
spouse of a Participant shall be treated as a surviving spouse of such
Participant for purposes of Sections 401(a)(11) and 417 of the Code (and any
spouse of the Participant shall not be treated as a spouse of the Participant
for such purposes) and if married for at least one (1) year, the surviving
former spouse shall be treated as meeting the requirements of Section 417(d) of
the Code.
The Plan Administrator shall promptly notify the Participant and each alternate
payee pf the receipt of a domestic relations order by the Plan and the Plan's
procedures for determining the qualified status of domestic relations orders.
Within a reasonable period after receipt of a domestic relations order,, the
Plan Administrator shall determine whether such order is a qualified domestic
relations order and shall notify the Participant and each alternate payee of
such determination. If the Participant or any affected alternate payee
disagrees with the determinations of the Plan Administrator, the disagreeing
party shall be treated as a claimant and the claims procedure of the Plan shall
be followed. The Plan Administrator may bring an action for a declaratory
judgment in a court of competent jurisdiction to determine the proper recipient
of the benefits to be paid by the Plan.
During any period in which the issue of whether a domestic relations order is a
qualified domestic relations order is being determined (by the Plan
Administrator, by a court of competent jurisdiction or otherwise), the Plan
Administrator shall separately account for the amounts which would have been
payable to the alternate payee during such period if the order had been
determined to be a qualified domestic relations order. If, within the eighteen
(18) month period beginning on the date on which the first payment would be
required to be made under the domestic relations order, the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Plan Administrator shall pay the segregated amounts, including any interest
thereon, to the person or persons entitled thereto.
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If within such eighteen (18) month period it is determined that the order is not
a qualified domestic relations order or the issue as to whether such order is a
qualified domestic relations order is not resolved, then the Plan Administrator
shall pay the segregated amounts, including any interest thereon, to the person
or persons who would have been entitled to such amounts if there had been no
order. Any determination that an order is a qualified domestic relations order
which is made after the close of the eighteen (18) month period shall be applied
prospectively only.
3.12.10 AUTHORIZATION TO WITHHOLD TAXES. The Trustee is authorized
in accordance with applicable law to withhold from distribution to any payee
such sums as may be necessary to cover federal and state taxes which may be due
with respect to such distributions.
3.12.11 MISSING PERSONS If the Trustee mails by registered or
certified mail, postage prepaid, to the last known address of a Participant or
Beneficiary, a notification that the Participant or Beneficiary is entitled to a
distribution and if (a) the notification is returned by the post office because
the addressee cannot be located at such address and if neither the Employer, the
Plan Administrator nor the Trustee shall have any knowledge of the whereabouts
of such Participant or Beneficiary within three (3) years from the date such
notification was mailed, or (b) within three (3) years after such notification
was mailed to such Participant or Beneficiary, he does not respond thereto by
informing the Trustee of his whereabouts, the ultimate disposition of the then
undistributed balance of the Distributable Benefit of such Participant or
Beneficiary shall be determined in accordance with the then applicable Federal
laws, rules and regulations. If any portion of the Distributable Benefit is
forfeited because the Participant or Beneficiary cannot be found, such portion
shall be reinstated if a claim is made by the Participant or Beneficiary.
-118-
<PAGE>
3.12.12 NOTICES. Any notice or direction to be given in accordance with
the Plan shall be deemed to have been effectively given if hand delivered to the
recipient or sent by certified mail, return receipt requested, to the recipient
at the recipient's last known address. At any time that a group of individuals
is acting as Trustee, notice to the Trustee may be given by giving notice to any
one or more of such individuals.
3.12.13 GOVERNING LAW. The provisions of this Plan shall be
construed, administered and enforced in accordance with the provisions of-the
Act and, to the extent applicable, the laws of the state in which the Employer
has its principal place of business. All contributions to the Trust shall be
deemed to take place in such state.
3.12.14 SEVERABILITY OF PROVISIONS. In the event that any provision
of this Plan shall be held to be illegal, invalid or unenforceable for any
reason, said illegality, invalidity or unenforceability shall not affect the
remaining provisions, but shall be fully severable and the Plan shall be
construed and enforced as if said illegal, invalid or unenforceable provisions
had never been inserted herein.
3.12.15 GENDER AND NUMBER. Whenever appropriate, words used in the
singular shall include the plural, and the masculine gender shall include the
feminine gender.
3.12.16 BINDING EFFECT. The Plan, and all actions and decisions
hereunder, shall be binding upon the heirs, executors, administrators,
successors and assigns of any and all parties hereto and Participants, present
and future.
3.12.17 QUALIFICATION UNDER INTERNAL REVENUE LAWS. The Employer
intends that the Trust qualify under the applicable provisions of the Code.
Until advised to the contrary, the Trustee may assume that the Trust is so
qualified and is entitled to tax exemption under the Code.
-119-
<PAGE>
ARTICLE XIII
EXECUTION OF AGREEMENT
3.13.1 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original, and no other
counterparts need be produced.
3.13.2 ACCEPTANCE BY TRUSTEE. The Trustee, by joining
in the execution of this Agreement, hereby signifies the
Trustee's acceptance thereof.
3.13.3 EXECUTION. To record the adoption of this Plan the Employer
and each Affiliate Employer, if any, has caused this Agreement to be executed by
its duly qualified officers and the Trustee has executed this Agreement, as of
the day and year first above written.
Employer: Trustee:
Herbalife International, Inc.
/S/ Christopher Pair
- ----------------------------------- ---------------------------------------
Christopher Pair Christopher Pair
Secretary Trustee
/S/ Timothy Gerrity
---------------------------------------
Timothy Gerrity
Trustee
-120-
<PAGE>
MODEL SECTION 401(a)(31) AMENDMENT TO
HERBALIFE INTERNATIONAL EMPLOYEES
401(K) PROFIT SHARING PLAN AND TRUST
WHEREAS, Herbalife International, Inc. (the "Employer") currently
maintains HERBALIFE INTERNATIONAL EMPLOYEES 401(K) PROFIT SHARING PLAN AND
TRUST, (the "Plan"); and,
WHEREAS, the Unemployment Compensation Amendments of 1992 added
section 401(a)(31) to the Internal Revenue Code to require a plan to permit the
direct rollover of eligible rollover distributions made after December 31, 1992;
and,
WHEREAS, the Internal Revenue Service issued Revenue Procedure 93-12
providing a simplified method to amend plans using a Model Section 401(a)(31)
Amendment, as set forth below.
THEREFORE, the Plan is hereby amended effective January 1, 1993 to
incorporate the Model Section 401(a)(31) Amendment as follows:
Section 1. This Article applies to distributions made
on or after January 1, 1993. Notwithstanding any provision
of the plan to the contrary that would otherwise limit a
distributee's election under this Article, a distributee may
elect, at the time and in the manner prescribed by the plan
administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
Section 2. Definitions.
Section 2.1. Eligible rollover distribution: An
eligible rollover distribution is any distribution of all or
any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more;
any distribution to the extent such distribution
-121-
<PAGE>
is required under section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer
securities).
Section 2.2. Eligible retirement plan: An eligible
retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code,
an annuity plan described in section 403(a) of the Code, or
a qualified trust described in section 401(a) of the Code,
that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual
retirement annuity.
Section 2.3. Distributee: A distributee includes an
employee or former employee. In addition, the employee's or
former employee's surviving spouse and the employee's or the
former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order,
as defined in section 414(p) of the Code, are distributees
with regard to the interest of the spouse or former spouse.
Section 2.4. Direct rollover: A direct rollover is a
payment by the plan to the eligible retirement plan
specified by the distributee.
IN WITNESS WHEREOF, the undersigned has executed this Model Section
401(a)(31) Amendment to the Plan on this ______ day of ____________________,
199__.
For the Employer:
By: _______________________________
WITNESS:
___________________________________
-122-
<PAGE>
MODEL SECTION 401(a)(17) AMENDMENT TO
HERBALIFE INTERNATIONAL EMPLOYEES
401(K) PROFIT SHARING PLAN AND TRUST
WHEREAS, Herbalife International, Inc. (the "Employer") currently
maintains HERBALIFE INTERNATIONAL EMPLOYEES 401(K) PROFIT SHARING PLAN AND
TRUST, (the "Plan"); and,
WHEREAS, the Omnibus Budget Reconciliation Act of 1993 amended section
401(a)(17) of the Internal Revenue Code to limit compensation taken into account
under a plan in any year to $150,000, as adjusted for increases in the cost of
living; and,
WHEREAS, the Internal Revenue Service issued Revenue Procedure 94-13
providing a simplified method to amend plans using a Model Section 401(a)(17)
Amendment, as set forth below.
THEREFORE, the Plan is hereby amended effective as of the first day of
the Plan Year beginning on or after January 1, 1994, to incorporate the Model
Section 401(a)(17) Amendment as follows:
SECTION 401(a)(17) LIMITATION
In addition to other applicable limitations set
forth in the plan, and notwithstanding any other
provision of the plan to contrary, for plan years
beginning on or after January 1, 1994, the annual
compensation of each employee taken into account
under the plan shall not exceed the OBRA '93
annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living
in accordance with section 401(a)(17)(B) of the
Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies
to any period, not exceeding 12 months, over which
compensation is determined (determination period)
beginning in such calendar year. If a
determination period consist of fewer than 12
months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of
which is the number of months in the
determination period, and the denominator of which
is 12.
-123-
<PAGE>
For plan years beginning on or after January 1,
1994, any reference in this plan to the limitation
under section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth
in the provision.
If compensation for any prior determination
period is taken into account in determining an
employee's benefits accruing in the current plan
year, the compensation for that prior
determination period is subject to the OBRA '93
annual compensation limit in effect for that prior
determination period. For this purpose, for
determination periods beginning before the first
day of the first plan year beginning on or after
January 1, 1994, the OBRA '93 annual compensation
limit is $150,000.
IN WITNESS WHEREOF, the undersigned has executed this
Model Section 401 (a) (17) Amendment to the Plan on this ___ day of
______________________, 199__.
For the Employer:
By: /s/ Illegible
-----------------------------
WITNESS:
________________________________
-124-
<PAGE>
REVENUE PROCEDURE 93-47 AMENDMENT TO
HERBALIFE INTERNATIONAL EMPLOYEES
401(K) PROFIT SHARING PLAN AND TRUST
WHEREAS, Herbalife International, Inc. (the "Employer") currently
maintains HERBALIFE INTERNATIONAL EMPLOYEES 401 (K) PROFIT SHARING PLAN AND
TRUST, (the "Plan"); and,
WHEREAS, the Unemployment Compensation Amendments of 1992 added
section 401(a) (31) to the Internal Revenue Code to require a plan to
permit the direct rollover of eligible rollover distributions made after
December 31, 1992; and,
WHEREAS, the Internal Revenue Service subsequently issued Notice
93-26 modifying the 30-day notice requirement under section 1.411 (a) - 11 (c);
and,
WHEREAS, the Internal Revenue Service issued Revenue Procedure 93-47
providing a simplified method to amend plans using a Model Amendment, as set
forth below.
THEREFORE, the Plan is hereby amended effective January 1, 1993 to
incorporate the Revenue Procedure 93-47 Model Amendment as follows:
The following language, applicable to distributions made on or after January 1,
1993, is hereby inserted following the final sentence of section 2.5.2 (f) of
HERBALIFE INTERNATIONAL EMPLOYEES 401 (K) PROFIT SHARING PLAN AND TRUST, Plan
and Trust.
"If a distribution is one to which sections 401 (a) (11)
and 417 of the Internal Revenue Code do not apply, such
distribution may commence less than 30 days after the notice
required under section 1.411 (a) -11 (c) of the Income Tax
Regulations is given, provided that:
(1) the plan administrator clearly informs the participant
that the participant has a right to a period of at least 30
days after receiving the notice to consider the decision of
whether or not to elect a distribution (and if applicable, a
particular distribution option), and
(2) the participant, after receiving the notice,
affirmatively elects a distribution."
-125-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Model Amendment
to the Plan on this ____ day of ___________________________, 199_.
For the Employer:
By: /S/ Illegible
----------------------------------
WITNESS:
- ----------------------------------------
-126-
<PAGE>
HERBALIFE INTERNATIONAL, INC.
EXHIBITS
TO
ANNUAL REPORT
ON
FORM 10-K
FOR THE YEAR ENDED
DECEMBER 31,1995
<PAGE>
HERBALIFE INTERNATIONAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Exhibit Number Description Page No./(Footnote)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation (2)
3.2 Articles of Amendment to the Articles of Incorporation dated December 10, 1986 (2)
3.3 Articles of Amendment to the Articles of Incorporation dated November 22, (2)
1989
3.4 Certificate of Determination relating to the Company's Senior Convertible (7)
Preferred stock dated February 11, 1993
3.5 Certificate of Amendment to the Articles of Incorporation dated May 14, 1993 (7)
3.6 Amended and Restated Bylaws (7)
4.1 Form of Common Stock Certificate (7)
10.1 Agreement between Herbalife International of America, Inc. and D&F (7)
Industries, Inc. dated May 12, 1993
10.2 Agreement between Herbalife International of America, Inc. and Raven (7)
Industries, Inc. dated May 12, 1993
10.3 Agreement between Herbalife International of America, Inc. and Dynamic (7)
Products, Inc. dated May 12, 1993
10.4 Master Lease between the Company and Trizec Properties, Inc. dated July 17, (4)
1991
10.5 Equipment Lease Agreement between the Company and Hewlett Packard dated (5)
May 21, 1992
10.6 Final Judgment and Permanent Injunction, entered into on October, 1986 by the (1)
parties to that action entitled People of the State of California, et al.,v
Herbalife International, Inc., et. al., Case No. 92767 in Superior Court of
the State of California for the County of Santa Cruz
10.7 Permitting Agreement between the Company and Nippon Herbalife K.K. (3)
effective July 27, 1988
10.8 Exclusive License Agreement between the Company and Nippon Herbalife K.K. (3)
effective August 25, 1988
10.9 First Addendum to Exclusive License Agreement between the Company and (7)
Nippon Herbalife K.K. dated April 10, 1991
10.10 Second Addendum to Exclusive License Agreement dated between the (5)
Company and Nippon Herbalife K.K. dated May 22, 1992
10.11 The Company's 1988 Incentive Plan (1)
10.12 The Company's 1991 Stock Option Plan, as amended (6),(13)
10.13 The Company's Executive Incentive Compensation Plan, as amended (7),(13)
10.14 Form of Individual Participation Agreement relating to the Company's Executive (7)
Compensation Plan
10.15 Employment Agreement between the Company and Norman Friedmann dated (5)
August 1, 1992
10.17 Amendment to Employment Agreement between the Company and Norman (7)
Friedmann dated July 27, 1993
10.18 Amendment to Employment Agreement between the Company and David (7)
Addis dated June 29, 1993
10.19 Form of Letter Agreement between the Compensation Committee of the Board (7)
of Directors of the Company and Mark Hughes
10.20 Form of Indemnity Agreement between the Company and certain officers and (7)
directors of the Company
10.21 Trust Agreement among the Company, Citicorp Trust, N.A. and certain officers (7)
and directors of the Company
10.22 Form of Stock Appreciation Rights Agreement between the Company and (7)
certain directors of the Company
10.23 1994 Performance Based Annual Incentive Compensation Plan (8)
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Exhibit Number Description Page No./(Footnote)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.24 Form of Promissory Note for Advances under the Company's 1994 Performance (9),(12)
Based Annual Incentive Compensation Plan
10.25 Employment Agreement between the Company and Chris Pair dated April 3, (10)
1994
10.26 Deferred Compensation Agreement between the Company and Michael Rosen (10)
10.27 Office lease agreement between the Company and State Teacher's Retirement (11)
System, dated July 20, 1995
10.28 Form of stock appreciation rights agreements between the Company and certain (11)
directors of the Company
10.29 The Company's Senior Executive Deferred Compensation Plan, effective January (11)
1,1996
10.30 The Company's Management Deferred Compensation Plan, effective January 1, (11)
1996
10.31 Matter Trust Agreement between the company and Imperial Trust Company, (11)
Inc., effective January 1, 1996
10.32 The Company's 401K Plan (11)
21 List of subsidiaries of the Company (11)
23.1 Independent Auditors' Consent (11)
27 Financial Data Schedule (11)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Incorporated by reference to the Company's Annual Report on Form 1O-K
for the year ended December 31, 1987.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.
(6) Incorporated by reference to the Company's definitive Proxy Statement
relating to its annual meeting of shareholders held May 20, 1993.
(7) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-66576) declared effective by the Securities and
Exchange Commission on October 8, 1993.
(8) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the three months ended June 30, 1994.
(9) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1994 Annual Meeting of Stockholders.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(11) Filed herewith
(12) Form of the amended and restated plan, to be submitted for shareholder
approval at the 1996 Annual Meeting of Shareholders, will be attached
as an appendix to the Proxy Statement relating to such meeting.
<PAGE>
EXHIBIT 21
HERBALIFE INTERNATIONAL, INC.
SUBSIDIARIES OF REGISTRANT
Registrant has thirty-seven active wholly-owned subsidiaries which are:
<TABLE>
<S> <C>
1. Herbalife International of America, Inc., a California corporation.
2. Herbalife of Canada, Ltd., a Canadian corporation formed in July, 1982.
3. Herbalife Australasia Pty., Ltd., an Australian corporation formed in November, 1982.
4. Herbalife (U.K.) Limited, a United Kingdom corporation formed in March, 1983.
5. Herbalife International of Hong Kong Limited, a Hong Kong Corporation formed in September, 1983.
6. Herbalife International de Espana, S.A., a Spanish Corporation formed in June, 1988.
7. Herbalife (N.Z.) Limited, A New Zealand corporation formed in November, 1988.
8. Herbalife Internacional de Mexico, S.A. de C.V., a Mexican corporation formed in May, 1989.
9. Herbalife International France, S.A., a French corporation formed in May, 1990.
10. Herbalife International Deutschland GmbH, a German corporation formed in November, 1990.
11. Herbalife International of Israel (1990) Ltd., an Israeli corporation formed in January, 1991.
12. Herbalife Products de Mexico, S.A. de C.V., a Mexican corporation formed in June, 1992.
13. Herbalife Italia S.p.A., an Italian corporation formed in July, 1992.
14. Herbalife International, S.A., a Portuguese corporation formed in August, 1992.
15. Herbalife International of Japan, K.K., a Japanese corporation formed in December, 1992.
16. Herbalife International FSC, Inc., a U.S. Virgin Islands corporation formed in December, 1992.
17. Herbalife International Netherlands, B.V., a Netherlands corporation formed in March, 1993.
18. Herbalife International Belgium, S.A./N.V., a Belgian corporation formed in September, 1993.
19. Herbalife Dominicana, S.A., a Dominican Republic corporation formed in September, 1993.
20. Vida Herbal Suplementos Alimenticios, C.A., a Venezuelan corporation formed in September, 1993.
21. Herbalife Polska Sp.zo.o, a Polish corporation formed in October, 1993.
22. Herbalife International Argentina, S.A., an Argentinean corporation formed in December, 1993.
23. Herbalife Denmark ApS, a Danish corporation formed in December, 1993.
24. Promotions One, Inc., a California corporation formed in December, 1993.
25. Herbalife International of Europe, Inc., a California corporation formed in January, 1994.
26. Herbalife International of South America, a California corporation formed in February, 1994.
27. Herbalife International Distribution, Inc., a California corporation formed in March, 1994.
28. Herbalife International Holdings, Inc., a Filipino corporation formed in July, 1994.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
29. Herbalife International Philippines, Inc., a Filipino corporation formed in July, 1994.
30. Herbalife Sweden Aktiebolag, a Swedish corporation formed in October, 1994.
31. Herbalife International Do Brasil Ltda. , a Brazilian corporation formed in October, 1994.
32. Herbalife International Communications, Inc., formed in November 1994.
33. Herbalife International Finland OY c/o Hanes, a Finnish corporation formed in June, 1995.
34. Herbalife International Russia 1995 Ltd., a Israeli corporation formed in June, 1995.
35. Herbalife South Africa, Ltd., a South African corporation formed in June, 1995.
36. Herbalife Taiwan, Inc., a Taiwanese corporation formed in June, 1995.
37. Herbalife Norway Products A/S, a Norwegian corporation formed in August, 1995.
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No.
1 to Registration Statement No. 33-42004 and Post-Effective Amendment No. 1
to Registration Statement No. 33-67102 of Herbalife International, Inc. on
Form S-8 and in Post-Effective Amendment No. 2 to Registration Statement No.
33-48580 of Herbalife International, Inc. on Form S-3 of our report dated
February 12, 1996 appearing in this Annual Report on Form 10-K of Herbalife
International, Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 69,176,000
<SECURITIES> 35,050,000
<RECEIVABLES> 18,617,000
<ALLOWANCES> 0
<INVENTORY> 40,904,000
<CURRENT-ASSETS> 178,785,000
<PP&E> 39,637,000
<DEPRECIATION> 23,036,000
<TOTAL-ASSETS> 207,690,000
<CURRENT-LIABILITIES> 93,659,000
<BONDS> 1,779,000
0
0
<COMMON> 300,000
<OTHER-SE> 109,230,000
<TOTAL-LIABILITY-AND-EQUITY> 207,690,000
<SALES> 489,004,000
<TOTAL-REVENUES> 923,644,000
<CGS> 143,557,000
<TOTAL-COSTS> 282,497,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 31,565,000
<INCOME-TAX> 11,837,000
<INCOME-CONTINUING> 19,728,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,728,000
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
