<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE 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
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1800 Century Park East, Los Angeles, California 90067
----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(310) 410-9600
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report
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
----- -----
APPLICABLE ONLY TO REGISTRANTS 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's classes of Common
Stock, as of October 31, 1997: 30,652,155.
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<PAGE> 2
HERBALIFE INTERNATIONAL, INC.
Index to Financial Statements and Exhibits
Filed with the Quarterly Report of the Company on Form 10-Q
For the Nine Months Ended September 30, 1997
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets 2-3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7-10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12-13
Signature 14
</TABLE>
<PAGE> 3
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 87,481,000 $ 76,833,000
Marketable securities 43,558,000 48,226,000
Receivables 29,258,000 39,748,000
Inventories 46,204,000 62,261,000
Prepaid income taxes 1,821,000 2,868,000
Prepaid expenses and other current assets 5,243,000 9,837,000
Deferred income taxes 15,882,000 16,120,000
------------ ------------
Total current assets 229,447,000 255,893,000
------------ ------------
Property - at cost 52,377,000 63,151,000
Less accumulated depreciation and amortization (27,404,000) (32,562,000)
------------ ------------
Property-net 24,973,000 30,589,000
Other assets 11,062,000 14,322,000
Goodwill, net of accumulated amortization of
$1,225,000 (1996) and $1,354,000 (1997) 3,632,000 3,503,000
------------ ------------
TOTAL $269,114,000 $304,307,000
============ ============
</TABLE>
See the accompanying notes to consolidated financial statements
2
<PAGE> 4
HERBALIFE INTERNATIONAL, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $17,287,000 $16,018,000
Royalty overrides 42,676,000 53,419,000
Accrued expenses 35,960,000 38,626,000
Dividends payable 4,453,000 4,598,000
Current portion of contracts payable and
bank loans 2,493,000 1,352,000
Advance sales deposits 9,045,000 13,800,000
Income taxes payable 7,871,000 2,647,000
------------ ------------
Total current liabilities 119,785,000 130,460,000
NON-CURRENT LIABILITIES:
Contracts payable, net of current portion 2,306,000 3,219,000
Deferred income taxes 1,103,000 1,516,000
Other non-current liabilities and
deferred credits 6,780,000 9,700,000
------------ ------------
Total liabilities 129,974,000 144,895,000
------------ ------------
MINORITY INTEREST 672,000 1,186,000
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
100,000,000 shares, issued 30,205,338
(1996) and 30,652,155 (1997) shares 302,000 307,000
Paid-in-capital in excess of par value 43,258,000 48,101,000
Retained earnings includes cumulative
translation adjustment of $(981,000)
(1996) and $(2,951,000) (1997) 95,353,000 119,555,000
Treasury stock (9,395,000)
Unearned compensation (412,000) (217,000)
Unrealized loss on marketable securities (33,000) (125,000)
------------ ------------
Total stockholders' equity 138,468,000 158,226,000
------------ ------------
TOTAL $269,114,000 $304,307,000
============ ============
</TABLE>
See the accompanying notes to consolidated financial statements
3
<PAGE> 5
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Retail sales $ 306,697,000 $ 393,894,000 $ 867,203,000 $1,067,858,000
Less: Distributor allowances on product purchases (145,956,000) (186,667,000) (409,984,000) (505,764,000)
------------- ------------- ------------- --------------
Net sales 160,741,000 207,227,000 457,219,000 562,094,000
Cost of sales 42,435,000 53,676,000 123,914,000 147,527,000
Royalty overrides 46,943,000 61,438,000 134,091,000 167,466,000
Marketing, distribution & administrative expenses 53,571,000 70,204,000 151,878,000 185,302,000
Interest income - net 1,154,000 1,402,000 3,004,000 3,550,000
------------- ------------- ------------- --------------
Income before income taxes and minority interest 18,946,000 23,311,000 50,340,000 65,349,000
Income taxes 7,607,000 8,975,000 19,379,000 25,159,000
------------- ------------- ------------- --------------
Income before minority interest 11,339,000 14,336,000 30,961,000 40,190,000
Minority interest 83,000 321,000
------------- ------------- ------------- --------------
NET INCOME $ 11,339,000 $ 14,253,000 $ 30,961,000 $ 39,869,000
============= ============ ============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 31,234,254 31,468,244 31,086,449 31,559,708
Fully diluted 31,460,225 31,897,482 31,393,539 31,890,846
EARNINGS PER SHARE
Primary $0.36 $0.45 $1.00 $1.26
============= ============ ============= ==============
Fully diluted $0.36 $0.45 $0.99 $1.25
============= ============ ============= ==============
CASH DIVIDENDS PER COMMON SHARE $0.15 $0.15 $0.45 $0.45
============= ============ ============= ==============
</TABLE>
See the accompanying notes to consolidated financial statements
4
<PAGE> 6
HERBALIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, September 30,
1996 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 30,961,000 $ 39,869,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,254,000 7,385,000
Deferred income taxes 2,065,000 468,000
Amortization of unearned compensation 604,000 195,000
Stock Grant 582,000
Unrealized foreign exchange loss 312,000 761,000
Minority interest in earnings 321,000
Other 438,000 151,000
Changes in operating assets and liabilities:
Receivables (8,991,000) (10,978,000)
Inventories (1,159,000) (17,836,000)
Prepaid expenses and other current assets (3,643,000) (6,415,000)
Other assets (1,056,000) (4,932,000)
Accounts payable (424,000) 68,000
Royalty overrides 6,082,000 11,865,000
Accrued expenses 17,555,000 2,886,000
Advance sales deposits (6,832,000) 5,180,000
Income taxes payable 321,000 (3,466,000)
Other liabilities (74,000) 3,112,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,413,000 29,216,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (11,017,000) (10,518,000)
Proceeds from sale of property 26,000 89,000
Changes in marketable securities 3,580,000 (4,760,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (7,411,000) (15,189,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (13,403,000) (13,635,000)
Additions to loans payable 180,000
Principal payments on loans payable (1,244,000) (2,328,000)
Exercise of stock options 502,000 3,134,000
Stock repurchases (5,448,000) (9,395,000)
Other
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES (19,593,000) (22,044,000)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,523,000) (2,631,000)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 14,886,000 (10,648,000)
CASH AND CASH EQUIVALENTS AT JANUARY 1 69,176,000 87,481,000
------------ ------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 84,062,000 $ 76,833,000
============ ============
</TABLE>
See the accompanying notes to consolidated financial statements
5
<PAGE> 7
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited interim financial information of Herbalife International, Inc.
(the "Company") has been prepared in accordance with Article 10 of the
Securities and Exchange Commission's Regulation S-X. In the opinion of
management, the accompanying interim financial information contains all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the Company's financial statements as of September 30, 1997 and for the
three and nine month periods ended September 30, 1996 and 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No., 130, "Reporting for Comprehensive Income"
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements are effective for financial statements issued for
periods beginning after December 15, 1997. The Company has not yet analyzed the
impact of adopting these statements.
2. EARNINGS PER SHARE
Primary earnings per share are computed by dividing net income by the weighted
average number of common and equivalent shares. Fully diluted earnings per share
assumes the maximum dilutive effect of stock options.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share." SFAS
128 replaces the presentation of primary earnings per share with a presentation
of basic earnings per share based upon the weighted average number of common
shares for the period. It also requires dual presentation of basic and diluted
earnings per share for companies with complex capital structures. SFAS 128 will
be adopted by the Company at December 31, 1997 and earnings per share will be
restated upon adoption. Had earnings per share been determined consistent with
SFAS 128, basic and diluted earnings per share would have been:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share $0.38 $0.47 $1.04 $1.32
Diluted earning per share $0.36 $0.45 $1.00 $1.26
Weighted average shares outstanding
Basic 29,653,701 30,107,590 29,704,468 30,184,441
Diluted 31,234,254 31,468,244 31,086,449 31,559,708
</TABLE>
3. CONTINGENCIES
The Company's French, German and Italian subsidiaries have been subject to tax
audits by tax authorities in those countries, who are proposing that material
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 the additional proposed taxes and related charges.
However, the ultimate resolution of these matters is unknown and 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, 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.
6
<PAGE> 8
HERBALIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. 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"
generally represents 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. Importers are utilized
by the Company in some markets and, under certain circumstances, credit terms
are extended. The Company's "gross profit" 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 and (c) other
one time incentive cash bonuses to qualifying distributors. Royalty overrides as
reported in the Consolidated Statements of Income are net of a handling fee (6%
of retail sales) 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 believes that, in certain of its markets, the opening of other new
markets within the same geographic region or with the same or similar language
or cultural bases has resulted in a corresponding tendency of some key
distributors to focus their attention on business opportunities provided by new
markets instead of developing their established downline organizations in
existing markets. Additionally, in certain instances, the Company has become
aware that certain sales in certain existing markets were attributable to
purchasers who distributed such product in countries which had not yet been
opened. When these countries were opened, such sales in existing markets shifted
to the newly opened markets, resulting in a decline in sales in the existing
market.
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.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THIRD QUARTER AND YEAR-TO-DATE 1997 TO 1996
Retail sales for the three and nine months ended September 30, 1997 increased
28.4% and 23.1% to $393.9 million and $1,067.9 million, respectively, as
compared to sales of $306.7 million and $867.2 million for the corresponding
periods of the prior year.
RETAIL SALES BY GEOGRAPHICAL SEGMENTS (DOLLARS IN MILLIONS):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
% %
1997 1996 Change 1997 1996 Change
------ ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Asia/Pacific Rim $182.4 $114.9 58.7 $448.5 $240.7 86.3
Europe 109.6 106.7 2.7 329.2 324.4 1.5
Americas 101.9 85.1 19.7 290.2 302.1 (3.9)
------ ------ ---- -------- ------ ----
Total Retail Sales $393.9 $306.7 28.4 $1,067.9 $867.2 23.1
====== ====== ==== ======== ====== ====
</TABLE>
Retail sales increases in Asia/Pacific Rim continued to result from strong
retail sales in Japan and Taiwan. For the three and nine months ended September
30, 1997, retail sales in Japan increased $52.0 million, or 54.1%, and $166.0
million, or 84.0%, respectively. Given the rapid increase in retail sales in
Japan to current high levels, retail sales in Japan are not expected to continue
to increase at historic rates. In Taiwan, retail sales for the three and nine
months ended September 30, 1997 increased $4.1 million, or 52.3%, and $21.5
million, or 147.0%, respectively. Retail sales in other Asia/Pacific Rim
countries for the three and nine months ended September 30, 1997 increased $11.4
million, or 103.8%, and $20.3 million, or 71.0%, respectively, as compared to
the corresponding periods in 1996. The increases in the other Asia/Pacific Rim
countries resulted from the opening of South Korea in November, 1996 and
Thailand in June 1997 coupled with increased retail sales in Hong Kong.
Retail sales in Europe increased $2.9 million, or 2.7%, and $4.8 million, or
1.5%, for the three and nine months ended September 30, 1997 as compared to the
prior year, respectively. Within the region, retail sales in Italy increased
$3.9 million, or 29.2%, and $8.4 million, or 21.5%, respectively. Retail sales
in Russia declined $2.6 million, or 6.5%, for the three month period; however,
retail sales increased $15.8 million, or 15.5%, for the nine month period.
Offsetting the retail sales increases were declines in Germany and South Africa.
Retail sales in Germany and South Africa decreased $1.4 million and $1.0
million, respectively for the three months ended September 30, 1997, and $11.9
million and $9.5 million, respectively, for the nine months ended September 30,
1997. Although retail sales in Germany and South Africa declined in comparison
to the prior year periods, they have remained relatively stable over the past
four quarters.
In The Americas, the increase in retail sales for the three months ended
September 30, 1997 primarily resulted from retail sales increases of $13.3
million, or 21.2% in the United States. Third quarter retail sales in Brazil
were $13.1 million, or 7.7% lower than the same period in 1996; however, retail
sales for the quarter improved in comparison to the first and second quarters of
1997. For the nine months ended September 30, 1997, the decrease in retail sales
primarily resulted from retail sales decreases in Brazil of $27.5 million, or
44.6%. The retail sales decrease in Brazil is primarily due to a difficult
regulatory environment which, among other factors, has impeded the introduction
of new products within the country. The Company continues to pursue approval of
new products within Brazil. The retail sales decrease in Brazil was partially
offset by retail sales increases in the U.S. and additional retail sales
resulting from the opening of Chile in March, 1997. United States retail sales
for the nine months ended September 30, 1997 increased $9.8 million, or 4.6%, to
$223.9 million as compared to $214.1 million in the prior year. The U.S., as a
percentage of worldwide sales for the three and nine month periods ended
September 30, 1997, was 19.3% and 21.0%, respectively, as compared to 20.5% and
24.7% for the same periods last year.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THIRD QUARTER AND YEAR-TO-DATE 1997 TO 1996 (CONTINUED)
RETAIL SALES BY PRODUCT SEGMENTS (DOLLARS IN MILLIONS):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
% %
1997 1996 Change 1997 1996 Change
------ ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Weight Management $275.7 $221.2 24.6 $746.0 $627.9 18.8
Food & Dietary Supplements 61.4 41.3 48.7 154.5 121.3 27.4
Personal Care 36.8 29.9 23.1 116.2 74.1 56.8
Literature/ Promotional/ Other 20.0 14.3 39.9 51.2 43.9 16.6
------ ------ ---- -------- ------ ----
Total Retail Sales $393.9 $306.7 28.4 $1,067.9 $867.2 23.1
====== ====== ==== ======== ====== ====
</TABLE>
For the three and nine month periods ended September 30, 1997, retail sales in
all the product segments demonstrated strong growth as compared to the prior
year periods. The increase in Personal Care retail sales primarily resulted from
a strong reception of the product line in Japan and it's introduction in Russia
during July 1996. The increases in the remaining categories were primarily due
to the same factors identified in the geographical segment discussion above.
OPERATING INFORMATION:
Gross profit of $92.1 million and $247.1 million for the three and nine months
ended September 30, 1997, respectively, was $20.8 million, or 29.1%, and $47.9
million, or 24.0%, higher than gross profit of $71.4 million and $199.2 million
in the prior year, respectively. As a percentage of retail sales, gross profit
for the three and nine months ended September 30, 1997 as compared to the same
periods in the prior year increased from 23.3% to 23.4% and 23.0% to 23.1%,
respectively. The increase in gross profit as a percentage of retail sales
primarily resulted from the proportional increase in retail sales in Japan,
which has a higher gross profit margin due to favorable product pricing.
Partially offsetting the gross profit increase were additional royalty override
expenses resulting from a special 1997 distributor incentive program designed to
motivate distributors to achieve incremental sales growth.
Marketing, distribution and administrative expenses, as a percentage of retail
sales, were 17.8% and 17.4% for the three and nine month periods ended September
30, 1997 as compared to 17.5% for the same periods in 1996, respectively. These
expenses for the same periods increased 31.0% and 22.0% to $70.2 million and
$185.3 million from $53.6 million and $151.9 million in the prior year,
respectively. The increase resulted from: (a) higher in-country distribution
expenses primarily due to facility and staff expansions in Japan and new country
openings in South Korea, Chile, and Thailand, (b) higher administrative expenses
due to staff additions and other costs related primarily to supporting sales
expansion in foreign countries, and (c) higher marketing costs resulting from
increased sales event activity in 1997.
The weakening of the Japanese Yen against the U.S. Dollar during 1997 resulted
in proportionately lower revenues, expenses, and ultimately income when
translated into the U.S. Dollar reporting currency. The effect of the weaker
Japanese Yen on the Company's net income per fully diluted share for the three
and nine month periods ended September 30, 1997 was approximately $.06 and $.19,
respectively, as compared to the exchange rates in effect for the same periods
in the prior year. The effect of foreign currency changes of this nature in
countries other than Japan was not material to the operations of the Company.
Income taxes of $9.0 million and $25.2 million for the three and nine months
ended September 30, 1997 increased from $7.6 million and $19.4 million in the
prior year, respectively. As a percentage of pre-tax income, income taxes
remained unchanged at 38.5% in 1997.
Net income for the three and nine months ended September 30, 1997 increased
25.7% and 28.8% to $14.3 million and $39.9 million, respectively, from $11.3
million and $31.0 million reported in the corresponding prior year periods.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THIRD QUARTER AND YEAR-TO-DATE 1997 TO 1996 (CONTINUED)
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 nine months ended September 30, 1997,
net cash provided by operating activities was $29.2 million, compared to $43.4
million for the same period in 1996. The decrease primarily resulted from (i)
increased inventory levels required to support the Company's growth; and (ii)
higher credit card receivable balances primarily resulting from new and existing
country expansion. These reductions were partially offset by increased net
income and additional cash flow provided by increases in advanced sales
balances.
Capital expenditures for the nine months ended September 30, 1997 were $10.5
million compared to $11.0 million for the prior year. The majority of the 1997
expenditures resulted from the expansion of office facilities and equipment in
the U.S. and to support growth in Japan. For 1997, the Company is planning to
invest approximately $12 million in management information systems and expansion
of new and existing facilities. 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 up to $7 million will be required for pre-opening expenses, capital
expenditures and other operating cash flow needs associated with its 1997 new
market expansion activities.
Stockholders' equity increased $19.8 million to $158.2 million during the nine
months ended September 30, 1997. In 1997, net income of $39.9 million and the
issuance of capital stock, including related tax benefits, of $5.1 million were
partially offset by $13.7 million of dividends declared and stock repurchases of
$9.4 million. 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 profitability, as well as other
planned uses of the Company's cash resources.
Cash and cash equivalents totaled $76.8 million at September 30, 1997 compared
to $87.5 million at December 31, 1996. At September 30, 1997, the Company's
cash, cash equivalents and marketable securities aggregate balance was $125.1
million, which represents a $6.0 million decrease from the balance as of
December 31, 1996.
In September, 1997, the Company entered into new agreements with its suppliers
of weight management and food and dietary supplement products. The new contracts
become effective January 12, 1998 and replace the previous contracts currently
in effect. The contracts provide, among other things, the ability for the
Company to source and develop products from other third party manufacturers,
within certain contractual limitations. The new contracts provide the
opportunity for cost savings for certain products, however the realization of
any product cost savings will be affected by the Company's future product
development.
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 from time to time enters into forward
exchange contracts and other hedging arrangements to manage its foreign exchange
risk on intercompany transactions. During the third quarter of 1997, the British
Pound and several Asian currencies weakened against the U.S. Dollar resulting in
foreign exchange losses of $1.9 million as compared to a gain of $.2 million in
the third quarter of 1996. For the nine months ended September 30, 1997,
exchange gains of $.7 million were recognized as compared to $1.9 million of
exchange losses in the prior year.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion under "Legal Proceedings" in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 and in footnote
three to the Financial Statements included in Item 1 of this document.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
The Company has announced that its Board has proposed a dual class
recapitalization plan designed to increase financial flexibility for the
Company and its shareholders. Under the proposal, the Company would
effect a 1-for-3 reverse stock split and reclassify each resulting share
as a share of Class A Common Stock. Immediately thereafter, two shares
of Class B Common Stock would be distributed as a non-taxable dividend
for each share of Class A Stock outstanding. To illustrate, a
hypothetical Herbalife shareholder who owns 300 shares currently, after
the recapitalization would own 100 Class A voting shares and 200 Class B
non voting shares. The proposed recapitalization would not impact the
Company's total number of shares outstanding, which currently
approximate 30 million, so the transaction would not impact earnings per
share. In addition, relative voting control for all existing
shareholders would remain unchanged, as existing shareholders would
subsequently own identical percentages of the new Class A voting shares.
The Class A Common Stock and Class B Common Stock would be substantially
identical, except that the Class A Common Stock would be entitled to
full voting rights while the Class B Common Stock would be entitled to
voting rights only as required by law and as provided in the Company's
proposed amended and restated articles of incorporation. Additionally,
the two classes of stock would be subject to different rights,
preferences and privileges as set forth in the proxy statement filed by
the Company with the Securities and Exchange Commission concerning the
proposed recapitalization.
A special meeting of shareholders of the Company to seek approval of the
recapitalization is currently scheduled for December 11, 1997, and the
record date for voting at the meeting has been set as October 31, 1997.
Mr. Mark Hughes, the Company's founder, Chairman, President, Chief
Executive Officer and majority shareholder, has indicated that he
intends to vote for the proposal.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
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, 1989 (2)
3.4 Certificate of Determination relating to the Company's Senior
Convertible Preferred Stock dated February 11, 1993 (6)
3.5 Certificate of Amendment to Articles of Incorporation dated May 14, 1993 (6)
3.6 Amended and Restated Bylaws (6)
4.1 Form of Common Stock Certificate (6)
10.1 Agreement between Herbalife International of America, Inc. and D&F
Industries, Inc. dated May 12, 1993 (6)
10.2 Agreement between Herbalife International of America, Inc. and Raven
Industries, Inc. dated May 12, 1993 (6)
10.3 Agreement between Herbalife International of America, Inc. and
Dynamic Products, Inc. dated May 12, 1993 (6)
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 The Company's 1988 Incentive Plan (1)
10.8 The Company's 1991 Stock Option Plan, as amended (11)
10.9 The Company's Executive Incentive Compensation Plan, as amended (6), (11)
10.10 Form of Individual Participation Agreement relating to the Company's
Executive Compensation Plan (6)
10.11 Amendment to Employment Agreement between the Company and David
Addis dated June 29, 1993 (6)
10.12 Form of Letter Agreement between the Compensation Committee of the
Board of Directors of the Company and Mark Hughes (6)
10.13 Form of Indemnity Agreement between the Company and certain officers
and directors of the Company (6)
10.14 Trust Agreement among the Company, Citicorp Trust, N.A. and certain
officers and directors of the Company (6)
10.15 Form of Stock Appreciation Rights Agreement between the Company and
certain directors of the Company (6)
10.16 1994 Performance Based Annual Incentive Compensation Plan (8), (11)
10.17 Form of Promissory Note for Advances under the Company's 1994
Performance Based Annual Incentive Compensation Plan (9)
10.18 Employment Agreement between the Company and Chris Pair dated
April 3, 1994 (7)
10.19 Deferred Compensation Agreement between the Company and Michael Rosen (9)
10.20 Office lease agreement between the Company and State Teacher's
Retirement System, dated July 20, 1995 (10)
10.21 Form of stock appreciation rights agreements between the Company and
certain directors of the Company (10)
</TABLE>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(A) EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Exhibit Number Description Page No./(Footnote)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.22 The Company's Senior Executive Deferred Compensation Plan, effective
January 1, 1996 (10)
10.23 The Company's Management Deferred Compensation Plan, effective
January 1, 1996 (10)
10.24 Master Trust Agreement between the company and Imperial Trust
Company, Inc., effective January 1, 1996 (10)
10.25 The Company's 401K Plan (10)
10.26 Agreement Concerning Share Allocation Plan for Specific Directors of
Herbalife of Japan K.K. dated December 30, 1996. (12)
10.27 Consulting Agreement between David Addis and Herbalife of America,
Inc. Dated January 27, 1997. (12)
10.28 Agreement between Herbalife International of America, Inc. and D&F
Industries, Inc. dated September 2, 1997 (13)
10.29 Agreement between Herbalife International of America, Inc. and
Dynamic Products, Inc. dated September 2, 1997 (13)
10.30 Agreement between Herbalife International of America, Inc. and Raven
Industries, Inc. d/b/a Omni-Pak Industries, dated September 2, 1997 (13)
21 List of subsidiaries of the Company (12)
27 Financial Data Schedule (13)
- --------------------------------------------------------------------------------------------------------------
</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 Registration Statement on Form
S-1 (No. 33-66576) declared effective by the Securities and Exchange
Commission on October 8, 1993.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended June 30, 1994.
(8) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1994 Annual Meeting of Stockholders.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(11) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1996 Annual Meeting of Stockholders.
(12) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(13) Filed herewith.
(B) REPORTS ON FORM 8-K
None.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 12, 1997
HERBALIFE INTERNATIONAL, INC.
(Registrant)
By: /s/ TIMOTHY GERRITY
---------------------------------
Timothy Gerrity
Executive Vice President and
Chief Financial Officer
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EXHIBIT _____
EXECUTION COPY
SUPPLY AGREEMENT
between
D&F Industries, a California corporation
and
Herbalife International of America, Inc., a California corporation
Dated as of September 2,1997
<PAGE> 2
EXECUTION COPY
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is entered into as of September 2,
1997, by and between D&F Industries, a California corporation ("SUPPLIER"), and
Herbalife International of America, Inc., a California corporation
("HERBALIFE"), with reference to the following facts:
RECITALS
A. Supplier and Herbalife are parties to that certain agreement
executed on May 12, 1993, as modified by a First Addendum To Agreement executed
on May 18, 1993, which agreement may have thereafter been amended or modified
from time to time (as amended, the "D&F INITIAL AGREEMENT").
B. Likewise, Herbalife and Dynamic Products, Inc., a California
corporation ("DYNAMIC"), are parties to that certain agreement executed on May
12, 1993, as modified by a First Addendum To Agreement executed on May 18, 1993,
which agreement may have thereafter been amended or modified from time to time
(as amended, the "DYNAMIC INITIAL AGREEMENT"), and Herbalife and Raven
Industries, Inc. d/b/a Omni-Pak Industries, a California corporation ("OMNI"),
are parties to that certain agreement executed on May 12, 1993, as modified by a
First Addendum To Agreement executed on May 18, 1993, which agreement may have
thereafter been amended or modified from time to time (as amended, the "OMNI
INITIAL AGREEMENT").
C. The D&F Initial Agreement, the Dynamic Initial Agreement and the
Omni Initial Agreement are collectively referred to herein as the "INITIAL
AGREEMENTS." Supplier, Dynamic and Omni are collectively referred to herein as
the "D&F SUPPLIERS."
D. Each of the Initial Agreements will expire on January 11, 1998, in
the event that either of the parties thereto gives written notice of its
decision to cease the contractual relationship, which notice must be given not
less than six months prior to such expiration date.
E. Herbalife has provided written notice (which was delivered on a date
six months or more prior to January 11, 1998) to each of the D&F Suppliers of
its decision to cease the contractual relationship under the Initial Agreements
on January 11, 1998 and the Initial Agreements will expire on January 11, 1998.
F. Each of the D&F Suppliers and Herbalife desires to enter into new
supply agreements to provide for the supply of certain nutritional supplement
products and certain non-nutritional products to Herbalife on and after January
12, 1998, which products are intended to be similar in type and form to those
historically manufactured and supplied by each of the D&F Suppliers to
Herbalife.
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G. The new supply agreement between Herbalife and Omni entered into
contemporaneously herewith is referred to herein as the "NEW OMNI SUPPLY
AGREEMENT".
H. The terms and conditions of this Agreement and the New Omni Supply
Agreement are substantially similar except for product identity, pricing and
purchase amounts (this Agreement and the New Omni Supply Agreement are
collectively referred to herein as the "NEW D&F SUPPLY AGREEMENTS").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
undertakings set forth below, and in reliance on the recitals set forth above,
Supplier and Herbalife hereby agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined herein shall
bear the meanings and construction given to them below:
(a) General Definitions.
"AFFILIATE": Any business entity (not including any individual)
which, directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with Herbalife and which sells,
markets, deals with or comes into possession of Supplied Products during the
Term, including without limitation Herbalife of Japan K.K. If during the Term
any current Affiliate ceases to qualify as an Affiliate it shall continue to be
deemed an Affiliate for the purpose of this Agreement provided such business
entity sells, markets, deals with or comes into possession of Supplied Products
during the Term.
"CURRENT COUNTRIES": The territories or countries set forth in
Exhibit B hereto.
"NUTRITIONAL SUPPLEMENT": Any tablet or capsule containing vitamin,
herb or mineral constituents for ingestion by humans, which are of a type and
form historically similar to those manufactured and supplied by Supplier to
Herbalife, and excluding, without limitation, (i) powdered foods, teas, whole
foods, prepared foods, prepackaged and convenience foods, dehydrated foods,
snack foods, and energy bars, and (ii) all items of a non-nutritional nature,
including without limitation, personal care items, cosmetics, clothing, exercise
equipment, and water or air filtration or purification items.
"OTHER SUPPLIERS": Persons or entities other than Supplier, Omni or
Dynamic.
"QUALITY STANDARDS": Written quality standards, for the manufacture
of Supplied Products, which are consistent with accepted industry practices and
standards and all applicable laws in the jurisdiction in which the Supplied
Products are sold by Supplier to Herbalife, including, without
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limitation, standards as to quality assurance, preparation and manufacture in a
clean, safe and sanitary manner, which are mutually agreed upon by Supplier and
Herbalife. If Herbalife advises Supplier of the regulatory requirements of any
other jurisdictions relating to Quality Standards, Supplier shall use its best
efforts to comply therewith in the manufacture of Supplied Products for
distribution in those jurisdictions.
"SUBCONTRACT SUPPLIERS": Those of the Other Suppliers that pursuant
to a subcontract arrangement with Supplier existing prior to the date of this
Agreement manufacture Current Products.
(b) Formula Related Definitions.
"FORMULAS": The formulas and product specifications necessary for
the manufacture of products, together with any modification, improvement,
alteration, enhancement or successor to such formulas and product
specifications.
"SUPPLIER FORMULAS": Supplier Exclusive Formulas and Supplier
Non-Exclusive Formulas.
"SUPPLIER EXCLUSIVE FORMULAS": All Formulas for Current Exclusive
Products and Supplier Developed New Exclusive Products, together with any
modification or improvement of, any alteration or enhancement to, and any
successor to the Formulas for Current Exclusive Products and Supplier Developed
New Exclusive Products derived, developed, created or invented by Supplier or
any agent of Supplier or by any person or entity for whom Supplier is a valid
licensee thereof.
"SUPPLIER NON-EXCLUSIVE FORMULAS": All Formulas for Current
Non-Exclusive Products and Supplier Developed New Non-Exclusive Products,
together with any modification or improvement of, any alteration or enhancement
to, and any successor to the Formulas for Current Non-Exclusive Products and
Supplier Developed New Non-Exclusive Products derived, developed, created or
invented by Supplier or any agent of Supplier or by any person or entity for
whom Supplier is a valid licensee thereof.
"CONSTRUCTIVELY IDENTICAL FORMULAS": All Formulas, excluding
Substitute Formulas and Independent Formulas, the chemical composition of which
are not materially different from any Supplier Formula, and which are derived,
developed, created or invented by Herbalife or any Affiliate or any agent
thereof or any Other Supplier providing services to Herbalife.
"SUBSTITUTE FORMULAS": All Formulas, excluding Constructively
Identical Formulas and Independent Formulas, the chemical composition of which
are materially different from any Supplier Formula, and which are derived,
developed, created or invented by Herbalife or any Affiliate or any agent
thereof or any Other Supplier providing services to Herbalife, and which are a
substitute for any Supplier Formula.
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"INDEPENDENT FORMULAS": All Formulas, excluding Constructively
Identical Formulas and Substitute Formulas, (including any modification or
improvement to such Formulas, any alteration or enhancement to such Formulas,
and any successor to such Formulas or substitute for such Formulas), the
chemical composition of which are materially different from any Supplier
Formula, and which are derived, developed, created or invented by Herbalife or
any Affiliate or any agent thereof or any Other Supplier providing services to
Herbalife, and which are not a modification or improvement of, an alteration or
enhancement to, or a successor to or substitute for any Supplier Formula.
"COMPETITIVE PRIMARY MANUFACTURE FORMULAS": Those of the Substitute
Formulas, which are Formulas for Rights Of First Refusal Substitute Products For
Primary Manufacture and listed on Exhibit E hereto pursuant to Section
5(b)(ii)(F) below, as a result of being competitive as referred to in Section
5(b)(ii)(D) below.
(c) Product Related Definitions.
"CURRENT PRODUCTS": The Current Exclusive Products and the Current
Non-Exclusive Products.
"CURRENT EXCLUSIVE PRODUCTS": The products set forth on Exhibit A-1
hereto and those certain non-nutritional products set forth on Exhibit A-2, made
in accordance with Supplier Exclusive Formulas (other than for Supplier
Developed New Exclusive Products).
"CURRENT NON-EXCLUSIVE PRODUCTS": The products set forth on Exhibit
A-3 and those certain non-nutritional products set forth on Exhibit A-4, made in
accordance with Supplier None-Exclusive Formulas (other than for Supplier
Developed New Non-Exclusive Products).
"MODIFIED CURRENT PRODUCTS": Current Products made in accordance
with any modification, improvement, alteration, enhancement or successor to the
Formulas for the initial Current Products set forth on Exhibits A-1, A-2, A-3,
and A-4 hereto, derived, developed, created or invented by Supplier or any agent
of Supplier or by any person or entity for whom Supplier is a valid licensee
thereof, and which are not Supplier Developed New Products.
"NEW PRODUCTS": All Supplier Developed New Products listed from time
to time, or deemed hereunder to be listed from time to time, on Exhibit F; and
all Other Offered New Products listed from time to time, or deemed hereunder to
be listed from time to time, on Exhibit E; in each case, which products are
ordered by Herbalife or any Affiliate pursuant to the terms and conditions of
this Agreement.
"SUPPLIED PRODUCTS": All Current Products and all New Products.
"SUPPLIER DEVELOPED NEW PRODUCTS": Those products developed by
Supplier made in accordance with Supplier Formulas, the chemical composition of
which is materially different from any Formula for a Current Product, and which
is derived, developed, created or invented by
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Supplier or any agent of Supplier or by any person or entity for whom Supplier
is a valid licensee thereof, (and including any product made in accordance with
any Formula, the chemical composition of which is materially different from any
Formula for a Current Product derived, developed, created or invented by
Supplier or any agent of Supplier or by any person or entity for whom Supplier
is a valid licensee thereof, which is a substitute for any Formula for a Current
Product).
"SUPPLIER DEVELOPED NEW EXCLUSIVE PRODUCTS": All Supplier Developed
New Products which Supplier offers to sell to Herbalife or any Affiliate on an
exclusive basis pursuant to the terms of this Agreement.
"SUPPLIER DEVELOPED NEW NON-EXCLUSIVE PRODUCTS": All Supplier
Developed New Products which Supplier offers to sell to Herbalife or any
Affiliate on a non-exclusive basis pursuant to the terms of this Agreement.
"OTHER OFFERED NEW PRODUCTS": Those products derived, developed,
created or invented by Herbalife or any Affiliate or any agent thereof or any
Other Supplier providing services to Herbalife made in accordance with
Constructively Identical Formulas, Substitute Formulas or Independent Formulas.
"RIGHTS OF FIRST REFUSAL CONSTRUCTIVELY IDENTICAL PRODUCTS FOR
PRIMARY MANUFACTURE": Those Other Offered New Products made in accordance with
Constructively Identical Formulas.
"RIGHTS OF FIRST REFUSAL SUBSTITUTE PRODUCTS FOR PRIMARY
MANUFACTURE": Those Other Offered New Products made in accordance with
Substitute Formulas.
"RIGHTS OF FIRST REFUSAL INDEPENDENT PRODUCTS FOR ADDITIONAL
MANUFACTURE": Those Other Offered New Products made in accordance with
Independent Formulas.
"THIRD PARTY LICENSED PRODUCTS": Those certain Current Products and
Supplier Developed New Products that, pursuant to a license from one or more
third parties, Supplier manufactures or supplies and offers to sell to Herbalife
or any Affiliate. With respect to Current Products, Third Party Licensed
Products shall be those listed as such in Exhibit A-1 through A-4 hereto.
"GENERIC PRODUCTS": Those certain Current Products and Supplier
Developed New Products, which products are widely available or in the public
domain. With respect to Current Products, Generic Products shall be those listed
as such in Exhibits A-1 through A-4 hereto.
"CURRENT SUBCONTRACTED PRODUCTS": Those certain Current Products
that Supplier supplies to Herbalife or any Affiliate but the manufacture of
which Supplier has subcontracted to Subcontract Suppliers prior to the date
hereof.
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(d) Minimum Purchase Order Amount Related Definition
"SUPPLIER'S NUTRITIONAL SUPPLEMENT PRODUCT LINE BUSINESS IN CURRENT
COUNTRIES": The aggregate dollar amount of all firm purchase orders made during
the Term by Herbalife or any Affiliate for: (i) all Nutritional Supplement
products manufactured by Supplier (or, with respect to Current Subcontracted
Products, manufactured by a Subcontract Supplier) in accordance with Supplier
Formulas, Constructively Identical Formulas, or Competitive Primary Manufacture
Formulas, and which are ordered by Herbalife or any Affiliate for sale in
Current Countries pursuant to the terms and conditions of this Agreement, plus
(ii) all Nutritional Supplement products manufactured by Other Suppliers, other
than a Subcontract Supplier, in accordance with Supplier Formulas, and which are
ordered by Herbalife or any Affiliate for sale in Current Countries pursuant to
the terms and conditions of this Agreement, plus (iii) all non-nutritional
products listed in Exhibits A-2 and A-4 manufactured by Supplier (or, with
respect to Current Subcontracted Products, manufactured by a Subcontract
Supplier) in accordance with Supplier Formulas or Constructively Identical
Formulas, and which are ordered by Herbalife or any Affiliate for sale in
Current Countries pursuant to the terms and conditions of this Agreement, plus
(iv) all non-nutritional products listed in Exhibits A-2 and A-4 manufactured by
Other Suppliers, other than a Subcontract Supplier, in accordance with Supplier
Formulas or Constructively Identical Formulas, and which are ordered by
Herbalife or any Affiliate for sale in Current Countries pursuant to the terms
and conditions of this Agreement.
"HERBALIFE'S INDEPENDENT NUTRITIONAL SUPPLEMENT PRODUCT LINE BUSINESS
IN CURRENT COUNTRIES": The aggregate dollar amount of all firm purchase orders
made during the Term by Herbalife or any Affiliate for: all Nutritional
Supplement products manufactured by Other Suppliers in accordance with
Independent Formulas, and which are ordered by Herbalife or any Affiliate for
sale in Current Countries pursuant to the terms and conditions of this
Agreement.
(e) Categorization of Formulas
Whenever a Formula is categorized herein as falling within any of
(A) Supplier Formulas, (B) Constructively Identical Formulas, (C) Substitute
Formulas, or (D) Independent Formulas (each of (A) through (D) above being
referred to herein as a "CATEGORY"), or any sub-category of a Category, that
Formula shall be deemed to fall only within the closest Category and shall not
fall within any other of the Categories, so that for example any Formula that
falls within the category of being a Substitute Formula may also be a
Competitive Primary Manufacture Formula but shall not also be an Independent
Formula. It is expressly agreed and understood that there shall be no
double-counting or overlap in construing the definitions of Supplier's
Nutritional Supplement Product Line Business in Current Countries and
Herbalife's Independent Nutritional Supplement Product Line Business in Current
Countries and in construing any of clauses (i) through (iv) of the definition of
Supplier's Nutritional Supplement Product Line Business in Current Countries.
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2. TERM AND SCOPE.
(a) Application and Termination of the D&F Initial Agreement. The
D&F Initial Agreement will expire on midnight, January 11, 1998. Any product for
which an order is placed by Herbalife or any Affiliate on a date prior to
January 12, 1998, for which the latest scheduled delivery date to Herbalife or
any Affiliate is on a date prior to January 12, 1998, shall be governed by the
terms and conditions of the D&F Initial Agreement (notwithstanding that the
actual date of delivery shall occur on or after January 12, 1998, through no
fault or failure on the part of Supplier to observe or perform the terms and
conditions of the D&F Initial Agreement). The parties hereto agree to execute a
Release Agreement, in the form attached hereto as Exhibit C (the "RELEASE
AGREEMENT"), simultaneously with the execution of this Agreement.
(b) Application of this Agreement. The term of this Agreement (the
"TERM") shall commence upon execution of this Agreement, and shall continue
until December 31, 2000, unless previously terminated pursuant to the provisions
hereof, provided however, the terms and conditions of this Agreement shall
govern all Supplied Products to be delivered on a date on or after January 12,
1998 to Herbalife or any Affiliate. Prior to January 12, 1998, Supplier shall be
prepared to meet all of its obligations under the terms and conditions of this
Agreement, including delivery of Supplied Products to be delivered on a date on
or after January 12, 1998 to Herbalife or any Affiliate. Certain obligations of
this Agreement may be extended for a period of one hundred and twenty (120) days
after the expiration of the Term in order to satisfy the terms and conditions of
Section 4 below, which obligations when performed will be construed for the
purposes of this Agreement as having occurred "during the Term " hereof.
3. QUALITY STANDARDS. Promptly upon execution of this Agreement, the
parties agree to cooperate fully with each other, and in a timely manner, to
prepare Quality Standards for all Current Products, and in any event to prepare
such standards within ninety (90) days of execution of this Agreement. With
respect to New Products, the parties shall cooperate fully with each other, and
in a timely manner, to prepare Quality Standards prior to or at such time as any
New Product is ordered by Herbalife from Supplier. Any changes or alterations to
the Quality Standards (once initially agreed between the parties hereto) must be
mutually agreed to in writing by the parties hereto.
4. SUPPLY.
(a) Supply Obligation. For all Supplied Products to be delivered
on a date on or after January 12, 1998 or ordered thereafter until midnight of
the last day of the Term, Herbalife or any Affiliate may order from Supplier and
Supplier shall be obligated to manufacture and supply to Herbalife or any
Affiliate, Supplied Products in any quantity ordered at any time by Herbalife or
any Affiliate, at Herbalife's or any Affiliate's sole discretion, for sale at
any time anywhere in the world, whether during the Term or after expiration of
the Term. After expiration of the Term, Herbalife or any Affiliate may order
from Supplier and Supplier shall be obligated to manufacture and supply to
Herbalife or any Affiliate, in accordance with the terms and conditions hereof,
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Supplied Products in an amount necessary for Herbalife or any Affiliate to make
up any shortfall in the Minimum Purchase Order Amount, as set forth in Section
4(f) below.
(b) Non-Exclusive Manufacture. For all Supplied Products to be
delivered on a date on or after January 12, 1998 or ordered thereafter until
midnight of the last day of the Term, Supplier shall manufacture and supply the
Supplied Products exclusively for Herbalife or any Affiliate, subject to the
provisions of this Section 4(b). Supplier shall not develop, manufacture,
distribute or otherwise sell other than for and to Herbalife or any Affiliate at
any time any of the Supplied Products or any product incorporating Supplier
Formulas, Constructively Identical Formulas, Substitute Formulas, or Independent
Formulas sold by or on behalf of Herbalife or any Affiliate; provided however,
Supplier may manufacture and sell any of the Current Non-Exclusive Products or
Supplier Developed New Non-Exclusive Products for and to any persons or
entities. Notwithstanding the foregoing, and subject (during the Term but not
thereafter) to Sections 4(c), 5(b) and 8(c) below, Herbalife or any Affiliate
shall have the right to (i) itself manufacture, supply and sell, (ii) have
manufactured, supplied and sold on its behalf and (iii) otherwise order and
procure from any third party (including without limitation from any Other
Suppliers), any and all products made in accordance with or otherwise based
upon, developed or derived from Independent Formulas, Constructively Identical
Formulas, Substitute Formulas, or Supplier Formulas (whether or not such
products are similar or identical to the Supplied Products and whether in
Current Countries or otherwise); provided however, that, in the case of any of
the Supplier Formulas for any of the Supplied Products which consist of a Third
Party Licensed Product, Herbalife's or any Affiliate's rights set forth in (i),
(ii) and (iii) above shall be limited to those rights and licenses obtained from
any person or entity whose consent or license is required.
(c) Minimum Purchase Order Amount. Herbalife shall be obligated,
and Herbalife shall cause Herbalife's Affiliates to be obligated, subject to the
terms and conditions hereof, to place firm purchase orders from Supplier for
Supplied Products to be delivered on a date on or after January 12, 1998 and
ordered from Supplier at any time on or after the date hereof during the Term of
this Agreement, but not thereafter, to be delivered on a date on or after
January 12, 1998, of an aggregate dollar amount (the "MINIMUM PURCHASE ORDER
AMOUNT") equal to and no more than:
(x) 80% of Supplier's Nutritional Supplement Product Line
Business in Current Countries; plus
(y) 80% of one-half of Herbalife's Independent Nutritional
Supplement Product Line Business in Current Countries.
The Minimum Purchase Order Amount shall be satisfied by any combination of
orders so long as the aggregate dollar amount of orders referred to in clauses
(x) and (y) above meets or exceeds the Minimum Purchase Order Amount; provided
however, that firm purchase orders placed during the Term, or thereafter
pursuant to Section 4(f) below, by Herbalife or any of Herbalife's Affiliates
referred to under any of clauses (i) and (iii) of the defined term Supplier's
Nutritional Supplement Product Line Business in Current Countries in order to
make up for any amount owed under any of
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clauses (x) or (y) above shall not increase the aggregate dollar amount of firm
purchase orders that Herbalife or Herbalife's Affiliates shall be obligated to
place under any of clauses (x) or (y) above in order to satisfy the Minimum
Purchase Order Amount.
(d) Credit Towards Minimum Purchase Order Amount. It is hereby
expressly agree and understood that, notwithstanding any other provision hereof,
any purchase order for Supplied Products to be delivered anywhere in the world
on a date on or after January 12, 1998, placed by Herbalife or any Affiliate
with Supplier at any time on or after the date hereof during the Term, and for
one hundred and twenty (120) days after the expiration of the Term to the extent
necessary to make up any shortfall as referred to below in Section 4(f), shall
count and be credited towards the Minimum Purchase Order Amount.
(e) Reports. Herbalife shall provide, not later than forty-five
(45) days after the end of each of the first three calendar quarters of each
calendar year, beginning with the quarter ending March 31, 1998, and within
ninety (90) days after the end of each calendar year, written reports (each a
"QUARTERLY REPORT") to Supplier setting forth the dollar amount of firm purchase
orders that Herbalife or any Affiliate has placed or credited with respect to
satisfaction of the Minimum Purchase Order Amount, together with a reasonably
detailed breakdown of total firm purchase orders placed by Herbalife or any
Affiliate consisting of Supplier's Nutritional Supplement Product Line Business
in Current Countries and Herbalife's Independent Nutritional Supplement Product
Line Business in Current Countries to verify the dollar amount of firm purchase
orders that Herbalife or any Affiliate has placed or credited towards
satisfaction of the Minimum Purchase Order Amount. Herbalife shall be entitled
to a credit at any time in any Quarterly Report for any overages of firm
purchase orders placed at any time in any quarter during the Term.
(f) Herbalife's Making Up Shortfall Order Amount. In the event
that any Quarterly Report reveals that at the end of the quarter concerned,
Herbalife and its Affiliates have during that period placed or credited less
than the dollar amount of firm purchase orders which would be sufficient for
that period to meet the Minimum Purchase Order Amount (the "SHORTFALL ORDER
AMOUNT"), Herbalife shall use its best efforts to cause any Shortfall Order
Amount to be made up in the, immediately succeeding quarter; provided that
Herbalife, in computing any Shortfall Order Amount, shall be entitled to a
credit for any overages of firm purchase orders placed at any time in any
quarter during the Term. If, however, there shall remain any Shortfall Order
Amount at the end of the Term as a result of any Shortfall Order Amount in any
quarter during the Term, Herbalife shall be entitled to have until midnight on
the date being one hundred and twenty (120) days after the end of the Term to
place firm purchase orders from Supplier to make up any such Shortfall Order
Amount.
(g) Adjustments to Minimum Purchase Order Amount.
(i) Governmental Impact. If the action of any foreign or
domestic governmental entity or any law, rule, regulation or order, including
without limitation, tariffs, duties, quotas, quality control, manufacturing or
health standards or other trade barriers of such governmental entity (each,
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a "GOVERNMENTAL IMPACT"), renders it economically unfeasible for Herbalife or
any Affiliate to continue shipping any of the Supplied Products into any Current
Country, and Herbalife or any Affiliate thereafter arranges to and has the
affected Supplied Products manufactured by any Other Supplier and sells those
products in the affected Current Country, then the amount of purchase orders
placed by Herbalife or any Affiliate with any Other Supplier for sale of
affected Supplied Products in the affected Current Country that would have been
included in the computation of the Minimum Purchase Order Amount pursuant to
Section 4(c) above, but for this provision, shall not be included in the
computation of the Minimum Purchase Order Amount for the remainder of this
Agreement; provided however, such reduction in the Minimum Purchase Order Amount
shall only be made if Herbalife or any Affiliate actually discontinues shipping
the amount of such Supplied Products manufactured or supplied by Supplier
affected by the Governmental Impact into such Current Country, and Herbalife or
any Affiliate thereafter arranges to and has the affected Supplied Products
manufactured by any Other Supplier and sells those products in the affected
Current Country. If following any such reduction in the Minimum Purchase Order
Amount Herbalife or any Affiliate recommences shipping such Supplied Product
manufactured or supplied by Supplier during the Term, the Minimum Purchase Order
Amount shall be restored as to such Supplied Product for the then remaining
balance of the Term. A Governmental Impact for a particular Supplied Product
manufactured or supplied by Supplier which increases Herbalife's or any
Affiliate's then current cost by 25% or more shall be presumptively sufficient
to render it economically unfeasible for Herbalife or any Affiliate to continue
shipping that Supplied Product manufactured or supplied by Supplier into any
Current Country. Prior to such adjustment, Herbalife or any affected Affiliate
shall use its commercially reasonable efforts and cooperate with Supplier to
eliminate the Governmental Impact so that the Supplied Product manufactured or
supplied by Supplier can continue to be manufactured by Supplier without
adjustment to the Minimum Purchase Order Amount.
(ii) Defective Products or Shortfalls. If there is any
failure by Supplier to comply with the obligations of Sections 9(c) or 9(d)
below, and this Agreement has not been terminated by Herbalife or a cure has not
been effectuated by Supplier, without prejudice to any other remedy available to
Herbalife hereunder, Herbalife may reduce the Minimum Purchase Order Amount by
an amount equal to the aggregate dollar amount for all purchase orders made by
Herbalife or any Affiliate for Supplied Products which are Defective Products
(as defined in Section 9(c) below), or for which a Shortfall (as defined in
Section 9(d) below) exists which has not been remedied by Supplier as outlined
in Section 9(c) or 9(d) below.
5. PRODUCTS.
(a) Supplied Products. For all Supplied Products to be delivered
on a date on or after January 12, 1998, and throughout the remainder of the
Term, subject to extension as needed to satisfy Section 4(f) above, Herbalife
agrees to purchase from Supplier, subject to and on the terms and conditions set
forth herein, those of the Supplied Products that Herbalife or any Affiliate may
determine to order from Supplier hereunder, and Supplier agrees to manufacture
and sell to
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Herbalife or any Affiliate such Supplied Products, subject to and on the terms
and conditions set forth herein.
(b) Other Offered New Products. At any time during the Term, Other
Suppliers (including Herbalife itself or any Affiliate) may develop Other
Offered New Products on behalf of Herbalife or any Affiliate. In the event any
of the Other Suppliers (including Herbalife itself or any Affiliate) develops an
Other Offered New Product, then Herbalife or any Affiliate may designate any
person or entity (including Herbalife itself or any Affiliate) as a manufacturer
(including primary manufacturer) thereof for and on behalf of Herbalife or any
Affiliate, but subject only to the following:
(i) Rights Of First-Refusal Independent Products For
Additional Manufacture. In the event Herbalife or any Affiliate chooses to
obtain more than one manufacturer of a Rights Of First Refusal Independent
Product For Additional Manufacture, then Supplier shall have the right of first
refusal to become an additional manufacturing source of the Rights Of First
Refusal Independent Product For Additional Manufacture for order by Herbalife or
any Affiliate during the Term in Current Countries prior to Herbalife offering
for additional manufacturing the Rights Of First Refusal Independent Product For
Additional Manufacture to any other person or entity for order by Herbalife or
any Affiliate during the Term in Current Countries, subject to and in
accordance with the following terms:
(A) Herbalife shall request in writing that Supplier
provide Herbalife with a proposal, including pricing, for the additional
manufacture by Supplier of the Rights Of First Refusal Independent Product For
Additional Manufacture for order by Herbalife or any Affiliate in Current
Countries and possible inclusion in this Agreement. Subject to the provisions of
Section 14 of this Agreement Herbalife shall provide Supplier with the Formula,
a range of prices, and all other terms and conditions that were provided to
Herbalife by at least three of the entities listed from time to time on Exhibit
D hereto for the manufacture of like quantity and quality of the Rights Of First
Refusal Independent Product For Additional Manufacture.
(B) Supplier shall then have thirty (30) days from
receipt of such request to make a proposal to Herbalife in writing, including,
the pricing thereof, that Supplier supply Herbalife as an additional
manufacturing source for the Rights Of First Refusal Independent Product For
Additional Manufacture.
(C) Herbalife shall be entitled in good faith to
reject Supplier's proposal if Supplier is unable to offer competitive terms,
taking into account, among other things, cost differentials (e.g., pricing,
shipping, tariffs, warehousing). Supplier's terms shall be treated as
competitive for such purpose if Supplier's proposed terms are as good as or
better than the range of terms offered to Herbalife by any three of the entities
listed from time to time on Exhibit D hereto for the manufacture of like
quantity and quality of the Rights Of First Refusal Independent Product For
Additional Manufacture; provided however, that, in the case of price, Supplier's
proposed price shall be treated as competitive if that price is as good as or
better than the arithmetic average of the
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two prices remaining, after deleting the lowest price, offered to Herbalife by
any three of the entities listed from time to time on Exhibit D hereto for the
manufacture of like quantity and quality of the Rights Of First Refusal
Independent Product For Additional Manufacture; and, provided further, that if
any of such three entities used for comparison is unable to provide a bid for
like quantity due to manufacturing limitations, then Herbalife shall be entitled
to obtain bids from multiple manufacturers listed on Exhibit D hereto which in
the aggregate would be capable of providing a like quantity of product, and the
price shall then be treated as competitive if Supplier's price is as good as or
better than the weighted average of all bidder's prices.
(D) In the event that Supplier's proposal is
competitive, Herbalife shall inform Supplier thereof within thirty (30) days of
Supplier's proposal having been received by Herbalife, and Supplier shall then
manufacture and sell as an additional manufacturing source to Herbalife or any
Affiliate and Herbalife shall then buy from Supplier those of the Rights Of
First Refusal Independent Products For Additional Manufacture that Herbalife or
any Affiliate may determine to order from Supplier hereunder subject to the
terms and conditions set forth herein and at a price at least as good as the
price set forth in Supplier's proposal.
(E) In the event that Herbalife concludes that
Supplier's proposal is not competitive, then Herbalife will notify Supplier in
writing within thirty (30) days of its receipt of Supplier's proposal of its
basis, in reasonable detail, including the ranges of prices, for its conclusion
that Supplier's proposal is not competitive and, therefore, rejected by
Herbalife.
(F) Each Rights Of First Refusal Product For
Additional Manufacture agreed to be ordered by Herbalife from Supplier shall be
listed on Exhibit E hereto, including without limitation the price; provided
however, that any firm purchase order placed by Herbalife or any Affiliate with
Supplier for a Rights Of First Refusal Independent Product For Additional
Manufacture shall be deemed to have been listed on Exhibit E hereto.
(G) If Supplier declines to make any proposal to
Herbalife that Supplier supply Herbalife or any Affiliate as an additional
manufacturing source for the Rights Of First Refusal Independent Product For
Additional Manufacture or Supplier is unable to offer competitive terms as set
forth above, then (x) Herbalife or any Affiliate shall have the unrestricted
right to obtain at any time an additional manufacturing source for the Rights Of
First Refusal Independent Product For Additional Manufacture from any Other
Supplier (including Herbalife itself or any Affiliate), provided however, that
in the event that during the Term the terms obtained by Herbalife from any Other
Supplier change or increase so as to render Supplier's terms competitive,
Herbalife or its Affiliates shall so advise Supplier and afford it the
opportunity to present Herbalife with a proposal pursuant to Section 5(b)(i)(B)
above, (y) Herbalife or any Affiliate shall have no obligation to purchase or
order any amount of Rights of First Refusal Independent Product For Additional
Manufacture from Supplier, and (z) Supplier shall promptly return to Herbalife
all materials, documents and information provided to Supplier and all copies
thereof regarding the Rights Of First Refusal Independent Product For Additional
Manufacture.
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(ii) Rights Of First Refusal Substitute Products For Prime
Manufacture. Supplier shall have the right of first refusal to become the
primary manufacturing source of a Rights Of First Refusal Substitute Product For
Primary Manufacture for order by Herbalife or any Affiliate during the Term in
Cur-rent Countries prior to Herbalife offering for primary manufacture the
Rights Of First Refusal Substitute Product For Primary Manufacture to any other
person or entity for order by Herbalife or any Affiliate during the Term in
Current Countries, subject to and in accordance with the following terms:
(A) Herbalife shall request in writing that Supplier
provide Herbalife with a proposal, including pricing, for the primary
manufacture by Supplier of the Rights Of First Refusal Substitute Product For
Primary Manufacture for order by Herbalife or any Affiliate in Current Countries
and possible inclusion in this Agreement. Subject to the provisions of Section
14 of this Agreement, Herbalife shall provide Supplier with the Formula, a range
of prices and all other terms and conditions provided to Herbalife by at least
three of the entities listed from time to time on Exhibit D hereto for the
manufacture of like quantity and quality of the Rights Of First Refusal
Substitute Product For Primary Manufacture.
(B) Supplier shall then have thirty (30) days to make
a proposal to Herbalife in writing, including the pricing thereof, that Supplier
supply Herbalife as the primary manufacturing source for the Rights Of First
Refusal Substitute Product For Primary Manufacture.
(C) Herbalife shall be entitled in good faith to
reject Supplier's proposal if Supplier is unable to offer competitive terms,
taking into account, among other things, cost differentials (e.g., pricing,
shipping, tariffs, warehousing). Supplier's terms shall be treated as
competitive for such purpose if Supplier's proposed terms are as good as or
better than the range of terms offered to Herbalife by any three of the entities
listed from time to time on Exhibit D hereto for the manufacture of like
quantity and quality of the Rights Of First Refusal Substitute Product For
Primary Manufacture; provided however, that, in the case of price, Supplier's
proposed price shall be treated as competitive if that price is as good as or
better than the arithmetic average of the two prices remaining, after deleting
the lowest price, offered to Herbalife by any three of the entities listed from
time to time on Exhibit D hereto for the manufacture of like quantity and
quality of the Rights Of First Refusal Substitute Product For Primary
Manufacture; and, provided further, that if any of such three entities used for
comparison is unable to provide a bid for like quantity due to manufacturing
limitations, then Herbalife shall be entitled to obtain bids from multiple
manufacturers listed on Exhibit D hereto which in the aggregate would be capable
of providing a like quantity of product, and the price shall then be treated as
competitive if Supplier's price is as good as or better than the weighted
average of all bidder's prices.
(D) In the event that Supplier's proposal is
competitive, Herbalife shall inform Supplier thereof within thirty (30) days of
Supplier's proposal having been received by Herbalife, and Supplier shall then
manufacture and sell as the primary manufacturing source to Herbalife or any
Affiliate and Herbalife shall then buy from Supplier those of the Rights Of
First Refusal Substitute Products For Primary Manufacture that Herbalife or any
Affiliate may determine to order
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from Supplier hereunder subject to the terms and conditions set forth herein and
at a price at least as good as the price set forth in Supplier's proposal.
(E) In the event that Herbalife concludes that
Supplier's proposal is not competitive, then Herbalife will notify Supplier in
writing within thirty (30) days of its receipt of Supplier's proposal of its
basis, in reasonable detail, including the ranges of prices, for its conclusion
that Supplier's proposal is not competitive and, therefore, rejected by
Herbalife.
(F) Each Rights Of First Refusal Substitute Product
For Primary Manufacture agreed to be ordered by Herbalife from Supplier shall be
listed on Exhibit E hereto, including without limitation the price; provided
however, that any firm purchase order placed by Herbalife or any Affiliate with
Supplier for a Rights Of First Refusal Substitute Product For Primary
Manufacture shall be deemed to have been listed on Exhibit E hereto.
(G) If Supplier declines to make any proposal to
Herbalife that Supplier supply Herbalife or any Affiliate as the primary
manufacturing source for the Rights Of First Refusal Substitute Product For
Primary Manufacture or Supplier is unable to offer competitive terms as set
forth above, then (x) Herbalife or any Affiliate shall have the unrestricted
right to obtain at any time manufacturing sources for the Rights Of First
Refusal Substitute Product For Primary Manufacture from any of the Other
Suppliers (including Herbalife itself or any Affiliate), provided however, that
in the event that during the Term the terms obtained by Herbalife from any Other
Supplier change or increase so as to render Supplier's terms competitive,
Herbalife or its Affiliates shall so advise Supplier and afford it the
opportunity to present Herbalife with a proposal pursuant to Section 5(b)(ii)(B)
above, (y) Herbalife or any Affiliate shall have no obligation to purchase or
order any amount of Rights Of First Refusal Substitute Products For Primary
Manufacture from Supplier, and (z) Supplier shall promptly return to Herbalife
all materials, documents and information provided to Supplier and all copies
thereof regarding the Rights Of First Refusal Substitute Product For Primary
Manufacture.
(iii) Rights Of First Refusal Constructively Identical
Products For Primary Manufacture. Supplier shall have the right of first refusal
to become the primary manufacturing source of a Rights Of First Refusal
Constructively Identical Product For Primary Manufacture for order by Herbalife
or any Affiliate during the Term in Current Countries prior to Herbalife
offering for primary manufacture the Rights Of First Refusal Constructively
Identical Product For Primary Manufacture to any other person or entity for
order by Herbalife or any Affiliate during the Term in Current Countries,
subject to and in accordance with the following terms:
(A) Herbalife shall request in writing that Supplier
provide Herbalife with a proposal for the primary manufacture by Supplier of the
Rights Of First Refusal Constructively Identical Product For Primary Manufacture
for order by Herbalife or any Affiliate in Current Countries and possible
inclusion in this Agreement. The initial price for a product made in accordance
with any Constructively Identical Formula (the "CONSTRUCTIVELY IDENTICAL
PRODUCT") shall be the price set forth respectively on Exhibits A-1, A-2, A-3,
and A-4 hereto against that
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Current Product that is not materially different from the Constructively
Identical Product, or, as the case may be, as set forth in Exhibit F hereto
against that Supplier Developed New Product that is not materially different
from the Constructively Identical Product.
(B) Supplier shall then have thirty (30) days to
determine whether Supplier wishes to supply Herbalife or any Affiliate as the
primary manufacturing source for the Rights Of First Refusal Constructively
Identical Product For Primary Manufacture.
(C) In the event that Supplier determines that
Supplier wishes to supply Herbalife or any Affiliate as the primary
manufacturing source for the Rights Of First Refusal Constructively Identical
Product For Primary Manufacture, and notifies Herbalife thereof within the
thirty (30) days, then Supplier shall manufacture and supply as the primary
manufacturing source to Herbalife or any Affiliate, and Herbalife shall then buy
from Supplier, those of the Rights Of First Refusal Constructively Identical
Products For Primary Manufacture that Herbalife or any Affiliate may determine
to order from Supplier hereunder subject to the terms and conditions set forth
herein.
(D) Each Rights Of First Refusal Constructively
Identical Product For Primary Manufacture ordered by Herbalife from Supplier
shall be listed on Exhibit E hereto, including without limitation the price;
provided however, that any firm purchase order placed by Herbalife or any
Affiliate with Supplier for a Rights Of First Refusal Constructively Identical
Product For Primary Manufacture shall be deemed to have been listed on Exhibit E
hereto.
(E) In the event that Supplier determines that
Supplier does not wish to supply Herbalife or any Affiliate as the primary
manufacturing source for the Rights Of First Refusal Constructively Identical
Product For Primary Manufacture (or Supplier fails to notify Herbalife of
Supplier's determination) within thirty (30) days as provided in Section
5(b)(iii)(B) above, then (x) Herbalife or any Affiliate shall have the
unrestricted right to obtain at any time manufacturing sources for the Rights Of
First Refusal Constructively Identical Product For Primary Manufacture from any
of the Other Suppliers (or Herbalife itself or any Affiliate), (y) Herbalife or
any Affiliate shall have no obligation to purchase or order any amount of Rights
Of First Refusal Constructively Identical Product For Primary Manufacture from
Supplier, and (z) Supplier shall promptly return to Herbalife all materials,
documents and information provided to Supplier and all. copies thereof regarding
the Rights Of First Refusal Constructively Identical Product For Primary
Manufacture.
(c) Supplier Developed New Products and Modified Current Products.
(i) Gatekeeper Protocol for Supplier Developed New Products
and Modified Current Products. During the Term, Supplier may from time to time
develop Supplier Developed New Products and Modified Current Products. If
Supplier, at Supplier's sole discretion, chooses to communicate (whether in
writing or otherwise) with Herbalife with respect to any aspect of a Supplier
Developed New Product, or a Modified Current Product, or any Formula relating
thereto, then Supplier shall provide written notice (the "Written Notice") (i)
advising Herbalife's general counsel or any other person Herbalife designates in
writing to receive such information (the
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"HERBALIFE DESIGNEE") of Supplier's intention to propose or discuss a Supplier
Developed New Product or a Modified Current Product, (ii) generally describing
such proposed product and, if available, proposed intellectual property rights
relating thereto (the procedures described in this Section 5(c)(i) shall be
referred to herein as the "SECTION 5(C)(I) GATEKEEPER PROTOCOL"). If Supplier's
Written Notice shall comply with the Section 5(c)(i) Gatekeeper Protocol, then
the confidentiality provisions of Section 14 below shall apply to such
information.
(ii) Herbalife's Interest in Modified Current Products. If after
receipt of the Written Notice, Herbalife determines that Herbalife is interested
in receiving further information concerning any Modified Current Product,
Herbalife shall advise Supplier within thirty (30) days of receipt of the
Written Notice and Supplier shall then provide a written description (the
"WRITTEN DESCRIPTION"). The Written Description shall be subject to the
confidentiality provisions of Section 14 below and shall reasonably describe the
Modified Current Product, including the Formula, if available, and provide a
proposed schedule of when the Modified Current Product will be available for
sale, and proposed intellectual property rights relating thereto. Supplier shall
mark the Written Description "Confidential" and address the Written Description
to the Herbalife Designee.
(d) Rights On Offering of Supplier Developed New Product. At
Supplier's sole discretion, Supplier may offer Herbalife any Supplier Developed
New Product subject to and in accordance with the following terms:
(i) At Supplier's sole discretion, if Supplier chooses to offer
Herbalife any Supplier Developed New Product, Supplier shall first have given
the Written Notice to Herbalife in accordance with the Section 5(c)(i)
Gatekeeper Protocol. If after receipt of the Written Notice, Herbalife
determines that Herbalife is interested in receiving further information
concerning the Supplier Developed New Product, Herbalife shall advise Supplier
within thirty (30) days of receipt of the Written Notice and Supplier shall then
provide a written offer (the "Written Offer"). The Written Offer shall be
subject to the confidentiality provisions of Section 14 below and shall
reasonably describe the Supplier Developed New Product, including the Formula
and pricing, and provide a proposed schedule of when the Supplier Developed New
Product will be available for sale, proposed intellectual property rights
relating thereto, whether Supplier proposes that the Supplier Developed New
Product shall be a Supplier Developed New Exclusive Product or a Supplier
Developed New Non-Exclusive Product, and, if applicable, if Supplier proposes
that the Supplier Developed New Product shall be a Third Party Licensed Product
or a Generic Product. Supplier shall mark the Written Offer "Confidential" and
address the Written Offer to the Herbalife Designee. Upon Herbalife's written
request, Supplier shall provide samples of each Supplier Developed New Product.
Thereafter, Herbalife and Supplier shall each negotiate with each other on an
exclusive basis for a period of thirty (30) days (the "THIRTY-DAY EXCLUSIVE
NEGOTIATION PERIOD").
(ii) Herbalife, in its sole discretion, may determine whether to
accept or reject any Supplier Developed New Product offered to Herbalife by
Supplier. In the event that Herbalife agrees to accept any offered Supplier
Developed New Product, and agreement is reached as to
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Supplier's proposal, Herbalife shall place a firm purchase order for the
Supplier Developed New Product within the time specified in the offer referred
to in Section 5(d)(i) above. Supplier shall then manufacture and sell the
Supplier Developed New Product to Herbalife, and Herbalife shall then buy those
of the Supplier Developed New Product that Herbalife or any Affiliate may
determine to order from Supplier hereunder, subject to the terms and conditions
set forth herein, and the rights in and to any Formula for such Supplier
Developed New Product shall be licensed and/or conveyed, transferred and
assigned to Herbalife (or any Affiliate) as and to the extent set forth in
Section 8 of this Agreement.
(iii) Each Supplier Developed New Product agreed to be ordered by
Herbalife from Supplier shall be listed on Exhibit F hereto, including without
limitation the price; provided however, that any firm purchase order placed by
Herbalife or any Affiliate with Supplier for a Supplier Developed New Product
shall be deemed to have been listed on Exhibit F hereto.
(iv) In the event that agreement is not reached within the
Thirty-Day Exclusive Negotiation Period, then Supplier shall be entitled to sell
the Supplier Developed New Product to any third party on terms and conditions,
including price, no more favorable than those offered to Herbalife, and
Herbalife shall promptly return to Supplier all materials, documents and
information provided to Herbalife and all copies thereof regarding the Supplier
Developed New Product.
(e) Failure To Comply With The Section 5(c)(i) Gatekeeper
Protocol. If Supplier fails to comply with the Section 5(c)(i) Gatekeeper
Protocol, then, notwithstanding any provision hereof to the contrary, Supplier
hereby forever releases and discharges, and waives any claim Supplier may have
against, Herbalife and all Affiliates and their respective successors, assigns,
directors, officers, employees, agents, attorneys, representatives and advisors
of and from, or with respect to, any and all claims, demands, causes of action,
damages, liabilities, losses, costs or expenses of any nature or kind, fixed or
contingent arising from or in connection with the use by Herbalife or any third
party of any information delivered to Herbalife with respect to any aspect of a
Supplier Developed New Product, or a Modified Current Product, or any Formula
relating thereto, other than in compliance with the Section 5(c)(i) Gatekeeper
Protocol (the "RELEASED CLAIMS"). It is understood by Supplier and Herbalife
that there is a risk that subsequent to the execution of this Agreement
Herbalife may incur or suffer loss, damage, or injuries which are unknown or
unanticipated at the time of the execution of this Agreement relating to the
Released Claims. Further, there is risk that loss or damage relating to the
Released Claims presently known may be or become greater than the parties hereto
now expect or anticipate. Supplier assumes said risks, acknowledges that the
releases contained herein shall apply to all unknown and all unanticipated
results arising from or relating to the Released Claims to above, as well as
those known and anticipated, and, upon the advice of legal counsel, Supplier
waives all rights under California Civil Code Section 1542 and any comparable
provision under the law of any other jurisdiction with respect to the Released
Claims. California Civil Code Section 1542 reads as follows:
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A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.
6. ORDER PROCEDURE FOR PRODUCTS.
(a) Open Blanket Purchase Order. At the commencement of each calendar
year during the Term commencing with purchase orders for Supplied Products to be
delivered on or after January 12, 1998, Herbalife or any Affiliate shall
initiate orders hereunder by placing a preliminary estimated order as to the
Supplied Products for each territory or country (the "Open Blanket Purchase
Order") listing the types and quantities of the Supplied Products estimated to
be purchased by Herbalife for delivery in the ensuing year. Each Open Blanket
Purchase Order shall be in substantially the form of the Open Blanket Purchase
Order for the first calendar year, which commences on January 12, 1998 and ends
on December 31, 1998.
(b) Open Blanket Purchase Order Subject to Approval of Samples. Each
Open Blanket Purchase Order shall not be effective as a preliminary estimated
order in relation to any New Product until Herbalife, upon Herbalife's request,
has been provided with samples of each type of New Products ordered therein and
has determined that the samples are in conformity with the Quality Standards
established by Herbalife and Supplier pursuant to Section 3 of this Agreement.
(c) Shipping Schedules and Firm Purchase Orders. For each delivery of
Supplied Products requested hereunder, Herbalife or any Affiliate shall, not
later than twelve (12) weeks prior to the anticipated shipping date of Supplied
Products, provide Supplier with a shipping schedule specifying the products
and quantities estimated to be purchased. Supplied Products on the shipping
schedule may be modified by Herbalife or any Affiliate up until and shall not
become firm binding purchase orders until the date being eight (8) weeks prior
to the scheduled shipping date. Supplier shall receive from Herbalife or any
Affiliate purchase orders or order addenda, formula approval, product
specifications, packaging specifications, and any other materials supplied by
Herbalife or any Affiliate to Supplier to the extent necessary to produce and
ship the Supplied Product, including sufficient labels and product inserts
(collectively, the "SHIPPING MATERIALS"). If Supplier is unable to make a
shipment due to a failure on Herbalife's or any Affiliate's part to provide the
Shipping Materials described above, the affected Supplied Product requirement
shall remain on the shipping schedule and shall be shipped as soon as
commercially reasonable after all the necessary Shipping Materials are received
by Supplier. Upon receipt by Supplier of all Shipping Materials, Supplier shall
accept the shipping schedule as submitted by Herbalife or any Affiliate by
signing and returning a copy to Herbalife's Material Control Department.
Modifications to the shipping schedule may be made by Herbalife at any time;
provided however, if modifications are made by Herbalife or any Affiliate less
than eight (8) weeks prior to the scheduled shipping date, Supplier shall use
commercially reasonable efforts to attempt to satisfy the requested
modification.
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(d) Cooperative Efforts In Establishing Schedules. The parties shall
cooperate fully with each other to provide pertinent information to each other
to enable timely delivery by Supplier of Supplied Products to Herbalife
hereunder.
(e) Affiliate Invoicing. If at any time on or after the date hereof
during the Term any Affiliate shall place any order for Supplied Products to be
delivered on or after January 12, 1998, Supplier agrees to transmit any
applicable invoice directly to the Affiliate concerned, with a copy thereof
being sent by facsimile transmission to Herbalife at the time of transmission to
the Affiliate concerned.
7. PRICES.
(a) For Supplied Products. For all Supplied Products to be delivered
on a date on or after January 12, 1998 and continuing in effect for the
remainder of the Term, Herbalife shall pay Supplier the prices set forth
respectively on Exhibits A-1, A-2, A-3 and A-4 hereto and the prices agreed to
by Supplier and Herbalife set forth on Exhibits E and F hereto (collectively,
the "PRICES"); provided however, that on March 3l, 1998, and at the end of each
calendar quarter thereafter during the Term (an "Adjustment Date"), either party
may request that the prices for the Supplied Products be adjusted upwards or
downwards, effective from the next succeeding Adjustment Date forward for the
next succeeding calendar quarter, according to the adjustment calculations
described in this Section 7. The Prices with respect to any of the Modified
Current Products shall be the same as those prices set forth respectively on
Exhibits A-1, A-2, A-3, and A-4 hereto against the initial Current Products of
which the Modified Current Products are a modification, improvement, alteration,
enhancement or successor, and shall be subject to adjustment only as set forth
in this Section 7(a). The Prices with respect to any of the Constructively
Identical Products shall be the same as those prices set forth respectively on
Exhibits A-1, A-2, A-3, and A-4 hereto against those initial Current Products
that are not materially different from the Constructively Identical Products,
or, as the case may be, as set forth in Exhibit F against those Supplier
Developed New Products that are not materially different from the Constructively
Identical Products and shall be subject to adjustment only as set forth in this
Section 7(a). Supplier shall advise Herbalife in writing in the event that there
is any net variation upwards or downwards in the aggregate actual cost of all
raw materials used to produce a Supplied Product. The Prices shall be adjusted
upwards or downwards by the amount that the net variation in the aggregate
actual cost of all raw materials used to produce a Supplied Product, if added to
or subtracted from, as the case may be, that Supplied Product's Price, exceeds
five percent (5%); provided however, that the party requesting the adjustment
shall first have delivered to the other party independent documentation in
reasonable detail (including published commodity prices or other relevant
published information where available) verifying such variation and that the
variation is not due to factors solely applicable to or solely affecting
Supplier. Once the adjustment has been justified by independent documentation as
described above, the adjustment shall be effective as of the next succeeding
Adjustment Date. Any variation in Supplier's labor or overhead expenses shall
not be taken into account in determining any change in cost of the Supplied
Product pursuant to this Section 7 on any Adjustment Date. If no adjustment is
requested by either party or if any requested
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adjustment is not justified, the prices shall remain unchanged until the next
succeeding Adjustment Date. The Prices for Supplied Products shall include the
cost of manufacturing, packaging (with product insert and materials provided by
Herbalife), labeling (with labels provided by Herbalife), insuring, shipping and
delivery by Supplier to the Local Delivery Point set forth in Section 10 below.
The initial Prices for any New Products ordered by Herbalife or any Affiliate
during the Term, including New Products for any territory or country other than
a Current Country, shall be negotiated by the parties in accordance with and
subject to the terms and conditions of Sections 5(b)(i), 5(b)(ii), 5(b)(iii),
and 5(d) hereof and shall then be subject to adjustment only as set forth in
this Section 7(a).
(b) For Certain Materials or Ingredients.
(i) Supplier has license agreements governing its right to the
use of AMINOGEN(R) and Rose Ox raw materials, ingredients, or rights called for
by and utilized in certain of the Supplier Formulas. During the Term and
thereafter Supplier will use its best efforts to provide such raw materials,
ingredients, or rights to Herbalife or any Affiliate in the quantities, manner
and at the times required by Herbalife or any Affiliate. During the Term and
thereafter, Supplier shall assist Herbalife or any Affiliate in obtaining Swiss
Oats A-111, multi-lamellar lipizone and ingredients utilized in soft gel
covering, which assistance may be satisfied by providing the name and address,
and any reasonably requested details, of any source thereof to Herbalife or any
Affiliate. Supplier shall sell or cause to be sold such raw materials or
ingredients for AMINOGEN(R) and Rose Ox to Herbalife or any Affiliate at the
price during the Term which shall be the lower of (x) the price Supplier charges
any third party for the purchase of Rose Ox or AMINOGEN(R) from Supplier at any
time on or after the date hereof during the Term or (y) $200 per kilogram for
Rose Ox or $190 per kilogram for AMINOGEN(R). Supplier shall sell or cause to be
sold such raw materials or ingredients for AMINOGEN(R) and Rose Ox to Herbalife
or any Affiliate at the price thereafter which shall be the most favorable that
such raw materials or ingredients shall be sold by Supplier at that time to any
third party.
(ii) If, during the Term and thereafter, Supplier obtains a
license or patent governing its right to the use of any raw material, ingredient
or right called for by or utilized in any Supplier Developed New Formula, then
during the Term and thereafter Supplier will use its best efforts to provide
such raw material, ingredient or right to Herbalife or any Affiliate in the
quantities, manner and at the times required by Herbalife or any Affiliate upon
terms and conditions to be mutually agreed to by the parties during the
negotiation period referred to in Section 5(d) above.
(iii) In the event that Supplier is required to use a specific
trade mark or trade name in connection with the use of any raw material or
ingredient called for by any Formula, which material or ingredient is purchased
by Herbalife or any Affiliate from Supplier hereunder, then Herbalife or the
Affiliate concerned shall use such trade mark or trade name in connection with
its use of such raw material or ingredient.
8. Intellectual Property.
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(a) Licenses of the Formulas.
(i) Initial License for Formulas for Current Exclusive Products
(Other Than Third Party Licensed Products or Generic Products). Upon execution
of this Agreement, (A) Supplier hereby grants to Herbalife or any Affiliate a
royalty-free right and license, until midnight on January 11, 1998, to use the
Formulas for Current Exclusive Products (other than Third Party Licensed
Products or Generic Products) in connection with (1) selecting or qualifying
Other Suppliers to manufacture on behalf of Herbalife or any Affiliate all of
the Current Exclusive Products (other than Third Party Licensed Products or
Generic Products) (which use includes manufacturing Current Exclusive Products
(other than Third Party Licensed Products or Generic Products) in non-commercial
quantities for testing and evaluation purposes) and (2) manufacturing on behalf
of Herbalife or any Affiliate, on and after September 1, 1997, in commercial and
non-commercial quantities Current Exclusive Products (other than Third Party
Licensed Products or Generic Products) to be delivered to or on behalf of
Herbalife or any Affiliate on and after January 12, 1998 pursuant to the terms
and conditions hereof, and (B) Supplier shall provide Herbalife or any Affiliate
with the Formulas for all Current Exclusive Products (other than Third Party
Licensed Products or Generic Products) sold or to be sold to Herbalife or any
Affiliate pursuant to the terms and conditions hereof to enable Herbalife or any
Affiliate to exercise the rights and licenses granted hereunder.
(ii) License for Formulas for Current Products that consist of
Third Party Licensed Products or Generic Products. Upon execution of this
Agreement, and subject to the confidentiality provisions in Section 14 below
with respect to the obtaining of any consent or license of any person or entity
whose consent or license is required, Supplier shall take the following steps
with respect to the Formulas for Current Products that consist of Third Party
Licensed Products or Generic Products:
(A) Third Party Licensed Products. Supplier shall use its
best efforts throughout the Term to obtain the consent of or license from each
such person or entity whose consent or license is required so as to enable
Herbalife and any Affiliate to use, for as long as permitted by such person or
entity, on terms no less favorable than those obtained by Supplier, the Formulas
for all of those Current Products that consist of Third Party Licensed Products
(including any Formula utilized therein) in connection with (1) selecting or
qualifying Other Suppliers to manufacture on behalf of Herbalife or Any
Affiliate all of such Third Party Licensed Products (which use includes
manufacturing Third Party Licensed Products in non-commercial quantities for
testing and evaluation purposes) and (2) manufacturing on behalf of Herbalife or
any Affiliate, on and after September 1, 1997, in commercial and non-commercial
quantities Third Party Licensed Products to be delivered to or on behalf of
Herbalife or any Affiliate on and after January 12, 1998, pursuant to the terms
and conditions hereof. Promptly following the granting of such consent or
license to a Third Party Licensed Product, if Herbalife or any Affiliate has not
received the Formulas for any such product from the third party licensee
thereof, Supplier shall provide Herbalife or any Affiliate with those Formulas
pursuant and subject to the terms and conditions hereof and of any third party
license to enable Herbalife or any Affiliate to exercise the rights and licenses
so granted.
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(B) Generic Products. Supplier hereby grants to Herbalife or any
Affiliate, effective as of the date hereof, an irrevocable, perpetual, fully
transferable, royalty-free right and license, to use the Formulas for all of
those Current Products that consist of Generic Products in connection with (1)
selecting or qualifying Other Suppliers to manufacture on behalf of Herbalife or
any Affiliate all of such Generic Products (which use includes manufacturing
Generic Products in non-commercial quantities for testing and evaluation
purposes) and (2) manufacturing on behalf of Herbalife or any Affiliate, on and
after September 1, 1997, in commercial and non-commercial quantities Generic
Products to be delivered to or on behalf of Herbalife or any Affiliate on and
after January 12, 1998 pursuant to the terms and conditions hereof. Supplier
shall also provide Herbalife or any Affiliate with the Formulas for all Generic
Products sold or to be sold to Herbalife or any Affiliate pursuant to the terms
and conditions hereof to enable Herbalife or any Affiliate to exercise the
rights and licenses granted hereunder.
(iii) Initial License for Formulas for Any Supplier Developed New
Exclusive Products Other Than Those Consisting of a Third Party Licensed Product
or a Generic Product. At any time after execution of this Agreement and until
midnight on January 11, 1998, if Herbalife or any Affiliate orders from Supplier
any Supplier Developed New Exclusive Product, other than one which consists of a
Third Party Licensed Product or a Generic Product, (A) Supplier hereby grants to
Herbalife or any Affiliate, effective upon such purchase by Herbalife or any
Affiliate, a royalty-free right and license, until midnight on January 11, 1998,
to use the Formulas for such Supplier Developed New Exclusive Products in
connection with (1) selecting or qualifying Other Suppliers to manufacture on
behalf of Herbalife or any Affiliate all such Supplier Developed New Exclusive
Products (which use includes manufacturing such Supplier Developed New Exclusive
Products in non-commercial quantities for testing and evaluation purposes) and
(2) manufacturing on behalf of Herbalife or any Affiliate, on and after
September 1, 1997, in commercial and non-commercial quantities such Supplier
Developed New Exclusive Products to be delivered to or on behalf of Herbalife or
any Affiliate on and after January 12, 1998 pursuant to the terms and conditions
hereof, and (B) Supplier shall provide Herbalife or any Affiliate with the
Formulas for all such Supplier Developed New Exclusive Products sold or to be
sold to Herbalife or any Affiliate pursuant to the terms and conditions hereof
to enable Herbalife or any Affiliate to exercise the rights and licenses granted
hereunder.
(iv) License for Formulas for any Supplier Developed New
Non-Exclusive Product or any Supplier Developed New Exclusive Product,
Consisting of a Third Party Licensed Product or a Generic Product. At any time
after execution of this Agreement, if Herbalife or any Affiliate orders from
Supplier any Supplier Developed New Non-Exclusive Product, or any Supplier
Developed New Exclusive Product, which consists of a Third Party Licensed
Product or a Generic Product, then, subject to the confidentiality provisions in
Section 14 below with respect to the obtaining of any consent or license of any
person or entity whose consent or license is required, effective upon such
purchase by Herbalife or any Affiliate:
(A) Any Supplier Developed New Non-Exclusive Product
Consisting of a Third Party Licensed Product or any Supplier Developed New
Exclusive Product Consisting of a Third
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Party Licensed Product. Supplier shall use its best efforts throughout the Term
to obtain the consent of or license from each such person or entity whose
consent or license is required so as to enable Herbalife or any Affiliate to
use, for as long as permitted by such person or entity, on terms no less
favorable than those obtained by Supplier, the Formulas for any Supplier
Developed New Non-Exclusive Product which consists of a Third Party Licensed
Product, or any Supplier Developed New Exclusive Product which consists of a
Third Party Licensed Product, in connection with (1) selecting or qualifying
Other Suppliers to manufacture on behalf of Herbalife or any Affiliate all of
such Supplier Developed New Products (which use includes manufacturing such
Supplier Developed New Products in non-commercial quantities for testing and
evaluation purposes) and (2) manufacturing on behalf of Herbalife or any
Affiliate, on and after September 1, 1997, in commercial and non-commercial
quantities such Supplier Developed New Products to be delivered to or on behalf
of Herbalife or any Affiliate on and after January 12, 1998, pursuant to the
terms and conditions hereof. Promptly following the granting of such consent or
license to such a Supplier Developed New Product, if Herbalife or any Affiliate
has not received the Formulas for any such product from the third party licensee
thereof, Supplier shall provide Herbalife or any Affiliate with those Formulas
pursuant and subject to the terms and conditions hereof and of any third party
license to enable Herbalife or any Affiliate to exercise the rights and licenses
so granted.
(B) Any Supplier Developed New Non-Exclusive Product Consisting of a
Generic Product or my Supplier Developed New Exclusive Product Consisting of a
Generic Product. Supplier hereby grants to Herbalife or any Affiliate, an
irrevocable, perpetual, fully transferable, royalty-free right and license to
use the Formulas for the Supplier Developed New Non-Exclusive Products
consisting of Generic Products, and the Supplier Developed New Exclusive
Products consisting of Generic Products, in connection with (1) selecting or
qualifying Other Suppliers to manufacture on behalf of Herbalife or any
Affiliate all of such Supplier Developed New Products (which use includes
manufacturing such Supplier Developed New Products in non-commercial quantities
for testing and evaluation purposes) and (2) manufacturing on behalf of
Herbalife or any Affiliate, on and after September 1, 1997, in commercial and
non-commercial quantities such Supplier Developed New Products to be delivered
to or on behalf of Herbalife or any Affiliate on and after January 12, 1998
pursuant to the terms and conditions hereof. Supplier shall also provide
Herbalife or any Affiliate with the Formulas for all such Supplier Developed New
Products sold or to be sold to Herbalife or any Affiliate pursuant to the terms
and conditions hereof to enable Herbalife or any Affiliate to exercise the
rights and licenses granted hereunder.
(b) Transfer of the Formulas.
(i) Transfer of Formulas for Current Exclusive Products.
Subject to Section 8(c) below, effective on January 12, 1998, Supplier (A)
hereby conveys, transfers and assigns to Herbalife or any Affiliate all rights,
title and interests in and to all of the Formulas for all Current Exclusive
Products ordered by Herbalife or any Affiliate pursuant to the terms and
conditions hereof, free from any liens or encumbrances (except with respect to
the royalty agreements relating to the Royalty Products referred to in Section
15(b)(xvi) below) and (B) shall provide Herbalife or any Affiliate with the
Formulas for all Current Exclusive Products ordered by Herbalife or any
Affiliate
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pursuant to the terms and conditions hereof. The parties agree to execute any
and all documents necessary to effectuate the conveyance, transfer and
assignment to Herbalife or any Affiliate of all rights, title and interests in
and to all of the Formulas for all Current Exclusive Products ordered by
Herbalife or any Affiliate pursuant to the terms and conditions hereof, free
from any liens or encumbrances (except with respect to the royalty agreements
relating to the Royalty Products referred to in Section 15(b)(xvi) below).
(ii) Initial Transfer of Formulas for Supplier Developed New
Exclusive Products. Subject to Section 8(c) below, effective on January 12,
1998, Supplier (A) hereby conveys, transfers and assigns to Herbalife or any
Affiliate all rights, title and interests in and to all of the Formulas for all
then existing Supplier Developed New Exclusive Products ordered by Herbalife or
any Affiliate pursuant to the terms and conditions hereof, free from any liens
or encumbrances and (B) shall provide Herbalife or any Affiliate with the
Formulas for all such Supplier Developed New Exclusive Products ordered by
Herbalife or any Affiliate pursuant to the terms and conditions hereof. The
parties agree to execute any and all documents necessary to effectuate the
conveyance, transfer and assignment to Herbalife or any Affiliate of all rights,
title and interests in and to all of the Formulas for all such Supplier
Developed New Exclusive Products ordered by Herbalife or any Affiliate pursuant
to the terms and conditions hereof, free from any liens or encumbrances.
(iii) Subsequent Transfer of Formulas for Supplier Developed
New Exclusive Products. Subject to Section 8(c) below, at any time after January
11, 1998 during the Term, if Herbalife orders from Supplier any Supplier
Developed New Exclusive Product, then, effective at such time, Supplier (A)
hereby conveys, transfers and assigns to Herbalife or any Affiliate, effective
upon such order by Herbalife or any Affiliate, all of Supplier's rights, title
and interests in and to all Formulas for any such Supplier Developed New
Exclusive Product, free from any liens or encumbrances, and (B) shall provide
Herbalife or any Affiliate with the Formulas for any Supplier Developed New
Exclusive Product ordered by Herbalife or any Affiliate pursuant to the terms
and conditions hereof, if and to the extent not already provided to Herbalife or
any Affiliate. The parties agree to execute any and all documents to effectuate
the conveyance, transfer and assignment to Herbalife or any Affiliate of all
rights, title and interests in and to all of the Formulas for any Supplier
Developed New Exclusive Product ordered by Herbalife or any Affiliate pursuant
to the terms and conditions hereof, free from any liens or encumbrances.
(iv) Transfer of Formulas on Termination of Agreement Prior
to January 12, 1998. In the event this Agreement is terminated prior to January
12, 1998, by either party for any reason of whatsoever nature or kind, Supplier
hereby agrees that, in such event, all rights, title and interests in and to the
Supplier Exclusive Formulas without any further action required to be taken by
either party, hereby are immediately and automatically conveyed, transferred and
assigned by Supplier to Herbalife or any Affiliate on the same terms and
conditions as set forth in, respectively, Section 8(b)(i), 8(b)(h) and 8(b)(iii)
above, except that (a) such conveyances, transfers and assignments shall not be
subject to Section 8(c) below and (b) the effective date of such conveyances,
transfers and assignments shall be the effective date of such termination of
this Agreement and shall not be delayed until January 12, 1998 as set forth in
Sections 8(b)(i), 8(b)(ii) and 8(b)(iii) above. In the
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event this Agreement is terminated prior to January 12, 1998, by either party
for any reason of whatsoever nature or kind, Supplier hereby agrees that, in
such event, all rights and licenses in and to those of the Supplier Formulas
granted to Herbalife or any Affiliate on the terms and conditions set forth in
Sections 8(a)(ii) and 8(a)(iv) above shall remain unaffected thereby and shall
continue in full force and effect.
(c) Restrictions on Herbalife's use of the Supplier Formulas for
Additional Manufacturing. Herbalife hereby agrees that for the period commencing
with the execution of this Agreement and ending upon the expiration of the Term
only, and not thereafter, and at all times subject to the terms and conditions
of this Agreement, Herbalife or any Affiliate shall not, without the prior
written approval of Supplier (such approval not to be unreasonably withheld but
may be conditioned upon a written agreement reasonably satisfactory to Supplier
to which an Other Supplier is party containing terms and conditions for use
consistent with this Agreement), license to any Other Supplier the use of any of
the Supplier Formulas for the purpose of additional manufacturing in commercial
quantities any Current Exclusive Products or Supplier Developed New Exclusive
Products agreed to be purchased hereunder by Herbalife or any Affiliate for sale
during the Term in Current Countries; provided however, that Herbalife or any
Affiliate shall at all times during the Term be entitled to license to any Other
Supplier the use of any of the Supplier Formulas for the purpose of (i)
manufacturing on and after September 1, 1997 in non-commercial quantities or
qualifying to manufacture any person or entity to manufacture any Current
Exclusive Products or Supplier Developed New Exclusive Products (and, in the
case of any of the Supplier Developed New Exclusive Products which consist of a
Third Party Licensed Product, to the extent any person or entity whose consent
or license is required has so consented) at any time during the Term, or (ii)
manufacturing on and after September 1, 1997 in commercial quantities any
Current Exclusive Products or Supplier Developed New Exclusive Products (and, in
the case of any of the Supplier Developed New Exclusive Products which consist
of a Third Party Licensed Product, to the extent any person or entity whose
consent or license is required has so consented) at any time for sale during the
Term in any territory or country other than the Current Countries.
(d) Limited Grant-back License to Supplier for the Term. After the
effective date of the licenses referred to in (a)(i), (a)(ii), (a)(iii) and
(a)(iv) above in this Section 8, and each transfer and assignment by Supplier of
or other arrangement with respect to the Supplier Formulas referred to in
(b)(i), (b)(ii), (b)(iii) and (b)(iv) above in this Section 8, and in
connection with any Other Offered New Product to be manufactured by Supplier,
Herbalife hereby grants to Supplier a limited, non-exclusive, non-transferable,
royalty-free, right and license to use the Supplier Exclusive Formulas, and the
Independent Formulas, the Constructively Identical Formulas and the Substitute
Formulas for the Other Offered New Product, solely to manufacture the Supplied
Products for Herbalife or Herbalife's Affiliates for the remainder of the Term
only (subject to Section 4(f) above), and not, thereafter, and at all times
subject to the terms of this Agreement. The license shall (i) be granted solely
for the purpose set forth in the prior sentence, and (ii) be granted subject to
the confidentiality provisions of Section 14 below. After January 11, 1998,
Supplier is not granted by this Section 8(d) any title or ownership rights, in
whole or in part, in or to any of the Supplier Formulas conveyed, transferred
and assigned by Supplier hereunder. At any time after
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execution of this Agreement, Supplier is not granted by this Section 8(d) any,
and shall have no, title or ownership rights, in whole or in part, in or to any
of the Independent Formulas, the Constructively Identical Formulas and the
Substitute Formulas, and all title and rights in or to any of the Supplier
Formulas conveyed, transferred and assigned by Supplier hereunder after January
11, 1998, shall remain with Herbalife or any Affiliate and all title and rights
in or to any of the Independent Formulas shall at all times remain with
Herbalife or any Affiliate. Following any termination, expiration, or
non-renewal of this Agreement, all of the Supplier Exclusive Formulas shall be
the exclusive property of Herbalife or any Affiliate, and Supplier shall
relinquish all rights licensed to Supplier hereunder with respect thereto, and
all rights and licenses in and to those of the Supplier Formulas granted to
Herbalife or any Affiliate on the terms and conditions set forth in Sections
8(a)(ii) and 8(a)(iv) above shall remain unaffected thereby and shall continue
in full force and effect. Supplier acknowledges and agrees that Herbalife or any
Affiliate reserves and retains any and all rights not expressly granted
hereunder to Supplier and Supplier shall not claim any rights that are not
expressly granted or set forth hereunder to Supplier.
(e) Trademarks. Herbalife or any Affiliate hereby grants to Supplier
a limited, nonexclusive, non-transferable royalty-free license solely to use
Herbalife's trademarks, trade names, and logos (the "TRADEMARKS") in labeling
and packaging the Supplied Products for Herbalife, for the remainder of the Term
only (subject to Section 4(f) above) and not thereafter, and at all times
subject to the terms and conditions of this Agreement. Supplier hereby agrees
that only the Trademarks shall be affixed to the Supplied Products. Supplier
shall have no rights to use the Trademarks other than for purposes of labeling
and packaging Supplied Products pursuant to this Agreement, which labeling and
packaging shall be in form and substance satisfactory to Herbalife or any
Affiliate. Supplier agrees to submit copies of the proposed manner, use and
layout of the Trademarks for approval by Herbalife, in Herbalife's or any
Affiliate sole discretion, prior to Supplier using the Trademarks as set forth
herein. Supplier shall not use the Trademarks in advertising or promotional
campaigns or otherwise, or use any confusingly similar names, marks or logos, in
any manner that, in Herbalife's sole discretion, may be inconsistent with
Herbalife's public image or be misleading or harmful to Herbalife. In the event
of termination, expiration, or non-renewal of this Agreement, Supplier shall not
have any right to sell any Supplied Products remaining in any of Supplier's
inventory unless all Trademarks are removed from the Supplied Products. Supplier
acknowledges and agrees that Herbalife reserves and retains any and all rights
not expressly granted hereunder to Supplier and Supplier shall not claim any
rights that are not expressly granted or set forth hereunder to Supplier.
(f) Infringement. Supplier shall promptly notify Herbalife or any
Affiliate of any actual or apparent infringement of Herbalife's or any Affiliate
rights to any of the Formulas for the Supplied Products or Trademarks of which
Supplier obtains actual knowledge. Herbalife may, at its sole option and
expense, prosecute any suit it deems necessary or appropriate to protect any of
Herbalife's or any Affiliate rights to the Formulas for the Supplied Products or
Trademarks from and against infringement by third parties anywhere in the world
and Supplier shall cooperate fully with Herbalife or any Affiliate in connection
with any such action.
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9. Service Levels.
(a) Required Service Levels. For all Supplied Products to be
delivered on a date on or after January 12, 1998 and continuing thereafter until
midnight of the last day of the Term, Supplier shall use its best efforts to
provide the same level of service and quality of products that it has provided
to Herbalife and Herbalife's Affiliates, taken as a whole, under the D&F Initial
Agreement (the "INITIAL SERVICE LEVEL"). However, in the event of a Change in
Control (as defined in Section 13(d) below) of Supplier and this Agreement has
not been terminated by Herbalife, Supplier shall for each Supplied Product, meet
an industry standards service level (the "SUBSEQUENT SERVICE LEVEL"), calculated
in reference to the ratio of the number of cases of Supplied Products delivered
which meet the Quality Standards to the number of cases ordered, based on
Herbalife's and Herbalife's Affiliates, taken as a whole, eight (8) week
ordering volume; provided however, that the determination of any Subsequent
Service Level shall take into account, and give Supplier a credit for, the
extent to which Supplier shall have timely satisfied any modification to any
shipping schedule which accelerates a delivery date or substitutes Supplied
Products to be delivered, which modification shall have been made by Herbalife
or any Affiliate less than eight (8) weeks prior to the scheduled shipping date.
If Supplier fails to meet the Initial Service Level or the Subsequent Service
Level (on a rolling average) for any Supplied Product for any sixteen (16) week
period and, after receipt of notice of such failure, also fails to meet the
Initial Service Level or Subsequent Service Level (on a rolling average) for any
Supplied Product for the eight (8) week period subsequent to receipt of the
notice, Supplier shall be deemed to be in breach of this Agreement, and
Herbalife may, without prejudice to any other remedy available to Herbalife
hereunder, terminate this Agreement under Section 13(b), or alternatively
terminate this Agreement only with respect to such Supplied Product and
Herbalife or the Affiliate concerned shall be able to enter into agreements
with third party suppliers with respect to such Supplied Product as may no
longer be covered by this Agreement, and the Minimum Purchase Order Amount shall
be correspondingly reduced by the dollar amount of orders of such Supplied
Product that Herbalife or the Affiliate concerned could reasonably have
purchased from Supplier but for such failure.
(b) Compliance with Shipping Schedules. Supplier agrees to use its
best efforts in accordance with industry standards to meet the shipping
schedules as determined in accordance with Section 6(c) and (d) above. Except as
provided in Section 6(c) above, under no circumstances shall Supplier alter any
agreed-upon shipping schedule without the prior written consent of Herbalife,
which consent may not be unreasonably withheld by Herbalife. Notwithstanding any
provision in this Agreement to the contrary, if Herbalife has failed (other than
following a breach of this Agreement by Supplier) to meet its payment
obligations under Section II with respect to any good faith undisputed portion
of any invoice, and within ten (10) days after receipt of written notice from
Supplier that the good faith undisputed portion of such invoice has not been
paid, Supplier, in its sole discretion, shall be entitled to refrain from
shipping Supplied Product to Herbalife or the Affiliate concerned until such
time as all then delinquent payments have been caused to be made by Herbalife.
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(c) Defective Products. Upon inspection of any Supplied Product by
Herbalife or any Affiliate, if Herbalife or any Affiliate reasonably determines
that any Supplied Product or an entire lot of Supplied Products delivered by
Supplier fails to meet the Quality Standards or is otherwise defective (the
"DEFECTIVE PRODUCTS"), Herbalife shall notify Supplier thereof within twenty-one
(21) business days (or such other period as may be mutually agreed for
particular Supplied Products or shipments) after Herbalife or the Affiliate
concerned have received such Supplied Products from Supplier or discovery of the
detect, whichever is later. Within said twenty-one (21) day period, Herbalife or
the Affiliate concerned shall provide Supplier with a sample of each such
Defective Product, lot identification information and the original package for
Supplier's review and analysis. Upon mutual agreement between Herbalife and
Supplier that such product is a Defective Product, Supplier shall, (i) at
Supplier's expense, ship replacement Supplied Products to the prior final
destination of the Defective Product as soon as commercially possible and, (ii)
in its sole discretion, determine whether Defective Products should be returned
to Supplier or destroyed, in each case at Supplier's expense.
(d) Shortfall. Upon inspection of any Supplied Product by Herbalife
or any Affiliate, if Herbalife or any Affiliate reasonably determines that there
is a shortfall in any Supplied Product delivered by Supplier hereunder (the
"SHORTFALL"), Herbalife shall notify Supplier thereof within twenty-one (21)
business days (or such other period as may be mutually agreed for particular
Supplied Products) after Herbalife or the Affiliate concerned have received such
Supplied Products from Supplier, or discovery of the shortfall, whichever is
later. In the event of a Shortfall in any delivery of Supplied Products by
Supplier hereunder, Herbalife or the Affiliate concerned shall, within said time
period, advise Supplier of the quantity of the claimed shortfall, the product
lot number and date of shipment for Supplier's review. Upon mutual agreement
between Herbalife and Supplier that a Shortfall exists, Supplier shall, at
Supplier's expense, ship replacement quantity of Supplied Products to the Local
Delivery Point (as defined in Section, 10) of the Supplied Products suffering
from the Shortfall to fulfill the entire obligation to be performed by Supplier
as soon as commercially possible, provided that Supplier shall use its best
efforts to make any such shipment within twenty-one (21) business days after
receiving notification of such Shortfall.
(e) Inventory Levels. Supplier shall use its best efforts to maintain
inventory levels of raw materials of a sufficient quantity of Supplied Products
to meet purchase order requirements on a timely basis.
10. DELIVERY AND TITLE. The Supplied Products shall be delivered F.O.B. to
Herbalife's distribution center in Carson, California or to such other,
destination within Los Angeles County or Orange County, California determined by
Herbalife or any Affiliate and designated in writing by Herbalife or any
Affiliate (the "LOCAL DELIVERY POINT"), or to any other destination determined
by Herbalife or any Affiliate and designated in writing by Herbalife or any
Affiliate. In the case of delivery to a Local Delivery Point, the risk of loss
and title shall pass to Herbalife or any Affiliate upon delivery to the Local
Delivery Point, and transport, insurance, and other costs, charges, and duties
beyond the Local Delivery Point shall be borne by Herbalife or the Affiliate
concerned; provided however, that title and risk of loss shall not pass to
Herbalife or any Affiliate for any
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Defective Products rejected by Herbalife pursuant to Section 9(c) above. For
deliveries made to a location other than a Local Delivery Point unless the
parties otherwise agree, risk of loss and title shall pass to Herbalife or any
Affiliate at Supplier's dock and transport, insurance and other costs, charges
and duties beyond Supplier's dock shall be borne by Herbalife or the Affiliate
concerned; provided however, that title and risk of loss shall not pass to
Herbalife or any Affiliate for any Defective Products rejected by Herbalife
pursuant to Section 9(c) above. No delivery shall be made and title shall not
pass under this Agreement for any Supplied Product until January 12, 1998.
11. PAYMENT TERMS. Herbalife shall cause payment for the Supplied Products
purchased from Supplier under the terms of this Agreement to be made no later
than thirty (30) days from the later of the date of delivery of or the date of
invoice for Supplied Products meeting the Quality Standards. Payment made on any
invoice within ten (10) days from the date of delivery or invoice, as the case
may be, for Supplied Products meeting the Quality Standards shall be entitled to
a 1% discount (the "1% DISCOUNT"), provided there is no outstanding unpaid
portion of any invoice from Supplier to Herbalife or any Affiliate which
predates the invoice to be paid by Herbalife or any Affiliate to Supplier and
which is not subject to a good faith dispute (a "PREDATED INVOICE"). In the
event that Supplier objects to Herbalife's or any Affiliate's taking of the 1%
Discount, which objection is as a result of Supplier's good faith belief that
there exists a Predated Invoice, then Supplier shall give Herbalife five (5)
business days' written notice to cause payment to be made of the Predated
Invoice. If Supplier fails to give Herbalife the five (5) business days' written
notice, or if Supplier does give the five (5) business days' written notice and
Herbalife causes payment of the Predated Invoice within two (2) business days of
receipt of the notice, then Herbalife or the Affiliate concerned shall be
entitled to the 1% Discount. Any invoice or portion thereof which is the subject
of a good faith dispute shall not prevent Herbalife from being entitled to take
the 1% Discount. Without prejudice to any other remedy that Herbalife may have
at law or in equity, Herbalife or the Affiliate concerned shall be entitled, at
its option, to (i) a refund of the amount paid for any Defective Product or
Shortfall that is not cured pursuant to the terms and conditions of this
Agreement or (ii) a credit of the amount paid for any Defective Product or
Shortfall that is not cured pursuant to the terms and conditions of this
Agreement against future purchases of Supplied Products.
12. QUALITY ASSURANCE, INSPECTION AND DOCUMENTS. Supplier shall maintain
Good Manufacturing Practices and Standard Operating Procedures as defined and
required by the United States Food and Drug Administration, and shall fully
comply with all other United States Food and Drug Administration regulatory
requirements and the regulatory requirements of the State of California and make
such adjustments as may be necessary to effect and maintain such compliance. If
Herbalife advises Supplier of the regulatory requirements of any other
jurisdiction, then Supplier shall use its best efforts to comply therewith in
the manufacture of Supplied Products. Herbalife, or Herbalife's designated
agents (approved by Supplier, which approval shall not be unreasonably
withheld), shall have the right from time to time, on reasonable notice and
during business hours, to inspect Supplier's manufacturing facility, production
line, raw materials storage areas and all other places, that relate to the
production of Supplied Products, including a general quality assurance review of
Supplier's facilities used in the production and manufacture of Supplied
Products.
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Additionally, Herbalife, or Herbalife's designated agents (approved by Supplier,
which approval shall not be unreasonably withheld), may submit any Supplied
Product to any and all forms of chemical analysis, testing and review as may be
appropriate to determine whether such Supplied Product contains the ingredients
set forth on any label thereto and otherwise meets the Quality Standards and the
other terms and conditions hereof. Upon request by Herbalife, or Herbalife's
designated agents (approved by Supplier, which approval shall not be
unreasonably withheld), of Supplier, Supplier shall furnish Herbalife with (i) a
Certificate of Analysis, prepared in accordance with the requirements of the
Food, Drug and Cosmetic Act of 1938 and the rules and regulations of the United
States Food and Drug Administration promulgated thereunder as an assurance that
the Supplied Products were made in compliance with Supplier's Good Manufacturing
Practices and Standard Operating Procedures, (ii) information and copies of
documents to enable Herbalife to assure that the Supplied Products comply with
the labeling claims made for the Supplied Products, (iii) information and copies
of documents necessary for Herbalife to secure all U.S., state and foreign
governmental licenses, registrations or approvals for the Supplied Products, and
(iv) information and copies of documents necessary for Herbalife to respond to
all U.S., state and foreign governmental inquiries or requests.
13. TERMINATION.
(a) Supplier's Right to Terminate. Supplier may terminate this
Agreement (i) sixty (60) days following written notice to Herbalife of a default
in Herbalife's net payment obligation under Section II, (ii) sixty (60) days
following written notice to Herbalife of a material breach by Herbalife of any
of its obligations, representations, warranties or covenants hereunder or under
any other written agreement between Supplier and Herbalife (including without
limitation the D&F Initial Agreement after the date hereof, but prior to
expiration thereof or the Release Agreement executed concurrently herewith), if
such breach has not been cured within such sixty (60) day period, or (iii)
immediately, following the Insolvency (as defined in (c) below) of Herbalife.
(b) Herbalife's Right to Terminate. Herbalife may terminate this
Agreement (i) sixty (60) days following written notice to Supplier, of a
material breach by Supplier of Supplier's obligations, representations,
warranties or covenants hereunder or under any other written agreement between
Supplier and Herbalife (including without limitation the D&F Initial Agreement
after the date hereof but prior to the expiration thereof or the Release
Agreement executed concurrently herewith), if such breach has not been cured
within such sixty (60) day period, (ii) immediately, following the Insolvency
(as defined in (c) below) of Supplier, (iii) immediately following a failure by
Supplier to meet the service level requirements of Section 9 above, or (iv)
immediately following a Change in Control (as defined in (d) below) of Supplier.
(c) Insolvency. "INSOLVENCY" shall mean that, with respect to
Supplier or Herbalife, as the case may be, such entity shall (i) make a general
assignment for the benefit of creditors or an agent authorized to liquidate its
assets, (ii) become the subject of an "order for relief" within the meaning of
the United States Bankruptcy Code, and such order is not stayed within thirty
(30) days, (iii) file a petition in bankruptcy or for reorganization, or effect
a plan or other arrangements with creditors,
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(iv) file an answer to a creditor's petition, admitting the material allegations
thereof, for involuntary bankruptcy or for reorganization or to effect a plan or
other arrangement with creditor, (v) apply to a court for the appointment of a
receiver or custodian for substantially all of its assets or properties, with or
without consent, and such receiver is not discharged within thirty (30) days
after appointment or (vi) adopt a plan of complete liquidation of its assets.
(d) Change in Control, A "CHANGE IN CONTROL" shall mean that, without the
prior written consent of Herbalife, which consent shall not be unreasonably
withheld, (i) any sale, merger, reorganization, transfer, pledge, granting of an
option, or any other like event or action that results in a third party having
an interest in any of the issued and outstanding capital stock of Supplier (on a
fully-diluted basis) such that the present shareholders of Supplier (A) no
longer own more than fifty percent (50%) of such capital stock, or (B) no longer
have the authority and power to elect a majority of the directors of Supplier or
(C) no longer have the authority to direct and control the management and
affairs of Supplier, (ii) any assignment, sale, transfer, pledge, granting of an
option, hypothecation or any other like event or action that results in a third
party having an interest in all or substantially all of Supplier's assets, or
(iii) both of Fred Siegel and Richard Marconi ceasing to be actively involved as
senior executive employed officers of Supplier and responsible for the
day-to-day operation and management of Supplier for a period greater than sixty
(60) days, without the prior written consent (in each such case) of Herbalife,
which consent shall not be unreasonably withheld. Any hypothecation made in the
ordinary course of business that does not result in a Change in Control shall
not require the consent of Herbalife. In determining whether to withhold its
consent, Herbalife may consider the reputation, and the qualifications and
financial ability of any person or entity in whose favor any Change in Control
is proposed to be made (the "TRANSFEREE") to manufacture and supply Supplied
Products of at least the same level of quality and service level as Supplier,
the business of the Transferee, and in particular whether or not the Transferee
engages in multi-level marketing activities.
(e) Remedies on Termination. Supplier, on the one hand, and Herbalife, on
the other hand, have each considered the possibility that the parties will incur
expenses in preparing for performance of this Agreement and that the parties
will incur expenses and suffer losses as a result of termination (if other than
as a result of expiration or non-renewal of this Agreement). In the event of a
breach by a party of this Agreement, the non-defaulting party may pursue
whatever remedies are available under this Agreement or by law. Any termination
hereof shall not impair any rights nor discharge any obligations which have
accrued to the parties as of the effective date of such termination.
(f) Effect of Expiration or Termination. Subject to Supplier's rights under
Section 13(g) if this Agreement is terminated by Supplier pursuant to Section
13(a) hereof, in the event of any termination, expiration or non-renewal of this
Agreement for any reason, (i) the provisions of the Release Agreement and this
Section 13 and Sections 2(a), 7(b), 8, 11 and 12 above and Sections 14, 18, 22
and 30 below shall be unaffected thereby, (ii) all of the Supplier Exclusive
Formulas and the Independent Formulas, the Constructively Identical Formulas and
the Substitute Formulas shall remain the exclusive property of Herbalife or any
Affiliate, (iii) all rights and licenses in and to
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those of the Supplier Formulas granted to Herbalife or any Affiliate on the
terms and conditions set forth in Sections 8(a)(ii) and 8(a)(iv) above shall
remain unaffected thereby and shall continue in full force and effect, and (iv)
Herbalife or any Affiliate shall be entitled to sell and distribute all Supplied
Products in its inventory.
(g) Effect of Termination for Cause. If Supplier terminates this Agreement
pursuant to Section 13(a) hereof, then in that event:
(i) Herbalife shall purchase (A) all Supplied Products remaining in
Supplier's inventory for which an estimated or firm purchase order had been
placed, at the prices specified in this Agreement, and (B) following Supplier's
reasonable efforts to mitigate, all raw materials in Supplier's inventory
specifically procured by Supplier for use in manufacturing Supplied Product to
Herbalife under this Agreement at a price equal to Supplier's actual cost,
including incoming freight, plus costs incurred for labor, material testing and
storage. Notwithstanding any contrary provision, if Herbalife terminates this
Agreement pursuant to Section 13(b) hereof, Herbalife shall have no obligation
to purchase any Supplied Products or raw materials in Supplier's inventory, or
to take delivery of any Supplied Products ordered prior to the date of such
termination.
(ii) Notwithstanding any contrary provision herein, Supplier may
pursue whatever remedies are available to it by law or otherwise, including but
not limited to any monetary damages available to Supplier for any breach of this
Agreement by Herbalife.
14. CONFIDENTIAL INFORMATION.
(a) Non-Disclosure. Subject to Sections 5(c), 5(d), 5(e) and 8 above,
and 14(b) and 14(d) below, each party shall preserve in strict confidence any
confidential information obtained or made available pursuant to this Agreement,
on or after the date hereof, from the other party by it or any of its
subsidiaries or affiliates or any of its or their directors, officers,
employees, agents or other representatives concerning the Supplied Products,
Other Offered New Products, Supplier Developed New Products, the Supplier
Formulas, Constructively Identical Formulas, Substitute Formulas, or the
Independent Formulas or in order for each party to exercise its rights or
perform its obligations under this Agreement including, without limitation,
Supplied Product prices, marketing surveys, and information concerning the
design and specifications of, the Supplied Products, Other Offered New Products,
Supplier Developed New Products, the Supplier Formulas, Constructively Identical
Formulas, Substitute Formulas, or the Independent Formulas ("CONFIDENTIAL
INFORMATION"), and agrees to refrain from (i) disclosing, during the Term or at
any time thereafter, any such Confidential Information to any person or entity
or (ii) using, during the Term or, at any time thereafter, such Confidential
Information for any purpose; except as otherwise necessary to exercise its
rights or perform its obligations under this Agreement or for evaluation of
Supplied Products or Other Offered New Products or Supplier Developed New
Products for possible inclusion in this Agreement. In connection with such
Agreement, each party agrees to keep confidential, not disclose, provide or
otherwise make available in any form such Confidential
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Information to any person other than authorized employees, agents or other
representatives of each party with a need to know.
(b) Permitted Disclosure. Notwithstanding the foregoing, nothing
contained in this Section 14 shall prohibit any party from disclosing
Confidential Information in the event such disclosure (i) is permitted pursuant
to Section 14(d) below, (ii) is, or becomes, during the Term, available in the
public domain not as a result of a breach of this Agreement, (iii) was
rightfully in the receiving party's possession or was part of the receiving
party's general knowledge at the time of its disclosure by the disclosing party;
provided however, that any information concerning the Supplier Formulas, the
contents of the Supplier Formulas or any portion thereof, or any information
related to the Supplier Formulas, or their specifications in Herbalife's
possession or part of its general knowledge as of the date of execution of this
Agreement may and shall not be disclosed by Herbalife until January 12, 1998
except to the extent necessary prior to January 12, 1998 to utilize the rights
and licenses granted to Herbalife pursuant to Section 8(a) of this Agreement, or
(iv) is rightfully received by the receiving party from a third party without
any duty of confidentiality and the receiving party can clearly demonstrate the
independent origin of such information, or (v) is required by any governmental
authority having jurisdiction over that party asserting a right to obtain such
information; provided however, that prior to any such disclosure pursuant to
this clause (v) (except where such disclosure is required to be made to a
governmental authority in order for Herbalife to qualify Formulas, Supplier or
Other Suppliers in any jurisdiction) the party concerned shall promptly advise
the other party in the event of any request by a governmental authority for the
Confidential Information and shall cooperate with the other party to assert any
right of objection to such request or to seek a protective order or to take
other appropriate action to protect the Confidential Information.
(c) Return of Materials Upon Termination. Upon termination of this
Agreement, each party shall use reasonable efforts to return to the other party
all material and documents containing Confidential Information, or submitted by
the other party in confidence, including any copies or extracts thereto.
(d) Disclosure to Herbalife's Licensees. It is hereby expressly agreed
and understood that, Herbalife or any Affiliate may at any time disclose or make
available to any licensee of Herbalife or any licensee of any Affiliate
(approved pursuant to Section 8(c) above, if applicable, by Supplier) (each a
"HERBALIFE LICENSEE") the Supplier Formulas or the contents of the Formulas or
any portion of the Formulas, (in the case of any of the Supplier Formulas for
any of the Supplied Products which consist of a Third Party Licensed Product, to
the extent any person or entity whose consent or license is required has so
consented), for the purpose of manufacturing or selecting or qualifying any
person or entity to manufacture in commercial and non-commercial quantities any
Supplied Products to be delivered by or on behalf of Herbalife on a date on or
after January 12, 1998; provided however, that during the Term, with respect to
any Rights Of First Refusal Substitute Products For Primary Manufacture,
Herbalife shall first have complied with the provisions of Section 5(b)(ii)
above, and, with respect to any Rights Of First Refusal Constructively Identical
Products For Primary Manufacture, Herbalife shall first have complied with the
provisions
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of Section 5(b)(iii) above, and the Herbalife Licensee who shall have access
thereto shall have agreed in writing to be bound by substantially the same
confidentiality obligations as contemplated by this Section 14.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) By Herbalife: Herbalife represents, warrants and
covenants as follows:
(i) Herbalife is a corporation duly organized, validly existing
and in good standing under the laws of California. Herbalife has full power and
authority to execute and deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by Herbalife and
constitutes a legal, valid and binding obligation of Herbalife.
(ii) The execution and delivery of, and performance by Herbalife
of its obligations under this Agreement and the grant of rights and licenses by
Herbalife to Supplier and the consummation of the transactions contemplated
hereunder, will not result in a violation of, or be in conflict with, any
provision of its Articles of Incorporation, or result in a breach of, or be in
conflict with, any material agreement to which Herbalife is a party or by which
it or its property is bound, or result in a violation of, or be in conflict
with, or result in a breach of any term or provision of any judgment, order,
decree or award of any court, arbitrator or governmental authority binding upon
Herbalife or its property.
(b) By Supplier: Supplier represents, warrants and covenants as
follows:
(i) Supplier is a corporation duly incorporated, validly existing
and in good standing under the laws of California. Supplier has full power and
authority to execute and deliver and perform its obligations under this
Agreement. This Agreement has been duly authorized, executed and delivered by
Supplier and constitutes a legal, valid and binding obligation of Supplier.
(ii) The execution and delivery of, and performance by Supplier
of its obligations under, this Agreement, and the grant of rights and licenses
by Supplier to Herbalife and the consummation of the transactions contemplated
hereunder, will not result in a violation of, or be in conflict with, any
provision of the articles of incorporation of Supplier, or result in a breach
of, or be in conflict with, any material agreement to which Supplier is a party
or by which it or its property is bound, or result in a violation of, or be in
conflict with, or result in a breach of, any term or provision of any judgment,
order, decree or award of any court, arbitrator or governmental authority
binding upon Supplier or its property.
(iii) Supplier has, or will have, the ability to manufacture and
supply (or, with respect to Current Subcontracted Products, to supply) all
Supplied Products to be supplied by Supplier hereunder on January 12, 1998 and
all Supplied Products to be supplied by Supplier hereunder as set forth in the
Open Blanket Purchase Orders delivered during the Term of this Agreement.
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(iv) Upon delivery by Supplier to Herbalife or any Affiliate of
Supplied Products, subject to and in accordance with the terms and conditions of
this Agreement, Herbalife shall acquire good title free from all liens and
encumbrances.
(v) Supplier has complied, is complying and will continue to
comply with accepted industry practices and standards and all applicable laws in
the jurisdiction in which the Supplied Products are sold to Herbalife,
including, without limitation, state and local laws of the United States and the
State of California and the rules, orders, ordinances, decrees and regulations
of the United States and the State of California relating to or affecting the
manufacture of the Supplied Products. If Herbalife advises Supplier of the
regulatory requirements of any other jurisdiction, then Supplier shall use its
best efforts to comply therewith in the manufacture of Supplied Products. All
Supplied Products delivered to Herbalife or any Affiliate shall be prepared and
manufactured in a clean, safe and sanitary manner in full compliance with all
applicable federal and State of California laws, rules and regulations,
including without limitation, the Food, Drug and Cosmetic Act of 1938 and the
rules and regulations of the United States Food and Drug Administration
(including as to Good Manufacturing Practices or Standard Operating Procedures).
All Current Products delivered to Herbalife or any Affiliate shall be
manufactured in accordance with the Supplier Formulas used for products
currently supplied to Herbalife or any Affiliate under the D&F Initial Agreement
and shall be of no less quality than those products currently supplied to
Herbalife or any Affiliate under the D&F Initial Agreement.
(vi) All Supplied Products have been and will be clearly and
accurately labeled and packaged in the manner requested by Herbalife with labels
and inserts supplied by Herbalife or any Affiliate.
(vii) Supplier's manufacturing facility complies with all
applicable federal and California state laws, rules and regulations relating to
the operation thereof, including without limitation, all product safety,
sanitation and environmental laws, rules and regulations.
(viii) All Supplied Products purchased by Herbalife or any
Affiliate are free from defect comply with the Quality Standards and are
merchantable and fit for their intended purpose. All Supplied Products shall be
supplied in commercial quantities sufficient to meet Herbalife's or any
Affiliate's orders, free of contamination or defect, and all reasonable care and
skill shall be used in manufacturing the Supplied Products.
(ix) Supplier owns as of the date hereof beneficially and of
record all right, title and interest in the Supplier Exclusive Formulas, and
shall not at any time on or after the date hereof during the Term, deal with the
Supplier Exclusive Formulas except as expressly provided in Section 8 above.
(x) Rose Ox and AMINOGEN(R) are the only materials, ingredients
or rights utilized in any of the Current Products which require the consent or
license of a third party to be
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utilized therein, to be sold to Herbalife or any Affiliate by Supplier and/or to
be marketed by Herbalife or any Affiliate.
(xi) None of the Current Products, other than the Third Party
Licensed Products and other than Rose Ox and AMINOGEN(R) require the consent or
license of a third party to be sold to Herbalife or any Affiliate by Supplier
and/or to be marketed by Herbalife or any Affiliate.
(xii) There are as of the date hereof no Current Products the
intellectual property rights for which are owned, controlled or licensed by any
person or entity other than Supplier, other than those that consist of Third
Party Licensed Products, or Generic Products or Male Factor, Herbal Calmative
Spray, Thermojetics Green, Thermojetics Beige, Xtra-Cal, Kindermins, Acne 24
hr., Acne Foaming Wash, Acne Spot Treatment, Super APR, and Thermo Body Toning
Cream.
(xiii)None of the Current Exclusive Products consist of Third
Party Licensed Products or Generic Products, other than Thermojetics Green,
Thermojetics Beige and Xtra-Cal.
(xiv) None of the Generic Products consist of Third Party
Licensed Products or vice versa.
(xv) Except as otherwise expressly provided in Section 8 above,
Supplier has not and shall not make any assertion, claim or demand against
Herbalife or any Affiliate, any Herbalife Licensee, or any officer, director,
shareholder, authorized employee, agent or other representative of Herbalife or
any Affiliate or of any Herbalife Licensee, with respect to any of the
foregoing's use or exploitation of any Supplier Formulas transferred or licensed
pursuant to Section 8 above.
(xvi) Herbalife or any Affiliate shall acquire such rights and
licenses as are required to be granted to Herbalife or any Affiliate by Section
8 above, free from any liens or encumbrances (except for the royalty agreements
relating to Thermojetics Green, Thermojetics Beige, Xtra-Cal, Super APR, and
Thermo Body Toning Cream, collectively referred to herein as the "ROYALTY
PRODUCTS"). The Royalty Products are listed as such in Exhibits A-1 through A-4
hereto. So long as Supplier, or any Subcontract Supplier, manufactures Supplied
Products subject to any license, grant or agreement (including royalty
agreements) in favor of any third party, Supplier shall remain responsible for
paying the third party concerned any royalties or license fees due on such
Supplied Products.
(xvii)Supplier is the valid licensee of each of the Third Party
Licensed Products. To the extent necessary to meet the obligations of Supplier
under this Agreement, Supplier has been and shall remain at all times in full
compliance with any license, grant or agreement to which any of the Supplied
Products is subject, and each such license, grant or agreement remains and shall
remain valid and in full force and effect throughout the Term. Supplier has the
power to grant the rights and licenses granted by Supplier to Herbalife under
this Agreement.
(xviii) None of the Supplier Formulas or Supplied Products (or
any raw material or ingredient therein) transferred or licensed pursuant to
Section 8 above or supplied hereunder by
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Supplier, nor the use thereof by Herbalife or any Affiliate in accordance with
the terms and conditions set forth herein, infringes or shall infringe in any
respect on any patents, copyrights, trademarks, service marks, trade dress,
trade secrets, proprietary or confidential information or other intellectual
property rights of any third parties.
(xix) Supplier agrees that, subject to Section 8 above, it shall
not at any time in any way infringe upon, any rights in or to any of the
Formulas or Trademarks or other intellectual property rights belonging to
Herbalife or any Affiliate or any Formulas or Trademarks or other intellectual
property registration belonging to Herbalife or any Affiliate in any territory
or country.
16. INSURANCE. Supplier shall maintain with effect from January 12, 1998
throughout the remainder of the Term, at its sole cost and expense, insurance
with financially sound and established reputable insurers of the type and
quantity (and with such risk retention) generally maintained by the companies of
established repute in Supplier's line of business, such insurance to include
without limitations products liability insurance an amount no less than five
million dollars ($5,000,000) per occurrence. Supplier shall provide to
Herbalife, at least annually and otherwise upon reasonable request by Herbalife,
true copies of the certificates of coverage in respect of such insurance
policies, and Supplier shall not do anything or permit anything to be done that
may prejudice such insurance policies or omit to do anything where such omission
may prejudice those insurance policies, and shall observe and perform the terms
and conditions contained in each of such insurance policies.
17. AMENDMENT OR WAIVER. This Agreement will not be amended, nor will any
of its terms be deemed to have been waived by either party, unless such
amendment or waiver is in writing in a document that specifically refers to this
Agreement and specifically states that it intends to amend this Agreement or
waive a term of this Agreement and such document is signed by the parties
hereto. General correspondence between the parties, invoices, purchase orders or
any other document exchanged between the parties not meeting the requirements of
this Section 17, will not be deemed to amend or waive any term of this
Agreement. In the event of any conflict between this Agreement and any other
document, including any purchase order, this Agreement shall prevail.
18. GOVERNING LAW AND VENUE; ARBITRATION
(a) Governing Law and Venue. This Agreement will be governed by and
construed in accordance with the laws of the State of California, without regard
to its conflicts of laws principles. Any legal proceedings arising out of or in
connection with this Agreement which are not arbitrated pursuant to Section
18(b) below, shall be commenced and prosecuted in a court located within Orange
County, California.
(b) Arbitration. Any disputes, controversies or differences which may
arise between the parties out of, in connection with or in relation to any of
Sections 4(c) through 4(g) and II of this Agreement, or the interpretation,
enforceability, performance, breach or validity of any of Sections 4(c) through
4(g) and II of this Agreement ("DISPUTES"), shall be determined by arbitration
in
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Orange County, California in accordance with the rules and procedures of
J.A.M.S./Endispute from time to time in effect, as modified by the provisions of
this Section 18(b); provided however, that the parties reserve the right to seek
injunctive relief from any court of competent jurisdiction.
(i) Procedure. Either party may give to the other written notice
of the existence and nature of any Dispute proposed to be arbitrated under this
Section 18(b). Any such notice shall specify in reasonable detail the nature of
and background to any such Dispute. Within ten (10) days thereafter, the parties
shall agree on three persons drawn from a list of potential arbitrators provided
by J.A.M.S./Endispute. If the parties cannot agree on any of the three
arbitrators within ten (10) days after a party initiates such process, the
arbitrator(s) whom the parties cannot mutually agree on shall be selected by
J.A.M.S./Endispute within seven (7) days following the end of such ten (10) day
period. The three arbitrators shall determine all Disputes by majority vote.
(ii) Conduct of the Proceeding. The parties agree that the
arbitrators shall be subject to and apply the laws of California and be a judge
for all purposes (excluding the power to (a) grant equitable relief, (b) change
any term or condition of this Agreement, (c) deprive either party of a remedy
expressly provided herein, or (d) provide any right or remedy that has been
excluded hereunder, but including, without limitation, (x) ruling on any and all
discovery matters and motions, including without limitation ruling on the
availability, timing and scope of discovery, and ruling on any and all pretrial
or trial motions, (y) setting a schedule of pretrial proceedings in accordance
with this Agreement, and (z) making any other orders or rulings a sitting judge
of the Superior Court of California (the "SUPERIOR COURT") would be empowered to
make in any action or proceeding in the Superior Court (subject to the
limitations of this clause (ii)), and shall try and decide any or all of the
issues in any action or proceeding arising out of such dispute (whether of fact
or of law, or a combination thereof) and, no later than one hundred and twenty
(120) days following their selection, shall report a statement of decision
thereon and hear and consider objections to the statement of decision. Any such
statement of decision shall be submitted to the Superior Court by the prevailing
party within fourteen (14) days and judgment shall be entered thereon in the
same manner as if the action or proceeding had been tried by a sitting judge of
the Superior Court (the "Judgment"). The decision of the arbitrators appointed
hereunder shall be final and conclusive among the parties as of the date of
entry of the Judgment.
(iii) Security Arrangements.
(A) Upon presentation by Supplier of a certified copy of a
Judgment which includes a finding that Herbalife breached its obligations to
Supplier under any of Sections 4(c) through 4(g) and 11, Supplier shall receive,
as payment applied against any monetary damages awarded Supplier under such
Judgment, funds from any monies remaining outstanding as the Security (as
defined below) up to the amount of said Judgment.
(B) As security for the performance of its obligations
under any of Sections 4(c) through 4(g) and II to Supplier and Omni under each
of the New D&F Supply Agreements, including this Agreement (the "Security"),
Herbalife shall post a single bond pursuant to this
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Agreement and the New Omni Supply Agreement (the "BOND") in the aggregate
maximum total amount of twenty-five million dollars ($25,000,000), subject to
the terms and conditions hereof, on a combined basis, with respect to (i) any
Judgment obtained by Supplier against Herbalife, and (ii) the equivalent of any
Judgment obtained by Omni against Herbalife under the New Omni Supply Agreement.
Herbalife shall provide a copy of the Bond to Supplier, which copy shall
identify the bonding company. Subject to the terms and conditions hereof, the
Bond shall be in effect from January 12, 1998 and for so long as the Bond shall
not be fully applied against any Judgment obtained by either Supplier or Omni,
or both, against Herbalife as the case may be. In no event shall the aggregate
maximum total amount claimed due at any time with respect to Supplier and/or
Omni under the Bond exceed on a combined basis twenty-five million dollars
($25,000,000). The Bond shall, if payable, be solely payable in favor of either
Supplier or Omni, or both, as the case may be, as set forth above and shall not
be assignable in any event to any other person or entity at any time, without
the prior written consent of Herbalife, which consent shall not be unreasonably
withheld.
19. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, which taken together will constitute one instrument and each of
which will be considered an original for all purposes.
20. TIME IS OF THE ESSENCE. The parties agree that time is of the essence
under this Agreement.
21. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(except as may otherwise be specifically provided herein to the contrary) if
delivered by hand, by a nationally recognized overnight delivery service, by
facsimile transmission followed by mail, or mailed by certified or registered
mail with postage prepaid:
(a) If to Supplier:
D&F Industries
987 N. Enterprise Street
Orange, California 92867
Attention: Fred E. Siegel, President
Facsimile No.: (714) 633-1229
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(b) If to Herbalife:
Herbalife International of America, Inc.
1800 Century Park East, 14th Floor
Century City, California 90067
Attention: Robert A. Sandler, Esq.
Executive Vice-President and General Counsel
Facsimile No.: (310) 557-3906
or such other address or facsimile number as any of the persons designated above
may have specified in a notice or communication duly given to the other
designated person as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered or telecopied, or if
mailed, two business days thereafter.
22. BINDING EFFECT; NON-ASSIGNABILITY. This Agreement shall inure to
the benefit of, and be binding upon, the parties hereto, their respective
successors and assigns; provided however, that, subject to Section 13(d),
neither this Agreement nor the rights and obligations of Supplier shall be
assignable or delegable by Supplier nor shall there be any Change in Control of
Supplier without the prior written consent of Herbalife, which consent shall not
be unreasonably withheld; provided however, that the parties hereto acknowledge
that Supplier has subcontracted the manufacture of the Current Subcontracted
Products and, notwithstanding any provision herein to the contrary, Supplier
shall be entitled to continue to subcontract the Current Subcontracted Products
only, without the additional consent of Herbalife, for so long as Supplier
continues to subcontract the Current Subcontracted Products to the entities to
whom Supplier currently subcontracts. Any purported transfer, assignment or
delegation in breach of this Section 22 shall be null and void.
23. RELATIONSHIP OF THE PARTIES. The parties expressly understand and
agree that Supplier is an independent contractor in the performance of each and
every part of this Agreement, is solely responsible for all of its employees and
agents and its labor costs and expenses arising in connection therewith. It is
understood and agreed that no joint venture, partnership or agency relationship
is created or intended to be created by this Agreement and Supplier shall not
be deemed to be or become the representative or agent of Herbalife or any
Affiliate in any way in performing its obligations hereunder. Supplier shall
make no representation to any third party, either directly or indirectly, that
it is in any way authorized to act for or on behalf of Herbalife or any
Affiliate or to obligate Herbalife or any Affiliate in any way without the prior
written consent of Herbalife. Nothing in this Agreement is intended to, nor
shall it be construed to violate any statutes, rules or regulations of any
jurisdiction pertaining to anti-trust or anti-competition.
24. AFFILIATES. Herbalife shall assume the obligations under this
Agreement of any Affiliate failing to comply with any of the obligations of any
Affiliate pursuant to this Agreement.
25. IRREPARABLE HARM. The parties agree that their failure to comply
with the provisions of this Agreement may cause irreparable harm for which there
may be no adequate remedy at law and
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each may, therefore, enforce through equitable as well as legal remedies the
obligations set forth in this Agreement.
26. FORCE MAJEURE. Neither party shall be liable to the other party
for failure or delay in the performance of any of the obligations under this
Agreement (including delivery of Supplied Products supplied by Supplier or
satisfaction by Herbalife of its obligation with respect to the Minimum Purchase
Order Amount) for the time and to the extent such failure or delay is caused by
reason of acts of God or other cause beyond its reasonable control, including
acts of government, riots, war, interruption of transportation, strikes or other
labor trouble, shortage of labor, fire, storm, flood, earthquake, inability to
obtain suitable raw materials, products, parts, components, fuel or power, or
extraordinary price increases. The performance of obligations hereunder shall be
suspended during the existence of such causes, and upon cessation of such
causes, shall again be required; provided however, that the parties hereto shall
use their reasonable commercial efforts to minimize the consequences of such
causes.
27. EXHIBITS AND SCHEDULES. Any Exhibit or schedule attached hereto is
made a part hereof and is fully incorporated herein by reference. Exhibit D
shall in any event at all times during the Term consist of at least five
entities listed thereon and it is expressly agreed and understood by the parties
hereto that no addition or deletion of any of the entities listed on Exhibit D
shall be made except with the mutual agreement of the parties hereto.
28. ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the parties hereto in relation to the purchase of Supplied Products by
Herbalife or any Affiliate from Supplier to be delivered on a date on or after
January 12, 1998 and with respect to the subject matter of this Agreement. This
Agreement supersedes any other agreement between the parties with respect to the
purchase of Supplied Products by Herbalife or any Affiliate from Supplier to be
delivered on a date on or after January 12, 1998 and with respect to the subject
matter of this Agreement. There are no representations, promises, warranties,
understandings or agreements, express or implied, oral or otherwise, in relation
thereto, except expressly referred to or set forth herein.
29. AGREEMENT NEGOTIATED. The parties hereto are sophisticated and
have been represented by lawyers throughout this transaction who have carefully
negotiated the provisions hereof.
30. REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy will be cumulative and will be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise. The election of any one or more remedies will not
constitute a waiver of the right to pursue other remedies available according to
law.
31. PARTIAL INVALIDITY. In the event that any of the provisions or
portions thereof of this Agreement are held to be unenforceable or invalid by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions or portions hereof will not be affected thereby.
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32. INTERPRETATION. Section headings are included solely for
convenience and shall not constitute a part hereof. Unless the context otherwise
requires, words importing the singular shall be deemed to import the plural and
vice versa.
33. THIRD PARTY BENEFICIARIES. No person or entity shall be a third
party beneficiary of this Agreement, except that any Affiliate shall be entitled
to enforce against Supplier the rights conferred upon that Affiliate by Supplier
hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
HERBALIFE INTERNATIONAL OF AMERICA, INC.
By: /s/ CHRISTOPHER PAIR
---------------------------------------
Its: Chief Operating Officer
--------------------------------------
By: /s/ CONRAD LEE KLEIN
---------------------------------------
Its: Chief Business Affairs Officer
--------------------------------------
D&F INDUSTRIES
By: /s/ FRED E. SIEGEL
---------------------------------------
Its: President
--------------------------------------
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RELEASE AGREEMENT
THIS RELEASE AGREEMENT (the "Agreement") is entered into as of
September 2, 1997, by and between D&F Industries, a California corporation
("D&F") and Herbalife International of America, Inc., a California corporation
("Herbalife"), with reference to the following facts:
RECITALS:
A. D&F and Herbalife are parties to that certain agreement executed on
May 12, 1993, as modified by a First Addendum To Agreement executed on May 18,
1993, which agreement may have thereafter been amended or modified from time to
time (as amended, the "D&F Initial Agreement").
B. Likewise, Herbalife and Dynamic Products, Inc., a California
corporation ("Dynamic"), are parties to that certain agreement executed on May
12, 1993, as modified by a First Addendum To Agreement executed on May 18, 1993,
which agreement may have thereafter been amended or modified from time to time
(as amended, the "Dynamic Initial Agreement"), and Herbalife and Raven
Industries, Inc. d/b/a Omni-Pak Industries, a California corporation ("Omni")
are parties to that certain agreement executed on May 12, 1993, as modified by a
First Addendum To Agreement executed on May 18, 1993, which agreement may have
thereafter been amended or modified from time to time (as amended, the "Omni
Initial Agreement").
C. The D&F Initial Agreement, the Dynamic Initial Agreement and the
Omni Initial Agreement are collectively referred to herein as the "Initial
Agreements". D&F, Dynamic and Omni are collectively referred to herein as the
"D&F Suppliers".
D. Each of the Initial Agreements will expire on January 11, 1998, in
the event that either of the parties thereto gives written notice of its
decision to cease the contractual relationship, which notice must be given not
less than six months prior to such expiration date.
E. Herbalife has provided written notice (which was delivered on a
date which was six months or more prior to January 11, 1998) to each of the D&F
Suppliers of its decision to cease the contractual relationship under the
Initial Agreements on January 11, 1998 and the Initial Agreements will expire on
January 11, 1998.
F. Each of the D&F Suppliers and Herbalife desires to enter into new
supply agreements to provide for the supply of certain nutritional supplement
and certain nonnutritional products to Herbalife on and after January 12, 1998,
which products are intended to be similar in type and form to those historically
manufactured and supplied
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by each of the D&F Suppliers to Herbalife. The supply agreement between
Herbalife and D&F (the "D&F Supply Agreement") and the two other new supply
agreements between Herbalife and Omni and Herbalife and Dynamic entered into
contemporaneously with the D&F Supply Agreement are collectively referred to
herein as the "New D&F Supply Agreements."
G. In addition, each of the D&F Suppliers and Herbalife will
concurrently with execution of the New D&F Supply Agreements enter into
substantially identical release agreements to provide for the release of all the
disputes between Herbalife and each of the D&F Suppliers, including without
limitation, with respect to the Initial Agreements or the amendment, extension
or renewal thereof and all other claims arising from events, actions or conduct
relating to the Initial Agreements on or prior to execution of the New D&F
Supply Agreements, except as set forth in the release agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and undertakings set forth below, and in reliance on the recitals set forth
above, D&F and Herbalife hereby agree as follows:
1. Resolution and Releases. This Agreement is intended to resolve
all of the parties' disputes, including without limitation, those arising with
respect to the D&F Initial Agreement or the amendment, extension or renewal
thereof and all other claims arising from events, actions or conduct relating to
the D&F Initial Agreement, or any other agreement or arrangement involving the
parties relating to the supply, procurement, development, manufacturing,
production, marketing, sale or distribution of products (each a "Related
Arrangement"), as set forth herein. Nothing contained herein is intended to, nor
does it, constitute an admission of fault or liability of either party to the
other. To effectuate the resolution of their differences the parties hereto
agree as follows:
(a) Release of Herbalife. D&F, on behalf of itself, and its
affiliates, its successors, assigns, directors, officers, employees, agents,
attorneys, representatives' and advisors (the "D&F Associates"), hereby releases
and forever discharges Herbalife, and its affiliates, successors, assigns,
directors, officers, employees, agents, attorneys, representatives and advisors
(the "Herbalife Associates"), of and from any and all claims, demands, causes of
action, damages or liabilities, losses, costs or expenses of any kind in nature,
fixed or contingent, direct or indirect, whether or not known, suggested or
claimed, existing on the date hereof or which any such person at any time
heretofore had, including without limitation, those that are contained in, arise
from or relate in any way to the D&F Initial Agreement or its amendment,
extension or renewal or any Related Arrangement and all other claims arising
from events, actions or conduct relating to the D&F Initial Agreement or any
Related Arrangement, which occurred or was done, suffered or omitted on or prior
to the date of this Agreement, except as set forth in Exhibit A hereto. It is
hereby expressly agreed and understood that D&F, and the D&F Associates, release
and waive all royalties that D&F, or the D&F Associates, at any time
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may have been or would at any time in the future be entitled to receive in
respect of Herbalife's products, including without limitation Herbalife's
fragrances and personal care products. D&F, on behalf of itself, and the D&F
Associates, hereby expressly releases and forever discharges Herbalife, and the
Herbalife Associates, of and from any and all claims, demands, causes of action,
damages or liabilities, losses, costs or expenses of any kind in nature, fixed
or contingent, direct or indirect, whether or not known, suggested or claimed,
with respect to the use or exploitation at any time on, prior to or after the
date hereof of any patent, copyright, trade secret, know-how, information,
documentation, technique, method, concept, formula, formulation, recipe,
ingredient, specification, design, menu, work product, work-in-progress or
intellectual property right, of any nature or kind whatsoever, developed,
conceived, created or learned by D&F, or the D&F Associates, on or prior to the
date of this Agreement ("Intellectual Property"), except for that Intellectual
Property arising or derived from the combination of ingredients for those items
identified on Exhibit B hereto. Herbalife reserves its right to challenge any
rights D&F may assert with respect to any aspect of any of the items set forth
on Exhibit B hereto and the parties hereto agree that the identification of any
item on Exhibit B hereto shall not in and of itself give rise to the presumption
that any rights of D&F exist in the items identified on Exhibit B hereto. The
releases set forth above in this Section 1(a) shall not apply to the
obligations required to be performed under this Agreement or the D&F Supply
Agreement.
(b) Release of D&F. Herbalife, on behalf of itself, and the
Herbalife Associates, hereby releases and forever discharges D&F, and the D&F
Associates, of and from any and all claims, demands, causes of action, damages
or liabilities, losses, costs or expenses of any kind in nature, fixed or
contingent, direct or indirect, whether or not known, suggested or claimed,
existing on the date hereof or which any such person at any time heretofore had,
including without limitation, those that are contained in, arise from or relate
in any way to the D&F Initial Agreement or its amendment, extension or renewal
or any Related Arrangement and all other claims arising from events, actions or
conduct relating to the D&F Initial Agreement or any Related Arrangement which
occurred or was done, suffered or omitted on or prior to the date of this
Agreement, except as set forth in Exhibit C hereto. The releases set forth above
in this Section 1(b) shall not apply to the obligations required to be performed
under this Agreement or the D&F Supply Agreement.
(c) Releases Apply to All Known and Unknown Causes of Action. It is
understood and unknown by D&F and Herbalife that there is a risk that subsequent
to the execution of this Agreement either party may incur or suffer loss,
damage, or injuries which are unknown or unanticipated at the time of the
execution of this Agreement. Further, there is risk that loss or damage
presently known may be or become greater than the parties now expect or
anticipate. The parties assume said risks, acknowledge that the releases
contained herein shall apply to all unknown and all unanticipated results
arising from or relating to the matters referred to above, as well as those
known and anticipated, and, upon the advice of respective legal counsel, D&F,
and Herbalife each waive all rights under California Civil Code Section 1542 and
any comparable provision under the law of
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any other jurisdiction with respect to the matters released. California Civil
Code Section 1542 reads as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
(d) Representations and Warranties as to No Assignment of Claims.
D&F and Herbalife each represents and warrants to the other that each has not
assigned or transferred to any other person, firm or corporation in any manner,
including by way of subrogation or operation of law or otherwise, all or any
portion of any claim, demand, right, action or cause of action that each has
had, have or might have arising out of the matters released hereby nor all nor
any portion of any recovery or settlement to which they might be entitled. In
the event that any claim, demand or suit should be made because of any such
purported assignment subrogation or transfer, the party from whom such purported
assignment, subrogation or transfer was alleged to have been made agrees to
indemnify and hold the other party hereto harmless against such claim, demand or
suit and any necessary expenses of investigation, attorneys' fees and costs.
(e) Representations and Warranties as to No Material Breach of the
D&F Initial Agreement. D&F and Herbalife each represents and warrants to the
other that, as of the date of this Agreement, to the best of its knowledge, each
has not committed any material breach of, nor has there occurred any event which
would require or permit or could reasonably be anticipated to permit the
termination of the D&F Initial Agreement prior to January 11, 1998.
(f) Representations and Warranties as to Advice of Counsel. D&F
and Herbalife each represents and warrants to the other that each has received
advice from legal counsel of its own choice, as to the form and substance of
this Agreement, and as to the advisability of agreeing to its terms, and that,
based upon such advice, such party agrees to be bound by the terms of this
Agreement.
(g) Media Relations. D&F and Herbalife will issue a mutual press
release regarding this Agreement and the matters covered herein in the form
attached hereto as Exhibit D hereto. The parties further agree that they will
not disparage each other in any oral or written public statements concerning any
matters related to or arising from this Agreement.
(h) Authority. D&F and Herbalife each represents and warrants to the
other that its execution of this Agreement has been fully and validly
authorized and approved by all requisite corporate action, and no further action
is necessary to make this Agreement and all acts contemplated hereby valid and
binding on itself in accordance with the terms hereof.
2. Amendment or Waiver. This Agreement will not be amended, nor will any
of its terms be deemed to have been waived by either party, unless such
amendment
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or waiver is in writing in a document that specifically refers to this Agreement
and specifically states that it intends to amend this Agreement or waive a term
of this Agreement and such document is signed by the parties hereto. General
correspondence between the parties, invoices, purchase orders or any other
document exchanged between the parties not meeting the requirements of this
Section 2, will not be deemed to amend or waive any term of this Agreement. In
the event of any conflict between this Agreement and any other document this
Agreement shall prevail.
3. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California, without regard to its
conflicts of laws principles. Any legal proceedings arising out of or in
connection with this Agreement shall be commenced and prosecuted in a court
located within Orange County, California.
4. Counterparts. This Agreement may be executed in multiple counterparts,
which taken together will constitute one instrument and each of which will be
considered an original for all purposes.
5. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(except as may otherwise be specifically provided herein to the contrary) if
delivered by hand, by a nationally recognized overnight delivery service, by
facsimile transmission followed by mail, or mailed by certified or registered
mail with postage prepaid:
(a) If to D&F:
D&F Industries
987 N. Enterprise Street
Orange, California 92867
Attention: Fred E. Siegel, President
Fax: (714) 633-1229
(b) If to Herbalife:
Herbalife International of America, Inc.
1800 Century Park East, 15th Floor
Century City, California 90067
Attention: Robert Sandler, Esq.
Facsimile No.: (310) 557-3906
or such other address or facsimile number as any of the persons designated above
may have specified in a notice or communication duly given to the other
designated person as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered or telecopied, or if
mailed, two business days thereafter.
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6. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto, their respective successors and assigns.
7. Exhibits. Any Exhibit hereto is made a part hereof and is fully
incorporated herein by reference.
8. Entire Agreement. This Agreement embodies the entire understanding of
the parties hereto with respect to the subject matter of this Agreement. This
Agreement supersedes any other agreement between the parties with respect to the
subject matter of this Agreement. There are no representations, promises,
warranties, understandings or agreements, express or implied, oral or otherwise,
in relation thereto, except expressly referred to or set forth herein.
9. Partial Invalidity. In the event that any of the provisions or portions
thereof of this Agreement are held to be unenforceable or invalid by any court
of competent jurisdiction, the validity and enforceability of the remaining
provisions or portions hereof will not be affected thereby.
10. Irreparable Harm. The parties agree that their failure to comply with
the provisions of this Agreement may cause irreparable harm for which there may
be no adequate remedy at law and each may, therefore, enforce through equitable
as well as legal remedies the obligations set forth in this Agreement.
11. Agreement Negotiated. The parties hereto are sophisticated and have
been represented by lawyers throughout this transaction who have carefully
negotiated the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
HERBALIFE INTERNATIONAL OF AMERICA, INC.
By: /s/ CHRISTOPHER PAIR
-------------------------------------
Its: Chief Operating Officer
------------------------------------
By: /s/ CONRAD LEE KLEIN
------------------------------------
Its: Chief Business Affairs Officer
------------------------------------
D&F INDUSTRIES
By: /s/ FRED E. SIEGEL
-------------------------------------
Its: President
------------------------------------
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EXHIBIT___
SUPPLY AGREEMENT
between
Dynamic Products, Inc., a California corporation
and
Herbalife International of America, Inc., a California corporation
Dated as of September 2, 1997
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SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is entered into as of September 2,
1997, by and between Dynamic Products, Inc., a California corporation
("SUPPLIER"), and Herbalife International of America, Inc., a California
corporation ("HERBALIFE"), with reference to the following facts:
RECITALS
A. Supplier and Herbalife are parties to that certain agreement executed on
May 12, 1993, as modified by a First Addendum To Agreement executed on May 18,
1993, which agreement may have thereafter been amended or modified from time to
time (as amended, the "Dynamic Initial Agreement").
B. Likewise, Herbalife and D&F Industries, Inc., a California corporation
("D&F"), are parties to that certain agreement executed on May 12, 1993, as
modified by a First Addendum To Agreement executed on May 18, 1993, which
agreement may have thereafter been amended or modified from time to time (as
amended, the "D&F INITIAL AGREEMENT"), and Herbalife and Raven Industries, Inc.
d/b/a. Omni-Pak Industries, a California corporation ("OMNI"), are parties to
that certain agreement executed on May 12, 1993, as modified by a First Addendum
To Agreement executed on May 18, 1993, which agreement may have thereafter been
amended or modified from time to time (as amended, the "OMNI INITIAL
AGREEMENT").
C. The D&F Initial Agreement, the Dynamic Initial Agreement and the Omni
Initial Agreement are collectively referred to herein as the "INITIAL
AGREEMENTS." Supplier, D&F and Omni are collectively referred to herein as the
"D&F SUPPLIERS."
D. Each of the Initial Agreements will expire on January 11, 1998, in the
event that either of the parties thereto gives written notice of its decision to
cease the contractual relationship, which notice must be given not less than six
months prior to such expiration date.
E. Herbalife has provided written notice (which was delivered on a date six
months or more prior to January 11, 1998) to each of the D&F Suppliers of its
decision to cease the contractual relationship under the Initial Agreements on
January 11, 1998 and the Initial Agreements will expire on January 11, 1998.
F. Each of the D&F Suppliers and Herbalife desires to enter into new supply
agreements to provide for the supply of certain nutritional supplement products
and certain non-nutritional products to Herbalife on and after January 12, 1998,
which products are intended to be similar in type and form to those historically
manufactured and supplied by each of the D&F Suppliers to Herbalife.
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AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
undertakings set forth below, and in reliance on the recitals set forth above,
Supplier and Herbalife hereby agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined herein shall bear the
meanings and construction given to them below:
(a) General Definitions.
"AFFILIATE": Any business entity (not including any individual) which,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with Herbalife and which sells,
markets, deals with or comes into possession of Supplied Products during the
Term, including without limitation Herbalife of Japan K.K. If during the Term
any current Affiliate ceases to qualify as an Affiliate it shall continue to be
deemed an Affiliate for the purpose of this Agreement provided such business
entity sells, markets, deals with or comes into possession of Supplied Products
during the Term.
"QUALITY STANDARDS": Written quality standards, for the manufacture of
Supplied Products, which are consistent with accepted industry practices and
standards and all applicable laws in the jurisdiction in which the Supplied
Products are sold by Supplier to Herbalife, including, without limitation,
standards as to quality assurance, preparation and manufacture in a clean, safe
and sanitary manner, which are mutually agreed upon by Supplier and Herbalife.
If Herbalife advises Supplier of the regulatory requirements of any other
jurisdictions relating to Quality Standards, Supplier shall use its best efforts
to comply therewith in the manufacture of Supplied Products for distribution in
those jurisdictions.
(b) Formula Related Definitions.
"FORMULAS": The formulas and product specifications necessary for the
manufacture of Supplied Products, together with any modification, improvement,
alteration, enhancement or successor to such formulas and product
specifications, derived, developed, created or invented by Supplier or any agent
of Supplier or by any person or entity for whom Supplier is a valid licensee
thereof.
(c) Product Related Definitions.
"MODIFIED SUPPLIED PRODUCTS": Supplied Products made in accordance with
any modification, improvement, alteration, enhancement or successor to the
Formulas, for the initial Supplied Products set forth on Exhibit A, derived,
developed, created or invented by Supplier or any agent of Supplier or by any
person or entity for whom Supplier is a valid licensee thereof.
"SUPPLIED PRODUCTS": The products set forth on Exhibit A hereto made
in accordance with the Formulas.
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2. TERM AND SCOPE.
(a) Application and Termination of the Dynamic Initial Agreement. The
Dynamic Initial Agreement will expire on midnight, January 11, 1998. Any
Supplied Product for which an order is placed by Herbalife or any Affiliate on a
date prior to January 12, 1998, for which the latest scheduled delivery date to
Herbalife or any Affiliate is on a date prior to January 12, 1998, shall be
governed by the terms and conditions of the Dynamic Initial Agreement
(notwithstanding that the actual date of delivery shall occur on or after
January 12, 1998, through no fault or failure on the part of Supplier to observe
or perform the term and conditions of the Dynamic Initial Agreement). The
parties hereto agree to execute a Release Agreement, in the form attached hereto
as Exhibit B (the "RELEASE AGREEMENT"),simultaneously with the execution of this
Agreement.
(b) Application of this Agreement. The term of this Agreement (the
"TERM") shall commence upon execution of this Agreement, and shall continue
until December 31, 2000, unless previously terminated pursuant to the provisions
hereof; provided however, the terms and conditions of this Agreement shall
govern all Supplied Products to be delivered on a date on or after January 12,
1998 to Herbalife or any Affiliate. Prior to January 12, 1998, Supplier shall be
prepared to meet all of its obligations under the terms and conditions of this
Agreement, including delivery of Supplied Products to be delivered on a date on
or after January 12, 1998 to Herbalife or any Affiliate.
3. QUALITY STANDARDS. Promptly upon execution of this Agreement, the
parties agree to cooperate fully with each other, and in a timely manner, to
prepare Quality Standards for all Supplied Products, and in any event to prepare
such standards within ninety (90) days of execution of this Agreement. Any
changes or alterations to the Quality Standards (once initially agreed between
the parties hereto) must be mutually agreed to in writing by the parties hereto.
4. SUPPLY.
(a) Supply Obligation. For all Supplied Products to be delivered on a
date on or after January 12, 1998 or ordered thereafter until midnight of the
last day of the Term, Herbalife or any Affiliate may order from Supplier and
Supplier shall be obligated to manufacture and supply to Herbalife or any
Affiliate, Supplied Products in any quantity ordered at any time by Herbalife or
any Affiliate, at Herbalife's or any Affiliate's sole discretion, for sale at
any time anywhere in the world, whether during the Term or after expiration of
the Term.
(b) Manufacture. For all Supplied Products to be delivered on a date on
or after January 12, 1998 or ordered thereafter until midnight of the last day
of the Term, Supplier shall manufacture and supply the Supplied Products
exclusively for Herbalife or any Affiliate. Supplier shall not develop,
manufacture, distribute or otherwise sell other than for and to Herbalife or any
Affiliate at any time any of the Supplied Products or any product incorporating
the Formulas.
5. PRODUCTS.
(a) Supplied Products. For all Supplied Products to be delivered on a
date on or after January 12, 1998, and throughout the remainder of the Term,
Herbalife agrees to purchase, and
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shall cause Herbalife's Affiliates, to purchase from Supplier, subject to and on
the terms and conditions set forth herein, all Supplied Products that Herbalife
or any Affiliate may determine at Herbalife's or any Affiliate's sole discretion
to order, and Supplier agrees to manufacture and sell to Herbalife or any
Affiliate such Supplied Products, subject to and on the terms and conditions set
forth herein. Herbalife shall not, and Herbalife shall cause its Affiliates not
to, purchase Supplied Products from any other person or entity during the Term.
(b) Other Offered New Products. Herbalife has informed Supplier, and
Supplier hereby acknowledges and agrees, that Herbalife and its Affiliates will,
during the Term, purchase only Supplied Products, including Modified Supplied
Products, from Supplier and will not purchase from Supplier any new or other
products offered by Supplier.
6. ORDER PROCEDURE FOR PRODUCTS.
(a) Open Blanket Purchase Order. At the commencement of each calendar
year during the Term commencing with purchase orders for Supplied Products to be
delivered on or after January 12, 1998, Herbalife or any Affiliate shall
initiate orders hereunder by placing a preliminary estimated order as to the
Supplied Products for each territory or country (the "Open Blanket Purchase
Order") listing the types and quantities of the Supplied Products estimated to
be purchased by Herbalife for delivery in the ensuing year. Each Open Blanket
Purchase Order shall be in substantially the form of the Open Blanket Purchase
Order for the first calendar year, which commences on January 12,1998 and ends
on December 31, 1998.
(b) Open Blanket Purchase Order Subject to Approval of Samples. Each Open
Blanket Purchase Order shall not be effective as a preliminary estimated order
in relation to any Modified Supplied Product until Herbalife, upon Herbalife's
request, has been provided with samples of each type of Modified Supplied
Products ordered therein and has determined that the samples are in conformity
with the Quality Standards established by Herbalife and Supplier pursuant to
Section 3 of this Agreement.
(c) Shipping Schedules and Firm Purchase Orders. For each delivery of
Supplied Products requested hereunder, Herbalife or any Affiliate shall, not
later than twelve (12) weeks prior to the anticipated shipping date of Supplied
Products, provide Supplier with a shipping schedule specifying the products and
quantities estimated to be purchased. Supplied Products on the shipping schedule
may be modified by Herbalife or any Affiliate up until and shall not become firm
binding purchase orders until the date being eight (8) weeks prior to the
scheduled shipping date. Supplier shall receive from Herbalife or any Affiliate
purchase orders or order addenda, formula approval, product specifications,
packaging specifications, and any other materials supplied by Herbalife or any
Affiliate to Supplier to the extent necessary to produce and ship the Supplied
Product, including sufficient labels and product inserts (collectively, the
"SHIPPING MATERIALS"). If Supplier is unable to make a shipment due to a failure
on Herbalife's or any Affiliate's part to provide the Shipping Materials
described above, the affected Supplied Product requirement shall remain on the
shipping schedule and shall be shipped as soon as commercially reasonable after
all the necessary Shipping Materials are received by Supplier. Upon receipt by
Supplier of all Shipping Materials, Supplier shall accept the shipping schedule
as submitted by Herbalife or any
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Affiliate by signing and returning a copy to Herbalife's Material Control
Department. Modifications to the shipping schedule may be made by Herbalife at
any time; provided however, if modifications are made by Herbalife or any
Affiliate less than eight (8) weeks prior to the scheduled shipping date,
Supplier shall use commercially reasonable efforts to attempt to satisfy the
requested modification.
(d) Cooperative Efforts In Establishing Schedules. The parties shall
cooperate fully with each other to provide pertinent information to each other
to enable timely delivery by Supplier of Supplied Products to Herbalife
hereunder.
(e) Affiliate Invoicing. If at any time on or after the date hereof
during the Term any Affiliate shall place any order for Supplied Products to be
delivered on or after January 12, 1998, Supplier agrees to transmit any
applicable invoice directly to the Affiliate concerned, with a copy thereof
being sent by facsimile transmission to Herbalife at the time of transmission to
the Affiliate concerned.
7. PRICES.
(a) For Supplied Products. For all Supplied Products to be delivered on a
date on or after January 12, 1998 and continuing in effect for the remainder of
the Term, Herbalife shall pay Supplier the prices set forth on Exhibit A
(collectively, the "PRICES"); provided however, that on March 31, 1998, and at
the end of each calendar quarter thereafter during the Term (an "Adjustment
Date), either party may request that the prices for the Supplied Products be
adjusted upwards or downwards, effective from the next succeeding Adjustment
Date forward for the next succeeding calendar quarter, according to the
adjustment calculations described in this Section 7. The Prices with respect to
any of the Modified Supplied Products shall be the same as those prices set
forth on Exhibit A hereto against the initial Supplied Products of which the
Modified Supplied Products are a modification, improvement, alteration,
enhancement or successor, and shall be subject to adjustment only as set forth
in this Section 7(a). Supplier shall advise Herbalife in writing in the event
that there is any net variation upwards or downwards in the aggregate actual
cost of all raw materials used to produce a Supplied Product The Prices shall be
adjusted upwards or downwards by the amount that the net variation in the
aggregate actual cost of all raw materials used to produce a Supplied Product,
if added to or subtracted from, as the case may be, that Supplied Product's
Price, exceeds five percent (5%); provided however, that the party requesting
the adjustment shall first have delivered to the other party independent
documentation in reasonable detail (including published commodity prices or
other relevant published information where available) verifying such variation
and that the variation is not due to factors solely applicable to or solely
affecting Supplier. Once the adjustment has been justified by independent
documentation as described above, the adjustment shall be effective as of the
next succeeding Adjustment Date. Any variation in Supplier's labor or overhead
expenses shall not be taken into account in determining any change in cost of
the Supplied Product pursuant to this Section 7 on any Adjustment Date. If no
adjustment is requested by either party or if any requested adjustment is not
justified, the prices shall remain unchanged until the next succeeding
Adjustment Date. The Prices for Supplied Products shall include the cost of
manufacturing, packaging (with product insert and materials
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provided by Herbalife), labeling (with labels provided by Herbalife), insuring,
shipping and delivery by Supplier to the Local Delivery Point set forth in
Section 10 below.
8. INTELLECTUAL PROPERTY.
(a) Licenses of the Formulas. Subject to the confidentiality provisions
in Section 14 below with respect to the obtaining of any consent or license of
any person or entity whose consent or license is required, Supplier shall use
its best efforts throughout the Term to obtain the consent of or license from
each such person or entity whose consent or license is required so as to enable
Herbalife or any Affiliate to use, for as long as permitted by such person or
entity, on terms no less favorable than those obtained by Supplier, the Formulas
for manufacturing on behalf of Herbalife or any Affiliate, after the Term, in
commercial and non-commercial quantities the Supplied Products. Promptly
following the granting of such consent or license to such a Supplied Product, if
Herbalife or any Affiliate has not received the Formulas for any such Supplied
Product from the third party licensee thereof, Supplier shall provide Herbalife
or any Affiliate with those Formulas pursuant and subject to the terms and
conditions hereof and of any third party license to enable Herbalife or any
Affiliate to exercise the rights and licenses so granted herein.
(b) Trademarks. Herbalife or any Affiliate hereby grants to Supplier a
limited, non-exclusive, non-transferable royalty-free license solely to use
Herbalife's trademarks, trade names, and logos (the "TRADEMARKS") in labeling
and packaging the Supplied Products for Herbalife, for the remainder of the Term
only and not thereafter, and at all times subject to the terms and conditions of
this Agreement. Supplier hereby agrees that only the Trademarks shall be affixed
to the Supplied Products. Supplier shall have no rights to use the Trademarks
other than for purposes of labeling and packaging Supplied Products pursuant to
this Agreement which labeling and packaging shall be in form and substance
satisfactory to Herbalife or any Affiliate. Supplier agrees to submit copies of
the proposed manner, use and layout of the Trademarks for approval by Herbalife,
in Herbalife's or any Affiliate sole discretion, prior to Supplier using the
Trademarks as set forth herein. Supplier shall not use the Trademarks in
advertising or promotional campaigns or otherwise, or use any confusingly
similar names, marks or logos, in any manner that, in Herbalife's sole
discretion, may be inconsistent with Herbalife's public image or be misleading
or harmful to Herbalife. In the event of termination, expiration, or non-renewal
of this Agreement, Supplier shall not have any right to sell any Supplied
Products remaining in any of Supplier's inventory unless all Trademarks are
removed from the Supplied Products. Supplier acknowledges and agrees that
Herbalife reserves and retains any and all rights not expressly granted
hereunder to Supplier and Supplier shall not claim any rights that are not
expressly granted or set forth hereunder to Supplier.
(c) Infringement. Supplier shall promptly notify Herbalife or any
Affiliate of any actual or apparent infringement of Herbalife's or any Affiliate
rights to any of the Formulas for the Supplied Products or Trademarks of which
Supplier obtains actual knowledge. Herbalife may, at its sole option and
expense, prosecute any suit it deems necessary or appropriate to protect any of
Herbalife's or any Affiliate rights to the Formulas for the Supplied Products or
Trademarks from and against infringement by third parties anywhere in the world
and Supplier shall cooperate fully with Herbalife or any Affiliate in connection
with any such action.
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9. SERVICE LEVELS.
(a) Required Service Levels. For all Supplied Products to be delivered on
a date on or after January 12, 1998 and continuing thereafter until midnight of
the last day of the Term, Supplier shall use its best efforts to provide the
same level of service and quality of products that it has provided to Herbalife
and Herbalife's Affiliates, taken as a whole, under the Dynamic Initial
Agreement (the "INITIAL SERVICE LEVEL"). However, in the event of a Change in
Control (as defined in Section 13(d) below) of Supplier and this Agreement has
not been terminated by Herbalife, Supplier shall for each Supplied Product meet
an industry standards service level (the "SUBSEQUENT SERVICE LEVEL"), calculated
in reference to the ratio of the number of cases of Supplied Products delivered
which meet the Quality Standards to the number of cases ordered, based on
Herbalife's and Herbalife's Affiliates, taken as a whole, eight (8) week
ordering volume; provided however, that the determination of any Subsequent
Service Level shall take into account, and give Supplier a credit for, the
extent to which Supplier shall have timely satisfied any modification to any
shipping schedule which accelerates a delivery date or substitutes Supplied
Products to be delivered, which modification shall have been made by Herbalife
or any Affiliate less than eight (8) weeks prior to the scheduled shipping date.
If Supplier fails to meet the Initial Service Level or the Subsequent Service
Level (on a rolling average) for any Supplied Product for any sixteen (16) week
period and, after receipt of notice of such failure, also fails to meet the
Initial Service Level or Subsequent Service Level (on a rolling average) for any
Supplied Product for the eight (8) week period subsequent to receipt of the
notice, Supplier shall be deemed to be in breach of this Agreement, and
Herbalife may, without prejudice to any other remedy available to Herbalife
hereunder, terminate this Agreement under Section 13(b), or alternatively
terminate this Agreement only with respect to such Supplied Product and
Herbalife or the Affiliate concerned shall be able to enter into agreements with
third party suppliers with respect to all such Supplied Products as may no
longer be covered by this Agreement.
(b) Compliance with Shipping Schedules. Supplier agrees to use its best
efforts in accordance with industry standards to meet the shipping schedules as
determined in accordance with Section 6(c) and (d) above. Except as provided in
Section 6(c) above, under no circumstances shall Supplier alter any agreed-upon
shipping schedule without the prior written consent of Herbalife, which consent
may not be unreasonably withheld by Herbalife. Notwithstanding any provision in
this Agreement to the contrary, if Herbalife has failed (other that following a
breach of this Agreement by Supplier) to meet its payment obligations under
Section 11 with respect to any good faith undisputed portion of any invoice, and
within ten (10 days after receipt of written notice from Supplier that the good
faith undisputed portion of such invoice has not been paid, Supplier, in its
sole discretion, shall be entitled to refrain from shipping Supplied Product to
Herbalife or the Affiliate concerned until such time as all then delinquent
payments have been caused to be made by Herbalife.
(c) Defective Products. Upon inspection of any Supplied Product by
Herbalife or any Affiliate, if Herbalife or any Affiliate reasonably determines
that any Supplied Product or an entire lot of Supplied Products delivered by
Supplier fails to meet the Quality Standards or is otherwise defective (the
"DEFECTIVE PRODUCTS"), Herbalife shall notify Supplier thereof within twenty-one
(21) business days (or such other period as may be mutually agreed for
particular Supplied Products
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or shipments) after Herbalife or the Affiliate concerned have received such
Supplied Products from Supplier or discovery of the defect, whichever is later.
Within said twenty-one (21) day period, Herbalife or the Affiliate concerned
shall provide Supplier with a sample of each such Defective Product, lot
identification information and the original package for Supplier's review and
analysis. Upon mutual agreement between Herbalife and Supplier that such product
is a Defective Product, Supplier shall, (i) at Supplier's expense, ship
replacement Supplied Products to the prior final destination of the Defective
Product as soon as commercially possible and, (ii) in its sole discretion,
determine whether Defective Products should be returned to Supplier or
destroyed, in each case at Supplier's expense.
(d) Shortfall. Upon inspection of any Supplied Product by Herbalife or
any Affiliate, if Herbalife or any Affiliate reasonably determines that there is
a shortfall in any Supplied Product delivered by Supplier hereunder (the
"SHORTFALL"), Herbalife shall notify Supplier thereof within twenty-one (21)
business days (or such other period as may be mutually agreed for particular
Supplied Products) after Herbalife or the Affiliate concerned have received such
Supplied Products from Supplier, or discovery of the shortfall, whichever is
later. In the event of a Shortfall in any delivery of Supplied Products by
Supplier hereunder, Herbalife or the Affiliate concerned shall, within said time
period, advise Supplier of the quantity of the claimed shortfall the product
lot number and date of shipment for Supplier's review. Upon mutual agreement
between Herbalife and Supplier that a Shortfall exists, Supplier shall, at
Supplier's expense, ship replacement quantity of Supplied Products to the Local
Delivery Point (as defined in Section 10) of the Supplied Products suffering
from the Shortfall to fulfill the entire obligation to be performed by Supplier
as soon as commercially possible, provided that Supplier shall use its best
efforts to make any such shipment within twenty-one (21) business days after
receiving notification of such Shortfall.
(e) Inventory Levels. Supplier shall use its best efforts to maintain
inventory levels of raw materials of a sufficient quantity of Supplied Products
to meet purchase order requirements on a timely basis.
10. DELIVERY AND TITLE. The Supplied Products shall be delivered F.O.B. to
Herbalife's distribution center in Carson, California or to such other
destination within Los Angeles County or Orange County, California determined by
Herbalife or any Affiliate and designated in writing by Herbalife or any
Affiliate (the "LOCAL DELIVERY POINT"), or to any other destination determined
by Herbalife or any Affiliate and designated in writing by Herbalife or any
Affiliate. In the case of delivery to a Local Delivery Point, the risk of loss
and title shall pass to Herbalife or any Affiliate upon delivery to the Local
Delivery Point, and transport, insurance, and other costs, charges, and duties
beyond the Local Delivery Point shall be borne by Herbalife or the Affiliate
concerned; provided however, that title and risk of loss shall not pass to
Herbalife or any Affiliate for any Defective Products rejected by Herbalife
pursuant to Section 9(c) above. For deliveries made to a location other than a
Local Delivery Point, unless the parties otherwise agree, risk of loss and title
shall pass to Herbalife or any Affiliate at Supplier's dock and transport,
insurance and other costs, charges and duties beyond Supplier's dock shall be
borne by Herbalife or the Affiliate concerned; provided however, that title and
risk of loss shall not pass to Herbalife or any Affiliate for any Defective
Products rejected by Herbalife pursuant to Section 9(c) above. No delivery shall
be made and title shall not pass under this Agreement for any Supplied Product
until January 12, 1998.
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11. PAYMENT TERMS. Herbalife shall cause payment for the Supplied Products
purchased from Supplier under the terms of this Agreement to be made no later
than thirty (30) days from the later of the date of delivery of or the date of
invoice for Supplied Products meeting the Quality Standards. Payment made on any
invoice within ten (10) days from the date of delivery or invoice, as the case
may be, for Supplied Products meeting the Quality Standards shall be entitled to
a 1% discount (the "1% DISCOUNT"), provided there is no outstanding unpaid
portion of any invoice from Supplier to Herbalife or any Affiliate which
predates the invoice to be paid by Herbalife or any Affiliate to Supplier and
which is not subject to a good faith dispute (a "PREDATED INVOICE"). In the
event that Supplier objects to Herbalife's or any Affiliate's taking of the 1%
Discount, which objection is as a result of Supplier's good faith belief that
there exists a Predated Invoice, then Supplier shall give Herbalife five (5)
business days' written notice to cause payment to be made of the Predated
Invoice. If Supplier fails to give Herbalife the five (5) business days' written
notice, or if Supplier does give the five (5) business days' written notice and
Herbalife causes payment of the Predated Invoice within two (2) business days of
receipt of the notice, then Herbalife or the Affiliate concerned shall be
entitled to the 1% Discount. Any invoice or portion thereof which is the subject
of a good faith dispute shall not prevent Herbalife from being entitled to take
the 1% Discount. Without prejudice to any other remedy that Herbalife may have
at law or in equity, Herbalife or the Affiliate concerned shall be entitled, at
its option, to (i) a refund of the amount paid for any Defective Product or
Shortfall that is not cured pursuant to the terms and conditions of this
Agreement, or (ii) a credit of the amount paid for any Defective Product or
Shortfall that is not cured pursuant to the terms and conditions of this
Agreement against future purchases of Supplied Products.
12. QUALITY ASSURANCE, INSPECTION AND DOCUMENTS. Supplier shall maintain Good
Manufacturing Practices and Standard Operating Procedures as defined and
required by the United States Food and Drug Administration, and shall fully
comply with all other United States Food and Drug Administration regulatory
requirements and the regulatory requirements of the State of California and make
such adjustments as may be necessary to effect and maintain such compliance. If
Herbalife advises Supplier of the regulatory requirements of any other
jurisdiction, then Supplier shall use its best efforts to comply therewith in
the manufacture of Supplied Products. Herbalife, or Herbalife's designated
agents (approved by Supplier, which approval shall not be unreasonably
withheld), shall have the right from time to time, on reasonable notice and
during business hours, to inspect Supplier's manufacturing facility, production
line, raw materials storage areas and all other places, that relate to the
production of Supplied Products, including a general quality assurance review of
Supplier's facilities used in the production and manufacture of Supplied
Products. Additionally, Herbalife, or Herbalife's designated agents (approved by
Supplier, which approval shall not be unreasonably withheld), may submit any
Supplied Product to any and all forms of chemical analysis, testing and review
as may be appropriate to determine whether such Supplied Product contains the
ingredients set forth on any label thereto and otherwise meets the Quality
Standards and the other terms and conditions hereof. Upon request by Herbalife,
or Herbalife's designated agents (approved by Supplier, which approval shall not
be unreasonably withheld), of Supplier, Supplier shall furnish Herbalife with
(i) a Certificate of Analysis, prepared in accordance with the requirements of
the Food, Drug and Cosmetic Act of 1938 and the rules and regulations of the
United States Food and Drug Administration promulgated thereunder as an
assurance that the Supplied Products were made in compliance with Supplier's
Good Manufacturing Practices and
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Standard Operating Procedures, (ii) information and copies of documents to
enable Herbalife to assure that the Supplied Products comply with the labeling
claims made for the Supplied Products, (iii) information and copies of documents
necessary for Herbalife to secure all U.S., state and foreign governmental
licenses, registrations or approvals for the Supplied Products, and (iv)
information and copies of documents necessary for Herbalife to respond to all
U.S., state and foreign governmental inquiries or requests.
13. TERMINATION.
(a) Supplier's Right to Terminate. Supplier may terminate this Agreement
(i) sixty (60) days following written notice to Herbalife of a default in
Herbalife's net payment obligation under Section 11, (ii) sixty (60) days
following written notice to Herbalife of a material breach by Herbalife of any
of its obligations, representations, warranties or covenants hereunder or under
any other written agreement between Supplier and Herbalife (including without
limitation the Dynamic Initial Agreement after the date hereof, but prior to
expiration thereof or the Release Agreement executed concurrently herewith), if
such breach has not been cured within such sixty (60) day period, or (iii)
immediately, following the Insolvency (as defined in (c) below) of Herbalife.
(b) Herbalife's Right to Terminate. Herbalife may terminate this
Agreement (i) sixty (60) days following written notice to Supplier, of a
material breach by Supplier of Supplier's obligations, representations,
warranties or covenants hereunder or, under any other written agreement between
Supplier and Herbalife (including without limitation the Dynamic Initial
Agreement after the date hereof but prior to the expiration thereof or the
Release Agreement executed concurrently herewith), if such breach has not been
cured within such sixty (60) day period, (ii) immediately, following the
Insolvency (as defined in (c) below) of Supplier, (iii) immediately following a
failure by Supplier to meet the service level requirements of Section 9 above,
or (iv) immediately following a Change in Control (as defined in (d) below) of
Supplier.
(c) Insolvency. "INSOLVENCY" shall mean that, with respect to Supplier or
Herbalife, as the case may be, such entity shall (i) make a general assignment
for the benefit of creditors or an agent authorized to liquidate its assets,
(ii) become the subject of an "order for relief" within the meaning of the
United States Bankruptcy Code, and such order is not stayed within thirty (30)
days, (iii) file a petition in bankruptcy or for reorganization, or effect a
plan or other arrangements with creditors, (iv) file an answer to a creditor's
petition, admitting the material allegations thereof, for involuntary bankruptcy
or for reorganization or to effect a plan or other arrangement with creditor,
(v) apply to a court for the appointment of a receiver or custodian for
substantially all of its assets or properties, with or without consent, and such
receiver is not discharged within thirty (30) days after appointment or (vi)
adopt a plan of complete liquidation of its assets.
(d) Change in Control, A "CHANGE IN CONTROL" shall mean that, without the
prior written consent of Herbalife, which consent shall not be unreasonably
withheld, (i) any sale, merger, reorganization, transfer, pledge, granting of an
option, or any other like event or action that results in a third party having
an interest in any of the issued and outstanding capital stock of Supplier (on a
fully-diluted basis) such that Fred Siegel and Richard Marconi (A) no longer own
fifty percent (50%) of such capital stock, or (B) no longer have the authority
and power to elect a majority of the
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directors of Supplier or (C) no longer have the authority to direct and control
the management and affairs of Supplier, (ii) any assignment, sale, transfer,
pledge, granting of an option, hypothecation or any other like event or action
that results in a third party having an interest in all or substantially all of
Supplier's assets, or (iii) both of Fred Siegel and Richard Marconi ceasing to
be actively involved as senior executive employed officers of Supplier and
responsible for the day-to-day operation and management of Supplier for a period
greater than sixty (60) days, without the prior written consent (in each such
case) of Herbalife, which consent shall not be unreasonably withheld. Any
hypothecation made in the ordinary course of business that does not result in a
Change in Control shall not require the consent of Herbalife. In determining
whether to withhold its consent, Herbalife may consider the reputation of and
the qualifications and financial ability of any person or entity in whose favor
any Change in Control is proposed to be made (the "TRANSFEREE") to manufacture
and supply Supplied Products of at least the same level of quality and service
level as Supplier, the business of the Transferee, and in particular whether or
not the Transferee engages in multi-level marketing activities.
(e) Remedies on Termination. Supplier, on the one hand, and Herbalife, on
the other hand, have each considered the possibility that the parties will incur
expenses in preparing for performance of this Agreement and that the parties
will incur expenses and suffer losses as a result of termination (if other than
as a result of expiration or non-renewal of this Agreement). In the event of a
breach by a party of this Agreement the non-defaulting party may pursue whatever
remedies are available under this Agreement or by law. Any termination hereof
shall not impair any rights nor discharge any obligations which have accrued to
the parties as of the effective date of such termination.
(f) Effect of Expiration or Termination. Subject to Supplier's rights
under Section 13(g) if this Agreement is terminated by Supplier pursuant to
Section 13(a) hereof, in the event of any termination, expiration or non-renewal
of this Agreement for any reason, (i) the provisions of the Release Agreement
and this Section 13 and Sections 2(a), 8, 11 and 12 above and Sections 14, 18,
22 and 30 below shall be unaffected thereby, (ii) all rights and licenses in and
to those of the Supplier Formulas granted to Herbalife or any Affiliate on the
terms and conditions set forth in Section 8(a) above shall remain unaffected
thereby and shall continue in full force and effect, and (iii) Herbalife or any
Affiliate shall be entitled to sell and distribute all Supplied Products in its
inventory.
(g) Effect of Termination for Cause. If Supplier terminates this
Agreement pursuant to Section 13(a) hereof, then in that event:
(i) Herbalife shall purchase (A) all Supplied Products remaining in
Supplier's inventory for which an estimated or firm purchase order had been
placed, at the prices specified in this Agreement, and (B) following Supplier's
reasonable efforts to mitigate, all raw materials in Supplier's inventory
specifically procured by Supplier for use in manufacturing Supplied Product to
Herbalife under this Agreement at a price equal to Supplier's actual cost,
including incoming freight, plus costs incurred for labor, material testing and
storage. Notwithstanding any contrary provision, if Herbalife terminates this
Agreement pursuant to Section 13(b) hereof, Herbalife shall
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have no obligation to purchase any Supplied Products or raw materials in
Supplier's inventory, or to take delivery of any Supplied Products ordered prior
to the date of such termination.
(ii) Notwithstanding any contrary provision herein, Supplier may pursue
whatever remedies are available to it by law or otherwise, including but not
limited to any monetary damages available to Supplier for any breach of this
Agreement by Herbalife.
14. CONFIDENTIAL INFORMATION.
(a) Non-Disclosure. Subject to Sections 8 above, and 14(b) and 14(d)
below, each party shall preserve in strict confidence any confidential
information obtained or made available pursuant to this Agreement, on or after
the date hereof, from the other party by it or any of its subsidiaries or
affiliates or any of its or their directors, officers, employees, agents or
other representatives concerning the Supplied Products or the Formulas or in
order for each party to exercise its rights or perform its obligations under
this Agreement including, without limitation, Supplied Product prices, marketing
surveys, and information concerning the design and specifications of the
Supplied Products or the Formulas ("CONFIDENTIAL INFORMATION"), and agrees to
refrain from (i) disclosing, during the Term or at any time thereafter, any such
Confidential Information to any person or entity or (ii) using, during the Term
or, at any time thereafter, such Confidential Information for any purpose,
except as otherwise necessary to exercise its rights or perform its obligations
under this Agreement or for evaluation of Supplied Products. Each party agrees
to keep confidential, not disclose, provide or otherwise make available in any
form such Confidential Information to any person other than authorized
employees, agents or other representatives of each party with a need to know.
(b) Permitted Disclosure. Notwithstanding the foregoing, nothing
contained in this Section 14 shall prohibit any party from disclosing
Confidential Information in the event such disclosure (i) is permitted pursuant
to Section 14(d) below, (ii) is, or becomes, during the Term, available in the
public domain not as a result of a breach of this Agreement, (iii) was
rightfully in the receiving party's possession or was part of the receiving
party's general knowledge at the time of its disclosure by the disclosing party;
provided however, that any information concerning the Formulas, the contents of
the Formulas or any portion thereof, or any information related to the Formulas
or their specifications in Herbalife's possession or part of its general
knowledge as of the date of execution of this Agreement may and shall not be
disclosed by Herbalife until January 12, 1998 except to the extent necessary
prior to January 12, 1998 to utilize the rights and licenses granted to
Herbalife pursuant to Section 8(a) of this Agreement, (iv) is rightfully
received by the receiving party from a third party without any duty of
confidentiality and the receiving party can clearly demonstrate the independent
origin of such information, or (v) is required by any governmental authority
having jurisdiction over that party asserting a right to obtain such
information; provided however, that prior to any such disclosure pursuant to
this clause (v) (except where such disclosure is required to be made to a
governmental authority in order for Herbalife to qualify Formulas in any
jurisdiction) the party concerned shall promptly advise the other party in the
event of any request by a governmental authority for the Confidential
Information and shall cooperate with the other party to assert any right of
objection to such request or to seek a protective order or to take other
appropriate action to protect the Confidential Information.
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(c) Return of Materials Upon Termination. Upon termination this
Agreement, each party shall use reasonable efforts to return to the other party
all material and documents containing Confidential Information, or submitted by
the other party in confidence, including any copies or extracts thereof.
(d) Disclosure to Herbalife's Licensees. It is hereby expressly agreed
and understood that, Herbalife or any Affiliate may at any time disclose or make
available to any licensee of Herbalife or any licensee of any Affiliate (each a
"Herbalife Licensee") the Formulas or the contents of the Formulas or any
portion of such Formulas, (to the extent any person or entity whose consent or
license is required has so consented), for the purpose of manufacturing or
selecting or qualifying any person or entity to manufacture in commercial and
non-commercial quantities any Supplied Products to be delivered by or on behalf
of Herbalife on a date after the Term.
15. Representations, Warranties and Covenants.
(a) By Herbalife: Herbalife represents, warrants and covenants as
follows:
(i) Herbalife is a corporation duly organized, validly existing and
in good standing under the laws of California. Herbalife has full power and
authority to execute and deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by Herbalife and
constitutes a legal, valid and binding obligation of Herbalife.
(ii) The execution and delivery of, and performance by Herbalife of
its obligations under this Agreement, and the grant of rights and licenses by
Herbalife to Supplier and the consummation of the transactions contemplated
hereunder, will not result in a violation of, or be in conflict with, any
provision of its Articles of Incorporation, or result in a breach of or be in
conflict with, any material agreement to which Herbalife is a party or by which
it or its property is bound, or result in a violation of or be in conflict with,
or result in a breach of any term or provision of any judgment, order, decree or
award of any court, arbitrator or governmental authority binding upon Herbalife
or its property.
(b) By Supplier: Supplier represents, warrants and covenants as follows:
(i) Supplier is a corporation duly incorporated, validly existing
and in good standing under the laws of California. Supplier has full power and
authority to execute and deliver and perform its obligations under this
Agreement. This Agreement has been duly authorized, executed and delivered by
Supplier and constitutes a legal, valid and binding obligation of Supplier.
(ii) The execution and delivery of, and performance by Supplier of
its obligations under, this Agreement and the grant of rights and licenses by
Supplier to Herbalife and the consummation of the transactions contemplated
hereunder, will not result in a violation of, or be in conflict with, any
provision of the articles of incorporation of Supplier, or result in a breach
of, or be in conflict with, any material agreement to which Supplier is a party
or by which it or its property is bound, or result in a violation of, or be in
conflict with, or result in a breach of, any term or provision of any judgment,
order, decree or award of any court, arbitrator or governmental authority
binding upon Supplier or its property.
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(iii) Supplier has, or will have, the ability to manufacture and
supply all Supplied Products to be supplied by Supplier hereunder on January 12,
1998 and all Supplied Products to be supplied by Supplier hereunder as set forth
in the Open Blanket Purchase Orders delivered during the Term of this Agreement.
(iv)Upon delivery by Supplier to Herbalife or any Affiliate of
Supplied Products, subject to and in accordance with the terms and conditions of
this Agreement, Herbalife shall acquire good title free from all liens and
encumbrances.
(v) Supplier has complied, is complying and will continue to comply
with accepted industry practices and standards and all applicable laws in the
jurisdiction in which the Supplied Products are sold to Herbalife, including,
without limitation, state and local laws of the United States and the State of
California and the rules, orders, ordinances, decrees and regulations of the
United States and the State of California relating to or affecting the
manufacture of the Supplied Products. If Herbalife advises Supplier of the
regulatory requirements of any other jurisdiction, then Supplier shall use its
best efforts to comply therewith in the manufacture of Supplied Products. All
Supplied Products delivered to Herbalife or any Affiliate shall be prepared and
manufactured in a clean, safe and sanitary manner in full compliance with all
applicable federal and State of California laws, rules and regulations,
including without limitation, the Food, Drug and Cosmetic Act of 1938 and the
rules and regulations of the United States Food and Drug Administration
(including as to Good Manufacturing Practices or Standard Operating Procedures).
All Supplied Products delivered to Herbalife or any Affiliate shall be
manufactured in accordance with the Supplier Formulas used for products
currently supplied to Herbalife or any Affiliate under the Dynamic Initial
Agreement and shall be of no less quality than those products currently supplied
to Herbalife or any Affiliate under the Dynamic Initial Agreement.
(vi)All Supplied Products have been and will be clearly and
accurately labeled and packaged in the manner requested by Herbalife with labels
and inserts supplied by Herbalife or any Affiliate.
(vii) Supplier's manufacturing facility complies with all applicable
federal and California state laws, rules and regulations relating to the
operation thereof, including without limitation, all product safety, sanitation
and environmental laws, rules and regulations.
(viii) All Supplied Products purchased by Herbalife or any Affiliate
are free from defect, comply with the Quality Standards and are merchantable and
fit for their intended purpose. All Supplied Products shall be supplied in
commercial quantities sufficient to meet Herbalife's or any Affiliate's orders,
free of contamination or defect, and all reasonable care and skill shall be used
in manufacturing the Supplied Products.
(ix) Except as otherwise expressly provided in Section 8 above,
Supplier has not and shall not make any assertion, claim or demand against
Herbalife or any Affiliate, any Herbalife Licensee, or any officer, director,
shareholder, authorized employee, agent or other representative of Herbalife or
any Affiliate or of any Herbalife Licensee, with respect to any of the
foregoing's use or exploitation of any Supplier Formulas transferred or licensed
pursuant to Section 8 above.
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(x) So long as Supplier manufactures Supplied Products subject to any
license, grant or agreement (including royalty agreements) in favor of any third
party, Supplier shall remain responsible for paying the third party concerned
any royalties or license fees due on such Supplied Products.
(xi) Supplier is the valid licensee of the Supplier Formulas. To the
extent necessary to meet the obligations of Supplier under this Agreement
Supplier has been and shall remain at all times in full compliance with any
license, grant or agreement to which any of the Supplied Products is subject,
and each such license, grant or agreement remains and shall remain valid and in
full force and effect throughout the Term. Supplier has the power to grant the
rights and licenses granted by Supplier to Herbalife under this Agreement.
(xii) None of the Supplier Formulas or Supplied Products (or any raw
material or ingredient therein) transferred or licensed pursuant to Section 8
above or supplied hereunder by Supplier, nor the use thereof by Herbalife or any
Affiliate in accordance with the terms and conditions set forth herein,
infringes or shall infringe in any respect on any patents, copyrights,
trademarks, service marks, trade dress, trade secrets, proprietary or
confidential information or other intellectual property rights of any third
parties.
(xiii) Supplier agrees that, subject to Section 8 above, it shall not
at any time in any way infringe upon, any rights in or to any of the Formulas or
Trademarks or other intellectual property rights belonging to Herbalife or any
Affiliate or any Formulas or Trademarks or other intellectual property
registration belonging to Herbalife or any Affiliate in any territory or
country.
16. Insurance. Supplier shall maintain with effect from January 12, 1998
throughout the remainder of the Term, at its sole cost and expense, insurance
with financially sound and established reputable insurers of the type and
quantity (and with such risk retention) generally maintained by the companies of
established repute in Supplier's line of business, such insurance to include
without limitation, products liability insurance an amount no less than five
million dollars ($5,000,000) per occurrence. Supplier shall provide to
Herbalife, at least annually and otherwise upon reasonable request by Herbalife,
true copies of the certificates of coverage in respect of such insurance
policies, and Supplier shall not do anything or permit anything to be done that
may prejudice such insurance policies or omit to do anything where such omission
may prejudice those insurance policies, and shall observe and perform the terms
and conditions contained in each of such insurance policies.
17. Amendment or Waiver. This Agreement will not be amended, nor will any of
its terms be deemed to have been waived by either party, unless such amendment
or waiver is in writing in a document that specifically refers to this Agreement
and specifically states that it intends to amend this Agreement or waive a term
of this Agreement and such document is signed by the parties hereto. General
correspondence between the parties, invoices, purchase orders or any other
document exchanged between the parties not meeting the requirements of this
Section 17, will not be deemed to amend or waive any term of this Agreement. In
the event of any conflict between this Agreement and any other document,
including any purchase order, this Agreement shall prevail.
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18. Governing Law and Venue This Agreement will be governed by and construed
in accordance with the laws of the State of California, without regard to its
conflicts of laws principles. Any legal proceedings arising out of or in
connection with this Agreement shall be commenced and prosecuted in a court
located within Orange County, California.
19. Counterparts. This Agreement may be executed in multiple counterparts,
which taken together will constitute one instrument and each of which will be
considered an original for all purposes.
20. Time is of the Essence. The parties agree that time is of the essence
under this Agreement.
21. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(except as may otherwise be specifically provided herein to the contrary) if
delivered by hand, by a nationally recognized overnight delivery service, by
facsimile transmission followed by mail, or mailed by certified or registered
mail with postage prepaid:
(a) If to Supplier:
Dynamic Products, Inc.
7012 Belgrove
Garden Grove, California 92641
Attention: Fred E. Siegel, President
[Facsimile No.: (714) 633-1229]
(b) If to Herbalife:
Herbalife International of America, Inc.
1800 Century Park East, l4th Floor
Century City, California 90067
Attention: Robert A. Sandler, Esq.
Executive Vice-President and General Counsel
Facsimile No.: (310) 557-3906
or such other address or facsimile number as any of the persons designated above
may have specified in a notice or communication duly given to the other
designated person as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered or telecopied, or if
mailed, two business days thereafter.
22. Binding Effect; Non-Assignability. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto, their respective successors
and assigns; provided however, that, subject to Section 13(d), neither this
Agreement nor the rights and obligations of Supplier shall be assignable or
delegable by Supplier nor shall there be any Change in Control of Supplier
without the prior written consent of Herbalife, which consent shall not be
unreasonably withheld. Any purported transfer, assignment or delegation in
breach of this Section 22 shall be null and void.
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23. RELATIONSHIP OF THE PARTIES. The parties expressly understand and agree
that Supplier is an independent contractor in the performance of each and every
part of this Agreement, is solely responsible for all of its employees and
agents and its labor costs and expenses arising in connection therewith. It is
understood and agreed that no joint venture, partnership or agency relationship
is created or intended to be created by this Agreement and Supplier shall not be
deemed to be or become the representative or agent of Herbalife or any Affiliate
in any way in performing its obligations hereunder. Supplier shall make no
representation to any third party, either directly or indirectly, that it is in
any way authorized to act for or on behalf of Herbalife or any Affiliate or to
obligate Herbalife or any Affiliate in any way without the prior written
consent of Herbalife. Nothing in this Agreement is intended to, nor shall it be
construed to violate any statutes, rules or regulations of any jurisdiction
pertaining to anti-trust or anti-competition.
24. AFFILIATES. Herbalife shall assume the obligations under this Agreement
of any Affiliate failing to comply with any of the obligations of any Affiliate
pursuant to this Agreement.
25. IRREPARABLE HARM. The parties agree that their failure to comply with the
provisions of this Agreement may cause irreparable harm for which there may be
no adequate remedy at law and each may, therefore, enforce through equitable as
well as legal remedies the obligations set forth in this Agreement.
26. FORCE MAJEURE. Neither party shall be liable to the other party for
failure or delay in the performance of any of the obligations under this
Agreement (including delivery of Supplied Products supplied by Supplier) for the
time and to the extent such failure or delay is caused by reason of acts of God
or other cause beyond its reasonable control, including acts of government,
riots, war, interruption of transportation, strikes or other labor trouble,
shortage of labor, fire, storm, flood, earthquake, inability to obtain suitable
raw materials, products, parts, components, fuel or power, or extraordinary
price increases. The performance of obligations hereunder shall be suspended
during the existence of such causes, and upon cessation of such causes, shall
again be required; provided however, that the parties hereto shall use their
reasonable commercial efforts to minimize the consequences of such causes.
27. EXHIBITS AND SCHEDULES. Any Exhibit or schedule attached hereto is made a
part hereof and is fully incorporated herein by reference.
28. ENTIRE AGREEMENT. This Agreement embodies the entire understanding of the
parties hereto in relation to the purchase of Supplied Products by Herbalife or
any Affiliate from Supplier to be delivered on a date on or after January 12,
1998 and with respect to the subject matter of this Agreement. This Agreement
supersedes any other agreement between the parties with respect to the purchase
of Supplied Products by Herbalife or any Affiliate from Supplier to be delivered
on a date on or after January 12, 1998 and with respect to the subject matter of
this Agreement. There are no representations, promises, warranties,
understandings or agreements, express or implied, oral or otherwise, in relation
thereto, except expressly referred to or set forth herein.
29. AGREEMENT NEGOTIATED. The parties hereto are sophisticated and have been
represented by lawyers throughout this transaction who have carefully negotiated
the provisions hereof.
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30. REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy will be cumulative and will be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise. The election of any one or more remedies will not
constitute a waiver of the right to pursue other remedies available according to
law.
31. PARTIAL INVALIDITY. In the event that any of the provisions or portions
thereof of this Agreement are held to be unenforceable or invalid by any court
of competent jurisdiction, the validity and enforceability of the remaining
provisions or portions hereof will not be affected thereby.
32. INTERPRETATION. Section headings are included solely for convenience and
shall not constitute a part hereof. Unless the context otherwise requires, words
importing the singular shall be deemed to import the plural and vice versa.
33. THIRD PARTY BENEFICIARIES. No person or entity shall be a third party
beneficiary of this Agreement, except that any Affiliate shall be entitled to
enforce against Supplier the rights conferred upon that Affiliate by Supplier
hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
HERBALIFE INTERNATIONAL OF AMERICA, INC.
By: /s/ CHRISTOPHER PAIR
-------------------------------
Its: Chief Operating Officer
-------------------------------
By: /s/ CONRAD LEE KLEIN
-------------------------------
Its: Chief Business Affairs Officer
-------------------------------
DYNAMIC PRODUCTS, INC.
By: /s/ FRED E. SIEGEL
-------------------------------
Its: President
-------------------------------
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RELEASE AGREEMENT
THIS RELEASE AGREEMENT (the "Agreement") is entered into as of September
2, 1997, by and between Dynamic Products, Inc., a California corporation
("Dynamic") and Herbalife International of America, Inc., a California
corporation ("Herbalife"), with reference to the following facts:
RECITALS:
A. Dynamic and Herbalife are parties to that certain agreement executed
on May 12, 1993, as modified by a First Addendum To Agreement executed on May
18, 1993, which agreement may have thereafter been amended or modified from time
to time (as amended, the "Dynamic Initial Agreement").
B. Likewise, Herbalife and Raven Industries, Inc. d/b/a Omni-Pak
Industries, a California corporation ("Omni"), are parties to that certain
agreement executed on May 12, 1993, as modified by a First Addendum To Agreement
executed on May 18, 1993, which agreement may have thereafter been amended or
modified from time to time (as, amended, the "Omni Initial Agreement"), and
Herbalife and D&F Industries, a California corporation ("D&F") are parties to
that certain agreement executed on May 12, 1993, as modified by a First Addendum
To Agreement executed on May 18, 1993, which agreement may have thereafter been
amended or modified from time to time (as amended, the "D&F Initial Agreement").
C. The D&F Initial Agreement, the Dynamic Initial Agreement and the Omni
Initial Agreement are collectively referred to herein as the "Initial
Agreements". D&F, Dynamic and Omni are collectively referred to herein as the
"D&F Suppliers".
D. Each of the Initial Agreements will expire on January 11, 1998 in the
event that either of the parties thereto gives written notice of its decision to
cease the contractual relationship, which notice must be given not less than six
months prior to such expiration date.
E. Herbalife has provided written notice (which was delivered on a date
which was six months or more prior to January 11, 1998) to each of the D&F
Suppliers of its decision to cease the contractual relationship under the
Initial Agreements on January 11, 1998 and the Initial Agreements will expire on
January 11, 1998.
F. Each of the D&F Suppliers and Herbalife desires to enter into new
supply agreements to provide for the supply of certain nutritional supplement
and certain nonnutritional products to Herbalife on and after January 12, 1998,
which products are intended to be similar in type and form to those historically
manufactured and supplied
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by each of the D&F Suppliers to Herbalife. The supply agreement between
Herbalife and Dynamic (the "Dynamic Supply Agreement") and the two other new
supply agreements between Herbalife and Omni and Herbalife and D&F entered into
contemporaneously with the Dynamic Supply Agreement are collectively referred to
herein as the "New D&F Supply Agreements."
G. In addition, each of the D&F Suppliers and Herbalife will
concurrently with execution of the New D&F Supply Agreements enter into
substantially identical release agreements to provide for the release of all the
disputes between Herbalife and each of the D&F Suppliers, including without
limitation, with respect to the Initial Agreements or the amendment, extension
or renewal thereof and all other claims arising from events, actions or conduct
relating to the Initial Agreements on or prior to execution of the New D&F
Supply Agreements, except as set forth in the release agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
undertakings set forth below, and in reliance on the recitals set forth above,
Dynamic and Herbalife hereby agree as follows:
1. Resolution and Releases. This Agreement is intended to resolve all of
the parties' disputes, including without limitation, those arising with respect
to the Dynamic Initial Agreement or the amendment, extension or renewal thereof
and all other claims arising from events, actions or conduct relating to the
Dynamic Initial Agreement, or any other agreement or arrangement involving the
parties relating to the supply, procurement development, manufacturing,
production, marketing, sale or distribution of products (each a "Related
Arrangement"), as set forth herein. Nothing contained herein is intended to, nor
does it, constitute an admission of fault or liability of either party to the
other. To effectuate the resolution of their differences the parties hereto
agree as follows:
(a) Release of Herbalife. Dynamic, on behalf of itself, and its
affiliates, its successors, assigns, directors, officers, employees, agents,
attorneys, representatives and advisors (the "Dynamic Associates"), hereby
releases and forever discharges Herbalife, and its affiliates, successors,
assigns, directors, officers, employees, agents, attorneys, representatives and
advisors (the "Herbalife Associates"), of and from any and all claims, demands,
causes of action, damages or liabilities, losses, costs or expenses of any kind
in nature, fixed or contingent, direct or indirect, whether or not known,
suggested or claimed, existing on the date hereof or which any such person at
any time heretofore had, including without limitation, those that are contained
in, arise from or relate in any way to the Dynamic Initial Agreement or its
amendment, extension or renewal or any Related Arrangement and all other claims
arising from events, actions or conduct relating to the Dynamic Initial
Agreement or any Related Arrangement, which occurred or was done, suffered or
omitted on or prior to the date of this Agreement, except as set forth in
Exhibit A hereto. It is hereby expressly agreed and understood that Dynamic, and
the Dynamic Associates, release and waive all royalties that Dynamic, or
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the Dynamic Associates, at any time may have been or would at any time in the
future be entitled to receive in respect of Herbalife's products, including
without limitation Herbalife's fragrances and personal care products. Dynamic,
on behalf of itself, and the Dynamic Associates, hereby expressly releases and
forever discharges Herbalife, and the Herbalife Associates, of and from any and
all claims, demands, causes of action, damages or liabilities, losses, costs or
expenses of any kind in nature, fixed or contingent, direct or indirect, whether
or not known, suggested or claimed, with respect to the use or exploitation at
any time on, prior to or after the date hereof of any patent, copyright, trade
secret, know-how, information, documentation, technique, method, concept,
formula, formulation, recipe, ingredient, specification, design, menu, work
product, work-in-progress or intellectual property right, of any nature or kind
whatsoever, developed, conceived, created or learned by Dynamic, or the Dynamic
Associates, on or prior to the date of this Agreement. The releases set forth
above in this Section 1(a) shall not apply to the obligations required to be
performed under this Agreement or the Dynamic Supply Agreement.
(b) Release of Dynamic. Herbalife, on behalf of itself, and the
Herbalife Associates, hereby releases and forever discharges Dynamic, and the
Dynamic Associates, of and from any and all claims, demands, causes of action,
damages or liabilities, losses, costs or expenses of any kind in nature, fixed
or contingent, direct or indirect, whether or not known, suggested or claimed,
existing on the date hereof or which any such person at any time heretofore had,
including without limitation, those that are contained in, arise from or relate
in any way to the Dynamic Initial Agreement or its amendment, extension or
renewal or any Related Arrangement and all other claims arising from events,
actions or conduct relating to the Dynamic Initial Agreement or any Related
Arrangement which occurred or was done, suffered or omitted on or prior to the
date of this Agreement, except as set forth in Exhibit B hereto. The releases
set forth above in this Section 1(b) shall not apply to the obligations required
to be performed under this Agreement or the Dynamic Supply Agreement.
(c) Releases Apply to All Known and Unknown Causes of Action. It is
understood by Dynamic and Herbalife that there is a risk that subsequent to the
execution of this Agreement either party may incur or suffer loss, damage, or
injuries which are unknown or unanticipated at the time of the execution of this
Agreement. Further, there is risk that loss or damage presently known may be or
become greater than the parties now expect or anticipate. The parties assume
said risks, acknowledge that the releases contained herein shall apply to all
unknown and all unanticipated results arising from or relating to the matters
referred to above, as well as those known and anticipated, and, upon the advice
of respective legal counsel, Dynamic, and Herbalife each waive all rights under
California Civil Code Section 1542 and any comparable provision under the law of
any other jurisdiction with respect to the matters released. California Civil
Code Section 1542 reads as follows:
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A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.
(d) Representations and Warranties as to No Assignment of
Claims. Dynamic and Herbalife each represents and warrants to the other that
each has not assigned or transferred to any other person, firm or corporation in
any manner, including by way of subrogation or operation of law or otherwise,
all or any portion of any claim, demand, right, action or cause of action that
each has had, have or might have arising out of the matters released hereby nor
all nor any portion of any recovery or settlement to which they might be
entitled. In the event that any claim, demand or suit should be made because of
any such purported assignment, subrogation or transfer, the party from whom such
purported assignment, subrogation or transfer was alleged to have been made
agrees to indemnify and hold the other party hereto harmless against such claim,
demand or suit and any necessary expenses of investigation, attorneys' fees and
costs.
(e) Representations and Warranties as to No Material Breach of
the Dynamic Initial Agreement. Dynamic and Herbalife each represents and
warrants to the other that, as of the date of this Agreement, to the best of its
knowledge, each has not committed any material breach of, nor has there occurred
any event which would require or permit or could reasonably be anticipated to
permit the termination of the Dynamic Initial Agreement prior to January 11,
1998.
(f) Representations and Warranties as to Advice Of Counsel,
Dynamic and Herbalife each represents and warrants to the other that each has
received advice from legal counsel of its own choice, as to the form and
substance of this Agreement, and as to the advisability of agreeing to its
terms, and that, based upon such advice, such party agrees to be bound by the
terms of this Agreement.
(g) Media Relations. Dynamic and Herbalife will issue a mutual
press release regarding this Agreement and the matters covered herein in the
form attached hereto as Exhibit C hereto. The parties further agree that they
will not disparage each other in any oral or written public statements
concerning any matters related to or arising from this Agreement.
(h) Authority. Dynamic and Herbalife each represents and warrants
to the other that its execution of this Agreement has been fully and validly
authorized and approved by all requisite corporate action, and no further action
is necessary to make this Agreement and all acts contemplated hereby valid and
binding on itself in accordance with the terms hereof.
2. Amendment or Waiver. This Agreement will not be amended, nor will any
of its terms be deemed to have been waived by either party, unless such
amendment or waiver is in writing in a document that specifically refers to this
Agreement and specifically states that it intends to amend this Agreement or
waive a term of this Agreement and such document is signed by the parties
hereto. General correspondence
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between the parties, invoices, purchase orders or any other document exchanged
between the parties not meeting the requirements of this Section 2, will not be
deemed to amend or waive any term of this Agreement. In the event of any
conflict between this Agreement and any other document this Agreement shall
prevail.
3. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California, without regard to its
conflicts of laws principles. Any legal proceedings arising out of or in
connection with this Agreement shall be commenced and prosecuted in a court
located within Orange County, California.
4. Counterparts. This Agreement may be executed in multiple
counterparts, which taken together will constitute one instrument and each of
which will be considered an original for all purposes.
5. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(except as may otherwise be specifically provided herein to the contrary) if
delivered by hand, by a nationally recognized overnight delivery service, by
facsimile transmission followed by mail, or mailed by certified or registered
mail with postage prepaid:
(a) If to Dynamic:
Dynamic Products, Inc.
7012 Belgrave
Garden Grove, California 92641
Attention: Fred E. Siegel, President
Fax: (714) 633-1229
(b) If to Herbalife:
Herbalife International of America, Inc.
1800 Century Park East, 15th Floor
Century City, California 90067
Attention: Robert Sandler, Esq.
Facsimile No.: (310) 557-3906
or such other address or facsimile number as any of the persons designated above
may have specified in a notice or communication duly given to the other
designated person as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered or telecopied, or if
mailed, two business days thereafter.
6. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto, their respective successors and assigns.
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7. Exhibits. Any Exhibit hereto is made a part hereof and is fully
incorporated herein by reference.
8. Entire Agreement. This Agreement embodies the entire understanding of
the parties hereto with respect to the subject matter of this Agreement. This
Agreement supersedes any other agreement between the parties with respect to the
subject matter of this Agreement. There are no representations, promises,
warranties, understandings or agreements, express or implied, oral or otherwise,
in relation thereto, except expressly referred to or set forth herein.
9. Partial Invalidity. In the event that any of the provisions or
portions thereof of this Agreement are held to be unenforceable or invalid by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions or portions hereof will not be affected thereby.
10. Irreparable Harm. The parties agree that their failure to comply
with the provisions of this Agreement may cause irreparable harm for which there
may be no adequate remedy at law and each may, therefore, enforce through
equitable as well as legal remedies the obligations set forth in this Agreement.
11. Agreement Negotiated. The parties hereto are sophisticated and have
been represented by lawyers throughout this transaction who have carefully
negotiated the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
HERBALIFE INTERNATIONAL OF
AMERICA, INC.
By: /s/ CHRISTOPHER PAIR
-------------------------------
Its: Chief Operating Officer
-------------------------------
By: s/ CONRAD LEE KLEIN
-------------------------------
ITS: Chief Business Affairs Officer
-------------------------------
DYNAMIC PRODUCTS, INC.
By: /s/ FRED E. SIEGEL
-------------------------------
ITS: President
-------------------------------
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EXHIBIT ___
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SUPPLY AGREEMENT
between
Raven Industries, Inc. d/b/a Omni-Pak Industries, a California corporation
and
Herbalife International of America, Inc., a California corporation
Dated as of September 2, 1997
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SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is entered into as of September 2, 1997,
by and between Raven Industries, Inc. d/b/a Omni-Pak Industries, a California
corporation ("SUPPLIER"), and Herbalife International of America, Inc., a
California corporation ("HERBALIFE"), with reference to the following facts:
RECITALS
A. Supplier and Herbalife are parties to that certain agreement executed
on May 12, 1993, as modified by a First Addendum To Agreement executed on May
18, 1993, which agreement may have thereafter been amended or modified from time
to time (as amended, the "OMNI INITIAL AGREEMENT").
B. Likewise, Herbalife and Dynamic Products, Inc., a California
corporation ("DYNAMIC"), are parties to that certain agreement executed on May
12, 1993, as modified by a First Addendum To Agreement executed on May 18, 1993,
which agreement may have thereafter been amended or modified from time to time
(as amended, the "DYNAMIC INITIAL AGREEMENT"), and Herbalife and D&F Industries,
a California corporation ("D&F"), are parties to that certain agreement executed
on May 12, 1993, as modified by a First Addendum To Agreement executed on May
18, 1993, which agreement may have thereafter been amended or modified from time
to time (as amended, the "D&F INITIAL AGREEMENT").
C. The D&F Initial Agreement, the Dynamic Initial Agreement and the Omni
Initial Agreement are collectively referred to herein as the "INITIAL
AGREEMENTS." Supplier, Dynamic and D&F are collectively referred to herein as
the "D&F SUPPLIERS."
D. Each of the Initial Agreements will expire on January 11, 1998, in the
event that either of the parties thereto gives written notice of its decision to
cease the contractual relationship, which notice must be given not less than six
months prior to such expiration date.
E. Herbalife has provided written notice (which was delivered on a date
six months or more prior to January 11, 1998) to each of the D&F Suppliers of
its decision to cease the contractual relationship under the Initial Agreements
on January 11, 1998 and the Initial Agreements will expire on January 11, 1998.
F. Each of the D&F Suppliers and Herbalife desires to enter into new
supply agreements to provide for the supply of certain nutritional supplement
products and certain non-nutritional products to Herbalife on and after January
12, 1998, which products are intended to be similar in type and form to those
historically manufactured and supplied by each of the D&F Suppliers to
Herbalife.
G. The new supply agreement between Herbalife and D&F entered into
contemporaneously herewith is referred to herein as the "NEW D&F SUPPLY
AGREEMENT".
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H. The terms and conditions of this Agreement and the New D&F Supply
Agreement are substantially similar except for product identity, pricing and
purchase amounts (this Agreement and the New D&F Supply Agreement are
collectively referred to herein as the "NEW D&F SUPPLY AGREEMENTS").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
undertakings set forth below, and in reliance on the recitals set forth above,
Supplier and Herbalife hereby agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined herein shall
bear the meanings and construction given to them below:
(a) General Definitions.
"AFFILIATE": Any business entity (not including any individual)
which, directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with Herbalife and which sells,
markets, deals with or comes into possession of Supplied Products during the
Term, including without limitation Herbalife of Japan K.K. If during the Term
any current Affiliate ceases to qualify as an Affiliate it shall continue to be
deemed an Affiliate for the purpose of this Agreement provided such business
entity sells, markets, deals with, or comes into possession of Supplied Products
during the Term.
"CURRENT COUNTRIES": The territories or countries set forth in
Exhibit B hereto.
"NUTRITIONAL SUPPLEMENT": Any powdered food or tea containing
vitamin, herb or mineral constituents for ingestion by humans, which are of a
type and form historically similar to those manufactured and supplied by
Supplier to Herbalife, and excluding, without limitation, (i) any food in
tablet or capsule form, whole foods, prepared foods, prepackaged and convenience
foods, dehydrated foods, snack foods, and energy bars, (ii) any tablet or
capsule containing vitamin, herbs or mineral constituents for ingestion by
humans, and (iii) all items of a non-nutritional nature, including without
limitation, personal care items, cosmetics, clothing, exercise equipment, and
water or air filtration or purification items.
"OTHER SUPPLIERS": Persons or entities other than Supplier, D&F or
Dynamic.
"Quality Standards": Written quality standards, for the manufacture
of Supplied Products, which are consistent with accepted industry practices and
standards and all applicable laws in the jurisdiction in which the Supplied
Products are sold by Supplier to Herbalife, including, without limitation,
standards as to quality assurance, preparation And manufacture in a clean, safe
and sanitary manner, which are mutually agreed upon by Supplier and Herbalife.
If Herbalife advises Supplier of the regulatory requirements of any other
jurisdictions relating to Quality Standards,
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Supplier shall use its best efforts to comply therewith in the manufacture of
Supplied Products for distribution in those jurisdictions.
(b) Formula Related Definitions.
"FORMULAS": The formulas and product specifications necessary for
the manufacture of products, together with any modification, improvement,
alteration, enhancement or successor to such formulas and product
specifications.
"SUPPLIER FORMULAS": Supplier Exclusive Formulas and Supplier
Non-Exclusive Formulas.
"SUPPLIER EXCLUSIVE FORMULAS": All Formulas for Current Products and
Supplier Developed New Exclusive Products, together with any modification or
improvement of, any alteration or enhancement to, and any successor to the
Formulas for Current Products and Supplier Developed New Exclusive Products
derived, developed, created or invented by Supplier or any agent of Supplier or
by any person or entity for whom Supplier is a valid licensee thereof.
"SUPPLIER NON-EXCLUSIVE FORMULAS": All Formulas for Supplier
Developed New Non-Exclusive Products, together with any modification or
improvement of, any alteration or enhancement to, and any successor to the
Formulas for Supplier Developed New Non-Exclusive Products derived, developed,
created or invented by Supplier or any agent of Supplier or by any person or
entity for whom Supplier is a valid licensee thereof.
"CONSTRUCTIVELY IDENTICAL FORMULAS": All Formulas, excluding
Substitute Formulas and Independent Formulas, the chemical composition of which
are not materially different from any Supplier Formula, and which are derived,
developed, created or invented by Herbalife or any Affiliate or any agent
thereof or any Other Supplier providing services to Herbalife.
"SUBSTITUTE FORMULAS": All Formulas, excluding Constructively
Identical Formulas and Independent Formulas, the chemical composition of which
are materially different from any Supplier Formula, and which are derived,
developed, created or invented by Herbalife or any Affiliate or any agent
thereof or any Other Supplier providing services to Herbalife, and which are a
substitute for any Supplier Formula.
"INDEPENDENT FORMULAS": All Formulas, excluding Constructively
Identical Formulas and Substitute Formulas, (including any modification or
improvement to such Formulas, any alteration or enhancement to such Formulas,
and any successor to such Formulas or substitute for such Formulas), the
chemical composition of which are materially different from any Supplier
Formula, and which are derived, developed, created or invented by Herbalife or
any Affiliate or any agent thereof or any Other Supplier providing services to
Herbalife, and which are not a modification or improvement of, an alteration or
enhancement to, or a successor to or substitute for any Supplier Formula.
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"COMPETITIVE PRIMARY MANUFACTURE FORMULAS": Those of the Substitute
Formulas, which are Formulas for Rights Of First Refusal Substitute Products For
Primary Manufacture and listed on Exhibit E hereto pursuant to Section
5(b)(ii)(F) below, as a result of being competitive as referred to in Section
5(b)(ii)(D) below.
(c) Product Related Definitions.
"CURRENT PRODUCTS": The products set forth on Exhibit A hereto made
in accordance with Supplier Exclusive Formulas (other than for Supplier
Developed New Exclusive Products).
"MODIFIED CURRENT PRODUCTS": Current Products made in accordance
with any modification, improvement alteration, enhancement or successor to the
Formulas for the initial Current Products set forth on Exhibit A, derived,
developed, created or invented by Supplier or any agent of Supplier or by any
person or entity for whom Supplier is a valid licensee thereof, and which are
not Supplier Developed New Products.
"NEW PRODUCTS": All Supplier Developed New Products listed from time
to time, or deemed hereunder to be listed from time to time, on Exhibit F; and
all Other Offered New Products listed from time to time, or deemed hereunder to
be listed from time to time, on Exhibit E; in each case, which products are
ordered by Herbalife or any Affiliate pursuant to the terms and conditions of
this Agreement.
"SUPPLIED PRODUCTS": All Current Products and all New Products.
"SUPPLIER DEVELOPED NEW PRODUCTS": Those products developed by
Supplier made in accordance with Supplier Formulas, the chemical composition of
which is materially different from any Formula for a Current Product and which
is derived, developed, created or invented by Supplier or any agent of Supplier
or by any person or entity for whom Supplier is a valid licensee thereof, (and
including any product made in accordance with any Formula, the chemical
composition of which is materially different from any Formula for a Current
Product derived, developed, created or invented by Supplier or any agent of
Supplier or by any person or entity for whom Supplier is a valid licensee
thereof, which is a substitute for any Formula for a Current Product).
"SUPPLIER DEVELOPED NEW EXCLUSIVE PRODUCTS": All Supplier Developed
New Products which Supplier offers to sell to Herbalife or any Affiliate on an
exclusive basis pursuant to the terms of this Agreement.
"SUPPLIER DEVELOPED NEW NON-EXCLUSIVE PRODUCTS": All Supplier
Developed New Products which Supplier offers to sell to Herbalife or any
Affiliate on a non-exclusive basis pursuant to the terms of this Agreement.
"OTHER OFFERED NEW PRODUCTS": Those products derived, developed,
created or invented by Herbalife or any Affiliate or any agent thereof or any
Other Supplier providing services to
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Herbalife made in accordance with Constructively Identical Formulas, Substitute
Formulas or Independent Formulas.
"RIGHTS OF FIRST REFUSAL CONSTRUCTIVELY IDENTICAL PRODUCTS FOR
PRIMARY MANUFACTURE": Those Other Offered New Products made in accordance with
Constructively Identical Formulas.
"RIGHTS OF FIRST REFUSAL SUBSTITUTE PRODUCTS FOR PRIMARY
MANUFACTURE": Those Other Offered New Products made in accordance with
Substitute Formulas.
"RIGHTS OF FIRST REFUSAL INDEPENDENT PRODUCTS FOR ADDITIONAL
MANUFACTURE": Those Other Offered New Products made in accordance with
Independent Formulas.
"THIRD PARTY LICENSED PRODUCTS": Those Supplier Developed New
Products that, pursuant to a license from one or more third parties, Supplier
after the date hereof manufactures, supplies and offers to sell to Herbalife or
any Affiliate.
(d) Minimum Purchase Order Amount Related Definitions
"SUPPLIER'S NUTRITIONAL SUPPLEMENT PRODUCT LINE BUSINESS IN CURRENT
COUNTRIES": The aggregate dollar amount of all firm purchase orders made during
the Term by Herbalife or any Affiliate for: (i) all Nutritional Supplement
products manufactured by Supplier in accordance with Supplier Formulas,
Constructively Identical Formulas, or Competitive Primary Manufacture Formulas,
and which are ordered by Herbalife or any Affiliate for sale in Current
Countries pursuant to the terms and conditions of this Agreement, plus (ii) all
Nutritional Supplement products manufactured by Other Suppliers in accordance
with Supplier Formulas, and which are ordered by Herbalife or any Affiliate for
sale in Current Countries pursuant to the terms and conditions of this
Agreement.
"HERBALIFE'S INDEPENDENT NUTRITIONAL SUPPLEMENT PRODUCT LINE
BUSINESS IN CURRENT COUNTRIES": The aggregate dollar amount of all firm purchase
orders made during the Term by Herbalife or any Affiliate for: all Nutritional
Supplement products manufactured by Other Suppliers in accordance with
Independent Formulas, and which are ordered by Herbalife or any Affiliate for
sale in Current Countries pursuant to the terms and conditions of this
Agreement.
(e) Categorization of Formulas
Whenever a Formula is categorized herein as falling within any of
(A) Supplier Formulas, (B) Constructively Identical Formulas, (C) Substitute
Formulas, or (D) Independent Formulas (each of (A) through (D) above being
referred to herein as a "CATEGORY"), or any sub-category of a Category, that
Formula shall be deemed to fall only within the closest Category and shall not
fall within any other of the Categories, so that for example any Formula that
falls within the category of being a Substitute Formula may also be a
Competitive Primary Manufacture Formula but shall not also be an Independent
Formula. It is expressly agreed and understood that there shall be no
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double-counting or overlap in construing the definitions of Supplier's
Nutritional Supplement Product Line Business in Current Countries and
Herbalife's Independent Nutritional Supplement Product Line Business in Current
Countries and in construing either of clauses (i) and (ii) of the definition of
Supplier's Nutritional Supplement Product Line Business in Current Countries.
2. TERM AND SCOPE.
(a) Application and Termination of the Omni Initial Agreement. The
Omni Initial Agreement will expire on midnight, January 11, 1998. Any product
for which an order is placed by Herbalife or any Affiliate on a date prior to
January 12, 1998, for which the latest scheduled delivery date to Herbalife or
any Affiliate is on a date prior to January 12, 1998, shall be governed by the
terms and conditions of the Omni Initial Agreement (notwithstanding that the
actual date of delivery shall occur on or after January 12, 1998, through no
fault or failure on the part of Supplier to observe or perform the terms and
conditions of the Omni Initial Agreement). The parties hereto agree to execute a
Release Agreement, in the form attached hereto as Exhibit C (the "RELEASE
AGREEMENT"), simultaneously with the execution of this Agreement.
(b) Application of this Agreement. The term of this Agreement (the
"TERM") shall commence upon execution of this Agreement, and shall continue
until December 31, 2000, unless previously terminated pursuant to the provisions
hereof; provided however, the terms and conditions of this Agreement shall
govern all Supplied Products to be delivered on a date on or after January 12,
1998 to Herbalife or any Affiliate. Prior to January 12, 1998, Supplier shall be
prepared to meet all of its obligations under the terms and conditions of this
Agreement, including delivery of Supplied Products to be delivered on a date on
or after January 12, 1998 to Herbalife or any Affiliate. Certain obligations of
this Agreement may be extended for a period of one hundred and twenty (120) days
after the expiration of the Term in order to satisfy the terms and conditions of
Section 4 below, which obligations when performed will be construed for the
purposes of this Agreement as having occurred "during the Term" hereof.
3. QUALITY STANDARDS. Promptly upon execution of this Agreement, the
parties agree to cooperate fully with each other, and in a timely manner, to
prepare Quality Standards for all Current Products, and in any event to prepare
such standards within ninety (90) days of execution of this Agreement. With
respect to New Products, the parties shall cooperate fully with each other, and
in a timely manner, to prepare Quality Standards prior to or at such time as any
New Product is ordered by Herbalife from Supplier. Any changes or alterations to
the Quality Standards (once initially agreed between the parties hereto) must be
mutually agreed to in writing by the parties hereto.
4. SUPPLY.
(a) Supply Obligation. For all Supplied Products to be delivered
on a date on or after January 12, 1998 or ordered thereafter until midnight of
the last day of the Term, Herbalife or any Affiliate may order from Supplier and
Supplier shall be obligated to manufacture and supply to
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Herbalife or any Affiliate, Supplied Products in any quantity ordered at any
time by Herbalife or any Affiliate, at Herbalife's or any Affiliate's sole
discretion, for sale at any time anywhere in the world, whether during the Term
or after expiration of the Term. After expiration of the Term, Herbalife or any
Affiliate may order from Supplier and Supplier shall be obligated to manufacture
and supply to Herbalife or any Affiliate, in accordance with the terms and
conditions hereof, Supplied Products in an amount necessary for Herbalife or any
Affiliate to make up any shortfall in the Minimum Purchase Order Amount, as set
forth in Section 4(f) below.
(b) Non-Exclusive Manufacture. For all Supplied Products to be
delivered on a date on or after January 12, 1998 or ordered thereafter until
midnight of the last day of the Term, Supplier shall manufacture and supply the
Supplied Products exclusively for Herbalife or any Affiliate, subject to the,
provisions of this Section 4(b). Supplier shall not develop, manufacture,
distribute or otherwise sell other than for and to Herbalife or any Affiliate at
any time any of the Supplied Products or any product incorporating Supplier
Formulas, Constructively Identical Formulas, Substitute Formulas, or Independent
Formulas sold by or on behalf of Herbalife or any Affiliate; provided however,
Supplier may manufacture and sell any of the Supplier Developed New
Non-Exclusive Products for and to any persons or entities. Notwithstanding the
foregoing, and subject (during the Term but not thereafter) to Sections 4(c),
5(b) and 8(c) below, Herbalife or any Affiliate shall have the right to (i)
itself manufacture, supply and sell, (ii) have manufactured, supplied and sold
on its behalf and (iii) otherwise order and procure from any third party
(including without limitation from any Other Suppliers), any and all products
made in accordance with or otherwise based upon, developed or derived from
Independent Formulas, Constructively Identical Formulas, Substitute Formulas, or
Supplier Formulas (whether or not such products are similar or identical to the
Supplied Products and whether in Current Countries or otherwise); provided
however, that, in the case of any of the Supplier Formulas for any of the
Supplied Products which consist of a Third Party Licensed Product, Herbalife's
or any Affiliate's rights set forth in (i), (ii) and (iii) above shall be
limited to those rights and licenses obtained from any person or entity whose
consent or license is required.
(c) Minimum Purchase Order Amount. Herbalife shall be obligated,
and Herbalife shall cause Herbalife's Affiliates to be obligated, subject to the
terms and conditions hereof, to place firm purchase orders from Supplier for
Supplied Products to be delivered on a date on or after January 12, 1998 and
ordered from Supplier at any time on or after the date hereof during the Term of
this Agreement, but not thereafter, to be delivered on a date on or after
January 12, 1998, of an aggregate dollar amount (the "MINIMUM PURCHASE ORDER
AMOUNT") equal to and no more than:
(x) 80% of Supplier's Nutritional Supplement Product Line
Business in Current Countries; plus
(y) 80% of one-half of Herbalife's Independent Nutritional
Supplement Product Line Business in Current Countries.
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The Minimum Purchase Order Amount shall be satisfied by any combination of
orders so long as the aggregate dollar amount of orders referred to in clauses
(x) and (y) above meets or exceeds the Minimum Purchase Order Amount; provided
however, that firm purchase orders placed during the Term, or thereafter
pursuant to Section 4(f) below, by Herbalife or any of Herbalife's Affiliates
referred to under clause (i) of the defined term Supplier's Nutritional
Supplement Product Line Business in Current Countries in order to make up for
any amount owed under any of clauses (x) or (y) above shall not increase the
aggregate dollar amount of firm purchase orders that Herbalife or Herbalife's
Affiliates shall be obligated to place under any of clauses (x) or (y) above in
order to satisfy the Minimum Purchase Order Amount.
(d) Credit Towards Minimum Purchase Order Amount. It is hereby
expressly agreed and, understood that, notwithstanding any other provision
hereof, any purchase order for Supplied Products to be delivered anywhere in the
world on a date on or after January 12, 1998, placed by Herbalife or any
Affiliate with Supplier at any time on or after the date hereof during the Term,
and for one hundred and twenty (120) days after the expiration of the Term to
the extent necessary to make up any shortfall as referred to below in Section
4(f), shall count and be credited towards the Minimum Purchase Order Amount.
(e) Reports. Herbalife shall provide, not later than forty-five
(45) days after the end of each of the first three calendar quarters of each
calendar year, beginning with the quarter ending March 31, 1998, and within
ninety (90) days after the end of each calendar year, written reports (each a
"QUARTERLY REPORT") to Supplier setting forth the dollar amount of firm purchase
orders that Herbalife or any Affiliate has placed or credited with respect to
satisfaction of the Minimum Purchase Order Amount, together with a reasonably
detailed breakdown of total firm purchase orders placed by Herbalife or any
Affiliate consisting of Supplier's Nutritional Supplement Product Line Business
in Current Countries and Herbalife's Independent Nutritional Supplement Product
Line Business in Current Countries to verify the dollar amount of firm purchase
orders that Herbalife or any Affiliate has placed or credited towards
satisfaction of the Minimum Purchase Order Amount Herbalife shall be entitled to
a credit at any time in any Quarterly Report for any overages of firm purchase
orders placed at any time in any quarter during the Term.
(f) Herbalife's Making Up Shortfall Order Amount. In the event
that any Quarterly Report reveals that at the end of the quarter concerned,
Herbalife and its Affiliates have during that period placed or credited less
than the dollar amount of firm purchase orders which would be sufficient for
that period to meet the Minimum Purchase Order Amount (the "SHORTFALL ORDER
AMOUNT"), Herbalife shall use its best efforts to cause any Shortfall Order
Amount to be made up in the immediately succeeding quarter; provided that
Herbalife, in computing any Shortfall Order Amount, shall be entitled to a
credit for any overages of firm purchase orders placed at any time in any
quarter during the Term. If, however, there shall remain any Shortfall Order
Amount at the end of the Term as a result of any Shortfall Order Amount in any
quarter during the Term, Herbalife shall be entitled to have until midnight on
the date being one hundred and twenty (120) days after
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the end of the Term to place firm purchase orders from Supplier to make up any
such Shortfall Order Amount.
(g) Adjustments to Minimum Purchase Order Amount.
(i) Governmental Impact. If the action of any foreign or
domestic governmental entity or any law, rule, regulation or order, including
without limitation, tariffs, duties, quotas, quality control, manufacturing or
health standards or other trade barriers of such governmental entity (each, a
"GOVERNMENTAL IMPACT"), renders it economically unfeasible for Herbalife or any
Affiliate to continue shipping any of the Supplied Products into any Current
Country, and Herbalife or any Affiliate thereafter arranges to and has the
affected Supplied Products manufactured by any Other Supplier and sells those
products in the affected Current Country, then the amount of purchase orders
placed by Herbalife or any Affiliate with any Other Supplier for sale of
affected Supplied Products in the affected Current Country that would have been
included in the computation of the Minimum Purchase Order Amount pursuant to
Section 4(c) above, but for this provision, shall not be included in the
computation of the Minimum Purchase Order Amount for the remainder of this
Agreement; provided however, such reduction in the Minimum Purchase Order Amount
shall only be made if Herbalife or any Affiliate actually discontinues shipping
the amount of such Supplied Products manufactured or supplied by Supplier
affected by the Governmental Impact into such Current Country, and Herbalife or
any Affiliate thereafter arranges to and has the affected Supplied Products
manufactured by any Other Supplier and sells those products in the affected
Current Country. If following any such reduction in the Minimum Purchase Order
Amount, Herbalife or any Affiliate recommences shipping such Supplied Product
manufactured or supplied by Supplier during the Term, the Minimum Purchase Order
Amount shall be restored as to such Supplied Product for the then remaining
balance of the Term. A Governmental Impact for a particular Supplied Product
manufactured or supplied by Supplier which increases Herbalife's or any
Affiliate's then current cost by 25% or more shall be presumptively sufficient
to render it economically unfeasible for Herbalife or any Affiliate to continue
shipping that Supplied Product manufactured or supplied by Supplier into any
Current Country. Prior to such adjustment, Herbalife or any affected Affiliate
shall use its commercially reasonable efforts and cooperate with Supplier to
eliminate the Governmental Impact so that the Supplied Product manufactured or
supplied by Supplier can continue to be manufactured by Supplier without
adjustment to the Minimum Purchase Order Amount.
(ii) Defective Products or Shortfalls. If there is any
failure by Supplier to comply with the obligations of Sections 9(c) or 9(d)
below, and this Agreement has not been terminated by Herbalife or a cure has not
been effectuated by Supplier, without prejudice to any other remedy available to
Herbalife hereunder, Herbalife may reduce the Minimum Purchase Order Amount by
an amount equal to the aggregate dollar amount for all purchase orders made by
Herbalife or any Affiliate for Supplied Products which are Defective Products
(as defined in Section 9(c) below), or for which a Shortfall (as defined in
Section 9(d) below) exists which has not been remedied by Supplier as outlined
in Section 9(c) or 9(d) below.
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5. PRODUCTS.
(a) Supplied Products. For all Supplied Products to be delivered
on a date on or after January 12, 1998, and throughout the remainder of the
Term, subject to extension as needed to satisfy Section 4(f) above, Herbalife
agrees to purchase from Supplier, subject to and on the terms and conditions set
forth herein, those of the Supplied Products that Herbalife or any Affiliate may
determine to order from Supplier hereunder, and Supplier agrees to manufacture
and sell to Herbalife or any Affiliate such Supplied Products, subject to and on
the terms and conditions set forth herein.
(b) Other Offered New Products. At any time during the Term, Other
Suppliers (including Herbalife itself or any Affiliate) may develop Other
Offered New Products on behalf of Herbalife or any Affiliate. In the event any
of the Other Suppliers (including Herbalife itself or any Affiliate) develops an
Other Offered New Product, then Herbalife or any Affiliate may designate any
person or entity (including Herbalife itself or any Affiliate) as a
manufacturer (including primary manufacturer) thereof for and on behalf of
Herbalife or any Affiliate, but subject only to the following:
(i) Rights Of First Refusal Independent Products For
Additional Manufacture. In the event Herbalife or any Affiliate chooses to
obtain more than one manufacturer of a Rights Of First Refusal Independent
Product For Additional Manufacture, then Supplier shall have the right of first
refusal to become an additional manufacturing source of the Rights Of First
Refusal Independent Product For Additional Manufacture for order by Herbalife or
any Affiliate during the Term in Current Countries prior to Herbalife offering
for additional manufacturing the Rights Of First Refusal Independent Product
For Additional Manufacture to any other person or entity for order by Herbalife
or any Affiliate during the Term in Current Countries, subject to and in
accordance with the following terms:
(A) Herbalife shall request in writing that Supplier
provide Herbalife with a proposal, including pricing, for the additional
manufacture by Supplier of the Rights Of First Refusal Independent Product For
Additional Manufacture for order by Herbalife or any Affiliate in Current
Countries and possible inclusion in this Agreement. Subject to the provisions of
Section 14 of this Agreement Herbalife shall provide Supplier with the Formula,
a range of prices, and all other terms and conditions that were provided to
Herbalife by at least three of the entities listed from time to time on Exhibit
D hereto for the manufacture of like quantity and quality of the Rights Of First
Refusal Independent Product For Additional Manufacture.
(B) Supplier shall then have thirty (30) days from
receipt of such request to make a proposal to Herbalife in writing, including,
the pricing thereof that Supplier supply Herbalife as an additional
manufacturing source for the Rights Of First Refusal Independent Product For
Additional Manufacture.
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(C) Herbalife shall be entitled in good faith to reject
Supplier's proposal if Supplier is unable to offer competitive terms, taking
into account, among other things, cost differentials (e.g., pricing, shipping,
tariffs, warehousing). Supplier's terms shall be treated as competitive for such
purpose if Supplier's proposed terms are as good as or better than the range of
terms offered to Herbalife by any three of the entities listed from time to time
on Exhibit D hereto for the manufacture of like quantity and quality of the
Rights Of First Refusal Independent Product For Additional Manufacture; provided
however, that, in the case of price, Supplier's proposed price shall be treated
as competitive if that price is as good as or better than the arithmetic average
of the two prices remaining, after deleting the lowest price, offered to
Herbalife by any three of the entities listed from time to time on Exhibit D
hereto for the manufacture of like quantity and quality of the Rights Of First
Refusal Independent Product For Additional Manufacture; and, provided further,
that if any of such three entities used for comparison is unable to provide a
bid for like quantity due to manufacturing limitations, then Herbalife shall be
entitled to obtain bids from multiple manufacturers listed on Exhibit D hereto
which in the aggregate would be capable of providing a like quantity of product
and the price shall then be treated as competitive if Supplier's price is as
good as or better than the weighted average of all bidder's prices.
(D) In the event that Supplier's proposal is
competitive, Herbalife shall inform Supplier thereof within thirty (30) days of
Supplier's proposal having been received by Herbalife, and Supplier shall then
manufacture and sell as an additional manufacturing source to Herbalife or any
Affiliate and Herbalife shall then buy from Supplier those of the Rights Of
First Refusal Independent Products For Additional Manufacture that Herbalife or
any Affiliate may determine to order from Supplier hereunder subject to the
terms and conditions set forth herein and at a price at least as good as the
price set forth in Supplier's proposal.
(E) In the event that Herbalife concludes that
Supplier's proposal is not competitive, then Herbalife will notify Supplier in
writing within thirty (30) days of its receipt of Supplier's proposal of its
basis, in reasonable detail, including the ranges of prices, for its conclusion
that Supplier's proposal is not competitive and, therefore, rejected by
Herbalife.
(F) Each Rights Of First Refusal Product For
Additional Manufacture agreed to be ordered by Herbalife from Supplier shall be
listed on Exhibit E hereto, including without limitation the price; provided
however, that any firm purchase order placed by Herbalife or any Affiliate with
Supplier for a Rights Of First Refusal Independent Product For Additional
Manufacture shall be deemed to have been listed on Exhibit E hereto.
(G) If Supplier declines to make any proposal to
Herbalife that Supplier supply Herbalife or any Affiliate as an additional
manufacturing source for the Rights Of First Refusal Independent Product For
Additional Manufacture or Supplier is unable to offer competitive terms as set
forth above, then (x) Herbalife or any Affiliate shall have the unrestricted
right to obtain at any time an additional manufacturing source for the Rights Of
First Refusal Independent Product For Additional Manufacture from any Other
Supplier (including Herbalife itself or any Affiliate), provided however, that
in the event that during the Term the terms obtained by Herbalife from any
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Other Supplier change or increase so as to render Supplier's terms competitive,
Herbalife or its Affiliates shall so advise Supplier and afford it the
opportunity to present Herbalife with a proposal pursuant to Section 5(b)(i)(B)
above, (y) Herbalife or any Affiliate shall have no obligation to purchase or
order any amount of Rights of First Refusal Independent Product For Additional
Manufacture from Supplier, and (z) Supplier shall promptly return to Herbalife
all materials, documents and information provided to Supplier and all copies
thereof regarding the Rights Of First Refusal Independent Product For Additional
Manufacture.
(ii) Rights Of First Refusal Substitute Products For Primary
Manufacture. Supplier shall have the right of first refusal to become the
primary manufacturing source of a Rights Of First Refusal Substitute Product For
Primary Manufacture for order by Herbalife or any Affiliate during the Term in
Current Countries prior to Herbalife offering for primary manufacture the Rights
Of First Refusal Substitute Product For Primary Manufacture to any other person
or entity for order by Herbalife or any Affiliate during the Term in Current
Countries, subject to and in accordance with the following terms:
(A) Herbalife shall request in writing that Supplier
provide Herbalife with a proposal, including pricing, for the primary
manufacture by Supplier of the Rights Of First Refusal Substitute Product For
Primary Manufacture for order by Herbalife or any Affiliate in Current Countries
and possible inclusion in this Agreement. Subject to the provisions of Section
14 of this Agreement, Herbalife shall provide Supplier with the Formula, a range
of prices and all other terms and conditions provided to Herbalife by at least
three of the entities listed from time to time on Exhibit D hereto for the
manufacture of like quantity and quality of the Rights Of First Refusal
Substitute Product For Primary Manufacture.
(B) Supplier shall then have thirty (30) days to make
a proposal to Herbalife in writing, including the pricing thereof, that Supplier
supply Herbalife as the primary manufacturing source for the Rights Of First
Refusal Substitute Product For Primary Manufacture.
(C) Herbalife shall be entitled in good faith to
reject Supplier's proposal if Supplier is unable to offer competitive terms,
taking into account, among other things, cost differentials (e.g., pricing,
shipping, tariffs, warehousing). Supplier's terms shall be treated as
competitive for such purpose if Supplier's proposed terms are as good as or
better than the range of terms offered to Herbalife by any three of the entities
listed from time to time on Exhibit D hereto for the manufacture of like
quantity and quality of the Rights Of First Refusal Substitute Product For
Primary Manufacture; provided however, that, in the case of price, Supplier's
proposed price shall be treated as competitive if that price is as good as or
better than the arithmetic average of the two prices remaining, after deleting
the lowest price, offered to Herbalife by any three of the entities listed from
time to time on Exhibit D hereto for the manufacture of like quantity and
quality of the Rights Of First Refusal Substitute Product For Primary
Manufacture; and, provided further, that if any of such three entities used for
comparison is unable to provide a bid for like quantity due to manufacturing
limitations, then Herbalife shall be entitled to obtain bids from multiple
manufacturers listed on Exhibit D hereto which in the aggregate would be capable
of providing a
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like quantity of product, and the price shall then be treated as competitive if
Supplier's price is as good as or better than the weighted average of all
bidder's prices.
(D) In the event that Supplier's proposal is
competitive, Herbalife shall inform Supplier thereof within thirty (30) days of
Supplier's proposal having been received by Herbalife, and Supplier shall then
manufacture and sell as the primary manufacturing source to Herbalife or any
Affiliate and Herbalife shall then buy from Supplier those of the Rights Of
First Refusal Substitute Products For Primary Manufacture that Herbalife or any
Affiliate may determine to order from Supplier hereunder subject to the terms
and conditions set forth herein and at a price at least as good as the price set
forth in Supplier's proposal.
(E) In the event that Herbalife concludes that
Supplier's proposal is not competitive, then Herbalife will notify Supplier in
writing within thirty (30) days of its receipt of Supplier's proposal of its
basis, in reasonable detail, including the ranges of prices, for its conclusion
that Supplier's proposal is not competitive and, therefore, rejected by
Herbalife.
(F) Each Rights Of First Refusal Substitute Product
For Primary Manufacture agreed to be ordered by Herbalife from Supplier shall be
listed on Exhibit E hereto, including without limitation the price; provided
however, that any firm purchase order placed by Herbalife or any Affiliate with
Supplier for a Rights Of First Refusal Substitute Product For Primary
Manufacture shall be deemed to have been listed on Exhibit E hereto.
(G) If Supplier declines to make any proposal to
Herbalife that Supplier supply Herbalife or any Affiliate as the primary
manufacturing source for the Rights Of First Refusal Substitute Product For
Primary Manufacture or Supplier is unable to offer competitive terms as set
forth above, then (x) Herbalife or any Affiliate shall have the unrestricted
right to obtain at any time manufacturing sources for the Rights Of First
Refusal Substitute Product For Primary Manufacture from any of the Other
Suppliers (including Herbalife itself or any Affiliate), provided however, that
in the event that during the Term the terms obtained by Herbalife from any Other
Supplier change or increase so as to render Supplier's terms competitive,
Herbalife or its Affiliates shall so advise Supplier and afford it the
opportunity to present Herbalife with a proposal pursuant to Section 5(b)(ii)(B)
above, (y) Herbalife or any Affiliate shall have no obligation to purchase or
order any amount of Rights Of First Refusal Substitute Products For Primary
Manufacture from Supplier, and (z) Supplier shall promptly return to Herbalife
all materials, documents and information provided to Supplier and all copies
thereof regarding the Rights Of First Refusal Substitute Product For Primary
Manufacture.
(iii) Rights Of First Refusal Constructively Identical
Products For Primary Manufacture. Supplier shall have the right of first refusal
to become the primary manufacturing source of a Rights Of First Refusal
Constructively Identical Product For Primary Manufacture for order by Herbalife
or any Affiliate during the Term in Current Countries prior to Herbalife
offering for primary manufacture the Rights Of First Refusal Constructively
Identical Product For Primary
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Manufacture to any other person or entity for order by Herbalife or any
Affiliate during the Term in Current Countries, subject to and in accordance
with the following terms:
(A) Herbalife shall request in writing that Supplier
provide Herbalife with a proposal for the primary manufacture by Supplier of the
Rights Of First Refusal Constructively Identical Product For Primary Manufacture
for order by Herbalife or any Affiliate in Current Countries and possible
inclusion in this Agreement. The initial price for a product made in accordance
with any Constructively Identical Formula (the "CONSTRUCTIVELY IDENTICAL
PRODUCT") shall be the price set forth respectively on Exhibit A hereto against
that Current Product that is not materially different from the Constructively
Identical Product, or, as the case may be, as set forth in Exhibit F hereto
against that Supplier Developed New Product that is not materially different
from the Constructively Identical Product.
(B) Supplier shall then have thirty (30) days to
determine whether Supplier wishes to supply Herbalife or any Affiliate as the
primary manufacturing source for the Rights Of First Refusal Constructively
Identical Product For Primary Manufacture.
(C) In the event that Supplier determines that
Supplier wishes to supply Herbalife or any Affiliate as the primary
manufacturing source for the Rights Of First Refusal Constructively Identical
Product For Primary Manufacture, and notifies Herbalife thereof within the
thirty (30) days, then Supplier shall manufacture and supply as the primary
manufacturing source to Herbalife or any Affiliate and Herbalife shall then buy
from Supplier those of the Rights Of First Refusal Constructively Identical
Products For Primary Manufacture that Herbalife or any Affiliate may determine
to order from Supplier hereunder subject to the terms and conditions set forth
herein.
(D) Each Rights Of First Refusal Constructively
Identical Product For Primary Manufacture ordered by Herbalife from Supplier
shall be listed on Exhibit E hereto, including without limitation the price;
provided however, that any firm purchase order placed by Herbalife or any
Affiliate with Supplier for a Rights Of First Refusal Constructively Identical
Product For Primary Manufacture shall be deemed to have been listed on Exhibit E
hereto.
(E) In the event that Supplier determines that
Supplier does not wish to supply Herbalife or any Affiliate as the primary
manufacturing source for the Rights Of First Refusal Constructively Identical
Product For Primary Manufacture (or Supplier fails to notify Herbalife of
Supplier's determination) within thirty (30) days as provided in Section
5(b)(iii)(B) above, then (x) Herbalife or any Affiliate shall have the
unrestricted right to obtain at any time manufacturing sources for the Rights Of
First Refusal Constructively Identical Product For Primary Manufacture from any
of the Other Suppliers (or Herbalife itself or any Affiliate), (y) Herbalife or
any Affiliate shall have no obligation to purchase or order any amount of Rights
Of First Refusal Constructively Identical Product For Primary Manufacture from
Supplier, and (z) Supplier shall promptly return to Herbalife all materials,
documents and information provided to Supplier and all copies thereof regarding
the Rights Of First Refusal Constructively Identical Product For Primary
Manufacture.
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(c) Supplier Developed New Modified Current Products.
(i) Gatekeeper Protocol for Supplier Developed New Products
and Modified Current Products. During the Term, Supplier may from time to time
develop Supplier Developed New Products and Modified Current Products. If
Supplier, at Supplier's sole discretion, chooses to communicate (whether in
writing or otherwise) with Herbalife with respect to any aspect of a Supplier
Developed New Product, or a Modified Current Product, or any Formula relating
thereto, then Supplier shall provide written notice (the "WRITTEN NOTICE") (i)
advising Herbalife's general counsel or any other person Herbalife designates in
writing to receive such information (the "HERBALIFE DESIGNEE") of Supplier's
intention to propose or discuss a Supplier Developed New Product or a Modified
Current Product, (ii) generally describing such proposed product and, if
available, proposed intellectual property rights relating thereto (the
procedures described in this Section 5(c)(i) shall be referred to herein as the
"SECTION 5(c)(i) GATEKEEPER PROTOCOL"). If Supplier's Written Notice shall
comply with the Section 5(c)(i) Gatekeeper Protocol, then the confidentiality
provisions of Section 14 below shall apply to such information.
(ii) Herbalife's Interest in Modified Current Products. If
after receipt of the Written Notice, Herbalife determines that Herbalife is
interested in receiving further information concerning any Modified Current
Product Herbalife shall advise Supplier within thirty (30) days of receipt of
the Written Notice and Supplier shall then provide a written description (the
"WRITTEN DESCRIPTION"). The Written Description shall be subject to the
confidentiality provisions of Section 14 below and shall reasonably describe the
Modified Current Product, including the Formula, if available, and provide a
proposed schedule of when the Modified Current Product will be available for
sale, and proposed intellectual property rights relating thereto. Supplier shall
mark the Written Description "Confidential" and address the Written Description
to the Herbalife Designee.
(d) Rights On Offering of Supplier Developed New Product, At
Supplier's sole discretion, Supplier may offer Herbalife any Supplier Developed
New Product subject to and in accordance with the following terms:
(i) At Supplier's sole discretion, if Supplier chooses to
offer Herbalife any Supplier Developed New Product, Supplier shall first have
given the Written Notice to Herbalife in accordance with the Section 5(c)(i)
Gatekeeper Protocol. If after receipt of the Written Notice, Herbalife
determines that Herbalife is interested in receiving further information
concerning the Supplier Developed New Product, Herbalife shall advise Supplier
within thirty (30) days of receipt of the Written Notice and Supplier shall then
provide a "written offer (the "Written Offer"). The Written Offer shall be
subject to the confidentiality provisions of Section 14 below and shall
reasonably describe the Supplier Developed New Product, including the Formula
and pricing, and provide a proposed schedule of when the Supplier Developed New
Product will be available for sale, proposed intellectual property rights
relating thereto, whether Supplier proposes that the Supplier Developed New
Product shall be a Supplier Developed New Exclusive Product or a Supplier
Developed New Non-Exclusive Product, and, if applicable, if Supplier proposes
that the Supplier Developed New Product shall be a Third Party Licensed Product
or a Generic Product.
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Supplier shall mark the Written Offer "Confidential" and address the Written
Offer to the Herbalife Designee. Upon Herbalife's written request, Supplier
shall provide samples of each Supplier Developed New Product. Thereafter,
Herbalife and Supplier shall each negotiate with each other on an exclusive
basis for a period of thirty (30) days (the "THIRTY-DAY EXCLUSIVE NEGOTIATION
PERIOD").
(ii) Herbalife, in its sole discretion, may determine whether
to accept or reject any Supplier Developed New Product offered to Herbalife by
Supplier. In the event that Herbalife agrees to accept any offered Supplier
Developed New Product, and agreement is reached as to Supplier's proposal,
Herbalife shall place a firm purchase order for the Supplier Developed New
Product within the time specified in the offer referred to in Section 5(d)(i)
above. Supplier shall then manufacture and sell the Supplier Developed New
Product to Herbalife, and Herbalife shall then buy those of the Supplier
Developed New Product that Herbalife or any Affiliate may determine to order
from Supplier hereunder, subject to the terms and conditions set forth herein,
and the rights in and to any Formula for such Supplier Developed New Product
shall be licensed and/or conveyed, transferred and assigned to Herbalife (or any
Affiliate) as and to the extent set forth in Section 8 of this Agreement.
(iii) Each Supplier Developed New Product agreed to be ordered
by Herbalife from Supplier shall be listed on Exhibit F hereto, including
without limitation the price; provided, however, that any firm purchase order
placed by Herbalife or any Affiliate with Supplier for a Supplier Developed New
Product shall be deemed to have been listed on Exhibit F hereto.
(iv) In the event that agreement is not reached within the
Thirty-Day Exclusive Negotiation Period, then Supplier shall be entitled to sell
the Supplier Developed New Product to any third party on terms and conditions,
including price, no more favorable than those offered to Herbalife, and
Herbalife shall promptly return to Supplier all materials, documents and
information provided to Herbalife and all copies thereof regarding the Supplier
Developed New Product.
(e) Failure To Comply With The Section 5(c)(i) Gatekeeper
Protocol. If Supplier fails to comply with the Section 5(c)(i) Gatekeeper
Protocol, then, notwithstanding any provision hereof to the contrary, Supplier
hereby forever releases and discharges, and waives any claim Supplier may have
against, Herbalife and all Affiliates and their respective successors, assigns,
directors, officers, employees, agents, attorneys, representatives and advisors
of and from, or with respect to, any and all claims, demands, causes of action,
damages, liabilities, losses, costs or expenses of any nature or kind, fixed or
contingent arising from or in connection with the use by Herbalife or any third
party of any information delivered to Herbalife with respect to any aspect of a
Supplier Developed New Product, or a Modified Current Product, or any Formula
relating thereto, other than in compliance with the Section 5(c)(i) Gatekeeper
Protocol (the "RELEASED CLAIMS"). It is understood by Supplier and Herbalife
that there is a risk that subsequent to the execution of this Agreement
Herbalife may incur or suffer loss, damage, or injuries which are unknown or
unanticipated at the time of the execution of this Agreement relating to the
Released Claims. Further, there is risk that loss or damage relating to the
Released Claims presently known may be or become greater
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than the parties hereto now expect or anticipate. Supplier assumes said risks,
acknowledges that the releases contained herein shall apply to all unknown and
all unanticipated results arising from or relating to the Released Claims to
above, as well as those known and anticipated, and, upon the advice of legal
counsel, Supplier waives all rights under California Civil Code Section 1542 and
any comparable provision under the law of any other jurisdiction with respect to
the Released Claims. California Civil Code Section 1542 reads as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.
6. ORDER PROCEDURE FOR PRODUCTS.
(a) Open Blanket Purchase Order. At the commencement of each
calendar year during the Term commencing with purchase orders for Supplied
Products to be delivered on or after January 12, 1998, Herbalife or any
Affiliate shall initiate orders hereunder by placing a preliminary estimated
order as to the Supplied Products for each territory or country (the "Open
Blanket Purchase Order") listing the types and quantities of the Supplied
Products estimated to be purchased by Herbalife for delivery in the ensuing
year. Each Open Blanket Purchase Order shall be in substantially the form of the
Open Blanket Purchase Order for the first calendar year, which commences on
January 12, 1998 and ends on December 31, 1998.
(b) Open Blanket Purchase Order Subject to Approval of Samples.
Each Open Blanket Purchase Order shall not be effective as a preliminary
estimated order in relation to any New Product until Herbalife, upon Herbalife's
request, has been provided with samples of each type of New Products ordered
therein and has determined that the samples are in conformity with the Quality
Standards established by Herbalife and Supplier pursuant to Section 3 of this
Agreement.
(c) Shipping Schedules and Firm Purchase Orders. For each delivery
of Supplied Products requested hereunder, Herbalife or any Affiliate shall, not
later than twelve (12) weeks prior to the anticipated shipping date of Supplied
Products, provide Supplier with a shipping schedule specifying the products and
quantities estimated to be purchased. Supplied Products on the shipping schedule
may be modified by Herbalife or any Affiliate up until and shall not become firm
binding purchase orders until the date being eight (8) weeks prior to the
scheduled shipping date. Supplier shall receive from Herbalife or any Affiliate
purchase orders or order addenda, formula approval, product specifications,
packaging specifications, and any other materials supplied by Herbalife or any
Affiliate to Supplier to the extent necessary to produce and ship the Supplied
Product, including sufficient labels and product inserts (collectively, the
"SHIPPING MATERIALS"). If Supplier is unable to make a shipment due to a failure
on Herbalife's or any Affiliate's part to provide the Shipping Materials
described above, the affected Supplied Product requirement shall remain on the
shipping schedule and shall be shipped as soon as commercially reasonable after
all the necessary Shipping Materials are received by Supplier. Upon receipt by
Supplier of all Shipping Materials, Supplier shall accept the shipping schedule
as submitted by Herbalife or any
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Affiliate by signing and returning a copy to Herbalife's Material Control
Department. Modifications to the shipping schedule may be made by Herbalife at
any time; provided however, if modifications are made by Herbalife or any
Affiliate less than eight (8) weeks prior to the scheduled shipping date,
Supplier shall use commercially reasonable efforts to attempt to satisfy the
requested modification.
(d) Cooperative Efforts In Establishing Schedules. The parties
shall cooperate fully with each other to provide pertinent information to each
other to enable timely delivery by Supplier of Supplied Products to Herbalife
hereunder.
(e) Affiliate Invoicing. If at any time on or after the date
hereof during the Term any Affiliate shall place any order for Supplied Products
to be delivered on or after January 12, 1998, Supplier agrees to transmit any
applicable invoice directly to the Affiliate concerned, with a copy thereof
being sent by facsimile transmission to Herbalife at the time of transmission to
the Affiliate concerned.
7. Prices.
(a) For Supplied Products. For all Supplied Products to be
delivered on a date on or after January 12, 1998 and continuing in effect for
the remainder of the Term, Herbalife shall pay Supplier the prices set forth
respectively on Exhibit A hereto and the prices agreed to by Supplier and
Herbalife set forth on Exhibits E and F hereto (collectively, the "PRICES");
provided however, that on March 31, 1998, and at the end of each calendar
quarter thereafter during the Term (an "Adjustment Date"), either party may
request that the prices for the Supplied Products be adjusted upwards or
downwards, effective from the next succeeding Adjustment Date forward for the
next succeeding calendar quarter, according to the adjustment calculations
described in this Section 7. The Prices with respect to any of the Modified
Current Products shall be the same as those prices set forth respectively on
Exhibit A hereto against the initial Current Products of which the Modified
Current Products are a modification, improvement, alteration, enhancement or
successor, and shall be subject to adjustment only as set forth in this Section
7(a). The Prices with respect to any of the Constructively Identical Products
shall be the same as those prices set forth respectively on Exhibit A hereto
against those initial Current Products that are not materially different from
the Constructively Identical Products, or, as the case may be, as set forth in
Exhibit F against those Supplier Developed New Products that are not materially
different from the Constructively Identical Products and shall be subject to
adjustment only as set forth in this Section 7(a). Supplier shall advise
Herbalife in writing in the event that there is any net variation upwards or
downwards in the aggregate actual cost of all raw materials used to produce a
Supplied Product. The Prices shall be adjusted upwards or downwards by the
amount that the net variation in the aggregate actual cost of all raw materials
used to produce a Supplied Product, if added to or subtracted from, as the case
may be, that Supplied Product's Price, exceeds five percent (5%); provided
however, that the party requesting the adjustment shall first have delivered to
the other party independent documentation in reasonable detail (including
published commodity prices or other relevant published information where
available) verifying such variation and that the variation is not due to
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factors solely applicable to or solely affecting Supplier. Once the adjustment
has been justified by independent documentation as described above, the
adjustment shall be effective as of the next succeeding Adjustment Date. Any
variation in Supplier's labor or overhead expenses shall not be taken into
account in determining any change in cost of the Supplied Product pursuant to
this Section 7 on any Adjustment Date. If no adjustment is requested by either
party or if any requested adjustment is not justified, the prices shall remain
unchanged until the next succeeding Adjustment Date. The Prices for Supplied
Products shall include the cost of manufacturing, packaging (with product insert
and materials provided by Herbalife), labeling (with labels provided by
Herbalife), insuring, shipping and delivery by Supplier to the Local Delivery
Point set forth in Section 10 below. The initial Prices for any New Products
ordered by Herbalife or any Affiliate during the Term, including New Products
for any territory or country other than a Current Country, shall be negotiated
by the parties in accordance with and subject to the terms and conditions of
Sections 5(b)(i), 5(b)(ii), 5(b)(iii), and 5(d) hereof and shall then be subject
to adjustment only as set forth in this Section 7(a).
(b) For Certain Materials or Ingredients.
(i) Supplier has license agreements governing its right to
the use of AMINOGEN(R) and raw materials, ingredients, or rights called for by
and utilized in certain of the Supplier Formulas. During the Term and thereafter
Supplier will use its best efforts to provide such raw materials, ingredients,
or rights to Herbalife or any Affiliate in the quantities, manner and at the
times required by Herbalife or any Affiliate. Supplier shall sell or cause to be
sold such raw materials or ingredients for AMINOGEN(R) to Herbalife or any
Affiliate at the price during the Term which shall be the lower of (x) the price
Supplier charges any third party for the purchase of AMINOGEN(R) from Supplier
at any time on or after the date hereof during the Term or (y) $190 per kilogram
for AMINOGEN(R). Supplier shall sell or cause to be sold such raw materials or
ingredients for AMINOGEN(R) to Herbalife or any Affiliate at the price
thereafter which shall be the most favorable that such raw materials or
ingredients shall be sold by Supplier at that time to any third party.
(ii) If, during the Term and thereafter, Supplier obtains a
license or patent governing its right to the use of any raw material,
ingredient, or right called for by or utilized in any Supplier Developed New
Formula, then during the Term and thereafter Supplier will use its best efforts
to provide such raw material, ingredient or right to Herbalife or any Affiliate
in the quantities, manner and at the times required by Herbalife or any
Affiliate upon terms and conditions to be mutually agreed to by the parties
during the negotiation period referred to in Section 5(d) above.
(iii) In the event that Supplier is required to use a specific
trade mark or trade name in connection with the use of any raw material or
ingredient called for by any Formula, which material or ingredient is purchased
by Herbalife or any Affiliate from Supplier hereunder, then Herbalife or the
Affiliate concerned shall use such trade mark or trade name in connection with
its use of such raw material or ingredient.
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8. Intellectual Property.
(a) Licenses of the Formulas.
(i) Initial License for Formulas for Current Products. Upon
execution of this Agreement, (A) Supplier hereby grants to Herbalife or any
Affiliate a royalty-free right and license, until midnight on January II, 1998,
to use the Formulas for Current Products in connection with (1) selecting or
qualifying Other Suppliers to manufacture on behalf of Herbalife or any
Affiliate all of the Current Products (which use includes manufacturing Current
Products in non-commercial quantities for testing and evaluation purposes) and
(2) manufacturing on behalf of Herbalife or any Affiliate, on and after
September 1, 1997, in commercial and non-commercial quantities Current Products
to be delivered to or on behalf of Herbalife or any Affiliate on and after
January 12, 1998 pursuant to the terms and conditions hereof, and (B) Supplier
shall provide Herbalife or any Affiliate with the Formulas for all Current
Products sold or to be sold to Herbalife or any Affiliate pursuant to the terms
and conditions hereof to enable Herbalife or any Affiliate to exercise the
rights and licenses granted hereunder.
(ii) Initial License for Formulas for Any Supplier Developed
New Exclusive-Products Other Than Those Consisting of a Third Party Licensed
Product. At any time after execution of this Agreement and until midnight on
January 11, 1998, if Herbalife or any Affiliate orders from Supplier any
Supplier Developed New Exclusive Product, other than one which consists of a
Third Party Licensed Product, (A) Supplier hereby grants to Herbalife or any
Affiliate, effective upon such purchase by Herbalife or any Affiliate, a
royalty-free right and license, until midnight on January 11, 1998, to use the
Formulas for such Supplier Developed New Exclusive Products in connection with
(1) selecting or qualifying Other Suppliers to manufacture on behalf of
Herbalife or any Affiliate all such Supplier Developed New Exclusive Products
(which use includes manufacturing such Supplier Developed New Exclusive Products
in noncommercial quantities for testing and evaluation purposes) and (2)
manufacturing on behalf of Herbalife or any Affiliate, on and after September 1,
1997, in commercial and non-commercial quantities such Supplier Developed New
Exclusive Products to be delivered to or on behalf of Herbalife or any Affiliate
on and after January 12, 1998 pursuant to the terms and conditions hereof, and
(B) Supplier shall provide Herbalife or any Affiliate with the Formulas for all
such Supplier Developed New Exclusive Products sold or to be sold to Herbalife
or any Affiliate pursuant to the terms and conditions hereof to enable Herbalife
or any Affiliate to exercise the rights and licenses granted hereunder.
(iii) License for Formulas for any Supplier Developed New
Non-Exclusive Product, or any Supplier Developed New Exclusive Product,
Consisting of a Third Party Licensed Product. At any time after execution of
this Agreement, if Herbalife or any Affiliate orders from Supplier any Supplier
Developed New Non-Exclusive Product, or any Supplier Developed New Exclusive
Product, which consists of a Third Party Licensed Product, then, subject to the
confidentiality provisions in Section 14 below with respect to the obtaining of
any consent or license of any person
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or entity whose consent or license is required, effective upon such purchase by
Herbalife or any Affiliate:
(A) Any Supplier Developed New Non-Exclusive Product
Consisting of a Third Party Licensed Product. Supplier shall use its best
efforts throughout the Term to obtain the consent of or license from each such
person or entity whose consent or. license is required so as to enable Herbalife
or any Affiliate to use, for as long as permitted by such person or entity, on
terms' no less favorable than those obtained by Supplier, the Formulas for any
Supplier Developed New Non-Exclusive Product which consists of a Third Party
Licensed Product, or any Supplier Developed New Exclusive Product which consists
of a Third Party Licensed Product, in connection with (1) selecting or
qualifying Other Suppliers to manufacture on behalf of Herbalife or any
Affiliate all of such Supplier Developed New Products (which use includes
manufacturing such Supplier Developed New Products in non-commercial quantities
for testing and evaluation purposes) and (2) manufacturing on behalf of
Herbalife or any Affiliate, on and after September 1, 1997, in commercial and
non-commercial quantities such Supplier Developed New Products to be delivered
to or on behalf of Herbalife or any Affiliate on and after January 12, 1998,
pursuant to the terms and conditions hereof Promptly following the granting of
such consent or license to such a Supplier Developed New Product, if Herbalife
or any Affiliate has not received the Formulas for any such product from the
third party licensee thereof, Supplier shall provide Herbalife or any Affiliate
with those Formulas pursuant and subject to the terms and conditions hereof and
of any;, third party license to enable Herbalife or any Affiliate to exercise
the rights and licenses so granted.
(b) Transfer of the Formulas.
(i) Transfer of Formulas for Current Products. Subject to
Section 8(c) below, effective on January 12, 1998, Supplier (A) hereby conveys,
transfers and assigns to Herbalife or any Affiliate all rights, title and
interests in and to all of the Formulas for all Current Products ordered by
Herbalife or any Affiliate pursuant to the terms and conditions hereof, free
from ANY liens or encumbrances and (B) shall provide Herbalife or any Affiliate
with the Formulas for all Current Products ordered by Herbalife or any Affiliate
pursuant to the terms and conditions hereof. The parties agree to execute any
and all documents necessary to effectuate the conveyance, transfer and
assignment to Herbalife or any Affiliate of all rights, title and interests in
and to all of the Formulas for all Current Products ordered by Herbalife or any
Affiliate pursuant to the terms and conditions hereof, free from any liens or
encumbrances.
(ii) Initial Transfer of Formulas for Supplier Developed New
Exclusive Products. Subject to Section 8(c) below, effective on January 12,
1998, Supplier (A) hereby conveys, transfers and assigns to Herbalife or any
Affiliate all rights, title and interests in and to all of the Formulas for all
then existing Supplier Developed New Exclusive Products ordered by Herbalife or
any Affiliate pursuant to the terms and conditions hereof, free from any liens
or encumbrances and (B) shall provide Herbalife or any Affiliate with the
Formulas for all such Supplier Developed New Exclusive Products ordered by
Herbalife or any Affiliate pursuant to the terms and conditions
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hereof. The parties agree to execute any and all documents necessary to
effectuate the conveyance, transfer and assignment to Herbalife or any Affiliate
of all rights, title and interests in and to all of the Formulas for all such
Supplier Developed New Exclusive Products ordered by Herbalife or any Affiliate
pursuant to the terms and conditions hereof, free from any liens or
encumbrances.
(iii) Subsequent Transfer of Formulas for Supplier Developed
New Exclusive Products. Subject to Section 8(c) below, at any time after January
11, 1998 during the Term, if Herbalife orders from Supplier any Supplier
Developed New Exclusive Product, then, effective at such time, Supplier (A)
hereby conveys, transfers and assigns to Herbalife or any Affiliate, effective
upon such order by Herbalife or any Affiliate, all of Supplier's rights, title
and interests in and to all Formulas for any such Supplier Developed New
Exclusive Product, free from any liens or encumbrances, and (B) shall provide
Herbalife or any Affiliate with the Formulas for any Supplier Developed New
Exclusive Product ordered by Herbalife or any Affiliate pursuant to the terms
and conditions hereof, if and to the extent not already provided to Herbalife or
any Affiliate. The parties agree to execute any and all documents to effectuate
the conveyance, transfer and assignment to Herbalife or any Affiliate of all
rights, title and interests in and to all of the Formulas for any Supplier
Developed New Exclusive Product ordered by Herbalife or any Affiliate pursuant
to the terms and conditions hereof, free from any liens or encumbrances.
(iv) Transfer of Formulas on Termination of Agreement Prior
to January 12, 1998. In the event this Agreement is terminated prior to January
12, 1998, by either party for any reason of whatsoever nature or kind, Supplier
hereby agrees that, in such event, all rights, title and interests in and to the
Supplier Exclusive Formulas without any further action required to be taken by
either party, hereby are immediately and automatically conveyed, transferred and
assigned by Supplier to Herbalife or any Affiliate on the same terms and
conditions as set forth in, respectively, Sections 8(b)(i), 8(b)(ii) and
8(b)(iii) above, except that (a) such conveyances, transfers and assignments
shall not be subject to Section 8(c) below and (b) the effective date of such
conveyances, transfers and assignments shall be the effective date of such
termination of this Agreement and shall not be delayed until January 12, 1998 as
set forth in Sections 8(b)(i), 8(b)(ii) and 8(b)(iii) above. In the event this
Agreement is terminated prior to January 12, 1998, by either party for any
reason of whatsoever nature or kind, Supplier hereby agrees that, in such event,
all rights and licenses in and to those of the Supplier Formulas granted to
Herbalife or any Affiliate on the terms and conditions set forth in Section
8(a)(iii) above shall remain unaffected thereby and shall continue in full force
and effect.
(c) Restrictions on Herbalife's use of the Supplier Formulas for
Additional Manufacturing. Herbalife hereby agrees that, for the period
commencing with the execution of this Agreement and ending upon the expiration
of the Term only, and not thereafter, and at all times subject to the terms and
conditions of this Agreement, Herbalife or any Affiliate shall not, without the
prior written approval of Supplier (such approval not to be unreasonably
withheld but may be conditioned upon a written agreement reasonably satisfactory
to Supplier to which an Other Supplier is party containing terms and conditions
for use consistent with this Agreement), license to any Other Supplier the use
of any of the Supplier Formulas for the purpose of additional manufacturing in
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commercial quantities any Current Products or Supplier Developed New Exclusive
Products agreed to be purchased hereunder by Herbalife or any Affiliate for sale
during the Term in Current Countries; provided however, that Herbalife or any
Affiliate shall at all times during the Term be entitled to license to any Other
Supplier the use of any of the Supplier Formulas for the purpose of (i)
manufacturing on and after September 1, 1997 in non-commercial quantities or
qualifying to manufacture any person or entity to manufacture any Current
Products or Supplier Developed New Exclusive Products (and, in the case of any
of the Supplier Developed New Exclusive Products which consist of a Third Party
Licensed Product, to the extent any person or entity whose consent or license is
required has so consented) at any time during the Term, or (ii) manufacturing on
and after September 1, 1997 in commercial quantities any Current Products or
Supplier Developed New Exclusive Products (and, in the case of any of the
Supplier Developed New Exclusive Products which consist of a Third Party
Licensed Product, to the extent any person or entity whose consent or license is
required has so consented) at any time for sale during the Term in any territory
or country other than the Current Countries.
(d) Limited Grant-back License to Supplier for the Term. After the
effective date of the licenses referred to in (a)(i), (a)(ii), and (a)(iii)
above in this Section 8, and each transfer and assignment by Supplier of or
other arrangement with respect to the Supplier Formulas referred to in (b) (i),
(b)(ii), (b)(iii) and (b)(iv) above in this Section 8, and in connection with
any Other Offered New Product to be manufactured by Supplier, Herbalife hereby
grants to Supplier a limited, nonexclusive, non-transferable, royalty-free,
right and license to use the Supplier Exclusive Formulas, and the Independent
Formulas, the Constructively Identical Formulas and the Substitute Formulas for
the Other Offered New Product, solely to manufacture the Supplied Products for
Herbalife or Herbalife's Affiliates for the remainder of the Term only (subject
to Section 4(f) above) and not thereafter, and at all times subject to the terms
of this Agreement. The license shall (i) be granted solely for the purpose set
forth in the prior sentence, and (ii) be granted subject to the confidentiality
provisions of Section 14 below. After January 11, 1998, Supplier is not granted
by this Section 8(d) any title or ownership rights, in whole or in part, in or
to any of the Supplier Formulas conveyed, transferred and assigned by Supplier
hereunder. At any time after execution of this Agreement, Supplier is not
granted by this Section 8(d) any, and shall have no, title or ownership rights,
in whole or in part, in or to any of the Independent Formulas, the
Constructively Identical Formulas and the Substitute Formulas, and all title and
rights in or to any of the Supplier Formulas conveyed, transferred and assigned
by Supplier hereunder after January 11, 1998, shall remain with Herbalife or any
Affiliate and all title and rights in or to any of the Independent Formulas
shall at all times remain with Herbalife or any Affiliate. Following any
termination, expiration, or non-renewal of this Agreement, all of the Supplier
Exclusive Formulas shall be the exclusive property of Herbalife or any
Affiliate, and Supplier shall relinquish all rights licensed to Supplier
hereunder with respect thereto, and all rights and licenses in and to those of
the Supplier Formulas granted to Herbalife or any Affiliate on the terms and
conditions set forth in Section 8(a)(iii) above shall remain unaffected thereby
and shall continue in full force and effect. Supplier acknowledges and agrees
that Herbalife or any Affiliate reserves and retains any and all rights not
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expressly granted hereunder to Supplier and Supplier shall not claim any rights
that are not expressly granted or set forth hereunder to Supplier.
(e) Trademarks. Herbalife or any Affiliate hereby grants to
Supplier a limited, nonexclusive, non-transferable royalty-free license solely
to use Herbalife's trademarks, trade names, and logos (the "TRADEMARKS") in
labeling and packaging the Supplied Products for Herbalife, for the remainder of
the Term only (subject to Section 4(f) above) and not thereafter, and at all
times subject to the terms and conditions of this Agreement. Supplier hereby
agrees that only the Trademarks shall be affixed to the Supplied Products.
Supplier shall have no rights to use the Trademarks other than for purposes of
labeling and packaging Supplied Products pursuant to this Agreement, which
labeling and packaging shall be in form and substance satisfactory to Herbalife
or any Affiliate. Supplier agrees to submit copies of the proposed manner, use
and layout of the Trademarks for approval by Herbalife, in Herbalife's or any
Affiliate sole discretion, prior to Supplier using the Trademarks as set forth
herein. Supplier shall not use the Trademarks in advertising or promotional
campaigns or otherwise, or use any confusingly similar names, marks or logos, in
any manner that, in Herbalife's sole discretion, may be inconsistent with
Herbalife's public image or be misleading or harmful to Herbalife. In the event
of termination, expiration, or non-renewal of this Agreement, Supplier shall not
have any right to sell any Supplied Products remaining in any of Supplier's
inventory unless all Trademarks are removed from the Supplied Products. Supplier
acknowledges and agrees that Herbalife reserves and retains any and all rights
not expressly granted hereunder to Supplier and Supplier shall not claim any
rights that are not expressly granted or set forth hereunder to Supplier.
(f) Infringement. Supplier shall promptly notify Herbalife or any
Affiliate of any actual or apparent infringement of Herbalife's or any Affiliate
rights to any of the Formulas for the Supplied Products or Trademarks of which
Supplier obtains actual knowledge. Herbalife may, at its sole option and
expense, prosecute any suit it deems necessary or appropriate to protect any of
Herbalife's or any Affiliate rights to the Formulas for the Supplied Products or
Trademarks from and against infringement by third parties anywhere in the world
and Supplier shall cooperate fully with Herbalife or any Affiliate in connection
with any such action.
9. SERVICE LEVELS.
(a) Required Service Levels. For all Supplied Products to be
delivered on a date on or after January 12, 1998 and continuing thereafter until
midnight of the last day of the Term, Supplier shall use its best efforts to
provide the same level of service and quality of products that it has provided
to Herbalife and Herbalife's Affiliates, taken as a whole, under the Omni
Initial Agreement (the "INITIAL SERVICE LEVEL"). However, in the event of a
Change in Control (as defined in Section 13(d) below) of Supplier and this
Agreement has not been terminated by Herbalife, Supplier shall for each Supplied
Product, meet an industry standards service level (the "SUBSEQUENT SERVICE
LEVEL"), calculated in reference to the ratio of the number of cases of Supplied
Products delivered which meet the Quality Standards to the number of cases
ordered, based on Herbalife's and Herbalife's Affiliates, taken as a whole,
eight (8) week ordering volume; provided however, that the
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determination of any Subsequent Service Level shall take into account, and give
Supplier a credit for, the extent to which Supplier shall have timely satisfied
any modification to any shipping schedule which accelerates a delivery date or
substitutes Supplied Products to be delivered, which modification shall have
been made by Herbalife or any Affiliate less than eight (8) weeks prior to the
scheduled shipping date. If Supplier fails to meet the Initial Service Level or
the Subsequent Service Level (on a rolling average) for any Supplied Product for
any sixteen (16) week period and, after receipt of notice of such failure, also
fails to meet the Initial Service Level or Subsequent Service Level (on a
rolling average) for any Supplied Product for the eight (8) week period
subsequent to receipt of the notice, Supplier shall be deemed to be in breach of
this Agreement, and Herbalife may, without prejudice to any other remedy
available to Herbalife hereunder, terminate this Agreement under Section 13(b),
or alternatively terminate this Agreement only with respect to such Supplied
Product and Herbalife or the Affiliate concerned shall be able to enter into
agreements with third party suppliers with respect to such Supplied Product as
may no longer be covered by this Agreement, and the Minimum Purchase Order
Amount shall be correspondingly reduced by the dollar amount of orders of such
Supplied Product that Herbalife or the Affiliate concerned could reasonably have
purchased from Supplier but for such failure.
(b) Compliance with Shipping Schedules. Supplier agrees to use its
best efforts in accordance with industry standards to meet the shipping
schedules as determined in accordance with Section 6(c) and (d) above. Except as
provided in Section 6(c) above, under no circumstances shall Supplier alter any
agreed-upon shipping schedule without the prior written consent of Herbalife,
which consent may not be unreasonably withheld by Herbalife. Notwithstanding any
provision in this Agreement to the contrary, if Herbalife has failed (other than
following a breach of this Agreement by Supplier) to meet its payment
obligations under Section 11 with respect to any good faith undisputed portion
of any invoice, and within ten (10) days after receipt of written notice from
Supplier that the good faith undisputed portion of such invoice has not been
paid, Supplier, in its sole discretion, shall be entitled to refrain from
shipping Supplied Product to Herbalife or the Affiliate concerned until such
time as all then delinquent payments have been caused to be made by Herbalife.
(c) Defective Products. Upon inspection of any Supplied Product by
Herbalife or any Affiliate, if Herbalife or any Affiliate reasonably determines
that any Supplied Product or an entire lot of Supplied Products delivered by
Supplier fails to meet the Quality Standards or is otherwise defective (the
"DEFECTIVE PRODUCTS"), Herbalife shall notify Supplier thereof within twenty-one
(21) business days (or such other period as may be mutually agreed for
particular Supplied Products or shipments) after Herbalife or the Affiliate
concerned have received such Supplied Products from Supplier or discovery of the
defect, whichever is later. Within said twenty-one (21) day period, Herbalife or
the Affiliate concerned shall provide Supplier with a sample of each such
Defective Product, lot identification information and the original package for
Supplier's review and analysis. Upon mutual agreement between Herbalife and
Supplier that such product is a Defective Product, Supplier shall, (i) at
Supplier's expense, ship replacement Supplied Products to the prior final
destination of the Defective Product as soon as commercially possible and, (ii)
in its sole discretion,
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determine whether Defective Products should be returned to Supplier or
destroyed, in each case at Supplier's expense.
(d) Shortfall. Upon inspection of any Supplied Product by
Herbalife or any Affiliate, if Herbalife or any Affiliate reasonably determines
that there is a shortfall in any Supplied Product delivered by Supplier
hereunder (the "SHORTFALL"), Herbalife shall notify Supplier thereof within
twenty-one (21) business days (or such other period as may be mutually agreed
for particular Supplied Products) after Herbalife or the Affiliate concerned
have received such Supplied Products from Supplier, or discovery of the
shortfall, whichever is later. In the event of a Shortfall in any delivery of
Supplied Products by Supplier hereunder, Herbalife or the Affiliate concerned
shall, within said time period, advise Supplier of the quantity of the claimed
shortfall, the product lot number and date of shipment for Supplier's review.
Upon mutual agreement between Herbalife and Supplier that a Shortfall exists,
Supplier shall, at Supplier's expense, ship replacement quantity of Supplied
Products to the Local Delivery Point (as defined in Section 10) of the Supplied
Products suffering from the Shortfall to fulfill the entire obligation to be
performed by Supplier as soon as commercially possible, provided that Supplier
shall use its best efforts to make any such shipment within twenty-one (21)
business days after receiving notification of such Shortfall.
(e) Inventory Levels. Supplier shall use its best efforts to
maintain inventory levels of raw materials of a sufficient quantity of Supplied
Products to meet purchase order requirements on a timely basis.
10. DELIVERY AND TITLE. The Supplied Products shall be delivered F.O.B.
to Herbalife's distribution center in Carson, California or to such other
destination within Los Angeles County or Orange County, California determined by
Herbalife or any Affiliate and designated in writing by Herbalife or any
Affiliate (the "LOCAL DELIVERY POINT"), or to any other destination determined
by Herbalife or any Affiliate and designated in writing by Herbalife or any
Affiliate. In the case of delivery to a Local Delivery Point, the risk of loss
and title shall pass to Herbalife or any Affiliate upon delivery to the Local
Delivery Point, and transport, insurance, and other costs, charges, and duties
beyond the Local Delivery Point shall be borne by Herbalife or the Affiliate
concerned; provided however, that title and risk of loss shall not pass to
Herbalife or any Affiliate for any Defective Products rejected by Herbalife
pursuant to Section 9(c) above. For deliveries made to a location other than a
Local Delivery Point, unless the parties otherwise agree, risk of loss and title
shall pass to Herbalife or any Affiliate at Supplier's dock and transport,
insurance and other costs, charges and duties beyond Supplier's dock shall be
borne by Herbalife or the Affiliate concerned; provided however, that title and
risk of loss shall not pass to Herbalife or any Affiliate for any Defective
Products rejected by Herbalife pursuant to Section 9(c) above. No delivery shall
be made and title shall not pass under this Agreement for any Supplied Product
until January 12, 1998.
11. PAYMENT TERMS. Herbalife shall cause payment for the Supplied
Products purchased from Supplier under the terms of this Agreement to be made no
later than thirty (30) days from the later of the date of delivery of or the
date of invoice for Supplied Products meeting the Quality Standards. Payment
made on any invoice within ten (10) days from the date of delivery or invoice,
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as the case may be, for Supplied Products meeting the Quality Standards shall be
entitled to a 1% discount (the "1% DISCOUNT"), provided there is no outstanding
unpaid portion of any invoice from Supplier to Herbalife or any Affiliate which
predates the invoice to be paid by Herbalife or any Affiliate to Supplier and
which is not subject to a good faith dispute (a "PREDATED INVOICE"). In the
event that Supplier objects to Herbalife's or any Affiliate's taking of the 1%
Discount, which objection is as a result of Supplier's good faith belief that
there exists a Predated Invoice, then Supplier shall give Herbalife five (5)
business days' written notice to cause payment to be made of the Predated
Invoice. If Supplier fails to give Herbalife the five (5) business days' written
notice, or if Supplier does give the five (5) business days' written notice and
Herbalife causes payment of the Predated Invoice within two (2) business days of
receipt of the notice, then Herbalife or the Affiliate concerned shall be
entitled to the 1% Discount. Any invoice or portion thereof which is the subject
of a good faith dispute shall not prevent Herbalife from being entitled to take
the 1% Discount. Without prejudice to any other remedy that Herbalife may have
at law or in equity, Herbalife or the Affiliate concerned shall be entitled, at
its option, to (i) a refund of the amount paid for any Defective Product or
Shortfall that is not cured pursuant to the terms and conditions of this
Agreement or (ii) a credit of the amount paid for any Defective Product or
Shortfall that is not cured pursuant to the terms and conditions of this
Agreement against future purchases of Supplied Products.
12. QUALITY ASSURANCE, INSPECTION AND DOCUMENTS. Supplier shall maintain
Good Manufacturing Practices and Standard Operating Procedures as defined and
required by the United States Food and Drug Administration, and shall fully
comply with all other United States Food and Drug Administration regulatory
requirements and the regulatory requirements of the State of California and make
such adjustments as may be necessary to effect and maintain such compliance. If
Herbalife advises Supplier of the regulatory requirements of any other
jurisdiction, then Supplier shall use its best efforts to comply therewith in
the manufacture of Supplied Products. Herbalife, or Herbalife's designated
agents (approved by Supplier, which approval shall not be unreasonably
withheld), shall have the right from time to time, on reasonable notice and
during business hours, to inspect Supplier's manufacturing facility, production
line, raw materials storage areas and all other places, that relate to the
production of Supplied Products, including a general quality assurance review of
Supplier's facilities used in the production and manufacture of Supplied
Products. Additionally, Herbalife, or Herbalife's designated agents (approved by
Supplier, which approval shall not be unreasonably withheld), may submit any
Supplied Product to any and all forms of chemical analysis, testing and review
as may be appropriate to determine whether such Supplied Product contains the
ingredients set forth on any label thereto and otherwise meets the Quality
Standards and the other terms and conditions hereof. Upon request by Herbalife,
or Herbalife's designated agents (approved by Supplier, which approval shall not
be unreasonably withheld), of Supplier, Supplier shall furnish Herbalife with
(i) a Certificate of Analysis, prepared in accordance with the requirements of
the Food, Drug and Cosmetic Act of 1938 and the rules and regulations of the
United States Food and Drug Administration promulgated thereunder as an
assurance that the Supplied Products were made in compliance with Supplier's
Good Manufacturing Practices and Standard Operating Procedures, (ii) information
and copies of documents to enable Herbalife to
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assure that the Supplied Products comply with the labeling claims made for the
Supplied Products, (iii) information and copies of documents necessary for
Herbalife to secure all U.S., state and foreign governmental licenses,
registrations or approvals for the Supplied Products, and (iv) information and
copies of documents necessary for Herbalife to respond to all U.S., state and
foreign governmental inquiries or requests.
13. TERMINATION.
(a) Supplier's Right to Terminate. Supplier may terminate this
Agreement (i) sixty (60) days following written notice to Herbalife of a default
in Herbalife's net payment obligation under Section 11, (ii) sixty (60) days
following written notice to Herbalife of a material breach by Herbalife of any
of its obligations, representations, warranties or covenants hereunder or under
any other written agreement between Supplier and Herbalife (including without
limitation the Omni Initial Agreement after the date hereof, but prior to
expiration thereof or the Release Agreement executed concurrently herewith), if
such breach has not been cured within such sixty (60) day period, or (iii)
immediately, following the Insolvency (as defined in (c) below) of Herbalife.
(b) Herbalife's Right to Terminate. Herbalife may terminate this
Agreement (i) sixty (60) days following written notice to Supplier, of a
material breach by Supplier of Supplier's obligations, representations,
warranties or covenants hereunder or under any other written agreement between
Supplier and Herbalife (including without limitation the Omni Initial Agreement
after the date hereof but prior to the expiration thereof or the Release
Agreement executed concurrently herewith), if such breach has not been cured
within such sixty (60) day period, (ii) immediately, following the Insolvency
(as defined in (c) below) of Supplier, (iii) immediately following a failure by
Supplier to meet the service level requirements of Section 9 above, or (iv)
immediately following a Change in Control (as defined in (d) below) of Supplier.
(c) Insolvency. "INSOLVENCY" shall mean that, with respect to
Supplier or Herbalife, as the case may be, such entity shall (i) make a general
assignment for the benefit of creditors or an agent authorized to liquidate its
assets, (ii) become the subject of an "order for relief" within the meaning of
the United States Bankruptcy Code, and such order is not stayed within thirty
(30) days, (iii) file a petition in bankruptcy or for reorganization, or effect
a plan or other arrangements with creditors, (iv) file an answer to a creditor's
petition, admitting the material allegations thereof, for involuntary bankruptcy
or for reorganization or to effect a plan or other arrangement with creditor,
(v) apply to a court for the appointment of a receiver or custodian for
substantially all of its assets or properties, with or without consent, and such
receiver is not discharged within thirty (30) days after appointment or (vi)
adopt a plan of complete liquidation of its assets.
(d) Change in Control. A "CHANGE IN CONTROL" shall mean that,
without the prior written consent of Herbalife, which consent shall not be
unreasonably withheld, (i) any sale, merger, reorganization, transfer, pledge,
granting of an option, or any other like event or action that results in a third
party having an interest in any of the issued and outstanding capital stock of
Supplier (on a fully-diluted basis) such that Fred Siegel and Richard Marconi
(A) no longer own more than fifty
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percent (50%) of such capital stock, or (B) no longer have the authority and
power to elect a majority of the directors of Supplier or (C) no longer have the
authority to direct and control the management and affairs of Supplier, (ii) any
assignment, sale, transfer, pledge, granting of an. option, hypothecation or any
other like event or action that results in a THIRD party having an interest in
all or substantially all of Supplier's assets, or (iii) both of Fred Siegel and
Richard Marconi ceasing to be actively involved as senior executive employed
officers of Supplier and responsible for the day-to-day operation and management
of Supplier for a period greater than sixty (60) days, without the prior written
consent (in each such case) of Herbalife, which consent shall not be
unreasonably withheld. Any hypothecation made in the ordinary course of business
that does not result in a Change in Control shall not require the consent of
Herbalife. In determining whether to withhold its consent, Herbalife may
consider the reputation of, and the qualifications and financial ability of any
person or entity in whose favor any Change in Control is proposed to be made
(the "TRANSFEREE") to manufacture and supply Supplied Products of at least the
same level of quality and service level as Supplier, the business of the
Transferee, and in particular whether or not the Transferee engages in
multi-level marketing activities.
(e) Remedies on Termination. Supplier, on the one hand, and
Herbalife, on the other hand, have each considered the possibility that the
parties will incur expenses in preparing for performance of this Agreement and
that the parties will incur expenses and suffer losses as a result of
termination (if other than as a result of expiration or non-renewal of this
Agreement). In the event of a breach by a party of this Agreement, the
non-defaulting party may pursue whatever remedies are available under this
Agreement or by law. Any termination hereof shall not impair any rights nor
discharge any obligations which have accrued to the parties as of the effective
date of such termination.
(f) Effect of Expiration or Termination. Subject to Supplier's
rights under Section 13(g) if this Agreement is terminated by Supplier pursuant
to Section 13(a) hereof, in the event of any termination, expiration or
non-renewal of this Agreement for any reason, (i) the provisions of the Release
Agreement and this Section 13 and Sections 2(a), 7(b), 8, 11 and 12 above and
Sections 14, 18, 22 and 30 below shall be unaffected thereby, (ii) all of the
Supplier Exclusive Formulas and the Independent Formulas, the Constructively
Identical Formulas and the Substitute Formulas shall remain the exclusive
property of Herbalife or any Affiliate, (iii) all rights and licenses in and to
those of the Supplier Formulas granted to Herbalife or any Affiliate on the
terms and conditions set forth in Section 8(a)(iii) above shall remain
unaffected thereby and shall continue in full force and effect, and (iv)
Herbalife or any Affiliate shall be entitled to sell and distribute all Supplied
Products in its inventory.
(g) Effect of Termination for Cause. If Supplier terminates this
Agreement pursuant to Section 13(a) hereof, then in that event:
(i) Herbalife shall purchase (A) all Supplied Products
remaining in Supplier's inventory for which an estimated or firm purchase order
had been placed, at the prices specified in this Agreement, and (B) following
Supplier's reasonable efforts to mitigate, all raw materials in
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Supplier's inventory specifically procured by Supplier for use in manufacturing
Supplied Product to Herbalife under this Agreement at a price equal to
Supplier's actual cost, including incoming freight, plus costs incurred for
labor, material testing and storage. Notwithstanding any contrary provision, if
Herbalife terminates this Agreement pursuant to Section 13(b) hereof, Herbalife
shall have no obligation to purchase any Supplied Products or raw materials in
Supplier's inventory, or to take delivery of any Supplied Products ordered prior
to the date of such termination.
(ii) Notwithstanding any contrary provision herein, Supplier
may pursue whatever remedies are available to it by law or otherwise, including
but not limited to any monetary damages available to Supplier for any breach of
this Agreement by Herbalife.
14. CONFIDENTIAL INFORMATION.
(a) Non-Disclosure. Subject to Sections 5(c), 5(d), 5(e) and 8
above, and 14(b) and 14(d) below, each party shall preserve in strict confidence
any confidential information obtained or made available pursuant to this
Agreement, on or after the date hereof, from the other party by it or any of its
subsidiaries or affiliates or any of its or their directors, officers,
employees, agents or other representatives concerning the Supplied Products,
Other Offered New Products, Supplier Developed New Products, the Supplier
Formulas, Constructively Identical Formulas, Substitute Formulas, or the
Independent Formulas or in order for each party to exercise its rights or
perform its obligations under this Agreement, including, without limitation,
Supplied Product prices, marketing surveys, and information concerning the
design and specifications of, the Supplied Products, Other Offered New Products,
Supplier Developed New Products, the Supplier Formulas, Constructively Identical
Formulas, Substitute Formulas, or the Independent Formulas ("CONFIDENTIAL
INFORMATION"), and agrees to refrain from (i) disclosing, during the Term or at
any time thereafter, any such Confidential Information to any person or entity
or (ii) using, during the Term or, at any time thereafter, such Confidential
Information for any purpose; except as otherwise necessary to exercise its
rights or perform its obligations under this Agreement or for evaluation of
Supplied Products or Other Offered New Products or Supplier Developed New
Products for possible inclusion in this Agreement. In connection with such
Agreement, each party agrees to keep confidential, not disclose, provide or
otherwise make available in any form such Confidential Information to any person
other than authorized employees, agents or other representatives of each party
with a need to know.
(b) Permitted Disclosure. Notwithstanding the foregoing, nothing
contained in this Section 14 shall prohibit any party from disclosing
Confidential Information in the event such disclosure (i) is permitted pursuant
to Section 14(d) below, (ii) is, or becomes, during the Term, available in the
public domain not as a result of a breach of this Agreement, (iii) was
rightfully in the receiving party's possession or was part of the receiving
party's general knowledge at the time of its disclosure by the disclosing party;
provided however, that any information concerning the Supplier Formulas, the
contents of the Supplier Formulas or any portion thereof, or any information
related to the Supplier Formulas, or their specifications in Herbalife's
possession or part of its general knowledge as of the date of execution of this
Agreement may and shall not be disclosed by
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Herbalife until January 12, 1998 except to the extent necessary prior to January
12, 1998 to utilize the rights and licenses granted to Herbalife pursuant to
Section 8(a) of this Agreement, or (iv) is rightfully received by the receiving
party from a third party without any duty of confidentiality and the receiving
party can clearly demonstrate the independent origin of such information, or (v)
is required by any governmental authority having jurisdiction over that party
asserting a right to obtain such information; provided however, that prior to
any such disclosure pursuant to this clause (v) (except where such disclosure is
required to be made to a governmental authority in order for Herbalife to
qualify Formulas, Supplier or Other Suppliers in any jurisdiction) the party
concerned shall promptly advise the other party in the event of any request by a
governmental authority for the Confidential Information and shall cooperate with
the other party to assert any right of objection to such request or to seek a
protective order or to take other appropriate action to protect the Confidential
Information.
(c) Return of Materials Upon Termination. Upon termination of this
Agreement, each party shall use reasonable efforts to return to the other party
all material and documents containing Confidential Information, or submitted by
the other party in confidence, including any copies or extracts thereof.
(d) Disclosure to Herbalife's Licensees. It is hereby expressly
agreed and understood that, Herbalife or any Affiliate may at any time disclose
or make available to any licensee of Herbalife or any licensee of any Affiliate
(approved pursuant to Section 8(c) above, if applicable, by Supplier) (each a
"HERBALIFE LICENSEE") the Supplier Formulas or the contents of the Formulas or
any portion of the Formulas, (in the case of any of the Supplier Formulas for
any of the Supplied Products which consist of a Third Party Licensed Product, to
the extent any person or entity whose consent or license is required has so
consented), for the purpose of manufacturing or selecting or qualifying any
person or entity to manufacture in commercial and non-commercial quantities any
Supplied Products to be delivered by or on behalf of Herbalife on a date on or
after January 12, 1998; provided however, that during the Term, with respect to
any Rights Of First Refusal Substitute Products For Primary Manufacture,
Herbalife shall first have complied with the provisions of Section 5(b)(ii)
above, and, with respect to any Rights Of First Refusal Constructively Identical
Products For Primary Manufacture, Herbalife shall first have complied with the
provisions of Section 5(b)(iii) above, and the Herbalife Licensee who shall have
access thereto shall have agreed in writing to be bound by substantially the
same confidentiality obligations as contemplated by this Section 14.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) By Herbalife: Herbalife represents, warrants and covenants as
follows:
(i) Herbalife is a corporation duly organized, validly
existing and in good standing under the laws of California. Herbalife has full
power and authority to execute and deliver and
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perform its obligations under this Agreement. This Agreement has been duly
executed and delivered by Herbalife and constitutes a legal, valid and binding
obligation of Herbalife.
(ii) The execution and delivery of, and performance by
Herbalife of its obligations under this Agreement, and the grant of rights and
licenses by Herbalife to Supplier and the consummation of the transactions
contemplated hereunder, will not result in a violation of, or be in conflict
with, any provision of its Articles of Incorporation, or result in a breach of,
or be in conflict with, any material agreement to which Herbalife is a party or
by which it or its property is bound, or result in a violation of, or be in
conflict with, or result in a breach of any term or provision of any judgment,
order, decree or award of any court, arbitrator or governmental authority
binding upon Herbalife or its property.
(b) By Supplier: Supplier represents, warrants and covenants as
follows:
(i) Supplier is a corporation duly incorporated, validly
existing and in good standing under the laws of California. Supplier has full
power and authority to execute and deliver and perform its obligations under
this Agreement. This Agreement has been duly authorized, executed and delivered
by Supplier and constitutes a legal, valid and binding obligation of Supplier.
(ii) The execution and delivery of, and performance by
Supplier of its obligations under, this Agreement, and the grant of rights and
licenses by Supplier to Herbalife and the consummation of the transactions
contemplated hereunder, will not result in a violation of, or be in conflict
with, any provision of the articles of incorporation of Supplier, or result in a
breach of, or be in conflict with, any material agreement to which Supplier is a
party or by which it or its property is bound, or result in a violation of, or
be in conflict with, or result in a breach of, any term or provision of any
judgment, order, decree or award of any court, arbitrator or governmental
authority binding upon Supplier or its property.
(iii) Supplier has, or will have, the ability to manufacture
and supply all Supplied Products to be supplied by Supplier hereunder on January
12, 1998 and all Supplied Products to be supplied by Supplier hereunder as set
forth in the Open Blanket Purchase Orders delivered during the Term of this
Agreement.
(iv) Upon delivery by Supplier to Herbalife or any Affiliate
of Supplied Products, subject to and in accordance with the terms and conditions
of this Agreement, Herbalife shall acquire good title free from all liens and
encumbrances.
(v) Supplier has complied, is complying and will continue to
comply with accepted industry practices and standards and all applicable laws in
the jurisdiction in which the Supplied Products are sold to Herbalife,
including, without limitation, state and local laws of the United States and the
State of California and the rules, orders, ordinances, decrees and regulations
of the United States and the State of California relating to or affecting the
manufacture of the Supplied Products. If Herbalife advises Supplier of the
regulatory requirements of any other jurisdiction,
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then Supplier shall use its best efforts to comply therewith in the manufacture
of Supplied Products. All Supplied Products delivered to Herbalife or any
Affiliate shall be prepared and manufactured in a clean, safe and sanitary
manner in full compliance with all applicable federal and State of California
laws, rules and regulations, including without limitation, the Food, Drug and
Cosmetic Act of 1938 and the rules and regulations of the United States Food and
Drug Administration (including as to Good Manufacturing Practices or Standard
Operating Procedures). All Current Products delivered to Herbalife or any
Affiliate shall be manufactured in accordance with the Supplier Formulas used
for products currently supplied to Herbalife or any Affiliate under the Omni
Initial Agreement and shall be of no less quality than those products currently
supplied to Herbalife or any Affiliate under the Omni Initial Agreement.
(vi) All Supplied Products have been and will be clearly and
accurately labeled and packaged in the manner requested by Herbalife with labels
and inserts supplied by Herbalife or any Affiliate.
(vii) Supplier's manufacturing facility complies with all
applicable federal and California state laws, rules and regulations relating to
the operation thereof, including without limitation, all product safety,
sanitation and environmental laws, rules and regulations.
(viii) All Supplied Products purchased by Herbalife or any
Affiliate are free from defect, comply with the Quality Standards and are
merchantable and fit for their intended purpose. All Supplied Products shall be
supplied in commercial quantities sufficient to meet Herbalife's or any
Affiliate's orders, free of contamination or defect, and all reasonable care and
skill shall be used in manufacturing the Supplied Products.
(ix) Supplier owns as of the date hereof beneficially and of
record all right, title and interest in the Supplier Exclusive Formulas, and
shall not, at any time on or after the date hereof during the Term, deal with
the Supplier Exclusive Formulas except as expressly provided in Section 8 above.
(x) AMINOGEN(R) is the only material, ingredient or right
utilized in any of the Current Products which require the consent or license of
a third party to be utilized therein, to be sold to Herbalife or any Affiliate
by Supplier and/or to be marketed by Herbalife or any Affiliate.
(xi) None of the Current Products and none of the ingredients
in the Current Products, other than AMINOGEN(R) require the consent or license
of a third party to be sold to Herbalife or any Affiliate by Supplier and/or to
be marketed by Herbalife or any Affiliate.
(xii) There are as of the date hereof no Current Products the
intellectual property rights for which are owned, controlled or licensed by any
person or entity other than Supplier.
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(xiii) Except as otherwise expressly provided in Section 8
above, Supplier has not and shall not make any assertion, claim or demand
against Herbalife or any Affiliate, any Herbalife Licensee, or any officer,
director, shareholder, authorized employee, agent or other representative of
Herbalife or any Affiliate or of any Herbalife Licensee, with respect to any of
the foregoing's use or exploitation of any Supplier Formulas transferred or
licensed pursuant to Section 8 above.
(xiv) Herbalife or any Affiliate shall acquire such rights and
licenses as are required to be granted to Herbalife or any Affiliate by Section
8 above, free from any liens or encumbrances. So long as Supplier manufactures
Supplied Products subject to any license, grant or agreement (including royalty
agreements) in favor of any third party, Supplier shall remain responsible for
paying the third party concerned any royalties or license fees due on such
Supplied Products.
(xv) Supplier is the valid licensee of AMINOGEN(R). To the
extent necessary to meet the obligations of Supplier under this Agreement,
Supplier has been and shall remain at all times in full compliance with any
license, grant or agreement to which any of the Supplied Products is subject,
and each such license, grant or agreement remains and shall remain valid and in
full force and effect throughout the Term. Supplier has the power to grant the
rights and licenses granted by Supplier to Herbalife under this Agreement.
(xvi) None of the Supplier Formulas or Supplied Products (or
any raw material or ingredient therein) transferred or licensed pursuant to
Section 8 above or supplied hereunder by Supplier, nor the use thereof by
Herbalife or any Affiliate in accordance with the terms and conditions set forth
herein, infringes or shall infringe in any respect on any patents, copyrights,
trademarks, service marks, trade dress, trade secrets, proprietary or
confidential information or other intellectual property rights of any third
parties.
(xvii) Supplier agrees that, subject to Section 8 above, it
shall not at any time in any way infringe upon, any rights in or to any of the
Formulas or Trademarks or other intellectual property rights belonging to
Herbalife or any Affiliate or any Formulas or Trademarks or other intellectual
property registration belonging to Herbalife or any Affiliate in any territory
or country.
16. INSURANCE. Supplier shall maintain with effect from January 12, 1998
throughout the remainder of the Term, at its sole cost and expense, insurance
with financially sound and established reputable insurers of the type and
quantity (and with such risk retention) generally maintained by the companies of
established repute in Supplier's line of business, such insurance to include
without limitation, products liability insurance an amount no less than five
million dollars ($5,000,000) per occurrence. Supplier shall provide to
Herbalife, at least annually and otherwise upon reasonable request by Herbalife,
true copies of the certificates of coverage in respect of such insurance
policies, and Supplier shall not do anything or permit anything to be done that
may prejudice such insurance policies or omit to do anything where such omission
may prejudice those insurance policies, and shall observe and perform the terms
and conditions contained in each of such insurance policies.
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17. AMENDMENT OR WAIVER. This Agreement will not be amended, nor will
any of its terms be deemed to have been waived by either party, unless such
amendment or waiver is in writing in a document that specifically refers to this
Agreement and specifically states that it intends to amend this Agreement or
waive a term of this Agreement and such document is signed by the parties
hereto. General correspondence between the parties, invoices, purchase orders or
any other document exchanged between the parties not meeting the requirements
of this Section 17, will not be deemed to amend or waive any term of this
Agreement. In the event of any conflict between this Agreement and any other
document, including any purchase order, this Agreement shall prevail.
18. GOVERNING LAW AND VENUE; ARBITRATION
(a) Governing Law and Venue. This Agreement will be governed by
and construed in accordance with the laws of the State of California, without
regard to its conflicts of laws principles. Any legal proceedings arising out of
or in connection with this Agreement which are not arbitrated pursuant to
Section 18(b) below, shall be commenced and prosecuted in a court located within
Orange County, California.
(b) Arbitration. Any disputes, controversies or differences which
may arise between the parties out of, in connection with or in relation to any
of Sections 4(c) through 4(g) and 11 of this Agreement, or the interpretation,
enforceability, performance, breach or validity of any of Sections 4(c) through
4(g) and 11 of this Agreement ("DISPUTES"), shall be determined by arbitration
in Orange County, California in accordance with the rules and procedures of
J.A.M.S./Endispute from time to time in effect, as modified by the provisions of
this Section 18(b); provided however, that the parties reserve the right to seek
injunctive relief from any court of competent jurisdiction.
(i) Procedure. Either party may give to the other written
notice of the existence and nature of any Dispute proposed to be arbitrated
under this Section 18(b). Any such notice shall specify in reasonable detail the
nature of and background to any such Dispute. Within ten (10) days thereafter,
the parties shall agree on three persons drawn from a list of potential
arbitrators provided by J.A.M.S./Endispute. If the parties cannot agree on any
of the three arbitrators within ten (10) days after a party initiates such
process, the arbitrator(s) whom the parties cannot mutually agree on shall be
selected by J.A.M.S./Endispute within seven (7) days following the end of such
ten (10) day period. The three arbitrators shall determine all Disputes by
majority vote.
(ii) Conduct of the Proceeding. The parties agree that the
arbitrators shall be subject to and apply the laws of California and be a judge
for all purposes (excluding the power to (a) grant equitable relief, (b) change
any term or condition of this Agreement, (c) deprive either party of a remedy
expressly provided herein, or (d) provide any right or remedy that has been
excluded hereunder, but including, without limitation, (x) ruling on any and all
discovery matters and motions, including without limitation ruling on the
availability, timing and scope of discovery, and ruling on any and all pretrial
or trial motions, (y) setting a schedule of pretrial proceedings in accordance
with this Agreement, and (z) making any other orders or rulings a sitting judge
of the Superior Court of California (the "Superior Court") would be empowered to
make in any action
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or proceeding in the Superior Court (subject to the limitations of this clause
(ii)), and shall try and decide any or all of the issues in any action or
proceeding arising out of such dispute (whether of fact or of law, or a
combination thereof) and, no later than one hundred and twenty (120) days
following their selection, shall report a statement of decision thereon and hear
and consider objections to the statement of decision. Any such statement of
decision shall be submitted to the Superior Court by the prevailing party within
fourteen (14) days and judgment shall be entered thereon in the same manner as
if the action or proceeding had been tried by a sitting judge of the Superior
Court (the "Judgment"). The decision of the arbitrators appointed hereunder
shall be final and conclusive among the parties as of the date of entry of the
Judgment.
(iii) Security Arrangements.
(A) Upon presentation by Supplier of a certified copy
of a Judgment which includes a finding that Herbalife breached its obligations
to Supplier under any of Sections 4(c) through 4(g) and 11, Supplier shall
receive, as payment applied against any monetary damages awarded Supplier under
such Judgment, funds from any monies remaining outstanding as the Security (as
defined below) up to the amount of said Judgment.
(B) As security for the performance of its obligations
under any of Sections 4(c) through 4(g) and 11 to Supplier and Omni under each
of the New D&F Supply Agreements, including this Agreement (the "SECURITY"),
Herbalife shall post a single bond pursuant to this Agreement and the New D&F
Supply Agreement (the "BOND") in the aggregate maximum total amount of
twenty-five million dollars ($25,000,000), subject to the terms and conditions
hereof, on a combined basis, with respect to (i) any Judgment obtained by
Supplier against Herbalife, and (ii) the equivalent of any Judgment obtained by
D&F against Herbalife under the New D&F Supply Agreement. Herbalife shall
provide a copy of the Bond to Supplier, which copy shall identify the bonding
company. Subject to the terms and conditions hereof, the Bond shall be in effect
from January 12, 1998 and for so long as the Bond shall not be fully applied
against any Judgment obtained by either Supplier or D&F, or both, against
Herbalife as the case may be. In no event shall the aggregate maximum total
amount claimed due at any time with respect to Supplier and/or D&F under the
Bond exceed on a combined basis twenty-five million dollars ($25,000,000). The
Bond shall, if payable, be solely payable in favor of either Supplier or D&F, or
both, as the case may be, as set forth above and shall not be assignable in any
event to any other person or entity at any time, without the prior written
consent of Herbalife, which consent shall not be unreasonably withheld.
19. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, which taken together will constitute one instrument and each of
which will be considered an original for all purposes.
20. TIME IS OF THE ESSENCE. The parties agree that time is of the
essence under this Agreement.
21. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(except as may otherwise be specifically
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provided herein to the contrary) if delivered by hand, by a nationally
recognized overnight delivery service, by facsimile transmission followed by
mail, or mailed by certified or registered mail with postage prepaid:
(a) If to Supplier:
Omni-Pak Industries
12151 Monarch Street
Garden Grove, California 92841
Attention: Fred E. Siegel, President
Facsimile No.: (714) 899-3119
(b) If to Herbalife:
Herbalife International of America, Inc.
1800 Century Park East, l4th Floor
Century City, California 90067
Attention: Robert A. Sandler, Esq.
Executive Vice-President and General Counsel
Facsimile No.: (310) 557-3906
or such other address or facsimile number as any of the persons designated above
may have specified in a notice or communication duly given to the other
designated person as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered or telecopied, or if
mailed, two business days thereafter.
22. BINDING EFFECT; NON-ASSIGNABILITY. This Agreement shall inure to the
benefit of and be binding upon, the parties hereto, their respective successors
and assigns; provided however, that, subject to Section 13(d), neither this
Agreement nor the rights and obligations of Supplier shall be assignable or
delegable by Supplier nor shall there be any Change in Control of Supplier
without the prior written consent of Herbalife, which consent shall not be
unreasonably withheld. Any purported transfer, assignment or delegation in
breach of this Section 22 shall be null and void.
23. RELATIONSHIP OF THE PARTIES. The parties expressly understand and
agree that Supplier is an independent contractor in the performance of each and
every part of this Agreement, is solely responsible for all of its employees and
agents and its labor costs and expenses arising in connection therewith. It is
understood and agreed that no joint venture, partnership or agency relationship
is created or intended to be created by this Agreement and Supplier shall not be
deemed to be or become the representative or agent of Herbalife or any Affiliate
in any way in performing its obligations hereunder. Supplier shall make no
representation to any third party, either directly or indirectly, that it is in
any way authorized to; act for or on behalf of Herbalife or any Affiliate or to
obligate Herbalife or any Affiliate in any way without the prior written consent
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of Herbalife. Nothing in this Agreement is intended to, nor shall it be
construed to violate any statutes, rules or regulations of any jurisdiction
pertaining to anti-trust or anti-competition.
24. AFFILIATES. Herbalife shall assume the obligations under this
Agreement of any Affiliate failing to comply with any of the obligations of any
Affiliate pursuant to this Agreement
25. IRREPARABLE HARM. The parties agree that their failure to comply
with the provisions of this Agreement may cause irreparable harm for which there
may be no adequate remedy at law and each may, therefore, enforce through
equitable as well as legal remedies the obligations set forth in this Agreement.
26. FORCE MAJEURE. Neither party shall be liable to the other party for
failure or delay in the performance of any of the obligations under this
Agreement (including delivery of Supplied Products supplied by Supplier or
satisfaction by Herbalife of its obligation with respect to the Minimum Purchase
Order Amount) for the time and to the extent such failure or delay is caused by
reason of acts of God or other cause beyond its reasonable control, including
acts of government, riots, war, interruption of transportation, strikes or other
labor trouble, shortage of labor, fire, storm, flood, earthquake, inability to
obtain suitable raw materials, products, parts, components, fuel or power, or
extraordinary price increases. The performance of obligations hereunder shall be
suspended during the existence of such causes, and upon cessation of such
causes, shall again be required; provided however, that the parties hereto shall
use their reasonable commercial efforts to the consequences of such causes.
27. EXHIBITS AND SCHEDULES. Any Exhibit or schedule attached hereto is
made a part hereof and is fully incorporated herein by reference. Exhibit D
shall in any event at all times during the Term consist of at least five
entities listed thereon and it is expressly agreed and understood by the parties
hereto that no addition or deletion of any of the entities listed on Exhibit D
shall be made except with the mutual agreement of the parties hereto.
28. ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the parties hereto in relation to the purchase of Supplied Products by
Herbalife or any Affiliate from Supplier to be delivered on a date on or after
January 12, 1998 and with respect to the subject matter of this Agreement. This
Agreement supersedes any other agreement between the parties with respect to the
purchase of Supplied Products by Herbalife or any Affiliate from Supplier to be
delivered on a date on or after January 12, 1998 and with respect to the subject
matter of this Agreement. There are no representations, promises, warranties,
understandings or agreements, express or implied, oral or otherwise, in relation
thereto, except expressly referred to or set forth herein.
29. AGREEMENT NEGOTIATED. The parties hereto are sophisticated and have
been represented by lawyers throughout this transaction who have carefully
negotiated the provisions hereof.
30. REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy will be
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cumulative and will be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies will not constitute a waiver of the right
to pursue other remedies available according to law.
31. PARTIAL INVALIDITY. In the event that any of the provisions or
portions thereof of this Agreement are held to be unenforceable or invalid by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions or portions hereof will not be affected thereby.
32. INTERPRETATION. Section headings are included solely for convenience
and shall not constitute a part hereof. Unless the context otherwise requires,
words importing the singular shall be deemed to import the plural and vice
versa.
33. THIRD PARTY BENEFICIARIES. No person or entity shall be a third
party beneficiary of this Agreement, except that any Affiliate shall be
entitled to enforce against Supplier the rights conferred upon that Affiliate by
Supplier hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
HERBALIFE INTERNATIONAL OF AMERICA, INC.
By: /s/ CHRISTOPHER PAIR
-------------------------------------
Its: Chief Operating Officer
------------------------------------
By: /s/ CONRAD LEE KLEIN
-------------------------------------
Its: Chief Business Affairs Officer
------------------------------------
RAVEN INDUSTRIES, INC. d/b/a
OMNI-PAK INDUSTRIES
By: /s/ FRED E. SIEGEL
-------------------------------------
ITS: President
------------------------------------
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RELEASE AGREEMENT
THIS RELEASE AGREEMENT (the "Agreement") is entered into as of September
2, 1997, by and between Raven Industries, Inc. d/b/a Omni-Pak Industries, a
California corporation ("Omni") and Herbalife International of America, Inc., a
California corporation ("Herbalife"), with reference to the following facts:
RECITALS:
A. Omni and Herbalife are parties to that certain agreement executed on
May 12, 1993, as modified by a First Addendum To Agreement executed on May 18,
1993, which agreement may have thereafter been amended or modified from time to
time (as amended, the "Omni Initial Agreement").
B. Likewise, Herbalife and Dynamic Products, Inc., a California
corporation ("Dynamic"), are parties to that certain agreement executed on May
12, 1993, as modified by a First Addendum To Agreement executed on May 18, 1993,
which agreement may have thereafter been amended or modified from time to time
(as amended, the "Dynamic Initial Agreement "), and Herbalife and D&F
Industries, a California corporation ("D&F") are parties to that certain
agreement executed on May 12, 1993, as modified by a First Addendum To Agreement
executed on May 18, 1993, which agreement may have thereafter been amended or
modified from time to time (as amended, the "D&F Initial Agreement").
C. The D&F Initial Agreement, the Dynamic Initial Agreement and the
Omni Initial Agreement are collectively referred to herein as the "Initial
Agreements". D&F, Dynamic and Omni are collectively referred to herein as the
"D&F Suppliers".
D. Each of the Initial Agreements will expire on January 11, 1998, in
the event that either of the parties thereto gives written notice of its
decision to cease the contractual relationship, which notice must be given not
less than six months prior to such expiration date.
E. Herbalife has provided written notice (which was delivered on a date
which was six months or more prior to January 11, 1998) to each of the D&F
Suppliers of its decision to cease the contractual relationship under the
Initial Agreements on January 11, 1998 and the Initial Agreements will expire on
January 11, 1998.
F. Each of the D&F Suppliers and Herbalife desires to enter into new
supply agreements to provide for the supply of certain nutritional supplement
and certain non-nutritional products to Herbalife on and after January 12, 1998,
which products are intended to be similar in type and form to those historically
manufactured and supplied
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by each of the D&F Suppliers to Herbalife. The supply agreement between
Herbalife and Omni (the "Omni Supply Agreement") and the two other new supply
agreements between Herbalife and D&F and Herbalife and Dynamic entered into
contemporaneously with the Omni Supply Agreement are collectively referred to
herein as the "New D&F Supply Agreements."
G. In addition, each of the D&F Suppliers and Herbalife will
concurrently with execution of the New D&F Supply Agreements enter into
substantially identical release agreements to provide for the release of all the
disputes between Herbalife and each of the D&F Suppliers, including without
limitation, with respect to the Initial Agreements or the amendment, extension
or renewal thereof and all other claims arising from events, actions or conduct
relating to the Initial Agreements on or prior to execution of the New D&F
Supply Agreements, except as set forth in the release agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
undertakings set forth below, and in reliance on the recitals set forth above,
Omni and Herbalife hereby agree as follows:
1. Resolution and Releases. This Agreement is intended to resolve all
of the parties' disputes, including without limitation, those arising with
respect to the Omni Initial Agreement or the amendment, extension or renewal
thereof and all other claims arising from events, actions or conduct relating to
the Omni Initial Agreement, or any other agreement or arrangement involving the
parties relating to the supply, procurement, development manufacturing,
production, marketing, sale or distribution of products (each a "Related
Arrangement"), as set forth herein. Nothing contained herein is intended to, nor
does it, constitute an admission of fault or liability of either party to the
other. To effectuate the resolution of their differences the parties hereto
agree as follows:
(a) Release of Herbalife. Omni, on behalf of itself, and its
affiliates, its successors, assigns, directors, officers, employees, agents,
attorneys, representatives and advisors (the "Omni Associates"), hereby releases
and forever discharges Herbalife, and its affiliates, successors, assigns,
directors, officers, employees, agents, attorneys, representatives and advisors
(the "Herbalife Associates"), of and from any and all claims, demands, causes of
action, damages or liabilities, losses, costs or expenses of any kind in nature,
fixed or contingent, direct or indirect, whether or not known, suggested or
claimed, existing on the date hereof or which any such person at any time
heretofore had, including without limitation, those that are contained in, arise
from or relate in any way to the Omni Initial Agreement or its amendment,
extension or renewal or any Related Arrangement and all other claims arising
from events, actions or conduct relating to the Omni Initial Agreement or any
Related Arrangement, which occurred or was done, suffered or omitted on or prior
to the date of this Agreement, except as set forth in Exhibit A hereto. It is
hereby expressly agreed and understood that Omni, and the Omni Associates,
release and waive all royalties that Omni, or the Omni Associates, at any time
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may have been or would at any time in the future be entitled to receive in
respect of Herbalife's products, including without limitation Herbalife's
fragrances and personal care products. Omni, on behalf of itself, and the Omni
Associates, hereby expressly releases and forever discharges Herbalife, and the
Herbalife Associates, of and from any and all claims, demands, causes of action,
damages or liabilities, losses, costs or expenses of any kind in nature, fixed
or contingent, direct or indirect, whether or not known, suggested or claimed,
with respect to the use or exploitation at any time on, prior to or after the
date hereof of any patent, copyright trade secret, know-how, information,
documentation, technique, method, concept formula, formulation, recipe,
ingredient specification, design, menu, work product, work-in-progress or
intellectual property right, of any nature or kind whatsoever, developed,
conceived, created or learned by Omni, or the Omni Associates, on or prior to
the date of this Agreement ("Intellectual Property"), except for that
Intellectual Property arising or derived from the combination of ingredients for
those items identified on Exhibit B hereto. Herbalife reserves its right to
challenge any rights Omni may assert with respect to any aspect of any of the
items set forth on Exhibit B hereto and the parties hereto agree that the
identification of any item on Exhibit B hereto shall not in and of itself give
rise to the presumption that any rights of Omni exist in the items identified on
Exhibit B hereto. The releases set forth above in this Section 1(a) shall not
apply to the obligations required to be performed under this Agreement or the
Omni Supply Agreement.
(b) Release of Omni. Herbalife, on behalf of itself, and the
Herbalife Associates, hereby releases and forever discharges Omni, and the Omni
Associates, of and from any and all claims, demands, causes of action, damages
or liabilities, losses, costs or expenses of any kind in nature, fixed or
contingent, direct or indirect, whether or not known, suggested or claimed,
existing on the date hereof or which any such person at any time heretofore
had, including without limitation, those that are contained in, arise from or
relate in any way to the Omni Initial Agreement or its amendment, extension or
renewal or any Related Arrangement and all other claims arising from events,
actions or conduct relating to the Omni Initial Agreement or any Related
Arrangement which occurred or was done, suffered or omitted on or prior to the
date of this Agreement, except as set forth in Exhibit C hereto. The releases
set forth above in this Section 1(b) shall not apply to the obligations
required to be performed under this Agreement or the Omni Supply Agreement.
(c) Releases Apply to All Known and Unknown Causes of Action. It
is understood by Omni and Herbalife that there is a risk that subsequent to the
execution of this Agreement either party may incur or suffer loss, damage, or
injuries which are unknown or unanticipated at the time of the execution of this
Agreement. Further, there is risk that loss or damage presently known may be or
become greater than the parties now expect or anticipate. The parties assume
said risks, acknowledge that the releases contained herein shall apply to all
unknown and all unanticipated results arising from or relating to the matters
referred to above, as well as those known and anticipated, and, upon the advice
of respective legal counsel, Omni, and Herbalife each waive all rights under
California Civil Code Section 1542 and any comparable provision under the law of
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any other jurisdiction with respect to the matters released. California Civil
Code Section 1542 reads as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
(d) Representations and Warranties as to No Assignment of Claims.
Omni and Herbalife each represents and warrants to the other that each has not
assigned or transferred to any other person, firm or corporation in any manner,
including by way of subrogation or operation of law or otherwise, all or any
portion of any claim, demand, right, action or cause of action that each has
had, have or might have arising out of the matters released hereby nor all nor
any portion of any recovery or settlement to which they might be entitled. In
the event that any claim, demand or suit should be made because of any such
purported assignment, subrogation or transfer, the party from whom such
purported assignment, subrogation or transfer was alleged to have been made
agrees to indemnify and hold the other party hereto harmless against such claim,
demand or suit and any necessary expenses of investigation, attorneys' fees and
costs.
(e) Representations and Warranties as to No Material Breach of the
Omni Initial Agreement. Omni and Herbalife each represents and warrants to the
other that, as of the date of this Agreement, to the best of its knowledge, each
has not committed any material breach of, nor has there occurred any event which
would require or permit or could reasonably be anticipated to permit the
termination of the Omni Initial Agreement prior to January 11, 1998.
(f) Representations and Warranties as to Advice of Counsel. Omni
and Herbalife each represents and warrants to the other that each has received
advice from legal counsel of its own choice, as to the form and substance of
this Agreement, and as to the advisability of agreeing to its terms, and that,
based upon such advice, such party agrees to be bound by the terms of this
Agreement.
(g) Media-Relations. Omni and Herbalife will issue a mutual press
release regarding this Agreement and the matters covered herein in the form
attached hereto as Exhibit D hereto. The parties further agree that they will
not disparage each other in any oral or written public statements concerning any
matters related to or arising from this Agreement.
(h) Authority. Omni and Herbalife each represents and warrants to
the other that its execution of this Agreement has been fully and validly
authorized and approved by all requisite corporate action, and no further action
is necessary to make this Agreement and all acts contemplated hereby valid and
binding on itself in accordance with the terms hereof.
2. Amendment or Waiver. This Agreement will not be amended, nor will
any of its terms be deemed to have been waived by either party, unless such
amendment
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or waiver is in writing in a document that specifically refers to this Agreement
and specifically states that it intends to amend this Agreement or waive a term
of this Agreement and such document is signed by the parties hereto. General
correspondence between the parties, invoices, purchase orders or any other
document exchanged between the parties not meeting the requirements of this
Section 2, will not be deemed to amend or waive any term of this Agreement. In
the event of any conflict between this Agreement and any other document this
Agreement shall prevail.
3. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California, without regard to its
conflicts of laws principles. Any legal proceedings arising out of or in
connection with this Agreement shall be commenced and prosecuted in a court
located within Orange County, California.
4. Counterparts. This Agreement may be executed in multiple
counterparts, which taken together will constitute one instrument and each of
which will be considered an original for all purposes.
5. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(except as may otherwise be specifically provided herein to the contrary) if
delivered by hand, by a nationally recognized overnight delivery service, by
facsimile transmission followed by mail, or mailed by certified or registered
mail with postage prepaid:
(a) If to Omni:
Omni-Pak Industries
12151 Monarch Street
Garden Grove, California 92841
Attention: Fred E. Siegel, President.
Fax: (714) 899-3119
(b) If to Herbalife:
Herbalife International of America, Inc.
1800 Century Park East, 15th Floor
Century City, California 90067
Attention: Robert Sandler, Esq.
Facsimile No.: (310) 557-3906
or such other address or facsimile number as any of the persons designated above
may have specified in a notice or communication duly given to the other
designated person as provided herein. Such notice or communication will be
deemed to have been given as of the date so delivered or telecopied, or if
mailed, two business days thereafter.
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6. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto, their respective successors and assigns.
7. Exhibits. Any Exhibit hereto is made a part hereof and is fully
incorporated herein by reference.
8. Entire Agreement. This Agreement embodies the entire understanding
of the parties hereto with respect to the subject matter of this Agreement. This
Agreement supersedes any other agreement between the parties with respect to the
subject matter of this Agreement. There are no representations, promises,
warranties, understandings or agreements, express or implied, oral or otherwise,
in relation thereto, except expressly referred to or set forth herein.
9. Partial Invalidity. In the event that any of the provisions or
portions thereof of this Agreement are held to be unenforceable or invalid by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions or portions hereof will not be affected thereby.
10. Irreparable Harm. The parties agree that their failure to comply
with the provisions of this Agreement may cause irreparable harm for which there
may be no adequate remedy at law and each may, therefore, enforce through
equitable as well as legal remedies the obligations set forth in this Agreement.
11. Agreement Negotiated. The parties hereto are sophisticated and have
been represented by lawyers throughout this transaction who have carefully
negotiated the provisions hereof.
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<PAGE> 48
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
HERBALIFE INTERNATIONAL OF
AMERICA, INC.
By: /s/ CHRISTOPHER PAIR
-------------------------------------
Its: Chief Operating Officer
------------------------------------
By: /s/ CONRAD LEE KLEIN
-------------------------------------
Its: Chief Business Affairs Officer
------------------------------------
RAVEN INDUSTRIES, INC. d/b/a OMNI-
PAK INDUSTRIES
By: /s/ FRED E. SIEGEL
-------------------------------------
Its: President
------------------------------------
7
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<PERIOD-END> SEP-30-1997
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0
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<COMMON> 307,000
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