AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998
FILE NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
MANNATECH, INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 2833 75-2508900
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
600 S. ROYAL LANE, SUITE 200
COPPELL, TEXAS 75019
(972) 471-7400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
CHARLES E. FIORETTI
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
MANNATECH, INCORPORATED
600 S. ROYAL LANE, SUITE 200
COPPELL, TEXAS 75019
(972) 471-7400
(Name, and address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPY TO:
J. KENNETH MENGES, JR., P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific, Suite 4100
Dallas, Texas 75201
(214) 969-2800
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
Common Stock, par value $0.0001 per
share.................................... 4,955,000 $8.00 $39,640,000 $11,694
(1) Estimated pursuant to Rule 457 solely for purpose of calculating the amount
of the registration fee.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
A MINIMUM OF 1,500,000 SHARES
AND
A MAXIMUM OF 4,955,000 SHARES
[LOGO]
COMMON STOCK
--------------
A minimum of 1,500,000 shares and a maximum of 4,955,000 shares at the price
of $8 per share are being offered by the Company and certain selling
shareholders (the "Selling Shareholders") to the Company's Associates and
employees. The first 1,500,000 shares are being offered by the Company, the next
2,055,000 are being offered by the Selling Shareholders and sales of an amount
of shares in excess of 3,555,000 shares up to the maximum of 4,955,000 will be
divided equally between the Company and the Selling Shareholders. During the 30
business days subsequent to the commencement of the offering, each subscriber
may subscribe for a minimum of 100 shares.
The offering will continue until , 1998, unless terminated
by the Company prior thereto, and at the option of the Company, may be extended
through , 1999 (as extended, the "Termination Date"), at the
election of the Company. All subscription proceeds will be deposited in an
escrow account at , subject to a closing on such escrowed funds
once the Company has accepted subscriptions for at least 1,500,000 shares and,
if all shares offered hereby are not sold at such time, to subsequent closings
on such escrowed funds from time to time as determined by the Company. Escrowed
funds will be promptly returned to subscribers, without interest or deduction,
if the minimum subscriptions are not received by the Termination Date. After the
minimum subscriptions have been received, the Company may accept subscriptions
at any time or from time to time during the offering. No shares of Common Stock
will be issued until subscription proceeds are released from escrow to the
Company or the Selling Shareholders.
After this offering, there will be a restricted public market for the Common
Stock, and there are significant restrictions on the transfer of the Common
Stock for a minimum of two years. Moreover, the shares of Common Stock offered
hereby will not be listed on any national securities exchange or on the Nasdaq
Stock Market. See "Plan of Distribution" for information on the limited
liquidity and transferability of the Common Stock and for restrictions on the
purchase of Common Stock. See "Plan of Distribution" for factors considered in
determining the initial public offering price.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE NUMBER OF PROCEEDS PROCEEDS
TO SHARES TO TO SELLING
PUBLIC OFFERED COMPANY (1) SHAREHOLDERS(1)
Per Share............... $ $ $ $
Total Minimum........... $ $ $ $
Total Maximum........... $ $ $ $
(1) Before deducting expenses payable by the Company estimated at $ .
-------------------
The date of this Prospectus is , 1998.
[This page intentionally left blank]
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATED
TO THE PURCHASE OF COMMON STOCK OF THE COMPANY. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS REFLECTS A 1,000-FOR-1 SPLIT OF THE COMPANY'S
OUTSTANDING COMMON STOCK EFFECTED IN 1997 (THE "STOCK SPLIT"). SEE "RISK
FACTORS."
THE COMPANY
Mannatech develops and sells proprietary nutritional supplements and topical
products through a network marketing system. The Company sells its products in
the United States and Canada, through a network consisting of approximately
231,000 active Associates (an "active" Associate has purchased products from the
Company within the last 12 months) as of June 30, 1998, and is currently
planning to expand into Australia, while continuing to assess the potential of
other foreign markets. Since commencing operations in November 1993, the
Company's sales have grown from approximately $8.4 million in 1994 to
approximately $150.6 million in 1997.
The Company pursues a two-fold business strategy: (i) to develop a
proprietary line of nutritional supplements having both health benefits and mass
appeal to a general population demanding non-toxic healthcare alternatives and
(ii) to provide an appealing framework for persons interested in the products to
establish a direct sales business. To date, the Company has focused its
development efforts primarily in the area of carbohydrate technology, creating a
proprietary ingredient, Ambrotose-Registered Trademark- Complex, which combines
the naturally occurring sugars required to support optimal cell-to-cell
communication. Additional Company efforts have been focused on developing
products based on scientific advances in the emerging field of phytochemistry,
which has identified certain naturally occurring components of various plants,
known as "phytochemicals," which, while not essential to sustain life, are
fundamental to optimal health.
Ambrotose-Registered Trademark- Complex is the cornerstone of the Company's
product lines. These products are designed to support various systems and
functions of the human body, including (i) the cell-to-cell communication
system, (ii) the immune system, (iii) the endocrine system, (iv) the intestinal
system and (v) the dermal system. The Company also markets products designed to
aid in sports performance and nutritional support. The Company's products,
Man-Aloe-Registered Trademark-, Ambrotose-Registered Trademark- and Bulk
Ambrotose-Registered Trademark-, are designed to support cell-to-cell
communication. For immune system support, the Company offers
Phyt-Aloe-Registered Trademark-, for adults, and Phyto-Bears-Registered
Trademark-, a chewable gummi-bear nutritional supplement product marketed to
children but popular with adults. Other products include MVP-TM- and Plus for
endocrine system support, MannaCleanse-TM- for intestinal system support and
Emprizone-Registered Trademark-, Firm and Naturalizer for dermal care. The
Company offers several products designed to aid sports performance by enhancing
the body's natural recovery process and supporting lean tissue development,
including Em-Pact-TM-, Bulk Em-Pact-TM- and Sport with Ambrotose-Registered
Trademark-. The Company also markets Profile 1, Profile 2 and Profile 3, which
support the body's nutritional needs.
In March 1998, the Company introduced MannaBAR-TM-, a nutritional supplement
bar in two versions that contain the equivalent of the Company's recommended
minimum daily supply of Ambrotose-Registered Trademark-Complex,
Phyt-Aloe-Registered Trademark- and Plus. In September 1998 the Company plans to
introduce Manna-C-TM-, a nutritional support for nasal and sinus health
containing Ambrotose-Registered Trademark- Complex, monosaccharides necessary to
the manufacture of glycoproteins and an herbal blend of Vitamin C and other
nutrients which support cell functions. In addition to MannaBAR-TM- and
Manna-C-TM-, the Company plans to release additional products as new nutritional
compounds or areas of consumer demand are identified by the Company. All new
products are expected to contain proprietary components.
The Company's products are marketed exclusively through a network marketing
system. The Company believes that its network marketing system is well-suited to
its products, which emphasize health
3
and nutrition, because network marketing allows in-person product education not
available through traditional marketing techniques. The Company's network
marketing system appeals to a broad cross-section of people, particularly those
seeking to supplement family income, start a home-based business or pursue
employment opportunities other than conventional, full-time employment.
In 1997, the Company made a substantial investment in infrastructure,
including investments in its new headquarters building, new distribution center,
information technology systems and new research and development laboratory. The
Company believes it will be able to continue its sustained and profitable growth
by capitalizing on its operating strengths, including its (i) proprietary
product offerings, (ii) superior research and development capability, (iii)
strong Associate support philosophy, (iv) flexible operating strategy and (v)
experienced management team.
Prior to June 1, 1997, certain of the Company's intellectual property rights
and marketing rights were held by limited partnerships controlled by certain of
the Company's shareholders. On June 1, 1997, in order to simplify the Company's
ownership structure and consolidate all operating activities, the Company
entered into agreements to effect a reorganization through merging with the
corporate general partners of the limited partnerships in which the Company was
the surviving corporation and exchanging shares of Common Stock for the entire
ownership interests of the limited partnerships (the "Reorganization"). Pursuant
to the Reorganization, the Company issued an aggregate of 10,000,000 shares of
Common Stock to the holders of the general partnership and the limited
partnership interests. In addition, during May and June 1997 the Company issued
2,027,571 shares of Common Stock in consideration for the cancellation of
incentive compensation agreements with two shareholder-employees and four other
employees of the Company, including 626,971 shares issued to cancel incentive
compensation agreements that had been provided in lieu of ownership interests in
the limited partnerships. See Note 9 to the Financial Statements. The net effect
of the foregoing transactions was to increase the number of shares of Common
Stock outstanding by 12,027,571, while retaining substantially the same relative
ownership of the Company among the Company's original shareholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Certain Transactions-Partnership Transactions" and "-Incentive
Compensation Agreements."
The Company was incorporated in Texas in 1993 under the name Emprise
International, Inc. and changed its name to Mannatech, Incorporated in 1995. The
principal executive offices of the Company are located at 600 S. Royal Lane,
Suite 200, Coppell, Texas 75019, and the Company's telephone number is (972)
471-7400.
4
THE OFFERING
Common Stock offered:
Minimum...................................................... 1,500,000 shares
Maximum...................................................... 4,955,000 shares
Common Stock to be outstanding after this offering:
Minimum...................................................... 23,601,738(1)
Maximum...................................................... 24,436,738(2)
Restrictions on Transfer of Common Stock..................... No transfer of the Common Stock is permitted,
except to Associates or employees of the Company
or by descent, devise or gift to immediate
family members. This restriction on transfer
ceases to apply upon the later of (i) two years
from the date of the last closing relating to
the shares of Common Stock offered hereby or
(ii) 90 days after the completion of a
subsequent public offering resulting in the
listing of the Common Stock on a registered
national securities exchange.
Use of proceeds................................................ For international expansion, capital
investments, working capital and other general
corporate purposes. See "Use of Proceeds."
- ------------------------------
(1) Does not include (i) 2,500,000 shares of Common Stock reserved for issuance
under the Company's 1997 Stock Option Plan and 1998 Incentive Stock Option
Plan, of which 1,600,000 shares were subject to outstanding options as of
June 30, 1998 at a weighted average exercise price of $1.45 per share, (ii)
100,000 shares of Common Stock reserved for issuance subject to another
option outstanding as of June 30, 1998 at an exercise price of $2.00 per
share and (iii) 475,015 shares of Common Stock reserved for issuance subject
to a warrant outstanding as of June 30, 1998 at an exercise price of $1.35
per share.
(2) Includes 135,000 shares of Common Stock which may be sold in this offering
upon exercise of an outstanding warrant (the "Exercised Warrant Shares").
Does not include (i) 2,500,000 shares of Common Stock reserved for issuance
under the Company's 1997 Stock Option Plan and 1998 Incentive Stock Option
Plan, of which 1,600,000 shares were subject to outstanding options as of
June 30, 1998 at a weighted average exercise price of $1.45 per share, (ii)
100,000 shares of Common Stock reserved for issuance subject to another
option outstanding as of June 30, 1998 at an exercise price of $2.00 per
share and (iii) 340,015 shares of Common Stock reserved for issuance subject
to a warrant outstanding as of June 30, 1998 at an exercise price of $1.35
per share.
5
SUMMARY FINANCIAL INFORMATION
UNAUDITED
------------------------
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
--------------------------------------------- ------------------------
1994(1) 1995 1996 1997 1997 1998
----------- --------- --------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
Net sales.................................. $ 8,445 $ 32,071 $ 86,311 $ 150,570 $ 71,356 $ 83,725
Cost of sales.............................. 1,499 4,880 13,406 24,735 11,542 13,544
Commissions................................ 3,256 12,339 35,155 61,677 29,271 33,872
----------- --------- --------- --------- --------- -------------
Gross profit........................... 3,690 14,852 37,750 64,158 30,543 36,309
----------- --------- --------- --------- --------- -------------
Operating expenses:
Selling and administrative expenses...... 2,063 7,012 17,764 27,846 13,589 14,941
Other operating costs.................... 2,115 5,253 11,746 19,402 8,717 10,038
Cancellation of incentive compensation
agreements............................. - - - 2,192(2) 1,821 -
----------- --------- --------- --------- --------- -------------
Total operating expenses............... 4,178 12,265 29,510 49,440 24,127 24,979
----------- --------- --------- --------- --------- -------------
Income (loss) from operations.............. (488) 2,587 8,240 14,718 6,416 11,330
Other (income) expense, net................ 22 181 (116) (43) 259 (21)
----------- --------- --------- --------- --------- -------------
Income (loss) before income taxes.......... (510) 2,406 8,356 14,761 6,157 11,351
Income tax (benefit) expense............... (168) 67 1,194 4,139 1,723 4,370
----------- --------- --------- --------- --------- -------------
Net income (loss).......................... $ (342) $ 2,339 $ 7,162 $ 10,622 $ 4,434 $ 6,981
----------- --------- --------- --------- --------- -------------
----------- --------- --------- --------- --------- -------------
Earnings (loss) per common share:(3)
Basic.................................... $ (0.02) $ 0.11 $ 0.35 $ 0.50 $ 0.21 $ 0.31
----------- --------- --------- --------- --------- -------------
----------- --------- --------- --------- --------- -------------
Diluted.................................. $ (0.02) $ 0.11 $ 0.35 $ 0.47 $ 0.20 $ 0.29
----------- --------- --------- --------- --------- -------------
----------- --------- --------- --------- --------- -------------
Weighted average common and common
equivalent shares outstanding:(3)
Basic.................................... 20,627 20,627 20,627 21,449 21,089 22,102
----------- --------- --------- --------- --------- -------------
----------- --------- --------- --------- --------- -------------
Diluted.................................. 20,627 20,627 20,627 22,400 21,747 23,698
----------- --------- --------- --------- --------- -------------
----------- --------- --------- --------- --------- -------------
PRO FORMA INFORMATION:(4)
Income (loss) before income taxes, as
reported................................. $ (510) $ 2,406 $ 8,356 $ 14,761 $ 6,157
Pro forma provision for income tax
(benefit) expense........................ (191) 902 3,134 5,683 2,370
----------- --------- --------- --------- ---------
Pro forma net income (loss)................ $ (319) $ 1,504 $ 5,222 $ 9,078 $ 3,787
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
PRO FORMA EARNINGS (LOSS) PER COMMON
SHARE:(3)
Basic...................................... $ (0.02) $ 0.07 $ 0.25 $ 0.42 $ 0.18
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Diluted.................................... $ (0.02) $ 0.07 $ 0.25 $ 0.41 $ 0.17
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Depreciation and amortization.............. $ 4 $ 75 $ 414 $ 1,189 $ 487 $ 958
Capital expenditures(5).................... $ 72 $ 769 $ 2,660 $ 9,135 $ 5,501 $ 3,727
Dividends declared per common share........ $ 1.00(6) $ 1.00(6) $ 10.00(6) $ 0.37 $ 0.01 $ 0.30
6
JUNE 30, 1998
-------------------------------------------
ACTUAL AS ADJUSTED(7) AS ADJUSTED(8)
--------- --------------- ---------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 69 $ 11,129 $ 15,668
Working capital....................................................... (11,351) (291) 4,284
Total assets.......................................................... 22,764 31,724 36,263
Total liabilities..................................................... 20,865 20,865 19,210
Redeemable warrants................................................... 300 300 215
Total shareholders' equity............................................ 1,599 10,559 16,838
- ------------------------------
(1) Statement of Income Data for the year ended December 31, 1994 includes the
period from November 4, 1993 (inception) through December 31, 1994. For the
two months of operations ended December 31, 1993, the Company's financial
data consisted of net sales of $0, selling and administrative expenses of
$43,049, other operating costs of $68,683 and a net loss of ($112,733). The
balance sheet reflects a total shareholders' deficit of ($111,733).
(2) In June 1997 and December 1997, the Company recorded one-time charges to
operations for the issuance of stock in exchange for the cancellation of
certain incentive compensation agreements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."
(3) Computed on the basis described in Note 1 in the Notes to Financial
Statements.
(4) The pro forma information shows the Company's net income and earnings per
share as if all income earned by the Company and the limited partnerships
was taxable at federal and state statutory rates.
(5) Capital expenditures include assets acquired through capital lease
obligations of $397,402 in 1997 and $1,367,457 for the six months ended June
30, 1998.
(6) Dividends were calculated based upon shares outstanding prior to the Stock
Split and the Reorganization (10,000 shares), each of which took place in
1997. Aggregate dividends declared amounted to $10,000, $10,000 and $100,000
in 1994, 1995 and 1996, respectively.
(7) Adjusted to give effect to the sale of 1,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$8.00 per share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization." In addition, as of June 30,
1998, the Company had recorded $2,100,000 of deferred offering cost relating
to an offering which terminated in July 1998. Total assets and shareholders'
equity have been reduced by this amount as well.
(8) Adjusted to give effect to the sale of a maximum of 2,200,00 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $8.00 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization." Also reduced
for the $2,100,000 in deferred offering costs noted in (7) above.
TRADEMARKS
The tradename Mannatech-TM- and the Company's logo is a Texas trademark of
the Company. Product names used in this Prospectus are, in certain cases,
trademarks and are also the property of the Company, including;
Ambrotose-Registered Trademark-; Bulk Ambrotose-Registered Trademark-;
Man-Aloe-Registered Trademark-; Manna-C-TM-; MannaBAR-TM- (carbohydrate
formula); MannaBAR-TM- (protein formula); MVP-TM- Phyt-Aloe-Registered
Trademark-; Phyto-Bears-Registered Trademark-; MannaCleanse-TM-; and
Emprizone-Registered Trademark-. Manapol-Registered Trademark- is a registered
trademark of Carrington Laboratories, Inc. All other tradenames and trademarks
appearing in this Prospectus are the property of their respective owners.
7
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING THE COMMON STOCK OFFERED
BY THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS
"BELIEVES," "EXPECTS," "ANTICIPATES," "INTENDS," "ESTIMATES," "SHOULD," "WILL
LIKELY," "PLANS TO" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. IMPORTANT FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL
AS THOSE DISCUSSED ELSEWHERE HEREIN.
BEST EFFORTS OFFERING; MINIMUM NUMBER OF SHARES TO BE SOLD. The Company is
offering its Common Stock on a "best efforts" basis. There can be no assurance
that all of the 2,200,000 shares of Common Stock offered by the Company hereby
will be sold and that the estimated net proceeds generated from such a sale of
all such Common Stock will actually be received by the Company. If the Company
is unable to sell at least 1,500,000 shares of the Common Stock offered hereby,
the Company will cancel this offering and return all monies collected from
subscribers and held in escrow without interest or deduction. Furthermore, if
all of the 2,200,000 shares of Common Stock offered by the Company hereby are
not sold, the Company may be unable to fund all the intended uses described
herein for the net proceeds anticipated from this offering without obtaining
funds from alternative sources or using working capital generated by the
Company. Alternative sources of funds may not be available to the Company at a
reasonable cost, and the working capital generated by the Company may not be
sufficient to fund any uses not financed by offering proceeds. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources" and "Plan of
Distribution."
RELATIONSHIP OF OFFERING PRICE TO MARKET PRICE. The initial public
offering price of the Common Stock has been arbitrarily determined by the
Company and may not be indicative of the price at which shares of Common Stock
will sell after this offering or its value, in general. In determining the
offering price, the Board of Directors considered, among other things, the
Company's earnings, its view of the Company's prospects, the earnings of
comparable publicly traded nutritional supplement companies and the trading
price of the stock of those companies. See "Plan of Distribution-Determination
of Offering Price." The Company makes no representations as to any objectively
reasonable value of the Common Stock. Since the Company has not retained an
underwriter for purposes of this offering, the offering price has not been
subject to evaluation by any third party as would be the case in an underwritten
offering. Prices for the shares of Common Stock after this offering will be
determined in the available, restricted market limited to Associates and
employees of the Company for at least two years and may be influenced by many
factors, including the restrictions on transfer of the Common Stock, the depth
and liquidity of the market for the Common Stock, the perception of the Company
by other shareholders, the nutritional supplement industry as a whole, and
general economic and market conditions. There can be no assurance that the
market price of the Common Stock will not decline below the initial public
offering price.
NO PRIOR MARKET FOR COMMON STOCK; LIMITED TRANSFERABILITY; PRICE
VOLATILITY. Before this offering, there has been no public market for the
Common Stock. There is little likelihood that an active trading market for the
Common Stock will develop or be sustained at any time after this offering given
the significant restrictions on transfer associated with the shares of Common
Stock offered hereby. Moreover, the shares of Common Stock offered hereby will
not be listed on any national securities exchange or on the Nasdaq Stock Market.
The market price of the Common Stock could be subject to significant
fluctuations in response to variations in anticipated or actual operating
results and other events or factors such as food and labor costs and weather
conditions. In addition, the market prices of the stock of small capitalization
companies have experienced significant price fluctuations in recent years. These
fluctuations often have been unrelated to the operating performance of the
specific companies whose stocks are
8
traded. Broad market fluctuations, as well as general economic conditions, in
the United States or internationally, may adversely affect the market price of
the Common Stock. There can be no assurance that the market price of the Common
Stock will not decline below the initial public offering price. See "Plan of
Distribution" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. An element of the Company's
growth strategy is to initiate the distribution and sale of the Company's
products in international markets. The Company may experience difficulty
entering new international markets due to greater regulatory barriers, the
necessity of adapting to new regulatory systems and problems related to entering
new markets with different cultural bases and political systems. The Company's
planned international operations will be subject to political and economic
uncertainties, including, among others, inflation, risk of renegotiation or
modification of existing agreements or arrangements with governmental
authorities, transportation, tariffs, export control, government regulation,
trademark availability and registration issues, currency exchange rate
fluctuations, foreign exchange restrictions which limit the repatriation of
investments and earnings therefrom, changes in taxation, hostilities or
confiscation of property. Changes related to these matters could have a material
adverse effect on the Company's business, results of operations and financial
condition. No assurance can be given that the Company will be able to
successfully reformulate its product lines in any of the Company's potential new
markets to attract local consumers or to meet regulatory requirements. The
failure to do so would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business-Growth Strategy."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
the market price for the Common Stock. Upon completion of this offering, there
is expected to be a minimum of 23,601,738 shares and a maximum of 24,436,738
shares of Common Stock outstanding. All of the shares offered hereby will not be
freely tradeable until the lapse of the significant restrictions on transfer
applicable to such shares, but will, upon such lapse, be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless purchased by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act ("Rule 144")
described below. The remaining 22,101,738 shares or 19,481,738 shares,
respectively, of Common Stock outstanding upon completion of this offering are
"restricted securities," as that term is defined in Rule 144 (the "Restricted
Shares"). Of the Restricted Shares, 21,982,571 shares or 19,362,571 shares,
respectively, will be eligible for sale in the open market after the effective
date of the Registration Statement, all under and subject to the restrictions
contained in Rule 144 and Rule 701.
The shares of Common Stock offered hereby may not be transferred other than
to Associates or employees of the Company. This restriction upon transfer will
cease to apply upon the later of (i) two years from the date of the last closing
relating to the shares of Common Stock offered hereby or (ii) 90 days after the
completion of a subsequent public offering resulting in the listing of the
Common Stock on a registered national securities exchange (the "Restriction
Termination Date"). The certificates representing the shares of Common Stock
offered hereby shall bear a legend setting forth the restrictions upon transfer
relating to the Common Stock. Moreover, prior to the completion of this
offering, the Company intends to enter into lock-up agreements (the "Lock-up
Agreements") with each of the Company's shareholders and holders of options to
purchase Common Stock. Pursuant to the Lock-up Agreements, each such shareholder
will agree, subject to certain exceptions, not to sell or otherwise dispose of
any of its shares of Common Stock until the Restriction Termination Date.
Under the Company's 1997 Stock Option Plan (the "1997 Stock Option Plan"),
as of June 30, 1998 options to purchase 1,600,000 shares of Common Stock were
outstanding, all of which will become exercisable 90 days after the effective
date of this Prospectus. An additional 400,000 shares will be available for
future grants to employees and consultants of the Company under the 1997 Stock
Option Plan. Under the Company's 1998 Incentive Stock Option Plan (the "1998
Stock Option Plan"), as of June 30, 1998 there were 500,000 shares reserved for
future option grants. The Company intends to register on Form S-8 under the
Securities Act the offering and sale of Common Stock issuable under the
9
1997 Stock Option Plan and the 1998 Stock Option Plan as soon as practicable
after the date of this Prospectus.
As of June 30, 1998, an additional 100,000 shares of Common Stock were
issuable upon the exercise of an outstanding option (the "Non-Plan Option") at
an exercise price of $2.00 per share, which will become exercisable 90 days
after the effective date of this Prospectus. In addition, as of June 30, 1998, a
warrant (the "Warrant") to purchase 475,015 shares of Common Stock was
outstanding, which is currently exercisable and of which a maximum of 135,000
shares may be sold in this offering. The holder of the Warrant possesses
registration rights with respect to the shares of Common Stock underlying the
Warrant. Sales of shares of Common Stock under either Rule 144 or pursuant to a
registration statement could have a material adverse effect on the price of the
Common Stock. See "Management-Stock Option Plans," "Description of Capital
Stock-Warrant Shares" and "Shares Eligible for Future Sale."
RELIANCE UPON ASSOCIATES. The Company distributes its products exclusively
through its Associates, and the Company's success depends in significant part
upon its ability to attract, maintain and motivate a large base of Associates,
who, in turn, recruit additional Associates to purchase and sell the Company's
products. Significant turnover among Associates from year to year, which the
Company believes is typical of direct selling, requires the sponsoring of new
Associates by existing Associates in order to maintain or increase the overall
Associate force. Efforts by Associates to obtain new Associates are affected by
the level of Associate motivation, which in turn can be positively or negatively
affected by certain factors, including general economic conditions,
modifications in the amount of commissions paid, and public perception of the
quality of the Company's products. For 1997, the Company's commission expense
comprised approximately 56% of its total expenses exclusive of cost of sales and
income taxes. The Company's ability to attract and retain new Associates could
be negatively affected by adverse publicity relating to the Company or its
services or its operations, including its network marketing system. Because of
the number of factors that impact the recruiting of Associates, the Company
cannot predict when or to what extent increases or decreases in the level of
Associate retention will occur. In addition, the number of Associates as a
percentage of the population may reach levels that become difficult to exceed
due to the finite number of persons inclined to pursue direct selling as a
business. There can be no assurance that the number or productivity of
Associates will be sustained at current levels or will increase in the future.
The failure of the Company to attract and retain Associates in sufficient
numbers would have a material adverse effect on the Company's business, results
of operations and financial condition. Furthermore, the Company's business,
results of operations and financial condition could be materially adversely
affected if the Company finds it necessary to terminate a significant number of
Associates or certain Associates who play a key role in the Company's
distribution system. See "Business-Growth Strategy" and "-Product Distribution
System."
REGULATION AND MANAGEMENT OF ASSOCIATES. Associates are independent
contractors, not employees of the Company, and are not subject to the same level
of direction and oversight as Company employees. While the Company has policies
and rules in place governing the conduct of Associates, as well as a systematic
method of monitoring, compliance enforcement and discipline, it is difficult to
detect and correct all instances of Associate misconduct. The Company's efforts
to manage its Associates can result in litigation from time to time between the
Company and its Associates and an adverse outcome in such litigation could
adversely affect the Company's business, results of operations and financial
condition. See "Business-Legal Proceedings." Violations of these policies and
rules reflect negatively on the Company and could also lead to formal or
informal complaints by various federal, state or foreign regulatory authorities.
In addition, formal and informal complaints regarding Associate conduct issues
are occasionally filed with state attorneys general offices. These offices have,
from time-to-time, contacted the Company and, in two instances, have met with
representatives of the Company to review the activities of the Company and its
Associates in their respective jurisdictions. Complaints or enforcement actions
by federal, state or foreign regulatory authorities may occur in the future and
could have a material adverse effect on the Company's business, results of
operations and financial condition. If the Company enters new international
markets, the challenge of coordinating existing Associate requirements, policies
and
10
procedures with the overlay of international legal requirements will provide the
potential for increased risk to the Company. See "Business-Product Distribution
System-Management of Associates."
The Company's network marketing system is or may be subject to or affected
by extensive government regulation, including, without limitation, federal and
state regulation regarding network marketing plans, and the offer and sale of
business franchises, business opportunities and securities. Various governmental
agencies monitor direct selling activities, and the Company has occasionally
been requested to supply information regarding its marketing plan to certain of
such agencies. There can be no assurance that legislation and regulations
adopted in particular jurisdictions in the future will not adversely affect the
Company's business, results of operations and financial condition. The Company
also could be found to be in non-compliance with existing statutes or
regulations as a result of, among other things, vicarious liability arising from
allegations of misconduct and misconduct by Associates, who are independent
contractors over whom the Company has limited control, the ambiguous nature of
certain of such statutes, regulations and related court decisions, and the
considerable interpretive and enforcement discretion statutorily granted to
regulatory authorities and the courts. Any assertion or determination that the
Company or the Associates are not in compliance with existing statutes or
regulations could have a material adverse effect on the Company's business,
results of operations and financial condition. Furthermore, an adverse
determination by any one state could influence the decisions of regulatory
authorities in other jurisdictions. See "Business-Product Distribution
System-Management of Associates."
ABILITY TO MANAGE GROWTH. The Company's officers have had limited
experience in managing companies as large as the Company. Further growth and
expansion of the Company's business would place additional demands upon the
Company's current management and other resources and would require additional
production capacity, working capital, information systems, management,
operational and other financial resources. Further growth of the Company will
depend on various factors, including, among others, its ability to attract and
retain new Associates, the development of new products, competition and federal
and state regulation of the nutritional supplements industry. Not all of the
foregoing factors are within the control of the Company. No assurance can be
given that the Company's business will grow in the future and that the Company
will be able to effectively manage such growth. If the Company is unable to
manage growth effectively, the Company's business, results of operations and
financial condition would be materially adversely affected. See "Business-Growth
Strategy," "-Product Distribution System-Associate Development," "-Product
Distribution System-Management of Associates," "-Information Technology and
Systems," "-Production and Distribution" and "Management."
COMPETITION. The nutritional supplements market is large and intensely
competitive. The Company competes directly with companies that manufacture and
market nutritional products in each of the Company's product lines, including
General Nutrition Companies, Inc., Solgar Vitamin and Herb Company, Inc.,
Twinlab Corporation and Weider Nutrition International, Inc. Many of the
Company's competitors in the nutritional supplements market have longer
operating histories and greater name recognition and financial resources than
the Company. In addition, nutritional supplements can be purchased in a wide
variety of channels of distribution. While the Company believes that consumers
appreciate the convenience of ordering products from home through a sales
person, the buying habits of many consumers accustomed to purchasing products
through traditional retail channels are difficult to change. The Company's
product offerings in each product category are also relatively small compared to
the wide variety of products offered by many other nutritional supplement
companies. There can be no assurance that the Company's business, results of
operations and financial condition will not be adversely affected by market
conditions and competition in the future.
The Company also competes in the nutritional supplements market and for new
Associates with other direct selling organizations, many of which have longer
operating histories and greater name recognition and financial resources than
the Company, including Amway Corporation, Nu Skin Enterprises, Inc., Body Wise
International, Inc., ENVION International, Herbalife International, Inc., Enrich
International, Rexall Showcase International, Forever Living Products, Inc. and
Melaleuca, Inc. The Company competes for new Associates on the basis of its
compensation plan and its proprietary and
11
quality products. The Company believes that many more direct selling
organizations will enter the marketplace as this channel of distribution expands
over the next several years. The Company also competes for the commitment of its
Associates. Given that the pool of individuals interested in direct selling
tends to be limited in each market, the potential pool of Associates for the
Company's products is reduced to the extent other network marketing companies
successfully recruit these individuals into their businesses. There can be no
assurance that other network marketing companies will not be able to recruit the
Company's existing Associates or deplete the pool of potential Associates in a
given market. The competition for Associates from such other companies could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business-Competition."
POTENTIAL EFFECTS OF ADVERSE PUBLICITY. The Company's products contain
vitamins, minerals, herbs and other ingredients that the Company regards as safe
when taken as directed by the Company and that various scientific studies have
suggested may offer health benefits. The Company conducts quality control
testing on its products and, from time to time, conducts or sponsors scientific
studies relating to the benefits of its products. The Company is highly
dependent upon Associate perception of the overall integrity of its business, as
well as the safety and quality of its products and similar products distributed
by other companies which may not adhere to the same quality standards as the
Company. The size of the Company's distribution force and results of operations
can be particularly affected by adverse publicity regarding the Company, or its
competitors, including publicity regarding the legality of network marketing or
the Company's network marketing system, the quality of the Company's products
and product ingredients or those of its competitors, regulatory investigations
of the Company or the Company's competitors and their products, Associate
actions, the Company's management of its Associates and the public's perception
of the Company's Associates and direct selling businesses generally. See
"-Limited Availability of Conclusive Clinical Studies," "Business-Products" and
"-Product Distribution System."
RELIANCE ON CERTAIN ASSOCIATES. The Company's compensation plan allows
Associates to sponsor new Associates. The sponsoring of new Associates creates
multiple Associate levels in the network marketing structure. Sponsored
Associates are referred to as "downline" Associates within the sponsoring
Associates' "downline network." If downline Associates also sponsor new
Associates, additional levels of downline Associates are created, with the new
downline Associates also becoming part of the original sponsor's "downline
network." As a result of this network marketing distribution system, Associates
develop relationships with other Associates. The Company believes that its
revenue is generated from thousands of Associate networks. The loss of a
high-level sponsoring Associate or another key Associate together with a group
of leading Associates in such Associate's downline network, or the loss of a
significant number of Associates for any reason, could adversely affect sales of
the Company's products and impair the Company's ability to attract new
Associates, which would have a material adverse effect on the Company's
business, results of operations and financial condition. As of April 30, 1998,
only one of the Company's Associates had executed a non-competition agreement
with the Company. See "Business-Product Distribution System-Associate
Development."
RELIANCE ON AND CONCENTRATION OF OUTSIDE MANUFACTURERS. All of the
Company's products are manufactured by outside manufacturers. The Company's
profit margins and its ability to deliver its existing products on a timely
basis are dependent upon the ability of the outside manufacturers to continue to
supply products that meet the Company's quality standards in a timely and
cost-efficient manner. In response to the Company's growth, relationships were
developed with three large manufacturers in 1997. Currently, substantially all
of the Company's products are produced by these manufacturers. The Company's
ability to enter new markets and sustain satisfactory levels of sales in each
market will be dependent in part upon the ability of these or other suitable
outside manufacturers to reformulate existing products, if necessary to comply
with local regulations or market environments, for introduction into such
markets. Finally, the development of additional new products in the future will
likewise be dependent in part on the services of suitable outside manufacturers.
The failure of any manufacturer to supply products as required by the Company
could have a material adverse effect on the Company's business, results of
operations and financial condition.
12
The Company currently acquires ingredients solely from suppliers that are
considered by the Company to be the superior suppliers of such ingredients. The
Company believes it has developed dependable alternative sources for all of its
ingredients except Manapol-Registered Trademark- and arabinogalactan, which are
components of the Company's proprietary raw material. The Company believes that,
in the event it is unable to source any ingredients from its current suppliers,
such ingredients could be produced by the Company or replaced with substitute
ingredients. However, any delay in replacing or substituting such ingredients
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business-Production and Distribution."
DEPENDENCE ON PROPRIETARY INGREDIENT. Two ingredients are proprietary to
the Company: (i) Ambrotose-Registered Trademark- Complex, a glyconutritional
dietary supplement consisting of a blend of plant polysaccharides, which is a
component of each of the Company's products; and (ii) Dioscorea Complex, a blend
of herbal extracts. The Company's success will depend in large part on its
ability to protect and promote its proprietary rights to these products, in
particular Ambrotose-Registered Trademark- Complex. The Company has filed a
composition and use of matter patent application for this compound, and has
entered into confidentiality agreements with its manufacturers and suppliers to
protect its proprietary rights. However, there can be no assurance that the
Company will be granted a patent for its Ambrotose-Registered Trademark- Complex
compound or that any such patent granted to the Company will not be
substantially narrower in scope than that sought in the Company's application or
that other means employed by the Company to protect its proprietary rights will
be adequate. Any failure of the Company to protect its proprietary rights would
have a material adverse effect on the Company's business, results of operations
and financial condition.
GOVERNMENT REGULATION OF PRODUCTS AND MARKETING; IMPORT RESTRICTIONS. In
addition to regulation of its direct selling activities, the Company, in both
its United States and foreign markets, is or will be subject to and affected by
extensive laws, governmental regulations, administrative determinations, court
decisions and similar constraints (as applicable, at the federal, state and
local levels) including, among other things, regulations pertaining to (i) the
formulation, manufacturing, packaging, labeling, distribution, importation, sale
and storage of the Company's products, (ii) product claims and advertising
(including direct claims and advertising by the Company as well as claims and
advertising by Associates, for which the Company may be held responsible), (iii)
the Company's network marketing system, (iv) transfer pricing and similar
regulations that affect the level of foreign taxable income and customs duties
and (v) taxation of Associates, which in some instances may impose an obligation
on the Company to collect the taxes and maintain appropriate records. See
"Business-Government Regulation."
The Company may experience complications regarding health and safety and
food and drug regulations for nutritional products. Many products could require
reformulation to comply with local requirements. In some foreign countries,
certain nutritional products may be considered foods, while other countries may
consider them drugs. New regulations could be adopted or any of the existing
regulations could be changed at any time in a manner that could have a material
adverse effect on the Company's business, results of operations and financial
condition. Duties on imports are a component of national trade and economic
policy and could be changed in a manner that would be materially adverse to the
Company's sales and its competitive position compared to locally produced goods,
in particular in countries where the Company's products would be subject to high
customs duties. In addition, import restrictions in certain countries and
jurisdictions will limit the Company's ability to import products from the
United States. Present or future health and safety or food and drug regulations
could delay or prevent the introduction of new products into a given country or
marketplace or suspend or prohibit the sale of existing products in such country
or marketplace. The occurrence of any of these complications could have a
material adverse effect on the Company's business, results of operations and
financial condition.
If the Company expands into foreign markets, the Company will be affected by
the general stability of foreign governments and the regulatory environment
relating to the degree of acceptance attendant to network marketing generally,
and nutritional supplements and other products of the Company's line,
specifically.
13
DEPENDENCE ON KEY PERSONNEL. The Company's success will depend largely on
the efforts and abilities of senior management, particularly Charles E.
Fioretti, Chairman of the Board and Chief Executive Officer, and Samuel L.
Caster, President, each a founder of the Company. There can be no assurance that
the Company's existing management team will be able to manage the Company or its
growth or that the Company will be able to attract and retain additional
qualified personnel as needed in the future. Both Mr. Fioretti and Mr. Caster
have executed employment agreements with an initial term of five years, but
there can be no assurance that they will remain with the Company for the full
term of such agreements. The loss of the services of Messrs. Fioretti or Caster
or the services of other members of senior management, or the failure of the
Company to attract and retain additional qualified personnel, could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management."
GOVERNMENT REGULATION OF DIRECT SELLING ACTIVITIES. Direct selling
activities are regulated by various governmental agencies. These laws and
regulations are generally intended to prevent fraudulent or deceptive schemes,
often referred to as "pyramid" or "chain sales" schemes, that promise quick
rewards for little or no effort or risk, require high entry costs, use high
pressure recruiting methods and/or do not involve legitimate products. The
Company could be found not to be in material compliance with existing
regulations as a result of, among other things, the considerable interpretative
and enforcement discretion given to regulators or misconduct by Associates. Any
assertion or determination that the Company is not currently, or was not in the
past, in compliance with laws or regulations governing the Company's direct
selling activities could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, in any
country or jurisdiction, the adoption of new laws or regulations or changes in
the interpretation of existing laws or regulations could generate negative
publicity and/or have a material adverse effect on the Company's business,
results of operations and financial condition. The Company cannot determine the
effect, if any, that future governmental regulations or administrative orders
may have on the Company's business, results of operations and financial
condition. Moreover, governmental regulations in countries where the Company may
in the future commence operations may prevent, delay or limit market entry of
certain products or require the reformulation of such products. Regulatory
action, whether or not it results in a final determination adverse to the
Company, has the potential to create negative publicity, with detrimental
effects on the motivation and recruitment of Associates and, consequently, on
the Company's business, results of operations and financial condition. See
"-Potential Effects of Adverse Publicity," "-Risks Associated with International
Expansion" and "Business-Government Regulation."
As is the case with most network marketing companies, the Company has from
time-to-time received inquiries from various government regulatory authorities
regarding the nature of its business and other issues such as compliance with
local business opportunity laws and Associate sales practices. Although to date
none of these inquiries has resulted in a finding materially adverse to the
Company, adverse publicity resulting from inquiries into the Company's
operations by government agencies could materially adversely affect the
Company's business, results of operations and financial condition. See
"-Potential Effects of Adverse Publicity."
PRODUCT LIABILITY. Under applicable laws and regulations, the Company, like
any other retailer, distributor or manufacturer of products that are designed to
be ingested by consumers or applied to their bodies, faces an inherent risk of
exposure to product liability claims in the event that the use of its products
results in an allegation of loss or injury. Although the Company has not been
the subject of material product liability claims, no assurance can be given that
the Company may not be exposed to future product liability claims, including,
among other things, that its products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. The Company maintains product liability
insurance, however, the successful assertion or settlement of any uninsured
claim, a significant number of insured claims, a claim exceeding the Company's
insurance coverage or adverse publicity associated with any product liability
allegation could have a material adverse effect on the Company's business,
results of operations and financial condition.
14
One of the Company's products, MVP-TM-, contains country mallow, a plant
which contains an ephedra. Products containing ephedrine have been the subject
of adverse publicity in the United States and other countries relating to
alleged harmful effects, including the deaths of several individuals. The United
States Food and Drug Administration (the "FDA") has received numerous reports of
adverse reactions to the ingestion of a naturally-occurring form of ephedrine
from the Chinese herb, Ma Huang. The FDA has issued a warning to consumers
regarding the possible effects of ephedrine ingestion and has also issued a
proposed regulation for dietary supplements containing ephedrine. The proposed
regulation would prohibit dietary supplements containing eight milligrams or
more of ephedrine alkaloids per serving, and would not permit such products to
contain any other stimulant ingredients. The FDA is also considering whether to
also prohibit diuretic or laxative ingredients in such products. In addition,
the labeling of supplements would be prohibited from suggesting or recommending
conditions of use that would result in an intake of eight milligrams or more of
ephedrine alkaloids within a six-hour period, or a total daily intake of 24
milligrams or more. The FDA proposal would also require a warning not to take
the product for more than seven days, and would prohibit the supplements from
being represented, either expressly or implicitly, as being suitable for
long-term uses, such as for weight loss or body building. Similarly, claims for
increased energy, increased mental concentration or enhanced well-being that
might encourage the consumer to take more of the product to achieve more of the
purported effect would be required to be accompanied by a warning stating that
taking more than the recommended serving may cause a heart attack, stroke,
seizure or death. If the proposed regulation were to be implemented, MVP would
be subject to its labeling requirements and possibly to reformulation. Company
sales of MVP were $3.8 million, $5.5 million and $5.9 million in 1995, 1996 and
1997, respectively. Moreover, depending on claims made for the product, the FDA
could regulate it as a drug, thus requiring product approval prior to marketing.
The negative publicity or product liability claims that could stem from such
actions could have a material adverse effect on the Company's business, results
of operation and financial condition.
LIMITED AVAILABILITY OF CONCLUSIVE CLINICAL STUDIES. In general, the
Company's products consist of food, nutritional supplements and topical
products, one of which, Emprizone-Registered Trademark-, is classified in the
United States as an "over-the-counter" ("OTC") drug which the Company believes
does not require approval from the FDA or other regulatory agencies prior to
sale. Although many of the ingredients in the Company's products are vitamins,
minerals, herbs and other substances for which there is a long history of human
consumption, some of the Company's products contain innovative ingredients or
combinations of ingredients. Although the Company believes all of its products
to be safe when taken as directed by the Company, there is little long-term
experience with human consumption of certain of these innovative product
ingredients or combinations thereof in concentrated form. Accordingly, there can
be no assurance that the Company's products, even when used as directed, will
have the effects intended or will not have harmful side effects. The Company
performs research and/or tests in connection with the formulation and production
of its products, and from time to time conducts or sponsors clinical studies.
See "-Product Liability."
VARIATIONS IN OPERATING RESULTS. The Company may experience variations on a
quarterly basis in its results of operations, in response to, among other
things, the timing of Company-sponsored Associate events; new product
introductions; the opening of new markets; the timing of holidays, especially in
the fourth quarter, which may reduce the amount of time Associates spend selling
the Company's products or recruiting new Associates; the adverse effect of
Associates' or the Company's failure, and allegations of their failure, to
comply with applicable government regulations; the negative impact of changes in
or interpretations of regulations that may limit or restrict the sale of certain
of the Company's products; the operation of its network marketing system; the
introduction of its products into each market; the recruitment and retention of
Associates; the inability of the Company to introduce new products or the
introduction of new products by the Company's competitors; general conditions in
the nutritional supplement and personal care industries or the network marketing
industry; and consumer perceptions of the Company's products and operations. In
particular, because the Company's products are ingested by consumers or applied
to their bodies, the Company is highly dependent upon consumers' perception
15
of the safety, quality and effectiveness of its products. As a result,
substantial negative publicity, whether founded or unfounded, concerning one or
more of the Company's products or other products similar to the Company's
products could adversely affect the Company's business, results of operations
and financial condition.
As a result of these and other factors the Company's quarterly revenues,
expenses and results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance. There can be no assurance that the Company will be able to increase
its revenues in future periods or be able to sustain its level of revenue or its
rate of revenue growth on a quarterly or annual basis. The Company's rate of
growth compared to previous periods has been decreasing in recent periods and
this trend is expected to continue as the Company matures. Furthermore, no
assurances can be given that the Company's revenue growth rate in new markets
where operations have not commenced will follow this pattern. Due to the
foregoing factors, the Company's future results of operations could be below the
expectations of public market analysts and investors. In such event, the market
price of the Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTROL BY INSIDERS. Assuming the sale of 1,500,000 shares and 4,955,000
shares of Common Stock in this offering, Charles E. Fioretti, Samuel L. Caster
and the Company's other directors and officers, together with members of their
families and entities that may be deemed affiliates of or related to such
persons or entities, will, upon completion of this offering beneficially own
approximately 50.3% and 47.4%, respectively, of the Common Stock outstanding.
These individuals are likely to be able to maintain effective control of the
Company, including the ability to elect a majority of the Board of Directors of
the Company (the "Board of Directors"). In addition, such a high level of
ownership by such persons may have a significant effect in delaying, deferring
or preventing a change in control of the Company or other events which could be
of benefit to the Company's other shareholders including mergers, acquisitions,
tender offers and proxy contests. Accordingly, holders of Common Stock may be
deprived of an opportunity to sell their shares at a premium to the price paid
for such shares. See "Principal and Selling Shareholders."
UNSPECIFIED USE OF PROCEEDS. The principal purposes of this offering are to
provide the capital for international expansion, to increase the Company's
working capital and financial flexibility, to facilitate future access by the
Company to public equity markets and to provide increased visibility,
credibility and name recognition for the Company in the marketplace where
several of its competitors are publicly held companies. In addition, the Company
intends to repay its existing capital lease debt of approximately $1.7 million
if the maximum offering level is achieved. Prior to completion of this offering,
the Company intends to continue to pay approximately $1.3 million in dividends
to its existing shareholders. This dividend will be limited by the pre-offering
earnings of the Company. To the extent the Company sells less than all of the
shares offered by it in this offering, fewer net proceeds will be available to
fund these intended uses. The Company has not yet identified specific uses for a
majority of the net proceeds, and, pending such uses, the Company expects that
it will invest such net proceeds in short-term, interest-bearing
investment-grade securities. Accordingly, the Company's management will have
broad discretion as to the use of such net proceeds without any action or
approval of the Company's shareholders. See "Use of Proceeds."
PREFERRED STOCK. The Board of Directors may from time to time authorize the
issuance of one or more classes or series of Preferred Stock without shareholder
approval and may change the number of shares constituting any series and fix and
determine the designation and preferences, limitations and relative rights,
including voting rights, of the shares of any series of Preferred Stock so
established, in each case without any action or vote by the shareholders.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to discourage an attempt to obtain control of the Company by
means of a tender offer, proxy contest, merger or otherwise, and thereby protect
the Company's management, which may adversely affect the rights of the holders
of Common Stock. Preferred Stock issued by the Company may rank senior to the
Common Stock as to dividend rights, liquidation preference or both, may have
full or limited voting
16
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of Preferred Stock may discourage bids for the Common Stock
or may otherwise adversely affect the trading price of the Common Stock.
RISKS ASSOCIATED WITH INFORMATION TECHNOLOGY. The Company is fundamentally
dependent upon information technology and its related systems to manage and
operate its key business functions: order processing, customer service,
distribution, commission processing, and paying and receiving. The Company
recently implemented an internally developed computer software system, creating
certain risks to its operations. The most immediate risk to the business
operations of the Company is during the implementation phase, in which the new
computer software is substituted for the prior software. During this period,
certain variances between business requirements and the actual software
functionality have been and will continue to be identified and ameliorated in a
real-time environment. Additionally, there will have been and will continue to
be deviations in user job performance and efficiency of an unknown duration,
resulting from lack of proficiency with respect to the requirements of the new
software, diminished access to significant business information, and inherent
resistance to change. There have been, and it is anticipated that there will
continue to be, periods during which the software system will not be optimally
functional or periods during which it will be rendered temporarily inoperative
while it is adjusted to achieve required performance. Moreover, varied
computational results may ensue during the period of adjustment of the software
system to allow for all of the requisites of the Company's specific business
environment. During this period, it can be anticipated that related adverse
effects could result in other areas dependent upon information systems for
functionality. Also, it is likely that during such period, reversion to manual
methods, such as written order-taking and computation may be required during
times of adjustment, thereby substantially decreasing the efficiency of the
Company's operations, and possibly adding, temporarily, to overall costs
attendant to such operations. Standard accounting and inventory functions are
currently supported by an off-the-shelf software package known as CS/3, provided
by Tetra International, Inc. The reliability of inventory information contained
within this system is entirely dependent on the accuracy of data retained in the
core custom system. However, regular manual reconciliation of inventory
diminishes this risk over the long term.
In the event that the software system should fail, the Company would
experience an inability to conduct its day-to-day business for a period of time
dependent upon the severity of the failure and the ability of the Company to
remedy the cause. Should such a failure occur, it could have a material adverse
effect on the Company's business results of operations and financial condition.
ANTI-TAKEOVER MATTERS. Certain provisions of the Company's Amended and
Restated Articles of Incorporation (the "Articles"), the Company's Amended and
Restated Bylaws (the "Bylaws") and the Texas Business Corporation Act (the
"TBCA") may have the effect of discouraging unsolicited proposals for
acquisition of the Company. The Company's Bylaws provide for a classified Board
of Directors serving staggered terms of three years. Additionally, the Board of
Directors has the authority to issue up to 1,000,000 shares of preferred stock
having such rights, preferences and privileges as are designated by the Board of
Directors without shareholder approval. Effective September 1, 1997, the TBCA
restricts certain business combinations with any "affiliated shareholder," as
defined therein. These provisions may have the effect of delaying, deterring or
preventing a takeover of the Company and could limit the price that certain
investors might be willing to pay in the future for the Common Stock. See
"Description of Capital Stock-Preferred Stock" and "-Anti-Takeover
Considerations."
DILUTION TO NEW INVESTORS. Purchasers of Common Stock in this offering will
incur immediate and substantial dilution in net tangible book value per share.
See "Dilution."
17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares and
2,200,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $8.00 per share, after deducting the estimated
sales commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $940,000 million and $1,164,000 million,
respectively. The Company will not receive any proceeds from the sale of shares
by the Selling Shareholders. See "Principal and Selling Shareholders."
The following table sets forth the Company's anticipated use of the net
offering proceeds, assuming the sale, respectively, of the minimum of 1,500,000
shares and the maximum of 2,200,000 shares of Common Stock offered by the
Company hereby. Pending application of the net proceeds, the Company will invest
such proceeds in short term, interest-bearing instruments and investment grade
securities.
MINIMUM MAXIMUM
1,500,000 2,200,000
SHARES SOLD SHARES SOLD
-------------- --------------
Sources of Funds:
Offering proceeds.............................................................. $ 12,000,000 $ 17,600,000
Offering expenses.............................................................. (460,000) (460,000)
Commissions(1)................................................................. (480,000) (704,000)
-------------- --------------
TOTAL FUNDS...................................................................... $ 11,060,000 $ 16,436,000
-------------- --------------
-------------- --------------
Use of Funds:
International expansion........................................................ $ 6,060,000 $ 9,736,000
Repayment of debt.............................................................. 0 1,700,000
Working capital................................................................ 5,000,000 5,000,000
-------------- --------------
TOTAL USES....................................................................... $ 11,060,000 $ 16,436,000
-------------- --------------
-------------- --------------
- ------------------------
(1) Assumes a 4.0% commission is paid to the Placement Agents on sales of Common
Stock in this offering. See "Plan of Distribution."
The Company intends to use proceeds from this offering to complete its
expansion into Australia and to begin its expansion into the United Kingdom. The
Company also intends to use proceeds from this offering to finance its working
capital needs and to repay certain indebtedness, including expenses related to a
previous stock offering terminated in July 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DIVIDEND POLICY
The Company has in the past paid dividends to its shareholders, including
dividends in 1997 in the aggregate amount of $6,928,547. In the six months of
1998, the Company paid an aggregate of $6,621,620 in dividends to its
shareholders. The Company currently intends to declare monthly dividends of up
to $0.06 per share until consummation of this offering. This dividend is
expected to be paid entirely out of pre-offering earnings, and therefore is not
expected to have a dilutive effect on equity. Following this offering, the
Company currently does not anticipate that any dividends will be paid on its
Common Stock in the foreseeable future. The Company intends from time to time to
re-evaluate this policy based on its net income and its alternative uses for
retained earnings, if any. Any future payments of dividends will be subject to
the discretion of the Board of Directors and subject to certain limitations
under the TBCA. The timing, amount and form of dividends, if any, will depend,
among other things, on the Company's results of operations, financial condition,
cash requirements and other factors deemed relevant by the Board of Directors.
18
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of June 30, 1998 and as adjusted to reflect the application of the
estimated net proceeds from the sale by the Company of a minimum of 1,500,000
shares and a maximum of 2,200,000 shares, respectively, of Common Stock offered
by the Company hereby at an assumed initial public offering price of $8.00 per
share. The capitalization information set forth in the table below is qualified
by the more detailed Financial Statements and Notes thereto included elsewhere
in this Prospectus and should be read in conjunction with such Financial
Statements and Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
JUNE 30, 1998
-----------------------------------------
ACTUAL AS ADJUSTED(1) AS ADJUSTED(2)
--------- -------------- --------------
(IN THOUSANDS)
Short-term debt, including current maturities of long-term debt....... $ 1,172 $ 1,172 $ -
--------- -------------- --------------
--------- -------------- --------------
Total long-term debt, less current portion............................ $ 483 $ 483 $ -
Redeemable warrants................................................... 300 300 215
Shareholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized; no
shares issued and outstanding..................................... - - -
Common stock, $0.0001 par value, 99,000,000 shares authorized
(actual and as adjusted); 22,101,738 shares issued and outstanding
(actual); 23,601,738 issued and outstanding as adjusted (minimum);
and 24,436,738 shares issued and outstanding, as adjusted
(maximum)(3)...................................................... 2 2 2
Additional paid-in capital(4)....................................... 2,632 11,592 17,235
Notes receivable from shareholders.................................. (636) (636) -
Retained earnings (deficit)......................................... (399) (399) (399)
--------- -------------- --------------
Total shareholders' equity........................................ 1,599 10,559 16,838
--------- -------------- --------------
Total capitalization............................................ $ 2,382 $ 11,342 $ 17,053
--------- -------------- --------------
--------- -------------- --------------
- ------------------------
(1) As adjusted to give effect to the sale of 1,500,000 shares of Common Stock
offered by the Company hereby at an assumed offering price of $8.00 per
share and the application of the estimated net proceeds therefrom.
(2) As adjusted to give effect to the sale of 2,200,000 shares of Common Stock
offered by the Company hereby at an assumed offering price of $8.00 per
share and the application of the estimated net proceeds therefrom.
(3) Excludes (i) 2,500,000 shares reserved for issuance under the 1997 Stock
Option Plan and 1998 Stock Option Plan, of which 1,600,000 shares will be
issuable upon the exercise of outstanding options, (ii) 100,000 shares
issuable upon the exercise of the Non-Plan Option and (iii) 475,015 shares
issuable upon the exercise of the Warrant.
(4) Adjusted to reduce equity for the write off of $2,100,000 of deferred
offering costs recorded as of June 30, 1998 related to a previous stock
offering terminated in July 1998.
19
DILUTION
The net tangible book value of the Common Stock as of June 30, 1998 was
approximately $(501,000) or $(0.02) per share. Net tangible book value per share
represents the Company's total tangible assets less total liabilities, divided
by the total number of shares of Common Stock outstanding.
After giving effect to the sale of the minimum of 1,500,000 shares of Common
Stock offered by the Company hereby and the receipt of the net proceeds
therefrom (at an assumed initial public offering price of $8.00 per share), the
net tangible book value of the Common Stock as of June 30, 1998 would have been
approximately $10,599,000 million or $0.45 per share. This represents an
immediate increase in net tangible book value of $0.47 per share to existing
shareholders and an immediate dilution in net tangible book value of $7.55 per
share to purchasers of Common Stock in this offering. The following table
illustrates the per share dilution as of June 30, 1998:
Assumed initial public offering price per share................ $ 8.00
Net tangible book value per share as of June 30, 1998........ $ (0.02)
Increase per share attributable to new shareholders.......... 0.47
---------
Net tangible book value per share as of June 30, 1998 after
this offering................................................. 0.45
---------
Dilution per share to new shareholders......................... $ 7.55
---------
---------
After giving effect to the sale of the maximum of 2,200,000 shares of Common
Stock offered by the Company hereby and the receipt of the net proceeds
therefrom (at an assumed initial public offering price of $8.00 per share) the
net tangible book value of the Common Stock as of June 30, 1998 would have been
approximately $16,838,000 million or $0.69 per share. This represents an
immediate increase in net tangible book value of $7.31 per share to existing
shareholders and an immediate dilution in net tangible book value of $0.71 per
share to purchasers of Common Stock in this offering. The following table
illustrates the per share dilution as of June 30, 1998:
Assumed initial public offering price per share................ $ 8.00
Net tangible book value per share as of June 30, 1998........ $ (0.02)
Increase per share attributable to new shareholders.......... 0.71
---------
Net tangible book value per share as of June 30, 1998 after
this offering................................................. 0.69
---------
Dilution per share to new shareholders......................... $ 7.31
---------
---------
The following table sets forth as of June 30, 1998, after giving effect to
the sale of the minimum number of shares of Common Stock by the Company in this
offering, the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by existing
shareholders and by new shareholders:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ---------- -------------- ---------- -----------
Existing shareholders................... 22,101,738 93.6% $ 1,998,000 14.3% $ 0.09
New shareholders (minimum).............. 1,500,000 6.4 12,000,000 85.7 8.00
------------- ----- -------------- -----
Total............................... 23,601,738 100.0% $ 13,988,000 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
The following table sets forth as of June 30, 1998, after giving effect to
the sale of the maximum number of shares of Common Stock by the Company in this
offering, the number of shares of Common
20
Stock purchased from the Company, the total consideration paid and the average
price per share paid by existing shareholders and by new shareholders:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ---------- -------------- ---------- -----------
Existing shareholders................... 22,236,738 91.0% $ 2,183,250 11.0% $ 0.09
New shareholders (maximum).............. 2,200,000 9.0 17,600,000 89.0 8.00
------------- ----- -------------- -----
Total............................... 24,436,738 100.0% $ 19,783,250 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
Sales by the Selling Shareholders in this offering of the maximum number of
shares offered by such selling shareholders will reduce the number of shares
held by existing shareholders as of June 30, 1998 to 19,346,738 or 82% or 79.6%
of the total number of shares of Common Stock outstanding immediately after the
sale, respectively, of the minimum number of shares of Common Stock offered
hereby or the maximum number of shares of Common Stock offered hereby, and will
increase the number of shares being purchased by new investors to 4,955,000, or
approximately 18.3% of the total number of shares of Common Stock outstanding
immediately after this offering. See "Principal and Selling Shareholders."
There have been no exercises of outstanding stock options as of the date of
this Prospectus. As of June 30, 1998, there were (i) options outstanding under
the 1997 Stock Option Plan to purchase 1,600,000 shares of Common Stock at a
weighted average exercise price of $1.45 per share, none of which were vested or
exercisable as of such date, (ii) the Non-Plan Option to purchase 100,000 shares
of Common Stock at an exercise price of $2.00 per share, which was not vested or
exercisable as of such date, (iii) the Warrant to purchase 475,015 shares of
Common Stock at an exercise price of $1.35 per share, which is currently fully
exercisable and (iv) 400,000 and 500,000 shares of Common Stock available for
grant under the 1997 Stock Option Plan and 1998 Stock Option Plan, respectively.
To the extent that any shares of Common Stock are issued upon exercise of (i)
any of these options or the Warrant or (ii) any additional options that are
granted under the 1997 Stock Option Plan, the 1998 Stock Option Plan or
otherwise, there will be further dilution to new investors. See
"Management-Stock Option Plans," and "Principal and Selling Shareholders."
21
SELECTED FINANCIAL DATA
The Selected Financial Data set forth below for each of the four years ended
December 31, 1997 have been derived from, and should be read in conjunction
with, the financial statements of the Company audited by PricewaterhouseCoopers
LLP, with respect to 1997, and Belew Averitt LLP, with respect to earlier
periods, independent public accountants, whose reports appear elsewhere in this
Prospectus. The Selected Financial Data set forth below for the six months ended
June 30, 1997 and 1998 have been derived from the Company's unaudited financial
statements but have been prepared on the same basis as the audited financial
statements of the Company included herein and, in the opinion of management,
include all adjustments, consisting of normally recurring adjustments considered
necessary for a fair presentation of the Company's financial position and
results of operations for such period. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
accompanying Notes thereto included elsewhere in this Prospectus.
UNAUDITED
----------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------
1994(1) 1995 1996 1997 1997 1998
------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
Net sales.................................... $ 8,445 $32,071 $86,311 $150,570 $71,356 $83,725
Cost of sales................................ 1,499 4,880 13,406 24,735 11,542 13,544
Commissions.................................. 3,256 12,339 35,155 61,677 29,271 33,872
------- ------- ------- -------- ------- -------
Gross profit............................... 3,690 14,852 37,750 64,158 30,543 36,309
------- ------- ------- -------- ------- -------
Operating expenses:
Selling and administrative expenses........ 2,063 7,012 17,764 27,846 13,589 14,941
Other operating costs...................... 2,115 5,253 11,746 19,402 8,717 10,038
Cancellation of incentive compensation
agreements............................... - - - 2,192(2) 1,821 -
------- ------- ------- -------- ------- -------
Total operating expenses................... 4,178 12,265 29,510 49,440 24,127 24,979
------- ------- ------- -------- ------- -------
Income (loss) from operations................ (488) 2,587 8,240 14,718 6,416 11,330
Other (income) expense, net.................. 22 181 (116) (43) 259 (21)
------- ------- ------- -------- ------- -------
Income (loss) before income taxes............ (510) 2,406 8,356 14,761 6,157 11,351
Income tax (benefit) expense................. (168) 67 1,194 4,139 1,723 4,370
------- ------- ------- -------- ------- -------
Net income (loss)............................ $ (342) $ 2,339 $ 7,162 $ 10,622 $ 4,434 $ 6,981
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Earnings (loss) per common share:(3)
Basic...................................... $ (0.02) $ 0.11 $ 0.35 $ 0.50 $ 0.21 $ 0.31
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Diluted.................................... $ (0.02) $ 0.11 $ 0.35 $ 0.47 $ 0.20 $ 0.29
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Weighted average common and common equivalent
shares outstanding:(3)
Basic...................................... 20,627 20,627 20,627 21,449 21,089 22,102
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Diluted.................................... 20,627 20,627 20,627 22,400 21,747 23,698
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
PRO FORMA INFORMATION:(4)
Income (loss) before income taxes, as
reported................................... $ (510) $ 2,406 $ 8,356 $ 14,761 $ 6,157
Pro forma provision for income tax (benefit)
expense.................................... (191) 902 3,134 5,683 2,370
------- ------- ------- -------- -------
Pro forma net income (loss).................. $ (319) $ 1,504 $ 5,222 $ 9,078 $ 3,787
------- ------- ------- -------- -------
------- ------- ------- -------- -------
PRO FORMA EARNINGS (LOSS) PER COMMON
SHARE:(3)
Basic........................................ $ (0.02) $ 0.07 $ 0.25 $ 0.42 $ 0.18
------- ------- ------- -------- -------
------- ------- ------- -------- -------
Diluted...................................... $ (0.02) $ 0.07 $ 0.25 $ 0.41 $ 0.17
------- ------- ------- -------- -------
------- ------- ------- -------- -------
OTHER FINANCIAL DATA:
Depreciation and amortization................ $ 4 $ 75 $ 414 $ 1,189 $ 487 $ 958
Capital expenditures(5)...................... $ 72 $ 769 $ 2,660 $ 9,135 $ 5,501 $ 3,727
Dividends declared per common share.......... $ 1.00(6) $ 1.00(6) $ 10.00(6) $ 0.37 $ 0.04 $ 0.30
22
UNAUDITED
DECEMBER 31, ------------
------------------------------------------ JUNE 30,
1994 1995 1996 1997 1998
--------- --------- --------- --------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 283 $ 953 $ 1,160 $ 61 $ 69
Working capital.............................................. (423) (1,228) (2,580) (9,239) (11,351)
Total assets................................................. 1,577 5,712 11,410 19,558 22,764
Total liabilities............................................ 1,928 6,103 10,579 18,015 20,865
Redeemable warrants.......................................... - - - 300 300
Total shareholders' equity (deficit)......................... (351) (391) 831 1,244 1,599
- ------------------------------
(1) Statement of Income Data for the year ended December 31, 1994 includes the
period from November 4, 1993 (inception) through December 31, 1994. For the
two months of operations ended December 31, 1993, the Company's financial
data consisted of net sales of $0, selling and administrative expenses of
$43,049, other operating costs of $68,683 and a net loss of ($112,733). The
balance sheet reflects a total shareholders' deficit of ($111,733).
(2) In June 1997 and December 1997, the Company recorded one-time charges to
operations for the issuance of stock in exchange for the cancellation of
certain incentive compensation agreements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."
(3) Computed on the basis described in Note 1 in the Notes to Financial
Statements.
(4) The pro forma information shows the Company's net income and earnings per
share as if all income earned by the Company and the Partnerships was
taxable at federal and state statutory rates.
(5) Capital expenditures include assets acquired through capital lease
obligations of $397,402 in 1997 and $1,367,457 for the six months ended June
30, 1998.
(6) Dividends were calculated based upon shares outstanding prior to the Stock
Split and the Reorganization (10,000 shares), each of which took place in
1997. Aggregate dividends declared amounted to $10,000, $10,000 and $100,000
in 1994, 1995 and 1996, respectively.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Mannatech develops and sells proprietary nutritional supplements and topical
products through a network marketing system. The Company sells its products in
the United States and Canada, through a network of approximately 231,000 active
Associates as of June 30, 1998, and is currently planning to expand into
Australia, while continuing to assess the potential of other foreign markets.
Since commencement of operations in November 1993, the Company has achieved
year-to-year growth in net sales. This growth is primarily attributable to the
increase in both existing and new product sales, growth in the number of
Associates and expansion into new geographic markets in the United States and
Canada.
The Company's revenues are derived primarily from sales of its products,
sales of Associate starter and renewal kits, which include products, promotional
materials, and free admission to the Company events and promotional materials.
To become an Associate of the Company, a person may enroll as a Preferred
Customer and subsequently execute an Associate Application, sponsor new
Associates or purchase a starter kit. Alternatively, one can become an Associate
by purchasing one of the Associate starter kits. Each starter kit includes some
combination of nutritional products, promotional materials, and free admission
to events. Each pack also allows the Associate to purchase product at the
Company's wholesale price. The components, purchase price of the pack, and
wholesale value of the included items for the periods for which financial data
is presented are detailed in the table below.
PACKS SOLD PRIOR TO JUNE 1998
MASTER
ALL STAR ASSOCIATE AND PREFERRED
BUSINESS ALL STAR ALL STAR MASTER NEW ASSOCIATE CUSTOMER
PACK TRAINING PACK TRAINING PACK STARTER PACK PROMO PACK PACK
--------- -------------- -------------- ------------- --------------- -----------
Associate Cost.............. $1,000.00 $ 568.00 $ 339.00 $ 229.00 $ 49.00 $ 29.00
Number of Nutritional
Products Included......... 27 15 9 6 1 -
Wholesale Value of
Nutritional Products...... $ 736.00 $ 412.50 $ 253.00 $ 166.00 $ 28.50 -
Number of Promotional
Materials Included........ 108 26 3 23 15 15
Wholesale Value of
Promotional Materials..... $ 345.99 $ 298.04 $ 186.90 $ 111.14 $ 12.59 $ 14.50
Event Admission Included.... Yes Yes Yes No No No
Implied Admission Value..... $ 50.00 $ 50.00 $ 50.00 $ - $ - $ -
Total Wholesale and Implied
Value..................... $1,131.99 $ 760.54 $ 489.90 $ 277.14 $ 41.09 $ 14.50
24
PACKS SOLD BEGINNING IN JUNE 1998
MASTER
ALL STAR ASSOCIATE AND PREFERRED
BUSINESS ALL STAR MASTER NEW ASSOCIATE CUSTOMER
PACK TRAINING PACK STARTER PACK PROMO PACK PACK
--------- -------------- ------------- --------------- -----------
Associate Cost............................ $1,000.00 $ 664.00 $ 289.00 $ 49.00 $ 29.00
Number of Nutritional Products Included... 26 17 9 1 -
Wholesale Value of Nutritional Products... $ 750.50 $ 491.00 $ 216.74 $ 28.50 -
Number of Promotional Materials
Included................................ 131 26 23 14 14
Whole Value of Promotional Materials...... $ 357.52 $ 276.32 $ 115.37 $ 16.12 $ 16.12
Events Admission Included................. Yes Yes No No No
Implied Admission Value................... $ 50.00 $ 50.00 $ - $ - $ -
Total Wholesale and Implied Value......... $1,158.02 $ 817.32 $ 332.11 $ 44.62 $ 16.12
The Company views the nutritional product sale included in the "New
Associate Promo Pack" as a retail sale. Viewed as a retail sale the value of the
product would be $39.00 and the total value of the pack would be $51.59. The
Company adopted this view as purchasers of the "New Associate Promo Pack" were
often previously retail customers of other Associates before seeking Associate
status themselves.
The Company also requires an Associate to renew status each year by renewing
as a Preferred Customer and continuing to sponsor New Associates or by
purchasing a renewal pack. Prior to June 1998 the Associates renewed at the
$49.00, $229.00, and $568.00 levels. The renewal packs were identical to the
starter packs in the table above sold at the same price. If an Associate chose
not to renew his Associate status he could continue to purchase the Company's
products at the wholesale price and resell the products if he desired; however,
he would not be qualified to earn commissions or bonuses under the Company's
compensation plan. In May, 1998 the Company instituted its $29.00 Preferred
Customer Pack, which also provides a method of renewal of Associate status.
Associates are also eligible to purchase upgrade packs. Historically,
upgrade packs were purchased at the $229.00, $339.00, $568.00 and $1,000.00
levels. Beginning June 1998 upgrade packs are priced at $289.00, $375.00,
$664.00 and $1,000.00. Upgrade packs are accounted for as renewal packs as they
renew an Associates membership for one year from the time of upgrade.
In May 1998, the Company introduced a new starter and renewal kit priced at
$29.00 which consists of 15 promotional materials which would cost $14.50 if
purchased separately at their wholesale value.
Revenues are generally recognized when products or sales aids are shipped.
The Company's revenues are based primarily on the wholesale prices of the
products sold. The Company defers revenue received from the sale of promotional
kits which is in excess of the wholesale value of the individual items included
in such kits. Revenues from promotional kits are allocated between products and
events admission based on the proportionate fair value of these items. Allocated
event revenues are also deferred. All deferred revenue is amortized over a
twelve-month period. Total deferred revenue was approximately $521,000 and
$809,000 at December 31, 1996 and 1997, respectively and was $679,000 for the
six-month period ended June 30, 1998. The Company currently outsources all of
its product manufacturing needs and all of its ingredients are supplied by
outside vendors.
As a result of the Company's expansion into Canada, and its change, in the
fourth quarter of 1997, to higher quality manufacturers, the Company has
experienced an increase in cost of sales as a percentage of net sales. Sales of
products in Canada have also resulted in increased shipping costs and additional
costs to reformulate certain products.
Associates are compensated by commissions, which are directly correlated to
the placement and position of the Associate within the Company's compensation
plan, volume of direct sales and number of new enrolled Associates. Commissions
as a percentage of net sales were 38.5, 40.7, 41.0 and 40.5 for 1995, 1996, 1997
and the six months ended June 30, 1998, respectively. The Company believes that,
25
under the Company's existing compensation plan, commissions will not exceed 42%
of net sales. See "Business-Product Distribution System-Associate Compensation."
The Company's selling and administrative expenses consist of human resource
expense, including wages, bonuses and marketing expenses, and are a mixture of
both fixed and variable expenses. Company-sponsored Associate events held
throughout the year also have an effect on its selling and administrative
expenses, as does the Company's continuing commitment to investment in
information technology systems. In 1997, the Company recorded sales and
administrative expenses at 18.5% of net sales, a lower rate than prior years, as
a result of increased net sales, a reduction in executive salaries beginning in
June 1997 and the management of expenses.
The increased demand for the Company's products has necessitated significant
investment in infrastructure to support the growth of the Company. In 1997, the
Company invested in its new headquarters building, new distribution center and
new research and development laboratory. As a result of its investment in
infrastructure, the Company's other operating costs have increased
significantly.
The Company is subject to taxation in the United States at the federal
statutory tax rates of 34% for 1995 and 1996 and 35% for 1997 and 1998. The
Company is also subject to taxation in various state jurisdictions with an
average statutory tax rate of approximately 5%. With the expected international
expansion, a portion of the Company's income will be subject to taxation in the
country in which it operates and the Company may be eligible for foreign tax
credits for the amount of foreign taxes paid in a given period to offset taxes
otherwise payable. The Company may not be able to fully utilize such foreign tax
credits in the United States. The use of the foreign tax credits would be based
upon the proportionate amount of net sales in each country. This could result in
the Company paying a higher overall effective tax rate on its worldwide
operations. Many of the countries in which the Company is considering for
expansion during 1998 and beyond have maximum statutory tax rates in excess of
the United States rate.
REORGANIZATION
In December 1994, to achieve certain tax efficiencies and to protect certain
of the Company's proprietary rights, the Company transferred certain rights and
interest in intellectual property, its right to use a supplier's trademark and
its marketing rights to two affiliated partnerships (the "Royalty Partnership"
and the "Marketing Partnership," respectively). The Marketing Partnership was
owned by two affiliated partnerships that also shared common ownership with the
Company (collectively with the Royalty Partnership and the Marketing
Partnership, the "Partnerships"). The respective ownership interests in the
Partnerships were structured with the intention of retaining the same economic
interests among the partners as that of the shareholders of the Company. In the
case of the intellectual property and trademark transferred to the Royalty
Partnership, the Company entered into a 17-year agreement with the Royalty
Partnership to pay a royalty based on sales volume. In the case of the Marketing
Partnership, the Company paid a commission based on a specified percentage of
sales volume. At the time of transfer, the rights and interest in intellectual
property, supplier's trademark and marketing rights had a minimal basis. During
1994, the Company also entered into separate incentive compensation agreements
with two of its shareholders pursuant to which the Company agreed to pay
commissions based on specified monthly sales volumes and increases in number of
new enrolled Associates. These agreements were designed to compensate for the
differences in ownership in the Partnerships for one of the principal
shareholders and to provide compensation to a shareholder in lieu of receiving a
Partnership interest.
26
On June 1, 1997, in order to simplify the Company's ownership structure and
consolidate all operating activities, the Company entered into agreements to
effect the Reorganization through merging with the corporate general partners of
the Partnerships in which the Company was the surviving corporation and
exchanging shares of Common Stock for the entire ownership interests of the
Partnerships. Pursuant to the Reorganization, the Company issued an aggregate of
10,000,000 shares of Common Stock to holders of the general partnership and
limited partnership interests. In addition, during May and June 1997 the Company
issued 2,027,571 shares of Common Stock in consideration for the cancellation of
incentive compensation agreements with two shareholder-employees and four other
employees of the Company, including 626,971 shares issued to cancel incentive
compensation agreements that had been provided in lieu of ownership interests in
the Partnerships. See Note 9 to the Financial Statements. The net effect of the
foregoing transactions was to increase the number of shares of Common Stock
outstanding by 12,027,571 while retaining substantially the same relative
ownership of the Company. The only ownership percentage change among the
original shareholders related to 208,024 shares granted to one shareholder in
recognition of significant contributions to the Company, which resulted in minor
dilution to the other original seven shareholders at the time of the exchange.
No monetary consideration changed hands and the changes were designed to
reestablish the original economic characteristics of the Company. Other than the
new shares issued to the four employees to cancel their incentive compensation
agreements, relative ownership interests, as evidenced by retention of economic
risks and benefits, remained virtually the same. After the exchange, the Company
terminated and liquidated the Partnerships at no gain or loss.
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results as a
percentage of net sales for each of the periods indicated:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 15.2 15.5 16.4 16.2 16.2
Commissions................................. 38.5 40.7 41.0 41.0 40.5
--------- --------- --------- --------- ---------
Gross profit.............................. 46.3 43.8 42.6 42.8 43.3
Operating expenses:
Selling and administrative expenses....... 21.9 20.6 18.5 19.0 17.8
Other operating costs..................... 16.4 13.6 12.9 12.2 12.0
Cancellation of incentive compensation
agreements.............................. - - 1.5 2.6 -
--------- --------- --------- --------- ---------
Income from operations...................... 8.0 9.6 9.7 9.0 13.5
Other (income) expense, net................. 0.5 (0.1) (0.0) 0.4 (0.0)
--------- --------- --------- --------- ---------
Income before income taxes.................. 7.5 9.7 9.7 8.6 13.5
Income tax expense.......................... 0.2 1.4 2.7 2.4 5.2
--------- --------- --------- --------- ---------
Net income.................................. 7.3% 8.3% 7.0% 6.2% 8.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of starter kits sold................. 66,623 97,813 133,461 68,681 59,437
Number of renewal kits sold................. 907 19,875 41,219 18,922 22,528
--------- --------- --------- --------- ---------
Total number of kits sold................... 67,530 117,688 174,680 87,603 81,965
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Associates canceling Associate
status.................................... 930 2,503 5,163 2,458 2,973
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
27
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
NET SALES. Net sales increased 17.3% to $83.7 million for the six months
ended June 30, 1998 from $71.4 million for the six months ended June 30, 1997.
This increase was primarily attributable to the following:
- $13.3 million, or 108.1% was due to the sale of several products which
were not available for sale during the first six months of 1997.
- $4.0 million, or 32.5% was due to an increase in existing product sales,
which increase resulted solely from increases in the volume of products
sold.
- $(5.0) million, or (40.6)% was due to a decrease in Associate kit sales. A
decrease of approximately $4.9 million in Associate kits related to a
decrease in kits sold with respect to enrollment of new Associates and a
$100,000 decrease in kits sold to Associates renewing their association
with the Company. The Company's fee structure remained constant throughout
this period. Associate kit sales decreased due to a delay in introducing
new Associate kits or starter kits until the second quarter of 1998. The
Company believes, based upon information received from many of its
Associates, that many Associates delayed signing up new Associates and
their own renewal until the new kits were available. As the new Associate
kits were not available until May 1998, it is not possible to determine if
the decrease in Associate kit sales is a deferral of such revenue or a
permanent loss.
COST OF SALES. Cost of sales increased 17.3% to $13.5 million for the six
months ended June 30, 1998 from $11.5 million for the comparable period in 1997.
As a percentage of net sales, costs of sales remained the same at 16.2% for the
six months ended June 30, 1998 and 1997.
COMMISSIONS. Commissions consist of payments to Associates for sales
activity and downline growth. Commissions increased 15.7% to $33.9 million for
the six months ended June 30, 1998 from $29.3 million for the comparable period
in 1997. As a percentage of net sales, commissions were 40.5% for the six months
ended June 30, 1998 and 41.0% for the comparable period in 1997.
GROSS PROFIT. Gross Profit increased 18.9% to $36.3 million for the six
months ended June 30, 1998 from $30.5 million for the comparable period in 1997.
As a percentage of net sales, gross profit increased to 43.4% for the six months
ended June 30, 1998 from 42.8% for the comparable period in 1997. These changes
were primarily attributable to the factors described above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consist of human resource expenses, including wages, bonuses and marketing
expenses, and are a mixture of both fixed and variable expenses. Selling and
administrative expenses increased 10.0% to $14.9 million for the six months
ended June 30, 1998 from $13.6 million for the comparable period in 1997. As a
percentage of net sales, selling and administrative expenses decreased to 17.9%
for the six months ended June 30, 1998 from 19.0% for the comparable period in
1997. The dollar amount increase was due primarily to sales increases, and $1.0
million expended on the Company's first large scale annual Associate meeting.
The decrease as a percentage of net sales resulted from the Company decreasing
executive bonuses and continuing to achieve sales volume-based efficiencies
relating to human resources and marketing expenses.
OTHER OPERATING EXPENSES. Other operating costs include utilities,
depreciation, travel, office supplies and printing expenses. Other operating
costs increased 15.2% to $10.0 million for the six months ended June 30, 1998
from $8.7 million for the comparable period in 1997. As a percentage of net
sales, other operating costs decreased to 12.0% for the six months ended June
30, 1998 from 12.2% for the comparable period in 1997. The dollar amount
increase was primarily related to sales and to additional facilities costs
related to the addition of the laboratory located in the Company's worldwide
headquarters, relocation of the distribution center to its current location in
January 1998 and the incurrence of costs associated with the Company's planned
international expansion. The decrease as a
28
percentage of net sales related to the Company achieving sales volume-based
efficiencies relating to other operating expenses.
OTHER (INCOME) EXPENSE, NET. Other (income) expense consists of interest
income, royalties from vendors and settlement of lawsuits. Other (income)
expense decreased (108.2%) to $21,000 for the six months ended June 30, 1998
from ($259,000) for the comparable period in 1997. As a percentage of net sales,
other (income) expense decreased to 0.0% in the first six months ended June 30,
1998 from (0.4%) for the comparable period in 1997. The expense for the first
six months ended June 30, 1997 related primarily to legal actions and related
charges for the settlement of lawsuits that did not occur for the comparable
period in 1998.
INCOME TAX EXPENSE. Income tax expense increased 158.8% to $4.4 million for
the six months ended June 30, 1998 compared to $1.7 million for the comparable
period in 1997. The effective tax rate increased to 38.5% for the six months
ended June 30, 1998 from 28.0% for the comparable period in 1997. The increase
in the effective tax rate was primarily the result of the Company's
reorganization, which began June 1, 1997. Prior to that date, the income from
the Partnerships was subject to income tax only at the individual partners'
level. See "Certain Transactions."
NET INCOME. Net income increased 59.0% to $7.0 million for the six months
ended June 30, 1998 from $4.4 million for the comparable period in 1997. As a
percentage of net sales, net income increased to 7.9% for the six months ended
June 30, 1998 from 6.2% for the comparable period in 1997. The increase was
primarily related to the increase in sales offset by the reduction in expenses
achieved by the obtainment of certain sales-volume-based efficiencies.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
NET SALES. Net sales increased 74.4% to $150.6 million in 1997 from $86.3
million in 1996. This increase was primarily attributable to the following:
- $46.9 million, or 72.9%, was due to an increase in existing product sales,
which increase resulted solely from increases in the volume of products
sold.
- $11.1 million, or 17.3%, was due to an increase in Associate kit sales.
Associate kit sales increased due to the enrollment of new Associates and
the sale of renewal kits to existing Associates. Approximately $5.9
million of the increase in Associate kit sales related to the sign up of
new Associates and $5.2 million related to the renewal of existing
Associates. The Company's fee structure remained constant throughout this
period.
- $6.3 million, or 9.8%, was due to the introduction in July 1997 of
MannaCleanse-TM-, an intestinal support product, and Bulk
Ambrotose-Registered Trademark-, a cell-to-cell communication support
product.
COST OF SALES. Cost of sales increased 84.5% to $24.7 million in 1997 from
$13.4 million in 1996. As a percentage of net sales, cost of sales increased to
16.4% for 1997 from 15.5% in 1996. The increase in cost of sales was due to a
$10.8 million increase in sales of finished goods, a $0.6 million increase in
shipping costs due to increased sales volume, a $0.3 million increase in
shipping costs for Canadian finished goods and a ($0.4) million decrease in
normal costs of spoilage and shrinkage of inventory.
COMMISSIONS. Commissions increased 75.4% to $61.7 million in 1997 from
$35.2 million in 1996. As a percentage of net sales, commissions increased to
41.0% for 1997 from 40.7% in 1996.
GROSS PROFIT. Gross profit increased 70.0% to $64.2 million in 1997 from
$37.8 million in 1996. As a percentage of net sales, gross profit decreased to
42.6% in 1997 from 43.8% in 1996. These changes were primarily attributable to
the factors described above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 56.8% to $27.8 million in 1997 from $17.8 million in 1996. As a
percentage of net sales, selling and administrative expenses decreased to 18.5%
in 1997 from 20.6% in 1996. The dollar amount increase was primarily
29
attributable to an increase in bonuses and compensation paid and an increase in
number of employees to support the Company's growth in net sales. The decrease
in the percentage of net sales was primarily attributable to certain
efficiencies achieved by the Company in managing sales growth and reductions in
executive salaries beginning in June 1997 of approximately $600,000. Executive
salaries were reduced to reflect salaries commensurate with those paid by
similar public companies. The Company does not expect increases in executive
salaries in the foreseeable future other than those increases necessary in the
marketplace to recruit, reward and retain qualified executives.
OTHER OPERATING COSTS. Other operating costs increased 65.2% to $19.4
million in 1997 from $11.7 million in 1996. This increase was primarily due to
costs associated with the Company's relocation of its worldwide headquarters to
its current location in March 1997. As a result of the relocation the Company
had capital expenditures of approximately $9.6 million, which resulted in an
increase in depreciation expense of approximately $900,000. In addition, other
expenses, comprised of supplies, rent and miscellaneous equipment purchases,
increased by approximately $1.8 million. Utility and telephone expense increased
by approximately $2.0 million with the majority of the increase related to
telephone expense. The increase in telephone expense is related to the increase
in sales as the majority of the Company's sales are made by telephone or fax.
The increased sales volume leads to increased phone usage, which results in
higher costs. As a percentage of net sales, other operating costs decreased to
12.9% in 1997 from 13.6% in 1996. This decrease was primarily attributable to
increased sales volume and the Company achieving certain volume-based
efficiencies due to increased net sales. If sales volumes remain constant, these
volume-based efficiencies are expected to remain constant as they are directly
related to sales volumes.
CANCELLATION OF INCENTIVE COMPENSATION AGREEMENTS. Cancellation of
incentive compensation agreements consisted of a one-time charge in 1997
totaling approximately $2.2 million. This charge resulted from the exchange of
Common Stock for the cancellation of certain incentive compensation agreements.
See "Certain Transactions."
OTHER (INCOME) EXPENSE, NET. Other (income) expense decreased 62.9% to
$(43,000) in 1997 from $(116,000) in 1996. As a percentage of net sales, other
(income) expense decreased to (0.0)% in 1997 from (0.1)% in 1996. The change in
1997 was primarily attributable to the settlement in 1997 of various lawsuits
totaling $110,000 versus settlement expense of $59,000 in 1996.
INCOME TAX EXPENSE. Income tax expense increased to $4.1 million in 1997
compared to $1.2 million in 1996. The effective tax rate increased significantly
to 28.0% in 1997 from 14.3% in 1996. The increase in the effective tax rate was
primarily the result of the Company's reorganization as of June 1, 1997. Prior
to that date, the Partnerships were subject to income tax only at the individual
partners' level. See "Certain Transactions."
NET INCOME. Net income increased 48.3% to $10.6 million in 1997 from $7.2
million in 1996. As a percentage of net sales, net income decreased to 7.0% in
1997 compared to 8.3% in 1996. This decrease was primarily related to the
cancellation of the incentive compensation agreements, additional income tax
expense and the reorganization of the Partnerships. See "Certain Transactions."
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
NET SALES. Net sales increased 169.1% to $86.3 million in 1996 from $32.1
million in 1995. This increase was primarily attributable to the following:
- $29.4 million, or 54.3%, was due to an increase in existing product sales,
which increase resulted solely from increases in the volume of products
sold.
- $18.0 million, or 33.2%, was due to an increase in Associate kit sales.
Associate kit sales increased due to the enrollment of new Associates and
the sale of renewal kits to existing Associates. Approximately $13.3
million of the increase in Associate kit sales related to the sign up of
new
30
Associates and $4.7 million related to the renewal of existing Associates.
The Company's fee structure remained constant throughout this period.
- $3.6 million, or 6.6%, was due to the introduction of a new nutritional
supplement product line, consisting of Profile 1, Profile 2 and Profile 3,
in May 1996, and the introduction of a new raw material,
Ambrotose-Registered Trademark-, in October 1996.
- $3.2 million, or 5.9%, was due to the commencement of operations in Canada
in April 1996, excluding Associate kit sales.
COST OF SALES. Cost of sales increased 174.7% to $13.4 million in 1996 from
$4.9 million in 1995. As a percentage of net sales, cost of sales increased to
15.5% in 1996 from 15.2% in 1995. The increase in cost of sales was comprised of
an $8.3 million increase in sales of finished goods and a $200,000 increase in
sales of finished goods in Canada.
COMMISSIONS. Commissions increased 184.9% to $35.2 million in 1996 from
$12.3 million in 1995. As a percentage of net sales, commissions increased to
40.7% in 1996 from 38.5% in 1995. The increase was primarily attributable to the
introduction of an additional type of commission for the Associates'
compensation plan during 1995. Once a commission plan is introduced, there is
generally a short time lag before the Associates begin to qualify for the
payment of commissions. During 1996, this new commission structure accounted for
a 4.3% increase (as a percentage of net sales) in total commissions.
GROSS PROFIT. Gross profit increased 154.2% to $37.8 million in 1996 from
$14.9 million in 1995. As a percentage of net sales, gross profit decreased to
43.8% in 1996 from 46.3% in 1995. These changes were primarily attributable to
the factors described above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased 153.3% to $17.8 million in 1996 from $7.0 million in 1995. As a
percentage of net sales, selling and administrative expenses decreased to 20.6%
in 1996 from 21.9% in 1995. The dollar amount increase was primarily
attributable to sales increases. The decrease as a percentage of net sales was
primarily attributable to increased sales and the Company achieving certain
sales volume-based efficiencies for human resources and marketing expenses.
OTHER OPERATING COSTS. Other operating costs increased 123.6% to $11.7
million in 1996 from $5.3 million in 1995. As a percentage of net sales, other
operating costs decreased to 13.6% in 1996 from 16.4% in 1995. The dollar amount
increase was primarily attributable to the increase in sales, which was offset
by the Company recording approximately $400,000 in consulting fees associated
with the Company's entry into the Canadian market.
OTHER (INCOME) EXPENSE, NET. Other (income) expense in 1996 increased to
$(116,000) from $181,000 in 1995. In 1995, the Company incurred an expense of
$180,600 as a result of the settlement of a lawsuit related to the termination
of a former employee. In 1996, the Company recorded an additional expense of
$59,000 related to the settlement of this lawsuit, which was more than offset by
approximately $160,000 of interest income and royalty income.
INCOME TAX EXPENSE. Income tax expense increased $1.1 million to $1.2
million in 1996 compared to $67,000 in 1995. The effective tax rate increased to
14.3% in 1996 from 2.7% in 1995. The effective tax rate significantly varied
from the statutory rate of 34% primarily due to the $5.8 million of Partnership
income included with the Company's income as discussed previously. See
"-Reorganization" and "Certain Transactions."
NET INCOME. Net income increased 206.2% to $7.2 million in 1996 from $2.3
million in 1995. As a percentage of net sales, net income increased to 8.3% in
1996 as compared to 7.3% in 1995. The increase was the result of the factors
described above.
31
SELECTED QUARTERLY STATEMENTS OF INCOME
The following table sets forth certain unaudited quarterly statement of
income data for each of the nine quarters ending with the quarter ended June 30,
1998. In the opinion of management, this information has been prepared on the
same basis as the audited Financial Statements contained herein and includes all
necessary adjustments, consisting only of normal recurring adjustments, that the
Company considers necessary to present fairly this information in accordance
with generally accepted accounting principles. This information should be read
in conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The Company's operating results for any one
quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996(1) 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales......................... $ 14,432 $ 19,651 $ 23,424 $ 28,804 $ 33,383 $ 37,973 $ 39,746
Cost of sales..................... 1,910 3,008 3,165 5,323 5,501 6,041 6,324
Commissions....................... 5,891 8,060 9,554 11,650 13,685 15,586 16,189
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................. 6,631 8,583 10,705 11,831 14,197 16,346 17,233
Operating expenses:
Selling and administrative
expenses...................... 2,640 4,447 3,811 6,866 5,827 7,762 6,351
Other operating costs........... 1,590 2,260 2,550 5,346 3,743 4,974 4,684
Cancellation of incentive
compensation agreements(3).... -- - - - - 1,821 -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations..... 2,401 1,876 4,344 (381) 4,627 1,789 6,198
Other (income) expense, net....... (9) (16) - (91) 139 120 (85)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................... 2,410 1,892 4,344 (290) 4,488 1,669 6,283
Income tax (benefit) expense...... 349 263 637 (55) 1,261 462 1,784
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 2,061 $ 1,629 $ 3,707 $ (235) $ 3,227 $ 1,207 $ 4,499
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
PRO FORMA INFORMATION:(4)
Income (loss) before income taxes,
as reported..................... $ 2,410 $ 1,892 $ 4,344 $ (290) $ 4,488 $ 1,669 $ 6,283
Pro forma provision for income tax
(benefit) expense............... 904 710 1,629 (109) 1,727 644 2,419
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income (loss)....... $ 1,506 $ 1,182 $ 2,715 $ (181) $ 2,761 $ 1,025 $ 3,864
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Number of starter kits sold....... 21,114 24,368 25,613 26,718 32,547 36,134 34,881
Number of renewal kits sold....... 1,419 5,930 6,808 5,718 8,000 10,922 10,675
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total number of kits sold......... 22,533 30,298 32,421 32,436 40,547 47,056 45,556
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Associates canceling
Associate status................ 405 545 762 791 1,178 1,280 1,187
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
DEC. 31, MAR. 31, JUNE 30,
1997(2) 1998 1998
----------- ----------- -----------
STATEMENT OF INCOME DATA:
Net sales......................... $ 39,468 $ 41,088 $ 42.637
Cost of sales..................... 6,869 6,060 7,484
Commissions....................... 16,217 16,884 16,988
----------- ----------- -----------
Gross profit.................. 16,382 18,144 18,165
Operating expenses:
Selling and administrative
expenses...................... 7,906 7,684 7,257
Other operating costs........... 6,001 4,696 5,342
Cancellation of incentive
compensation agreements(3).... 371 - -
----------- ----------- -----------
Income (loss) from operations..... 2,104 5,764 5,566
Other (income) expense, net....... (217) (62) 41
----------- ----------- -----------
Income (loss) before income
taxes........................... 2,321 5,826 5,525
Income tax (benefit) expense...... 632 2,209 2,161
----------- ----------- -----------
Net income (loss) $ 1,689 $ 3,617 $ 3,364
----------- ----------- -----------
----------- ----------- -----------
PRO FORMA INFORMATION:(4)
Income (loss) before income taxes,
as reported..................... $ 2,321
Pro forma provision for income tax
(benefit) expense............... 893
-----------
Pro forma net income (loss)....... $ 1,427
-----------
-----------
Number of starter kits sold....... 29,899 30,261 29,176
Number of renewal kits sold....... 11,622 13,892 8,636
----------- ----------- -----------
Total number of kits sold......... 41,521 44,153 37,812
----------- ----------- -----------
----------- ----------- -----------
Total Associates canceling
Associate status................ 1,518 1,376 1,597
----------- ----------- -----------
----------- ----------- -----------
- ----------------------------------
(1) For the fourth quarter of 1996 cost of sales included various
book-to-physical inventory adjustments and write off of identified obsolete
inventory. Selling and administrative expenses included an accrual for
discretionary bonuses to all employees and a charge for severance packages.
Other operating costs increased due to certain year-end accruals for
attorneys' fees, travel and general operating expenses.
(2) For the fourth quarter of 1997 cost of sales included an adjustment for the
abnormal conversion of approximately $133,000 of raw materials by a
manufacturer and a write-off of identified obsolete inventory. The Company
now sells raw materials to its manufacturers and repurchases finished goods,
which should prevent future losses on abnormal conversions. Selling and
administrative expenses included accruals for (i) discretionary bonuses for
all employees, (ii) termination expenses and (iii) disputed freight
expenses. Other operating costs increased for the accrual of various
attorney and consulting fees and compensation expenses related to the
issuance of stock options to certain nonemployees.
(3) In June 1997 the Company recorded a one-time charge to operations for the
issuance of Common Stock in exchange for the cancellation of certain
incentive compensation agreements. An additional incentive compensation
agreement was cancelled in December 1997. See "-Reorganization" and "Certain
Transactions."
32
(4) The pro forma information shows the Company's net income as if all income
earned by the Company and the Partnerships was taxable at federal and
statutory rates.
As the table above indicates, the Company has experienced a declining rate
of growth in recent quarters. The decreased rate results primarily from the
increased base on which the growth rate is computed and a shrinking base of
potential new Associates in its existing markets. The Company has relied on its
historical growth to provide the operating cash flows used to fund its current
infrastructure in property, equipment and personnel. The Company believes it
currently has an infrastructure capable of supporting its historical growth for
the next three to five years. The Company does not anticipate that future rates
of growth will be equal to historic rates of growth due to the increased base on
which the rate of growth is computed. The Company's inability to maintain its
historic rate of growth is not expected to have an adverse effect on operations
due to the relatively high gross profit margins and current sales base. The
Company expects expansion into international markets to provide expanded growth
opportunities. If the Company is unable to maintain current levels of growth,
seasonal declines in sales revolving around the holiday period in the fourth
quarter may become apparent.
The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of net sales for each of the nine quarters
ending with the period ended June 30, 1998.
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
AS A PERCENTAGE OF NET SALES:
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 13.2 15.3 13.5 18.5 16.5 15.9 15.9
Commissions....................... 40.8 41.0 40.8 40.4 41.0 41.0 40.7
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................... 46.0 43.7 45.7 41.1 42.5 43.1 43.4
Operating expenses:
Selling and administrative
expenses...................... 18.3 22.6 16.3 23.8 17.5 20.4 15.9
Other operating costs........... 11.0 11.5 10.9 18.6 11.2 13.1 11.7
Cancellation of incentive
compensation agreements....... -- - - - - 4.8 -
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations..... 16.7 9.6 18.5 (1.3) 13.8 4.8 15.8
Other (income) expense, net....... -- - - 0.3 0.4 0.3 (0.2)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes,
as reported..................... 16.7 9.6 18.5 (1.0) 13.4 4.5 16.0
Income tax (benefit) expense...... 2.4 1.3 2.7 (0.2) 3.8 1.2 4.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................. 14.3% 8.3% 15.8% (0.8%) 9.6% 3.3% 11.6%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
DEC. 31, MAR. 31, JUNE 30,
1997 1998 1998
----------- ----------- -----------
AS A PERCENTAGE OF NET SALES:
Net sales......................... 100.0% 100.0% 100.0%
Cost of sales..................... 17.4 14.7 17.6
Commissions....................... 41.1 41.0 39.8
----------- ----------- -----------
Gross profit.................... 41.5 44.3 42.6
Operating expenses:
Selling and administrative
expenses...................... 20.1 18.7 17.0
Other operating costs........... 15.2 11.4 12.5
Cancellation of incentive
compensation agreements....... 0.9 - -
----------- ----------- -----------
Income (loss) from operations..... 5.3 14.2 13.1
Other (income) expense, net....... (0.5) (0.1) 0.1
----------- ----------- -----------
Income (loss) before income taxes,
as reported..................... 5.8 14.3 13.0
Income tax (benefit) expense...... 1.6 5.3 5.0
----------- ----------- -----------
Net income (loss)................. 4.2% 9.0% 8.0%
----------- ----------- -----------
----------- ----------- -----------
The Company may experience variations on a quarterly basis in its results of
operations, in response to, among other things, the timing of Company-sponsored
Associate events; new product introductions; the opening of new markets; the
timing of holidays, especially in the fourth quarter, which may reduce the
amount of time Associates spend selling the Company's products or recruiting new
Associates, the adverse effect of Associates' or the Company's failure, and
allegations of their failure, to comply with applicable government regulations;
the negative impact of changes in or interpretations of regulations that may
limit or restrict the sale of certain of the Company's products; the operation
of its network marketing system; the introduction of its products into each
market; the recruitment and retention of Associates; the inability of the
Company to introduce new products or the introduction of new products by the
Company's competitors; general conditions in the nutritional supplement and
personal care industries or the network marketing industry; and consumer
perceptions of the Company's products and operations. In particular, because the
Company's products are ingested by consumers or applied to their bodies, the
Company is highly dependent upon consumers' perception of the safety, quality
and effectiveness of its products. As a result, substantial negative publicity,
whether founded or unfounded, concerning one or more of the Company's products
or other products similar to the Company's products could adversely affect the
Company's business, results of operations and financial condition.
33
As a result of these and other factors the Company's quarterly revenues,
expenses and results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance. There can be no assurance that the Company will be able to increase
its revenues in future periods or be able to sustain its level of revenue or its
rate of revenue growth on a quarterly or annual basis. Furthermore, no
assurances can be given that the Company's revenue growth rate in new markets
where operations have not commenced will follow this pattern. Due to the
foregoing factors, the Company's future results of operations could be below the
expectations of public market analysts and investors. In such event, the market
price of the Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund working capital to
support its growth. To date, the Company has financed its operations primarily
through cash flows derived from operating activities. Primarily as a result of
the Company's investment in the infrastructure necessary to support the rapid
growth of the Company, the Company had working capital deficiencies of $2.6
million, $9.2 million and $11.7 million as of December 31, 1996, December 31,
1997 and June 30, 1998, respectively. During 1997 and the first six months of
1998, the Company invested approximately $7.5 million and $3.7 million,
respectively in its property and equipment. These projects were funded primarily
from operating cash flow which negatively impacted working capital. The Company
also distributed approximately $4.0 million during 1997 to the Partnerships and
approximately $6.9 million and $6.6 million in dividends to its shareholders in
1997 and the first six months of 1998, respectively. Additionally, current
liabilities increased due to increased commissions, income taxes and inventory
purchases, all of which are directly related to increased sales volume in 1997
and the first three months of 1998. The Company believes its current facilities
are sufficient to support near-term growth. The reduction in capital spending,
combined with the Company's intention to cease future distributions to
shareholders, is expected to reduce or eliminate the Company's working capital
deficiencies in the future.
In January 1998, the Company entered into a $1.5 million interim lease
line-of-credit agreement (the "Line of Credit Agreement") with Banc One Leasing
Corporation to fund the purchase of furniture and certain capital equipment in
connection with the Company's relocation to its new facility. The Line of Credit
Agreement bears interest at the prime interest rate of Bank One, Columbus, NA
plus one-half percent, is secured by the leased assets, is guaranteed by two of
the Company's shareholders and will expire on December 15, 1998. The Line of
Credit Agreement allows the Company to convert amounts drawn thereunder into
capital leases and, in March and August 1998, the Company converted $631,000 and
$840,000, respectively which had been drawn on the Line of Credit Agreement into
a capital lease (the "Capital Lease"). The Capital Lease bears interest at 9.3%,
is collateralized by the leased assets and is payable in 36 installments.
The Company plans to improve its working capital position, make additional
investments in its new distribution center, research and development laboratory,
and complete its internally developed software program. The Company intends to
fund these initiatives with proceeds from this offering, net cash provided by
operating activities and additional borrowings under the Line of Credit
Agreement described above. See "Use of Proceeds."
Net cash provided by operating activities was $3.1 million, $9.6 million,
$19.8 million and $9.6 million in 1995, 1996, 1997 and for the six months ended
June 30, 1998, respectively. Throughout these periods, the Company experienced
increases in net income as a result of increases in net sales, which were
partially offset by increases in inventories.
Net cash used in investing activities was $843,000, $3.2 million, $9.3
million and $2.9 million in 1995, 1996, 1997 and the six months ended June 30,
1998, respectively. These activities consisted primarily of purchases of
property and equipment in connection with the Company's relocation to its
34
new facility in April 1997, and the relocation of the Company's distribution
center and build out of its research and development facility in the first
quarter of 1998.
Net cash used in financing activities totaled $1.6 million, $6.2 million,
$11.6 million and $6.7 million in 1995, 1996, 1997 and for the six months ended
June 30, 1998, respectively. In 1995, 1996 and through the reorganization of the
Company in June 1997, the Company made distributions to partners of the
Partnerships. Following the reorganization, the Company has paid dividends on a
monthly basis to its shareholders in the amount of $0.02-$0.06 per share and
expects to continue to pay dividends each month until the consummation of this
offering. See "Dividend Policy."
The Company anticipates that its existing capital resources, including cash
provided by operating activities and bank borrowings, together with the
anticipated proceeds from this offering, will be adequate to fund the Company's
operations for at least the next 12 months. Of the net proceeds to the Company,
the Company intends to use approximately (i) $6.12 to $9.82 million, depending
upon the number of shares sold in this offering, for international expansion
primarily to be used for product registration, initial inventory requirements,
and similar items, (ii) $5 million for working capital and general corporate
purposes and (iii) the repayment of $1.7 million in debt, assuming the sale of
maximum number of shares offered by the Company hereby. The Company has no
present commitments or agreements with respect to any acquisitions or purchases
of manufacturing capabilities, new technologies or raw material sources. There
can be no assurance that changes will not occur that would consume available
capital resources before such time. The Company's capital requirements depend on
numerous factors, including the timing and pace of the Company's entry into
international markets, growth in the number of Associates and its research and
development efforts. To the extent that the Company's existing capital
resources, together with the anticipated proceeds of this offering, are
insufficient to meet its capital requirements, the Company will be required to
raise additional funds. There can be no assurance that additional funding, if
necessary, will be available on favorable terms, if at all.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting
Comprehensive Income." FAS 130 establishes standards for the report and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. FAS 130 requires
that an enterprise (i) classify items of other comprehensive income by their
nature in a financial statement and (ii) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. FAS
130 is effective for fiscal years beginning after December 15, 1997. The Company
does not have any items of other comprehensive income for any period presented.
In June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." FAS 131 established standards for reporting
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
reports issued to shareholders. FAS 131 also establishes standards for related
disclosure about products and services, geographic areas and major customers.
FAS 131 is effective for financial statements for periods beginning after
December 15, 1997, and requires the restatement of disclosures for earlier
periods for comparative purposes unless the information is not readily
available, in which case a description of unavailable information is required.
The Company does not expect the impact of FAS 131 to be material.
In February 1998, the FASB issued FAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." FAS 132 revises footnote disclosure
requirements for employer pensions and other retiree benefits, standardizes the
disclosure requirements, requires additional information on changes in the
benefit obligations and calculating the fair values of plan assets, and
eliminates certain disclosures. FAS 132 is effective for financial statements
for periods beginning after December 15, 1997.
35
As the Company does not provide a defined benefit plan, this pronouncement will
not impact the Company.
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivatives,
Investments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative financial instruments, including certain
derivative financial instruments imbedded in other contracts and for hedging
activities. FAS 133 is effective for all fiscal quarters beginning after June
15, 1999. As the Company does not have any derivative financial instruments,
this pronouncement will not impact the Company.
YEAR 2000 COMPLIANCE
Many existing computer programs and databases use only two digits to
identify a year in the date field (I.E., 98 would represent 1998). These
programs and databases were designed and developed without considering the
impact of the upcoming millennium. If not corrected, many computer systems could
fail or create erroneous results in the year 2000. The Company believes that all
of its systems currently in use are Year 2000 compliant, largely due to the
short operating history of the Company. The majority of the Company's critical
business applications are developed internally, with Year 2000 compliant tools,
and as such the Company is not dependent on external vendors for Year 2000
compliance. The Company has not yet assessed the potential impact of Year 2000
failures from vendors and other third parties upon its business. Because these
assessments have not yet been made, the Company cannot determine if such
failures would have a material impact on its operations. In the event that Year
2000 causes disruptions in the Company's accounting systems, the Company intends
to resort to manual processing, which is not expected to cause significant
disruption to its operations.
IMPACT OF INFLATION
The Company believes that inflation has not had a material impact on its
historical operations or profitability.
36
BUSINESS
GENERAL
Mannatech develops and sells proprietary nutritional supplements and topical
products through a network marketing system. The Company sells its products in
the United States and Canada, through a network consisting of approximately
231,000 active Associates (an "active" Associate has purchased products from the
Company within the last 12 months) as of June 30, 1998, and is currently
planning to expand into Australia, while continuing to assess the potential of
other foreign markets. Since commencing operations in November 1993, the
Company's sales have grown from approximately $8.4 million in 1994 to
approximately $150.6 million in 1997.
The Company pursues a two-fold business strategy: (i) to develop a
proprietary line of nutritional supplements having both health benefits and mass
appeal to a general population demanding non-toxic healthcare alternatives and
(ii) to provide an appealing framework for persons interested in the products to
establish a direct sales business. To date, the Company has focused its
development efforts primarily in the area of carbohydrate technology, creating a
proprietary ingredient, Ambrotose-Registered Trademark- Complex, which combines
the naturally occurring sugars required to support optimal cell-to-cell
communication. Additional Company efforts have been focused on developing
products based on scientific advances in the emerging field of phytochemistry,
which has identified certain naturally occurring components of various plants,
known as "phytochemicals," which, while not essential to sustain life, are
fundamental to optimal health.
Ambrotose-Registered Trademark- Complex is the cornerstone of the Company's
product lines. These products are designed to support various systems and
functions of the human body, including (i) the cell-to-cell communication
system, (ii) the immune system, (iii) the endocrine system, (iv) the intestinal
system and (v) the dermal system. The Company also markets products designed to
aid in sports performance and nutritional support. The Company's products,
Man-Aloe-Registered Trademark-, Ambrotose-Registered Trademark- and Bulk
Ambrotose-Registered Trademark-, are designed to support cell-to-cell
communication. For immune system support, the Company offers
Phyt-Aloe-Registered Trademark-, for adults, and
Phyto-Bears-Registered Trademark-, a chewable gummi-bear nutritional supplement
product marketed to children but popular with adults. Other products include
MVP-TM- and Plus for endocrine system support, MannaCleanse-TM- for intestinal
system support and Emprizone-Registered Trademark-, Firm and Naturalizer for
dermal care. The Company offers several products designed to aid sports
performance by enhancing the body's natural recovery process and supporting lean
tissue development, including Em-Pact-TM-, Bulk Em-Pact-TM- and Sport with
Ambrotose-Registered Trademark-. The Company also markets Profile 1, Profile 2
and Profile 3, which support the body's nutritional needs.
In March 1998, the Company introduced MannaBAR-TM-, a nutritional supplement
bar in two versions that contain the equivalent of the Company's recommended
minimum daily supply of Ambrotose-Registered Trademark-Complex,
Phyt-Aloe-Registered Trademark- and Plus. In September 1998 the Company plans to
introduce Manna-C-TM-, a nutritional support for nasal and sinus health
containing Ambrotose-Registered Trademark- Complex, monosaccharides necessary to
the manufacture of glycoproteins and an herbal blend of Vitamin C and other
nutrients which support most cell functions. In addition to MannaBAR-TM- and
Manna-C-TM-, the Company plans to release additional products as new nutritional
compounds or areas of consumer demand are identified by the Company. All new
products are expected to contain proprietary components.
The Company's products are marketed exclusively through a network marketing
system. The Company believes that its network marketing system is well-suited to
its products, which emphasize health and nutrition, because network marketing
allows in-person product education not available through traditional marketing
techniques. The Company's network marketing system appeals to a broad cross-
section of people, particularly those seeking to supplement family income, start
a home-based business or pursue employment opportunities other than
conventional, full-time employment.
37
INDUSTRY OVERVIEW
The nutritional supplements industry is highly fragmented and intensely
competitive. It includes companies that manufacture and distribute products
which are generally intended to enhance the body's performance and well being.
Nutritional supplements include vitamins, minerals, dietary supplements, herbs,
botanicals and compounds derived therefrom. Opportunities in the nutritional
supplements industry were enhanced by the enactment of the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"). Under DSHEA, vendors of dietary
supplements are now able to educate consumers regarding the effects of certain
component ingredients.
According to Packaged Facts, an independent consumer market research firm,
the retail market for nutritional supplements has experienced a compound annual
growth rate in the United States of over 15% from 1992 to 1996. Sales in the
principal domestic market in which the Company's products compete totaled
approximately $6.5 billion in 1996. The Company believes that growth in the
nutritional supplement market is driven by several factors, including (i) the
general public's heightened awareness and understanding of the connection
between diet and health, (ii) the aging population, particularly the baby-boomer
generation, which is more likely to consume nutritional supplements, (iii)
product introductions in response to new scientific research and (iv) the
nationwide trend toward preventive medicine.
Nutritional supplements are sold primarily through mass market retailers,
including mass merchandisers, drug stores, supermarkets and discount stores;
health food stores; mail order companies; and direct sales organizations. Direct
selling, of which network marketing is a significant segment, has been enhanced
in the past decade as a distribution channel due to advancements in technology
and communications resulting in improved product distribution and faster
dissemination of information. The distribution of products through network
marketing has grown significantly in recent years. The World Federation of
Direct Selling Associations (the "WFDSA") reports that, from 1990 through 1996,
worldwide direct distribution of goods and services to consumers increased
approximately 65%, resulting in the sale of nearly $80 billion of goods and
services in 1996. According to the "Survey of Attitudes toward Direct Selling,"
commissioned by the Direct Selling Association (the "DSA"), and conducted and
prepared by Wirthlin Worldwide (the "Wirthlin Report"), among the three
categories experiencing the greatest gains in the direct selling industry since
1976 are food, nutrition and wellness products.
According to the Wirthlin Report, approximately 51% of the American public
has purchased products or services from a direct selling company at some point
in the past, with 29% of those having made such a purchase in the last 12
months. Four in 10 adult Americans have expressed an interest in direct selling
as a method of buying products and services, and 23% of those who have never
purchased products and services from direct selling companies are interested in
direct selling. The Company believes it is positioned to capitalize on the
trends of growth in direct sales and demand for nutritional supplement products.
OPERATING STRENGTHS
The Company's two-fold business strategy is to (i) develop a proprietary
line of nutritional supplements having both health benefits and mass appeal to a
general population demanding non-toxic healthcare alternatives, and (ii) provide
an appealing framework for persons interested in the products to establish a
direct sales business. The Company believes that it will be able to continue its
growth by capitalizing on the following operating strengths:
PROPRIETARY PRODUCT OFFERINGS. The Company offers an innovative line of
products based upon its proprietary, patent-pending research. The Company
believes that the discovery and development of products containing certain
carbohydrates necessary to optimum health represents an expanding business
opportunity for the Company. The Company recognized the nutritional need for the
eight known
38
monosaccharides to support optimal health, and developed and filed a patent
application on a compound containing these monosaccharides. The Company includes
this compound, Ambrotose-Registered Trademark-Complex, in each of its products.
The Company believes that maintaining a proprietary line of products is
important for two reasons: (i) it is a marketing factor that differentiates the
Company from its competitors; and (ii) the limited availability helps to drive
demand and enables premium pricing.
SUPERIOR RESEARCH AND DEVELOPMENT CAPABILITY. The Company believes that its
experienced personnel and new research and development facilities will allow it
to develop and market additional new proprietary products. The Company's
research and development efforts are led by two scientists with an aggregate of
34 years of experience designing products based on emerging carbohydrate
technology. In March 1998, the Company completed construction of a
technologically advanced laboratory to be used for both quality assurance and
product development. As a complement to its in-house staff and facilities, the
Company has sought, and will continue to seek, strategic alliances with several
large manufacturers of nutritional supplements. These companies work with the
Company to create, develop and manufacture its proprietary products and lend
additional guidance which is helpful to the Company's strategic planning. In
addition, the Company works with other smaller product companies to identify and
develop new innovative niche products.
STRONG ASSOCIATE SUPPORT PHILOSOPHY. The Company is committed to providing
the highest level of support services to its Associates. The Company believes
that it meets the needs of, and builds loyalty with, its Associates through its
highly personalized and responsive customer service. Company-sponsored Associate
events held several times throughout the year provide education and motivation
for thousands of Associates. These conferences feature a schedule of events that
offers information, aids in business development for Associates and provides a
venue for Associates to interact with the leading distributors and researchers
of the Company. In addition, the Company believes it offers one of the most
financially rewarding compensation plans offered to Associates in the direct
selling industry. Commissions as a percentage of net sales were 38.5%, 40.7%,
41.0%, and 40.5% for 1995, 1996, 1997 and the six months ended June 30, 1998,
respectively.
FLEXIBLE OPERATING STRATEGY. The Company considers flexibility to be a key
component of its existing and ongoing success. The Company outsources production
and forms strategic alliances to minimize capital expenditure where practicable.
However, the Company maintains control of key operating functions, including
product development and formulation, product warehousing and distribution,
financial and operating functions and proprietary product raw material sourcing.
The Company believes it is positioned to enter international markets in an
efficient and cost-effective manner by leveraging the expertise and resources of
its strategic allies in the areas of distribution and logistics, call center
operations, product registration and export requirements. Information technology
also plays a key role in providing operating flexibility to the Company. The
proprietary technology systems used by the Company are designed to be quickly
and easily adaptable in order to support expansion into new markets. By
developing this technology infrastructure, the Company believes it has reduced
the risks associated with operational inefficiencies typically encountered by
network marketing companies during periods of rapid growth.
EXPERIENCE AND DEPTH OF MANAGEMENT TEAM. The Company's management team is
comprised of experienced individuals drawn from a variety of backgrounds and
expertise in certain fields, including product research and development,
marketing, direct sales, legal and compliance, information technology and
product distribution. All principal managers have substantial business
experience, most with larger concerns, and bring the perspective of traditional
business to the multi-level marketing endeavor of the Company. The goal of the
management team is to provide a sound, systematic, reliable framework within
which each Associate can fit his or her personal style of conducting business.
39
GROWTH STRATEGY
The Company's primary growth strategy is to increase product sales through
existing distribution channels, to continue to expand operations in existing
markets in the United States and Canada and to enter select foreign markets. The
Company believes that its growth will be based on the following factors:
INTRODUCE NEW PRODUCTS. The Company's product development strategy is to
expand its existing product lines and bring new proprietary and, where possible,
patentable products to market that can be developed into new product lines.
Since its inception, the Company has introduced new products each year,
including, in March 1998, MannaBARs-TM-, which provide a new delivery system for
its proprietary nutritional supplement compounds in the form of bars made from
whole food sources. MannaBAR-TM- was developed partly in response to strong
Associate demand. The Company currently intends to introduce new products each
year, which are expected to contain one or more proprietary components and
complement existing products. The Company believes that its newly enhanced
research and development capabilities will facilitate its ability to develop
these new products.
ATTRACT NEW ASSOCIATES AND ENHANCE ASSOCIATE PRODUCTIVITY. The Company has
enjoyed significant growth in the number of Associates by leveraging its
operating strengths and creating a business climate which promotes growth in the
number of Associates qualifying for recognition and increases the retention,
motivation and productivity of high-level Associates. The Company plans to
introduce new Associate achievement levels in part to encourage greater
retention, motivation and productivity. In addition, the Company plans to
encourage growth in the number of Presidential Associates, currently the highest
level of achievement attainable by an Associate, by modifying Associate events
and recognition programs.
ENTER NEW MARKETS. In 1998, the Company plans to expand its operations into
Australia and explore possibilities for further expansion in several additional
countries. By employing its flexible operating strategy in the international
sector, the Company believes it will be able to enter new markets in a
cost-effective and efficient manner. In addition, the Company will evaluate the
following factors in its decision to expand into new markets: (i) size of
market; (ii) anticipated demand; and (iii) ease of entry. The Company believes
that growth potential exists in international markets. See "Risk Factors-Risks
Associated with International Expansion."
PRODUCTS
The Company markets a line of quality, proprietary products, including 17
different nutritional products and three topical products. The Company also
offers a variety of sales aids, including enrollment and renewal kits (which
include products), brochures and videotapes which accounted for approximately
24.7% of net sales in 1997. The Company believes its focused product line
contributes to efficient distribution and inventory management.
The Company believes that the discovery and use of certain carbohydrates
offers significant potential for nutritional benefits. Healthy bodies, comprised
of many sophisticated components working together, must have accurate internal
communication to function at an optimal level. In its most basic form, this
communication occurs at the cellular level and is referred to by molecular
biologists as cell-to-cell communication. To maintain a healthy body, cells must
"talk" to other cells. Scientists have learned that glycoproteins, or molecules
found on the surface of all cells, play a key role in all cell-to-cell
communication. The name, glycoprotein, is derived from the molecules'
composition: sugar (glyco) and protein. Because up to 85% of glycoproteins are
composed of specific monosaccharides, the body's need for these carbohydrates is
important.
HARPER'S BIOCHEMISTRY, a leading biochemistry reference source, lists eight
monosaccharides commonly found in human glycoproteins which are known to be
important to the healthy functioning of cell-to-cell communications in the human
body. These monosaccharides are fucose, galactose, glucose,
40
mannose, N-acetylgalactosamine, N-acetylglucosamine, N-acetylneuraminic acid and
xylose, and belong to a universe of approximately 200 monosaccharides found in
nature.
The Company recognized the human body's need for these monosaccharides to
support optimal health. In response, the Company developed and filed a patent
application on Ambrotose-Registered Trademark- Complex, which is directed at
these monosaccharides and their various uses. By filing this patent application,
the Company seeks to establish a proprietary position in the nutritional
supplement market. This proprietary glyconutritional compound,
Ambrotose-Registered Trademark- Complex, is a component of each of the Company's
products.
The following chart lists the Company's products as of September 30, 1998.
CELL-TO-CELL ENDOCRINE INTESTINAL DERMAL
COMMUNICATION IMMUNE SYSTEM SYSTEM SYSTEM SYSTEM
--------------------- ------------- --------------- --------------- -------------
-----------------------------------------------------------------------------------------------------
Ambrotose-Registered
Trademark-................... X
Bulk Ambrotose-Registered
Trademark-................... X
-----------------------------------------------------------------------------------------------------
Bulk Em-Pact...................
Em-Pact........................
-----------------------------------------------------------------------------------------------------
Emprizone-Registered Trademark-.. X
Firm........................... X
-----------------------------------------------------------------------------------------------------
Man-Aloe-Registered Trademark-.. X
MannaBAR-TM-
Carbohydrate Formula........... X X X
-----------------------------------------------------------------------------------------------------
MannaBAR-TM-
Protein Formula................ X X X
Manna-C-TM-.................... X
-----------------------------------------------------------------------------------------------------
MannaCleanse-TM-............... X
Mannatonin..................... X
-----------------------------------------------------------------------------------------------------
MVP-TM-........................ X
Naturalizer.................... X
-----------------------------------------------------------------------------------------------------
Phyt-Aloe-Registered Trademark-.. X
Phyto-Bears-Registered Trademark-.. X
-----------------------------------------------------------------------------------------------------
Plus........................... X
Profile 1......................
-----------------------------------------------------------------------------------------------------
Profile 2......................
Profile 3......................
-----------------------------------------------------------------------------------------------------
Sport with Ambrotose-Registered
Trademark-...................
SPORTS
PERFORMANCE NUTRITIONAL NEEDS
----------------- -----------------
--------------
Ambrotose-Registered
Trademark-...................
Bulk Ambrotose-Registered
Trademark-...................
--------------
Bulk Em-Pact................... X
Em-Pact........................ X
--------------
Emprizone-Registered Trademark-
Firm...........................
--------------
Man-Aloe-Registered Trademark-.
MannaBAR-TM-
Carbohydrate Formula...........
--------------
MannaBAR-TM-
Protein Formula................
Manna-C-TM-....................
--------------
MannaCleanse-TM-...............
Mannatonin.....................
--------------
MVP-TM-........................
Naturalizer....................
--------------
Phyt-Aloe-Registered Trademark-
Phyto-Bears-Registered Trademar
--------------
Plus...........................
Profile 1...................... X
--------------
Profile 2...................... X
Profile 3...................... X
--------------
Sport with Ambrotose-Registered
Trademark-................... X
PRODUCT DEVELOPMENT
The Company's overall product strategy is to develop proprietary nutritional
supplements which capitalize on existing and emerging scientific knowledge and
the growing worldwide interest in alternative healthcare and optimal health. The
Company focuses on bringing new proprietary and, where possible, patentable
products to market that can be developed into new product lines, while expanding
41
its existing product line. The Company believes it is well positioned to take
advantage of the ability to provide educational information regarding dietary
supplements and the increased development of nutritional supplements and
functional foods resulting from the enactment of DSHEA.
The Company intends to launch new products each year at its corporate
events. Selection of the products developed will be based on the marketability
and proprietary nature of the product, taking into account regulatory
considerations, the availability of components and the existence of data
supporting claims of functionality. To support and validate the proprietary
nature of the Company's product line, appropriate research is conducted under
the direction of the Company's research and development department both before
and after product launch. The Company believes that the completion of its new
laboratory will help to accelerate and improve new product development.
The following chart indicates the year of introduction of each of the
Company's products:
YEAR PRODUCTS INTRODUCED
- --------- ---------------------------------------------------------------------------------------
1994 Man-Aloe-Registered Trademark-, Plus, MVP-TM-, Sport, Naturalizer,
Phyt-Aloe-Registered Trademark-, Firm
1995 Phyto-Bears-Registered Trademark-, Em-Pact-TM-, Emprizone-Registered Trademark-
1996 Ambrotose-Registered Trademark-, Mannatonin, Profile 1, 2 and 3, Sport with
Ambrotose-Registered Trademark-
1997 Bulk Ambrotose-Registered Trademark-, Bulk Em-Pact-TM-, MannaCleanse-TM-
1998 MannaBAR-TM- Carbohydrate Formula, MannaBAR-TM- Protein Formula, Manna-C-TM-
PRODUCT DISTRIBUTION SYSTEM
OVERVIEW. The foundation of the Company's sales philosophy and distribution
system is network marketing. As with most network marketing systems, the
Company's Associates purchase products for retail sale and personal consumption.
The Company believes network marketing is an effective vehicle to distribute the
Company's products for the following reasons: (i) the benefits of the Company's
products are more readily explained on an individual, educational basis, which
emphasizes the manner in which its products work, and is more direct than the
use of television and print advertisements; (ii) direct sales allow for actual
product testing by a potential consumer; (iii) the impact of Associate and
consumer testimonials is enhanced; and (iv) as compared to other distribution
methods, Associates can provide higher levels of customer service and attention
by, among other things, following up on sales to ensure proper product usage and
customer satisfaction, and encouraging repeat purchases.
The Company encourages Associates to enroll new Associates with whom the
Associates may have an ongoing relationship as a family member, friend, business
associate, neighbor or otherwise. To become an Associate of the Company, a
person may enroll as a Preferred Customer and subsequently execute an Associate
Application, sponsor new Associates or purchase a starter kit. Alternatively,
one can become an Associate by purchasing one of the Associate starter kits.
Each starter kit includes some combination of nutritional products, promotional
materials, and free admission to the Company's events. Each pack also allows the
Associate to purchase product at the Company's wholesale price. The components,
purchase price of the pack, and wholesale value of the included items for the
periods for which financial data is presented are detailed in the table below.
42
SUMMATION OF PACKS FOR MAY 1998 AND PRIOR YEARS
MASTER
ASSOCIATE
ALL STAR AND ALL STAR ALL STAR MASTER NEW PREFERRED
BUSINESS TRAINING TRAINING STARTER ASSOCIATE CUSTOMER
PACK PACK PACK PACK PROMO PACK PACK
----------- ------------ --------- --------- ----------- -----------
Associate Cost.................................. $ 1,000.00 $ 568.00 $ 339.00 $ 229.00 $ 49.00 $ 29.00
Number of Nutritional Products
Included...................................... 27 15 9 6 1 -
Wholesale Value of Nutritional Products......... $ 736.00 $ 412.50 $ 253.00 $ 166.00 $ 28.50 $ -
Number of Promotional Materials Included........ 108 26 3 23 15 15
Whole Value of Promotional
Materials..................................... $ 345.99 $ 298.04 $ 186.90 $ 111.14 $ 12.59 $ 14.50
Events Admission Included....................... Yes Yes Yes No No No
Implied Admission Value......................... 50 50 50 - - -
Total Wholesale and Implied Value............... $ 1,131.99 $ 760.54 $ 489.90 $ 277.14 $ 41.09 $ 14.50
SUMMATION OF PACKS BEGINNING JUNE 1998
MASTER
ASSOCIATE
ALL STAR AND ALL STAR MASTER NEW PREFERRED
BUSINESS TRAINING STARTER ASSOCIATE CUSTOMER
PACK PACK PACK PROMO PACK PACK
----------- ------------ --------- ----------- -----------
Associate Cost............................................. $ 1,000.00 $ 664.00 $ 289.00 $ 49.00 $ 29.00
Number of Nutritional Products Included.................... 26 17 9 1 -
Wholesale Value of Nutritional Products.................... $ 750.50 $ 491.00 $ 216.74 $ 28.50 $ -
Number of Promotional Materials Included................... 131 26 23 14 14
Whole Value of Promotional Materials....................... $ 357.52 $ 276.32 $ 115.37 $ 16.12 $ 16.12
Events Admission Included.................................. Yes Yes No No No
Implied Admission Value.................................... $ 50.00 $ 50.00 $ - $ - $ -
Total Wholesale and Implied Value.......................... $ 1,158.02 $ 817.32 $ 332.11 $ 44.62 $ 16.12
The Company also requires Associates to renew their status each year by
either renewing as a Preferred Customer and continuing to sponsor New Associates
or by purchasing a renewal pack. Prior to June 1998 the Associates renewed at
the $49.00, $229.00 and $568.00 levels. The renewal packs were identical to the
starter packs in the table above sold at the same price. Beginning June 1998 the
Associates renew at the $29.00, $200.00 or $350.00 level. If an Associate chose
not to renew his Associate status he could continue to purchase the Company's
products at the wholesale price and resell the products if he desired; however,
he would not be qualified to earn commissions or bonuses under the Company's
compensation plan.
In May 1998 the Company introduced a new starter kit priced at $29.00 which
consists of 15 promotional materials which would cost $14.50 if purchased
separately at their wholesale value, which can also be used to renew Associate
status, if elected.
Total associate kits sold were 67,530, 117,688, 174,680 and 81,965 for 1995,
1996, 1997 and the six months ended June 30, 1998 respectively. Sales of renewal
kits were 907, 19,875, 41,219, and 22,528 respectively for the same periods. The
number of starter kits sold were 66,623, 97,813, 133,461, and 59,437 during the
respective periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
43
The Company believes that Associates will be more likely to remain with the
Company if they are enrolled with the Company by someone with whom they have an
ongoing relationship. The Company also believes that its network marketing
system will continue to build a base of potential consumers for additional
products. The Company encourages, but does not require, Associates to use the
Company's products, nor does the Company require a person to be an Associate in
order to be a consumer of the Company's products. The Company believes its
network marketing system is particularly attractive to prospective Associates
because of the potential for supplemental income and because Associates are not
required to purchase any inventory, have no account collection issues, have
minimal paperwork requirements and have a flexible work schedule. The sales
efforts of Associates are supported through various means, including
Company-sponsored events held periodically throughout the year.
The effectiveness of direct selling as a distribution channel has been
enhanced in the past decade through advancements in communications, including
telecommunications, and the proliferation of the use of videotape players, fax
machines and personal computers. The Company produces high-quality video tapes
and audio tapes for use in product education, demonstrations and sponsoring
sessions that project a desired image for the Company and its product line. The
Company believes that high quality sales aids play an important role in the
success of Associate efforts. The Company is committed to fully utilizing
current and future technological advances to continue to enhance the
effectiveness of direct selling.
Associates pay for products prior to shipment. The Company carries no
accounts receivable from Associates, except for minor amounts owing to check
returns or other exceptions. Associates pay for products primarily by credit
card, with cash, money orders and checks representing a small portion of all
payments. Associates may automatically order product, applied to a credit card,
on a continuous basis, and receive a discount. Automatic orders accounted for
approximately 36.9% of net sales for the year ended December 31, 1997.
ASSOCIATE DEVELOPMENT. The Company believes that the key contributing
factors to its long-term growth and success are the recruitment of new
Associates and retention of existing Associates. The Company is active in the
development of Associates, including in the areas of recruitment, support,
motivation and compensation.
The Company primarily relies on current Associates to sponsor new
Associates. The sponsoring of new Associates creates multiple levels in the
network marketing structure. Persons whom an Associate sponsors are referred to
as "downline" or "sponsored" Associates. Once a person becomes an Associate, he
or she is able to purchase products directly from the Company at wholesale
prices for resale to consumers or for personal consumption. The Associate is
also entitled to sponsor other Associates in order to build a network of
Associates and product users.
The Company also relies heavily on existing Associates to train new
Associates, utilizing a new training program for Associates ("Accredited
Training") developed using both the expertise of experienced corporate trainers
and the experience of seasoned Associates. While the Company provides brochures,
magazines and other sales materials, Accredited Training is specially designed
to provide systematic and uniform training to Associates about the Company, its
products, methods of doing business and compensation plan. As of January 1998,
only Associates who have participated in Accredited Training are eligible to
receive remuneration for training other Associates.
The Company makes the needs of its Associates a priority, in accordance with
its stated corporate philosophy. The Company provides a high level of support
services tailored to the needs of its Associates, including motivational
meetings, educational and informative conference calls, automated fax services,
ordering and distribution system, personalized customer service via telephone,
the Internet and e-mail, 24-hour, seven days per week access to certain
information through touch-tone phones and a liberal product return policy. The
Company's support system includes a current database of all Associates and their
upline and downline Associates. The Company also provides business development
materials that
44
the Company believes will increase both product sales and recruitment. The
Company believes that enhancing an Associate's efforts through effective support
mechanisms has been and will continue to be important to the success of the
Company.
The Company currently recognizes Associate performance with four levels of
Associate leadership achievement: Regional; National; Executive; and
Presidential. Each leadership level is vested with the opportunity for
additional compensation ranging from 4% of commissionable sales at the Regional
Director level to 16% of commissionable sales at the Presidential level. The
Company intends to develop additional achievement levels in the future specially
designed to stimulate continued production and downline growth by motivating
Associates at the highest levels. Additionally, the Company intends to expand
its program of Associate recognition to express its appreciation for increased
levels of performance and to further motivate Associates.
ASSOCIATE COMPENSATION. All Associate compensation is paid directly by the
Company and is based on sales of the Company's products, the achievement of
certain leadership levels and the training of other Associates. The Company
offers a compensation plan which combines aspects of two widely-used multi-level
marketing compensation plans. The Company's compensation plan integrates a
single downline, or "unilateral" element, with a multiple downline, or "binary"
element, and adds additional compensation based upon attainment of certain
Associate leadership levels and training performance. The "unilateral" and
"binary" elements of the compensation plan are similar to other multi-level
marketing compensation plans. All commissions are based on wholesale prices.
Associates may, at their discretion, determine the resale price of products
purchased at wholesale. Leadership bonuses pay associates as much as 16% of
commissionable sales as various leadership levels are attained. The compensation
plan includes bonuses or commissions for qualified associates ranging from $20
to $180 earned based on downline growth. Associates who have completed
"accredited training" can receive a commission of $25 for each additional
Associate they train. Bonuses or commissions ranging from $10 to $200 are also
earned on products included in starter or introductory kits. The result of this
"hybrid" structure is to compensate both Associates in the early stages of
building their business and Associates with more established organizations, by
rewarding Associates for breadth as well as depth in their downline
organizations. In addition to the "hybrid" compensation plan, Associates earn
compensation for retail sales of products.
Based upon its knowledge of other industry-related network marketing
compensation plans, the Company believes that its compensation plan is among the
most financially rewarding plans offered in the industry, with commissions as a
percentage of net sales of 38.5%, 40.7%, 41.0% and 40.5% for 1995, 1996, 1997
and the six months ended June 30, 1998, respectively.
The Company, in configuring its international compensation plans, will not
employ its existing compensation plan outside of the United States and Canada.
In the international sector, the Company intends to use substantially similar
unilateral plans from country to country, which will be tailored to fit the
applicable laws and other considerations governing compensation of Associates in
each country. The Company plans to seamlessly integrate its international
compensation plans across all markets in which the Company's products are, or
will be, sold. This will allow Associates to receive commissions for global
product sales, rather than merely local product sales. The seamless downline
structure will be designed to allow an Associate to build a global network by
creating downlines in international markets. Associates will not be required to
establish new downlines or requalify for higher levels of commissions within
each new country in which they begin to operate. The Company intends to develop
international compensation plans which will be designed to pay approximately the
same percentage compensation as in the United States and which will stimulate
both product sales as well as the development of width and breadth in downline
organizations in accordance with local laws.
MANAGEMENT OF ASSOCIATES. The Company takes an active role in the
management of its Associates. Many multi-level marketing companies encounter
difficulty with regulatory authorities due to lack of
45
oversight of Associate activities. Any oversight process is complicated by the
fact that Associates are not legally employees of the Company, but are
independent contractors. However, the Company seeks to restrict the statements
and conduct of Associates regarding the Company's business by contractually
binding Associates to abide by the Associate Policies and Procedures (the
"Policies and Procedures") promulgated by the Company. Each Associate receives a
copy of the Policies and Procedures which must be followed in order to maintain
the Associate's status in the organization. Associates are expressly forbidden
from making any representation as to the possible earnings of any Associate,
other than through statements of the Company indicating the range of actual
earnings by all Associates and other required information, prepared in
accordance with applicable law. Associates are also prohibited from creating any
marketing literature that has not been approved by the Company or a qualified
attorney. The Company monitors Associate web sites and Internet conduct on a
regular and continuing basis.
The Company enforces the Policies and Procedures through its disciplinary
procedure, which is instituted through the filing of a complaint against the
Associate, followed by a response from the Associate, an investigation of the
facts, and the presentation of the facts to a committee of corporate managers
not within the Company's compliance department (the "Compliance Department") for
determination. The Compliance Department is also free to evaluate complaints,
and, where the conduct complained of is not within the scope of the Policies and
Procedures, refer the complaint to an Associate Advisory Counsel for
intervention to address Associate ethics. The Compliance Department also has the
discretion to intervene with Associates at a lower level of discipline, while
still creating a record of the possible infraction and educating the Associate
through its practice of issuing warning letters. The Associate is educated as to
the nature of the complaint against him or her, the policy alleged to have been
violated, and then, without a finding of whether the conduct occurred or not, is
asked to confirm in writing that he or she understands the policy in question,
agreeing that he or she will thereafter follow all of the Policies and
Procedures of the Company.
The Compliance Department and the Director of Specialized Information
monitor Company-related meetings at various locations and at corporate events,
generating a "report card" for the presenting Associate, offering critiques and
employing the Associate disciplinary process, where necessary. The Compliance
and Legal Departments, in cooperation with the other departments of the Company,
regularly evaluate Associate conduct and the need for new and revised
rule-making. The Company also tracks Associate compliance intervention and
communication through a system that allows both corporate personnel and
regulatory officials to review details about Associate compliance intervention,
timing and disposition. The Company believes that the compliance program
reflects positively on the Company, helps in the maintenance of Associate ethics
and aids the Company's recruiting activities.
PRODUCT RETURN POLICY. The Company's product return policy provides that
retail customers may return the unused portion of any product to the selling
Associate and receive a full cash refund. Any Associate who provides a refund to
a customer is reimbursed with product by the Company upon providing proper
documentation and the remainder of the product. Historically, product returns
have not been significant. Returns as a percentage of net sales were 0.6%, 1.2%,
1.5% and 1.1% in 1995, 1996, 1997 and the six month period ended June 30, 1998,
respectively.
INFORMATION TECHNOLOGY AND SYSTEMS
The Company believes that maintaining sophisticated and reliable transaction
processing systems is essential to the long-term success of the Company. The
Company's systems are designed to: (i) reduce the time required to supply an
Associate or customer with the products of the Company; (ii) provide detailed
and customized billing information; (iii) respond quickly to Associate needs and
information requests; (iv) provide detailed and accurate information concerning
qualification and downline activity; (v) provide detailed and customized
Associate commission payments; (vi) support the functions of the Company's
Customer Service Department; and (vii) monitor, analyze and report financial and
operating trends. In order to meet these needs and expand transaction processing
systems to accommodate the
46
Company's expected growth, capital and operating expenditures for information
technology operations and development activities are expected to be
approximately $4 million during 1998.
The suppliers of computer hardware to the Company are Dell Computer
Corporation, Hewlett-Packard Company, Compaq Computer Corporation and Digital
Equipment Corp. ("DEC"). The DEC hardware systems are linked to provide a high
level of availability for critical business applications. The Company believes
the global presence of these suppliers will be an important factor in supporting
the Company's expansion plans.
The Company's financial software was upgraded at the end of 1996 with the
acquisition of a sophisticated financial system, capable of operating on several
platforms. The system exists in a client-server environment, employs a graphical
interface and has a relational and scaleable database to accommodate the need
for business modifications and growth. In addition, the Company has purchased a
decision-support system which interfaces with its financial systems. These
systems, used in tandem, enable the Company to track and analyze financial
information and operations efficiently and effectively, as well as create and
produce custom reports. The Company believes that its computer systems have been
developed and operate using products which are Year 2000 compliant.
The Company believes that its significant investment in software, hardware
and personnel will enable it to (i) respond rapidly to its business needs for
information technology assessment and development, (ii) manage international
growth and its seamless downline structure, and (iii) reduce expenses as a
percentage of sales as revenues increase.
PRODUCTION AND DISTRIBUTION
All of the Company's products are manufactured by outside contractors.
Production outsourcing provides the Company with the production capacity
necessary to respond to fluctuations in sales, and significantly limits
investment in capital equipment. In order to meet the Company's needs,
relationships were developed with three large contractors in 1997. With the
increased capacity, the Company believes that it currently has in place the
manufacturers necessary to meet its volume requirements over the next several
years, including expansion into foreign markets. The Company, however, continues
to identify new quality-driven manufacturers to supply the products necessary to
the Company's success. The Company seeks to obtain cost efficiencies by
reviewing, from time to time, pricing considerations and by requiring
competitive bids from various manufacturers meeting its quality and performance
requirements.
The Company currently acquires ingredients solely from suppliers that are
considered by the Company to be the superior suppliers of such ingredients. The
Company believes it has developed dependable alternative sources for all of its
ingredients except Manapol-Registered Trademark- and arabinogalactan, which are
components of the Company's proprietary raw material. The Company believes that,
in the event it is unable to source any ingredients from its current suppliers,
such ingredients could be produced by the Company or replaced with substitute
ingredients. However, any delay in replacing or substituting such ingredients
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Risk Factors-Reliance on and
Concentration of Outside Manufacturers."
Two ingredients are proprietary to the Company: (i) Ambrotose-Registered
Trademark- Complex, a glyconutritional dietary supplement consisting of a blend
of plant polysaccharides, which is a component of each of the Company's products
and (ii) Dioscorea Complex, a blend of herbal extracts. The Company plans to
bring the blending of all proprietary formulas in-house, further protecting the
confidential nature and high quality standards of its proprietary formulations.
In the meantime, the Company continues to identify high quality sources of
supply for its ingredients. The Company's employees audit all critical contract
vendors and suppliers on a semi-annual basis. See "Risk Factors-Dependence on
Proprietary Ingredient."
47
In January 1998, the Company's Texas distribution operation relocated to a
new $1.3 million, 75,000 square foot facility in Coppell, Texas. The facility
includes an automated pick-to-light system that the Company believes will
enhance productivity and support order volume growth, and is capable of
processing 6,000 orders per shift. The facility also contains a warehouse,
distribution offices and an ingredient mixing area that is expected to be
operational by the third quarter of 1998. The Canadian distribution center is a
contract operation occupying a 6,000 square foot compartment in a 100,000 square
foot building which currently fills approximately 800 orders per day.
In March 1998, the Company completed construction of its technologically
advanced research and development laboratory that includes gas and liquid
chromatographs and mass spectrometers which will be used to maintain quality
standards, support the Company's research and development commitment in the area
of new herbal complexes, and support the development of new products as well as
its existing product line.
GOVERNMENT REGULATION
In addition to regulation of its direct selling activities, the Company, in
both the United States and foreign markets, is or will be subject to and
affected by extensive laws, governmental regulations, administrative
determinations, court decisions and similar constraints (as applicable, at the
federal, state and local levels) including, among other things, regulations
pertaining to (i) the formulation, manufacturing, packaging, labeling,
distribution, importation, sale and storage of the Company's products, (ii)
product claims and advertising (including direct claims and advertising by the
Company as well as claims and advertising by Associates, for which the Company
may be held responsible), (iii) the Company's network marketing system, (iv)
transfer pricing and similar regulations that affect the level of foreign
taxable income and customs duties and (v) taxation of Associates, which in some
instances may impose an obligation on the Company to collect the taxes and
maintain appropriate records. See "Risk Factors-Government Regulation of
Products and Marketing; Import Restrictions."
PRODUCTS. The formulation, manufacturing, packaging, storing, labeling,
advertising, distribution and sale of the Company's products are subject to
regulation by one or more governmental agencies, including the FDA, the Federal
Trade Commission ("FTC"), the Consumer Product Safety Commission, the Department
of Agriculture, the Environmental Protection Agency and the Postal Service. The
Company's activities are also regulated by various agencies of the states,
localities and foreign countries in which the Company's products are
manufactured, distributed and sold. The FDA, in particular, regulates the
formulation, manufacture, packaging, storage, labeling, promotion, distribution
and sale of foods, dietary supplements and OTC drugs, such as those distributed
by the Company. FDA regulations require the Company and its suppliers to meet
relevant good manufacturing practice ("GMP") regulations for the preparation,
packing and storage of drugs. The FDA has published a Notice of Advanced Rule
Making for GMPs for dietary supplements, but it has not yet issued a proposal.
DSHEA revised the provisions of the Federal Food, Drug and Cosmetic Act
("FFDCA") concerning the composition and labeling of dietary supplements and,
the Company believes, is generally favorable to the dietary supplement industry.
The legislation creates a new statutory class of "dietary supplements." This new
class includes vitamins, minerals, herbs, amino acids and other dietary
substances for human use to supplement the diet, and the legislation
grandfathers, with certain limitations, dietary ingredients that were on the
market before October 15, 1994. A dietary supplement which contains a new
dietary ingredient (I.E., one not on the market before October 15, 1994) will
require evidence that the supplement contains only ingredients that have been
present in the food supply in a certain form or evidence of a history of use or
other evidence of safety establishing that it is reasonably expected to be safe.
Manufacturers of dietary supplements which make a "statement of nutritional
support," which is a statement describing certain types of product performance
characteristics, must have substantiation that the statement is truthful and not
misleading, must make a disclaimer in the statement itself and must notify the
FDA of the statement no later than 30 days after it is first made.
48
The majority of the products marketed by the Company are classified as
dietary supplements under the FFDCA. In September 1997 the FDA issued
regulations governing the labeling and marketing of dietary supplement products.
The regulations cover: (i) the identification of dietary supplements and their
nutrition and ingredient labeling; (ii) the terminology to be used for nutrient
content claims, health content claims and statements of nutritional support;
(iii) labeling requirements for dietary supplements for which "high potency" and
"antioxidant" claims are made; (iv) notification procedures for statements on
dietary supplements; and (v) premarket notification procedures for new dietary
ingredients in dietary supplements. The notification procedures became effective
in October 1997, while the new labeling requirements will not become effective
until March 23, 1999. The Company will be required to revise a substantial
number of its product labels to reflect the new requirements prior to the 1999
effective date, although the Company does not expect the cost or impact of such
actions to be material. In addition, the Company will be required to continue
its ongoing program of securing substantiation of its product performance
claims, and of notifying the FDA of certain types of performance claims made for
its products. The Company's substantiation program involves compiling and
reviewing the scientific literature pertinent to the ingredients contained in
the Company's products.
In addition, in certain markets, including the United States, claims made
with respect to dietary supplement, personal care or other products of the
Company may change the regulatory status of the products. In the United States,
for example, it is possible that the FDA could take the position that claims
made for certain of the Company's products make those products new drugs
requiring preliminary approval or place those products within the scope of an
FDA OTC drug monograph. OTC monographs prescribe permissible ingredients and
appropriate labeling language, and require the marketer or supplier of the
products to register and file annual drug listing information with the FDA. Of
the products sold by the Company, only Emprizone-Registered Trademark- is
labeled as an OTC monograph drug, and the Company believes that it is in
compliance with the applicable monograph. In the event that the FDA asserted
that product claims for other products caused them to be new drugs or fall
within the scope of OTC monographs, the Company would be required either to file
a New Drug Application, comply with the applicable monographs or change the
claims made in connection with the products.
Dietary supplements are subject to the Nutrition, Labeling and Education Act
("NLEA"), and regulations promulgated thereunder, which regulates health claims,
ingredient labeling and nutrient content claims characterizing the level of a
nutrient in the product. NLEA prohibits the use of any health claim for dietary
supplements, unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA.
In foreign markets, prior to commencing operations and prior to making or
permitting sales of its products in the market, the Company may be required to
obtain an approval, license or certification from the country's ministry of
health or comparable agency. Where a formal approval, license or certification
is not required, the Company will nonetheless seek a favorable opinion of
counsel regarding the Company's compliance with applicable laws. Prior to
entering a new market in which a formal approval, license or certificate is
required, the Company will work with local authorities in order to obtain the
requisite approvals, license or certification. The approval process generally
requires the Company to present each product and product ingredient to
appropriate regulators and, in some instances, arrange for testing of products
by local technicians for ingredient analysis. Such approvals may be conditioned
on reformulation of the Company's products or may be unavailable with respect to
certain products or certain ingredients. The Company must also comply with
product labeling and packaging regulations that vary from country to country.
The FTC, which exercises jurisdiction over the marketing practices and
advertising of all the Company's products, has in the past several years
instituted enforcement actions against several dietary supplement companies for
false and misleading marketing practices and advertising of certain products.
These enforcement actions have resulted in consent decrees and monetary payments
by the companies involved. In addition, the FTC has increased its scrutiny of
the use of testimonials, which are utilized by
49
the Company. Importantly, the FTC requires substantiation for product claims at
the time such claims are first made. A failure to have substantiation when
product claims are first made violates the Federal Trade Commission Act. While
the Company has not been the subject of FTC enforcement action for the
advertising of its products, there can be no assurance that the FTC will not
question the Company's advertising or other operations in the future.
Through its manuals, seminars and other training materials and programs, the
Company attempts to educate Associates as to the scope of permissible and
impermissible activities in each market. The Company also investigates
allegations of Associate misconduct. However, Associates are generally
independent contractors, and the Company is not able to monitor directly all
Associate activities. As a consequence, there can be no assurance that
Associates comply with applicable regulations.
The Company is unable to predict the nature of any future laws, regulations,
interpretations or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could, however, require the
reformation of certain products not able to be reformulated, imposition of
additional recordkeeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling and scientific
substantiation regarding product ingredients, safety or usefulness. Any or all
of such requirements could have a material adverse effect on the Company's
business, results of operations and financial condition.
NETWORK MARKETING SYSTEM. The Company's network marketing system, which
includes its compensation plan, is subject to a number of federal and state
statutes and regulations administered by the FTC and various state agencies. The
legal requirements applicable to network marketing organizations are generally
directed at ensuring that product sales are ultimately made to consumers and
that advancement within such organizations be based on sales of the
organizations' products rather than compensation derived principally from the
recruitment of additional associates, investments in the organizations or other
non-retail sales related criteria. For instance, in certain markets there are
limits on the extent to which Associates may earn royalties on sales generated
by Associates that were not directly sponsored by the Associate. Where required
by law, the Company will obtain regulatory approval of its network marketing
system or, where such approval is not required, the favorable opinion of local
counsel as to regulatory compliance. The FTC regulates trade practices related
to network marketing systems.
Under a consent decree entered into in February 1997 as a result of
negotiation with the Attorney General of the State of Michigan, the Company has
agreed to monitor product purchases by its Associates in Michigan. The purpose
of the monitoring is to identify and correct any instances of coerced sales. The
Company also conducts a number of random audits of Associates in Michigan for
evidence of stockpiling. To date, the Company has not found evidence of coerced
sales or stockpiling by its Associates in Michigan, and the Company's commission
policies are designed to provide no incentive or reward to Associates for
engaging in such activities.
In Canada, the regulation of the Company's network marketing system is
subject to both federal and provincial law. Under Canada's Federal Competition
Act (the "Competition Act"), the Company must ensure that any representations
relating to Associate compensation to a prospective Associate constitute fair,
reasonable and timely disclosure and that it meets other legal requisites of the
Competition Act. The Company's compensation plan has been reviewed by the
appropriate Canadian authorities. In addition, all Canadian provinces and
territories other than Ontario have legislation requiring the registration or
licensing of the Company as a direct seller within that jurisdiction. Licensing
is designed to maintain the standards of the direct selling industry and to
protect the consumer. Some provinces require that both the Company and its
Associates be licensed. The Company currently holds the requisite provincial or
territorial direct sellers' licenses.
50
OTHER REGULATIONS. The Company is also subject to a variety of other
regulations in various foreign markets, including regulations pertaining to
social security assessments and value added taxes, employment and severance pay
requirements, import/export regulations and antitrust issues. As an example, in
many markets the Company is substantially restricted in the amount and types of
rules and termination criteria that it can impose on Associates without causing
social security assessments to be payable by the Company on behalf of such
Associates and without incurring severance obligations to terminated Associates.
In some countries, the Company may be subject to such obligations in any event.
See "Risk Factors-Government Regulation of Products and Marketing; Import
Restrictions."
In certain countries, including the United States, the Company may also be
affected by regulations applicable to the activities of its Associates because
in some countries the Company is, or regulators may assert that the Company is,
responsible for its Associates' conduct, or such regulators may request or
require that the Company take steps to ensure its Associates' compliance with
regulations. The types of regulated conduct include, among other things,
representations concerning the Company's products, income representations made
by the Company or Associates and sales of products in markets in which such
products have not been approved, licensed or certified for sale. In certain
markets, including the United States, it is possible that improper product
claims by Associates could result in the Company's products being reviewed or
re-reviewed by regulatory authorities and, as a result, being classified or
placed into another category as to which stricter regulations are applicable. In
addition, certain labeling changes might be required.
COMPLIANCE PROCEDURES. The Company, its products and its network marketing
system are subject, both directly and indirectly through Associates' conduct, to
numerous federal, state and local regulations both in the United States and
foreign markets. Beginning in 1997, the Company began to institute formal
regulatory compliance measures by developing a system to identify specific
complaints against Associates and to remedy any violations by Associates through
appropriate sanctions, including warnings, suspensions and, when necessary,
terminations. At the same time the Company instituted internal policies for
compliance with FDA and FTC rules and regulations. See "-Product Distribution
System-Management of Associates."
In order to comply with regulations that apply to both the Company and its
Associates, the Company continues to conduct research into the applicable
regulatory framework prior to entering any new market to identify all necessary
licenses and approvals and applicable limitations on the Company's operations in
that market. The Company will devote substantial resources to obtaining such
licenses and approvals and bringing its operations into compliance with such
limitations. The Company will also research laws applicable to Associate
operations and revise or alter its business system, compensation plan, Associate
requirements and other materials and programs to provide Associates with
guidelines for operating a business, marketing and distributing the Company's
products and similar matters, as required by applicable regulations in each
market. However, the Company is not able to fully monitor its Associates
effectively to ensure that they refrain from distributing the Company's products
in countries where the Company has not commenced operations, and the Company
does not devote significant resources to such monitoring.
COMPETITION
The nutritional supplements industry is large and intensely competitive. The
Company competes directly with companies that manufacture and market nutritional
products in each of the Company's product lines, including General Nutrition
Companies, Inc., Solgar Vitamin and Herb Company, Inc., Twinlab Corporation and
Weider Nutrition International, Inc. Many of the Company's competitors in the
nutritional supplements market have longer operating histories and greater name
recognition and financial resources than the Company. In addition, nutritional
supplements can be purchased in a wide variety of distribution channels. While
the Company believes that consumers appreciate the convenience
51
of ordering products from home through a sales person, the buying habits of many
consumers accustomed to purchasing products through traditional retail channels
are difficult to change. The Company's product offerings in each product
category are also relatively small compared to the wide variety of products
offered by many other nutritional product companies.
The Company also competes in the nutritional supplements market and for new
associates with other retail, multi-level marketing and direct selling companies
in the nutritional supplements industry by emphasizing the proprietary nature,
value, proprietary components and the quality of the Company's products and the
convenience of the Company's distribution system. The Company also competes with
other direct selling organizations, many of which have longer operating
histories and greater name recognition and financial resources than the Company.
They include Amway Corporation, Nu Skin Enterprises, Inc., Body Wise
International, Inc., ENVION International, Herbalife International, Inc., Enrich
International, Rexall Showcase International, Forever Living Products, Inc. and
Melaleuca, Inc. The Company competes for new Associates on the basis of its
compensation plan and its proprietary and quality products. The Company believes
that many more direct selling organizations will enter the marketplace as this
channel of distribution expands over the next several years. The Company also
competes for the commitment of its Associates. Given that the pool of
individuals interested in direct selling tends to be limited in each market, the
potential pool of Associates for the Company's products is reduced to the extent
other network marketing companies successfully recruit these individuals into
their businesses.
EMPLOYEES
As of June 30, 1998, the Company employed approximately 270 people, ten of
whom occupy executive positions. This number does not include Associates, who
are independent contractors rather than employees of the Company. A limited
number of employees are also Associates, having enrolled prior to a policy
instituted in May 1997, which precludes any further enrollment by employees as
Associates. The Company only allows employees to be Associates if they have
disclosed their status to the Company and have executed an agreement not to use
their employment status to assist in building their business as an Associate.
The Company is currently evaluating ways in which existing employee-Associates
can be fairly treated or compensated for the extinguishment of their rights as
Associates. The Company's employees are not unionized, and the Company believes
its relationship with its employees is good.
PROPERTIES
The Company leases approximately 110,000 square feet in Coppell, Texas for
its headquarters. The Company leases 75,000 square feet in Coppell, Texas for
its warehouse and distribution center. Each of the leases is for a term of 10
years, expiring in January 2007 and January 2008, respectively. The Company also
leases approximately 9,000 square feet in St. Leonards, Australia for its
Australian operation. The lease is for a term of five years, expiring in August
2003.
LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is involved in various
legal proceedings. The Company does not believe the outcome of any of these
proceedings, other than those described below, would have a material adverse
effect on the Company's business, results of operations or financial condition.
The Company received a demand letter (the "Demand Letter") from Dr. Joe
Glickman, Jr. an Associate of the Company, alleging that the Company had, among
other things, breached various contracts, agreements and promises, and stating
an intention to pursue these claims in the United States District Court for
Montana. In March 1998, the Company commenced an arbitration proceeding against
52
Dr. Glickman individually and as trustee of Dr. Joe Glickman, Jr. Phyto Trust
d/b/a/ Alotek (collectively, "Alotek"), for the recovery of certain funds and
the cancellation of Associate positions claimed by Alotek. Based upon Alotek's
refusal to arbitrate and the Demand Letter, the Company sought and obtained a
temporary restraining order in Texas state district court restraining Alotek
from filing an action against the Company in any other court or forum pending
the court's ruling on whether Alotek's claims were subject to commercial
arbitration in Dallas, Texas. Thereafter, Alotek removed the state court action
to Federal District Court in Dallas, Texas, and concurrently commenced a suit in
Federal District Court in Montana. In May 1998, Alotek filed an amended
complaint in Montana naming Charles E. Fioretti, William C. Fioretti and Samuel
L. Caster individually as defendants in addition to the Company. In September
1998, the Montana Court dismissed in full the claims of Alotek against the
Company and its officers as individuals. In May 1998, the Company also received
a demand letter from Alotek threatening to institute a "class action" on behalf
of all of the Company's Associates in federal court against the Company for
alleged fraud and misrepresentation. The litigation is in its earliest stages
and discovery has not yet begun. The Company believes that Alotek's claims are
without merit and that the defendants have valid defenses to all allegations
raised by Alotek. Nevertheless, an adverse resolution of this matter would have
a material adverse effect on the Company's business, results of operations and
financial condition.
In October 1997, the Company filed an objection to the issuance of a
registered trademark to IntraCell Nutrition, Inc., which had filed a trademark
application for the name, "Manna." The Company contended in its objection, among
other things, that "Manna" is a general descriptor often applied to nutritional
products, and accordingly, is not entitled to trademark protection. The Company
therefore believes that there is a substantial likelihood that the Company will
prevail in its objection to the granting of the tradename.
53
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors and their ages as of August
31, 1998 are as follows:
NAME AGE POSITION
- ------------------------------------ --- ------------------------------------------------------------------------
Charles E. Fioretti................. 52 Chairman of the Board and Chief Executive Officer
Samuel L. Caster.................... 48 President and Director
Anthony E. Canale................... 46 Chief Operating Officer
Patrick D. Cobb..................... 46 Vice President, Chief Financial Officer, Secretary and Director
Deanne Varner....................... 45 General Counsel and Vice President of Compliance
Jeffrey P. Bourgoyne................ 36 Vice President of Operations
Peter E. Hammer..................... 43 Vice President of New Business and International Development
Bill H. McAnalley, Ph.D............. 54 Vice President of Research and Product Development
Ronald D. Norman.................... 39 Vice President of Accounting and Controller
Eoin Redmond........................ 33 Vice President of Information Technology
Steven A. Barker.................... 49 Director
Chris T. Sullivan................... 50 Director
Charles E. Fioretti co-founded the Company in November 1993, has served as
Chairman of the Board and Chief Executive Officer since May 1997 and as a
director since November 1993. His current term as director expires in 2001. Mr.
Fioretti served as Chief Operating Officer of the Company from November 1993 to
July 1996. From June 1990 until April 1995, Mr. Fioretti was an owner and
operator of several Outback Steakhouse, Inc. restaurants in Arizona, Indiana and
Kentucky. Prior to his involvement with Outback Steakhouse, Inc., Mr. Fioretti
occupied executive positions with several national restaurant chains, including
Bennigan's, ChiChi's Mexican Restaurants, El Chico and Steak & Ale. Mr. Fioretti
is Peter E. Hammer's brother-in-law.
Samuel L. Caster co-founded the Company in November 1993 and since then has
served as President and as a director of the Company. His current term as
director expires in 2000. From April 1992 until August 1993, Mr. Caster also
served as co-founder, owner and President of Funds-4-Kids, Inc., a multi-level
marketing company that sold healthy alternative candy bars for children. From
January 1990 until April 1992, Mr. Caster served as a consultant for Metabolic
Technologies, Inc., a nutritional supplement multi-level marketing company that
sold metabolic vitamins. From April 1986 until December 1989, Mr. Caster was
President of Eagle Shield, Incorporated, a multi-level marketing company which
sold radiant barrier insulation. Eagle Shield, Incorporated filed for protection
under Chapter 11 of the United States Bankruptcy Code in December 1989.
Anthony E. Canale joined the Company in January 1997 and since then has
served as Chief Operating Officer of the Company. From February 1993 until
October 1996, Mr. Canale was President of Canale and Associates, an Outback
Steakhouse, Inc. joint venture partnership. Prior to that time, Mr. Canale
served as Regional Vice President and Vice President of Franchise Operations and
Food/Beverage Development for ChiChi's, Inc., Regional General Manager and
National Director of Operation Services for Kentucky Fried Chicken Corporation
and Executive Vice President and Chief Operating Officer of Kenny Rogers
Roasters Restaurants, Inc., all national restaurant chains. Mr. Canale holds a
B.S. in Management from American International College in Springfield,
Massachusetts.
Patrick D. Cobb joined the Company in August 1994 and since then has served
as Chief Financial Officer and Vice President. Mr. Cobb has served as Secretary
of the Company since February 1997 and as a director since November 1997. His
current term as director expires in 2000. From January 1994 until August 1994,
Mr. Cobb was President of Industrial Gasket, Inc., a metal stamping facility in
Oklahoma
54
City. From August 1989 until October 1993, he was head of a Small Business
Management Program with the Oklahoma VO-Tech System. From May 1981 until October
1993, Mr. Cobb was employed by General Motors Corporation as a Senior Accountant
and Financial Forecaster. Mr. Cobb holds a B.S. in Finance from the University
of Oklahoma and is a Certified Public Accountant.
Deanne Varner joined the Company in January 1996 and since May 1996 has
served as General Counsel and Vice President of Compliance. From 1986 until
January 1996, Ms. Varner maintained a law practice in Dallas, Texas focusing on
business law and related transactions. Ms. Varner has over 20 years of
experience in business, corporate and transactional law. Ms. Varner holds a B.A.
in Social Sciences and a J.D. from Southern Methodist University.
Jeffrey P. Bourgoyne joined the Company in December 1996 and since February
1998 has served as Vice President of Operations. From May 1995 until December
1996, Mr. Bourgoyne served as facility manager for DSC Logistics, Inc., a
third-party logistics provider. From June 1993 until May 1995, Mr. Bourgoyne was
a Transportation Services Manager for Abbott Laboratories, a pharmaceutical
company. Mr. Bourgoyne holds a B.S. in Management from University of New Orleans
and an M.B.A. from Lake Forest Graduate School of Management.
Peter E. Hammer joined the Company in March 1995 and since January 1998 has
served as Vice President of New Business and International Development. From
November 1991 until February 1995, Mr. Hammer served as the Vice President and
Chief Information Officer of The Network, Inc., a business abuse solutions
company in Atlanta, Georgia. Prior to that, Mr. Hammer worked for several
companies developing and installing complex computer and information systems.
Mr. Hammer holds a B.A. in Liberal Arts from State University College at Buffalo
and an A.A.S. in Electronics from Suffolk Community College. Mr. Hammer is
Charles E. Fioretti's brother-in-law.
Bill H. McAnalley, Ph.D. joined the Company in July 1996 and has served as
Vice President of Research and Product Development and Chief Scientific Officer
since December 1997. From March 1995 until July 1996, Dr. McAnalley served as a
consultant to the Company. From March 1987 until February 1995, Dr. McAnalley
was Vice President of Research and Product Development at Carrington
Laboratories, Inc., a pharmaceutical research, development and manufacturing
company. Dr. McAnalley holds a Ph.D. in Pharmacology and Toxicology from the
University of Texas Health Science Center in Dallas, Texas.
Ronald D. Norman joined the Company in May 1996 and since August 1997 has
served as Controller. In June 1998 Mr. Norman was promoted to Vice President of
Accounting. From September 1994 to April 1996 Mr. Norman was a tax manager with
Belew Averitt LLP, a public accounting firm in Dallas, Texas. From January 1989
until September 1994 Mr. Norman worked for Coopers & Lybrand LLP (now
PricewaterhouseCoopers LLP), an international public accounting firm. Mr. Norman
holds an M.A. in Tax and a B.B.A. in Accounting from Baylor University and is a
Certified Public Accountant.
Eoin Redmond joined the Company in July 1997 and since then has served as
Vice President of Information Technology. From August 1996 through June 1997,
Mr. Redmond was employed by the Company as a computer systems consultant. From
October 1995 until August 1996, Mr. Redmond was Head of Client Services for Tate
Bramald Ltd., an accounting software provider. From December 1993 until
September 1995, Mr. Redmond was employed as Technology Services Manager-Europe
for SSA Europe Ltd., an industrial software provider. From October 1987 until
October 1993, Mr. Redmond was employed as a Senior Software Manager for Team
Systems Group, Ltd., a reseller of turn-key software systems. Mr. Redmond
matriculated at Presentation College, County Wicklow, Ireland and subsequently
attended AnCo Technology Center, County Dublin, Ireland.
Steven A. Barker became a director of the Company in January 1998. His
current term as director expires in 1999. Dr. Barker has been a full professor
of Physiology, Pharmacology and Toxicology at
55
Louisiana State University since April 1990. Dr. Barker holds a B.S. and an M.S.
in Chemistry and a Ph.D in Chemistry/Neurochemistry from the University of
Alabama-Birmingham.
Chris T. Sullivan became a director of the Company in October 1997. His
current term as director expires in 2001. Mr. Sullivan has been the Chairman of
the Board and Chief Executive Officer of Outback Steakhouse, Inc. since founding
that company in 1988. Mr. Sullivan serves on the executive committee for The
Outback/Gary Koch Pro-Am, the Tampa Bay Devil Rays, the Employment Policies
Institute and the Presidents Conference. Mr. Sullivan holds a degree in Business
and Economics from the University of Kentucky.
The Company has a classified Board of Directors. At each annual meeting of
shareholders, a class of directors will be elected to serve a three-year term
and until his successor is duly elected and qualified. See "Description of
Capital Stock-Anti-Takeover Considerations-Classified Board of Directors."
Officers serve at the discretion of the Board of Directors. Except as described
above, there are no family relationships among the directors and executive
officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Subsequent to this offering, the Board of Directors will establish an audit
committee (the "Audit Committee") and a compensation committee (the
"Compensation Committee"). The Audit Committee will be comprised solely of two
independent directors and will be charged with reviewing the Company's annual
audit and meeting with the Company's independent accountants to review the
Company's internal controls and financial management practices. The Compensation
Committee will be comprised solely of independent directors. The Compensation
Committee will be responsible for establishing salaries, bonuses and other
compensation for the Company's executive officers.
Also, subsequent to this offering, the Board of Directors will establish an
option committee (the "Option Committee"). Pursuant to the terms of the 1997
Stock Option Plan and the 1998 Stock Option Plan, the authority to determine the
terms and conditions of each option to be issued under both the 1997 Stock
Option Plan and the 1998 Stock Option Plan and the responsibility for
administration of each such plan, which currently rests with the Board of
Directors, will be assumed by the Option Committee. The Option Committee will be
comprised solely of at least two "Non-Employee Directors," as such term is used
in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
DIRECTOR COMPENSATION
Each director of the Company who is not an officer or employee of the
Company receives an annual fee of $30,000 for serving on the Board of Directors.
In addition, directors of the Company are reimbursed for their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the Board of Directors or committees thereof. Prior to his
appointment as a director, Dr. Barker was a consultant to the Company and was
paid $2,500 in consulting fees in 1997.
56
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during the
year ended December 31, 1997 by each person who served as the chief executive
officer of the Company during 1997 and the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION NUMBER OF SHARES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS GRANTED(#) COMPENSATION
- ------------------------------------------------- ----------- ----------- -------------------- --------------
Charles E. Fioretti(1) .......................... $ 403,434 $ 760,000 - $ 109,765(2)
Chairman of the Board and
Chief Executive Officer
Ronald E. Kozak(3) .............................. 94,101 150,000 200,000 297,347(4)
Chief Executive Officer
Samuel L. Caster ................................ 403,434 760,000 - 16,012(5 )
President
Anthony E. Canale ............................... 221,978 190,172 250,000 -
Chief Operating Officer
Deanne Varner ................................... 187,019 159,884 228,000 -
General Counsel and
Vice President of Compliance
Patrick D. Cobb ................................. 214,011 171,666 100,000 43,000(6 )
Vice President, Chief Financial Officer and
Secretary
- ------------------------------
(1) Mr. Fioretti became Chief Executive Officer of the Company on May 1, 1997.
(2) Represents the amount paid to Mr. Fioretti under his incentive compensation
agreement.
(3) Mr. Kozak resigned from his position as Chief Executive Officer of the
Company on May 1, 1997.
(4) Represents the amount distributed to Mr. Kozak pursuant to a severance
agreement between Mr. Kozak and the Company consisting of cash payments
totalling $175,000, incentive compensation payments totalling $73,412 and
the transfer of a Company vehicle and certain furniture valued at $48,935.
(5) Represents the amount paid to Mr. Caster under his incentive compensation
agreement.
(6) Represents the value of a Company vehicle transferred to Mr. Cobb in 1997.
The following table provides information on options granted to the Named
Executive Officers during the fiscal year ended December 31, 1997. As of
December 31, 1997, the Company had not granted any options to acquire shares of
Common Stock to Charles E. Fioretti, Chairman of the Board and Chief Executive
Officer, or Samuel L. Caster, President.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SHARES APPRECIATION FOR OPTION
UNDERLYING PERCENT OF TOTAL TERM(2)
OPTIONS OPTIONS GRANTED EXERCISE OR BASE EXPIRATION ------------------------
NAME GRANTED(#)(1) TO EMPLOYEES PRICE ($/SHARE) DATE 5% 10%
- -------------------------------- --------------- ----------------- ----------------- ----------- ----------- -----------
Ronald E. Kozak................. 200,000 12.5% $ 1.35 6/23/03 $ 91,825 $ 208,321
Anthony E. Canale............... 250,000 15.6 1.35 5/14/07 212,252 537,888
Deanne Varner................... 228,000 14.3 1.35 5/14/07 193,574 490,554
Patrick D. Cobb................. 100,000 6.3 1.35 5/14/07 84,901 215,155
- ------------------------------
(1) Options granted become exercisable 90 days after the completion of an
initial public offering of the Company's securities but in no event earlier
than the first anniversary of the date of grant.
(2) The 5% and 10% assumed annual compound rates of stock appreciation are
mandated by the rules of the Securities and Exchange Commission (the
"Commission") and do not represent the Company's estimate or projection of
future Common Stock prices. The actual value realized may be greater or less
than the potential realizable value set forth in the table.
57
The following table sets forth, as of December 31, 1997, the number of
options and the value of unexercised options held by the Named Executive
Officers. As of December 31, 1997, there had been no stock options exercised by
any Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(1)
------------------------------ ---------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------- -------------- -------------- ----------- --------------
Ronald E. Kozak.................................... - 200,000 - $ 1,930,000
Anthony E. Canale.................................. - 250,000 - 2,412,500
Deanne Varner...................................... - 228,000 - 2,200,200
Patrick D. Cobb.................................... - 100,000 - 965,000
- ------------------------------
(1) There was no public trading market for the Common Stock at December 31,
1997. Accordingly, as permitted by the Commission, these values have been
calculated based on an assumed initial public offering price of $11.00 per
share less the per share exercise price of $1.35.
(2) Options granted become exercisable 90 days after the completion of an
initial public offering of the Company's securities but in no event earlier
than the date of grant.
EMPLOYMENT AGREEMENTS
The Company intends to enter into employment agreements with each of Charles
E. Fioretti, Samuel L. Caster, Patrick D. Cobb, Anthony E. Canale, Bill H.
McAnalley and Deanne Varner, effective as of September 1, 1998, which will
entitle each such employee to receive their current base salary and bonus
compensation based upon the Management Bonus Plan formula. See "--Management
Bonus Plan." The agreements will have an initial term of five years and extend
automatically each year for one additional year unless both parties agree to
termination prior to the end of any term. If the Company terminates the
employment agreement for any reason other than specified events, the executive
is entitled to receive an amount equal to the sum of all salary and bonus which
would have been paid in the five years subsequent to such termination.
STOCK OPTION PLANS
1997 STOCK OPTION PLAN. The 1997 Stock Option Plan was adopted on May 14,
1997 by the Board of Directors of the Company and approved by the shareholders
of the Company on the same date. The 1997 Stock Option Plan is intended to
encourage investment by the officers, employees, non-employee directors and
consultants of the Company in shares of Common Stock, thus creating in such
persons an increased interest in and greater concern for the welfare of the
Company.
Options granted under the 1997 Stock Option Plan may either be options that
qualify ("Incentive Stock Options") or options that do not qualify for treatment
as Incentive Stock Options under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
Incentive Stock Options may be granted under the 1997 Stock Option Plan to
any person who is an officer or other employee (including officers and employees
who are also directors) of the Company or any parent or subsidiaries that may
exist in the future. Non-qualified options may be granted to consultants or
non-employee directors of the Company. The exercise price of Incentive Stock
Options must be at least the fair market value of a share of Common Stock on the
date of grant. A total of 2,000,000 shares of Common Stock have been reserved
for issuance upon the exercise of options granted or to be granted under the
1997 Stock Option Plan. As of June 30, 1998, options to purchase 1,600,000
shares of Common Stock were outstanding, with a weighted average exercise price
of $1.45 per share, none of which were vested or exercisable at such date and
all of which will become vested and exercisable 90 days after the effective date
of the Prospectus and 400,000 shares remain available for future option grants.
58
The 1997 Stock Option Plan provides that until such time as shares of Common
Stock are registered under Section 12 of the Exchange Act it is to be
administered by the Board of Directors and, after such registration, by the
Option Committee. The Option Committee will consist of at least two, but not
more than three, "Non-Employee Directors" as such term is defined in Rule 16b-3
promulgated under the Exchange Act. The Option Committee will have full and
final authority in its discretion, subject to the 1997 Stock Option Plan's
provisions, to determine, among other things, (i) the individuals to whom
options shall be granted, (ii) whether the option granted shall be an Incentive
Stock Option or a non-qualified stock option, (iii) the number of shares of
Common Stock covered by each option, (iv) the time or times at which options
will be granted, (v) the option vesting schedule, (vi) the exercise price of the
options and (vii) the duration of the options granted. The Option Committee will
also have the power to construe and interpret the 1997 Stock Option Plan and
make certain determinations and take certain other actions deemed necessary or
advisable for the proper administration of the 1997 Stock Option Plan. The 1997
Stock Option Plan may be amended, supplemented, suspended or terminated by the
Board of Directors at any time without the approval of the shareholders of the
Company, subject to certain exceptions, provided, however, that any such action
may not affect options previously granted under the 1997 Stock Option Plan.
1998 STOCK OPTION PLAN. The 1998 Stock Option Plan was adopted by the Board
of Directors on April 8, 1998. The 1998 Stock Option Plan is intended to
encourage investment by the officers and employees of the Company in shares of
Common Stock, thus creating in such persons an increased interest in and greater
concern for the welfare of the Company.
Options granted under the 1998 Stock Option Plan shall be Incentive Stock
Options. Incentive Stock Options may be granted under the 1998 Stock Option Plan
to any person who is an officer or other employee (including officers and
employees who are also directors) of the Company or any parent or subsidiaries
that may exist in the future. The exercise price of Incentive Stock Options must
be at least the fair market value of a share of Common Stock on the date of
grant. A total of 500,000 shares of Common Stock have been reserved for issuance
upon the exercise of options granted or to be granted under the 1998 Stock
Option Plan. As of the date of this Prospectus, no options have been granted
under the 1998 Stock Option Plan.
The 1998 Stock Option Plan provides that it is to be administered by the
Board of Directors or by an Option Committee appointed by the Board of Directors
and consisting of at least two "Non-Employee Directors" as such term is defined
in Rule 16b-3 promulgated under the Exchange Act. The Option Committee will have
the authority, in its discretion, subject to the 1998 Stock Option Plan's
provisions, to (i) grant Incentive Stock Options, in accordance with Section 422
of the Code; (ii) determine, upon review of relevant information and in
accordance with the 1998 Stock Option Plan, the fair market value of the Common
Stock; (iii) determine the exercise price per share of options to be granted;
(iv) determine the employees to whom, and the time or times at which, options
shall be granted and the number of shares to be represented by each option; (v)
interpret the 1998 Stock Option Plan; (vi) prescribe, amend and rescind rules
and regulations relating to the 1998 Stock Option Plan; (vii) determine the
terms and provisions of each option granted; (viii) accelerate or defer (with
the consent of the optionee) the exercise date of any option; (ix) authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an option previously granted by the Board of Directors; and (x)
make all other determinations deemed necessary or advisable for the
administration of the 1998 Stock Option Plan. The 1998 Stock Option Plan may be
amended or terminated by the Board of Directors or the Option Committee at any
time without the approval of the shareholders of the Company, subject to certain
exceptions.
MANAGEMENT BONUS PLAN
The executive officers and certain other members of corporate management are
eligible to receive bonuses in addition to their base salaries. The bonus plan
is based upon the attainment by management
59
of certain financial goals of the Company. The amount of the bonuses paid
pursuant to the bonus plan, prior to this offering, has been reviewed and
approved by the Board of Directors. After this offering, amounts to be paid
under the bonus plan will be reviewed and approved by the Compensation
Committee.
401(K) PLAN
Effective May 9, 1997, the Company adopted a 401(k) Pre-tax Savings Plan
(the "401(k) Plan"). All employees who have been employed by the Company for at
least 90 days at the beginning of a quarter and are at least 21 years of age are
eligible to participate. Employees may contribute to the 401(k) Plan up to 15%
of their current compensation, subject to a statutorily prescribed annual limit.
The 401(k) Plan provides that the Company will make regular matching
contributions to the 401(k) Plan in the amount of $0.25 for each $1.00
contributed by the participant, up to 6% of the participant's annual
compensation, including overtime. The 401(k) Plan also provides that the Company
may determine to make a discretionary profit-sharing contribution to the plan
each year based upon the Company's profitability for that year. Employee
contributions and the Company's matching contributions are paid to a corporate
trustee and invested in various funds at the discretion of the participant. The
Company's contribution vests over five years or earlier upon attainment of
retirement at age 65, retirement for disability or upon death of the employee or
termination of the 401(k) Plan. Distributions may also be made in the case of a
financial hardship. Distributions may be made in the form of a lump sum. The
401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions made by employees or by the Company to the 401(k) Plan, and income
earned on such contributions, are not taxable to employees until withdrawn from
the 401(k) Plan. As of the date of this Prospectus, the Company has not made any
profit-sharing contributions to the 401(k) Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997 the Company had no compensation committee or other committee of
the Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Board of Directors, which
included Charles E. Fioretti, Samuel L. Caster, Patrick D. Cobb and William C.
Fioretti, who was the Chief Scientific Officer and a director of the Company
until November 1997. Charles E. Fioretti and William C. Fioretti are cousins. It
is contemplated that the Board of Directors will establish the Compensation
Committee, consisting solely of independent directors, subsequent to
consummation of this offering.
60
CERTAIN TRANSACTIONS
PARTNERSHIP TRANSACTIONS
Prior to June 1, 1997, certain shareholders of the Company (the "Partners")
directly owned all of the limited partnership interests in three limited
partnerships: Beta M. Partners, Ltd. ("Beta"), Eleven Point Partners, Ltd.
("Eleven Point") and Power Three Partners, Ltd. ("Power Three"). All of the
limited partnership interests in Beta were owned by Charles E. Fioretti,
Chairman of the Board and Chief Executive Officer of the Company, Samuel L.
Caster, President and director of the Company, and William C. Fioretti, who at
the time was a director of the Company. Messrs. Charles E. Fioretti, Samuel L.
Caster and William C. Fioretti also owned all of the limited partnership
interests in Power Three. The limited partnership interests in Eleven Point were
owned equally by four other shareholders of the Company, including Patrick D.
Cobb, Chief Financial Officer and Secretary, and currently a director, of the
Company. The limited partnership interests in another limited partnership,
Dynamic Eight Partners, Ltd. ("Dynamic" and, collectively with Power Three, Beta
and Eleven Point, the "Partnerships") were all owned by Power Three and Eleven
Point. The corporate general partners of each of the Partnerships were also
owned and controlled by Messrs. Charles E. Fioretti, Samuel L. Caster and
William C. Fioretti.
The Partnerships were formed in 1994 to achieve certain tax efficiencies and
to protect certain of the Company's proprietary rights. In December 1994, the
Company transferred certain of its rights and interests in intellectual property
and the Company's right to use the trademark "Manapol-TM-," to Beta. The Company
then entered into a 17-year agreement to pay Beta a royalty based on the
Company's sales volume for the use of the intellectual property and trademark.
During 1995, 1996 and 1997, the Company, under this royalty agreement, incurred
expenses of approximately $979,000, $2,554,000 and $1,780,000, respectively.
Also in December 1994, the Company transferred certain marketing rights to
Dynamic. The Company paid Dynamic a commission, based on a specified sales
volume, in exchange for marketing and consulting services. During 1995, 1996 and
1997, the Company, under its marketing agreement with Dynamic, expensed
approximately $1,395,000, $3,295,000 and $2,275,000, respectively, for
consulting fees.
On June 1, 1997, the Company entered into a merger agreement with the
corporate general partners of the Partnerships, Eight Point Services, Inc.,
Triple Gold Business, Inc., Five Small Fry, Inc. and Beta Nutrient Technology,
Inc. (collectively, the "General Partners"). Pursuant to the merger agreement,
the General Partners were merged with and into the Company, and the issued and
outstanding shares of common stock of each such entity were converted into the
right to receive a certain number of shares of the Company's Common Stock. On
the same date, the Company entered into an exchange agreement among the Company
and the Partners, pursuant to which the Company acquired all of the Partners'
limited partnership interests in the Partnerships in exchange for Common Stock.
As a result of these transactions, an aggregate of 10,000,000 shares of Common
Stock were issued to the Partners, including 3,094,946, 3,094,946, 2,867,284 and
235,706 shares issued to Messrs. William C. Fioretti, Samuel L. Caster, Charles
E. Fioretti and Patrick D. Cobb, respectively.
INCENTIVE COMPENSATION AGREEMENTS
In 1994, the Company entered into incentive compensation agreements with
Charles E. Fioretti, the Chairman of the Board and Chief Executive Officer of
the Company, which was provided in lieu of ownership interests in the
Partnerships, Ray Robbins, a shareholder of the Company, which was provided in
part in lieu of ownership interests in the Partnerships, and certain other
employees of the Company. These incentive compensation agreements required the
Company to compensate such shareholders and employees based on the Company
achieving specified monthly sales volumes and certain levels of monthly growth
in the number of new Associates. Pursuant to these agreements, during 1995, 1996
and 1997, the Company paid Mr. Fioretti approximately $21,196, $96,522 and
$93,753, respectively, and, during 1995, 1996 and 1997, the Company paid Mr.
Robbins approximately $144,985, $510,996 and $466,603, respectively. In May and
June 1997, the Company terminated the incentive compensation agreements and
issued 227,662 shares of Common Stock to Mr. Fioretti, 607,333 shares of Common
Stock to Mr. Robbins and an aggregate of 1,192,576 shares of Common Stock to the
other employees in exchange for the termination of their incentive compensation
agreements. In March 1998, the Company
61
terminated the remaining incentive compensation agreement and issued 74,167
shares of Common Stock to an employee in exchange for the termination of such
agreement.
LOANS TO OFFICERS
Pursuant to an oral agreement to advance certain officers monies for the
payment of taxes due in connection with the cancellation of their incentive
compensation agreements, on December 31, 1997, the Company made loans of
$162,052 to Dr. Bill H. McAnalley, Vice President of Research and Product
Development of the Company, and of $121,782 to Peter E. Hammer, Vice President
of New Business and International Development of the Company. The loans bear no
interest and are due upon the earlier of December 31, 1998 or the date of a
public offering of the Common Stock, whichever is first to occur. The loans are
secured by shares of Common Stock owned by the shareholders and stock powers
have been executed allowing the Company to transfer such shares in the event the
loans are not repaid.
TRANSACTIONS WITH MULTI-VENTURE PARTNERS, LIMITED
In July 1997, in exchange for $10.00 and the agreement of Mr. Chris T.
Sullivan to serve on the Board of Directors, the Company issued Multi-Venture
Partners, Limited, an investment partnership formed by Mr. Sullivan and two
other partners ("Multi-Venture"), an option to purchase 100,000 shares of Common
Stock at an exercise price of $2.00 per share. In addition, in July 1997,
Messrs. Charles E. Fioretti, Samuel L. Caster and William C. Fioretti sold an
aggregate of 399,000 shares of Common Stock to Multi-Venture for an aggregate
consideration of $798,000 ($2.00 per share).
CION, LTD. AGREEMENT
In October 1995, certain shareholders of the Company, including Charles E.
Fioretti, William C. Fioretti, Samuel L. Caster, Patrick D. Cobb and Gary L.
Watson, formed Cion, Ltd. ("Cion"). The Company transferred to Cion its
exclusive international rights to market, sell, manufacture and distribute the
Company's products, excluding the United States, Canada and Mexico. The rights
conferred to Cion under the agreement also included the right to relicense the
rights conferred in various international territories. In return, Cion was to
pay the Company royalties based on future sales plus a 1% ownership of Cion.
During 1995, Cion did not record any sales and in late 1995, Cion ceased
operations. In May 1996, Cion transferred all of its rights and agreements to
Mannatech, Ltd., an Isle of Man corporation, 99% owned by certain employees and
shareholders of the Company and 1% owned by the Company. On January 1, 1997,
Mannatech, Ltd. ceased operations and transferred all of its exclusive
international rights to market, sell, manufacture and distribute the Company's
products back to the Company, exclusive of certain licenses covering a number of
Far Eastern countries which were granted by Cion.
LOANS TO AGRITECH LABS, INC.
During 1996 and 1997, the Company made advances to Agritech Labs, Inc. and
Agritech Technology, Ltd. (together "Agritech") in the aggregate amount of
approximately $918,000. Over 90% of the capital stock of Agritech is owned by
William C. Fioretti, Charles E. Fioretti, Samuel L. Caster and Patrick D. Cobb.
On August 31, 1997, due to concerns about the ability of Agritech to repay the
loans, each of Messrs. William C. Fioretti, Charles E. Fioretti, Samuel L.
Caster and Patrick D. Cobb and another shareholder of both Agritech and the
Company assumed the obligations of Agritech owed to the Company and issued
individual promissory notes to the Company representing the aggregate amount of
approximately $918,000. Each of the promissory notes bears interest at six
percent per annum and is payable on the earlier of December 31, 1998 or the date
that the maker sells Common Stock in an initial public offering of the Company's
securities. The principal amount outstanding under the notes issued by each of
Messrs. William C. Fioretti, Charles E. Fioretti and Samuel L. Caster is
approximately $275,400 and the principal amount outstanding under the note made
by Mr. Patrick D. Cobb is approximately $45,900. Each of Messrs. William C.
Fioretti, Charles E. Fioretti, Samuel L. Caster and Patrick D. Cobb will repay
to the Company all amounts owing under their respective notes with proceeds
received by them in this offering as Selling Shareholders.
62
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of June 30, 1998, and as adjusted to
reflect the sale by the Company of, respectively, 1,500,000 shares and 2,200,000
shares of Common Stock in this offering, the number of shares of Common Stock
and the percentage of the outstanding shares of such class that are beneficially
owned by (i) each person who is the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the directors and the Named
Executive Officers of the Company, (iii) each Selling Shareholder and (iv) all
of the current directors and executive officers of the Company as a group.
SHARES
SHARES BENEFICIALLY BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
OWNED AFTER AFTER
PRIOR TO OFFERING(1) NUMBER OF OFFERING(1)(2) NUMBER OF OFFERING(1)(3)
------------------------- SHARES ------------------------ SHARES ----------
NAME AND ADDRESS NUMBER PERCENT OFFERED(2) NUMBER PERCENT OFFERED(3) NUMBER
- ---------------------------------- ----------- ------------ ----------- ---------- ------------ ----------- ----------
Samuel L. Caster ................. 5,886,946 26.6% 300,000 5,586,946 23.6% 400,000 5,486,946
c/o Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
William C. Fioretti(4) ........... 5,896,946 26.7 700,000(5) 5,196,946 22.0 800,000(6) 5,096,946
c/o Agritech Labs, Inc.
6333 N. St. Highway 161, Suite
350
Irving, Texas 75063
Charles E. Fioretti .............. 5,584,946 25.3 300,000 5,284,946 22.4 400,000 5,184,946
c/o Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
Chris T. Sullivan(7).............. 399,000 1.8 80,000 319,000 1.3 105,000 294,000
Patrick D. Cobb(8)................ 376,456 1.7 100,000 306,456 1.3 150,000 256,456
H. Reginald McDaniel.............. 546,600 2.5 35,000 511,600 2.2 35,000 511,600
Christopher A. Marlett(9)......... 475,015 2.1 35,000 440,015 1.9 35,000 440,015
Dick Hankins, Jr.................. 458,956 2.1 200,000 258,956 * 300,000 158,956
Don Herndon....................... 458,956 2.1 60,000 398,956 1.7 60,000 394,956
Gary Watson....................... 366,456 1.7 100,000 266,456 1.1 200,000 166,456
Bill H. McAnalley(10)............. 298,667 1.3 60,000 238,667 1.0 60,000 238,667
Peter E. Hammer................... 228,206 1.0 40,000 188,206 * 65,000 163,206
Kim Snyder........................ 114,103 * 25,000 89,103 * 25,000 89,103
Kathy Schiffer.................... 30,000 * 20,000 10,000 * 20,000 10,000
To be determined.................. TBD * 0 TBD * 100,000 0
All executive officers and
directors as a group (12
persons)........................ 12,763,721 57.7 880,000 11,883,721 50.3 1,180,000 11,583,721
NAME AND ADDRESS PERCENT
- ---------------------------------- ------------
Samuel L. Caster ................. 22.5%
c/o Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
William C. Fioretti(4) ........... 20.8
c/o Agritech Labs, Inc.
6333 N. St. Highway 161, Suite
350
Irving, Texas 75063
Charles E. Fioretti .............. 21.2
c/o Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
Chris T. Sullivan(7).............. 1.2
Patrick D. Cobb(8)................ 1.0
H. Reginald McDaniel.............. 2.1
Christopher A. Marlett(9)......... 1.8
Dick Hankins, Jr.................. *
Don Herndon....................... 1.6
Gary Watson....................... *
Bill H. McAnalley(10)............. *
Peter E. Hammer................... *
Kim Snyder........................ *
Kathy Schiffer.................... *
To be determined.................. *
All executive officers and
directors as a group (12
persons)........................ 47.4
- ------------------------------
* Less than 1%.
(1) The information contained in this table with respect to beneficial ownership
reflects "beneficial ownership" as defined in Rule 13d-3 under the Exchange
Act. All information with respect to the beneficial ownership of any
shareholder has been furnished by such shareholder and, except as otherwise
indicated or pursuant to community property laws, each shareholder has sole
voting and investment power with respect to shares listed as beneficially
owned by such shareholder. Pursuant to the rules of the Commission, in
calculating percentage ownership, each person is deemed to beneficially own
shares subject to options or warrants exercisable within 60 days of the date
of this Prospectus, but shares subject to options or warrants owned by
others (even if exercisable within 60 days) are deemed not to be
outstanding.
(2) Reflects the sale of an aggregate of 2,055,000 shares of Common Stock by
certain Selling Shareholders, including 35,000 Exercised Warrant Shares.
(3) Reflects the sale of an aggregate of 2,755,000 shares of Common Stock by
certain Selling Shareholders, including 135,000 Exercised Warrant Shares.
(4) Includes 1,590,949 shares of Common Stock held by the Fioretti Family
Partnership, Ltd. of which William C. Fioretti is the general partner and
he, his wife and trusts for the benefit of their children are the limited
partners.
(5) Of the 800,000 shares offered by William C. Fioretti, 469,000 are held of
record by William C. Fioretti and 231,000 are held of record by the Fioretti
Family Partnership, Ltd.
63
(6) Of the 800,000 shares offered by William C. Fioretti, 536,000 are held of
record by William C. Fioretti and 264,000 are held of record by the Fioretti
Family Partnership, Ltd.
(7) All of these shares of Common Stock are held by Multi-Venture. The
management of Multi-Venture is controlled by its sole general partner, SBG
Investments, L.L.C. ("SBG"), which owns a .6% general partnership interest
in Multi-Venture. Mr. Sullivan owns a 27.2% interest in SBG. Mr. Sullivan
shares voting and dispositive power with respect to Common Stock owned by
Multi-Venture.
(8) Includes 60,000 shares of Common Stock held by Joni J. Cobb, Mr. Cobb's
spouse, and 10,000 shares held by trusts established for the benefit of Mr.
Cobb's children and stepchildren.
(9) Includes 475,015 shares of Common Stock subject to the Warrant, all of which
are currently exercisable, and up to 135,000 of which may be exercised and
sold in this offering.
(10) Includes 15,000 shares of Common Stock held by Dr. McAnalley's children.
64
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 99,000,000 shares of Common Stock, par value $0.0001 per
share, and 1,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). Prior to this offering there were 22,101,738 shares of
Common Stock outstanding, held by 36 holders of record. Following this offering,
a minimum of 23,601,738 shares and a maximum of 24,436,738 shares of Common
Stock will be issued and outstanding. No shares of Preferred Stock are
outstanding. The following description is a summary and is subject to and
qualified in its entirety by reference to the provisions of the Articles and the
Bylaws, each of which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
COMMON STOCK
GENERAL. The holders of Common Stock are entitled to one vote for each
share on all matters voted upon by shareholders, including the election of
directors, and do not have cumulative voting rights. The holders of the Common
Stock are entitled to such dividends as may be declared at the discretion of the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." Holders of Common Stock are entitled to share ratably in the net assets
of the Company upon liquidation after payment or provision for all liabilities.
The holders of Common Stock have no preemptive rights to purchase shares of
stock in the Company. Shares of Common Stock are not subject to any redemption
provisions and are not convertible into any other securities of the Company. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
issued by the Company pursuant to this offering will be, upon payment therefor,
fully paid and nonassessable.
RESTRICTIONS UPON TRANSFER. The shares of Common Stock offered hereby may
not be transferred other than to Associates or employees of the Company. This
restriction upon transfer will cease to apply upon the later of (i) two years
from the date of the last closing relating to the shares of Common Stock offered
hereby or (ii) 90 days after the completion of a subsequent public offering
resulting in the listing of the Common Stock on a registered national securities
exchange. The certificates representing the shares of Common Stock offered
hereby shall bear a legend setting forth the restrictions upon transfer relating
to the Common Stock. Moreover, prior to the completion of this offering, the
Company intends to enter into the Lock-up Agreements with each of the Company's
shareholders and holders of options to purchase Common Stock. Pursuant to the
Lock-up Agreements, each such shareholder will agree, subject to certain
exceptions, not to sell or otherwise dispose of any of its shares of Common
Stock until the Restriction Termination Date.
PREFERRED STOCK
The Board of Directors may from time to time authorize the issuance of one
or more classes or series of Preferred Stock without shareholder approval.
Subject to the provisions of the Articles and limitations prescribed by law, the
Board of Directors is authorized to change the number of shares constituting any
series and fix and determine the designation and preferences, limitations and
relative rights, including voting rights, of the shares of any series of
Preferred Stock so established, in each case without any action or vote by the
shareholders. The Company has no current plans to issue any shares of Preferred
Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to discourage an attempt to obtain control of the Company by
means of a tender offer, proxy contest, merger or otherwise, and thereby protect
the Company's management. The issuance of Preferred Stock pursuant to the Board
of Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank senior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting
65
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of Preferred Stock may discourage bids for the Common Stock
or may otherwise adversely affect the trading price of the Common Stock.
WARRANT SHARES
On May 1, 1997, pursuant to an agreement with a consultant, the Company
issued a warrant (the "Warrant") exercisable for 475,015 shares of Common Stock
(the "Warrant Shares") at an exercise price of $1.35 per share. The exercise
price and the number of shares issuable upon exercise of the Warrant are subject
to adjustment upon the occurrence of certain events, including (i) the issuance
of Common Stock as a dividend on shares of Common Stock, (ii) subdivisions or
combinations of the Common Stock, (iii) the issuance of rights or warrants to
purchase the Common Stock for less than the market price or (iv) the
distribution of evidences of indebtedness or assets to the holder of Common
Stock or similar events. A holder of the Warrant is not entitled to any voting,
dividend or other rights as a shareholder of the Company. The Warrant expires
upon the earlier to occur of May 1, 2003 or 36 months after the registration of
the Warrant Shares.
Holders of Warrant Shares are entitled to certain registration rights for
such Warrant Shares, including piggyback and demand registration rights. If the
Company proposes to register securities under the Securities Act, the holders of
Warrant Shares may require the Company, subject to certain volume and other
limitations, to include all or any portion of such Warrant Shares in such
registration at the Company's expense. Pursuant to such registration rights,
135,000 shares are being offered hereby. In addition, on two occasions during
the term of the Warrant, holders of a majority of the Warrant Shares (in the
event any part of the Warrant is transferred) can require the Company to file a
registration statement under the Securities Act covering all or any part of the
Warrant Shares. The expense of the registration will be paid by the Company only
with respect to the first demand registration.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Articles, upon completion of this offering there will be a minimum
of 74,563,262 shares and a maximum of 75,398,262 shares of Common Stock
available for future issuance without shareholder approval, depending on the
actual amount sold in this offering. These additional shares may be utilized for
a variety of corporate purposes, including future public offerings to raise
additional capital or facilitate acquisitions. The Company does not currently
have any plans to issue additional shares of Common Stock, other than shares of
Common Stock that may be issued upon the exercise of options and Warrants that
have been granted or may be granted in the future.
SPECIAL PROVISIONS OF THE ARTICLES, THE BYLAWS AND TEXAS LAW
The Texas Miscellaneous Corporation Laws Act (the "Texas Miscellaneous
Laws") authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their shareholders for monetary damages for breach
of their fiduciary duty as directors except for liability of a director
resulting from (i) a breach of such director's duty of loyalty to the
corporation or its shareholders, (ii) an act or omission that is not in good
faith or that involves intentional misconduct or a knowing violation of laws,
(iii) a transaction from which the director received an improper personal
benefit or (iv) an act or omission for which the liability of the director is
expressly provided by an applicable statute. The Articles limit the liability of
directors of the Company (in their capacity as directors but not in their
capacity as officers) to the Company or its shareholders to the fullest extent
permitted by any applicable law. The inclusion of this provision in the Articles
may reduce the likelihood of derivative litigation against directors and may
discourage or deter shareholders from suing directors for breach of their duty
of care, even though such an action, if successful, might otherwise benefit the
Company and its shareholders. The inclusion of such provisions in the Articles
together with a provision in the Bylaws requiring the Company to indemnify its
directors, officers and certain other individuals against certain liabilities,
is
66
intended to enable the Company to attract qualified persons to serve as
directors who might otherwise be reluctant to do so. The Commission has taken
the position that personal liability of directors for violations of the federal
securities laws cannot be limited and that indemnification by the issuer for
such violations is unenforceable.
The Company has entered into separate indemnification agreements with each
of its directors that may require the Company, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors to the maximum extent permitted under the TBCA and advance
their expenses incurred as a result of any proceeding against them for which
they could be indemnified, obtain directors' and officers' insurance or maintain
self-insurance in lieu thereof.
Under the TBCA, the board of directors of a corporation has the power to
amend and repeal the corporation's bylaws unless the corporation's articles of
incorporation reserve the power exclusively to the shareholders or a particular
bylaw expressly provides that the board of directors may not amend or repeal the
bylaw. The Bylaws give the Board of Directors the power to alter, amend or
repeal the Bylaws or adopt new bylaws. The Bylaws also provide that the number
of directors shall be fixed from time to time by resolution of the Board of
Directors. These provisions, in addition to the existence of authorized but
unissued capital stock, may have the effect, either alone or in combination with
each other, of discouraging an acquisition of the Company deemed undesirable by
the Board of Directors.
ANTI-TAKEOVER CONSIDERATIONS
ANTI-TAKEOVER STATUTE. On September 1, 1997, the Company became subject to
newly enacted Part 13 of the TBCA ("Part 13"), which subject to certain
exceptions, prohibits a Texas corporation from engaging in any "business
combination" with an "affiliated shareholder" for three years following the date
that such shareholder became an affiliated shareholder, unless: (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction that resulted in the shareholder
becoming an affiliated shareholder; or (ii) the business combination is
authorized at a meeting of shareholders called not less than six months after
such date by the affirmative vote of at least two-thirds of the outstanding
voting shares not owned by the affiliated shareholder.
Part 13 generally defines a "business combination" to include (i) any
merger, share exchange or conversion involving the corporation and the
affiliated shareholder, (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 10% or more of the assets of the corporation to
the affiliated shareholder, (iii) subject to certain exceptions, any transaction
that results in the issuance or transfer by the corporation of any stock of the
corporation to the affiliated shareholder, (iv) any transaction involving the
corporation that has the effect of increasing the proportionate ownership
percentage of the stock of any class or series of the corporation beneficially
owned by the affiliated shareholder, (v) any receipt by the affiliated
shareholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or (vi) any adoption
of a plan or proposal for the liquidation or dissolution of the corporation
proposed by, or pursuant to any agreement or understanding with, an affiliated
shareholder. In general, Part 13 defines an "affiliated shareholder" as any
entity or person beneficially owning 20% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. The provisions of Part 13 could have the
effect of delaying, deferring or preventing a change of control of the Company
even if a change of control were in the shareholders' interests.
CLASSIFIED BOARD OF DIRECTORS. The Bylaws provide for the Board of
Directors to be divided into three classes serving staggered three-year terms.
The term of office of the first class of directors will expire at the 1999
annual meeting of shareholders, the term of office of the second class will
expire at the 2000 annual meeting of shareholders and the term of office of the
third class will expire at the 2001 annual meeting of shareholders. The terms of
office of the current directors of the Company are set forth herein under
"Management-Executive Officers and Directors."
67
At each annual meeting of shareholders, the class of directors to be elected
at such meeting will be elected for a three-year term, and the directors in the
other two classes will continue in office. The staggered terms for directors may
affect the shareholders' ability to change control of the Company even if a
change of control were in the shareholders' interests.
SHAREHOLDER ACTION. As permitted by the TBCA, the Articles provide that any
action which is required to be, or may be, taken at any annual or special
meeting of the shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing is signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. This provision
could cause shareholders to approve proposals in a more expeditious manner,
which at times could be detrimental to the minority shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago Trust
Company of New York.
68
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market, or the perception that such sales might occur, could adversely affect
the market price of the Common Stock and could impair the ability of the Company
to raise equity capital in the future.
Upon completion of this offering, the Company will have a minimum of
23,601,738 shares and a maximum of 24,436,738 shares of Common Stock
outstanding. All of the shares offered hereby will not be freely tradeable until
the lapse of the significant restrictions on transfer applicable to such shares,
but will, upon such lapse, be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by an "affiliate" of the
Company, as that term is defined in Rule 144, as described below. Moreover, the
shares of Common Stock offered hereby will not be listed on any national
securities exchange or on the Nasdaq Stock Market.
SALES OF RESTRICTED SHARES
The shares of Common Stock which are not being sold in this offering are
"restricted securities" within the meaning of Rule 144. Depending on whether the
minimum or maximum number of shares of Common Stock offered hereby are sold,
there will be, respectively, 22,101,738 or 19,481,738 Restricted Shares
outstanding upon the completion of this offering. Of such Restricted Shares,
21,982,571 shares or 19,362,571 shares, respectively, will be eligible for sale
in the public market after the date of this Prospectus, all under and subject to
the restrictions contained in Rule 144.
In general, under Rule 144, a person (or persons whose shares are required
under Rule 144 to be aggregated), including an "affiliate" of the Company, as
that term is defined under the Securities Act and the regulations promulgated
thereunder (an "Affiliate"), who has beneficially owned Restricted Shares for at
least one year is entitled to sell, within any three-month period, a number of
such shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock (approximately 236,517 shares or 244,367
shares, respectively, immediately after this offering) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, Affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of Common Stock which are not
restricted securities. Under Rule 144(k), a person who is not an Affiliate and
has not been an Affiliate for at least three months prior to the sale and who
has beneficially owned Restricted Shares for at least two years may resell such
shares without compliance with the foregoing requirements. In meeting the one-
and two-year holding periods described above, a holder of Restricted Shares can
include the holding periods of a prior owner who was not an Affiliate. The one-
and two-year holding periods described above do not begin to run until the full
purchase price or other consideration is paid by the person acquiring the
Restricted Shares from the issuer or an Affiliate.
LOCK-UP ARRANGEMENT
Prior to the completion of this offering, the Company intends to enter into
the Lock-up Agreements with each of its shareholders and option holders. Under
the Lock-up Agreements, such shareholders will agree, subject to certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock until the Restriction Termination Date. Upon the
expiration of the Lock-up Agreements, those shares subject to Lock-up Agreements
will not, absent registration, be freely tradeable, but will become eligible for
sale under Rule 144 on various dates in the future.
69
OPTIONS
Rule 701 also provides that the shares of Common Stock acquired upon the
exercise of currently outstanding options issued under the Company's stock plans
may be resold by persons, other than Affiliates, beginning 90 days after the
effective date of this Prospectus, subject only to the manner of sale provisions
of Rule 144, and by Affiliates under Rule 144, without compliance with its
one-year minimum holding period, subject to certain limitations. As of June 30,
1998, 1,600,000 shares of Common Stock were subject to options issued under the
Company's 1997 Stock Option Plan all of which will become exercisable 90 days
after the completion of this offering. Options to purchase an additional 900,000
shares of Common Stock may be granted under the Company's stock option plans. In
addition, the Non-Plan Option to acquire 100,000 shares of Common Stock is
outstanding, but was not exercisable as of the date of this Prospectus. As soon
as practicable following this offering, the Company intends to file a
registration statement under the Securities Act to register shares of Common
Stock issuable or previously issued upon the exercise of stock options granted
under the Company's stock option plans. Shares issued upon the exercise of stock
options after the effective date of this Prospectus or previously issued on
exercise generally will be available for sale in the open market.
REGISTRATION RIGHTS
The Company has also issued the Warrant to purchase 475,015 shares of Common
Stock, which is currently fully exercisable, a maximum of 135,000 shares of
which may be exercised and sold in this offering. The holder of the Warrant has
certain registration rights with respect to such shares of Common Stock. See
"Description of Capital Stock-Warrant Shares."
70
PLAN OF DISTRIBUTION
GENERAL
The Company and the Selling Shareholders are offering to sell up to
4,955,000 shares of the Company's Common Stock to its Associates and employees.
The Common Stock will be offered by the Company on a "best efforts" basis. If
the Company is unable to sell at least 1,500,000 shares of the Common Stock
offered hereby, the Company will cancel this offering and return all monies
collected from subscribers and held in escrow without interest or deduction.
None of the employees, officers or directors of the Company will receive any
compensation in connection with any offers or sales of Common Stock in this
offering. The Company will also retain one or more Placement Agents to sell the
Common Stock on a "best efforts" basis. There are no underwriters involved in
this offering. If the Company retains Placement Agents to sell the Common Stock
offered hereby, the Company will pay such Placement Agents a selling commission
of up to 4.0% of the gross offering proceeds. The Company and the Placement
Agents, if any, will, in all likelihood, agree to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.
The Common Stock will be sold at the price of $8.00 per share. The minimum
number of shares a subscriber is required to purchase in order to subscribe to
the offering hereby will be 100 shares. The Company reserves the right to
withdraw, cancel or modify the offering hereby and to reject subscriptions, in
whole or in part, for any reason, including, without limitation, any
subscription, the acceptance of which may, in the opinion of counsel to the
Company, require registration or qualification of the shares of Common Stock
offered hereby under any state securities laws.
DETERMINATION OF OFFERING PRICE
Prior to the offering hereby, there has been no public market for the Common
Stock. The offering price has been arbitrarily determined by the Company and may
not be indicative of the market price for the Common Stock after this offering.
In determining the offering price, the Board of Directors considered, among
other things, the Company's earnings, its view of the Company's prospects, the
earnings of comparable publicly traded nutritional supplement companies and the
trading price of the stock of those companies. The Company makes no
representations as to any objectively determinable value of the Common Stock.
SUBSCRIPTION PROCEDURES
The Company is presently soliciting non-binding offers to purchase shares of
Common Stock, and will not accept binding subscriptions or accept payment for
any shares until after the Registration Statement of which this Prospectus in a
part has been declared effective by the Commission. After such Registration
Statement has been declared effective, the Company will provide to each
prospective investor an agreement to purchase shares of the Common Stock (the
"Subscription Agreement") and a copy of the final Prospectus relating to this
offering. The Company's acceptance of a subscription shall be evidenced solely
by the delivery to the subscriber of a written confirmation of sale. Receipt by
the Company of a Subscription Agreement and/or deposit with the Escrow Agent of
payment for the subscribed shares as described below shall not constitute
acceptance of a subscription. All subscription payments and executed
Subscription Agreements will be delivered to the (the "Escrow
Agent"), . The subscription payments will be deposited into an
escrow account at , subject to a closing (the "Initial Closing")
on such escrowed funds once the Company has accepted subscriptions for at least
1,500,000 shares and, if all shares of Common Stock offered hereby are not sold
as of the date of the Initial Closing, to subsequent closings on such escrowed
funds from time to time as determined by the Company. The Company, through its
Placement Agents, will process and consider for acceptance all qualified
subscriptions in the order received.
71
Stock certificates will not be issued to subscribers until such time as good
funds related to the purchase of Common Stock by such subscribers are released
from the escrow account to the Company by the Escrow Agent. Until such time as
stock certificates are issued to the subscribers, the subscribers will not be
considered shareholders of the Company.
Subscribers will have no right to a return of their subscription payment
held in the escrow account until the Company decides not to accept such
subscription payment and all interest earned on the escrowed proceeds will
belong to the Company.
TERMINATION OF OFFERING
This offering will commence on the date of this Prospectus and will continue
until the earlier of (i) the date upon which the Escrow Agent receives the
proceeds for all 4,955,000 shares of Common Stock offered hereby in the
specified escrow account; (ii) , 1998 (subject to the right of the
Company to extend the offering for an additional 90 days to , 1999);
or (iii) the date upon which the Company terminates this offering for any reason
other than the sale of at least 1,500,000 shares of Common Stock. The Company
has the right to terminate the offering and purchase the shares held in escrow
at any time after the Escrow Agent has received the subscription proceeds for
1,500,000 shares. The Company may terminate this offering at any time until all
4,955,000 shares of Common Stock offered hereby have been sold. If the Company
terminates this offering before the subscription proceeds for 1,500,000 shares
have been received by the Escrow Agent, all subscription proceeds will be
promptly returned to subscribers.
LOCK-UP ARRANGEMENT
Prior to the completion of this offering, the Company intends to enter into
the Lock-up Agreements with each of its shareholders and option holders. Under
the Lock-up Agreements, such shareholders will agree, subject to certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock until the Restriction Termination Date. Upon the
expiration of the Lock-up Agreements, those shares subject to Lock-up Agreements
will not, absent registration, be freely tradeable, but will become eligible for
sale under Rule 144 on various dates in the future.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., Dallas, Texas.
EXPERTS
The financial statements of the Company as of December 31, 1997, and for the
year ended December 31, 1997 included in this Prospectus have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the two years in the period ended December 31, 1996, included in
this Prospectus have been so included in reliance on the report of Belew Averitt
LLP ("Belew Averitt"), independent accountants, given on the authority of said
firm as experts in accounting and auditing.
In November 1997, the Company advised Belew Averitt that it would no longer
retain the firm as independent accountants. The reports of Belew Averitt on the
Company did not contain an adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change accountants was precipitated by the Company's
plan to complete an initial public offering in 1998 and was approved by the
Board of Directors in November
72
1997. During the periods audited by Belew Averitt and through November 1997
there were no disagreements with Belew Averitt on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreement(s) if not resolved to the satisfaction of Belew
Averitt, would have caused it to make reference to the subject matter of the
disagreements in connection with its reports. PricewaterhouseCoopers was engaged
by the Company as its independent accountants in November 1997.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement, including the exhibits
and schedules thereto, copies of which may be examined without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549
and the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
14th Floor, Chicago, Illinois 60661-2511. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at its public reference
facilities in New York, New York, and Chicago, Illinois, at prescribed rates.
The Commission also maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants (which,
after this offering, will include the Company) that file electronically with the
Commission (at http://www.sec.gov).
Immediately following this offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act. As
long as the Company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports, proxy statements,
and other information required thereby. The Company intends to furnish holders
of the Common Stock with annual reports containing financial statements audited
by an independent certified public accounting firm and may furnish to
shareholders quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
73
MANNATECH, INCORPORATED
INDEX TO FINANCIAL STATEMENTS
Annual Financial Statements:
Report of Independent Accountants................................................. F-2
Independent Auditor's Report...................................................... F-3
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998................. F-4
Statements of Income for the Years ended December 31, 1995, 1996 and 1997 and the
six months ended June 30, 1997 and 1998......................................... F-5
Statements of Changes in Shareholders' Equity (Deficit) for the Years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998......... F-6
Statements of Cash Flows for the Years ended December 31, 1995, 1996 and 1997 and
the six months ended June 30, 1997 and 1998..................................... F-7
Notes to Financial Statements..................................................... F-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of
Mannatech, Incorporated
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Mannatech,
Incorporated at December 31, 1997, and the results of its operations and its
cash flows for the year in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
March 26, 1998
F-2
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
of Mannatech, Incorporated
We have audited the accompanying balance sheet of Mannatech, Incorporated as
of December 31, 1996, and the related statements of income, of changes in
shareholders' equity (deficit) and of cash flows for each of the years in the
two-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mannatech, Incorporated as
of December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
BELEW AVERITT LLP
Dallas, Texas
August 21, 1997
F-3
MANNATECH, INCORPORATED
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND JUNE 30, 1998
DECEMBER 31,
------------------------------
1996 1997
-------------- -------------- JUNE 30,
1998
--------------
(UNAUDITED)
ASSETS
Cash and cash equivalents........................................ $ 1,159,937 $ 61,148 $ 68,955
Restricted cash.................................................. - 199,619 -
Accounts receivable, less allowance for doubtful accounts of
$194,000 in 1997............................................... 26,991 549,904 105,134
Receivable from related parties.................................. 502,417 148,888 131,103
Notes receivable from shareholders............................... - 934,929 979,265
Refundable income taxes.......................................... 741,000 - -
Inventories...................................................... 4,947,337 5,323,056 5,709,192
Prepaid expenses and other current assets........................ 166,471 542,978 587,732
Deferred tax assets.............................................. 349,651 399,368 321,068
-------------- -------------- --------------
Total current assets......................................... 7,893,804 8,159,890 7,902,449
Property and equipment, net...................................... 3,049,572 10,583,910 13,284,939
Other assets..................................................... 466,603 814,624 1,576,625
-------------- -------------- --------------
Total assets................................................. $ 11,409,979 $ 19,558,424 $ 22,764,013
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of capital lease obligations..................... $ - $ 249,655 $ 1,171,593
Current portion of note payable.................................. 26,400 - -
Accounts payable................................................. 2,540,116 4,287,159 2,959,410
Accrued expenses................................................. 7,270,164 11,540,577 13,796,081
Dividends payable................................................ 100,000 1,321,654 1,326,104
Accounts payable to related parties.............................. 537,472 - -
-------------- -------------- --------------
Total current liabilities.................................... 10,474,152 17,399,045 19,253,188
Capital lease obligations, excluding current portion............. - 110,482 482,692
Deferred tax liabilities......................................... 105,000 505,000 1,129,000
-------------- -------------- --------------
Total liabilities............................................ 10,579,152 18,014,527 20,864,880
-------------- -------------- --------------
Commitments and contingencies (note 11).......................... - - -
Redeemable warrants.............................................. - 300,000 300,000
Shareholders' equity
Preferred stock, $.01 par value, 1,000,000 shares authorized, no
shares issued and outstanding, respectively.................... - - -
Common stock, $.0001 par value, 99,000,000 shares authorized,
20,626,971 and 22,101,738 shares issued and outstanding,
respectively................................................... 2,063 2,210 2,210
Additional paid-in capital....................................... - 2,632,238 2,632,238
Notes receivable from shareholders............................... - (636,418) (636,418)
Retained earnings (deficit)...................................... 828,764 (754,133) (398,897)
-------------- -------------- --------------
Total shareholders' equity................................... 830,827 1,243,897 1,599,133
-------------- -------------- --------------
Total liabilities and shareholders' equity................... $ 11,409,979 $ 19,558,424 $ 22,764,013
-------------- -------------- --------------
-------------- -------------- --------------
See accompanying notes to financial statements.
F-4
MANNATECH, INCORPORATED
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
DECEMBER 31, JUNE 30,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------- ----------- -----------
(UNAUDITED)
Net sales................................... $32,070,758 $86,311,972 $ 150,569,843 $71,356,050 $83,725,176
----------- ----------- ------------- ----------- -----------
Cost of sales............................... 4,880,331 13,406,303 24,735,616 11,542,108 13,544,007
Commissions................................. 12,338,513 35,155,231 61,677,103 29,271,075 33,871,882
----------- ----------- ------------- ----------- -----------
17,218,844 48,561,534 86,412,719 40,813,183 47,415,889
----------- ----------- ------------- ----------- -----------
Gross profit............................ 14,851,914 37,750,438 64,157,124 30,542,867 36,309,287
----------- ----------- ------------- ----------- -----------
Operating expenses:
Selling and administrative expenses....... 7,012,199 17,764,415 27,845,502 13,589,255 14,940,883
Other operating costs..................... 5,252,817 11,746,003 19,402,317 8,716,585 10,037,923
Cancellation of incentive compensation
agreements.............................. - - 2,191,610 1,820,774 -
----------- ----------- ------------- ----------- -----------
Total operating expenses................ 12,265,016 29,510,418 49,439,429 24,126,614 24,978,806
----------- ----------- ------------- ----------- -----------
Income from operations...................... 2,586,898 8,240,020 14,717,695 6,416,253 11,330,481
Other (income) expense, net................. 180,970 (116,009) (43,170) 258,957 (21,237)
----------- ----------- ------------- ----------- -----------
Income before income taxes.................. 2,405,928 8,356,029 14,760,865 6,157,296 11,351,718
Income tax expense.......................... 67,013 1,193,640 4,138,822 1,723,185 4,370,412
----------- ----------- ------------- ----------- -----------
Net income.................................. $ 2,338,915 $ 7,162,389 $ 10,622,043 $ 4,434,111 $ 6,981,306
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
Earnings per common share:
Basic..................................... $ .11 $ .35 $ .50 $ .21 $ .31
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
Diluted................................... $ .11 $ .35 $ .47 $ .20 $ .29
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
Unaudited pro forma data (note 1)
Income before income taxes, as reported... 2,405,928 8,356,029 14,760,865 6,157,296
Pro forma provision for income taxes...... 902,223 3,133,511 5,682,933 2,370,559
----------- ----------- ------------- -----------
Pro forma net income...................... $ 1,503,705 $ 5,222,518 $ 9,077,932 $ 3,786,737
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Pro forma earnings per common share:
Basic..................................... $ .07 $ .25 $ .42 $ .18
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Diluted................................... $ .07 $ .25 $ .41 $ .17
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
See accompanying notes to financial statements.
F-5
MANNATECH, INCORPORATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1998
TOTAL
COMMON STOCK ADDITIONAL NOTES RETAINED SHAREHOLDERS'
------------------------ PAID-IN RECEIVABLE FROM EARNINGS EQUITY
SHARES PAR VALUE CAPITAL SHAREHOLDERS (DEFICIT) (DEFICIT)
----------- ----------- ----------- ---------------- ------------ ---------------
Balance at December 31, 1994.......... 20,626,971 $ 2,063 $ - - $ (352,784) $ (350,721)
Dividends declared ($1.00 per
share)(1)......................... - - - - (10,000) (10,000)
Net income.......................... - - - - 2,338,915 2,338,915
Distributions to partners........... - - - - (2,369,631) (2,369,631)
----------- ----------- ----------- ---------------- ------------ ---------------
Balance at December 31, 1995.......... 20,626,971 2,063 - - (393,500) (391,437)
Dividends declared ($10.00 per
share)(1)......................... - - - - (100,000) (100,000)
Net income.......................... - - - - 7,162,389 7,162,388
Distributions to partners........... - - - - (5,840,125) (5,840,124)
----------- ----------- ----------- ---------------- ------------ ---------------
Balance at December 31, 1996.......... 20,626,971 2,063 - - 828,764 830,827
Issuance of common stock to cancel
incentive compensation
agreements........................ 1,474,767 147 2,191,463 - - 2,191,610
Vesting of nonemployee stock
options........................... - - 155,503 - - 155,503
Tax benefit of shares issued for
merger of partnerships............ - - 285,272 - - 285,272
Issuance of notes receivable to
shareholders...................... - - - (636,418) - (636,418)
Dividends declared ($.37 per
share)............................ - - - - (8,150,201) (8,150,201)
Net income.......................... - - - - 10,622,043 10,622,043
Distributions to partners........... - - - - (4,054,739) (4,054,739)
----------- ----------- ----------- ---------------- ------------ ---------------
Balance at December 31, 1997.......... 22,101,738 2,210 2,632,238 (636,418) (754,133) 1,243,897
Dividends declared ($.30 per share)
(unaudited)....................... - - - - (6,626,070) (6,626,070)
Net income (unaudited).............. - - - - 6,981,306 6,981,306
----------- ----------- ----------- ---------------- ------------ ---------------
Balance at June 30, 1998 (unaudited).. 22,101,738 $ 2,210 $ 2,632,238 (636,418) $ (398,897) $ 1,599,133
----------- ----------- ----------- ---------------- ------------ ---------------
----------- ----------- ----------- ---------------- ------------ ---------------
- ------------------------------
(1) Dividends are based on the shares outstanding prior to the reorganization
and the 1000-for-1 stock split (10,000 shares) as discussed in notes 1 and
12, respectively.
See accompanying notes to financial statements
F-6
MANNATECH, INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
DECEMBER 31 JUNE 30
----------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
Cash flows from operating activities:
Net income.................................................. $2,338,915 $7,162,389 $10,622,043 $4,434,111 $6,981,306
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 75,341 414,299 1,189,494 486,810 958,609
Loss (gain) on disposal of assets......................... 46,523 3,876 411,202 114,349 67,345
Noncash charge for cancellation of incentive compensation
agreements.............................................. - - 2,191,610 1,519,798 -
Vesting of nonemployee stock options and warrants......... - - 455,503 - -
Loss on settlement of contract............................ 180,600 - - - -
Write-off of investment................................... - 115,000 - - -
Deferred income tax expense (benefit)..................... 60,013 (136,829) 350,283 121,632 702,300
Changes in operating assets and liabilities:
Accounts and notes receivable........................... 139,302 (449,899) (1,740,731) (832,483) 418,219
Refundable income taxes................................. (285,911) (455,089) 741,000 - -
Inventories............................................. (2,319,350) (1,801,879) (375,719) (1,465,819) (386,136)
Prepaid expenses and other current assets............... (106,878) (50,330) (376,507) (878,474) (44,754)
Other assets............................................ (166,261) 70,798 (4,749) (3,603)
Accounts payable........................................ 1,136,863 191,504 1,747,043 3,045,383 (1,327,749)
Accrued expenses........................................ 1,991,606 4,531,725 4,555,685 3,328,952 2,255,504
---------- ---------- ----------- ---------- ----------
Net cash provided by operating activities............. 3,090,763 9,595,565 19,766,156 9,870,656 9,624,644
---------- ---------- ----------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment............................. - - - 75,000 65
Acquisition of property and equipment and construction in
progress.................................................. (768,505) (2,660,108) (8,737,232) (5,500,759) (2,359,391)
Security deposits........................................... - (460,350) - - -
Deposits of restricted cash................................. - - (199,619) - 199,619
Deferred offering costs..................................... - - (343,672) - (762,201)
Other assets................................................ (75,000) (40,000) - - -
---------- ---------- ----------- ---------- ----------
Net cash used in investing activities................. (843,505) (3,160,458) (9,280,523) (5,425,759) (2,921,908)
---------- ---------- ----------- ---------- ----------
Cash flows from financing activities:
Distributions to partners................................... (1,904,611) (5,268,033) (4,054,739) (4,054,739) -
Payment of dividends........................................ - (20,000) (6,928,547) (100,000) (6,621,620)
Repayment of capital lease obligations...................... - - (37,265) - (73,309)
Advances from shareholders and employees.................... 159,486 26,436 61,055 - -
Repayments to shareholders and employees.................... - (688,293) (598,527) (537,471) -
Advances from an affiliated company......................... 206,660 - - - -
Repayment to an affiliated company.......................... - (206,660) - - -
Payment of notes payable.................................... (39,537) (71,200) (26,400) (24,000) -
---------- ---------- ----------- ---------- ----------
Net cash used in financing activities................. (1,578,002) (6,227,751) (11,584,423) (4,718,610) (6,694,929)
---------- ---------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.......... 669,256 207,356 (1,098,789) (273,713) 7,807
Cash and cash equivalents:
Beginning of year........................................... 283,325 952,581 1,159,937 1,159,937 61,148
---------- ---------- ----------- ---------- ----------
End of year................................................. $ 952,581 $1,159,937 $ 61,148 $ 886,224 $ 68,955
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Supplemental disclosure of cash flow information:
Income taxes paid........................................... $ 296,000 $1,716,100 $ 68,800 $ 24,000 $3,657,000
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Interest paid............................................... $ 8,000 $ - $ 10,885 $ - $ 3,000
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Interest received........................................... $ - $ - $ - $ 14,000 $ 50,000
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
A summary of non-cash investing and financing activities follows:
Accrued dividends and distributions......................... $ 475,020 $ 672,091 $ 1,321,654 $ 781,103 $1,326,104
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Tax benefit of shares granted for merger of partnerships.... $ - $ - $ 285,272 $ 285,272 $ -
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Assets acquired through capital lease obligations........... $ - $ - $ 397,402 $ - $1,367,457
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
See accompanying notes to financial statements
F-7
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mannatech, Incorporated (the "Company") was incorporated in the State of
Texas on November 4, 1993, as Emprise International, Inc. Effective October 25,
1995, the Company changed its name to Mannatech, Incorporated. The Company,
located in Coppell, Texas, develops and sells proprietary nutritional
supplements and topical products through a network marketing system. The Company
sells its products in the United States and Canada and is currently planning to
expand into Australia, while continuing to assess the potential of other foreign
markets. Independent associates ("Associates") purchase products, at wholesale,
for the primary purpose of selling to retail consumers or for personal
consumption. In addition, Associates earn commissions on their sales volume.
REORGANIZATION
In December 1994, to achieve certain tax efficiencies and to protect certain
of the Company's proprietary rights, the Company transferred certain of its
rights and interests in intellectual property, the right to use a supplier's
trademark and its marketing rights to two affiliated partnerships ("Royalty
Partnership" and "Marketing Partnership," respectively, or collectively "the
Partnerships"). The Marketing Partnership was owned by two affiliated
partnerships that also shared common ownership with the Company. The respective
ownership interests in the Partnerships were structured with the intention of
retaining the same economic interests among the partners as that of the
shareholders of the Company. In the case of the intellectual property and
trademark transferred to the Royalty Partnership, the Company entered into a
17-year agreement with the Royalty Partnership to pay a royalty based on sales
volume. In the case of the Marketing Partnership, the Company paid a commission
based on a specified percentage of sales volume. At the time of transfer, the
rights and interest in intellectual property, supplier's trademark and marketing
rights had a minimal basis. During 1994, the Company also entered into separate
incentive compensation agreements with two of its shareholders pursuant to which
the Company agreed to pay commissions based on specified monthly sales volumes
and increases in number of new enrolled Associates. These agreements were
designed to compensate for the differences in ownership in the Partnerships for
one of the principal shareholders and to provide compensation to a shareholder
in lieu of receiving a Partnership interest.
On June 1, 1997, in order to simplify the Company's ownership structure and
consolidate all operating activities, the Company entered into agreements to
effect a reorganization through merging with the corporate general partners of
the Partnerships (with the Company as the surviving corporation) and exchanging
10,000,000 shares of Common Stock for the entire ownership interests of the
corporate general partners and the Partnerships and issued 2,027,571 shares of
Common Stock in consideration for the cancellation of incentive compensation
agreements with the two shareholder-employees and four other employees of the
Company. The net effect of the foregoing transactions was to increase the
Company's common shares outstanding by 12,027,571 while retaining substantially
the same relative original ownership of the Company. The only ownership
percentage change among the original shareholders related to 208,024 shares
granted to one shareholder in recognition of significant contributions to the
Company, which resulted in minor dilution to the other original seven
shareholders at the time of the exchange. The fair value of these additional
shares was expensed, and is included in cancellation of incentive compensation
agreements in the income statement. No monetary consideration changed hands and
the changes were designed to reestablish the original economic characteristics
of the Company. Aside from the new shares issued to the four employees to cancel
their incentive compensation agreements, relative ownership interests, as
evidenced by retention of economic risks and benefits, remained virtually the
same. After the exchange, the Company terminated and liquidated the Partnerships
at no gain or loss.
F-8
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accompanying financial statements include the accounts of the
Partnerships and the Company as if the merger was consummated on December 31,
1994. The merger was accounted using the historical basis for each entity,
effectively combining the entities as a pooling of interests.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make certain estimates and
assumptions that may affect the reported amounts of assets, liabilities,
revenues and expenses during the reporting periods. Actual results may differ
from such estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
RESTRICTED CASH
At December 31, 1997, $199,619 of cash was held by the Company's former
credit card processor under the terms of the credit card processing agreement.
The Company expects the restricted funds to be released early in 1998.
INVENTORIES
Inventories consist of raw materials, work-in-progress and finished goods
and are stated at the lower of cost (using the first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
which is computed using the straight-line method over the estimated useful life
of each asset. Expenditures for maintenance and repairs are charged to expense
as incurred. The cost of property and equipment sold or otherwise retired and
the related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in other (income) expense.
Property and equipment are reviewed for impairment whenever an event or
change in circumstances indicates the carrying amount of an asset or group of
assets may not be recoverable. The impairment review includes a comparison of
future cash flows expected to be generated by the asset or group of assets with
their associated carrying value. If the carrying value of the asset or group of
assets exceeds expected cash flows (undiscounted and without interest charges),
an impairment loss is recognized to the extent the carrying amount of the asset
exceeds its fair value.
OTHER ASSETS
Other assets consist of deposits, deferred offering costs and organization
costs. Organization costs are being amortized on a straight-line basis over five
years. Deferred offering costs will be deducted from the proceeds of the
anticipated public offering of the Company's Common Stock.
F-9
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS PAYABLE
The Company records book overdrafts in its cash accounts as accounts
payable. Included in accounts payable are book overdrafts of $334,374 and
$1,028,676 at December 31, 1996 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes using the asset and liability approach
to financial accounting and reporting for income taxes. In the event that
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities result in net deferred tax assets, the Company
evaluates the probability of realizing the future benefits indicated by such
assets. A valuation allowance is provided for a portion or all of the net
deferred tax assets when it is more likely than not that such portion, or all of
such deferred tax assets, will not be realized.
Prior to the merger of the Partnerships, the Company and the Partnerships
filed separate tax returns. Prior to June 1, 1997, no provision for income taxes
was necessary in the financial statements for the income attributable to the
Partnerships because, as partnerships, they were not subject to federal income
tax because the tax effect of their activities flowed through directly to the
individual partners. Beginning June 1, 1997, all income earned by the Company
became subject to income tax.
PRO FORMA INFORMATION (UNAUDITED)
Pro forma income tax information has been provided, using the statutory tax
rate of the Company, as if all of the Company's and the Partnerships' income had
been subject to income taxes.
REVENUE RECOGNITION
Revenue is recognized for product sales upon shipment of the products to the
Associates. Revenues are received for promotional kits provided to Associates,
which include nutritional products and sales aids.
The Company defers revenue received from the sale of promotional kits which
is in excess of the wholesale value of the individual items included in such
kits. Such deferrals are amortized over a twelve-month period. Revenues from
promotional kits are allocated between products and event admission based on the
proportionate fair value of these items. Allocated event revenue from the sales
of these kits was approximately $38,100, $405,000 and $906,000 in 1995, 1996 and
1997, respectively. The allocated event revenues are amortized over a
twelve-month period. Total net deferred revenue was $521,171 and $808,749 at
December 31, 1996 and 1997 respectively.
Substantially all product sales are made to Associates at a published
wholesale price. Net sales also reflect product returns and the related refund.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards No. 123
("FAS 123"), "Accounting for Stock-Based Compensation," for stock-based
compensation issued to nonemployees. FAS 123 requires that stock-based
compensation be measured by the fair value at the date of grant. The
F-10
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company measures the cost of stock-based compensation issued to employees under
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and its related interpretations. The Company has,
however, provided pro forma disclosures in note 10 for stock-based compensation
accounted for under APB 25, as required by FAS 123.
ADVERTISING COSTS
Advertising and promotional expenses are included in selling and
administrative expenses and are charged to operations when incurred. Advertising
and promotional expenses were approximately $450,000, $1,475,000 and $2,241,000
for 1995, 1996 and 1997, respectively. Literature and promotional items are sold
to Associates to support their sales effort. Such items are included in
inventories and charged to cost of sales when sold.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs when incurred. Research
and development costs are included in other operating expenses and were
approximately $3,000, $283,000 and $381,000 in 1995, 1996 and 1997,
respectively.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes qualifying costs relating to the development of
internal use software. Capitalization of qualifying costs begins after the
conceptual formulation stage has been completed, and such costs are amortized
over the estimated useful life of the software, which is estimated at five
years. Capitalized costs totaled $58,000 and $1,713,000 in 1996 and 1997,
respectively. The Company did not capitalize any such costs during 1995. The
amounts capitalized in 1997 are included in construction in progress and are
expected to be completed during 1998.
During January 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 becomes effective
for all fiscal years beginning after December 15, 1998. The Company does not
expect the adoption of SOP 98-1 to have a material impact on Company's financial
statements.
EARNINGS PER SHARE
The Company calculates earnings per share pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS 128 requires
dual presentation of basic and diluted earnings per share ("EPS") on the face of
the statement of income for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS calculations are based on the weighted-average number of common shares
outstanding during the period, while diluted EPS calculations are based on the
weighted-average common shares and dilutive common share equivalents outstanding
during each period.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
receivables from related parties. The Company utilizes financial
F-11
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
institutions which the Company considers to be of high credit quality. The
Company believes its receivables from related parties at December 31, 1997 and
its notes receivables from shareholders are fully collectible.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, including cash and
cash equivalents, notes receivable, note payable, capital leases and accrued
expenses, approximate their recorded values due to their relatively short
maturities.
COMMISSIONS
Commissions to Associates are based on several factors, including direct and
indirect sales, downline growth and training of associates. Commissions are
accrued when earned and generally paid at various times within the following
month.
SEGMENT INFORMATION
The Company conducts its business within one industry segment. No Associate
accounted for more than 10% of total sales for the years ended December 31,
1995, 1996 and 1997. Sales to Canadian Associates began in 1996 and were less
than 10% of total sales in 1996. Such sales were 14% of total sales in 1997.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform with the
current year presentation.
UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments that are necessary for fair presentation, have been
included in the unaudited financial information for the interim periods ended
June 30, 1997 and 1998.
2. INVENTORIES
Inventories at December 31, 1996 and 1997 consist of the following:
1996 1997
------------- -------------
Raw materials................................................... $ 3,447,362 $ 1,827,823
Work-in-progress................................................ 150,140 -
Finished goods.................................................. 1,349,835 3,495,233
------------- -------------
$ 4,947,337 $ 5,323,056
------------- -------------
------------- -------------
F-12
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 consist of the
following:
ESTIMATED
USEFUL LIVES 1996 1997
-------------- ------------- --------------
Office furniture and equipment................ 5 to 7 years $ 740,170 $ 3,087,775
Computer equipment............................ 3 to 5 years 1,201,657 2,724,579
Automobiles................................... 5 years 327,202 298,722
Leasehold improvements........................ 10 years 88,165 3,162,714
------------- --------------
2,357,194 9,273,790
Less accumulated depreciation and
amortization................................ (390,278) (1,389,233)
------------- --------------
1,966,916 7,884,557
Construction in progress...................... 1,082,656 2,699,353
------------- --------------
$ 3,049,572 $ 10,583,910
------------- --------------
------------- --------------
Construction in progress primarily consists of the construction of a new
warehouse facility, a research and development laboratory and the internal
development of a new computer software package. Included in the December 31,
1997 balance are capital leases of $397,402 related to the warehouse equipment.
4. ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1997 consist of the following:
1996 1997
------------- --------------
Commissions payable............................................ $ 2,481,755 $ 3,801,324
Income taxes payable........................................... - 2,692,248
Accrued royalties and compensation............................. 2,361,703 1,251,215
Accrued inventory purchases.................................... 211,702 1,218,975
Sales and other taxes payable.................................. 900,154 812,368
Deferred revenue............................................... 521,171 808,749
Customer deposits.............................................. 536,037 216,436
Other accrued expenses......................................... 257,642 739,262
------------- --------------
$ 7,270,164 $ 11,540,577
------------- --------------
------------- --------------
5. NOTES PAYABLE
The Company had an unsecured noninterest bearing promissory note payable to
a former employee, payable in monthly installments of $6,600 through May 1997.
The note was repaid during 1997.
In May 1995, the Company and a shareholder entered into a $500,000
line-of-credit agreement with a bank. This line was collateralized by personal
assets of the shareholder. The interest rate was equal to the bank's prime rate,
which was 8.25% at December 31, 1996. During 1996, the shareholder borrowed
$250,000 of the line-of-credit for personal use, which was subsequently repaid
in full. The line of credit expired in September 1997, and there were no amounts
outstanding at December 31, 1996.
F-13
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL LEASE OBLIGATIONS
The Company leases certain furniture and equipment under various capital
leases agreements. These agreements have terms which range from three to five
years and contain either a bargain purchase option or a buyout provision which
the Company intends to exercise. A summary of future minimum payments under
these capital lease agreements are as follows:
YEAR ENDING DECEMBER 31,
- ------------------------------------------------------------------------------
1998.......................................................................... $ 265,907
1999.......................................................................... 37,586
2000.......................................................................... 37,586
2001.......................................................................... 37,586
2002.......................................................................... 28,189
--------------
Present value of future minimum lease payments................................ 406,854
Less imputed interest (approximately 12%)..................................... (46,717)
--------------
360,137
Less current portion of capital lease obligations............................. (249,655)
--------------
Capital lease obligations, excluding current portion.......................... $ 110,482
--------------
--------------
In January 1998, the Company entered into a $1.5 million interim lease
line-of-credit agreement (the "Line of Credit Agreement") with Banc One Leasing
Corporation to fund the purchase of furniture and certain capital equipment in
connection with the Company's relocation to its new facility. The Line of Credit
Agreement bears interest at the prime interest rate of Bank One, Columbus, NA
plus one-half percent, is secured by the leased assets, is guaranteed by two of
the Company's shareholders and will expire on December 15, 1998. The Line of
Credit Agreement allows the Company to convert amounts drawn thereunder into
capital leases and, in March 1998, the Company converted $631,000 which had been
drawn on the Line of Credit Agreement into a capital lease (the "Capital
Lease"). The Capital Lease bears interest at 9.3%, is collateralized by the
leased assets and is payable in 36 installments. In addition to the Capital
Lease, $378,000 had been drawn under the Line of Credit Agreement, leaving an
available balance of $491,000.
7. INCOME TAXES
The components of the Company's income tax provision for 1995, 1996 and 1997
were as follows:
1995 1996 1997
--------- ------------- -------------
Current provision:
Federal........................................... $ 5,844 $ 1,147,481 $ 3,324,855
State............................................. 1,156 182,988 463,685
--------- ------------- -------------
7,000 1,330,469 3,788,540
--------- ------------- -------------
Deferred provision:.................................
Federal........................................... 54,170 (124,397) 291,223
State............................................. 5,843 (12,432) 59,059
--------- ------------- -------------
60,013 (136,829) 350,282
--------- ------------- -------------
$ 67,013 $ 1,193,640 $ 4,138,822
--------- ------------- -------------
--------- ------------- -------------
F-14
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
A reconciliation of income tax based on the U.S. federal statutory rate is
summarized as follows for the years ended December 31:
1995 1996 1997
--------- --------- ---------
Federal statutory income taxes...................................... 34.0% 34.0% 35.0%
Partnership income.................................................. (36.1) (23.8) (9.6)
State income taxes, net of federal benefit.......................... 0.3 2.0 2.4
Nondeductible expenses.............................................. 1.4 3.0 0.5
Other............................................................... 3.2 (0.9) (0.2)
--------- --------- ---------
2.8% 14.3% 28.1%
--------- --------- ---------
--------- --------- ---------
Deferred taxes consisted of the following at December 31:
1996 1997
----------- -----------
Deferred tax assets:
Current:
Deferred revenue................................................ $ 200,651 $ 311,368
Inventory capitalization........................................ 119,000 86,000
Capital loss carryforward....................................... 20,000 -
Other........................................................... 10,000 2,000
----------- -----------
Total current deferred tax assets............................. 349,651 399,368
----------- -----------
Noncurrent:
Compensation expense............................................ - 318,000
Capital loss carryforward....................................... - 20,000
----------- -----------
Total noncurrent deferred tax assets.......................... - 338,000
----------- -----------
Total gross deferred tax assets............................. $ 349,651 $ 737,368
----------- -----------
----------- -----------
Deferred tax liabilities:
Noncurrent:
Depreciation and amortization................................... $ 105,000 $ 843,000
----------- -----------
----------- -----------
The net deferred tax assets (liabilities) are classified in the financial
statements as follows:
1996 1997
------------ ------------
Current deferred tax assets....................................... $ 349,651 $ 399,368
Noncurrent deferred tax liabilities............................... (105,000) (505,000)
------------ ------------
Net deferred tax assets (liabilities)............................. $ 244,651 $ (105,632)
------------ ------------
------------ ------------
It is the opinion of the Company's management that the deferred tax assets
will more likely than not be realized; therefore, a valuation allowance is not
required.
F-15
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. TRANSACTIONS WITH RELATED PARTIES AND AFFILIATES
In April 1994, the Company entered into an incentive compensation agreement
with Ray Robbins, a shareholder of the Company. The agreement and its subsequent
amendments required the Company to pay commissions based on a specified monthly
sales volume and admittance of independent Associates. During 1995, 1996 and
1997, the Company paid commissions to Mr. Robbins of approximately $145,000,
$511,000 and $467,000, respectively. During 1995, the Company paid a shareholder
of an affiliated company professional fees of approximately $162,000 to serve as
the Company's in-house counsel.
During 1995, 1996 and 1997, the Company advanced to certain employees,
shareholders and an affiliated company funds of which $502,417 and $148,888
remained unpaid at December 31, 1996 and 1997, respectively. During 1997, the
Company converted certain accounts receivable from an affiliated company to
notes receivable from the shareholders of the affiliated company. These
shareholders are also shareholders of the Company. The notes receivable bear
interest at 6.0%, and are due upon the earlier of the sale of the affiliated
company or December 31, 1998. The total amount of such notes outstanding at
December 31, 1997 was $934,929.
On December 31, 1997, the Company advanced $283,834 to two officers and
$352,584 to two directors of the Company to pay taxes due in connection with the
cancellation of their incentive compensation agreements. These advances are also
evidenced by notes receivable from the shareholders. These notes are noninterest
bearing, are collateralized by 203,101 shares of stock held by such shareholders
and are due upon the earlier of December 31, 1998 or upon sale of the stock.
These notes will be repaid out of the proceeds expected to be received by the
shareholders from the sale of their stock in the offering. The total amount of
these notes outstanding at December 31, 1997 was $636,418.
9. CANCELLATION OF INCENTIVE COMPENSATION AGREEMENTS
Prior to June 1, 1997, the Company paid certain shareholders and employees
commissions which were based on sales volume. During 1997, the Company issued
2,027,571 shares of its Common Stock to shareholders and employees to cancel
these agreements. These shares included 626,971 of shares issued to cancel
incentive compensation agreements which had been provided to two shareholders in
lieu of ownership interests in the Partnerships (Note 1). The shares issued were
valued at $1.30 per share, which was based on an appraisal at the date of the
transaction. In December 1997, the Company agreed to cancel another incentive
compensation agreement by issuing 74,167 shares of Common Stock valued at $5.00
per share. As a result of these transactions, during 1997 the Company recognized
additional nonrecurring compensation expense of $2,191,610.
10. EMPLOYEE BENEFIT PLAN
EMPLOYEE RETIREMENT PLAN
Effective May 9, 1997, the Company adopted a defined contribution 401(k) and
profit-sharing plan (the "Plan"). The Plan covers all full-time employees who
have completed three months of service and attained the age of twenty-one.
Employees can contribute up to 15% of their annual compensation.
The Company will match 25% of the first 6% contributed and may also make
discretionary contributions to the Plan, which may not exceed 100% of the first
15% of the employees annual compensation. Company contributions to employees
vest ratably over a five-year period. During 1997, the Company contributed
approximately $49,000 to the Plan.
F-16
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLAN (CONTINUED)
STOCK OPTION PLAN
In May 1997, the Board of Directors approved the 1997 Stock Option Plan (the
"Stock Option Plan") which provides incentive and nonqualified stock options to
employees and nonemployees, respectively. The Company reserved 2,000,000 shares
of common stock for issuance pursuant to the stock options granted under the
Stock Option Plan. As of December 31, 1997, 1,600,000 stock options were
outstanding, but not exercisable as follows:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------------- -----------
Outstanding at January 1, 1997..................................... - -
Granted.......................................................... 1,600,000 $ 1.45
Exercised........................................................ - -
Canceled......................................................... - -
-------------
Outstanding at December 31, 1997................................... 1,600,000 $ 1.45
-------------
-------------
Options exercisable at December 31, 1997........................... - -
-------------
-------------
Weighted-average fair value of options granted during the year..... $ 1.11
-------------
-------------
Under the Stock Option Plan, incentive stock options granted to employees
are valued using the intrinsic method, are nontransferable and are granted for
terms no longer than ten years and at a price which may not be less than 100% of
the fair value of the common stock on the date of grant. During 1997, the
Company issued 1,244,000 stock options to employees at a price ranging from
$1.35 to $2.00 per share. No compensation cost was recognized as the exercise
price of the options was equal to the fair value of options at the date of
grant. Had compensation cost for employee stock options been determined based on
the Black-Scholes option-pricing model at the grant date, pro forma net income
and earnings per share for 1997 using the following weighted-average assumptions
would have been as follows:
Dividend yield.................................................................. 4%
Expected volatility............................................................. 0%
Risk-free rate of return........................................................ 5%
Expected life................................................................... 10 years
F-17
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLAN (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. The Company's pro forma
information follows:
1997
--------------
Net income
As reported................................................................. $ 10,622,043
Pro forma................................................................... $ 10,542,364
Basic EPS
As reported................................................................. $ 0.50
Pro forma................................................................... $ 0.49
Diluted EPS
As reported................................................................. $ 0.47
Pro forma................................................................... $ 0.47
Under the Stock Option Plan, nonqualified stock options granted to
nonemployees are valued using the fair value method, are nontransferable and are
granted for terms no longer than six years and at a price which may not be less
than 100% of the fair value of the common stock on the date of grant. During
1997, the Company issued 356,000 nonqualified stock options to nonemployees at
an exercise price of $1.35 per share. Additionally, the Company issued 100,000
nonqualified stock options in July 1997. These options are priced at $2.00, vest
immediately, are exercisable after one year and have a term of six years.
During 1997, compensation expense of $155,503 was included in other
operating expenses for the nonemployee options. This expense was determined by
calculating the fair value of options granted on the date of grant using the
Black-Scholes option-pricing model and the following weighted-average
assumptions:
Dividend yield.................................................................. 4%
Expected volatility............................................................. 30%
Risk-free rate of return........................................................ 5%
Expected life................................................................... 6 years
During 1997, the Company granted to a consulting firm 475,015 warrants to
purchase the same number of shares of the Company's common stock which are
nontransferable and vest as follows: 178,125 shares at issuance and 26,990 each
month through March 1, 1998. The warrants are exercisable at $1.35 per share and
expire on the earlier of May 1, 2003 or 36 months after the warrant shares are
registered for public resale under the Securities Act of 1933. At December 31,
1997, 394,015 of the warrants were vested.
As a provision of the warrant agreement, the consulting firm can require the
Company to repurchase the outstanding warrants between May 1998 and May 1999 for
$300,000. Accordingly, it was determined that the fair value of the warrants as
of December 31, 1997 was $300,000.
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain office space and equipment under various
noncancelable operating leases, and has options to renew and renegotiate most of
the leases. The leases expire at various times
F-18
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
through January 2007. The Company also leases equipment under month-to-month
cancelable operating leases. Total rent expense was $124,000, $317,000 and
$702,000 in 1995, 1996 and 1997, respectively.
Approximate future minimum rental commitments for the operating leases are
as follows:
YEARS ENDING DECEMBER 31,
- -------------------------------------------------------------------------------
1998........................................................................... $ 835,000
1999........................................................................... 794,000
2000........................................................................... 717,000
2001........................................................................... 706,000
2002........................................................................... 771,000
Thereafter..................................................................... 3,250,000
-------------
$ 7,073,000
-------------
-------------
In 1995 and 1996, the Company entered into various cancellable employment
agreements with some of its key employees which provide for minimum annual
salaries based on sales volume. However, in 1997 the Company terminated several
of these contracts. As a result of the terminations, the Company incurred
approximately $499,000 in severance of which $145,000 was accrued at December
31, 1997. In December 1997, the Company entered into a purchase commitment with
a supplier to purchase approximately $2.6 million worth of raw materials over
the next twelve months.
The Company utilizes royalty agreements with individuals or entities to
provide compensation for items such as:
- Reprints of articles or speeches relating to the Company
- Sales of promotional videos featuring sports personalities
- Promotional efforts in product sales or attracting new associates.
In addition, the Company pays a monthly fee of $20,000 to a research
foundation for promoting and conducting health studies of Associates. The total
expenses for all of these agreements were $473,000, $1,345,000 and $1,568,000 in
1995, 1996 and 1997, respectively.
12. STOCK SPLIT
On May 14, 1997, the Board of Directors declared a 1,000-for-1 stock split
of the Company's common stock. The Board also approved a change in the stated
par value of common shares from $.01 per share to $.0001 per share, and
increased the number of authorized shares to 100,000,000. All share and per
share data have been retroactively adjusted for this split.
Subsequent to year end, on April 8, 1998, the Company amended its Articles
of Incorporation to reduce the number of authorized shares of common stock to
99,000,000 from 100,000,000. Additionally, the Company has authorized 1,000,000
shares of preferred stock with a par value of $0.01 per share.
13. LITIGATION
In 1995, the Company entered into a settlement and mutual release agreement
related to the termination of a former employee. Under the terms of the
agreement, the Company agreed to pay the
F-19
MANNATECH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. LITIGATION (CONTINUED)
former employee $83,000 in cash and issued a $97,600 promissory note (note 5).
In 1996, the Company paid an additional $59,000 to the former employee related
to this lawsuit. The settlement is recorded in other (income) expense, net in
the accompanying financial statements.
The Company has pending claims incurred in the normal course of business
which, in the opinion of management, can be settled without material effect on
the accompanying financial statements.
14. EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and
the effect on the weighted average number of shares of dilutive common stock.
The number of shares used in the calculations for 1995 and 1996 reflect the
1,000-for-1 stock split on April 15, 1997.
1995 1996 1997
-------------- -------------- --------------
Net income available to common
shareholders............................... $ 2,338,915 $ 7,162,389 $ 10,622,043
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average number of shares in basic
EPS........................................ 20,626,971 20,626,971 21,448,551
Effect of dilutive securities:
Stock options.............................. - - 770,018
Stock warrants............................. - - 181,815
-------------- -------------- --------------
Weighted average number of common shares and
dilutive potential common shares used in
diluted EPS................................ 20,626,971 20,626,971 22,400,384
-------------- -------------- --------------
-------------- -------------- --------------
F-20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 24
Business.................................................................. 37
Management................................................................ 54
Certain Transactions...................................................... 61
Principal and Selling Shareholders........................................ 63
Description of Capital Stock.............................................. 65
Shares Eligible for Future Sale........................................... 69
Plan of Distribution...................................................... 71
Legal Matters............................................................. 72
Experts................................................................... 72
Additional Information.................................................... 73
Index to Financial Statements............................................. F-1
A MINIMUM OF
1,500,000 SHARES
AND
A MAXIMUM OF
4,955,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. Each amount, except for the
SEC fees, is estimated.
SEC registration fees................ $ 11,694
Escrow agent's fees and expenses..... *
Transfer agent's and registrar's fees
and expenses....................... 12,000
Printing and engraving expenses...... *
Legal fees and expenses.............. *
Accounting fees and expenses......... *
Blue sky fees and expenses........... 75,000
Miscellaneous........................ *
--------
Total............................ $ *
--------
--------
- ------------------------
* To be filed by amendment.
The Company intends to pay all expenses of registration, issuance and
distribution with respect to the shares being sold by the Selling Shareholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company, a Texas corporation, is empowered by Article 2.02-1 of the
Texas Business Corporation Act (the "TBCA"), subject to the procedures and
limitations stated therein, to indemnify certain persons, including any person
who was, is or is threatened to be made a named defendant or respondent in a
threatened, pending, or completed action, suit or proceeding because the person
is or was a director or officer, against judgments, penalties (including excise
and similar taxes), fines, settlements and reasonable expenses (including court
costs and attorneys' fees) actually incurred by the person in connection with
the threatened, pending, or completed action, suit or proceeding. The Company is
required by Article 2.02-1 to indemnify a director or officer against reasonable
expenses (including court costs and attorneys' fees) incurred by him in
connection with a threatened, pending, or completed action, suit or proceeding
in which he is a named defendant or respondent because he is or was a director
or officer if he has been wholly successful, on the merits or otherwise, in the
defense of the action, suit or proceeding. Article 2.02-1 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under the corporation's
articles of incorporation or any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise. The Amended and Restated Bylaws of the
Company provide for indemnification by the Company of its directors and officers
to the fullest extent permitted by the TBCA. In addition, the Company has,
pursuant to Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
provided in its Articles that a director of the Company shall not be liable to
the Company or its shareholders for monetary damages for an act or omission in a
director's capacity as director of the Company.
Furthermore, the Company has entered into individual indemnification
agreements with each director of the Company that contractually obligate the
Company to provide to the directors indemnification for liabilities they may
incur in the performance of their duties and insurance or self-insurance in lieu
thereof. The form of such indemnification agreements with a schedule of director
signatories is filed as Exhibit 10.8 hereto.
II-1
The Underwriting Agreement among the Company and the Underwriters provides
for the indemnification by the Underwriters of the Company, certain of its
officers and any controlling person against any liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information regarding all sales of unregistered
securities of the Company during the past three years. All such shares were
issued in reliance upon an exemption from registration under the Securities Act
by reason of Section 4(2) or 3(b) of the Securities Act and/or the rules and
regulations promulgated thereunder. In connection with each of these
transactions, the shares were sold to a very limited number of persons and such
persons were provided access either through employment or other relationships to
all relevant information regarding the Company and/or represented to the Company
that they were "sophisticated" investors. No underwriters were involved in the
sales of securities set forth below. Appropriate legends are affixed to the
certificates evidencing such shares and such persons represented to the Company
that the shares were purchased for investment purposes only and with no view
toward distribution. All of the securities described below are deemed restricted
securities for purposes of the Securities Act.
1. Issuance of an aggregate of 10,000,000 shares of Common Stock on June 1,
1997 in exchange for (i) all the outstanding common stock of each of Eight Point
Services, Inc., Triple Gold Business, Inc., Five Small Fry, Inc. and Beta
Nutrient Technology, Inc., held by the individuals listed below, and (ii) all of
the limited partnership interests in Dynamic Eight Partners, Ltd., Power Three
Partners, Ltd., Beta M. Partners, Ltd. and Eleven Point Partners, Ltd. held by
the individuals listed below.
NAME NUMBER OF SHARES
- -------------------------------------------------------------------------- ------------------
Samuel L. Caster.......................................................... 3,094,946
William C. Fioretti....................................................... 3,094,946
Charles E. Fioretti....................................................... 2,867,284
Patrick D. Cobb........................................................... 235,706
Dick R. Hankins........................................................... 235,706
Don W. Herndon............................................................ 235,706
Gary L. Watson............................................................ 235,706
2. Issuance of an aggregate of 2,027,571 shares of Common Stock to the
individuals set forth below on June 1, 1997 in exchange for the cancellation of
certain incentive compensation agreements.
NAME NUMBER OF SHARES
- -------------------------------------------------------------------------- ------------------
Ray Robbins............................................................... 607,333
H. Reginald McDaniel...................................................... 546,600
Bill H. McAnalley, Ph.D................................................... 303,667
Peter E. Hammer........................................................... 228,206
Charles E. Fioretti....................................................... 227,662
Kim Snyder................................................................ 114,103
3. Issuance of 74,167 shares of Common Stock on March 3, 1998 to Richard
Howard in exchange for the cancellation of his incentive compensation agreement.
4. The Company has granted a warrant to purchase 475,015 shares of Common
Stock at a price of $1.35 per share.
5. The Company has granted options to purchase an aggregate of 1,000,000
shares of Common Stock at a weighted average exercise price of $1.45 per share.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT NO. EXHIBITS
- ----------- ---------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
3.3 Amendment to the Bylaws of the Company.
4.1 Specimen Certificate.*
4.2 Warrant dated May 1, 1997 issued to Christopher A. Marlett.
5 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.*
10.1 1997 Stock Option Plan dated May 20, 1997.
10.2 1998 Incentive Stock Option Plan dated April 8, 1998.
10.3 Agreement and Plan of Merger dated as of June 1, 1997 among the Company and Eight Point Services, Inc.,
Triple Gold Business, Inc., Five Small Fry, Inc., and Beta Nutrient Technology, Inc.
10.4 Exchange Agreement dated June 1, 1997 among the Company and the limited partners of Power Three Partners,
Ltd., Eleven Point Partners, Ltd. and Beta M. Partners, Ltd.
10.5 Plan and Agreement of Reorganization dated June 1, 1997 by and among the Company, Dynamic Eight Partners,
Ltd., Power Three Partners, Ltd., Eleven Point Partners, Ltd. and Beta M. Partners, Ltd. and the
general and limited partners of the partnerships.
10.6 Exchange Agreement by and among Gary Watson, Patrick Cobb, Samuel Caster, Charles Fioretti and William
Fioretti and the Company dated August 31, 1997.
10.7 Option Agreement dated July 1, 1997 with Multi-Venture Partners, Ltd.
10.8 Form of Indemnification Agreement with a schedule of director signatures.
10.9 Secured Promissory Note dated December 31, 1997 in the amount of $162,051.90 made by Bill McAnalley.
10.10 Secured Promissory Note dated December 31, 1997 in the amount of $121,782.14 made by Peter E. Hammer.
10.11 Master Lease Agreement dated December 23, 1997 by and between Banc One Leasing Corporation and the
Company.
10.12 Letter of Understanding Regarding Development of Proprietary Information for the Company effective as of
August 1, 1997, as amended, by and between Bill H. McAnalley, Ph.D. and the Company.
10.13 Commercial Lease Agreement dated November 7, 1996 between MEPC Quorum Properties II Inc. and the Company,
as amended by the First Amendment thereto dated May 29, 1997 and the Second Amendment thereto dated
November 13, 1997.
10.14 Commercial Lease Agreement dated May 29, 1997 between MEPC Quorum Properties II Inc. and the Company, as
amended by the First Amendment thereto dated November 6, 1997.
10.15 Assignment of Patent Rights dated October 30, 1997 by and among Bill H. McAnalley, H. Reginald McDaniel,
D. Eric Moore, Eileen P. Vennum and William C. Fioretti and the Company.
II-3
EXHIBIT NO. EXHIBITS
- ----------- ---------------------------------------------------------------------------------------------------------
10.16 Supply Agreement effective as of March 31, 1995 by and between the Company and Caraloe, Inc.
10.17 Supply Agreement effective as of August 14, 1997 by and between the Company and Caraloe, Inc.
10.18 Trademark License Agreement effective as of March 31, 1995 by and between the Company and Caraloe, Inc.
10.19 Trademark License Agreement effective as of August 14, 1997 by and between the Company and Caraloe, Inc.
10.20 Letter of Agreement from the Company to Michael L. Finney of LAREX, Incorporated dated December 23, 1997.
10.21 Product Development and Distribution Agreement effective as of September 15, 1997 between New Era
Nutrition Inc. and the Company.
10.22 Severance and Consulting Agreement and Complete Release dated August 1, 1997 between Ronald E. Kozak and
the Company.
10.23 Summary of Management Bonus Plan.
10.24 Promissory Note dated August 31, 1997 in the amount of $45,907.40 made by Patrick D. Cobb.
10.25 Promissory Note dated August 31, 1997 in the amount of $275,444.42 made by Samuel L. Caster.
10.26 Promissory Note dated August 31, 1997 in the amount of $275,444.42 made by Charles E. Fioretti.
10.27 Individual Guaranty of Samuel L. Caster dated January 5, 1998.
10.28 Individual Guaranty of Charles E. Fioretti dated January 5, 1998.
10.29 Lease dated September 1, 1998 between Mannatech Australia Pty Limited and Legal & General Properties No.
1 Pty Limited.
10.30 Form of Employment Agreement to be entered into between the Company and each of Charles E. Fioretti,
Samuel L. Caster, Patrick D. Cobb, Anthony E. Canale, Bill H. McAnalley and Deanne Varner.*
10.31 Letter Agreement, dated September 9, 1998, between the Company and J.J.B. Hilliard, W.L. Lyons, Inc.*
16 Letter of Belew Averitt LLP, former accountants to the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Belew Averitt LLP.
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in its opinion filed as Exhibit 5 to this
Registration Statement).*
24 Power of Attorney (included on signature page of this Registration Statement).
27 Financial Data Schedule*
- ------------------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
None.
II-4
Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 14 herein, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas on September 9, 1998.
MANNATECH, INCORPORATED
By: /s/ CHARLES E. FIORETTI
-----------------------------------------
Charles E. Fioretti
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Each person whose signature appears below hereby appoints and constitutes
Charles E. Fioretti and Samuel L. Caster, and each of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, to execute
on his or her behalf individually and in the capacity stated below and to
perform any acts necessary to be done in order to file all amendments and
post-effective amendments to this Registration Statement and any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(d) under the Securities Act of 1933, and any and all instruments or
documents filed as a part thereof or in connection therewith, making such
changes thereto as the person so acting deems appropriate, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board and
/s/ CHARLES E. FIORETTI Chief Executive Officer
- ------------------------------ (principal executive September 9, 1998
Charles E. Fioretti officer)
/s/ SAMUEL L. CASTER
- ------------------------------ President and Director September 9, 1998
Samuel L. Caster
Vice President, Chief
/s/ PATRICK D. COBB Financial Officer and
- ------------------------------ Director (principal September 9, 1998
Patrick D. Cobb accounting and financial
officer)
/s/ CHRIS T. SULLIVAN
- ------------------------------ Director September 9, 1998
Chris T. Sullivan
/s/ STEVEN A. BARKER
- ------------------------------ Director September 9, 1998
Steven A. Barker
II-6
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBITS
- ----------- ---------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
3.3 Amendment to the Bylaws of the Company.
4.1 Specimen Certificate.*
4.2 Warrant dated May 1, 1997 issued to Christopher A. Marlett.
5 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.*
10.1 1997 Stock Option Plan dated May 20, 1997.
10.2 1998 Incentive Stock Option Plan dated April 8, 1998.
10.3 Agreement and Plan of Merger dated as of June 1, 1997 among the Company and Eight Point Services, Inc.,
Triple Gold Business, Inc., Five Small Fry, Inc., and Beta Nutrient Technology, Inc.
10.4 Exchange Agreement dated June 1, 1997 among the Company and the limited partners of Power Three Partners,
Ltd., Eleven Point Partners, Ltd. and Beta M. Partners, Ltd.
10.5 Plan and Agreement of Reorganization dated June 1, 1997 by and among the Company, Dynamic Eight Partners,
Ltd., Power Three Partners, Ltd., Eleven Point Partners, Ltd. and Beta M. Partners, Ltd. and the
general and limited partners of the partnerships.
10.6 Exchange Agreement by and among Gary Watson, Patrick Cobb, Samuel Caster, Charles Fioretti and William
Fioretti and the Company dated August 31, 1997.
10.7 Option Agreement dated July 1, 1997 with Multi-Venture Partners, Ltd.
10.8 Form of Indemnification Agreement with a schedule of director signatures.
10.9 Secured Promissory Note dated December 31, 1997 in the amount of $162,051.90 made by Bill McAnalley.
10.10 Secured Promissory Note dated December 31, 1997 in the amount of $121,782.14 made by Peter E. Hammer.
10.11 Master Lease Agreement dated December 23, 1997 by and between Banc One Leasing Corporation and the
Company.
10.12 Letter of Understanding Regarding Development of Proprietary Information for the Company effective as of
August 1, 1997, as amended, by and between Bill H. McAnalley, Ph.D. and the Company.
10.13 Commercial Lease Agreement dated November 7, 1996 between MEPC Quorum Properties II Inc. and the Company,
as amended by the First Amendment thereto dated May 29, 1997 and the Second Amendment thereto dated
November 13, 1997.
10.14 Commercial Lease Agreement dated May 29, 1997 between MEPC Quorum Properties II Inc. and the Company, as
amended by the First Amendment thereto dated November 6, 1997.
10.15 Assignment of Patent Rights dated October 30, 1997 by and among Bill H. McAnalley, H. Reginald McDaniel,
D. Eric Moore, Eileen P. Vennum and William C. Fioretti and the Company.
10.16 Supply Agreement effective as of March 31, 1995 by and between the Company and Caraloe, Inc.
10.17 Supply Agreement effective as of August 14, 1997 by and between the Company and Caraloe, Inc.
10.18 Trademark License Agreement effective as of March 31, 1995 by and between the Company and Caraloe, Inc.
EXHIBIT NO. EXHIBITS
- ----------- ---------------------------------------------------------------------------------------------------------
10.19 Trademark License Agreement effective as of August 14, 1997 by and between the Company and Caraloe, Inc.
10.20 Letter of Agreement from the Company to Michael L. Finney of LAREX, Incorporated dated December 23, 1997.
10.21 Product Development and Distribution Agreement effective as of September 15, 1997 between New Era
Nutrition Inc. and the Company.
10.22 Severance and Consulting Agreement and Complete Release dated August 1, 1997 between Ronald E. Kozak and
the Company.
10.23 Summary of Management Bonus Plan.
10.24 Promissory Note dated August 31, 1997 in the amount of $45,907.40 made by Patrick D. Cobb.
10.25 Promissory Note dated August 31, 1997 in the amount of $275,444.42 made by Samuel L. Caster.
10.26 Promissory Note dated August 31, 1997 in the amount of $275,444.42 made by Charles E. Fioretti.
10.27 Individual Guaranty of Samuel L. Caster dated January 5, 1998.
10.28 Individual Guaranty of Charles E. Fioretti dated January 5, 1998.
10.29 Lease dated September 1, 1998 between Mannatech Australia Pty Limited and Legal & General Properties No.
1 Pty Limited.
10.30 Form of Employment Agreement to be entered into between the Company and each of Charles E. Fioretti,
Samuel L. Caster, Patrick D. Cobb, Anthony E. Canale, Bill H.
McAnalley and Deanne Varner.*
10.31 Letter Agreement, dated September 9, 1998, between the Company and J.J.B. Hilliard, W.L. Lyons, Inc.*
16 Letter of Belew Averitt LLP, former accountants to the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Belew Averitt LLP.
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in its opinion filed as Exhibit 5 to this
Registration Statement).*
24 Power of Attorney (included on signature page of this Registration Statement).
27 Financial Data Schedule*
- ------------------------
* To be filed by amendment
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MANNATECH, INCORPORATED
CHARTER NUMBER 01289187-0
ARTICLE I
Mannatech, Incorporated, pursuant to the provisions of Article 4.07 of
the Texas Business Corporation Act, hereby adopts these Restated Articles of
Incorporation which accurately copy the Articles of Incorporation and all
amendments thereto that are in effect to date and as further amended by such
Restated Articles of Incorporation as hereinafter set forth and which contain
no other change in any provision thereof.
ARTICLE II
The Articles of Incorporation of the corporation, as previously amended,
are further amended by these Restated Articles of Incorporation as follows:
ARTICLE FOUR is amended and restated as set forth in Article V hereof to
change the capitalization of the corporation to include 1,000,000 shares of
preferred stock, par value $0.01 per share and to allow the board of
directors of the corporation to fix the designation, preferences and other
rights of any new series of capital stock.
ARTICLE EIGHT is deleted.
ARTICLE ELEVEN is renumbered as ARTICLE TEN and is amended and restated
as set forth in Article V hereof to modify the provisions regarding liability
of directors of the corporation.
ARTICLE TWELVE is renumbered as ARTICLE ELEVEN.
ARTICLE TWELVE is added as set forth in Article V hereof to provide
greater indemnification to directors of the corporation.
ARTICLE THIRTEEN is added as set forth in Article V hereof to allow the
directors and officers of the corporation to engage in certain transactions
with related parties.
ARTICLE III
Each such amendment made by these Restated Articles of Incorporation
has been effected in conformity with the provisions of the Texas Business
Corporation Act, and such Restated Articles of Incorporation and each such
amendment made by these Restated Articles of Incorporation were duly adopted
by written consent of certain shareholders of the corporation on the 14th day
of May, 1998.
ARTICLE IV
The number of shares outstanding at the time of such adoption was
22,101,738, and the number of shares entitled to vote on these Restated
Articles of Incorporation as so amended was 22,101,738. The holders of
15,767,889 shares (approximately 71.3%) of the common stock of the
corporation outstanding and entitled to vote on said amendments have signed a
consent in writing pursuant to Article 9.10 of the Texas Business Corporation
Act adopting said amendments and any written notice required by Article 9.10
of the Texas Business Corporation Act has been given.
ARTICLE V
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded by the following Restated Articles of Incorporation
which accurately copy the entire text thereof and as amended as above set
forth:
- ------------------------------------------------------------------------------
ARTICLE ONE
The name of the corporation is MANNATECH, INCORPORATED.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the corporation is organized is the transaction of
any or all lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE FOUR
The total number of shares of stock which the corporation shall have
authority to issue is One Hundred Million (100,000,000) shares, of which
Ninety-Nine Million shares (99,000,000) shall be Common Stock having a par
value of $0.0001 per share and One Million shares (1,000,000) shall be
Preferred Stock having a par value of $0.01 per share. The board of
directors may establish series of unissued shares of any class of capital
stock by fixing and determining the designation and preferences, limitations
and relative rights, including voting rights, of the shares of any series so
established and may increase or decrease the number of shares within each
such series; PROVIDED, HOWEVER, that the board of directors may not decrease
the number of shares within a series to less than the number of shares within
such series that are then issued.
2
ARTICLE FIVE
The corporation will not commence business until it has received for the
issuance of its shares consideration of a value of not less than One Thousand
Dollars ($1,000.00), consisting of money, labor done or property actually
received.
ARTICLE SIX
The street address of the registered office of the corporation is 106 S.
St. Mary's, Suite 800, San Antonio, Texas 78205, and the name of its
registered agent at such address is James M. Doyle, Jr.
ARTICLE SEVEN
The number of directors constituting the current Board of Directors
shall be five (5), and the number of directors hereafter shall be as fixed in
the manner provided in the by-laws of the corporation. The names and
addresses of the current Board of Directors are as follows:
Name Address
---- -------
Charles E. Fioretti 2510 Beacon Crest Drive, Plano, TX 75093
Samuel L. Caster 818 Timber Ridge, Cedar Hill, TX 75014
Patrick D. Cobb 4712 Lakeside Drive, Colleyville, TX 76034
Steven A. Barker 914 Drehr Ave., Baton Rouge, LA 70806
Chris T. Sullivan c/o Outback Steakhouse, Inc., 550 N. Reo St. #200
Tampa, FL 33609
ARTICLE EIGHT
The shareholders of this corporation shall have no pre-emptive rights to
subscribe to or to acquire any additional, unissued or treasury shares of any
class of the corporation, or any securities, bonds or debentures of the
corporation convertible into or carrying a right to subscribe to or acquire
shares, whether presently or hereinafter authorized, and all such rights are
hereby expressly denied. Stock or other securities of the corporation may be
issued or disposed of to such persons and on such terms as the Board of
Directors of the corporation deems advisable, but at not less than the par
value thereof.
ARTICLE NINE
Cumulative voting in the election of directors is expressly prohibited.
At each election of directors every shareholder entitled to vote at such
election shall have the right to vote, in person
3
or by proxy, the number of shares owned by him for as many persons as there
are directors to be elected and for whose election he has a right to vote.
The right to cumulate votes by giving one (1) candidate as many votes as the
number of such directors multiplied by his shares shall equal, or by
distributing such votes on the same principal among any number of such
candidates, is expressly prohibited.
ARTICLE TEN
To the fullest extent permitted by any applicable law, as the same exists
or may hereafter be amended, a director of the corporation shall not be liable
to the corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director. Any repeal or amendment of
this Article by the shareholders of the corporation or by changes in applicable
law shall, to the extent permitted by applicable law, be prospective only, and
shall not adversely affect any limitation on the personal liability of any
director of the corporation at the time of such repeal or amendment.
ARTICLE ELEVEN
Any action required by the Texas Business Corporation Act to be taken at
any annual or special meeting of the shareholders, or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voted.
ARTICLE TWELVE
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or proceeding and any inquiry
or investigation that could lead to such an action, suit or proceeding (whether
or not by or in the right of the corporation), by reason of the fact that such
person is or was a director or officer of the corporation or is or was serving
at the request of the corporation as a director, officer, partner, venturer,
proprietor or trustee or similar functionary of another corporation,
partnership, joint venture, sole proprietorship, trust, nonprofit entity,
employee benefit plan or other enterprise, against all judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable
expenses (including attorneys' fees and court costs) actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the fullest extent permitted by any applicable law, and such indemnity shall
inure to the benefit of the heirs, executors and administrators of any such
person so indemnified pursuant to this Article. The right to indemnification
under this Article shall be a contract right and shall not be deemed exclusive
of any other right to which those seeking indemnification may be entitled under
any law, bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office. Any repeal or amendment
4
of this Article by the shareholders of the corporation or by changes in
applicable law shall, to the extent permitted by applicable law, be
prospective only, and shall not adversely affect the indemnification of any
person who may be indemnified at the time of such repeal or amendment.
ARTICLE THIRTEEN
No contract or other transaction between the corporation and any other
corporation and no other acts of the corporation with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected by the fact that any one or more of the directors or
officers of the corporation are pecuniarily or otherwise interested in, or
are directors or officers of, such other corporation. Any director or
officer of the corporation individually, or any firm or association of which
any director or officer may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contract or transaction of the
corporation, provided that the fact that such person individually or as a
member of such firm or association is such a party or is so interested shall
be disclosed or shall have been known to the board of directors or a majority
of such members thereof as shall be present at any meeting of the board of
directors at which action upon any such contract or transaction shall be
taken; and any director of the corporation who is also a director or officer
of such other corporation or who is such a party or so interested may be
counted in determining the existence of a quorum at any meeting of the board
of directors which shall authorize any such contract or transaction and may
vote thereat to authorize any such contract or transaction, with like force
and effect as if such director were not such a director or officer of such
other corporation or not so interested. Any director of the corporation may
vote upon any contract or any other transaction between the corporation and
any subsidiary or affiliated corporation without regard to the fact that such
director is also a director or officer of such subsidiary or affiliated
corporation.
Any contract, transaction, act of the corporation or of the directors,
which shall be ratified at any annual meeting of the shareholders of the
corporation, or at any special meeting of the shareholders of the
corporation, or at any special meeting called for such purpose, shall,
insofar as permitted by law, be as valid and as binding as though ratified by
every shareholder of the corporation; PROVIDED, HOWEVER, that any failure of
the shareholders to approve or ratify any such contract, transaction or act,
when and if submitted, shall not be deemed in any way to invalidate the same
or deprive the corporation, its directors, officers or employees, of its or
their right to proceed with such contract, transaction or act.
Subject to any express agreement which may from time to time be in
effect, any shareholder, director or officer of the corporation may carry on
and conduct in such person's own right and for such person's own personal
account, or as a partner in any partnership, or as a joint venturer in any
joint venture, or as an officer, director or shareholder of any corporation,
or as a participant in any syndicate, pool, trust or association, any
business which competes with the business of the corporation and shall be
free in all such capacities to make investments in any kind of property in
which the corporation may make investments.
5
IN WITNESS WHEREOF, Mannatech, Incorporated has caused these Restated
Articles of Amendment to be signed on its behalf by Patrick D. Cobb, its
Secretary, this 14th day of May, 1998.
/s/ Patrick D. Cobb
----------------------------
Patrick D. Cobb
Secretary
6
AMENDED AND RESTATED BYLAWS
OF
MANNATECH, INCORPORATED
A TEXAS CORPORATION
DATE OF ADOPTION:
May 14, 1997
AMENDED AND RESTATED BYLAWS
OF
MANNATECH, INCORPORATED
A TEXAS CORPORATION
ARTICLE I
REGISTERED OFFICE
The registered office of the Corporation required by the Texas Business
Corporation Act (the "TBCA") to be maintained in the State of Texas shall be the
registered office named in the Amended and Restated Articles of Incorporation of
the Corporation or such other office (which need not be a place of business of
the Corporation) as may be designated from time to time by the Board of
Directors in the manner provided by law.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the shareholders shall be
held at the principal place of business of the Corporation or at such other
place within or without the State of Texas as shall be specified or fixed in the
notices or waivers of notice thereof; provided that any or all shareholders may
participate in any such meeting by means of conference telephone or similar
communications equipment pursuant to Article II, Section 12 of these bylaws.
SECTION 2. QUORUM; REQUIRED VOTE FOR SHAREHOLDER ACTION; ADJOURNMENT OF
MEETINGS.
(a) Quorum. A quorum shall be present at a meeting of shareholders if the
holders of a majority of the shares entitled to vote are represented at the
meeting in person or by proxy.
(b) Voting on Matters Other than the Election of Directors. With respect
to any matter, other than the election of directors or a matter for which the
affirmative vote of the holders of a specified portion of the shares entitled to
vote is required by the TBCA, the affirmative vote of the holders of a majority
of the shares entitled to vote on that matter and represented in person or by
proxy at a meeting of shareholders at which a quorum is present shall be the act
of the shareholders, unless otherwise provided in the Amended and Restated
Articles of Incorporation or these bylaws in accordance with the TBCA.
(c) Voting in the Election of Directors. Subject to any agreements among
shareholders now and hereafter existing regarding the election of directors,
directors shall be elected only if the director receives the vote of the holders
of a majority of the shares entitled to vote in the election of directors.
(d) Adjournment. Notwithstanding the other provisions of the Amended and
Restated Articles of Incorporation or these bylaws, the chairman of the meeting
or the holders of a majority of the shares entitled to vote that are represented
in person or by proxy at any meeting of shareholders, whether or not a quorum is
present, shall have the power to adjourn such meeting from time to time, without
any notice other than announcement at the meeting of the time and place of the
holding of the adjourned meeting. If such meeting is adjourned by the
shareholders, such time and place shall be determined by a vote of the holders
of a majority of the shares entitled to vote that are represented in person or
by proxy in such meeting. Upon the resumption of such adjourned meeting, any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 3. ANNUAL MEETINGS. An annual meeting of the shareholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Texas, on such date
and at such time as the Board of Directors shall fix and set forth in the notice
of the meeting, which date shall be within 13 months subsequent to the last
annual meeting of shareholders.
SECTION 4. SPECIAL MEETINGS. Special meetings of the shareholders for any
proper purpose or purposes may be called at any time by (a) the Chairman of the
Board; (b) the President; or (c), the Secretary, on written request of any two
directors, and (d) the holders of at least ten percent of all the shares
entitled to vote at the proposed special meeting. The record date for
determining shareholders entitled to call a special meeting is the date any
shareholder first signs the notice of that meeting. Only business within the
purpose or purposes described in the notice (or waiver thereof required by these
bylaws) may be conducted at a special meeting of the shareholders.
SECTION 5. CLOSING SHARE TRANSFER RECORDS; RECORD DATE. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
by the Corporation (other than a distribution involving a purchase or redemption
by the Corporation of any of its own shares) or a share dividend, or in order to
make a determination of shareholders for any other purpose, the Board of
Directors of the Corporation may provide that the share transfer records shall
be closed for a stated period but not to exceed, in any case, 60 days. If the
share transfer records shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
records shall be closed for at least ten days immediately preceding such
meeting.
-3-
In lieu of closing the share transfer records, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than 60 days and, in the case
of a meeting of shareholders, not less than ten days, prior to the date on which
the particular action requiring such determination of shareholders is to taken.
If the share transfer records are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such distribution or share dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided herein, such determination shall also
apply to any adjournment thereof except where the determination has been made
through the closing of share transfer records and the stated period of closing
has expired.
SECTION 6. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the President, the Secretary or the
officer or person calling the meeting, to each shareholder entitled to vote at
such meeting. If mailed, any such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his address
as it appears on the share transfer records of the Corporation, with postage
thereon prepaid.
SECTION 7. VOTING LIST. The officer or agent having charge of the share
transfer records of the Corporation shall make, at least ten days before each
meeting of shareholder, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each, which list, for a period
of ten days prior to such meeting, shall be kept on file at the registered
office or principal place of business of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original share transfer records shall be prima facie evidence
as to who are the shareholders entitled to examine such list or transfer records
or to vote at any meeting of shareholders. Failure to comply with the
requirements of this Section shall not affect the validity of any action taken
at such meeting.
SECTION 8. PROXIES. A shareholder may vote either in person or by proxy
executed in writing by the shareholder. A telegram, telex, cablegram, telecopy
or similar
-4-
transmission by the shareholder, or a photographic, photostatic, facsimile or
similar reproduction of a writing executed by the shareholder shall be treated
as an execution in writing for purposes of this Section. Proxies for use at any
meeting of shareholders or in connection with the taking of any action by
written consent shall be filed with the Secretary, or such other officer as the
Board of Directors may from time to time determine by resolution, before or at
the time of the meeting or execution of the written consent as the case may be.
No proxy shall be valid after 11 months from the date of its execution unless
otherwise provided in the proxy.
SECTION 9. VOTING; INSPECTORS; ELECTIONS. Unless otherwise required by law
or provided in the Amended and Restated Articles of Incorporation, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders.
At any meeting at which a vote is taken, the chairman of the meeting may
appoint one more inspectors, each of whom shall subscribe an oath or affirmation
to execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of such person's ability. Such inspector
shall receive the ballots, count the votes and make and sign a certificate of
the result thereof. The chairman of the meeting may appoint any person to serve
as inspector, except no candidate for the office of director shall be appointed
as an inspector.
SECTION 10. CONDUCT OF MEETINGS. All meetings of the shareholders shall be
presided over by the chairman of the meeting, who shall be the Chairman of the
Board, or if the Chairman of the Board is not present, the President or if
neither the Chairman of the Board nor President is present, a chairman elected
at the meeting. The Secretary of the Corporation, if present, shall act as
secretary of such meetings, or if the Secretary is not present an Assistant
Secretary (if any) shall so act; if neither the Secretary nor an Assistant
Secretary (if any) is present then a secretary shall be appointed by the
chairman of the meeting. The chairman of any meeting of shareholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to the
chairman of the meeting in order.
SECTION 11. TREASURY SHARES. Neither the Corporation nor any other person
shall vote, directly or indirectly, at any meeting, Treasury Shares, as defined
in the TBCA, shares of the Corporation's own stock owned by another corporation
the majority of the voting stock of which is owned or controlled by the
Corporation, and shares of the Corporation's own stock held by the Corporation
in a fiduciary capacity; and such shares shall not be counted in determining the
total number of outstanding shares at any given time.
SECTION 12. ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE. Any action
required or permitted to be taken at a meeting of shareholders, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to
-5-
the subject matter thereof, and such consent shall have the same force and
effect as a unanimous vote of the shareholders. Such writing, which may be in
counterparts, shall be manually executed if practicable; provided, however, that
if circumstances so require, effect shall be given to written consent
transmitted by telegraph, telex, telecopy or similar means of visual data
transmission. Meetings of the shareholders of the Corporation may be conducted
by means of conference telephone or similar communications equipment whereby all
persons participating in the meeting can hear and speak to each other.
SECTION 13. FIXING RECORD DATES FOR CONSENTS TO ACTION. Whenever action by
shareholders is proposed to be taken by consent in writing without a meeting of
shareholders, the Board of Directors may fix a record date for the purpose of
determining shareholders entitled to consent to that action, which record date
shall not precede, and shall not be more than ten days after, the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors and the
prior action of the Board of Directors is not required by law or these bylaws,
the record date for determining shareholders entitled to consent to action in
writing without a meeting shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the Corporation having custody of the books
in which proceedings of meetings of shareholders are recorded. Delivery shall be
by hand or by certified or registered mail, return receipt requested. Delivery
to the Corporation's principal place of business shall be addressed to the
President or the chief executive officer of the Corporation. If no record date
shall have been fixed by the Board of Directors and prior action of the Board of
Directors is required by the TBCA or these bylaws, the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts a resolution taking such prior action.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWER; NUMBER; TERM OF OFFICE. The powers of the Corporation
shall be exercised by or under the authority of, and the business and affairs of
the Corporation shall be managed by its the Board of Directors except as the
Board of Directors shall delegate the power to so manage to the Executive
Committee or other committee. Directors need not be residents of the State of
Texas or shareholders of the Corporation.
Unless otherwise provided in the Amended and Restated Articles of
Incorporation, the number of directors that shall constitute the entire Board of
Directors, which shall be not less than three, shall be determined from time to
time by resolution of the Board of Directors (provided that no decrease in the
number of directors that would have the effect of shortening the term of an
incumbent director may be made by
-6-
the Board of Directors). As of the time of option of these Amended and Restated
Bylaws, the number of directors be five. Each director shall hold office for the
term for which he is elected and thereafter until his successor shall have been
elected and qualified, or until his earlier death, resignation or removal.
SECTION 2. QUORUM; REQUIRED VOTE FOR DIRECTOR ACTION. Unless otherwise
required by law, a majority of the total number of directors fixed by, or in the
manner provided in, these bylaws shall constitute a quorum for the transaction
of business of the Board of Directors, and the act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 3. MEETINGS; ORDER OF BUSINESS; NOTICE. Meetings of the Board of
Directors, regular or special, may be held within or outside the State of Texas.
At all meetings of the Board of Directors, business shall be transacted in such
order as shall from time to time be determined by the Chairman of the Board, or
in his absence by the President (if the President is a director), or by
resolution of the Board of Directors.
Notice of any special meeting shall be given at least two days prior
thereto by written notice delivered personally or mailed to each director at his
business address, or by telecopy or similar means of visual data transmission.
Attendance of a director at a meeting shall constitute a waiver of notice
of such meeting, except where a director attends a meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or, on the written
request of any two directors, by the Secretary, in each case on at least 24
hours personal, written, telegraphic, cable or wireless notice to each director.
Such notice, or any waiver thereof pursuant to Article VIII, Section 3 hereof,
need not state the purpose or purposes of such meeting, except as may otherwise
be required by law or these bylaws.
SECTION 6. VACANCIES; INCREASES IN ThE NUMBER OF DIRECTORS. Any vacancy
occurring in the Board of Directors other than by reason of an increase in the
number of directors may be filled (a) by election at an annual or special
meeting of the shareholders called for that purpose or (b) by the affirmative
vote of a majority of the remaining directors though less than a quorum of the
Board of Directors. A director elected to fill a vacancy occurring other than by
reason of an increase in the number of directors shall be elected for the
unexpired term of his
-7-
predecessor in office. A vacancy shall be deemed to exist by reason of the death
or resignation of the person elected, or upon the failure of shareholders to
elect directors to fill the unexpired terms of directors removed in accordance
with the provisions of Section 7 of this Article III.
Any directorship to be filled by reason of an increase in the number of
directors may be filled (a) by the Board of Directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; PROVIDED, HOWEVER, that during the period between any two
successive annual meetings of shareholders, the Board of Directors may not fill
more than two such directorships; or (b) by election at an annual or special
meeting of shareholders entitled to vote in the election of such directors
called for that purpose.
SECTION 7. REMOVAL. At any meeting of shareholders at which a quorum of
shareholders is present called expressly for that purpose, or pursuant to a
written consent adopted pursuant to Article II, Section 12 hereof, any director
may be removed from office but only for cause, by vote of the holders of issued
and outstanding shares representing a majority of the votes entitled to be cast
for the election of such director.
SECTION 8. COMPENSATION. The Board of Directors shall have the authority
to fix the compensation, if any, of directors.
SECTION 9. PRESUMPTION OF ASSENT. A director who is present at a meeting
of the Board of Directors at which action on any corporate matter is taken shall
be presumed to have assented to the action unless his dissent shall be entered
in the minutes of the meeting or unless he shall file his written dissent to
such action with the person acting as secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 10. ACTION BY WRITTEN CONSENT OR TELEPHONE CONFERENCE. Any action
permitted or required by the TBCA, the Amended and Restated Articles of
Incorporation or these bylaws to be taken at a meeting of the Board of Directors
or any committee designated by the Board of Directors may be taken without a
meeting if a consent in writing, setting forth the action to be taken, is signed
by all the members of the Board of Directors or committee, as the case may be.
Such consent shall have the same force and effect as a unanimous vote at a
meeting and may be stated as such in any document or instrument filed with the
Secretary of State, and the execution of such consent shall constitute
attendance or presence in person at a meeting of the Board of Directors or any
such committee, as the case may be. Subject to the requirement of the TBCA or
these bylaws for notice of meetings, members of the Board of Directors, or
members of any committee designated by the Board of Directors, may participate
in and hold a meeting of the Board of Directors or any committee of directors,
as the case may be, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting
-8-
can hear each other, and participation in such meeting shall constitute
attendance and presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the wound that the meeting is not lawfully called
or convened.
ARTICLE IV
COMMITTEES
SECTION 1. DESIGNATION; POWERS. The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate from among
its members one or more committees, each of which shall be comprised of one or
more of its members, and may designate one or more of its members as alternate
members of any committee, who may, subject to any limitations imposed by the
Board of Directors, replace absent or disqualified members at any meeting of
that committee. Committee members may be removed from committees, with or
without cause, by the Board of Directors. Any such committee, to the extent
provided in such resolution or in the Amended and Restated Articles of
Incorporation or bylaws shall have and may exercise all of the authority of the
Board of Directors, subject to the limitations set forth in the TBCA or below.
No committee of the Board of Directors shall have the authority of the
Board of Directors in reference to:
(1) amending the Articles of Incorporation, except that a committee may,
to the extent provided in the resolution designating that committee or
in the Articles of Incorporation or these bylaws, exercise the
authority of the Board of Directors vested in it in accordance with
Article 2.13 of the TBCA;
(2) proposing a reduction in the stated capital of the Corporation in the
manner permitted by Article 4.12 of the TBCA;
(3) approving a plan of merger or share exchange of the Corporation;
(4) recommending to the shareholders the sale, lease or exchange of all or
substantially all of the property and assets of the Corporation
otherwise than in the usual and regular course of its business;
(5) recommending to the shareholders a voluntary dissolution of the
Corporation or a revocation thereof;
(6) amending, altering or repealing the bylaws of the Corporation or
adopting new bylaws of the Corporation;
(7) filling vacancies in the Board of Directors;
-9-
(8) filling vacancies in or designating alternate members of any such
committee;
(9) filling any directorship to be filled by reason of an increase in the
number of directors;
(10) electing or removing officers of the Corporation or members or
alternate members of any such committee;
(11) fixing the compensation of any member, or alternate members of such
committee; or
(12) altering or repealing any resolution of the Board of Directors that by
its terms provided that it shall not be so amendable or repealable.
Unless the resolution designating a particular committee, the Amended and
Restated Articles of Incorporation or these bylaws expressly so provide, no
committee of the Board of Directors shall have the authority to authorize a
distribution (as such term is defined in the TBCA) or to authorize the
issuance of shares of the Corporation.
SECTION 2. PROCEDURE; MEETINGS; QUORUM. Any committee designated pursuant
to Section I of this Article shall choose its own chairman and secretary, shall
keep regular minutes of its proceedings and report the same to the Board of
Directors when requested, shall fix its own rules or procedures, and shall meet
at such times and at such place or places as may be provided by such rules, or
by resolution of such committee or of the Board of Directors. At every meeting
of any such committee, the presence of a majority of all the members thereof
shall constitute a quorum, and the affirmative vote of a majority of the members
shall be necessary for the adoption by it of any resolution.
SECTION 3. DISSOLUTION. The Board of Directors may dissolve any committee
at any time, unless otherwise provided in the Amended and Restated Articles of
Incorporation or these bylaws.
ARTICLE V
OFFICERS
SECTION 1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a Chairman of the Board, Chief Executive Officer, a
President and a Secretary and such other officers as the Board of Directors may
from time to time elect or appoint. Each officer shall hold office until his
successor shall be duly elected and shall qualify or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided. Any
number of offices may be held by the same person. Except for the Chairman of the
Board, no officer need be a director.
-10-
SECTION 2. SALARIES. The salaries or other compensation, if any, of the
officers of the Corporation shall be fixed from time to time by the Board of
Directors.
SECTION 3. REMOVAL. Any officer or agent may be removed, either with or
without cause, by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
SECTION 4. VACANCIES. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
SECTION 5. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall preside at all meetings of the shareholders and of the Board of
Directors and shall have such other powers and duties as designated in these
bylaws and as from time to time may be assigned to that office by the Board of
Directors.
SECTION 6. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chairman
or other officer shall be the chief executive officer of the Corporation unless
the Board of Directors designates the Chairman of the Board or other officer as
chief executive officer. Subject to the control of the Board of Directors, the
chief executive officer shall have general executive charge, management and
control of the properties, business and operations of the Corporation with all
such powers as may be reasonably incident to such responsibilities; subject to
any limitations placed by the Board of Directors, the chief executive officer
may agree upon and execute on behalf of the Corporation leases, contracts,
evidences of indebtedness and other obligations in the name of the Corporation
and may sign certificates for shares of capital stock of the Corporation. The
chief executive officer shall have such other powers and duties as designated in
accordance with these bylaws and as from time to time may be assigned by the
Board of Directors.
SECTION 7. POWERS AND DUTIES OF THE PRESIDENT. Unless the Board of
Directors otherwise determines, the President shall have the authority, subject
to any limitations placed by the Board of Directors, to agree upon and execute
leases, contract, evidences of indebtedness and other obligations in the name of
the Corporation; and, unless the Board of Directors otherwise determines, the
President shall, in the absence of the Chairman of the Board or if there be no
Chairman of the Board, preside at all meetings of the shareholders and (should
he be a director) of the Board of Directors; and the President shall have such
other powers and duties as designated in accordance with these bylaws and as
from time to time may be assigned by the Board of Directors.
SECTION 8. VICE PRESIDENTS. The Vice President(s), if any, shall perform
such duties and have such powers as of the Board of Directors may from time to
time prescribe. In addition, in the absence of the Chairman of the Board or
-11-
President, or in the event of their inability or refusal to act, (a) a Vice
President designated by the Board of Directors or (b) in the absence of such
designation, the Vice President who is present and who is senior in terms of
rank (or in the absence of a senior rank, time) as a Vice President of the
Corporation, shall perform the duties of the Chairman of the Board, or the
President as the case may be, and when so acting shall have all the powers of
and be subject to all the restrictions upon the Chairman of the Board, or the
President; provided that such person shall not preside at meetings of the Board
of Directors unless such person is a director.
SECTION 9. TREASURER. The Treasurer, if any, shall have responsibility for
the custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned by the Board of Directors. The Treasurer shall
perform all acts incident to the position of Treasurer subject to the control of
the chief executive officer and the Board of Directors; and the Treasurer shall,
if required by the Board of Directors, give such bond for the faithful discharge
of the Treasurer's duties in such form as the Board of Directors may require.
SECTION 10. ASSISTANT TREASURERS. The Assistant Treasurers shall assist
the Treasurer and shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act. Each Assistant Treasurer, if
any, shall have such other powers and duties as designated in these bylaws and
as from time to time may be assigned by the chief executive officer, the Board
of Directors or the Treasurer.
SECTION 11. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, and the minutes of all meetings of the
shareholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may be the name of the Corporation affix the seal (if
any) of the Corporation to all contracts of the Corporation and attest thereto;
may sign with the other appointed officers all certificates for shares of
capital stock of the Corporation; shall have charge of the certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors may direct, all of which shall at all reasonable times be open to
inspection of any director upon application at the office of the Corporation
during business hours. The Secretary shall have such other powers and duties as
designated in these bylaws and as from time to time may be assigned by the chief
executive officer or the Board of Directors; and shall in general perform all
duties incident to the office of Secretary, subject to the control of the chief
executive officer of the Board of Directors.
SECTION 12. ASSISTANT SECRETARIES. The Assistant Secretaries shall assist
the Secretary and shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act. Each Assistant Secretary, if
any, shall have such other powers and duties as designated in these bylaws and
as from time to time be assigned by the chief executive officer, the Board of
Directors or the Secretary.
-12-
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
SECTION 1. RIGHT TO INDEMNIFICATION. Subject to the limitations and
conditions as provided in this Article VI, and in Section 2.02-1 of the TBCA
(relating among other matters to liability for receipt of an improper personal
benefit or liability to the Corporation), as from time to time amended, each
person who was or is made a party or is threatened to be bade a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative
(hereinafter a "proceeding"), or any appeal in such a proceeding or any inquiry
or investigation that could lead to such a proceeding, by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the Corporation or while a director or officer of
the Corporation is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise shall be indemnified by the Corporation to the fullest extent
permitted by the TBCA as the same exists or may hereafter be amended against
judgments, penalties (including excise and similar taxes and punitive damages),
fines, settlements and reasonable expenses (including, without limitation,
attorneys' fees) actually incurred by such person in connection with such
proceeding, and indemnification under this Article VI shall continue as to a
person who has ceased to serve in the capacity which initially entitled such
person to indemnity hereunder. The rights granted pursuant to this Article VI
shall be deemed contract rights, and no amendment, modification or repeal of
this Article VI shall have the effect of limiting or denying any such rights
with respect to actions taken or proceedings arising prior to any such
amendment, modification or repeal. It is expressly acknowledged that the
indemnification provided in this Article VI could involve indemnification for
negligence or under theories of strict liability.
SECTION 2. ADVANCE PAYMENT. The right to indemnification conferred in this
Article VI shall include the right to be paid or reimbursed by the Corporation
the reasonable expenses incurred by a person of the type entitled to be
indemnified under Section 1 who was, is or is threatened to be made a named
defendant or respondent in a proceeding in advance of the final disposition of
the proceeding and without any determination as to the person's ultimate
entitlement to indemnification; provided, however, that the payment of such
expenses incurred by any such person in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of a written
affirmation by such director or officer of his or her good faith belief that he
or she has met the standard of conduct necessary for indemnification under this
Article VI and a written undertaking, by or on behalf of such person, to repay
all amounts so advanced if it shall ultimately be determined that such
indemnified person is not entitled to be indemnified under this Article VI or
otherwise.
-13-
SECTION 3. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation, by
adoption of a resolution of the Board of Directors, may (but shall not be
required to) indemnify and advance expenses to an employee or agent of the
Corporation to the same extent and subject to the same conditions under which it
may indemnify and advance expenses to directors and officers under this Article
VI; and, the Corporation may (but shall not be required to) indemnify and
advance expenses to persons who are not or were not directors, officers,
employees or agents of the Corporation but who are or were serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise against any liability asserted against
that person and incurred by that person in such a capacity or arising out of
such individual's status as such a person to the same extent that it may
indemnify and advance expenses to directors under this Article VI.
SECTION 4. APPEARANCE AS A WITNESS. Notwithstanding any other provision of
this Article VI, the Corporation may pay or reimburse expenses incurred by a
director or officer in connection with his or her appearance as a witness or
other participation in a proceeding at a time when he or she is not a named
defendant or respondent in the proceeding.
SECTION 5. NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement and payment of expenses conferred in this Article VI shall not be
exclusive of any other right which a director or officer or other person
indemnified pursuant to Section 3 of this Article VI may have or hereafter
acquire under any law (common or statutory), provision of the Amended and
Restated Articles of Incorporation or these bylaws, agreement, vote of
shareholders or disinterested directors or otherwise.
SECTION 6. INSURANCE. The Corporation may purchase and maintain insurance
and, to the extent permitted by the TBCA, similar arrangements, at its expense,
to protect itself and any person who is or was serving as a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, proprietorship, employee benefit plan,
trust or other enterprise against any expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under this Article VI.
SECTION 7. SHAREHOLDER NOTIFICATION. To the extent required by law, any
indemnification of or advance of expenses to a director or officer in accordance
with this Article VI shall be reported in writing to the shareholders with or
before the notice or waiver of notice of the next shareholders' meeting or with
or before the next submission to shareholders of a consent to action without a
meeting.
SECTION 8. SAVINGS CLAUSE. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
-14-
Corporation shall nevertheless indemnify and hold harmless each director,
officer or any other person indemnified pursuant to this Article VI as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative to the full extent permitted by
any applicable portion of this Article VI that shall not have been invalidated
and to the fullest extent permitted by applicable law.
ARTICLE VII
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. The certificates for shares of the
capital stock of the Corporation shall be in such form, consistent with that
required by law and the Amended and Restated Articles of Incorporation, as shall
be approved by the Board of Directors. The Chairman of Board, President or a
Vice President (if any) shall cause to be issued to each shareholder one or more
certificates, which shall be signed by (a) one of the Chairman of the Board,
President, or a Vice President and (b) one of the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer certifying the number of
shares (and, if the stock of the Corporation shall be divided into classes or
series, the class and series of such shares) owned by such shareholder in the
Corporation; provided however, that any of or all the signatures on the
certificate may be facsimile. If the Board of Directors shall have provided for
a seal, such certificates shall bear such seal or a facsimile thereof. The stock
record books and the blank stock certificate books shall be kept by the
Secretary, or at the office of such transfer agent or transfer agents as the
Board of Directors may from time to time by resolution determine. In case any
officer, transfer agent or registrar who shall have signed or have ceased to be
such officer, transfer agent or registrar before such certificate is issued by
the Corporation, such certificate may nevertheless be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. The stock certificates shall be consecutively
numbered and shall be entered in the books of the Corporation as they are issued
and shall exhibit the holder's name and number of shares.
SECTION 2. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender and cancellation of certificates for a like
number of shares (or upon compliance with the provisions of Section 4 of this
Article VII, if applicable). Upon such surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer (or upon compliance with the provisions of Section 4 of this Article
VII, if applicable) and of compliance with any transfer restrictions applicable
thereto contained in an agreement to which the Corporation is a party or of
which the Corporation has knowledge by reason of legend with respect thereto
placed on any such surrendered stock certificate, it shall be the duty of the
Corporation to issue a new
-15-
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
SECTION 3. REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issuance, transfer and registration or
the replacement of certificates for shares of capital stock of the Corporation.
SECTION 4. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. The Board of
Directors may determine the conditions upon which a new certificate of stock may
be issued in place of a certificate that is alleged to have been lost, stolen,
destroyed or mutilated; and may, in its discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient surety, to
indemnify the Corporation and each transfer agent and registrar against any and
all losses or claims which may arise by reason of the issuance of a new
certificate in the place of the one so lost, stolen, destroyed or mutilated.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be such
as established from time to time by the Board of Directors.
SECTION 2. CORPORATE SEAL. The Board of Directors may provide a suitable
seal, containing the name of the Corporation. The Secretary shall have charge of
the seal (if any). If and when so directed by the Board of Directors, duplicates
of the seal may be kept-and used by the Treasurer, if any, or by any Assistant
Secretary or Assistant Treasurer.
SECTION 3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required to
be given by law, the Amended and Restated Articles of Incorporation or these
bylaws, except with respect to notices of meetings of shareholders (with respect
to which the provisions of Article II, Section 6 apply) and except with respect
to notices of special meetings of directors (with respect to which the
provisions of Article II, Section 6 apply), said notice shall be deemed to be
sufficient if given (a) by telegraphic, cable, telecopy or wireless transmission
or (b) by deposit of same in a post office box in a sealed prepaid wrapper
addressed to the person entitled thereto at his address as it appears on the
records of the Corporation, and such notice shall be deemed to have been given
on the day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Amended and Restated
Articles of Incorporation or these bylaws, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice.
-16-
SECTION 4. RESIGNATIONS. Any director, member of a committee or officer
may resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if no time be specified, at the time of
its receipt by the chief executive officer or Secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
SECTION 5. FACSIMILE SIGNATURES. In addition to the provisions for the use
of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
SECTION 6. BOOKS AND RECORDS. The Corporation shall keep books and records
of account and shall keep minutes of the proceedings of its shareholders, its
Board of Directors and each committee of its Board of Directors. The Corporation
shall keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of the original issuance of
shares issued by the Corporation and a record of each transfer of those shares
that have been presented to the Corporation for registration of transfer. Such
records shall contain the names and addresses of all past and current
shareholders of the Corporation and the number and class of shares issued by the
Corporation held by each of them. Any books, records, minutes and share transfer
records may be in written form or in any other form capable of being converted
into written form within a reasonable time.
ARTICLE IX
AMENDMENTS
The power to alter, amend or repeal the bylaws or adopt new bylaws shall be
vested in the Board of Directors.
-17-
AMENDMENT TO THE AMENDED AND RESTATED BYLAWS
OF
MANNATECH, INCORPORATED
Article III, Section 1 shall be deleted in its entirety and replaced by
the following:
"SECTION 1. POWER; NUMBER; TERM OF OFFICE; ELECTION. The powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation shall be managed by its Board of Directors
except as the Board of Directors shall delegate the power to so manage to the
Executive Committee or other committee. Directors need not be residents of the
State of Texas or shareholders of the Corporation.
Unless otherwise provided in the Amended and Restated Articles of
Incorporation, the number of directors that shall constitute the entire Board
of Directors, which shall be not less than three, shall be determined from time
to time by resolution of the Board of Directors (provided that no decrease in
the number of directors that would have the effect of shortening the term of an
incumbent director may be made by the Board of Directors). As of the time of
adoption of these Amended and Restated Bylaws, the number of directors shall be
five. Each director shall hold office for the term for which he is elected and
thereafter until his successor shall have been elected and qualified, or until
his earlier death, resignation or removal.
The directors shall be divided into three classes as nearly equal in
number as possible and one class of directors shall be elected by plurality
vote at each annual meeting of shareholders to hold office for a three-year
term. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director."
THESE WARRANTS HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO THE
DISTRIBUTION HEREOF OR OF THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF WITHIN
THE MEANING OF THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
THEREUNDER. NEITHER THESE WARRANTS NOR THE COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF MAY BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933 OR UPON RECEIPT BY THE
COMPANY OF AN OPINION SATISFACTORY AS TO FORM, SCOPE AND SUBSTANCE OF COUNSEL
ACCEPTABLE TO THE COMPANY AS TO AN EXEMPTION THEREFROM.
Warrants to Purchase
475,015 Shares
MANNATECH INCORPORATED
CONSULTANT WARRANTS
Dated: May 1, 1997
THIS CERTIFIES THAT for $100.00 and other good and valuable consideration,
Christopher A. Marlett, his successors and assigns, 100 Wilshire Boulevard,
Santa Monica, California 90401 (herein sometimes called the "Holder") is
entitled to purchase from Mannatech Incorporated, a Texas corporation
(hereinafter called the "Company"), at the prices and during the periods as
hereinafter specified, up to two percent of the capital stock of the Company
(the "Target Percentage") which after giving effect [to a one thousand for one
forward split and] options currently issued or planned for issuance of the
Company's Common Stock, $0.0001 par value, as now constituted (the "Common
Stock"), currently entitle the Holder to purchase up to 475,015 shares of Common
Stock (the "Warrant Shares").
1. The rights represented by these Warrants shall be exercised at $1.35
per share subject to adjustment in accordance with Section 8 of these Warrants
(the "Exercise Price") and shall expire on the earlier of May 1, 2003 and 36
months after the Warrant Shares are registered for public resale under the
Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder (the "Act").
2. The rights represented by these Warrants may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
these Warrants (with the purchase form at the end hereof properly executed) at
the principal executive office of the Company or such other office or agency of
the Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company); (ii) payment to
the Company of the Exercise Price then in effect for the number of Warrant
Shares specified in the above-mentioned purchase form together with applicable
1
stock transfer taxes, if any; and (iii) delivery to the Company of a duly
executed agreement signed by the person(s) designated in the purchase form to
the effect that such person(s) agree(s) to be bound by the provisions of Section
6 and Subsections (b), (c) and (d) of Section 7 hereof. These Warrants shall be
deemed to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the date these Warrants are
surrendered and payment is made in accordance with the foregoing provisions of
this Section 2, and the person or persons in whose name or names the
certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that time
and date. The Common Stock and the certificates for the Common Stock so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) days, after the rights represented by these Warrants shall
have been so exercised. To the fullest extent reasonable the Company shall in
good faith cooperate with Holder in effecting a "cashless exercise" of these
Warrants through any stock brokerage firm selected by Holder (the effect of
which will be that the Company may receive proceeds from the exercise of
Warrants directly from such brokerage firm).
3. These Warrants may be transferred, sold, assigned, or hypothecated.
Any such assignment shall be effected by the Holder (1) executing the form of
assignment at the end hereof and (ii) surrendering these Warrants for
cancellation at the office or agency of the Company referred to in Section 2
hereof; whereupon the Company shall issue, in the name or names specified by the
Holder (including the Holder) a new Warrants of like tenor and representing in
the aggregate rights to purchase the same number of Warrant Shares as are
purchasable hereunder. Any transfer must be in compliance with the Act.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued upon the exercise of the Warrants purchased hereunder will, upon
issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the Holder thereof. The Company further
covenants and agrees that during the periods within which these Warrants may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
these Warrants.
5. These Warrants shall not entitle the Holder to any voting, dividend or
other rights as a stockholder of the Company and shall vest so as to permit the
Holder to purchase Warrant Shares as follows:
(a) As of May 1,1997, 178,125 Warrant Shares;
(b) On each of May 1, 1997, June 1,1997, July 1, 1997, August 1,
1997, September 1, 1997, October 1, 1997, November 1, 1997, December 1, 1997,
January 1, 1998, February 1, 1998, and March 1, 1998, 26,990 Warrant Shares;
-2-
(c) If that certain Agreement of Engagement dated as of April 1, 1997
between the Company and Christopher A. Marlett (the "Engagement Letter") is
terminated in writing for any reason prior to May 1, 1998, then in addition to
any other Warrants which may have vested prior to the date of termination, the
Holder shall be entitled to purchase 53,980 shares under the Warrants but shall
not be entitled to purchase the balance of unvested Warrant Shares, if any; and
(d) Notwithstanding the foregoing, on the date that securities of the
Company commence to trade publicly on any securities exchange, on any NASDAQ
market or in the over the counter markets, all Warrant Shares (except those
Warrant Shares excluded under Subsection (c) above).
6. (a) If at any time the company determines to proceed with the
preparation and filing of one or more registration statements under the Act in
connection with the proposed offer and sale for money of any of its equity
securities (other than on Forms S-4 or S-8 or any successor or similar form),
the Company shall give prompt written notice of its determination to the Holder,
whether the Holder holds the Warrant or has exercised the Warrant in whole or in
part. Upon the written request of the Holder given to the Company within 30 days
after such notice has been received, the Company shall, subject to Subsection
(c) below, use its best efforts to cause all shares of its Common Stock which
the Company has been requested to register by Holder to be registered under the
Act and to cause such shares to be registered under the appropriate blue sky
laws of up to five states designated by such Holder, to the extent required to
permit the sale or other disposition of such shares.
(b) Notwithstanding the provisions of Subsection (a) above, (i) the
Company shall have the right to delay or suspend the preparation and filing of a
registration statement for up to 90 days if in the reasonable good faith
judgment of a majority of the Board of Directors of the Company such filing
would have a material adverse effect on the business, affairs, properties or
financial condition of the Company, PROVIDED, HOWEVER, only one such delay or
suspension may occur in any six-month period, and (ii) if, prior to receiving a
request by Holder for the registration of shares, the Company has given notice
under Subsection (a) hereof that it intends to prepare and file a registration
statement (a "Registration Statement"), then the Company shall have the right to
delay or suspend the filing of the registration statement requested by the
Holder; PROVIDED, HOWEVER, that the Company shall use its best efforts to cause
any such registration statement requested by the Holder to become effective
within 180 days after the date on which all securities covered by the
Registration Statement have been sold, and that the Company shall use its best
efforts to include the shares that are the subject to a notice delivered by the
Holder under Subsection (a) in such Registration Statement.
(c) If shares of Holder are to be included under Subsection (a) in a
registration statement which pertains to one or more underwritten public
offerings and the managing underwriters advise the Company in writing that in
their opinion the number of shares requested to be included exceeds the number
of shares which can be marketed in
-3-
such offering (i) at a price reasonably related to their then current market
value or (ii) without materially and adversely affecting the entire offering
(or, in the event that a public distribution of shares is not underwritten, if
an investment banking firm of recognized standing so advises the Company), the
Company shall include in such registration (1) the Common Stock which the
Company proposes to issue and sell, (2) the number of shares requested by the
Holder to be included which in the opinion of such underwriters (or such
investment banking firm) can be sold, (3) any other shares of Common Stock
requested to be included in such registration statement by persons other than
the parties to this Agreement.
(d) The Holder, including any assignee or successors of Holder, agrees in
connection with any underwritten public offering of the Company's securities
that upon the request of the managing underwriter, it shall commit itself in
writing not to sell or offer to sell any shares other than such shares included
in the underwritten public offering, during 30 days prior to, and for a period
not to exceed 90 days after, the date of the final prospectus used in such
offerings.
(e) If and whenever the Company is required by the provisions of
Subsection (a) to effect the registration of shares under the Act, the Company
will:
(i) subject to the provisions of Subsection (b), prepare and
file with the Securities and Exchange Commission ("SEC"), within 90 days after
receipt of such request a registration statement with respect to such
securities, and use its best efforts to cause such registration statement to
become effective within 120 days of receipt of such request and remain effective
for such period as may be reasonably necessary to effect the sale of such
securities, not to exceed 270 days; provided that prior to filing a registration
statement or prospectus or any material amendment (or any amendment which refers
to Holder) thereto, the Company will furnish to counsel selected by the Holder
copies of such documents and provide counsel the opportunity to comment;
(ii) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective until the earlier
of (1) the date on which all securities covered by such registration statement
have been sold and (2) 270 days after the effective date of such registration
statement;
(iii) use its best efforts to register or qualify the shares for
sale under such other securities or blue sky laws of such jurisdictions as the
Holder or Holders may reasonably request (up to five states) and do any and all
other acts and things which may be reasonably necessary or desirable to
consummate the disposition of the shares in such jurisdictions; PROVIDED,
HOWEVER, that the Company shall not be required to qualify to do business or to
file a general consent to service of process in any such jurisdictions;
-4-
(iv) notify the Holder at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any event
as a result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, if in the reasonable judgment
of the Company it is necessary to prepare a supplement or amendment to such
prospectus, the Company will prepare such supplement or amendment to such
prospectus, so that, as thereafter delivered to the Holder, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(v) cause all such shares to be listed on each securities
exchange on which similar securities issued by the Company are then listed and,
if not so listed and if the Company would otherwise qualify, to be listed on the
NASD automated quotation system and, if listed on the NASD automated quotation
system, use its best efforts to secure designation of all such securities, which
the Holder desires to register covered by such registration statement, to be
listed on the NASDAQ National Market;
(vi) use its reasonable efforts to cause the shares covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holder to
consummate the disposition of such shares.
(f) (i) If any 50% holder (as defined below) shall give notice
to the Company at any time during the period set forth in Section 1 hereof to
the effect that such holder desires to register under the Act the Warrant
Shares under such circumstances that a public distribution (within the
meaning of the Act) of any such securities will be involved then the Company
will promptly, but no later than forty-five (45) days after receipt of such
notice, file a post-effective amendment to the current registration statement
or file a new registration statement pursuant to the Act (the "Registration
Statement"), to the end that the Warrant Shares may be publicly sold under
the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective for a
period of two hundred seventy (270) days (including the taking of such steps
as are reasonably necessary to obtain the removal of any stop order);
provided, that such holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request in
writing. The 50% holder (which for purposes hereof shall mean any direct or
indirect transferee of such holder) may, at its option, request the filing of
a post-effective amendment to the current Registration Statement or a new
registration statement under the Act with respect to the Warrant Shares on
only one occasion during the term of these Warrants. The Holder may, at its
option request the registration of the Warrant Shares in a registration
statement made by the Company as contemplated by Section 6(a) or in
connection with a request made pursuant to this Section 6(f) prior to
acquisition of the Warrant Shares issuable upon exercise of these Warrants
and even though the Holder has not given notice of exercise of these
Warrants. The 50% holder may, at its option, request such post-effective
amendment or new registration statement
-5-
during the described period with respect to the Warrant Shares and such
registration rights may be exercised by the 50% holder prior to or subsequent
to the exercise of these Warrants. Within ten (10) business days after
receiving any such notice pursuant to this subsection (f) of Section 6, the
Company shall give notice to the other holders of Warrants that were
originally a part of the original option issued to Christopher A. Marlett
pursuant to the Engagement Letter advising that the Company is proceeding
with such post-effective amendment or registration statement and offering to
include therein the securities underlying the options of the other holders.
Each holder electing to include its Warrant Shares in any such offering shall
provide written notice to the Company that is received by the Company within
thirty (30) days after mailing notice to them by the Company. The failure to
provide such notice to the Company shall be deemed conclusive evidence of
such holder's election not to include his or its Warrant Shares in such
offering. Each holder electing to include its Warrant Shares shall furnish
the Company with such appropriate information (relating to the intentions of
such holder) in connection therewith as the Company shall reasonably request
in writing. In the event the Registration Statement is not filed within the
period specified herein, the expiration dates of these Warrants shall be
extended to a date which is not less than ninety (90) days after the
effective date of such Registration Statement. Only two such post-effective
amendments or new registration statement shall be filed pursuant to this
Section 6(f) and all costs and expenses of only the first such post-effective
amendment or new registration statement shall be borne by the Company, except
that the holders shall bear the fees of their own counsel and any
underwriting discounts or commissions applicable to any of the Warrant Shares
sold by them. If the Company determines to include securities to be sold by
it in any registration statement pursuant to this Section 6(f), such
registration statement shall be deemed to have been a registration statement
under Section 6(a).
(ii) The Company shall be entitled to postpone the filing of
any registration statement pursuant to this Section 6(f) otherwise required to
be prepared and filed by it if (A) the Company is engaged in a material
acquisition, reorganization or divestiture, (B) the Company is currently engaged
in a self-tender or exchange offer and the filing of a registration statement
would cause a violation of Rule 10b-6 under the Securities Exchange Act of 1934
(the "Exchange Act"), (C) the Company is engaged in an underwritten offering and
the managing underwriter has advised the Company in writing that such a
registration statement would have a material adverse effect on the consummation
of such offering or (D) the Company is subject to an underwriter's lock-up as a
result of an underwritten public offering and such underwriter has refused in
writing, the Company's request to waive such lock-up. In the event of such
postponement, the Company shall be required to file the registration statement
pursuant to this Section 6(f) within sixty (60) days of the consummation of !he
event requiring such postponement.
(iii) The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other
-6-
documents as the Holder may reasonably request in order to facilitate the public
sale or other disposition of the Warrant Shares, use its best efforts to
register and qualify any of the Registrable Securities for sale in a maximum of
five states as such holder designates (provided that the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or
execute a general consent to service of process in any jurisdiction in any
action) and furnish indemnification in the manner provided in Section 7 hereof.
(iv) The term "50% holder" as used in this Section 6(f) shall
mean the holder or holders of at least 50% of the Warrants and the Warrant
Shares (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock as well as the number of Warrant Shares
then issuable upon exercise of the Warrants held by such owner or owners.
(g) If any Holder requests a registration of shares, he shall provide
all such information and materials and shall take all such actions as may be
reasonably required in order to permit the company to comply with all applicable
requirements of the SEC and to obtain any desired acceleration of the effective
date of such registration statement. Specifically, the Company may require the
Holder to furnish the Company with such information regarding the Holder and the
distribution of its securities as the Company may from time to time reasonably
request in writing and as shall be required by law or the SEC.
(h) With respect to inclusion of shares in a registration statement
pursuant to Subsection (a) hereof, the Company shall bear the following fees,
costs and expenses of such registrations: all registration, filing and stock
exchange fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, fees and disbursements of other persons retained by
the Company, and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified, except as
otherwise provided upon withdrawal; and the Holders participating in such
registration shall be responsible for, and shall pay, its shares of underwriting
discounts and commissions, and reasonable and necessary fees and disbursements
of counsel for such Holder.
7. (a) Whenever pursuant to Section 6 a registration statement relating
to the Warrant Shares is filed under the Act or amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment or supplement (such holder being
hereinafter called the "Distributing Holder" and such securities being
hereinafter called the "Registered Securities"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
-7-
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder, for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages or liabilities, joint and several, to which the Company
or any such director, officer or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action. The maximum amount which may be
recovered from any Distributing Holder shall not under any circumstances exceed
in the aggregate the amount of net proceeds received by such Distributing Holder
from sales of his Registered Securities.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party written notice of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section 7.
-8-
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after written notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time-to-time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a stock dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. In the event an adjustment to the Exercise Price is
effected pursuant to this Subsection (a) (and a corresponding adjustment to the
number of Warrant Shares is made pursuant to Subsection (f) below), the Exercise
Price of the Warrants shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price of the Warrants by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after giving effect to such action and the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (h) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to the
date of such issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible
-9-
securities so offered) would purchase at such current market price per share of
the Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Subsection (h) below),
less the fair market value (as determined by the Company's Board of Directors)
of said assets or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(d) In case the Company shall issue shares of its Common Stock
(excluding shares issued in any of the transactions described in Subsections
(a), (b) and (c) above) for a consideration per share (the "Offering Price")
less than the current market price per share [as defined in Subsection (h)
below] on the date the Company fixes the offering price of such additional
shares) then the Exercise Price shall be adjusted immediately thereafter so that
it shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received [determined as provided in Subsection
(g) below] for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made successively
whenever such an issuance is made.
-10-
(e) In case the Company shall issue any securities convertible into
or exchangeable for its Common Stock [excluding securities issued in
transactions described in Subsections (a), (b), (c) and (d) above] for a
consideration per share of Common Stock (the "Conversion Price") initially
deliverable upon conversion or exchange of such securities [determined as
provided in Subsection (g) below] less than the current market price per share
[as defined in Subsection (h) below] in effect immediately prior to the issuance
of such securities, then the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received [determined as provided
in Subsection (g) below] for such securities would purchase at such current
market price per share of Common Stock, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
such issuance and the maximum number of shares of Common Stock of the Company
deliverable upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(f) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsections (a), (b), (c), (d) or (e) above, the number
of Warrant Shares purchasable upon exercise of these Warrants shall
simultaneously be adjusted by multiplying the number of Warrant Shares initially
issuable upon exercise of these Warrants by the Exercise Price in effect on the
date hereof and dividing the product so obtained by the Exercise Price, as
adjusted and, in connection with any event (whether or not leading to an
adjustment of the Exercise Price) causing the Target Percentage to equal less
than two percent (2%), shall be further adjusted (the "Anti-Dilution
Adjustment") so as to increase the number of Warrant Shares issuable upon
exercise of these Warrants so that the Holder (together with his transferees and
assignees) shall hold not less than two percent (2%) of the issued and
outstanding shares of Common Stock then outstanding (including any shares
issuable on exercise or conversion of any rights then outstanding to acquire
shares of the Company's Common Stock), provided that the Anti-Dilution
Adjustment shall terminate upon, and not be calculated with respect to, the
closing of an initial bona fide public offering of Common Stock pursuant to a
firm commitment underwriting under a registration statement declared effective
by the Securities and Exchange Commission under the Act.
(g) For purposes of any computation respecting consideration received
pursuant to Subsections (d) and (e) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or otherwise
in connection therewith;
-11-
(ii) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined in
good faith by the Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be conclusive;
(iii) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the conversion or
exchange thereof [the consideration in each case to be determined in the same
manner as provided in clauses (i) and (ii) of this Subsection (g)]; and
(iv) in case the Company shall sell and issue Common Stock
together with one or more other securities as part of a unit at a price per
unit, then in determining consideration per share for purposes of this Section
8, the Board of Directors of the Company shall determine, in good faith, whose
determination shall be described in a duly adopted board resolution certified by
the Company's Secretary or Assistant Secretary, the fair value of the Common
Stock then being sold as part of such unit, and such determination, in the
absence of fraud or bad faith, shall be binding, upon the holder of these
Warrants.
(h) For the purpose of any computation under Subsections (b), (c),
(d) and (e) above, the current market price per share of Common Stock at any
date shall be deemed to be the average Fair Market Value of the Common Stock for
30 consecutive business days before such date.
"Fair Market Value" shall mean an amount that is determined as
follows: (i) If the Common Stock is listed on the New York Stock Exchange, the
American Stock Exchange or such other securities exchange designated by the
Board of Directors of the Company, or admitted to unlisted trading privileges on
any such exchange, or if the Common Stock is quoted on a National Association of
Securities Dealers, Inc. system that reports closing prices, the Fair Market
Value shall be the closing price of the Common Stock as reported by the Wall
Street Journal on the day the Fair Market Value is to be determined, or if no
such price is reported for such day, then the determination of such closing
price shall be as of the last immediately preceding day on which the closing
price is so reported; or (ii) If the Common Stock is not so listed or admitted
to unlisted trading privileges or so quoted, the Fair Market Value shall be the
average of the last reported highest bid and the lowest asked prices quoted on
the National Association of Securities Dealers, Inc. Automated Quotations System
or, if not so quoted, then by the National Quotation Bureau, Inc. on the day the
Fair Market Value is determined; or (iii) If the Common Stock is not so listed
or admitted to unlisted trading privileges or so quoted, and bid and asked
prices are not reported, the Fair Market Value shall be determined in such
reasonable manner as may be presented by the Board of Directors of the Company.
-12-
(i) All calculations under this Section 8 shall be made to the
nearest one cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the Exercise Price,
in addition to those required by this Section 8, as it shall determine, in its
sole discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any federal
income tax liability to the holders of Common Stock.
(j) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than ten (10) days after any request for
such an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Warrant Shares issuable upon exercise -of
these Warrants and, if requested, information describing the transactions giving
rise to such adjustments, to be mailed to the Holder at the address set forth
herein, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(k) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of these Warrants thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of these
Warrants shall be subject to adjustment from time-to-time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (a) to (i), inclusive above.
9. If securities of the Company do not commence to trade publicly on any
securities exchange, any NASDAQ market or in the over the counter markets prior
to June 1, 1998, then the Holder hereof may put and sell (the "Put Right") these
Warrants to the Company for an aggregate of $300,000 (the "Put Amount") provided
that the Holder may exercise the Put Right at his sole election in whole or in
part at any time after May 30, 1998 and prior to May 1, 1999 at which date the
Put Right shall terminate and be of no further force or effect whatever. In the
event that the Put Right is exercised as to a portion of these Warrants, the
Company shall pay the Holder an amount determined by multiplying the Put Amount
by a fraction the numerator of which shall be the number of Warrants being put
to the Company and the denominator of which shall be 475,015 (the original
number of Warrant Shares, subject to adjustment as set forth in Section 8
above). The Company shall pay the Put Amount (or the Put amount as adjusted) to
the Holder no later than 10 days after Holder has advised the Company in writing
of Holder's election to exercise the Put Right.
10. In the event of any loss, theft or destruction of these Warrants,
upon delivery of a written agreement to indemnify the Company (which agreement
may be unsecured if
-13-
from the original Holder of these Warrants), or in the event of any mutilation
of these Warrants, upon surrender of these Warrants to the Company, the Company,
at its expense, will execute and deliver, in lieu thereof, new Warrants
representing the right to purchase at the Exercise Price a like aggregate number
of Warrant Shares.
11. This Agreement shall be governed by and in accordance with the laws of
the State of Texas and in the event of any action to enforce any provision of
these Warrants the prevailing party shall be entitled to all costs of suit,
including without limitation, attorneys' fees and court costs, and shall be
entitled to the interests on any award until paid. This agreement replaces,
supplants and corrects any other or prior agreements between the parties
conferring the subject warrants in favor of the Holder to the effect that
warrants have been issued to the Holder which permit the purchase of the sum
total of 475,015 shares only under the terms and conditions stated in this
signed writing.
IN WITNESS WHEREOF, Mannatech Incorporated has caused these Warrants to be
signed by its duly authorized officers under its corporate seal, and these
Warrants to be dated as of May 1, 1997.
Mannatech Incorporated
By /s/ Charles E. Fioretti
--------------------------------------------
Charles E. Fioretti, Chief Executive Officer
(Corporate Seal)
ATTEST:
/s/ Patrick D. Cobb
- ------------------------------
Patrick D. Cobb
CONSENTED TO AND AGREED:
/s/ Christopher Marlett
- ------------------------------
CHRISTOPHER MARLETT
-14-
PURCHASE FORM
(To be signed only upon exercise of Warrants)
The undersigned, the holder of the foregoing Warrants, hereby irrevocably
elects to exercise the purchase rights represented by such Warrants for, and to
purchase thereunder, _____ Shares of Mannatech Incorporated, and herewith makes
payment of $___________ therefor and requests that the certificates for shares
of Common Stock be issued in the name(s) of, and delivered to _________________,
whose address(es) is (are) _____________________________________________________
DATED: , 199
-------- -- ------------------------------
------------------------------
-1-
TRANSFER FORM
(To be signed only upon transfer of the Warrants)
For value received, the undersigned hereby sells, assigns, and transfers unto
___________________________the right to purchase Warrant Shares represented by
the foregoing Warrants to the extent of _________ Shares, and appoints
_______________________ attorney to transfer such rights on the books of
Mannatech Incorporated, with full power of substitution in the premises.
DATED: , 199
--------- -- ------------------------------
------------------------------
By:
---------------------------
---------------------------
(Address)
-1-
MANNATECH, INCORPORATED
1997 STOCK OPTION PLAN
1. PURPOSE OF PLAN. The purpose of this 1997 Stock Option Plan (the
"Plan") is to provide additional incentive to officers, other key employees, and
non-employee directors and consultants of Mannatech, Incorporated, a Texas
corporation (the "Company"), and each present or future parent or subsidiary
corporation, by encouraging them to invest in shares of the Company's common
stock, $0.001 par value per share ("Common Stock"), and thereby acquire a
proprietary interest in the Company and an increased personal interest in the
Company's continued success and progress.
2. AGGREGATE NUMBER OF SHARES. Two Million (2,000,000) shares of the
Company's Common Stock shall be the aggregate number of shares which may be
issued under this Plan. Notwithstanding the foregoing, in the event of any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee (defined in Section 4(a)), deems in its sole discretion to be similar
circumstances, the aggregate number and kind of shares which may be issued under
this Plan shall be appropriately adjusted in a manner determined in the sole
discretion of the Committee. Furthermore, in the event any transaction or event
described or referred to in the immediately preceding sentence shall occur, the
Committee may provide in substitution of any or all of the option holder's
rights under this Plan such alternative consideration as the Committee may
determine in good faith to be equitable under the circumstances. Reacquired
shares of the Company's Common Stock, as well as unissued shares, may be used
for the purpose of this Plan. Common Stock of the Company subject to options
which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan.
3. CLASS OF PERSONS ELIGIBLE TO RECEIVE OPTIONS. Subject to the
provisions of Section 4(b) hereof, all officers and key employees and
consultants of the Company and of any present or future Company parent or
subsidiary corporation are eligible to receive an option or options under this
Plan. All non-employee directors of the Company and of any present or future
Company parent or subsidiary corporation are eligible to receive an option or
options under this Plan. The individuals who shall, in fact, receive an option
or options shall be selected by the Committee, in its sole discretion, except as
otherwise specified in Section 4 hereof. No individual may receive options under
this Plan during any calendar year for more than [___________] shares of the
Company's Common Stock.
4. ADMINISTRATION OF PLAN.
(a) Prior to the registration of the Company's Common Stock under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), this Plan shall be administered by the Company's Board of Directors and,
after such registration, by an
Option Committee ("Committee") appointed by the Company's Board of Directors.
The Committee shall consist of a minimum of two and a maximum of [three] members
of the Board of Directors, each of whom shall be a "Non-Employee Director"
within the meaning of Rule 16b3(b)(3) under the Exchange Act and an "outside
director" within the meaning of the regulations adopted under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") or any future
corresponding rules, except that the failure of the Committee for any reason to
be composed solely of Non-Employee Directors shall not prevent an option from
being considered granted under this Plan. The Committee shall, in addition to
its other authority and subject to the provisions of this Plan, determine: which
individuals shall in fact be granted an option or options; whether the
option shall be an Incentive Stock Option or a Non-Qualified Stock Option (as
such terms are defined in Section 5(a)); the number of shares to be subject to
each of the options; the time or times at which the options shall be granted;
the rate of option exercisability (vesting schedule); subject to Section 5
hereof, the price at which each of the options is exercisable and the duration
of the option; and whether the Company shall have any right, at any time prior
to a public offering of the Common Stock, to repurchase from an optionee any
shares of Common Stock acquired on the exercise of an option granted under this
Plan and, if so, the purchase price (or the process or formula to be employed in
order to determine such price), together with the procedure to govern the manner
of the Company's exercise, the transfer of the shares and the Company's payment
therefor. The term "Committee", as used in this Plan and the options granted
hereunder, refers to the Board of Directors prior to the registration of the
Company's Common Stock under Section 12 of the Securities Exchange Act of 1934
and, after such registration, to the Committee; prior to such registration, the
Board of Directors may consist of only one director.
(b) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors, if it so desires.
5. INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS.
-2-
(a) Options issued pursuant to this Plan may be either Incentive
Stock options granted pursuant to Section 5(b) hereof or Non-Qualified Stock
Options granted pursuant to Section 5(c) hereof, as determined by the Committee.
An "Incentive Stock Option" is an option which satisfies all of the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person. The option price for options issued under this Plan shall be equal at
least to the fair market value (as defined below) of the Company's Common Stock
on the date of the grant of the option. The fair market value of the Company's
Common Stock on any particular date shall mean the last reported sale price of a
share of the Company's Common Stock on any stock exchange on which such stock is
then listed or admitted to trading, or on the Nasdaq National Market System,
Nasdaq Small Cap or Nasdaq "Bulletin Board," on such date; or if no sale took
place on such day, the last such date on which a sale took place, or if the
Common Stock is not then quoted on the Nasdaq National Market System or Nasdaq
Small Cap or Nasdaq "Bulletin Board," or listed or admitted to trading on any
stock exchange, the average of the bid and asked prices in the over-the-counter
market on such date, or if none of the foregoing, a price determined in good
faith by the Committee to equal the fair market value per share of the Common
Stock.
(b) No option will be exercisable more than ten years from the date
of grant.
(c) Each grant of options will be evidenced by an agreement executed
on behalf of the Company by an officer and delivered to the participant and
containing such terms and provisions, consistent with this Plan, as the
Committee may approve. Any such agreement may provide for the acceleration of
any vesting period for exercise of an option in the event of a change in control
of the Company or other similar transaction or event.
(d) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option intended to be an "Incentive Stock Option"
does not qualify as an "Incentive Stock Option" as that term is used in Section
422 of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option.
6. AMENDMENT, SUPPLEMENT, SUSPENSION AND TERMINATION. Options shall
not be granted pursuant to this Plan after the expiration of ten (10) years
from the date the Plan is adopted by the Board of Directors of the Company.
The Board of Directors reserves the right at any time, and from time to time,
to amend or supplement this Plan in any way, or to suspend or terminate it,
effective as of such date, which date may be either before or after the
taking of such action, as may be specified by the Board of Directors;
provided,
-3-
however, that such action shall not affect options granted under the Plan prior
to the actual date on which such action occurred. If the Board of Directors
voluntarily submits a proposed amendment, supplement, suspension or termination
for shareholder approval, such submission shall not require any future
amendments, supplements, suspensions or terminations (whether or not relating to
the same provision or subject matter) to be similarly submitted for shareholder
approval.
7. EFFECTIVENESS OF PLAN.
(a) This Plan shall become effective on the date of its adoption by
the Company's Board of Directors, subject however to approval by the holders of
the Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
(b) Notwithstanding subsection (a) of this Section and any provision
of Section 6 to the contrary, any agreement by the terms of which the Company is
bound to the purchaser of any security of the Company to obtain such purchaser's
approval of a Company employee stock option plan extends to this Plan and, for
so long as such agreement terms remain in force and effect, shall be construed
to extend also to any proposed amendment or supplement to this Plan or
suspension or termination thereof pursuant to Section 6, and no such proposed
action shall be effective as of any otherwise applicable effective date unless
such approval shall have been obtained.
8. GENERAL CONDITIONS.
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any employee the right to continue in the employ of
the Company or any affiliated or subsidiary corporation or interfere in any way
with the rights of the Company or any affiliated or subsidiary corporation to
terminate his employment in any way.
(b) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any director the right to continue as a director of
the Company or any affiliated or subsidiary corporation or interfere in any way
with the rights of the Company or any affiliated or subsidiary corporation, or
their respective shareholders, to terminate the directorship of any such
director in accordance with such corporation's applicable charter and bylaw
provisions consistent with the governing corporate law.
(c) Corporate action constituting an offer of stock for sale to any
person under the terms of the options to be granted hereunder shall be deemed
complete as of the date when the Committee authorizes the grant of the option to
the such person, regardless of when the option is actually delivered to such
person or acknowledged or agreed to by him.
-4-
(d) The terms "parent corporation" and "subsidiary corporation" as
used throughout this Plan, and the options granted pursuant to this Plan, shall
(except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
(e) References in this Plan to the Code shall be deemed to also refer
to the corresponding provisions of any future United States revenue law.
(f) The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
-5-
APPENDIX I
INCENTIVE STOCK OPTION
To: ___________________________________________________________________
Name
___________________________________________________________________
Address
Date of Grant:__________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.001 par value per share ("Common
Stock"), of Mannatech, Incorporated, a Texas corporation (the "Company") at a
price of $__________ per share pursuant to the Company's 1997 Stock Option Plan
(the "Plan").
Your option may first be exercised ninety (90) days following completion by
the Company of a registered public offering of its securities pursuant to the
requirements of the Securities Act of 1933, as amended, but in any event not
earlier than one (1) year from date of grant. On and after one year and prior to
two years from the date of grant, your option may be exercised for up to 33 1/3%
of the total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, reorganization, or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional 33 1/3% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split
combination of shares, recapitalization, merger, consolidation, reorganization,
or what the Committee deems in its sole discretion to be similar circumstances).
Thus, subject as aforesaid to the condition set forth in the next paragraph,
this option is fully exercisable on and after three years after the date of
grant, except if terminated earlier as provided herein. No fractional shares
shall be issued or delivered. This option shall terminate and is not exercisable
after [ten (10)] years from the date of its grant (the "Scheduled Termination
Date"), except if terminated earlier as hereafter provided.
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the
Secretary of the Company at the fair market value per share of the Company's
Common Stock (as determined in accordance with the Plan) on the date of delivery
of such certificates to the Company, accompanied by an assignment of the stock
to the Company; or (c) (unless prohibited by the Committee) any combination of
cash and Common Stock of the Company valued as provided in clause (b). Any
assignment of stock shall be in a form and substance satisfactory to the
Secretary of the Company, including guarantees of signature(s) and payment of
all transfer taxes if the Secretary deems such guarantees necessary or
desirable.
Your option will, to the extent not previously exercised by you, terminate
thirty (30) days after the date on which your employment by the Company or a
Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death, in which case your option will
terminate one year from the date of termination of employment due to disability
or death (but in no event later than the Scheduled Termination Date). After the
date your employment is terminated, as aforesaid, you may exercise this option
only for the number of shares which you had a right to purchase and did not
purchase on the date your employment terminated. If you are employed by a
Company subsidiary corporation, your employment shall be deemed to have
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee deems in its sole discretion to be similar
circumstances, the number and kind of shares
subject to this option and the option price of such shares shall be
appropriately adjusted in a manner to be determined in the sole discretion of
the Committee.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time;
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or
sell.
(d) Until you have paid or made suitable arrangements to pay (which
may include payment through the surrender of Common Stock, unless prohibited by
the Committee) (i) all federal, state and local income tax withholding required
to be withheld by the Company in connection with the option exercise and (ii)
the employee's portion of other federal, state and local payroll and other taxes
due in connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment
purposes only, and not with a view to, or in connection with, any resale or
other distribution of any of such shares, except as hereafter permitted. The
optionee further agrees that he will not at any time make any offer, sale,
transfer, pledge or other disposition of such Common Stock to be issued
hereunder without an effective registration statement under the Securities Act
of 1933, as amended, and under any applicable state securities laws or an
opinion of counsel acceptable to the Company to the effect that the proposed
transaction will be exempt from such registration. The optionee shall execute
such instruments, representations, acknowledgements and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES
LAWS. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
THE PROPOSED TRANSACTION WILL BE EXEMPT FROM SUCH REGISTRATION."
The foregoing legend shall be removed upon registration of the legended
shares under the Securities Act of 1933, as amended, and under any applicable
state laws or upon receipt of any opinion of counsel acceptable to the Company
that said registration is no longer required
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
Subject to the $100,000 per year limitation of Section 422(d) of the Code,
it is the intention of the Company and you that this option shall, if possible,
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if and to the extent that such conformity may be achieved by
amendment.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option
becomes vested. The preceding sentences of this paragraph, however, shall not
apply to the extent of any inconsistency with a provision or provisions of a
written contract of employment between you and the Company for so long, but only
so long, as such contract remains in full force and effect or the provisions
involved survive the termination of such contract.
Any dispute or disagreement between you and the Company with respect to any
portion of this option or its validity, construction, meaning, performance or
your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
MANNATECH, INCORPORATED,
a Texas corporation
By
----------------------------------
Its
-------------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
Further in this regard, the undersigned acknowledges that, under Section
422(d) of the Code, to the extent that the aggregate fair market value of stock
with respect to which incentive stock options are exercisable for the first time
by the undersigned during any calendar year exceeds $100,000.00, such options
shall be treated as options which are not incentive options.
- ----------------------------- -----------------------------
(Signature) (Date)
APPENDIX II
NON-QUALIFIED STOCK OPTION FOR OFFICERS AND OTHER KEY EMPLOYEES
To: ___________________________________________________________________
Name
___________________________________________________________________
Address
Date of Grant:__________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase ____ shares of common stock, $0.001 par value per share ("Common
Stock"), of Mannatech, Incorporated, a Texas corporation (the "Company") at a
price of $___________ per share pursuant to the Company's 1997 Stock Option Plan
(the "Plan").
Subject to the condition set forth in the immediately following paragraph,
your option may first be exercised on and after one year from the date of grant,
but not before that time. On and after one year and prior to two years from the
date of grant, your option may be exercised for up to 33 1/3% of the total
number of shares subject to the option minus the number of shares previously
purchased by exercise of the option (as adjusted for any change in the
outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus,
subject as aforesaid to the condition set forth in the next paragraph, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten (10) years from the date of its grant (the "Scheduled Termination Date"),
except if terminated earlier as hereafter provided.
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a
so-called "cashless exercise"; (b) (unless prohibited by the Committee)
certificates representing shares of Common Stock of the Company, which will be
valued by the Secretary of the Company at the fair market value per share of the
Company's Common Stock (as determined in accordance with the Plan) on the date
of delivery of such certificates to the Company, accompanied by an assignment of
the stock to the Company; or (c) (unless prohibited by the Committee) any
combination of cash and Common Stock of the Company valued as provided in clause
(b). Any assignment of stock shall be in a form and substance satisfactory to
the Secretary of the Company, including guarantees of signature(s) and payment
of all transfer taxes if the Secretary deems such guarantees necessary or
desirable.
Your option will terminate thirty (30) days after the date on which your
employment by the Company or a Company subsidiary corporation is terminated
(whether such termination be voluntary or involuntary) other than by reason of
disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations thereunder, or death, in which case
your option will terminate one year from the date of termination of employment
due to disability or death (but in no event later than the Scheduled Termination
Date). After the date your employment is terminated, as aforesaid, you may
exercise this option only for the number of shares which you had a right to
purchase and did not purchase on the date your employment terminated. If you
are employed by a Company subsidiary corporation, your employment shall be
deemed to have terminated on the date your employer ceases to be a Company
subsidiary corporation, unless you are on that date transferred to the Company
or another Company subsidiary corporation. Your employment shall not be deemed
to have terminated if you are transferred from the Company to a Company
subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee deems in its sole discretion to be similar
circumstances, the number and kind of shares
subject to this option and the option price of such shares shall be
appropriately adjusted in a manner to be determined in the sole discretion of
the Committee.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which
may include payment through the surrender of Common Stock, unless prohibited by
the Committee) (i) all federal, state and local income tax withholding required
to be withheld by the Company in connection with the option exercise and (ii)
the employee's portion of other federal, state and local payroll and other taxes
due in connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment
purposes only, and not with a view to, or in connection with, any resale or
other distribution of any of such shares, except as hereafter permitted. The
optionee further agrees that he will not at any time make any offer, sale,
transfer, pledge or other disposition of such Common Stock to be issued
hereunder without an effective registration statement under the Securities Act
of 1933, as amended, and under any applicable state securities laws or an
opinion of counsel acceptable to the Company to the effect that the proposed
transaction will be exempt from such registration. The optionee shall execute
such instruments, representations, acknowledgements and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES
LAWS. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
THE PROPOSED TRANSACTION WILL BE EXEMPT FROM SUCH REGISTRATION."
The foregoing legend shall be removed upon registration of the legended
shares under the Securities Act of 1933, as amended, and under any applicable
state laws or upon receipt of any opinion of counsel acceptable to the Company
that said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
IT IS THE INTENTION OF THE COMPANY AND YOU THAT THIS OPTION SHALL NOT BE AN
"INCENTIVE STOCK OPTION" AS THAT TERM IS USED IN SECTION 422 OF THE CODE AND THE
REGULATIONS THEREUNDER.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested. The preceding
sentences of this paragraph, however, shall not apply to the extent of any
inconsistency with a provision or provisions of a written contract of employment
between you and the Company for so long, but only so long, as such contract
remains in full force and effect or the provisions involved survive the
termination of such contract.
Any dispute or disagreement between you and the Company with respect to any
portion of this option or its validity, construction, meaning, performance or
your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
MANNATECH, INCORPORATED,
a Texas corporation
By
----------------------------------
Its
---------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
- ----------------------------- -----------------------------
(Signature) (Date)
APPENDIX III
NON-QUALIFIED STOCK OPTION FOR NON-EMPLOYEE DIRECTORS AND CONSULTANTS
To: ___________________________________________________________________
Name
___________________________________________________________________
Address
Date of Grant:__________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase _____ shares of common stock, $0.001 par value per share ("Common
Stock"), of Mannatech, Incorporated, a Texas corporation (the "Company") at a
price of $_____________ per share pursuant to the Company's 1997 Stock Option
Plan (the "Plan").
Effective this date your option may be exercised for up to 100% of the
total number of shares then subject to the option minus the number of shares
previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion to be similar circumstances).
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will terminate on ________________ or upon that date which is
ninety (90) days after which you cease for any reason to be a director or
consultant of the Company or a subsidiary corporation (whether by death,
disability, resignation, removal or failure to be reappointed, reelected or
otherwise, and regardless of whether the failure to continue as a director was
for cause or without cause or otherwise), whichever shall first
occur ("Scheduled Termination Date"). After the date you cease to be a director
or consultant, you may exercise this option only for the number of shares which
you had a right to purchase and did not purchase on the date you ceased to be a
director. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship or consultant status shall not
be deemed to have terminated if you cease being a director or consultant of the
Company or a subsidiary corporation but are or concurrently therewith become a
director or consultant of the Company or another subsidiary corporation.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee deems in its sole discretion to be similar
circumstances, the number and kind of shares subject to this option and the
option price of such shares shall be appropriately adjusted in a mariner to be
determined in the sole discretion of the Committee.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder, except that options granted to Consultants need
not have shareholder approval;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which
may include payment through the surrender of Common Stock, unless prohibited by
the Committee) (i) all federal, state and local income tax withholding required
to be withheld by the Company in connection with the option exercise and (ii)
the employee's portion of other federal, state and local payroll and other taxes
due in connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES
LAWS. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
THE PROPOSED TRANSACTION WILL BE EXEMPT FROM SUCH REGISTRATION."
The foregoing legend shall be removed upon registration of the legended
shares under the Securities Act of 1933, as amended, and under any applicable
state law's or upon receipt of any opinion of counsel acceptable to the Company
that said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
IT IS THE INTENTION OF THE COMPANY AND YOU THAT THIS OPTION SHALL NOT BE AN
"INCENTIVE STOCK OPTION" AS THAT TERM IS USED IN SECTION 422 OF THE CODE AND THE
REGULATIONS THEREUNDER.
Any dispute or disagreement between you and the Company with respect to any
portion of this option or its validity, construction, meaning, performance or
your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the
arbitrator(s) being rendered, you and the Company may resolve the dispute by
settlement. You and the Company shall equally share the costs charged by the
American Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option. the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.
Please sign the copy of this option and return it to the Company's
secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
MANNATECH, INCORPORATED,
a Texas corporation
By
----------------------------------
Its
---------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
- ----------------------------- -----------------------------
(Signature) (Date)
MANNATECH, INCORPORATED
1998 INCENTIVE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purposes of this 1998 Incentive Stock Option
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees
of the Company and to promote the success of the Company's business.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed,
or the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Mannatech, Incorporated, a Texas
corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan, if one is appointed.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of
any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided
that such leave is for a period of not more than 90 days or reemployment upon
the expiration of such leave is guaranteed by contract or statute.
(g) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
(h) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(i) "NON-EMPLOYEE DIRECTOR" shall mean a Non-Employee Director as
defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), promulgated under SEC Release 34-37260 (May 31, 1996), as such
Rule may be amended from time to time.
(j) "OPTION" shall mean a stock option granted pursuant to the Plan.
(k) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
1
(l) "OPTIONEE" shall mean an Employee who receives an Option.
(m) "PARENT" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(n) "PLAN" shall mean this 1998 Incentive Stock Option Plan.
(o) "STOCK OPTION AGREEMENT" shall mean an Incentive Stock Option
Agreement, pursuant to which Options are granted under the Plan, the form of
which is attached hereto as EXHIBIT A.
(p) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "SUBSIDIARY" shall mean a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 425(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is ___________ shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of the
Company or the Board may appoint a Committee consisting of not less than two
Non-Employee Directors to administer the Plan on behalf of the Board, subject
to such terms and conditions as the Board may prescribe. To the extent that
the Board appoints a committee to administer the Plan, only Non-Employee
Directors shall be eligible to serve as members of the Committee. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefore, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant Incentive
Stock Options, in accordance with Section 422 of the Code; (ii) to determine,
upon review of relevant information and in accordance with Section 8(b) of
the Plan, the fair market value of the Common Stock; (iii) to determine the
exercise price per share of Options to be granted, which exercise price shall
be determined in accordance with Section 8(a) of the Plan; (iv) to determine
the Employees to whom, and the time or times at which, Options shall be
granted and the number of shares to be
2
represented by each Option; (v) to interpret the Plan; (vi) to prescribe,
amend and rescind rules and regulations relating to the Plan; (vii) to
determIne the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option, consistent with the provisions of Section 5 of
the Plan; (ix) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously
granted by the Board; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. An
Employee who has been granted an Option may, if such Employee is otherwise
eligible, be granted an additional Option or Options.
(b) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment with the Company nor shall it interfere
in any way with Optionee's right or the Company's right to terminate
Optionee's employment at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 17 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided
in the Stock Option Agreement.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option granted to an
Employee who, at the time of the grant of such Incentive Stock Option, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the fair market value per Share
on the date of grant.
3
(ii) In the case of an Incentive Stock Option granted to any
other Employee, the per Share exercise price shall be no less than 100% of
the fair market value per Share on the date of grant.
(b) The fair market value per Share shall be determined as
follows: (i) if the Common Stock is listed on a national securities exchange,
the closing sale price per share on the principal exchange on which the
Common Stock is listed as reported by such exchange, (ii) if the Common Stock
is quoted in the National Market System, the closing sale price per share as
reported by NASDAQ, (iii) if the Common Stock is traded in the
over-the-counter market but not quoted in the National Market System, the
average of the closing bid and asked quotations per share as reported by
NASDAQ, or any other nationally accepted reporting medium if NASDAQ
quotations shall be unavailable, or (iv) if none of the foregoing applies,
the fair market value of the Common Stock will be the fair value of the
Common Stock as reasonably determined in the good faith judgment of the Board.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Board and may consist entirely of cash, certified or official bank
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment for the issuance
of Shares to the extent permitted under the Texas Business Corporation Act.
9. EXERCISE OF OPTION
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment, as authorized by the Board, may consist of a
consideration and method of payment allowable under section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of the duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date
the stock certificate is issued, except as provided in Section 11 of the
Plan. Prior to the time of issuance, the Company shall satisfy its employment
tax and other tax withholding obligations by requiring the Optionee to pay
the amount of withholding tax, if any, that must be paid under federal, state
and local law
4
due to the exercise of the Option, subject to such restrictions or procedures
as the Company deems necessary to satisfy Rule 16b-3 of the Exchange Act. The
payment of such withholding tax may be by certified or official bank check or
by the delivery of a number of shares of Common Stock (plus cash if
necessary) having a fair market value equal to the amount of such withholding
tax.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE. If any Employee ceases
to serve as an Employee, such Employee may, but only within thirty (30) days
(or such other period of time not exceeding three (3) months as is determined
by the Board at the time of grant of the Option) after the date such person
ceases to be an Employee, exercise his or her Option to the extent that such
person was entitled to exercise it at the date of such termination. To the
extent that such Employee was not entitled to exercise the Option at the date
of such termination, or if such Employee does not exercise such Option (which
such person was entitled to exercise) within the time specified herein, the
Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 9(b) above, in the event an Employee is unable to continue his or her
employment relationship with the Company as a result of such Employee's total
and permanent disability (as defined in Section 22(e)(3) of the Code), such
Employee may, but only within six (6) months (or such other period of time
not exceeding twelve (12) months as is determined by the Board at the time of
grant of the Option) from the date of termination, exercise his or her Option
to the extent such person was entitled to exercise it at the date of such
termination. To the extent that the Employee was not entitled to exercise the
Option at the date of termination, or if such Employee does not exercise such
Option (which such person was entitled to exercise) within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his
or her death an Employee and who shall have been in Continuous Status as an
Employee since the date of grant of the Option, the Option may be exercised,
at any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as an Employee six (6) months after the date of
death; or
(ii) within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Board at the time of
grant of the Option) after the termination of Continuous Status as an
Employee, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that had accrued at the date of
termination.
5
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the shareholders of the Company, the number of shares
of Common Stock covered by each outstanding Option, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of any Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may,
in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Board and give each Optionee
the right to exercise his or her Option as to all or any part of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. In the event of the proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise
be exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable
for a period of thirty (30) days from the date of such notice, and the Option
will terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee to
whom an Option is so granted within a reasonable time after the date of such
grant.
6
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 17 of
the Plan:
(i) an increase in the number of Shares subject to the Plan
above _________ Shares, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) any change in the designation of the class of employees
eligible to be granted Options; or
(iii) if the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision or
amendment, any material amendment under the Plan.
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity security by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as
described in Section 17 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if the Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws, and the
requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required by any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
7
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue
or sell such Shares as to which such requisite authority shall not have been
obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve months before or
after the date the Plan is adopted. If such shareholder approval is obtained
at a duly held shareholders meeting, it may be obtained by the affirmative
vote of the holders of a majority of the outstanding shares of the Company,
such holders being present or represented and entitled to vote thereon.
18. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be
required to provide such information if the issuance of Options under the
Plan is limited to key employees whose duties in connection with the Company
assure their access to equivalent information.
19. CHOICE OF LAW. THE CORPORATE LAW OF THE STATE OF TEXAS WILL GOVERN
ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
SHAREHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS WILL BE
GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
TEXAS.
8
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan effective as of the ____ day of________, 1998.
MANNATECH, INCORPORATED
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
9
EXHIBIT A
INCENTIVE STOCK OPTION AGREEMENT
[Attached]
10
MANNATECH, INCORPORATED
INCENTIVE STOCK OPTION AGREEMENT
Mannatech, Incorporated, a Texas corporation (the "Company") has granted
to (1) (the "Optionee"), an option to purchase a total of (2) shares of
Common Stock (the "Option"), at the price determined as provided herein, and
in all respects subject to the terms, definitions and provisions of the
Mannatech, Incorporated 1998 Incentive Stock Option Plan, as such may be
amended from time to time (the "Plan") adopted by the Company which is
incorporated herein by reference. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Plan.
1. NATURE OF THE OPTION. This Option is intended to qualify as an
Incentive Stock Option as defined in Section 422 of the Code.
2. EXERCISE PRICE. The exercise price is $(3) for each share of
Common Stock, which price is not less than the fair market value per share of
the Common Stock on the Date of Grant (the "Exercise Price").
3. EXERCISE OF OPTION. This Option shall be exercisable during its
term in accordance with the provisions of Section 9 of the Plan as follows:
(a) RIGHT TO EXERCISE.
(i) The Option granted hereunder shall not be exercisable
in any part until the first anniversary of the Date of Grant (as hereinafter
set forth). The Option shall be exercisable as to (4) ( ) of the total
shares covered by such Option as of the first anniversary of the Date of
Grant. The right to exercise with respect to an additional (4) ( ) of the
total shares subject to the Option shall accrue on each of the (5), (5), (5)
and (5) anniversaries of the Date of Grant and shall be cumulative.
Notwithstanding the foregoing, in the event of (A) a proposed sale of
substantially all of the Common Stock of the Company, (B) a proposed sale of
substantially all of the assets of the Company, (C) a proposed merger in
which the Company is not to be the surviving corporation (other than with a
subsidiary of the Company) or (D) any other proposed extraordinary corporate
transaction which, in the judgment of the Board, might deprive the Optionee
of the full value of the Option granted hereunder, the Company shall forward
written notification of such transaction to the Optionee, and the Optionee
shall have thirty (30) days in which to exercise all or any portion of the
Option herein granted, including any portion of the Option which has not yet
vested as of such date (to the extent such Option has not been previously
exercised), pursuant to the procedure set forth below. Upon the conclusion
of such thirty-day period, unless otherwise determined by the Board, all
rights of the Optionee hereunder shall terminate. Any exercise of the Option
by the Optionee shall be effective immediately prior to the occurrence of the
transaction giving rise to the right to exercise the Option and, to the
extent such transaction does not occur, the exercise shall be deemed
rescinded and the Optionee shall again only be entitled to exercise the
Option according to the vesting schedule set forth above.
(ii) This Option may not be exercised for a fraction of a
share.
(iii) In the event of the Optionee's death, disability or
other termination of employment, the exercisability of the Option is governed
by Sections 7, 8 and 9 below.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
written notice to
the Company which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise
Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then
be listed and the payment of withholding tax, if any, has been made in
compliance with the terms of the Plan. Assuming such compliance, the Shares
shall be considered transferred to the Optionee on the date determined
pursuant to the provisions of the Plan.
4. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, deliver to the Company a Letter Agreement in the form attached hereto
as Exhibit A and such Optionee's spouse shall execute the consent at the end
of such Letter Agreement.
5. METHOD OF PAYMENT. Payment of the exercise price shall be by:
(a) cash;
(b) certified or official bank check; or
(c) surrender of other Shares of Common Stock of the Company of a
value equal to the exercise price of the Shares as to which the Option is
being exercised.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation
G") as promulgated by the Federal Reserve Board. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any
applicable law or regulation.
7. TERMINATION OF STATUS AS AN EMPLOYEE. If Optionee ceases to serve
as an Employee, Optionee may, but only within (6) days after the date
Optionee ceases to be an Employee of the Company, exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, the Option shall terminate.
8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section
7 above, if Optionee is unable to continue his or her employment with the
Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), Optionee may, within (7) months from the
date of termination of employment, exercise his or her Option to the extent
Optionee was entitled to exercise it at the date of such termination. To the
extent that
2
Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option (which Optionee was
entitled to exercise) within the time specified herein, the Option shall
terminate.
9. DEATH OF OPTIONEE. In the event of the death of Optionee:
(a) during the term of this Option and while an Employee of the
Company and having been in Continuous Status as an Employee since the Date of
Grant of the Option, the Option may be exercised, at any time within six (6)
months following the date of death, by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only
to the extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Status as an Employee
six (6) months after the date of death; or
(b) within (8) days after the termination of Optionee's Continuous
Status as an Employee, the Option may be exercised, at any time within six
(6) months following the date of death, by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
termination.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
such Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
11. TERM OF OPTION. This Option may not be exercised more than ten
(10) years (five years if Optionee owns, immediately before this Option is
granted, stock representing more than 10 percent of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary)
from the date of grant of this Option, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
12. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex
to the parties at the following addresses or at such other addresses as shall
be specified by the parties by like notice:
(a) if to the Company:
600 S. Royal Lane
Suite 200
Coppell, TX 75019
Attn: President
with a copy to:
J. Kenneth Menges, Jr., P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas,, Texas 75201
3
(b) if to the Optionee:
At the Optionee's last known
address as listed with the
Company
Notice so given shall, in the case of notice so given by mail, be deemed to
be given and received on the fourth calendar day after posting, in the case
of notice so given by overnight delivery service, on the date of actual
delivery and, in the case of notice so given by cable, telegram, facsimile
transmission, telex or personal delivery, on the date of actual transmission
or, as the case may be, personal delivery.
13. SEVERABILITY. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Agreement. Such
provision shall be deemed to be modified to the extent necessary to render it
legal, valid and enforceable, and if no such modification shall render it
legal, valid and enforceable, then this Agreement shall be construed as if
not containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced accordingly.
14. COMPLETE AGREEMENT. This Agreement and the Plan embody the
complete agreement and understanding between the parties and supersede and
preempt any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and
shall constitute one and the same instrument.
16. CHOICE OF LAW. THE CORPORATE LAW OF THE STATE OF TEXAS WILL GOVERN
ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
SHAREHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND
NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.
DATE OF GRANT: (9)
MANNATECH, INCORPORATED,
a Texas corporation
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, and represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions set forth in the Plan and in this Incentive
4
Stock Option Agreement. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Dated:
-------------------------
-------------------------
Optionee
5
EXHIBIT A
, 199
----------------- --
Mannatech, Incorporated
600 S. Royal Lane
Suite 200
Coppell, TX 75019
Attn: President
Gentlemen:
In connection with the proposed purchase of _________ shares of Common
Stock (the "Stock") of Mannatech, Incorporated, a Texas corporation (the
"Company"), upon the exercise of an Incentive Stock Option dated
_____________, 199__, by the undersigned ("Purchaser"), Purchaser hereby
agrees, represents and warrants as follows:
1. PURCHASE ENTIRELY FOR OWN ACCOUNT. I represent and warrant that I
am purchasing the Stock solely for my own account for investment and not with
a view to or for sale or distribution of the Stock or any portion thereof and
not with any present intention of selling, offering to sell, or otherwise
disposing of or distributing the Stock or any portion thereof. I also
represent that the entire legal and beneficial interest of the Stock I am
purchasing is being purchased for and will be held for my account only and
neither in whole nor in part for any other person.
2. INFORMATION CONCERNING THE COMPANY. I represent and warrant that I
have discussed the Company and its plans, operations, and financial condition
with its officers and that I have received all such information as I deem
necessary and appropriate to enable me to evaluate the financial risk
inherent in making an investment in the Stock. I further represent and
warrant that I have received satisfactory and complete information concerning
the business and financial condition of the Company in response to all
inquiries in respect thereto.
3. ECONOMIC RISK. I represent and warrant that I realize that my
purchase of the Stock will be a highly speculative investment and that I am
able, without impairing my financial condition, to hold the Stock for an
indefinite period of time and to suffer a complete loss on my investment.
4. RESTRICTED SECURITIES. I represent and warrant that the Company
has disclosed to me in writing that:
(a) the sale of the Stock that I am purchasing has not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and the Stock must be held indefinitely unless a transfer of the Stock
is subsequently registered under the Securities Act or an exemption from such
registration is available;
(b) any share certificates representing the Stock will be stamped
with the following legends:
1
(i) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel satisfactory to the
Company that such registration is not required. These securities are also
subject to additional restrictions on transfer, certain repurchase options
and certain other agreements set forth in an Incentive Stock Option Agreement
dated ____________ between the Company and _______________, and in a Letter
Agreement dated ____________, between the Company and _________________,
copies of which may be obtained by the holder hereof at the Company's
principal place of business without charge."
(ii) Any legend required to be placed thereon by the
Texas Business Corporation Act.
(c) the Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
5. DISPOSITION UNDER RULE 144. I represent and warrant that I
understand that the shares of Stock are restricted securities within the
meaning of Rule 144 promulgated under the Securities Act; that the exemption
from registration under Rule 144 will not be available in any event for at
least two (2) years from the date of sale of the Stock to me, and even then
will not be available unless (a) a public trading market then exists for the
securities of the Company, (b) adequate information concerning the Company is
then available to the public and (c) other terms and conditions of Rule 144
are complied with; and that any sale of the Stock may be made by me only in
accordance with such terms and conditions.
6. FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting my
representations set forth above, I further agree that I shall in no event
make any disposition of all or any portion of the Stock that I am purchasing
except in compliance with the terms and provisions of the Plan, that certain
Incentive Stock Option Agreement (the "Stock Option Agreement") dated
____________ between Purchaser and the Company, and unless and until:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with said Registration Statement; or
(b) (i) I shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, (ii) I shall have
furnished the Company with an opinion of my own counsel to the effect that
such disposition will not require registration of such shares under the
Securities Act, and (iii) such opinion of my counsel shall have been
concurred in by counsel for the Company and the Company shall have advised me
of such concurrence.
2
Very truly yours,
---------------------------
ACCEPTED AND AGREED TO:
MANNATECH, INCORPORATED
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
The undersigned, spouse of _____________, the Purchaser executing the
foregoing Letter Agreement, hereunto subscribes his or her name in evidence of
his or her agreement and consents to the disposition of the Stock referred to in
the foregoing Letter Agreement in accordance with the terms of the Letter
Agreement and the provisions of the Stock Option Agreement and the Plan, copies
of which have heretofore been presented to the undersigned.
Effective as of the _____ day of _________________ 199__.
------------------------------
------------------------------
3
KEY FOR NUMBERED
BLANKS IN INCENTIVE STOCK OPTION AGREEMENT
OF MANNATECH, INCORPORATED
(1) Name of person to whom Option is granted.
(2) Number of shares of Common Stock for which Option is granted.
(3) Per share exercise price for the shares to be issued pursuant to exercise
of an option, determined by the Board of Directors or an option plan
committee in accordance with Section 8 of the Plan.
(4) Vesting period for option: Three years: one-third (1/3); Four years:
one-fourth (1/4); Five years: one-fifth (1/5).
(5) Three year vesting: second and third
Four year vesting: second, third and fourth
Five year vesting: second, third, fourth and fifth
(6) 30 days unless the Board designates a greater amount of time (not to exceed
3 months) at the time of grant of the Option (Section 9(b) of the Plan).
(7) 6 months unless the Board designates a greater amount of time (not to
exceed 12 months) at the time of grant of the Option (Section 9(c) of the
Plan).
(8) 30 days unless the Board designates a greater amount of time (not to exceed
3 months) at the time of grant of the Option (Section 9(d)(ii) of the
Plan).
(9) Date on which the Board authorized the grant of the Option.
4
AGREEMENT AND PLAN OF MERGER
AMONG
MANNATECH, INCORPORATED
(AS THE SURVIVING CORPORATION)
AND
EIGHT POINT SERVICES, INC.,
TRIPLE GOLD BUSINESS, INC.
FIVE SMALL FRY, INC., AND
BETA NUTRIENT TECHNOLOGY, INC.
(AS THE NON-SURVIVING CORPORATIONS)
DATED AS OF JUNE 1, 1997
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Board and Shareholder Meetings. . . . . . . . . . . . . . 1
1.2 Execution of Articles of Merger . . . . . . . . . . . . . 1
1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 TERMS OF THE TRANSACTION . . . . . . . . . . . . . . . . 2
2.1 Conversion of Shares. . . . . . . . . . . . . . . . . . . 2
2.2 Exchange Procedures . . . . . . . . . . . . . . . . . . . 2
2.3 Distributions with Respect to Unexchanged Shares. . . . . 3
2.4 Dissenting Shareholders . . . . . . . . . . . . . . . . . 3
2.5 Stock Legend. . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS. . . . 4
3.1 Representations, Warranties and Certain Covenants
of Non-Surviving Corporations . . . . . . . . . . . . . . 4
3.1.1 Due Organization and Authority. . . . . . . . . . . 4
3.1.2 Capitalization. . . . . . . . . . . . . . . . . . . 4
3.2 Representations and Warranties of Surviving Corporation . 4
3.2.1 Due Organization and Authority. . . . . . . . . . . 4
3.2.2 Capitalization of Surviving Corporation . . . . . . 5
ARTICLE 4 COVENANTS OF NON-SURVIVING CORPORATIONS. . . . . . . . . 5
4.1 Authorizations. . . . . . . . . . . . . . . . . . . . . . 5
4.2 Operation of Business . . . . . . . . . . . . . . . . . . 5
4.3 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 5 COVENANTS OF SURVIVING CORPORATION . . . . . . . . . . . 5
5.1 Authorizations. . . . . . . . . . . . . . . . . . . . . . 5
5.2 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 6 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Exchange Agreement. . . . . . . . . . . . . . . . . . . . 6
6.2 Conditions to Obligations of Surviving Corporation. . . . 6
6.2.1 Representations, Warranties and Covenants . . . . . 6
6.2.2 No Pending Litigation . . . . . . . . . . . . . . . 6
i
6.2.3 No Material Adverse Change. . . . . . . . . . . . . 6
6.2.4 Corporate Authorization of Merger . . . . . . . . . 7
6.2.5 Dissenting Shareholders . . . . . . . . . . . . . . 7
6.3 Conditions to Obligations of the Non-Surviving
Corporations. . . . . . . . . . . . . . . . . . . . . . . 7
6.3.1 Representations, Warranties and Covenants . . . . . 7
6.3.2 No Pending Litigation . . . . . . . . . . . . . . . 7
6.3.3 No Material Adverse Change. . . . . . . . . . . . . 7
6.3.4 Corporate Authorization of Merger . . . . . . . . . 7
ARTICLE 7 TERMINATION; SURVIVAL; WAIVER AND AMENDMENT . . . . . . 8
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . 8
7.3 Waiver and Amendment. . . . . . . . . . . . . . . . . . . 8
ARTICLE 8 OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . 9
8.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 9
8.2 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 9
8.3 Descriptive Headings. . . . . . . . . . . . . . . . . . . 9
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 10
8.6 Assignment. . . . . . . . . . . . . . . . . . . . . . . . 10
8.7 Further Assurances. . . . . . . . . . . . . . . . . . . . 10
ii
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of June 1,
1997 (the "Execution Date"), is among Eight Point Services, Inc., a Texas
corporation, Triple Gold Business, Inc., a Texas corporation, Five Small Fry,
Inc., a Texas corporation, and Beta Nutrient Technology, Inc., a Texas
corporation (collectively, the "Non-Surviving Corporations"), and Mannatech,
Incorporated, a Texas corporation (the "Surviving Corporation"). The Surviving
Corporation and the Non-Surviving Corporations may hereafter be collectively
referred to as the "Constituent Corporations."
WITNESSETH:
WHEREAS, the Constituent Corporations deem it advisable to merge the
Non-Surviving Corporations into the Surviving Corporation (the "Merger")
pursuant to this Agreement, the Articles of Merger (as defined below) to be
executed by the Constituent Corporations, and the Texas Business Corporation Act
(the "Act");
NOW THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and the representations, warranties, conditions and agreements
hereinafter contained, the Constituent Corporations hereby adopt this Agreement
and agree as follows:
ARTICLE 1
GENERAL
1.1 BOARD AND SHAREHOLDER MEETINGS. As soon as practical after the
Execution Date, this Agreement and the transactions contemplated herein shall be
submitted for approval by Board of Directors and the shareholders of each of the
Constituent Corporations.
1.2 EXECUTION OF ARTICLES OF MERGER. Subject to the provisions of this
Agreement, Articles of Merger to effectuate the terms of this Agreement
("Articles of Merger") shall be executed by the appropriate officers of each of
the Constituent Corporations and thereafter delivered to the Secretary of State
of the State of Texas for filing. The Merger shall become effective upon the
acceptance for filing of the Articles of Merger by the Secretary of State of the
State of Texas, or on such later effective date and time as may be specified in
the Articles of Merger (the "Effective Time"). At the Effective Time (i) the
separate existence of the Non-Surviving Corporations shall cease and the
Non-Surviving Corporations shall be merged with and into the Surviving
Corporation, (ii) the Articles of Incorporation and Bylaws of the Surviving
Corporation as in effect immediately prior to the Effective Time shall
constitute the Articles of Incorporation and Bylaws of the Surviving
Corporation, and (iii) the officers and directors of the Surviving Corporation
at the Effective Time shall continue as the officers and directors of the
Surviving Corporation.
1.3 EFFECTS OF THE MERGER. At and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as a private
nature, and be subject to all the restrictions, disabilities and duties of each
of the Constituent Corporations; and all rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to any of the Constituent Corporations on
whatever account, as well as all other things in action or belonging to each of
the Constituent Corporations, shall be vested in the Surviving Corporation; and
all property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the respective Constituent Corporations, and the
title to any real estate vested by deed or otherwise in any of the Constituent
Corporations shall not revert or be in any way impaired; but all rights of
creditors and all liens upon any property of any of the respective Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of the Constituent Corporations shall thence forth attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
said debts and liabilities had been incurred by it.
ARTICLE 2
TERMS OF THE TRANSACTION
2.1 CONVERSION OF SHARES. At the Effective Time, each issued and
outstanding share of common stock of the Non-Surviving Corporations, excluding
any treasury shares and shares owned by persons who properly exercise their
right to dissent under the Texas Business Corporation Act, shall, IPSO FACTO and
without any action on the part of the holder thereof, be cancelled and be
converted into the right to receive the following number of fully paid and
nonassessable share of Common Stock of the Surviving Corporation, par value
$0.01 per share:
Number of Mannatech Shares Total Number of Mannatech
To Be Received For Each Shares To Be Received For
Outstanding Share of Non- All Outstanding Shares of
Non-Surviving Corporation Non-Surviving Corporation Stock
------------------------- -------------------------------
Eight Point Services, Inc. 0.010932 109.32
Triple Gold Business, Inc. 0.009074 90.74
Five Small Fry, Inc. 0.001858 18.58
Beta Nutrient Technology, Inc. 0.009068 90.68
Each share of Common Stock of the Surviving Corporation which shall be issued
and outstanding prior to the Effective Time shall remain outstanding.
2.2 EXCHANGE PROCEDURES. Following the Effective Time, each holder of an
outstanding certificate or certificates theretofore representing Common Stock of
a Non-Surviving Corporation (a "Certificate") shall, upon surrender of such
Certificate or Certificates to the Surviving Corporation, be entitled to receive
in exchange there for a certificate representing that number of whole shares of
the Common Stock of the Surviving Corporation which such holder has the right to
receive pursuant to the provisions of this Article 2, and the Certificate or
Certificates so surrendered shall forthwith be cancelled. Until surrendered as
contemplated by
2
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
certificate representing shares of Common Stock of the Surviving Corporation as
contemplated by this Article 2.
2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Common Stock of the Surviving Corporation with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Common Stock of the Surviving Corporation represented thereby
until the holder of record of such Certificate shall surrender such Certificate
to the Surviving Corporation.
2.4 DISSENTING SHAREHOLDERS. Each share of Common Stock of a
Non-Surviving Corporation issued and outstanding immediately prior to the
Effective Time, the holder of which has made written demand for the payment of
the fair market value of his shares as provided for in Article 5.12A(1) of the
Act, is herein called a "Dissenting Share." Dissenting Shares owned by each
holder thereof who has not exchanged his Certificates pursuant to Section 2.2
hereof or otherwise has not effectively withdrawn or lost his dissenter's
rights, shall not be converted into or represent the right to receive Common
Stock of the Surviving Corporation pursuant to Section 2.2 hereof and shall be
entitled only to such rights as are available to such holder pursuant to the
Act. If any holder of Dissenting Shares shall effectively withdraw or lose his
dissenter's rights under the Act, such Dissenting Shares shall be converted into
the right to receive shares of Common Stock of the Surviving Corporation in
accordance with the provisions of Section 2.2 hereof. Each Non-Surviving
Corporation shall give the Surviving Corporation (i) prompt notice of any
demands received from dissenting shareholders for payment for their shares of
Common Stock of a Non-Surviving Corporation and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any such
demands. No Non-Surviving Corporation shall, without the prior written consent
of the Surviving Corporation, voluntarily make any payment with respect to, or
settle or offer to settle, any such demand for payment.
2.5 STOCK LEGEND. Certificates representing shares of Common Stock of the
Surviving Corporation issued to shareholders of the Non-Surviving Corporations
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAW,
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED UNLESS A
REGISTRATION STATEMENT COVERING SUCH SHARES IS IN EFFECT OR THE CORPORATION
HAS RECEIVED ADEQUATE ASSURANCES, ACCEPTABLE TO THE CORPORATION, THAT AN
EXEMPTION FROM REGISTRATION EXISTS."
3
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS
3.1 REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF NON-SURVIVING
CORPORATIONS. Each of the Non-Surviving Corporations severally represents and
warrants to and covenants with the Surviving Corporation that:
3.1.1 DUE ORGANIZATION AND AUTHORITY. It is a corporation duly
organized and validly existing under the laws of the State of Texas. Subject to
the requisite approval of its Board of Directors and shareholders, it has all
necessary power and is duly authorized to execute, deliver and perform its
obligations under this Agreement. The execution and delivery of this Agreement
does not, and subject to the approval of this Agreement by its Board of
Directors and shareholders, the consummation of the Merger and the transactions
contemplated herein will not, violate any provisions of its Articles of
Incorporation or Bylaws.
3.1.2 CAPITALIZATION. Its authorized capital stock and the number
of its shares which are issued and outstanding are as follows:
AUTHORIZED SHARES ISSUED AND
NON-SURVIVING CORPORATION OF COMMON STOCK OUTSTANDING
- ------------------------ ------------------ -----------
Eight Point Services, Inc. 1,000,000 10,000
Triple Gold Business, Inc. 1,000,000 10,000
Five Small Fry, Inc. 1,000,000 10,000
Beta Nutrient Technologies, Inc. 1,000,000 10,000
All of its issued and outstanding shares are validly issued, fully paid and
nonassessable. As of the Effective Time, there will be no voting trusts, voting
agreements or similar arrangements or understanding affecting any such shares.
There are no existing options, warrants, calls, subscription rights, or other
rights (including conversion rights) to acquire any' shares of its capital stock
or any agreements calling for the issuance of any such shares.
3.2 REPRESENTATIONS AND WARRANTIES OF SURVIVING CORPORATION. The
Surviving Corporation represents and warrants to the Non-Surviving Corporations
that:
3.2.1 DUE ORGANIZATION AND AUTHORITY. The Surviving Corporation
is a corporation duly organized and validly existing and in good standing under
the laws of the State of Texas. Subject to the requisite approval of its Board
of Directors and shareholders, it has all necessary power and is duly authorized
to execute, deliver and perform its obligations under this Agreement. The
execution and delivery of this Agreement does not, and subject to the approval
of this Agreement by its Board of Directors and shareholders, the consummation
of the merger
4
and the transactions contemplated herein will not, violate any provisions of its
Articles of Incorporation or Bylaws.
3.2.2 CAPITALIZATION OF SURVIVING CORPORATION. The authorized
capital stock of the Surviving Corporation consists of 10,000,000 shares of
Common Voting Stock, of which 10,000 shares are issued and outstanding. Except
for options which have been granted to present or former employees of the
Surviving Corporation to purchase shares of the Common Stock of the Surviving
Corporation, there are no existing options, warrants, calls, subscription
rights, or other rights (including conversion rights) to acquire any shares of
capital stock of the Surviving Corporation or any agreements calling for the
issuance of any such shares.
ARTICLE 4
COVENANTS OF NON-SURVIVING CORPORATIONS
4.1 AUTHORIZATIONS. Each of the Non-Surviving Corporations will take all
steps necessary to cause this Agreement and the transactions and other actions
contemplated herein to be submitted for the approval of its Board of Directors
and shareholders in accordance with Section 1.1 of this Agreement.
4.2 OPERATION OF BUSINESS. Each of the Non-Surviving Corporations agree
that from the date hereof through the Effective Time, except to the extent that
the Surviving Corporation shall otherwise consent in writing, each of the
Non-Surviving Corporations will operate its business substantially as presently
operated and only in the ordinary course of business or as appropriate to
consummate the Merger.
4.3 BEST EFFORTS. Each of the Non-Surviving Corporations shall use its
best efforts to cause the Effective Time of the Merger to occur at the earliest
practicable time.
ARTICLE 5
COVENANTS OF SURVIVING CORPORATION
5.1 AUTHORIZATIONS. The Surviving Corporation will take all steps
necessary to cause this Agreement and the transactions and other actions
contemplated herein to be submitted for the approval of its Board of Directors
and shareholders in accordance with Section 1.1 of this Agreement.
5.2 BEST EFFORTS. The Surviving Corporation shall use its best efforts to
cause the Effective Time of the Merger to occur at the earliest practicable
time.
5
ARTICLE 6
CONDITIONS
6.1 EXCHANGE AGREEMENT. Three of the Non-Surviving Corporations are
corporate general partners of Texas limited partnerships (collectively, the
"Partnerships"), as follows:
NON-SURVIVING CORPORATION PARTNERSHIP
------------------------- -----------
Triple Gold Business, Inc. Power Three Partners, Ltd.
Five Small Fry, Inc. Eleven Point Partners, Ltd.
Beta Nutrient Technology, Inc. Beta M. Partners, Ltd.
Pursuant to the terms of an Exchange Agreement dated June 1, 1997 (the "Exchange
Agreement"), each of the limited partners of the Partnerships has agreed to
contribute his respective limited partnership interest in each of the
Partnerships to the Surviving Corporation in exchange for an agreed-upon number
of shares of the Common Stock of the Surviving Corporation. In addition to the
conditions set forth in Sections 6.2 and 6.3 below, the obligation of each
Constituent Corporation to perform this Agreement is subject to the condition
that the transactions contemplated by the Exchange Agreement shall have been
consummated effective as of the Effective Time.
6.2 CONDITIONS TO OBLIGATIONS OF SURVIVING CORPORATION. The obligation of
the Surviving Corporation to perform this Agreement is subject to the
satisfaction of each and every of the following conditions unless waived in
writing by the Surviving Corporation.
6.2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of the Non-Surviving Corporations set forth in Section 3.1 hereof
shall be true and correct in all material respects as of the date of this
Agreement and at all times prior to the Effective Time, except as otherwise
contemplated by this Agreement; and each of the Non-Surviving Corporations shall
have performed and complied in all material respects with all of the agreements,
obligations and covenants required to be performed by it here under.
6.2.2 NO PENDING LITIGATION. No suit, action or other
proceeding will be pending or (to the knowledge of any party hereto)
threatened before any court or governmental agency seeking to restrain,
prohibit or obtain damages or other relief in connection with this Agreement
or the consummation of the transactions contemplated hereby.
6.2.3 NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the financial condition of any of the Non-Surviving
Corporations since the date of this Agreement, and there shall not exist any
material liability or obligation of any of the Non-Surviving Corporations of any
kind whatsoever, whether accrued or unaccrued, direct or indirect,
6
absolute or contingent, asserted or unasserted, except liabilities incurred in
the ordinary course of business and consistent with past practice.
6.2.4 CORPORATE AUTHORIZATION OF MERGER. All action necessary to
authorize the execution, delivery and performance of this Agreement by each of
the Constituent Corporations shall have been duly and validly taken by the Board
of Directors and shareholders of each of the Constituent Corporations, and each
of the Constituent Corporations shall have full power and right to merge on the
terms provided herein.
6.2.5 DISSENTING SHAREHOLDERS. No holders of the outstanding
shares of Common Stock of any of the Non-Surviving Corporations shall have made
written demand for the payment of the fair market value of their shares as
provided for in Article 5.12A(1) of the Act.
6.3 CONDITIONS TO OBLIGATIONS OF THE NON-SURVIVING CORPORATIONS. The
obligation of the Non-Surviving Corporations to perform this Agreement is
subject to the satisfaction of the following conditions, unless waived in
writing by each of the Non-Surviving Corporations:
6.3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Surviving Corporation set forth in Section
3.2 hereof shall be true and correct in all material respects as of the date of
this Agreement and at all times prior to the Effective Time, except as otherwise
contemplated by this Agreement; and the Surviving Corporation shall have
performed and complied in all material respects with all of the agreements,
obligations and covenants required to be performed by it hereunder.
6.3.2 NO PENDING LITIGATION. No suit, action or other proceeding
will be pending or (to the knowledge of any party hereto) threatened before any
court or governmental agency seeking to restrain, prohibit or obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
6.3.3 NO MATERIAL ADVERSE CHANCE. There shall have been no
material adverse change in the financial condition or prospects of the Surviving
Corporation.
6.3.4 CORPORATE AUTHORIZATION OF MERGER. All action necessary to
authorize the execution, delivery and performance of this Agreement by each of
the Constituent Corporations shall have been duly and validly taken by the Board
of Directors and the shareholders of each of the Constituent Corporations, and
each of the Constituent Corporations shall have full power and right to merge on
the terms provided herein.
7
ARTICLE 7
TERMINATION; SURVIVAL; WAIVER AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time of the Merger:
(a) By any Constituent Corporation in its sole and absolute
discretion (which termination shall not be a breach of this
Agreement) if the Effective Time has not occurred within ninety
(90) days after the date of this Agreement; PROVIDED, HOWEVER,
that no party may exercise a right of termination pursuant to
this Section 7.1(a) if an event preventing the Effective Time
from occurring shall be due to the willful failure of the party
seeking to terminate this Agreement to perform or observe in any
material respect any of the covenants or agreements set forth
herein to be performed or observed by such party.
(b) By the mutual consent of all the Constituent Corporations; or
(c) By the Surviving Corporation if events occur which render
impossible compliance with one or more of the conditions set
forth in Section 6.1 or 6.2 hereof and the satisfaction of such
condition or conditions is not waived by the Surviving
Corporation; or (ii) by any of the Non-Surviving Corporations if
events occur which render impossible compliance with one or more
of the conditions set forth in Section 6.1 or 6.3 hereof and the
satisfaction of such condition or conditions is not waived by
each of the Non-Surviving Corporations.
7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and the abandonment of the Merger without breach by any party hereto,
this Agreement shall become void and have no effect, without any liability on
the part of any party or its directors, officers or shareholders. Nothing
contained in this Section 7.2 shall relieve any party hereto of any liability
for a breach of this Agreement.
7.3 WAIVER AND AMENDMENT. Any term or provision of this Agreement may be
waived at any time by the party which is, or whose shareholders are, entitled to
the benefits thereof, and this agreement may be amended or supplemented at any
time, whether before or after the directors and shareholders actions referred to
in Section 1.1 hereof, by a written agreement executed by each of the
Constituent Corporations.
8
ARTICLE 8
OTHER PROVISIONS
8.1 EXPENSES. The Surviving Corporation shall pay all legal, accounting
and other expenses incurred by any Constituent Corporation in connection with
the negotiation, preparation, execution and performance of this Agreement and
the transactions contemplated herein.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties with respect to the Merger and supersedes all prior arrangements or
understandings with respect thereto. The parties hereto have made no
representations, warranties or covenants other than those contained in this
Agreement.
8.3 DESCRIPTIVE HEADING. Descriptive headings contained herein are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
8.4 NOTICES. All notices, consents or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
in person, by prepaid telex, telegram or telecopy, or by United States
registered or certified mail, postage prepaid, addressed as follows:
IF TO ANY NON-SURVIVING CORPORATION:
Mr. Gary L. Watson
600 S. Royal Lane, Suite 600
Coppell, Texas 75019
WITH A COPY TO:
Mr. James M. Doyle, Jr.
Matthews & Branscomb, P.C.
One Alamo Center
106 S. St. Mary's, Suite 700
San Antonio, Texas 78205
IF TO THE SURVIVING CORPORATION:
Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
Attention: President
9
WITH A COPY TO:
Ms. Deanne Varner
600 S. Royal Lane, Suite 600
Coppell, Texas 75019
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one and the
same Agreement.
8.6 ASSIGNMENT. No party hereto shall assign this Agreement or any part
hereof without the prior written consent of the other parties. Except as
otherwise provided herein, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
8.7 FURTHER ASSURANCES. Each of the Constituent Corporations shall
execute and deliver or cause to be executed and delivered to one another (or to
applicable third parties) such further instruments, documents, certificates,
consents, filings, recordings and conveyances, and shall take such other action
as may be reasonably required to more effectively carry out the terms and
provisions of this Agreement and the transactions contemplated hereby.
IN WITNESS WHEREOF, each of the parties here to has caused this Agreement
to be executed as of the day and year first above written.
SURVIVING CORPORATION
Mannatech, Incorporated
By: /s/ Samuel L. Caster
----------------------------------
Samuel L. Caster, President
NON-SURVIVING CORPORATION
Eight Point Services, Inc.
By: /s/ Charles E. Fioretti
--------------------------------
Charles E. Fioretti, President
10
Triple Gold Business, Inc.
By: /s/ Charles E. Fioretti
--------------------------------
Charles E. Fioretti, President
Five Small Fry, Inc.
By: /s/ Charles E. Fioretti
--------------------------------
Charles E. Fioretti, President
Beta Nutrient Technology, Inc.
By: /s/ Charles E. Fioretti
--------------------------------
Charles E. Fioretti, President
11
EXCHANGE AGREEMENT
Dated June 1, 1997,
AMONG
MANNATECH, INCORPORATED,
AND THE
LIMITED PARTNERS
OF
POWER THREE PARTNERS, LTD.,
ELEVEN POINT PARTNERS, LTD.,
AND
BETA M PARTNERS, LTD.
TABLE OF CONTENTS
PAGE
----
1. The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Representations, Warranties, Covenants and Agreements of Partners . . . 2
3.1 Representations and Warranties . . . . . . . . . . . . . . . . . 2
3.2 Securities Laws Representations. . . . . . . . . . . . . . . . . 3
3.3 Consent to Assignment. . . . . . . . . . . . . . . . . . . . . . 5
4. Representations, Warranties, Covenants and Agreements of Mannatech. . . 5
4.1 Representations and Warranties . . . . . . . . . . . . . . . . . 5
4.2 Partnership Tax Return . . . . . . . . . . . . . . . . . . . . . 6
5. Mutual Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Mannatech Release of Partners. . . . . . . . . . . . . . . . . . 6
5.2 Partners Release of Mannatech. . . . . . . . . . . . . . . . . . 6
6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 8
7. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Choice of Law; Amendments; Headings. . . . . . . . . . . . . . . 9
7.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.7 Assignments and Third Parties. . . . . . . . . . . . . . . . . . 10
7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 10
i
EXCHANGE AGREEMENT
This Exchange Agreement (this "Agreement") is made and entered into
effective as of June 1, 1997 (the "Execution Date"), among Mannatech,
Incorporated, a Texas corporation ("Mannatech"), and the limited partners of the
Partnerships (as hereinafter defined) who are identified on Schedule 1 to this
Agreement and whose signatures are set forth below (collectively, the
"Partners", and individually, a "Partner").
RECITALS
A. The Partners are the owners of one hundred percent (100%) of the
outstanding limited partnership interests (the "'Partnership Interests") of
Power Three Partners, Ltd., a Texas limited partnership ("Power Three"), Eleven
Point Partners, Nd., a Texas limited partnership ("Eleven Point"), and Beta M
Partners, Ltd., a Texas limited partnership ("Beta M") (the "Partnerships). The
Partnership Interests represent ninety-eight percent (98.0%) of all the
partnership interests of the Partnerships. Each of the Partnerships was formed
and organized under the terms of an Agreement of Limited Partnership dated
December 22, 1994 (the "Partnership Agreements").
B. Power Three and Eleven Point own all the outstanding limited
partnership interests of Dynamic Eight Partners, Ltd., a Texas limited
partnership ("Dynamic Eight").
C. Mannatech and Dynamic Eight entered into a Marketing Services
Agreement dated December 27, 1994 (the "Marketing Agreement").
D. Beta M and Mannatech entered into a License Agreement dated December
27, 1994 (the "License Agreement").
E. In exchange for shares of the $0.01 par value common stock of
Mannatech shown on Schedule 1 to this Agreement (the "Shares"), Mannatech has
agreed to acquire the Partnership Interests from the Partners and the Partners
have agreed to transfer and assign the Partnership Interests to Mannatech, all
in accordance with the terms and conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
of the parties set forth herein, and other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged, Mannatech and
the Partners agree as follows:
1. THE MERGER. Under the terms of an Agreement and Plan of Merger dated
June 1, 1997 (the "Merger Agreement"), the corporate general partner of each of
the Partnerships and the corporate general partner of Dynamic Eight (the
"General Partners") have agreed to merge with and into Mannatech, with Mannatech
being the surviving entity in such merger (the
1
"Merger"). The Partners own all the issued and outstanding common stock of the
General Partners. Subject to the terms of the Merger Agreement, the Merger will
become effective at a date and time (the "Effective Time") which will be the
date of the filing of Articles of Merger with the Secretary of State of the
State of Texas or such later effective date and time as may be specified in the
Articles of Merger. Subject to the terms of this Agreement, the effectiveness of
the transactions contemplated by this Agreement is specifically conditioned upon
the Effective Time having occurred. At such time as the Effective Time may
occur, the terms of this Agreement and the transactions contemplated hereby
which are to be effective as of the Effective Time shall become effective and
fully binding on each of the parties hereto without any further action on the
part of the parties hereto other than the delivery of certificates evidencing
the Shares as contemplated by Section 2(b) below. If this Agreement is
terminated prior to the Effective Time, the rights and obligations of the
parties shall be as set forth in Section 6.2 below. The shares of Mannatech
Common Stock which are to be issued to the Partners as a result of the Merger
are referred to herein as the "Merger Shares."
2. THE EXCHANGE.
Upon the terms and subject to the conditions of this Agreement, effective
as of the Effective Time:
(a) The Partners assign and transfer to Mannatech all the Partnership
Interests. The Partnership Interests include all the Partners'
respective interests in the Partnerships, including, without
limitation, all the Partners' (i) capital accounts in the
Partnership and (ii) rights to income, losses and distributions
of the Partnership from and after the Effective Time (all as more
particularly described in the Partnership Agreements). The
Partners grant to Mannatech or its assigns the right to be
substituted as a limited partner of the Partnerships with respect
to the limited partnership interests assigned. The Partnership
Interests are transferred and assigned subject to all the terms
and provisions of the respective Partnership Agreements.
(b) Mannatech shall cause to be issued and delivered to the Partners
duly-executed certificates evidencing the Shares, registered in
the names of the Partners, which certificates shall be registered
in the name of and issued to and delivered to the Partners as set
forth on Schedule 1 hereto.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARTNERS.
3.1 REPRESENTATIONS AND WARRANTIES. The Partners jointly and
severally represent and warrant to Mannatech as follows:
(a) ENCUMBRANCES. The transfer and assignment of the Partnership
Interests as provided for in this Agreement will transfer to
Mannatech valid legal title to one hundred percent (100%) of the
outstanding limited partnership
2
interests of the Partnerships, free and clear of all claims,
liens, charges and encumbrances of any kind or nature whatsoever
other than restrictions and encumbrances provided for under the
terms of the Partnership Agreements. Schedule 1 correctly sets
forth each Partner's Partnership Interest in each Partnership.
(b) GENERAL PARTNERSHIP INTERESTS. The General Partners are the sole
general partners of their respective Partnerships, and own 100%
of the outstanding general partnership interests of their
respective Partnerships.
(c) MARKETING AGREEMENT. None of the rights, duties or
responsibilities of Dynamic Eight under the Marketing Agreement
have been assigned or delegated or subjected to any claim, lien,
charge or encumbrance of any kind or nature whatsoever.
(d) LICENSE AGREEMENT. None of the rights, duties or responsibilities
of Beta M under the License Agreement have been assigned or
delegated or subjected to any claim, lien, charge or encumbrance
of any kind or nature whatsoever.
(e) ORGANIZATION. Each of the Partnerships is a duly organized and
validly existing Texas limited partnership.
(f) BINDING EFFECT. This Agreement is a legal, valid and binding
obligation of each of the Partners, enforceable against the
Partners in accordance with its terms.
(g) NO VIOLATION. The execution, delivery and performance of this
Agreement by the Partners will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under,
any of the Partnership Agreements or any other agreement to which
any Partner is a party or by which any Partner is bound.
3.2 SECURITIES LAWS REPRESENTATIONS. The Partners severally represent and
warrant to Mannatech as follows:
(a) Each Partner is fully familiar with the business and financial
affairs of Mannatech and has had access to such information
regarding the business and financial affairs of Mannatech as he
has deemed necessary to enable him to make an informed investment
decision with respect to the acquisition of the Shares and the
Merger Shares.
(b) Each Partner is able to evaluate the merits and risks of an
investment in Mannatech common stock. Each Partner is able to
bear the economic risk
3
of an investment in the Shares and the Merger Shares including,
without limiting the generality of the foregoing, the risk of
losing all or any part of his investment in the Shares and the
Merger Shares.
(c) Each Partner is acquiring the Shares and the Merger Shares to be
acquired by him for his own account for the purpose of investment
and not as a nominee or agent for the benefit of any other
person, the Shares are not being acquired with a view to or for
sale in connection with the distribution thereof within the
meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated
thereunder, nor does any Partner have any present intention of
distributing or selling any Shares or Merger Shares to be
acquired by him.
(d) Each Partner has been afforded an opportunity to ask questions
about and receive answers and responses concerning the business
and financial affairs of Mannatech from persons authorized to act
on behalf of Mannatech, and the opportunity to obtain any
additional information as such Partner deems necessary to verify
the accuracy of information furnished to such Partner by
Mannatech. No representation has been made to any Partner as to
the profits, losses or cash flow, if any, which may be realized
by Mannatech or its shareholders in the future.
(e) The Partners understand and agree that neither the Shares nor the
Merger Shares may be sold, transferred or assigned unless they
are subsequently registered under the Securities Act or an
exemption from registration under the Securities Act is
available. Each Partner understands that the Shares and the
Merger Shares have not been registered under the Securities Act
or under the laws of any state, that Mannatech does not
contemplate and is under no obligation to so register the Shares
or the Merger Shares, and that he has not been granted any right
to have any of the Shares or the Merger Shares registered under
the Securities Act or to have Mannatech take any action to enable
an exemption under the Securities Act to be available to such
Partner.
(f) Each Partner consents to the placing of the following legend on
each certificate issued to him representing any of the Shares or
the Merger Shares:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE LAWS OF ANY STATE, AND MAY BE SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR OTHERWISE TRANSFERRED ONLY IF A REGISTRATION
STATEMENT WITH RESPECT THERETO IS IN
4
EFFECT PURSUANT TO THE PROVISIONS OF SUCH ACTS OR IF, IN THE
OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE
SATISFACTORY TO MANNATECH, INCORPORATED AND ITS COUNSEL, AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS IS
AVAILABLE."
3.3 CONSENT TO ASSIGNMENT. As required by Sections 5.1.1 and 6.2 of each
of the Partnership Agreements, each of the Partners consents to the transfer and
assignment of the Partnership Interests to Mannatech.
4. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF MANNATECH.
4.1 REPRESENTATIONS AND WARRANTIES. Mannatech represents and warrants to
the Partners as follows:
(a) ORGANIZATION. Mannatech is a duly organized and validly existing
Texas corporation, and has all requisite corporate power and
authority to own and operate its properties and assets and to
carry on its business as now conducted.
(b) CAPITALIZATION. Mannatech has an authorized capitalization of
10,000,000 shares of Common Stock of which, on the Execution
Date, 10,000 shares are issued and outstanding. Except for
options which have been granted to present or former employees of
Mannatech to purchase shares of Mannatech Common Stock, there are
no outstanding options, warrants, calls, subscription rights or
other rights to acquire any shares of capital stock of Mannatech
or any agreement for the issuance of such shares.
(c) AUTHORIZATION. Mannatech has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to
perform the transactions contemplated by this Agreement.
Mannatech has taken all requisite corporate action to authorize
the execution, delivery and performance of this Agreement. This
Agreement is the legal, valid and binding obligation of
Mannatech, enforceable against Mannatech in accordance with its
terms.
(d) STATUS OF SHARES. The Shares will be validly issued and
outstanding, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof.
(e) NO VIOLATION. The execution, delivery and performance of this
Agreement by Mannatech will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under,
the Articles of Incorporation or
5
Bylaws of Mannatech, or any agreement to which Mannatech is a
party or by which Mannatech is bound.
(f) PARTNERSHIP AGREEMENT. Mannatech has been provided with a copy of
and has reviewed and is familiar with the terms of each of the
Partnership Agreements.
4.2 PARTNERSHIP TAX RETURN. Mannatech shall prepare and timely file a
short-year federal income tax return for the Partnership covering the period
commencing January 1, 1997, and ending on the date on which the Effective Time
occurs (the "Return"). Not later than fifteen days prior to the date such return
is to be filed, Mannatech will provide the Partners with a copy of such return
and give the Partners an opportunity to provide Mannatech with comments with
respect thereto. All income and losses reported on the Return shall be allocated
to the Partners in accordance with their respective interests in the Partnership
prior to the Effective Time. Any payments made under the Marketing Agreement or
the License Agreement after the Effective Time with respect to periods of time
prior to the Effective Time shall be (i) distributed to the Partners and (ii)
accounted for as Partnership income prior to the Effective Time and reflected in
Partnership income on the Return. Except as provided for in the preceding
sentence and notwithstanding the provisions of Section 3.3.1 of the Partnership
Agreements, no Partner shall be allocated any portion of Partnership income or
losses which arise from any business or activity of the Partnership on or after
the Effective Time.
5. MUTUAL RELEASES.
5.1 MANNATECH RELEASE OF PARTNERS. Except for any claim with respect to or
arising out of any representation, warranty, covenant or agreement of the
Partners, or any of them, expressly set forth in this Agreement, effective as of
the Effective Time Mannatech releases and discharges each of the Partners and
each of their respective successors and assigns, individually and collectively,
of and from any and all liabilities, actions, causes of action, claims, demands,
damages, costs and expenses of whatsoever kind or character, known or unknown,
arising out of, with respect to, by reason of, or in any manner relating to or
on account of the business, management, operation or affairs of any of the
Partnerships or Dynamic Eight or any act or omission of any Partner in
connection therewith, or any benefit received by any Partner under this
Agreement or the Merger Agreement, including, without limitation, the Shares and
the Merger Shares.
5.2 PARTNERS RELEASE OF MANNATECH. Except for any claim with respect to or
arising out of any representation, warranty, covenant or agreement of Mannatech
expressly set forth in this Agreement, effective as of the Effective Time the
Partners, and each of them, release and discharge Mannatech and each of its
officers, directors, employees, agents, stockholders, successors, and assigns,
individually and collectively, of and from any and all liabilities, actions,
causes of action, claims, demands, damages, costs and expenses of whatsoever
kind or character, known or unknown, arising out of, with respect to, by reason
of, or in any manner relating to or on account of the business, management,
operation or affairs of any of the Partnerships or
6
Dynamic Eight or any act or omission of Mannatech in connection therewith;
PROVIDED, HOWEVER, that the Partners specifically retain and do not waive or
release any claim for any compensation due to the Partnerships under the terms
of the Marketing Agreement or the License Agreement for periods of time prior to
the Effective Time, which compensation, if any, shall be paid to the Partners as
provided for in Section 4.2 above.
6. TERMINATION.
6.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By Mannatech or any Partner in his or its sole and absolute discretion
(which termination shall not be a breach of this Agreement) if the
Effective Time has not occurred within ninety (90) days after the date
of this Agreement; PROVIDED, HOWEVER, that no party may exercise a
right of termination pursuant to this Section 6.1(a) if an event
preventing the Effective Time from occurring shall be due to the
willful failure of the party seeking to terminate this Agreement to
perform or observe in any material respect any of the covenants or
agreements set forth herein to be performed or observed by such party;
(b) By mutual consent of Mannatech and a Majority in Interest of the
Partners (as hereinafter defined);
(c) By a Majority in Interest of the Partners (as hereinafter defined) if
at any time prior to the Effective Time any of the following shall
occur and not be cured to the reasonable satisfaction of such
Partners:
(i) Any representation or warranty of Mannatech set forth in
Section 4.1 shall have been false when made or at any time
prior to the Effective Time;
(ii) There has been any material adverse change in the financial
condition or prospects of Mannatech;
(iii) The Merger Agreement shall have been terminated in accordance
with its terms;
(iv) The Board of Directors of Mannatech shall have failed to take
all proper action to authorize the execution, delivery and
performance of this Agreement; or
(v) Any suit, action or other proceeding is pending or (to the
knowledge of any party) threatened before any court or
governmental agency seeking to restrain, prohibit or obtain
damages or other relief in connection with this Agreement or
the consummation of the transactions contemplated hereby.
7
As used in Section 6.1(b) and this Section 6.1(c) "Majority in
Interest of the Partners" shall mean Partners who, in the event of the
issuance of the Shares as contemplated by Section 2.1(b) above and
Schedule 1 hereto, will own more than fifty percent (50%) of all the
Shares.
(d) By Mannatech if at any time prior to the Effective Time any of the
following shall occur and not be cured to the reasonable satisfaction
of Mannatech:
(i) Any representation or warranty of the Partners set forth in
Section 3.1 or 3.2 shall have been false when made or any time
prior to the Effective Time.
(ii) The Merger Agreement shall have been terminated in accordance
with its terms; or
(iii) Any suit, action or other proceeding is pending or (to the
knowledge of any party) threatened before any court or
governmental agency seeking to restrain, prohibit or obtain
damages or other relief in connection with this Agreement or
the consummation of the transactions contemplated hereby.
6.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement without breach by any party hereto, this Agreement shall become void
and have no effect, without any liability on the part of any party or its
directors, officers or shareholders. Nothing contained in this Section 6.2 shall
relieve any party hereto of any liability for a breach of this Agreement.
8
7. GENERAL PROVISIONS.
7.1 SURVIVAL. All representations, warranties, covenants and agreements
set forth in this Agreement shall survive the Effective Time and the closing of
the transactions contemplated by this Agreement.
7.2 EXPENSES. Mannatech shall pay all costs and expenses of Mannatech and
the Partners incidental to the negotiation, preparation and carrying out of this
Agreement.
7.3 NOTICES. All notices that are required or may be given pursuant to the
terms of this Agreement shall be in writing and delivered personally or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows, and shall be deemed to have been given upon delivery to
the addressee or upon the third business day after such mailing, whichever is
earlier:
If to Mannatech: Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
Attention: President
With copy to: Ms. Deanne Varner
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
If to the Partners: Mr. Gary W. Watson
600 S. Royal Lane, Suite 600
Coppell, Texas 75019
With copy to: Mr. James M. Doyle, Jr.
Matthews & Branscomb, P.C.
106 S. St. Mary's, Suite 700
San Antonio, Texas 78205
7.4 ENTIRE AGREEMENT. This Agreement supersedes all prior agreements
between the parties (written or oral) with respect to the subject matter hereof,
and is intended as a complete and exclusive statement of the terms of the
agreement between the parties.
7.5 CHOICE OF LAW; AMENDMENTS; HEADINGS. This Agreement shall be governed
by the internal laws of the State of Texas (without regard to the choice of law
provisions thereof). This Agreement may not be changed or terminated orally, but
only by a written instrument executed by each of the parties hereto. The
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
9
7.6 WAIVER. No provision of this Agreement may be waived unless in writing
signed by all the parties hereto. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
7.7 ASSIGNMENTS AND THIRD PARTIES. Except as specifically contemplated by
this Agreement, no party hereto shall assign this Agreement or any of its rights
hereunder without the prior written consent of the other parties. Except as
otherwise provided herein, this Agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and assigns, and
shall specifically inure to the benefit of the partners and shareholders of the
Partners, as the case may be.
7.8 FURTHER ASSURANCES. Mannatech and the Partners agree to take such
further actions and to deliver or cause to be delivered such other instruments
and documents as may reasonably be requested for the purpose of carrying out
this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Execution Date.
MANNATECH
Mannatech, Incorporated
By: /s/ Samuel L. Caster
-------------------------------------
Samuel L. Caster, President
PARTNERS
/s/ Charles E. Fioretti
----------------------------------------
Charles E. Fioretti
/s/ William C. Fioretti
----------------------------------------
William C. Fioretti
/s/ Samuel L. Caster
----------------------------------------
Samuel L. Caster
10
The Fioretti Family Partnership, Ltd.
By: /s/ William C. Fioretti
-------------------------------------
William C. Fioretti, General Partner
/s/ Patrick D. Cobb
----------------------------------------
Patrick D. Cobb
/s/ Dick R. Hankins
----------------------------------------
Dick R. Hankins
/s/ Don W. Herndon
----------------------------------------
Don W. Herndon
/s/ Ray Robbins
----------------------------------------
Ray Robbins
/s/ Gary L. Watson
----------------------------------------
Gary L. Watson
11
SCHEDULE 1
TO
EXCHANGE AGREEMENT
NUMBER OF SHARES
LIMITED PARTNER TO BE RECEIVED
- --------------- --------------
Charles E. Fioretti 2,787.62
William C. Fioretti 1,481.12
Samuel L. Caster 3,005.48
The Fioretti Family Partnership, Ltd. 1,524.36
Patrick D. Cobb 223.01
Dick R. Hankins 223.01
Don W. Herndon 223.01
Gary L. Watson 223.01
12
PLAN AND AGREEMENT OF REORGANIZATION
This Plan and Agreement of Reorganization (this "Agreement") is made and
entered into effective as of the 1st day of June, 1997, by and among the
undersigned parties (collectively, the "Parties").
RECITALS
A. The Parties to this Agreement are as follows:
(1) Mannatech, Incorporated, a Texas corporation ("Mannatech").
(2) The following Texas limited partnerships (collectively, the
"Partnerships"): Dynamic Eight Partners, Ltd., Power Three
Partners, Ltd., Eleven Point Partners, Ltd., and Beta M Partners,
Ltd.
(3) The following general partners of the Partnerships (collectively,
the "General Partners"), each of which is a Texas corporation:
Eight Point Services, Inc., the general partner of Dynamic Eight
Partners, Ltd.; Triple Gold Business, Inc., the general partner
of Power Three Partners, Ltd.; Five Small Fry, Inc., the general
partner of Eleven Point Partners, Ltd.; and Beta Nutrient
Technology, Inc., the general partner of Beta M Partners, Ltd.
(4) The following individual limited partners of Power Three
Partners, Ltd., Eleven Point Partners, Ltd., and Beta M Partners,
Ltd. (collectively, the "Limited Partners"): Charles E. Fioretti,
William C. Fioretti, Samuel L. Caster, The Fioretti Family
Partnership, Ltd., Patrick D. Cobb, Dick R. Hankins, Don W.
Herndon, and Gary L. Watson.
B. The Parties have agreed to cause each of the General Partners to be
merged with and into Mannatech (the "Merger") through a statutory merger under
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
C. Simultaneously with the consummation of the Merger, the Parties have
agreed that the Limited Partners will contribute their limited partnership
interests in each of the Partnerships (other than Dynamic Eight Partners, Ltd.)
to Mannatech in exchange for Mannatech stock in a transaction complying with
Code Section 351(a) (the "Contributions").
D. As a result of the Merger and the Contributions, Mannatech will be the
sole partner of each of the Partnerships, each of the Partnerships will
terminate under the provisions of Code Section 708(a)(1)(A), and the Parties
have agreed that all the assets of each of the Partnerships shall be distributed
to Mannatech.
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
1. MERGER. Mannatech and each of the General Partners agree to enter
into the Agreement and Plan of Merger a copy of which is attached as Exhibit "A"
hereto (the "Merger Agreement"), to use their best efforts to cause the Merger
to be consummated in accordance with the terms of the Merger Agreement, and to
cause each of the General Partners to be merged into Mannatech in a statutory
merger which is tax free to each of the parties to the Merger Agreement under
Code Section 368(a)(1)(A).
2. CONTRIBUTIONS. Each of the Limited Partners and Mannatech agree to
enter into the Exchange Agreement a copy of which is attached as Exhibit "B"
hereto (the "Exchange Agreement"), to use their best efforts to consummate the
transactions contemplated by the Exchange Agreement, and to cause the
Partnership Interests (as such term is defined in the Exchange Agreement) to be
contributed to Mannatech in exchange for Mannatech stock in a transaction which
meets the requirements of Code Section 351(a).
3. DISSOLUTION. Following the consummation of the transactions
contemplated by the Merger Agreement and the Exchange Agreement, Mannatech will
be the sole partner of each of the Partnerships and each of the Partnerships
shall be dissolved. Following the dissolution of the Partnerships, all the
properties and assets of the Partnerships shall vest in and transfer to
Mannatech without any further action on the part of the Parties, and, effective
as of the Effective Time (as such term is defined in the Merger Agreement), each
Partnership transfers and assigns to Mannatech all its assets and properties of
whatsoever kind or nature.
4. GENERAL PROVISIONS. Each of the Parties covenants and agrees to
execute and deliver such other and further documents and instruments as may be
necessary or appropriate to further evidence or consummate the transactions
contemplated by this Agreement, the Merger Agreement or the Exchange Agreement.
This Agreement shall be governed by the internal laws of the State of Texas
(without regard to choice of law provisions). This Agreement may not be changed
or modified orally, but only by a written instrument executed by each of the
Parties. Headings contained in this Agreement are for reference only, and shall
not affect the meaning or interpretation of this Agreement.
2
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
effective date set forth above.
MANNATECH:
Mannatech, Incorporated
By: /s/ Samuel L. Caster
---------------------------------------------
Samuel L. Caster, President
PARTNERSHIPS:
Dynamic Eight Partners, Ltd.
By:Eight Point Services, Inc., General Partner
By: /s/ Charles E. Fioretti
----------------------------------------
Charles E. Fioretti, President
Power Three Partners, Ltd.
By: Triple Gold Business, Inc., General Partner
By: /s/ Charles E. Fioretti
----------------------------------------
Charles E. Fioretti, President
Eleven Point Partners, Ltd.
By: Five Small Fry, Inc., General Partner
By: /s/ Charles E. Fioretti
----------------------------------------
Charles E. Fioretti, President
3
Beta M Partners, Ltd.
By: Beta Nutrient Technology, Inc., General
Partner
By: /s/ Charles E. Fioretti
----------------------------------------
Charles E. Fioretti, President
GENERAL PARTNERS:
Eight Point Services, Inc.
By: /s/ Charles E. Fioretti
---------------------------------------------
Charles E. Fioretti, President
Triple Gold Business, Inc.
By: /s/ Charles E. Fioretti
---------------------------------------------
Charles E. Fioretti, President
Five Small Fry, Inc.
By: /s/ Charles E. Fioretti
---------------------------------------------
Charles E. Fioretti, President
Beta Nutrient Technology, Inc.
By: /s/ Charles E. Fioretti
---------------------------------------------
Charles E. Fioretti, President
4
LIMITED PARTNERS:
/s/ Charles E. Fioretti
------------------------------------------------
Charles E. Fioretti
/s/ William C. Fioretti
------------------------------------------------
William C. Fioretti
/s/ Samuel L. Caster
------------------------------------------------
Samuel L. Caster
The Fioretti Family Partnership, Ltd.
By: /s/ William C. Fioretti
---------------------------------------------
William C. Fioretti, General Partner
/s/ Patrick D. Cobb
------------------------------------------------
Patrick D. Cobb
/s/ Dick R. Hankins
------------------------------------------------
Dick R. Hankins
/s/ Don W. Herndon
------------------------------------------------
Don W. Herndon
/s/ Gary L. Watson
------------------------------------------------
Gary L. Watson
5
EXCHANGE AGREEMENT
This Exchange Agreement is entered into by and among, Gary Watson
("Watson"), Patrick Cobb ("Cobb"), Samuel Caster ("Caster") Charles Fioretti
("C. Fioretti") and William Fioretti ("Fioretti") [collectively, the "Makers",
singularly, the "Maker"] and Mannatech, Incorporated ("Mannatech"), on this the
31st day of August, 1997
RECITALS
1. Mannatech from time-to-time advanced to and on behalf of Agritech
Labs, Inc. and Agritech, Incorporated, (collectively referred to herein as
"Agritech") the total sum of $918,148.06, which Mannatech carries on its books
as an account receivable ("Obligation").
2. The Makers are shareholders of both Mannatech and Agritech.
3. At this time, Mannatech has expressed doubts as to the
creditworthiness and collectibility of the Obligation.
4. Accordingly, the Makers have agreed to assume the Obligation by
apportioning the same among them, personally, with each evidencing the amount
of the Obligation assumed by the execution and delivery of Promissory Note
("Note"), in the singular, "Notes" in the plural) upon which such Maker is
personally liable. Such will have the effect of removing the account
receivable of Mannatech from the books of Mannatech, and replacing the same
with various notes receivable of the various Makers. Mannatech agrees to
this assumption of the Obligation by the Makers.
5. The parties wish to make a written memorial of their various
agreements.
AGREEMENTS
1. Each Maker shall execute and deliver a Note to Mannatech, bearing
the following terms and conditions, and in the amount, as to each Maker as is
set forth beside his name below:
a. Interest Rate: 6% per annum from the date of the Note.
b. Repayment Terms: On or before that date upon which good funds
are received by each Maker on account of stock that he owns being sold in the
Initial Public Offering of Mannatech, Incorporated or December 31, 1998,
whichever shall first occur. Interest on the unpaid balance of each Note
shall be due monthly,
1
and may be deducted automatically from any amounts due any subject Maker by
Mannatech, if and only if, the Note of such subject Maker is in default. No
interest shall be charged in respect of the principal balance of the Notes.
c. Application of Payments and Prepayments: The Notes or any of
them may be prepaid in whole or in part at any time.
d. Interest After Maturity and Collection: Interest after
maturity shall accrue at the highest lawful rate permitted under applicable
Texas law, which shall govern the Note, generally. In the event that any Note
is placed in the hands of an attorney for collection, reasonable attorney's
fees may additionally be collected from the subject Maker. Any attempt to
enforce any rights under this Agreement or any of the Notes shall, by the
agreement of the parties, occur in a venue situs or judicial district
appropriate to Dallas County, Texas.
e. Form of Note: The form of the promissory note to be used as to
each Maker is set forth on Exhibit "B" hereto.
f. Amount of Each Note: The Amount of each Note, as to the
subject Maker is as follows:
Watson: $ 45,907.40
Cobb: $ 45,907.40
Caster: $275,444.42
S. Fioretti $275,444.42
W. Fioretti $275,444.42
2. Thin Agreement represents the entire agreement among the parties
regarding the Obligation and the various Notes, save and except for the Notes
themselves. To the extent that any provision of this Agreement would
contravene with any provision of any of the Notes, the language of the Notes
shall govern the parties. THE NOTES ARE NOT SUBJECT TO THIS AGREEMENT, AND
ARE CONSEQUENTLY FULLY NEGOTIABLE.
This Agreement is entered into effective as of the _______ day of
____________, 1997.
Mannatech, Inc.
/s/ Anthony E. Canale
- -----------------------------
Anthony E. Canale
Chief Operating Officer
2
/s/ Gary Watson
- -----------------------------
Gary Watson
/s/ Patrick Cobb
- -----------------------------
Patrick Cobb
/s/ Samuel Caster
- -----------------------------
Samuel Caster
/s/ Charles Fioretti
- -----------------------------
Charles Fioretti
/s/ William Fioretti
- -----------------------------
William Fioretti
3
EXHIBIT 10.7
STOCK OPTION
To: Multi-Venture Partners, Ltd., A Nevada Limited Partnership
------------------------------------------------------------------
Name
------------------------------------------------------------------
Address
Date of Grant: July 1, 1997
-------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase 100,000 shares of common stock, $0.0001 par value per share ("Common
Stock"), of Mannatech, Incorporated, a Texas corporation (the "Company") at a
price of $2.00 per share.
Your option may first be exercised ninety (90) days following
completion by the Company of a registered public offering of its securities
pursuant to the requirements of the Securities Act of 1933, as amended.
Thereafter, your option may be exercised for up to 100% of the total number
of shares, subject to this Option (as adjusted for stock dividends, stock
splits, combinations of shares and what the Company deems in its sole
discretion to be similar circumstances).
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal
executive office, accompanied by payment of the option price for the total
number of shares you specify that you wish to purchase. The payment may be in
any of the following forms: (a) cash, which may be evidenced by a check and
includes cash received from a stock brokerage firm in a so-called "cashless
exercise"; (b) certificates representing shares of Common Stock of the
Company, which will be valued by the Secretary of the Company at the fair
market value per share of the Company's Common Stock on the date of delivery
of such certificates to the Company, accompanied by an assignment of the
stock to the Company; or (c) any combination of cash and Common Stock of the
Company valued as provided in clause (b). Any assignment of stock shall be in
a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will terminate at 5:00 p.m., June 1, 2003 ("Termination
Date").
In the event of any change in the outstanding shares of the Common Stock
of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or
what the Committee deems in its sole discretion to be similar circumstances,
the number and kind of shares subject to this option and the option price of
such shares shall be appropriately adjusted in a manner to be determined in
the sole discretion of the Corporation.
This option is not transferable. Until the option price has been paid
in full pursuant to due exercise of this option and the purchased shares are
delivered to you, you do not have any rights as a shareholder of the Company.
The Company reserves the right not to deliver to you the shares purchased by
virtue of the exercise of this option during any period of time in which the
Company deems, in its sole discretion, that such delivery would violate a
federal, state, local or securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the
following periods of time:
(a) Until the issuance of the underlying shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable [and agreeing that the Company shall use its best efforts to
effect such registration(s)]; or
(b) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell; or
(c) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Corporation) and respecting employees of the Company only,
(i) all federal, state and local income tax withholding required to be
withheld by the Company in connection with the option exercise and (ii) the
employee's portion of other federal, state and local payroll and other taxes
due in connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the issuance of the Common Stock to be purchased
pursuant to such exercise has not been registered under the Securities Act of
1933, as amended, and under applicable state securities laws, and shall
continue to be applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account
for investment purposes only, and not with a view to, or in connection with,
any resale or other
distribution of any of such shares, except as hereafter permitted. The
optionee further agrees that it will not at any time make any offer, sale,
transfer, pledge or other disposition of such Common Stock to be issued
hereunder without an effective registration statement under the Securities
Act of 1933, as amended, and under any applicable state securities laws or an
opinion of counsel acceptable to the Company to the effect that the proposed
transaction will be exempt from such registration. The optionee shall execute
such instruments, representations, acknowledgements and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE
SECURITIES LAWS. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT THE PROPOSED TRANSACTION WILL BE
EXEMPT FROM SUCH REGISTRATION."
The foregoing legend shall be removed (i) upon any sale of such shares
pursuant to an effective registration statement under the Securities Act of
1933, as amended, or Rule 144 promulgated under the Securities Act of 1933,
as amended, or (ii) at such time as such shares become eligible for resale
under Rule 144(k) promulgated under the Securities Act of 1933, as amended.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable
state securities laws.
IT IS THE INTENTION OF THE COMPANY AND YOU THAT THIS OPTION SHALL NOT BE
AN "INCENTIVE STOCK OPTION" AS THAT TERM IS USED IN SECTION 422 OF THE CODE
AND THE REGULATIONS THEREUNDER.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning,
performance or your rights hereunder shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association or its successor, as amended from time to time. However, prior to
submission to arbitration you will attempt to resolve any disputes or
disagreements with the Company over this option amicably and informally, in
good faith, for a period not to exceed two weeks.
Thereafter, the dispute or disagreement will be submitted to arbitration. At
any time prior to a decision from the arbitrator(s) being rendered, you and
the Company may resolve the dispute by settlement. You and the Company shall
equally share the costs charged by the American Arbitration Association or
its successor, but you and the Company shall otherwise be solely responsible
for your own respective counsel fees and expenses. The decision of the
arbitrator(s) shall be made in writing, setting forth the award, the reasons
for the decision and award and shall be binding and conclusive on you and the
Company. Further, neither you nor the Company shall appeal any such award.
Judgment of a court of competent jurisdiction may be entered upon the award
and may be enforced as such in accordance with the provisions of the award.
This option constitutes the entire understanding between the Company and
you with respect to the subject matter hereof and no amendment, supplement or
waiver of this option, in whole or in part, shall be binding upon the Company
unless in writing and signed by the President of the Company. This option and
the performances of the parties hereunder shall be construed in accordance
with and governed by the laws of the State of Texas.
Notwithstanding any provision contained herein to the contrary, you
agree to be bound by the underwriting agreements or requirements by and
between Mannatech, Inc. and any Underwriter which might provide services to
it in connection with any public offering of its capital stock
("Underwriter"). Further, should such Underwriter impose any restrictions
upon the exercise, registration or other rights, concerning the option upon
the shares of stock conferred hereby, otherwise granted under this Agreement,
you agree to further be bound by such requirements, limitations,
restrictions, and/or agreements as agreed to by Mannatech. You hereby
appoint Mannatech as your attorney-in-fact to execute all documents on your
behalf concerning agreements offering the and/or shares of stock which are
the subject of the option conferred hereby, including, without limitation,
those agreements with the Underwriter, referenced above.
Please sign the copy of this option and return it to the Company's
secretary, thereby indicating your understanding of and agreement with its
terms and conditions.
MANNATECH, INCORPORATED,
a Texas corporation
By /s/ Anthony E. Canale
-----------------------------
Its C.O.O.
-------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and, having read it hereby signify my understanding of, and my agreement
with, its terms and conditions.
MULTI-VENTURE PARTNERS, LTD.
A Nevada Limited Partnership
/s/ Tony Grappo 10/20/97
- ------------------------------ ------------------------------
Its: (Date)
ACKNOWLEDGEMENT
THE STATE OF _________________ )
)
COUNTY OF _________________ )
BEFORE ME, the undersigned Notary Public, personally appeared
____________________, the ____________________, of Multi-Venture Partners,
Ltd., a Nevada Limited Partnership and known to me to be the person whose
name is subscribed to the foregoing instrument, and acknowledged to me that
he executed the above instrument for the purposes and consideration expressed
therein.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this ____ day of _______________,
1997.
- --------------------------------------
Notary Public, State of
--------------
My Commission Expires:
--------------
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "AGREEMENT") dated as of April ,
1998 is by and between Mannatech, Incorporated, a Texas corporation (the
"COMPANY"), and ____________________ ("DIRECTOR").
RECITALS
A. Director is a member of the Board of Directors of the Company (the
"BOARD OF DIRECTORS") and in such capacity is performing a valuable service
to the Company.
B. The Texas Business Corporation Act, as amended to date (the
"CORPORATION ACT") specifically provides that indemnification and advancement
of expenses under any agreement is valid to the extent it is consistent with
the Corporation Act, as limited by the Articles of Incorporation of the
Company (the "ARTICLES"), and thereby contemplates that agreements may be
entered into between the Company and members of the Board of Directors with
respect to the indemnification of such directors.
C. The general availability of directors' and officers' liability
insurance ("INSURANCE") covering certain liabilities which may be incurred by
the Company's directors and officers in the performance of their services to
the Company and the applicability, amendment and enforcement of statutory and
bylaw provisions have raised questions concerning the adequacy and
reliability of the protection afforded to directors.
D. In order to induce Director to serve as a member of the Board of
Directors for the current term and for any subsequent term to which he is
elected by the shareholders of the Company, the Company has deemed it to be
in its best interest to enter into this Agreement with Director.
NOW, THEREFORE, in consideration of Director's agreement to serve as a
member of the Board of Directors after the date hereof, the parties hereto
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
(a) CHANGE IN CONTROL. A "Change in Control" shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) (the
"EXCHANGE ACT"), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the outstanding
securities of the Company, or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the
Board of Directors and any new director whose election by the Board of
Directors or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the
shareholders of the Company approve (x) a merger or consolidation of the
Company with any other entity (other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation), (y) a plan of complete
liquidation of the Company or (z) an agreement or agreements for the
sale or disposition, in a single transaction or series of related
transactions, by the Company of all or substantially all of the property
and assets of the Company. Notwithstanding the foregoing, events
otherwise constituting a Change in Control in accordance with the
foregoing shall not constitute a Change in Control if such events are
solicited by the Company and are approved, recommended or supported by
the Board of Directors in actions taken prior to, and with respect to,
such events.
(b) REVIEWING PARTY. A "Reviewing Party" means (i) the Board of
Directors or a committee of directors of the Company, who are not
officers, appointed by the Board of Directors, provided that a majority
of such directors are not parties to the claim or (ii) special,
independent counsel selected and appointed by the Board of Directors or
by a committee of directors of the Company who are not officers.
2. INDEMNIFICATION OF DIRECTOR.
The Company hereby agrees that it shall hold harmless and indemnify
Director to the fullest extent authorized and permitted by the provisions of
the Articles and the Company's Bylaws (the "BYLAWS") and the provisions of
the Corporation Act, or by any amendment thereof, but in the case of any such
amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than the Articles, Bylaws or
Corporation Act permitted the Company to provide prior to such amendment, or
other statutory provisions authorizing or permitting such indemnification
which is adopted after the date hereof.
3. INSURANCE
3.1 INSURANCE POLICIES. So long as Director may be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that Director is or was a director, to the extent that the
Company maintains one or more insurance policy or policies providing
directors' and officers' liability insurance, Director shall be covered by
such policy or policies in accordance with its or their terms, to the maximum
extent of the coverage applicable to any director or officer then serving the
Company.
3.2 MAINTENANCE OF INSURANCE. The Company shall not be required to
maintain the Insurance or any policy or policies of comparable insurance, as
the case may be, if such insurance is not reasonably available or if, in the
reasonable business judgement of the Board of Directors which shall be
conclusively established by such determination by the Board of Directors, or
any appropriate committee thereof, either (i) the premium cost for such
insurance is substantially disproportionate to the amount of coverage
thereunder or (ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such insurance.
3.3 SELF-INSURANCE. To the extent Director is not indemnified under
other Sections of this Agreement and is not fully, by reason of deductible or
otherwise, covered by directors' and officers' liability insurance, the
Company shall maintain self-insurance for, and thereby
2
indemnify and hold harmless, Director from and against any and all expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Director in connection with any possible
claim or threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, in which Director was or is
made a party or was or is involved by reason of the fact that Director is or
was a director of the Company. Notwithstanding the foregoing, payments of
self-insurance under this Section to Director by the Company shall not exceed
the amount of $5,000,000 for any event and further shall be limited in
accordance with Section 5 hereof; PROVIDED, HOWEVER, that nothing in this
Section 3.3 shall limit the Company's obligation to indemnify Director as set
forth in this Agreement. An "event" as used in the preceding sentence in
reference to a limitation on self-insurance shall include the same acts or
omissions by Director and interrelated, repeated or continuous acts or
omissions.
4. ADDITIONAL INDEMNIFICATION.
Subject only to the exclusions set forth in Section 5 hereof, the Company
hereby agrees that it shall hold harmless and indemnify Director:
(a) against any and all judgments, penalties (including excise and
similar taxes), fines, settlements, and reasonable expenses (including
court costs and attorneys' fees) actually incurred by Director in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, including an action by or on behalf of shareholders of
the Company or by or in the right of the Company, to which Director is,
was or at any time becomes a party, or is threatened to be made a party,
by reason of the fact that Director is, was or at any time becomes a
director or officer of the Company, or, while a director or officer of
the Company, is or was serving or at any time serves at the request of
the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another domestic or
foreign corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Director
by the Company under the Corporation Act.
5. LIMITATIONS ON ADDITIONAL INDEMNIFICATION.
No indemnification pursuant to this Agreement shall be paid by the Company:
(a) in respect to any transaction if it shall be determined by the
Reviewing Party, or by final judgment or other final adjudication, that
Director derived an improper personal benefit;
(b) on account of Director's conduct which is determined by the
Reviewing Party, or by final judgment or other final adjudication, to have
involved acts or omissions not in good faith, intentional misconduct or a
knowing violation of law;
(c) if the Reviewing Party or a court having jurisdiction in the
matter shall determine that such indemnification is in violation of the
Articles, the Bylaws or the law.
6. ADVANCEMENT OF EXPENSES.
3
In the event of any threatened or pending action, suit or proceeding in
which Director is a party or is involved and which may give rise to a right
of indemnification under this Agreement, following written request to the
Company by Director, the Company shall promptly pay to Director amounts to
cover expenses incurred by Director in such proceeding in advance of its
final disposition upon the receipt by the Company of (i) a written
affirmation by Director of his good faith belief that he has met the standard
of conduct necessary for indemnification under the Corporation Act, (ii) a
written undertaking executed by or on behalf of Director to repay the amount
paid or reimbursed if it is ultimately determined that he has not met that
standard or if it is ultimately determined that indemnification of Director
against expenses incurred by him in connection with that proceeding is
prohibited by the Corporation Act and (iii) satisfactory evidence as to the
amount of such expenses.
7. REPAYMENT OF EXPENSES.
Director agrees that Director shall reimburse the Company for all
reasonable expenses paid by the Company in defending any civil, criminal,
administrative, arbitrative or investigative action, suit or proceeding
against Director or any amount paid in settlement or any other amounts paid
hereunder in the event and only to the extent that it shall be determined by
final judgment or other final adjudication that Director is not entitled to
be indemnified by the Company for such expenses under the provisions of the
Corporation Act or any applicable law.
8. DETERMINATION OF INDEMNIFICATION; BURDEN OF PROOF.
With respect to all matters concerning the rights of Director to
indemnification and payment of expenses under this Agreement or under the
provisions of the Articles and Bylaws now or hereafter in effect, the Company
shall appoint a Reviewing Party and any determination by the Reviewing Party
shall be conclusive and binding on the Company and Director. If under
applicable law, the entitlement of Director to be indemnified under this
Agreement depends on whether a standard of conduct has been met, the burden
of proof of establishing that Director did not act in accordance with such
standard of conduct shall rest with the Company. Director shall be presumed
to have acted in accordance with such standard and entitled to
indemnification or advancement of expenses hereunder, as the case may be,
unless, based upon a preponderance of the evidence, it shall be determined by
the Reviewing Party that Director did not meet such standard. For purposes
of this Agreement, unless otherwise expressly stated herein, the termination
of any action, suit or proceeding by judgment, order, settlement, whether
with or without court approval, or conviction, or upon a plea of nolo
contendere or its equivalent shall not create a presumption that Director did
not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by
applicable law.
9. EFFECT OF CHANGE IN CONTROL.
If there has not been a Change in Control after the date of this
Agreement, the determination of (i) the rights of Director to indemnification
and payment of expenses under this Agreement or under the provisions of the
Articles and the Bylaws, (ii) standard of conduct and (iii) evaluation of the
reasonableness of amounts claimed by Director shall be made by the Reviewing
Party or such other body or persons as may be permitted by the Corporation
Act. If there has been a Change in Control after the date of this Agreement,
such determination and evaluation shall be made by a special, independent
counsel who is selected by Director and approved by the Company, which
approval shall not be unreasonably withheld, and who has not otherwise
performed services for Director or the Company.
4
10. CONTINUATION OF INDEMNIFICATION.
All agreements and obligations of the Company contained herein shall
continue during the period that Director is a director or officer of the
Company, or, while a director or officer of the Company, is or was serving at
the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, and shall
continue thereafter so long as Director shall be subject to any possible
claim or threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, arbitrative or investigative, any appeal in
such an action, suit, or proceeding, and any inquiry or investigation that
could lead to such an action, suit or proceeding, by reason of the fact that
Director was a director of the Company or serving in any other capacity
referred to herein.
11. NOTIFICATION AND DEFENSE OF CLAIM.
Promptly after receipt by Director of notice of the commencement of any
action, suit or proceeding, Director shall, if a claim in respect hereof is
to be made against the Company under this Agreement, notify the Company of
the commencement thereof; provided, however, that delay in so notifying the
Company shall not constitute a waiver or release by Director of rights
hereunder and that omission by Director to so notify the Company shall not
relieve the Company from any liability which it may have to Director
otherwise than under this Agreement, except to the extent that the Company's
ability to defend is adversely affected by such delay. With respect to any
such action, suit or proceeding as to which Director notifies the Company of
the commencement thereof:
(a) The Company shall be entitled to participate therein at its own
expense.
(b) Except as otherwise provided below, to the extent that it may
wish, the Company, jointly with any other indemnifying party similarly
notified, shall be entitled to assume the defense thereof and to employ
counsel reasonably satisfactory to Director. After notice from the
Company to Director of its election to so assume the defense thereof,
the Company shall not be liable to Director under this Agreement for any
legal or other expenses subsequently incurred by Director in connection
with the defense thereof other than reasonable costs of investigation or
as otherwise provided below. Director shall have the right to employ
counsel of his own choosing in such action, suit or proceeding but the
fees and expenses of such counsel incurred after notice from the Company
of assumption by the Company of the defense thereof shall be at the
expense of Director unless (i) the employment of counsel by Director has
been specifically authorized by the Company, such authorization to be
conclusively established by action by disinterested members of the Board
of Directors though less than a quorum; (ii) representation by the same
counsel of both Director and the Company would, in the reasonable
judgment of Director and the Company, be inappropriate due to an actual
or potential conflict of',interest between the Company and Director in
the conduct of the defense of such action, such conflict of interest to
be conclusively established by an opinion of counsel to the Company to
such effect; (iii) the counsel employed by the Company and reasonably
satisfactory to Director has advised Director in writing that such
counsel s representation of Director would likely involve such counsel
in representing differing interests which could adversely affect the
judgment or loyalty of such counsel to Director, whether it be a
conflicting, inconsistent, diverse or other interest; or (iv) the
5
Company shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of counsel shall
be paid by the Company. The Company shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Company or as to which a conflict of interest has been established as
provided in (ii) hereof. Notwithstanding the foregoing, if an insurance
company has supplied directors' and officers' liability insurance
covering an action, suit or proceeding, then such insurance company
shall employ counsel to conduct the defense of such action, suit or
proceeding unless Director and the Company reasonably concur in writing
that such counsel is unacceptable. After notice from the insurer, the
Company shall not be liable to Director under this Agreement for any
legal or other costs and expenses subsequently incurred by Director.
(c) The Company shall not be liable to indemnify Director under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any liability or
penalty on Director without Director's written consent. Neither the
Company nor Director shall unreasonably withhold consent to any proposed
settlement.
12. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on the Company hereby in
order to induce Director to serve as a director of the Company and
acknowledges that Director is relying upon this Agreement in continuing in
such capacity.
(b) If a claim for indemnification or advancement of expenses is not
paid in full by the Company within ninety (90) days after a written claim by
Director has been received by the Company, Director may at any time assert
the claim and bring suit against the Company to recover the unpaid amount of
the claim. In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in
such action, the Company shall reimburse Director for all of Director's
reasonable attorneys' fees and expenses m bringing and pursuing such action.
13. PROCEEDINGS BY DIRECTOR.
The Company shall not be liable to make any payment under this Agreement
m connection with any action, suit or proceeding, or any part thereof,
initiated or otherwise brought by Director unless such action, suit or
proceeding, or part thereof, (i) was authorized by the Company by a majority
of the disinterested members of the Board of Directors whether or not
constituting a quorum or (ii) was brought by Director pursuant to Section
12(b) hereof.
14. EFFECTIVENESS.
This Agreement is effective for, and shall apply to, (i) any claim which
is asserted or threatened before, on or after the date of this Agreement and
(ii) any action, suit or proceeding which is threatened before, on or after
the date of this. So long as the foregoing is satisfied, this Agreement shall
be effective for, and be applicable to, acts or omissions occurring prior to,
on or after the date hereof.
6
15. NON-EXCLUSIVITY.
The rights of Director under this Agreement shall not be deemed
exclusive, or in limitation of, any rights to which Director may be entitled
under any applicable common or statutory law, or pursuant to the Articles,
the Bylaws, vote of shareholders or otherwise.
16. OTHER PAYMENTS.
The Company shall not be liable to make any payment under this Agreement
m connection with any action, suit or proceeding against Director to the
extent Director has otherwise received payment of the amounts otherwise
payable by the Company hereunder.
17. SUBROGATION.
In the event the Company makes any payment under this Agreement, the
Company shall be subrogated, to the extent of such payment, to all rights of
recovery of Director with respect thereto, and Director shall execute all
agreements, instruments, certificates or other documents and do or cause to
be done all things necessary or appropriate to secure such recovery rights to
the Company including, without limitation, executing such documents as shall
enable the Company to bring an action or suit to enforce such recovery rights.
18. SURVIVAL; CONTINUATION.
The rights of Director under this Agreement shall inure to the benefit
of Director, his heirs, executors, administrators, personal representatives
and assigns, and this Agreement shall be binding upon the Company, its
successors and assigns. The rights of Director under this Agreement shall
continue so long as Director may be subject to any action, suit or proceeding
because of the fact that Director is or was a director or officer of the
Company or, while a director or officer of the Company, is or was serving at
the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise. If the
Company, in a single transaction or series of related transactions, sells,
leases, exchanges, or otherwise disposes of all or substantially all of its
property and assets, the Company shall, as a condition precedent to any such
transaction, cause effective provision to be made so that the persons or
entities acquiring such property and assets shall become bound by and replace
the Company under this Agreement.
19. AMENDMENT AND TERMINATION.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by both parties
hereto.
20. HEADINGS.
Section headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and do not constitute a part
of this Agreement.
21. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified
7
by the parties by like notice:
(a) if to the Company:
Mannatech, Incorporated
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
Fax: (214) 265-1999
Attention: Chief Executive Officer
(b) if to the Director:
----------------------------
----------------------------
----------------------------
----------------------------
Notice so given shall, in the case of notice so given by mail, be deemed to
be given and received on the fourth calendar day after posting, in the case
of notice so given by overnight delivery service, on the date of actual
delivery and, in the case of notice so given by cable, telegram, facsimile
transmission, telex or personal delivery, on the date of actual transmission
or, as the case may be, personal delivery.
22. SEVERABILITY.
If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable under any applicable law, then such contravention or
invalidity shall not invalidate the entire Agreement. Such provision shall be
deemed to be modified to the extent necessary to render it legal, valid and
enforceable, and if no such modification shall render it legal, valid and
enforceable, then this Agreement shall be construed as if not containing the
provision held to be invalid, and the rights and obligations of the parties
shall be construed and enforced accordingly.
23. COMPLETE AGREEMENT.
This Agreement, those documents expressly referred to herein and other
documents of even date herewith embody the complete agreement and
understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way.
24. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts shall be
deemed an original, shall be construed together and shall constitute one and
the same instrument.
25. CHOICE OF LAW. THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW,
AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.
8
INDEMNIFICATION AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
MANNATECH, INCORPORATED
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
------------------------------------------
, Director
9
SCHEDULE I
(Signing Directors)
1. Charles E. Fioretti
2. Samuel L. Caster
3. Patrick D. Cobb
4. Steven A. Barker
5. Chris T. Sullivan
SECURED PROMISSORY NOTE
Dallas County, Texas Date: December 31, 1997 $162,051.90
For value received, the undersigned, BILL McANALLEY ("Maker") a resident of
Dallas County, Texas, promises to pay to the order of MANNATECH, INC. ("Payee"),
whose principal place of business is in Dallas County, Texas, in lawful money of
the United States of America. All past due principal hereof and interest
thereon shall bear interest from the maturity of such principal, and both
principal and interest shall be payable to Payee at Coppell, Texas, or such
other place in Dallas County, Texas as Payee may designate in writing.
This Note shall bear no interest, except after maturity.
This principal shall be payable as follows: On or before December 31, 1998,
or upon the date upon which good funds are or could be available from the
initial public offering of the capital stock of Mannatech, Inc., whichever shall
first occur.
The timely payment of this Promissory Note is secured by the pledge of
53,756 shares of capital stock of Mannatech, Inc. owned by the Maker, evidenced
by a Security Agreement of even date herewith.
Maker may at any time, prepay in whole, or from time to time, in part, and
without any premium or penalty therefor, the principal amount then remaining
unpaid, together with all accrued interest payable thereon, if any, and interest
shall cease to run from the date of payment of such part or all of the principal
amount hereof as shall so be prepaid. Any such prepayment hereunder shall be
applied first to accrued interest, if any, and the balance to
principal, but no part of prepayment shall, until this Note is fully paid and
satisfied, affect the obligations to continue to pay the regular installments
required hereunder until the entire indebtedness has been paid.
If Maker shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for Maker any arrangement, composition, readjustment, or similar relief
under any present or future statute, law or regulation, or shall file any answer
admitting the material allegations of a petition filed against Maker in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee or receiver, on all or any substantial part of the properties of Maker,
or if a decree or order by a court having jurisdiction in the premises shall
have been entered adjudging the Maker to be bankrupt or insolvent under the
federal bankruptcy laws or any applicable law of the United States of America or
any state law, or appointing a receiver or trustee or assignee in bankruptcy or
insolvency of Maker or any of Maker's properties, and such decree or order shall
have continued undischarged or unstayed for a period of 30 days; or if Maker
shall make an assignment for the benefit of creditors, or if Maker shall fail to
pay this note or any installment hereof, whether principal or interest, when,
due, then Payee shall have the option, to the extent permitted by applicable
law, to declare this Note due and payable, whereupon the entire unpaid principal
balance of this note and all accrued unpaid interest thereon shall at once
mature and become due and payable without presentment, demand, protest or
notice of any kind (including, but not limited to, notice of intention to
accelerate or notice of acceleration), all of which are hereby expressly waived
by Maker. The time of payment of this note is also subject to acceleration in
the same manner provided in this paragraph in the event Maker defaults or
otherwise fails to discharge its obligations under any of the instruments
securing payment hereof or relating hereto.
Maker and any and all sureties, guarantors and endorsers of this Note and
all other parties now or hereafter liable hereon, severally waive grace, demand,
presentment for payment, protest, notice of any kind (including, but not limited
to, notice of dishonor, notice of protest, notice of intention to accelerate and
notice of acceleration) and diligence in collecting and bringing suit against
any party hereto and agree (i) to all extensions and partial payments, with or
without notice, before or after maturity, (ii) to any substitution, exchange or
release of any security now or hereafter given for this note, (iii) to the
release of any party primarily or secondarily liable hereon, and (iv) that it
will not be necessary for Payee, in order to enforce payment of this Note, to
first institute or exhaust Payee's remedies against Maker or any other party
liable therefor or against any security for this Note.
If this Note is not paid at maturity, however, and such maturity is brought
about and is placed in the hands of an attorney for collection, or if collected
through any legal proceedings including but not limited to probate, insolvency
or bankruptcy proceedings, or if suit is brought on the same, Makers agree to
pay a reasonable amount of attorneys' fees and expenses of collection,
which amount shall be not less than ten percent (10%) of the amount then due
hereon.
If Maker shall fail to pay this Note or any installment hereof, whether
principal or interest, when due, and if Makers shall not have cured such default
in the payment of principal and interest, or either, within three (3) days after
Makers shall have received from the Payees written notice of such Payee's intent
to accelerate the maturity of this Note, then Payees may, at their option,
without further demand, notice or presentment, all of which are hereby severally
waived by Makers, and by any and all sureties, guarantors, and endorsers of this
Note, accelerate the maturity of this Note, upon which the entire unpaid balance
of the principal hereof together with all accrued but unpaid interest thereon
shall be at once due and payable.
As used in this Note, the term "Maker" shall be deemed to include BILL
McANALLEY, and any of their successors in interest or assignees.
As used in this Note, the term "Payee" shall be deemed to include
MANNATECH, INC., and any subsequent holders hereof.
This Note shall be governed by and construed under the laws of the State of
Texas and the laws of the United States of America.
/s/ Bill McAnalley
----------------------------------
BILL McANALLEY, Maker
SECURED PROMISSORY NOTE
Dallas County, Texas Date: December 31, 1997 $121,782.14
For value received, the undersigned, PETER HAMMER ("Maker") a resident of
Denton County, Texas, promises to pay to the order of MANNATECH, INC. ("Payee"),
whose principal place of business is in Dallas County, Texas, in lawful money of
the United States of America. All past due principal hereof and interest
thereon shall bear interest from the maturity of such principal, and both
principal and interest shall be payable to Payee at Coppell, Texas, or such
other place in Dallas County, Texas as Payee may designate in writing.
This Note shall bear no interest, except after maturity.
This principal shall be payable as follows: On or before December 31, 1998,
or upon the date upon which good funds are or could be available from the
initial public offering of the capital stock of Mannatech, Inc., whichever shall
first occur.
The timely payment of this Promissory Note is secured by the pledge of
40,397 shares of capital stock of Mannatech, Inc. owned by the Maker, evidenced
by a Security Agreement of even date herewith.
Maker may at any time, prepay in whole, or from time to time, in part, and
without any premium or penalty therefor, the principal amount then remaining
unpaid, together with all accrued interest payable thereon, if any, and interest
shall cease to run from the date of payment of such part or all of the principal
amount hereof as shall so be prepaid. Any such prepayment hereunder shall be
applied first to accrued interest, if any, and the balance to
principal, but no part of prepayment shall, until this Note is fully paid and
satisfied, affect the obligations to continue to pay the regular installments
required hereunder until the entire indebtedness has been paid.
If Maker shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for Maker any arrangement, composition, readjustment, or similar relief
under any present or future statute, law or regulation, or shall file any answer
admitting the material allegations of a petition filed against Maker in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee or receiver, on all or any substantial part of the properties of Maker,
or if a decree or order by a court having jurisdiction in the premises shall
have been entered adjudging the Maker to be bankrupt or insolvent under the
federal bankruptcy laws or any applicable law of the United States of America or
any state law, or appointing a receiver or trustee or assignee in bankruptcy or
insolvency of Maker or any of Maker's properties, and such decree or order shall
have continued undischarged or unstayed for a period of 30 days; or if Maker
shall make an assignment for the benefit of creditors, or if Maker shall fail to
pay this note or any installment hereof, whether principal or interest, when
due, then Payee shall have the option, to the extent permitted by applicable
law, to declare this Note due and payable, whereupon the entire unpaid principal
balance of this note and all accrued unpaid interest thereon shall at once
mature and become due and payable without presentment, demand, protest or
notice of any kind (including, but not limited to, notice of intention to
accelerate or notice of acceleration), all of which are hereby expressly waived
by Maker. The time of payment of this note is also subject to acceleration in
the same manner provided in this paragraph in the event Maker defaults or
otherwise fails to discharge its obligations under any of the instruments
securing payment hereof or relating hereto.
Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, protest, notice of any kind (including, but
not limited to, notice of dishonor, notice of protest, notice of intention to
accelerate and notice of acceleration) and diligence in collecting and
bringing suit against any party hereto and agree (i) to all extensions and
partial payments, with or without notice, before or after maturity, (ii) to
any substitution, exchange or release of any security now or hereafter given
for this note, (iii) to the release of any party primarily or secondarily
liable hereon, and (iv) that it will not be necessary for Payee, in order to
enforce payment of this Note, to first institute or exhaust Payee's remedies
against Maker or any other party liable therefor or against any security for
this Note.
If this Note is not paid at maturity, however, and such maturity is brought
about and is placed in the hands of an attorney for collection, or if collected
through any legal proceedings including but not limited to probate, insolvency
or bankruptcy proceedings, or if suit is brought on the same, Makers agree to
pay a reasonable amount of attorneys' fees and expenses of collection,
which amount shall be not less than ten percent (10%) of the amount then due
hereon.
If Maker shall fail to pay this Note or any installment hereof, whether
principal or interest, when due, and if Makers shall not have cured such default
in the payment of principal and interest, or either, within three (3) days after
Makers shall have received from the Payees written notice of such Payee's intent
to accelerate the maturity of this Note, then Payees may, at their option,
without further demand, notice or presentment, all of which are hereby severally
waived by Makers, and by any and all sureties, guarantors, and endorsers of this
Note, accelerate the maturity of this Note, upon which the entire unpaid balance
of, the principal hereof together with all accrued but unpaid interest thereon
shall be at once due and payable.
As used in this Note, the term "Maker" shall be deemed to include PETER
HAMMER, and any of their successors in interest or assignees.
As used in this Note, the term "Payee" shall be deemed to include
MANNATECH, INC., and any subsequent holders hereof.
This Note shall be governed by and construed under the laws of the State of
Texas and the laws of the United States of America.
/s/ Peter Hammer
----------------------------------
PETER HAMMER, Maker
Banc One Leasing Corporation Tel 800 334-5422
PO Box 711085
Columbus OH 43271 1085
[LOGO]
December 18, 1997
Mannatech, Incorporated
Attn: Cindy Bodine
600 South Royal Lane, Ste 200
Coppell, TX 75019
Dear Ms. Bodine:
We are pleased to confirm that Banc One Leasing Corporation (LESSOR) has
committed to a Lease Line of Credit not to exceed $1,500,000.00 to Mannatech,
Incorporated (LESSEE) for the type(s) of equipment as set forth below:
Various Equipment
This Commitment will expire December 15, 1998, subject to the following
conditions:
1. The amount advanced shall not exceed the amount committed.
2. In LESSOR'S sole judgement, there shall not have been a material
adverse change in the financial condition or business of LESSEE or any
guarantor.
3. There shall not have been a change in the Internal Revenue Code of
1986 or any regulation thereunder, which in LESSOR'S sole judgement
would adversely affect the economics to LESSOR of the transaction.
4. Execution of a personal guaranty by Charles E. Fioretti and Samuel L.
Caster.
If the Lease Line of Credit covered by this Commitment is not funded by December
15, 1998, this Commitment shall expire.
The details of the particular Equipment Schedules funded under this Lease Line
of Credit may vary, as LESSOR may deem necessary in its sole judgement, on such
items as:
1. Term of transaction.
2. Rental rate factor.
3. Documentation required.
Mannatech, Incorporated
December 18, 1997
Page 2
A Commitment Fee of $15,000.00 is due with the return of this letter. This fee
will be applied to the first rental payment(s) when due.
If the Lease Agreement is executed and closed, the Commitment Fee will apply to
the first rental payment(s) due. If the Commitment is not used, LESSOR will not
be obligated to return the Commitment Fee.
As it becomes necessary for LESSOR to make progress payments and/or advance
payments to equipment suppliers, these advances will be evidenced by an interim
funding schedule and other relevant documents which are attached. There will be
a documentation fee for each interim funding schedule of $375.00, plus a fee of
$25.00 for each disbursement of funds.
This Commitment is subject to the terms and conditions outlined herein,
contained in each Equipment Schedule, and in the Master Lease Agreement. By
execution of this letter and the enclosed Master Lease, you will be agreeing to
these terms. If this Commitment Letter is not received within 15 days of the
above date, this Commitment is withdrawn.
On behalf of Banc One Leasing Corporation, please accept my thanks for the
opportunity to be of service. Should you have any questions, please contact
Zane Burgess at (817)884-4815.
Yours Truly,
/s/ Mary C. Heubach
Mary C. Heubach
Quality Analyst
MCH/mas
Acknowledged and agreed this 23rd day of December, 1997.
Mannatech, Incorporated
LESSEE
By: Patrick Cobb
----------------------
Title: CFO
--------------------
MASTER LEASE AGREEMENT
[LOGO]
This MASTER LEASE AGREEMENT is made, entered and dated as of December 23, 1997
by and between:
LESSOR: LESSEE:
BANC ONE LEASING CORPORATION MANNATECH, INCORPORATED
111 Polaris Parkway, Suite A-3 600 SOUTH ROYAL LANE, STE 200
Columbus, Ohio 43240 COPPELL, TX 75019
1. LEASE OF EQUIPMENT: Lessor leases to Lessee, and Lessee leases from Lessor,
all the property described in the Lease Schedules which are signed from time to
time by Lessor and Lessee.
2. CERTAIN DEFINITIONS: "Schedule" means each Lease Schedule signed by Lessee
and Lessor which incorporates the terms of this Master Lease Agreement, together
with all exhibits, riders, attachments and addenda thereto. "Equipment" means
the property described in each Schedule, together with all Attachments,
additions, accessions, parts, repairs, improvements, replacements and
substitutions thereto. "Lease", "herein", "hereunder", "hereof" and similar
words mean this Master Lease Agreement and all Schedules, together with all
exhibits, riders, attachments and addenda to any of the foregoing, as the same
may from time to time be amended, modified or supplemented. "Prime Rate" means
the prime rate of interest announced from time to time as the prime rate by Bank
One, Columbus, NA; provided, that the parties acknowledge that the Prime Rate is
not intended to be the lowest rate of interest charged by said bank in
connection with extensions of credit. "Lien" means any security interest, lien,
mortgage, pledge, encumbrance, judgment, execution, attachment, warrant, writ,
levy, other judicial process or claim of any nature whatsoever by or of any
person. "Fair Market Value" means the amount which would be paid for an item of
Equipment by an informed and willing buyer (other than a used equipment or scrap
dealer) and an informed and willing seller neither under a compulsion to buy or
sell. "Lessor's Cost" means the invoiced price of any item of Equipment plus any
other cost to Lessor of acquiring an item of Equipment. All terms defined in the
Lease are equally applicable to both the singular and plural form of such terms.
3. LEASE TERM AND RENT: The term of the lease of the Equipment described in
each Schedule ("Lease Term") commences on the date stated in the Schedule and
continues for the term stated therein. As rent for the Equipment described in
each Schedule, Lessee shall pay Lessor the rent payments and all other amounts
stated in such Schedule, payable on the dates specified therein. All payments
due under the Lease shall be made in United States dollars at Lessor's office
stated in the opening paragraph or as otherwise directed by Lessor in writing.
4. ORDERING, DELIVERY, REMOVAL AND INSPECTION OF EQUIPMENT: If an event of
default occurs or if for any reason Lessee does not accept, or revokes its
acceptance of, equipment covered by a purchase order or purchase contract or if
any commitment or agreement of Lessor to lease equipment to Lessee expires,
terminates or is otherwise canceled, then automatically upon notice from Lessor,
any purchase order or purchase contract and all obligations hereunder shall be
assigned to Lessee and Lessee shall pay and perform all obligations thereunder.
Lessee agrees to pay, defend, indemnify and hold Lessor harmless from any
liabilities, obligations, claims, costs and expenses (including reasonable
attorney fees and expenses) of whatever kind imposed on or asserted against
Lessor in any way related to any purchase orders or purchase contracts. Lessee
shall make all arrangements for, and Lessee shall pay all costs of,
transportation, delivery, installation and testing of Equipment. The Equipment
shall be delivered to Lessee's premises stated in the applicable Schedule
and shall not be removed without Lessor's prior written consent. Lessor has
the right upon reasonable notice to Lessee to inspect the Equipment wherever
located. Lessor may enter upon any premises where Equipment is located and
remove it immediately, without notice or liability to Lessee, upon the
expiration or other termination of the Lease Term.
5. MAINTENANCE AND USE: Lessee agrees it will, at its sole expense: (a) repair
and maintain the Equipment in good condition and working order and supply and
install all replacement parts or other devices when required to so maintain the
Equipment or when required by applicable law or regulation, which parts or
devices shall automatically become part of the Equipment; (b) use and operate
the Equipment in a careful manner in the normal course of its business and only
for the purposes for which it was designed in accordance with the manufacturer's
warranty requirements, and comply with all laws and regulations relating to the
Equipment, and obtain all permits or licenses necessary to install, use or
operate the Equipment; and (c) make no alterations, additions, subtractions,
upgrades or improvements to the Equipment without Lessor's prior written
consent, but any such alterations, additions, upgrades or improvements shall
automatically become part of the Equipment. The Equipment will not be used or
located outside of the United States.
6. NET LEASE; NO EARLY TERMINATION: The Lease is a net lease. Lessee's
obligation to pay all rent and all other amounts payable under the Lease is
absolute and unconditional under any and all circumstances and shall not be
affected by any circumstances of any character including, without limitation,
(a) any setoff, claim, counterclaim, defense or reduction which Lessee may have
at any time against Lessor or any other party for any reason, or (b) any defect
in the condition, design or operation of, any lack of fitness for use of, any
damage to or loss of, or any lack of maintenance or service for any of the
Equipment. Each Schedule is a noncancelable lease of the Equipment described
therein and Lessee's obligation to pay rent and perform all other obligations
thereunder and under the Lease are not subject to cancellation or termination by
Lessee for any reason.
7. NO WARRANTIES BY LESSOR: LESSOR LEASES THE EQUIPMENT AS-IS, WHERE-IS, AND
WITH ALL FAULTS. LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR
IMPLIED, OF ANY KIND AS TO THE EQUIPMENT INCLUDING, WITHOUT LIMITATION: ITS
MERCHANTABILITY; ITS FITNESS FOR ANY PARTICULAR PURPOSE; ITS DESIGN, CONDITION,
QUALITY, CAPACITY, DURABILITY, CAPABILITY, SUITABILITY OR WORKMANSHIP; ITS
NON-INTERFERENCE WITH OR NON-INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR
OTHER INTELLECTUAL PROPERTY RIGHT; OR ITS COMPLIANCE WITH ANY LAW, RULE,
SPECIFICATION, PURCHASE ORDER OR CONTRACT PERTAINING THERETO. Lessor hereby
assigns to Lessee the benefit of any assignabLe manufacturer's or supplier's
warranties, but Lessor, at Lessee's written request, will cooperate with Lessee
in pursuing any remedies Lessee may have under such warranties. Any action taken
with regard to warranty claims against any manufacturer or supplier by Lessee
will be at Lessee's sole expense. LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OF ANY KIND AS TO THE FINANCIAL CONDITION OR FINANCIAL
STATEMENTS OF ANY PARTY OR AS TO THE TAX OR ACCOUNTING TREATMENT OR CONSEQUENCES
OF THE LEASE, THE EQUIPMENT OR THE RENTAL PAYMENTS.
8. INSURANCE: Lessee at its sole expense shall at all times keep each item of
Equipment insured against all risks of loss or damage from every cause
whatsoever for an amount not less than the greater of the full replacement value
or the Lessor's Cost of such item of Equipment. Lessee at its sole expense shall
at all times carry public liability and property damage insurance in amounts
satisfactory to Lessor protecting Lessee and Lessor from liabilities for
injuries to persons and damage to property of others relating in any way to the
Equipment. All insurers shall be reasonably satisfactory to Lessor. Lessee shall
deliver to Lessor satisfactory evidence of such coverage. Proceeds of any
insurance covering damage or loss of the Equipment shall be payable to Lessor as
loss payee and shall, at Lessor's option, be applied toward (a) the replacement,
restoration or repair of the Equipment, or (b) payment of the obligations of
Lessee under the Lease. Proceeds of any public liability or property insurance
shall be payable first to Lessor as additional insured to the extent of its
liability, then to Lessee. If an event of default occurs and is continuing, or
if Lessee fails to make timely payments due under Section 9 hereof, then Lessee
automatically appoints Lessor as Lessee's attorney-in-fact with full power and
authority in the place of Lessee and in the name of Lessee or Lessor to make
claim for, receive payment of, and sign and endorse all documents, checks or
drafts for loss or damage under any such policy. Each insurance policy will
require that the insurer give Lessor at least 30 days prior written notice of
any cancellation of such policy and will require that Lessor's interests remain
insured regardless of any act, error, omission, neglect or misrepresentation of
Lessee. The insurance maintained by Lessee shall be primary without any right of
contribution from insurance which may be maintained by Lessor.
9. LOSS AND DAMAGE: (a) Lessee bears the entire risk of loss, theft, damage or
destruction of Equipment in whole or in part from any reason whatsoever
("Casualty Loss"). No Casualty Loss to Equipment shall relieve Lessee from the
obligation to pay rent or from any other obligation under the Lease.
Page 1 of 4
9. LOSS AND DAMAGE (continued): In the event of Casualty Loss to any item of
Equipment, Lessee shall immediately notify Lessor of the same and Lessee shall,
if so directed by Lessor, immediately repair the same. If Lessor determines that
any item of Equipment has suffered a Casualty Loss beyond repair ("Lost
Equipment"), then Lessee, at the option of Lessor, shall: (i) Immediately
replace the Lost Equipment with similar equipment in good repair, condition and
working order free and clear of any Liens and deliver to Lessor a bill of sale
covering the replacement equipment, in which event such replacement equipment
shall automatically be Equipment under the Lease; or (2) On the rent payment
date which is at least 30 but no more than 60 days after the date of the
Casualty Loss, pay to Lessor all amounts then due and payable by Lessee under
the Lease for the Lost Equipment plus the Stipulated Loss Value for such Lost
Equipment as of the date of the Casualty Loss. Upon payment by Lessee of all
amounts due under the above clause (2), the lease of the Lost Equipment will
terminate and Lessor shall transfer to Lessee all of Lessor's right, title and
interest in such Equipment on an "as-is, where-is" basis with all faults,
without recourse and without representation or warranty of any kind, express or
implied.
(b) "Stipulated Loss Value" of any item of Equipment during its Lease Term
equals the present value discounted in arrears to the applicable date at the
applicable SLV Discount Rate of (1) the remaining rents and all other amounts
[including, without limitation, any balloon payment and, as to a terminal rental
adjustment clause ("TRAC") lease, the TRAC value stated in the Schedule, and any
other payments required to be paid by Lessee at the end of the applicable Lease
Term] payable under the Lease for such item on and after such date to the end of
the applicable Lease Term and (2) an amount equal to the Economic Value of the
Equipment. For any item of Equipment, "Economic Value" means the Fair Market
Value of the Equipment at the end of the applicable Lease Term as originally
anticipated by Lessor at the Commencement Date. of the applicable Schedule;
provided, that Lessee agrees that such value shall be determined by the books of
Lessor as of the Commencement Date of the applicable Schedule. After the payment
of all rent due under the applicable Schedule and the expiration of the Lease
Term of any item of Equipment, the Stipulated Loss Value of such item equals the
Economic Value of such item. Stipulated Loss Value shall also include any Taxes
payable by Lessor in connection with its receipt thereof. For any item of
Equipment, "SLV Discount Rate" means an interest rate equal to the Prime Rate in
effect on the Commencement Date of the Schedule for such item minus two
percentage points.
10. TAX BENEFITS INDEMNITY. (a) The Lease has been entered into on the basis
that Lessor shall be entitled to such deductions, credits and other tax benefits
as are provided by federal, state and local income tax law to an owner of the
Equipment (the "Tax Benefits") including, without limitation: (1) modified
accelerated cost recovery deductions on each item of Equipment under Section 168
of the Code (as defined below) in an amount determined commencing with the
taxable year in which the Commencement Date of the applicable Schedule occurs,
using the maximum allowable depreciation method available under Section 168 of
the Code, using a recovery period (as defined in Section 168 of the Code)
reasonably determined by Lessor, and using an initial adjusted basis which is
equal to the Lessor's Cost of such item; (2) amortization of the expenses paid
by Lessor in connection with the Lease on a straight-line basis over the term of
the applicable Schedule; and (3) Lessor's federal taxable income will be subject
to the maximum rate on corporations in effect under the Code as of the
Commencement Date of the applicable Schedule.
(b) If on any one or more occasions (1) Lessor shall lose, shall not have
or shall lose the right to claim all or any part of the Tax Benefits, (2) there
shall be reduced, disallowed, recalculated or recaptured all or any part of the
Tax Benefits, or (3) all or any part of the Tax Benefits is reduced by a change
in law or regulation (each of the events described in subparagraphs 1, 2 or 3 of
this paragraph (b) will be referred to as a "Tax Loss"), then, upon 30 days
written notice by Lessor to Lessee that a Tax Loss has occurred, Lessee shall
pay Lessor an amount which, in the reasonable opinion of Lessor and after the
deduction of all taxes required to be paid by Lessor with respect to the receipt
of such amount, will provide Lessor with the same after-tax net economic yield
which was originally anticipated by Lessor as of the Commencement Date of the
applicable Schedule.
(c) A Tax Loss shall occur upon the earliest of: (1) the happening of any
event (such as disposition or change in use of an item of Equipment) which may
cause such Tax Loss; (2) Lessor's payment to the applicable taxing authority of
the tax increase resulting from such Tax Loss; or (3) the adjustment of Lessor's
tax return to reflect such Tax Loss.
(d) Lessor shall not be entitled to payment under this section for any Tax
Loss caused solely by one or more of the following events: (1) a disqualifying
sale or disposition of an item of Equipment by Lessor prior to any default by
Lessee; (2) Lessor's failure to timely or properly claim the Tax Benefits in
Lessor's tax return; (3) a disqualifying change in the nature of Lessor's
business or liquidation thereof; (4) a foreclosure by any person holding through
Lessor a security interest on an item of Equipment which foreclosure results
solely from an act of Lessor; or (5) Lessor's failure to have sufficient taxable
income or tax liability to utilize the Tax Benefits.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended. For
the purposes of this section 10, the term "Lessor" shall include any affiliate
group (within the meaning of section 1504 of the Code) of which Lessor is a
member for any year in which a consolidated income tax return is filed for such
affiliated group. Lessee's obligations under this section shall survive the
expiration, cancellation or termination of the Lease.
11. GENERAL TAX INDEMNITY: Lessee will pay, and will defend, indemnify and hold
Lessor harmless on an after-tax basis from, any and all Taxes (as defined below)
and related audit and contest expenses on or relating to (a) any of the
Equipment, (b) the Lease, (a) purchase. acceptance, ownership, lease,
possession, use, operation, transportation, return or other disposition of any
of the Equipment, and (d) rentals or earnings relating to any of the Equipment
or the Lease. "Taxes" means present and future taxes or other governmental
charges that are not based on the net income of Lessor, whether they are
assessed to or payable by Lessee or Lessor, including, without limitation (i)
sales, use, excise, licensing, registration, titling, franchise, business and
occupation, gross receipts, stamp and personal property taxes, (ii) levies,
imposts, duties, assessments, charges and withholdings, (iii) penalties, fines,
and additions to tax and (iv) interest on any of the foregoing. Unless Lessor
elects otherwise, Lessor will prepare and file all reports and returns relating
to any Taxes and will pay all Taxes to the appropriate taxing authority. Lessee
will reimburse Lessor for all such payments promptly on request. On or after any
applicable assessment/levy/lien date for any personal property Taxes relating to
any Equipment, Lessee agrees that upon Lessor's request Lessee shall pay to
Lessor the personal property Taxes which Lessor reasonably anticipates will be
due, assessed, levied or otherwise imposed on any Equipment during its Lease
Term. If Lessor elects in writing, Lessee will itself prepare and file all such
reports and returns, pay all such Taxes directly to the taxing authority, and
send Lessor evidence thereof. Lessee's obligations under this section shall
survive the expiration, cancellation or termination of the Lease.
12. GENERAL INDEMNITY: Lessee assumes all risk and liability for, and shall
defend, indemnify and keep Lessor harmless on an after-tax basis from, any
and all liabilities, obligations, losses, damages, penalties, claims,
actions, suits, costs and expenses, including reasonable attorney fees and
expenses, of whatsoever kind and nature imposed on, incurred by or asserted
against Lessor, in any way relating to or arising out of the manufacture,
purchase, acceptance, rejection, ownership, possession, use, selection,
delivery, lease, operation, condition, sale, return or other disposition of
the Equipment or any part thereof (including, without limitation, any claim
for latent or other defects, whether or not discoverable by Lessee or any
other person, any claim for negligence, tort or strict liability, any claim
under any environmental protection or hazardous waste law and any claim for
patent, trademark or copyright infringement). Lessee will not indemnify
Lessor under this section for loss or liability arising from events which
occur after the Equipment has been returned to Lessor or for loss or
liability caused directly and solely by the gross negligence or willful
misconduct of Lessor. In this section, "Lessor" also includes any director,
officer, employee, agent, successor or assign of Lessor. Lessee's obligations
under this section shall survive the expiration, cancellation or termination
of the Lease.
13. PERSONAL PROPERTY: Lessee represents and agrees that the Equipment is, and
shall at all times remain, separately identifiable personal property. Upon
Lessor's request, Lessee shall furnish Lessor a landlord's and/or mortgagee's
waiver and consent to remove all Equipment. Lessor may display notice of its
interest in the Equipment by any reasonable identification. Lessee shall not
alter or deface any such indicia of Lessor's interest.
14. DEFAULT: Each of the following events shall constitute an event of default
under the Lease: (a) Lessee fails to pay any rent or other amount due under the
Lease within ten days of its due date; or (b) Lessee fails to perform or observe
any of its obligations in Sections 8, 18, or 22 hereof; or (a) Lessee fails to
perform or observe any of its other obligations in the Lease for more than 30
days after Lessor notifies Lessee of such failure; or (d) Lessee or any Lessee
affiliate defaults in the payment, performance or observance of any obligation
under any loan, credit agreement or other lease in which Lessor or any
subsidiary (direct or indirect) of Banc One Corporation (which is Lessor's
ultimate parent corporation) is the creditor or lessor; or (e) any statement,
representation or warranty made by Lessee in the Lease, in any Schedule or in
any document, certificate or financial statement in connection with the Lease
proves at any time to have been untrue or misleading in any material respect as
of the time when made; or (f) Lessee becomes insolvent or bankrupt, or Lessee
admits its inability to pay its debts as they mature, or Lessee makes an
assignment for the benefit of creditors, or Lessee applies for, institutes or
consents to the appointment of a receiver, trustee or similar official for
Lessee or any substantial part of its property or any such official is appointed
without Lessee's consent, or Lessee applies for, institutes or consents to any
bankruptcy, insolvency, reorganization, debt moratorium, liquidation, or similar
proceeding relating to Lessee or any substantial part of its property under the
laws of any jurisdiction or any such proceeding is instituted against Lessee
without stay or dismissal for more than 30 days, or Lessee commences any act
amounting to a business failure or a winding up of its affairs, or Lessee ceases
to do business as a going concern; or (g) with respect to any guaranty, letter
of credit, pledge agreement, security agreement, mortgage, deed of trust, debt
subordination agreement or other credit enhancement or credit support agreement
(whether now existing of hereafter arising) signed or issued by any party in
connection with all or any part of Lessee's obligations under the Lease, the
party signing or issuing any such agreement defaults in its obligations
thereunder or any such agreement shall cease to be in full force and effect or
shall be declared to be null, void, invalid or unenforceable by the party
signing or issuing it; or (h) there shall occur in Lessor's reasonable opinion
any material adverse change in the financial condition, business or operations
of Lessee.
Page 2 of 4
14. DEFAULT (continued): As used in this section 14, the term "Lessee" also
includes any guarantor (whether now existing or hereafter arising) of all or any
part of Lessee's obligations under the Lease and/or any issuer of a letter of
credit (whether now existing or hereafter arising) relating to all or any part
of Lessee's obligations under the Lease, and the term "Lease" also includes any
guaranty or letter of credit (whether now existing or hereafter arising)
relating to all or any part of Lessee's obligations under the Lease.
15. REMEDIES. If any event of default exists, Lessor may exercise in any
order one or more of the remedies described in the lettered subparagraphs of
this Section, and Lessee shall perform its obligations imposed thereby:
(a) Lessor may require Lessee to return any or all Equipment as
provided in the Lease.
(b) Lessor or its agent may repossess any or all Equipment wherever
found, may enter the premises where the Equipment is located and disconnect,
render unusable and remove it, and may use such premises without charge to
store or show the Equipment for sale.
(c) Lessor may sell any or all Equipment at public or private sale,
with or without advertisement or publication, may re-lease or otherwise
dispose of it or may use, hold or keep it.
(d) Lessor may require Lessee to pay to Lessor on a date specified by
Lessor, with respect to any or all Equipment (i) all accrued and unpaid rent,
late charges and other amounts due under the Lease on or before such date,
plus (ii) as liquidated damages for loss of a bargain and not as a penalty,
and in lieu of any further payments of rent, the Stipulated Loss Value of the
Equipment on such date, plus (iii) interest at the Overdue Rate on the total
of the foregoing ("Overdue Rate" means an interest rate per annum equal to
the higher of 18% or 2% over the Prime Rate, but not to exceed the highest
rate permitted by applicable law). The parties acknowledge that the
foregoing money damage calculation reasonably reflects Lessor's anticipated
loss with respect to the Equipment and the related Lease resulting from the
event of default. If an event of default under section 14 (f) of this Master
Lease Agreement exists, then Lessee will be automatically liable to pay
Lessor the foregoing amounts as of the next rent payment date unless Lessor
otherwise elects in writing.
(e) Lessee shall pay all costs, expenses and damages incurred by
Lessor because of the event of default or its actions under this section,
including, without limitation any collection agency and/or attorney fees and
expenses, any costs related to the repossession, safekeeping, storage,
repair, reconditioning or disposition of the Equipment and any incidental and
consequential damages.
(f) Lessor may terminate the Lease and/or any or all Schedules, may
sue to enforce Lessee's performance of its obligations under the Lease and/or
may exercise any other right or remedy then available to Lessor at law or in
equity.
Lessor is not required to take any legal process or give Lessee any
notice before exercising any of the above remedies. None of the above
remedies is exclusive, but each is cumulative and in addition to any other
remedy available to Lessor. Lessor's exercise of one or more remedies shall
not preclude its exercise of any other remedy. No action taken by Lessor
shall release Lessee from any of its obligations to Lessor. No delay or
failure on the part of Lessor to exercise any right hereunder shall operate
as a waiver thereof, nor as an acquiescence in any default, nor shall any
single or partial exercise of any right preclude any other exercise thereof
or the exercise of any other right. After any default, Lessor's acceptance of
any payment by Lessee under the Lease shall not constitute a waiver by Lessor
of such default, regardless of Lessor's knowledge or lack of knowledge at the
time of such payment, and shall not constitute a reinstatement of the Lease
if the Lease has been declared in default by Lessor, unless Lessor has agreed
in writing to reinstate the Lease and to waive the default.
If Lessor actually repossesses any Equipment, then it will use
commercially reasonable efforts under the then current circumstances to
attempt to mitigate its damages; provided that Lessor shall not be required
to sell, re-lease or otherwise dispose of any Equipment prior to Lessor
enforcing any of the remedies described above. Lessor may sell or re-lease
the Equipment in any manner it chooses, free and clear of any claims or
rights of Lessee and without any duty to account to Lessee with respect
thereto except as provided below. If Lessor actually sells or re-leases the
Equipment, it will credit the net proceeds of any sale of the Equipment, or
the net present value (discounted at the then current Prime Rate) of the
rents payable under any new lease of the Equipment, against and up to (but
not exceeding) the Stipulated Loss Value of the Equipment and any other
amounts Lessee owes Lessor, or will reimburse Lessee for and up to (but not
exceeding) Lessee's payment thereof. The term net" as used above shall mean
such amount after deducting the costs and expenses described in clause (e)
above of this section. If Lessor elects in writing not to sell or re-lease
any Equipment, it will similarly credit or reimburse Lessee for Lessor's
reasonable estimate of such Equipment's Fair Market Value.
16. LESSOR'S RIGHT TO PERFORM: If Lessee fails to make any payment under the
Lease or fails to perform any of its other agreements in the Lease including,
without limitation, its agreement to provide insurance coverage as stated in
the Lease), Lessor may itself make such payment or perform such agreement,
and the amount of such payment and the amount of the expenses of Lessor
incurred in connection with such payment or performance shall be deemed to be
additional rent, payable by Lessee on demand.
17. FINANCIAL REPORTS: Lessee agrees to furnish to Lessor: (a) annual
financial statements setting forth the financial condition and results of
operation of Lessee (financial statements shall include the balance sheet,
income statement and changes in financial position and all notes thereto)
within 120 days of the end of each fiscal year of Lessee; (b) quarterly
financial statements setting forth the financial condition and results of
operation of Lessee within 60 days of the end of each of the first three
fiscal quarters of Lessee; and (c) such other financial information as Lessor
may from time to time reasonably request including, without limitation,
financial reports filed by Lessee with federal or state regulatory agencies.
All such financial information shall be prepared in accordance with generally
accepted accounting principles. If Lessee fails to furnish the annual
financial statements to Lessor within 30 days of Lessor's written request,
then Lessor may, at its option, charge Lessee a non-performance fee equal to
all the rentals due under the Lease for the then current month (unless
otherwise prohibited by law) and such fees shall be deemed to be additional
rent, payable by Lessee on demand.
18. NO CHANGES IN LESSEE: Lessee shall not: (a) liquidate, dissolve or
suspend business; (b) sell, transfer or otherwise dispose of all or a
majority of its assets, except that Lessee may sell its inventory in the
ordinary course of its business; (c) enter into any merger, consolidation or
similar reorganization unless it is the surviving corporation; (d) transfer
all or any substantial part of its operations or assets outside of the United
States of America; or (e) without 30 days advance written notice to Lessor,
change its name or chief place of business. Lessee shall at all times
maintain a tangible net worth which is no less than the greater of 75% of its
tangible net worth as of the date of the Master Lease Agreement or 75% of its
highest tangible net worth thereafter.
19. LATE CHARGES: If any rent or other amount payable under the Lease is not
paid when due, then as compensation for the administration and enforcement of
Lessee's obligation to make timely payments, Lessee shall pay with respect to
each overdue payment on demand an amount equal to the greater of fifteen dollars
($15.00) or five percent (5%) of the each overdue payment (but not to exceed the
highest late charge permitted by applicable law) plus any collection agency fees
and expenses.
20. NOTICES; POWER OF ATTORNEY: (a) Service of all notices under the Lease
shall be sufficient if given personally or couriered or mailed to the party
involved at its respective address set forth herein or at such other address as
such party may provide in writing from time to time. Any such notice mailed to
such address shall be effective three days after deposit in the United States
mail with postage prepaid. (b) With respect to any power of attorney covered by
the Lease, the powers conferred on Lessor thereby: are powers coupled with an
interest; are irrevocable; are solely to protect Lessor's interests under the
Lease; and do not impose any duty on Lessor to exercise such powers. Lessor
shall be accountable solely for amounts it actually receives as a result of its
exercise of such powers.
21. ASSIGNMENT BY LESSOR: Lessor and any assignee of Lessor, with or without
notice to or consent of Lessee, may sell, assign, transfer or grant a
security interest in all or any part of Lessor's rights, obligations, title
or interest in the Equipment, the Lease, any Schedule or the amounts payable
under the Lease or any Schedule to any entity ("transferee"). The transferee
shall succeed to all of Lessor's rights in respect to the Lease (including,
without limitation, all rights to insurance and indemnity protection
described in the Lease). Lessee agrees to sign any acknowledgement and other
documents reasonably requested by Lessor or the transferee in connection with
any such transfer transaction. Lessee, upon receiving notice of any such
transfer transaction, shall comply with the terms and conditions thereof.
Lessee agrees that it shall not assert against any transferee any claim,
defense, setoff, deduction or counterclaim which Lessee may now or hereafter
be entitled to assert against Lessor. Unless otherwise agreed in writing, the
transfer transaction shall not relieve Lessor of any of its obligations to
Lessee under the Lease and Lessee agrees that the transfer transaction shall
not be construed as being an assumption of such obligations by the transferee.
22. NO ASSIGNMENT, SUBLEASE OR LIEN BY LESSEE: LESSEE SHALL NOT, DIRECTLY OR
INDIRECTLY, (a) MORTGAGE, ASSIGN, SELL, TRANSFER, OR OTHERWISE DISPOSE OF THE
LEASE OR ANY INTEREST THEREIN OR THE EQUIPMENT OR ANY PART THEREOF, OR (b)
SUBLEASE, RENT, LEND OR TRANSFER POSSESSION OR USE OF THE EQUIPMENT OR ANY
PART THEREFOR TO ANY PARTY, OR (c) CREATE, INCUR, GRANT, ASSUME OR ALLOW TO
EXIST ANY LIEN ON THE LEASE, ANY SCHEDULE, THE EQUIPMENT OR ANY PART THEREOF.
Page 3 of 4
23. EXPIRATION OF LEASE TERM: (a) At least 90 days (or earlier if otherwise
specified), but no more than 270 days prior to expiration of the Lease Term of
each Schedule, Lessee shall give Lessor written notice of its electing one of
the following options for all (but not less than all) of the Equipment covered
by such Schedule: return the Equipment under clause (b) below; or purchase the
Equipment under clause (c) below. The election of an option shall be irrevocable
if Lessee fails to give timely notice of its election, it shall be deemed to
have elected to return the Equipment.
(b) If Lessee elects or is deemed to have elected to return the
Equipment at the expiration of the Lease Term of a Schedule or if Lessee is
obligated at any time to return the Equipment, then Lessee shall, at its sole
expense and risk, deinstall, disassemble, pack, crate, insure and return the
Equipment to Lessor (all in accordance with applicable industry standards) at
any location in the continental United States of America selected by Lessor.
The Equipment shall be in the same condition as when received by Lessee,
reasonable wear, tear and depreciation resulting from normal and proper use
excepted (or, if applicable, in the condition set forth in the Lease or the
Schedule), shall be in good operating order and maintenance as required by
the Lease, shall be certified as being eligible for any available
manufacturer's maintenance program, shall be free and clear of any Liens as
required by the Lease, shall comply with all applicable laws and regulations
and shall include all manuals, specifications, repair and maintenance records
and similar documents. Until Equipment is returned as required above, all
terms of the Lease shall remain in full force and effect including, without
limitation, obligations to pay rent and insure the Equipment; provided, that
after the expiration of any Schedule and before Lessee has completed its
return of the Equipment or its purchase option (if elected), the term of the
lease of the Equipment covered by such Schedule shall be month-to-month or
such shorter period as may be specified by Lessor.
(c) If Lessee gives Lessor timely notice of its election to purchase
Equipment, then on the expiration date of the applicable Schedule Lessee shall
purchase all (but not less than all) of the Equipment and shall pay to Lessor
the Fair Market Value of the Equipment plus all Taxes (other than income taxes
on Lessor's gains on such sale), costs and expenses incurred or paid by Lessor
in connection with such sale plus all accrued but unpaid amounts due with
respect to the Equipment and/or the Schedule. The Stipulated Loss Value or
Economic Value of any item of Equipment shall have no bearing or influence on
the determination of Fair Market Value under this clause (c). Upon payment in
full of the above amounts, and if no default has occurred and is continuing
under the Lease, Lessor shall transfer title to such Equipment to Lessee "as-is,
where-is" with all faults and without recourse to Lessor and without any
representation or Warranty of any kind whatsoever by Lessor, express or implied.
(d) For purposes of the purchase option of the Lease, the determination
of the Fair Market Value of any Equipment shall be determined (1) without
deducting any costs of dismantling or removal from the location of use, (2)
on the assumption that the Equipment is in the condition required by the
applicable return and maintenance provisions of the Lease and is free and
clear of any Liens as required by the Lease, and (3) shall be determined by
mutual agreement of Lessee and Lessor or, if Lessor and Lessee are not able
to agree on such value, by the Appraisal Procedure. "Appraisal Procedure"
means the determination of Fair Market Value by an independent appraiser
acceptable to Lessor and Lessee, or, if the parties are unable to agree on an
acceptable appraiser, by averaging the valuation (disregarding the one which
differs the most from the other two) of three independent appraisers, the
first appointed by Lessor, the second appointed by Lessee and the third
appointed by the first two appraisers. For purposes of the "Remedies" section
of the Lease, the Fair Market Value shall be determined by Lessor in good
faith and any such valuation shall be on an "as-is, where is" basis without
regard to the first sentence of this clause (d). Lessee, at its sole expense,
shall pay all fees, costs and expenses of the above described appraisers.
24. GOVERNING LAW: THE INTERPRETATION, CONSTRUCTION AND VALIDITY OF THE LEASE
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OHIO. WITH RESPECT TO ANY ACTION
BROUGHT BY LESSOR AGAINST LESSEE TO ENFORCE ANY TERM OF THE LEASE, LESSEE HEREBY
IRREVOCABLY CONSENTS TO THE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
IN THE FRANKLIN COUNTY, OHIO, WHERE LESSOR HAS ITS PRINCIPAL PLACE OF BUSINESS
AND WHERE PAYMENTS ARE TO BE MADE BY LESSEE.
25. MISCELLANEOUS: (a) Subject to the limitations herein, the Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, administrators, successors and assigns. (b) This Master Lease Agreement
and each Schedule may be executed in any number of counterparts, which together
shall constitute a single instrument. Only one counterpart of each Schedule
shall be marked "Lessor's Original" and all other counterparts shall be marked
"Duplicate". A security interest in any Schedule may be created through transfer
and possession only of the counterpart marked "Lessor's Origin at". (c) Section
and paragraph headings in this Master Lease Agreement and the Schedules are for
convenience only and have no independent meaning. (d) The terms of the Lease
shalt be severable and if any term thereof is declared unconscionable, invalid,
illegal or void, in whole or in part, the decision so holding shall not be
construed as impairing the other terms of the Lease and the Lease shall continue
in full force and effect as if such invalid, illegal, void or unconscionable
term were not originally included herein. (e) All indemnity obligations of
Lessee under the Lease and all rights, benefits and protections provided to
Lessor by warranty disclaimers shall survive the cancellation, expiration or
termination of the Lease. (f) Lessor shall not be liable to Lessee for any
indirect, consequential or special damages for any reason whatsoever. (g) Each
payment made by Lessee shall be applied by Lessor in such manner as Lessor
determines in its discretion which may include, without limitation, application
as follows: first, to accrued late charges; second, to accrued rent; and third,
the balance to any other amounts then due and payable by Lessee under the Lease.
(h) If the Lease is signed by more than one Lessee, each of such Lessees shall
be jointly and severally liable for payment and performance of all of Lessee's
obligations under the Lease.
26. ENTIRE AGREEMENT: THE LEASE REPRESENTS THE FINAL, COMPLETE AND ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO. THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS
OR UNDERSTANDINGS AFFECTING THE LEASE OR THE EQUIPMENT. Lessee agrees that
Lessor is not the agent of any manufacturer or supplier, that no manufacturer or
supplier is an agent of Lessor, and that any representation, warranty or
agreement made by a manufacturer, supplier or their employees, sales
representatives or agents shall not be binding on Lessor.
27. JURY WAIVER: ALL PARTIES TO THIS MASTER LEASE AGREEMENT WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS MASTER LEASE AGREEMENT.
MANNATECH, INCORPORATED
BANC ONE LEASING CORPORATION ------------------------------
(Name of Lessee)
Lessor
By: /s/ Anthony Park By: /s/ Patrick Cobb
-------------------------- -------------------------------
Title: Funding Authority Title: CFO
------------------------ ----------------------------
Lessee's Witness: /s/ Cindy Bodine
-----------------
Regardless of any prior, present or future oral agreement or course of dealing.
no term or condition of the Lease may be amended, modified, waived, discharged,
cancelled or terminated except by a written instrument signed by the party to be
bound; except Lessee authorizes Lessor to complete the Acceptance Date of each
Schedule and the serial numbers of any Equipment.
MANNATECH, INCORPORATED
-------------------------------
(Name of Lessee)
By /s/ Patrick Cobb
----------------------------
Title: Secretary
-------------------------
Page 4 of 4
CORPORATE MASTER LEASE ACKNOWLEDGMENT
State of TEXAS :
: ss
County of DALLAS :
The above mentioned foregoing instrument, was acknowledged before me this 23rd
of December, 1997 by (Officers' Name) PATRICK D. COBB, (Officer's Title) CHIEF
FINANCIAL OFFICER, of MANNATECH, INCORPORATED, a TEXAS corporation, on behalf
of the corporation.
/s/ Vincenza C. Calvey
-------------------------------
[Notary Seal] Notary Public
Commission Expires 9-11-2001
COVENANT ADDENDUM TO MASTER LEASE AGREEMENT
Dated 12/23/97
Master Lease Agreement Dated 12/23/97
Lessee: MANNATECH, INC.
Reference is made to the Master Lease Agreement identified above ("Master
Lease",) by and between Banc One Leasing Corporation ("Lessor") and the lessee
identified above ("Lessee"). This Covenant Addendum modifies the terms and
conditions of the Master Lease. Unless otherwise defined herein, capitalized
terms defined in the Master Lease shall have the same meaning when used herein.
As part of the valuable consideration to induce the execution of the Master
Lease, Lessor and Lessee hereby agree as follows:
1. The following is added to Section 18 of the Master Lease:
"During the term of the lease, Lessee agrees and covenants that it will:
Mergers. Not merge, transfer, acquire or consolidate with or into any other
entity without the prior written consent of Lessor.
Liabilities. Promptly inform the Lessor of (a) any and all material adverse
changes in the financial condition of Lessee and any guarantor, (b) all
litigation and claims affecting Lessee and any guarantor which could
materially affect the financial condition of Lessee and any guarantor; and
(c) furnish such additional information and statements, as the Lessor may
request from time to time.
Maintain Basic Business. Carry on and conduct its business in substantially
the same manner and in substantially the same manner and in substantially
the same fields as such business is now and heretofore been carried on.
Insurance. Maintain insurance against fire, business interruption, public
liability, theft and other casualty on all of its insurable real and
personal property to their full replacement costs with companies acceptable
to Lessor.
Compliance. Conduct its business affairs in a reasonable and prudent manner
and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting properties, charters, business
and operations, including without limitation, compliance with the Americans
with Disabilities Act, all applicable environmental statutes, rules,
regulations and ordinances and with all
minimum funding standards and other requirements of the Employee Retirement
Income Security Act of 1974, as amended, and other laws applicable to
Lessee's employee benefit plan.
Records Inspection. Permit the duly authorized representative(s) of Lessor
at all reasonable times to examine and inspect the books and records of it
or any related business entity of it, to make abstracts and copies thereof,
and to visit and inspect any of its property wherever same may be located.
Indebtedness. Not create, incur or assume any indebtedness for borrowed
money or issue or assume any other note, debenture, bond or other evidences
of indebtedness, or guarantee any such indebtedness or such evidences of
indebtedness of others, or contribute or agree to contribute or otherwise
maintain or support the capital requirements of another, other than (i)
borrowings outstanding to Lessor or any affiliate of Lessor, (ii)
borrowings outstanding on the date hereof and disclosed in writing to the
Lessor, (iii) and purchase money loans not to exceed $ 500,000 per fiscal
year.
Liens. Not mortgage, pledge, assign, hypothecate, encumber, create or grant
a security interest in any of its assets except (i) liens and security
interests securing indebtedness owed by Lessee to Lessor or any affiliate
of Lessor; (ii) liens for taxes, assessments, or similar charges either (a)
not yet due, or (b) being contested in good faith by appropriate
proceedings for which Lessee has established adequate reserves; (iii)
purchase money liens or purchase money security interests upon or in any
property acquired or held by Lessee in the ordinary course of business to
secure any indebtedness permitted by this Lease (iv) liens and security
interests which as of the date of this Lease have been disclosed to and
approved by Lessor in writing.
Transfer of Assets. Not sell, transfer or otherwise dispose of any of its
assets or properties, other than in the ordinary course of business.
Change in Management. Not permit or suffer any change in its senior
executive or management personnel.
Transfer of Ownership. Not permit the sale, pledge, or other transfer of
any ownership interest in Lessee.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, consistently applied, and permit
Lessor to examine, audit and make and take away copies or reproductions of
Lessee's books and records, at all reasonable times.
Loans. Not make loans to any person or entity in excess of $500,000 per
fiscal
year without the advance written consent of Lessor.
Affiliates. Not enter into any transaction, including, without limitation,
the purchase, sale, or exchange of property or the rendering of any
service, with any Lessee Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Lessee's business and upon fair
and reasonable terms no less favorable than would be obtained in a
comparable arm's length transaction with a person or entity not a Lessee
Affiliate. "Lessee Affiliate" means any individual or entity directly or
indirectly controlling, controlled by or under common control with Lessee.
Depository Relationship. Establish and maintain its primary operating
account(s) with an affiliate of Lessor.
Debt to Tangible Net Worth Ratio. Maintain a ratio of Total Liabilities to
Tangible Net Worth no greater than 4.00:1 through March 31, 1998 and 3.50:1
thereafter ("Total Liabilities" shall mean total liabilities less debt
expressly subordinated to Lessor and "Tangible Net Worth" shall mean
tangible net worth plus debt expressly subordinated to Lessor).
Cash Flow. Maintain a Cash Flow Coverage Ratio of no less than 1.2:1 ("Cash
Flow Coverage Ratio" is defined as (earnings before interest, depreciation
and amortization less distributions plus lease expense) divided by
(principal plus interest plus lease expense).
Except as expressly amended by this Addendum, the Master Lease remains
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Covenant Addendum
as of the date referenced above.
MANNATECH, INC. Banc One Leasing Corporation
(Lessee) (Lessor)
By: /s/ Patrick Cobb By: /s/ Anthony Park
--------------------------- ------------------------------
Title: CFO Title: Funding Authority
------------------------ ---------------------------
Witness: Cindy Bodine
----------------------
INTERIM LEASE SCHEDULE NO. 1000063904
Lessor: Banc One Leasing Corporation
Lessee: MANNATECH, INCORPORATED
This Interim Lease Schedule is signed and delivered under the Master Lease
Agreement dated as of 12/23/97 as amended from time to time ("Master Lease")
between the above Lessee and Lessor. Unless otherwise defined herein,
capitalized terms not defined herein shall have the meanings assigned to them in
the Master Lease. This Interim Lease schedule is a "Schedule" as defined in
Section 2 of the Master Lease. The terms and conditions of the Master Lease are
incorporated herein as if fully set forth in this Interim Lease Schedule.
A. TERMS.
Cut-Off Date: 12-11-98
Prime Rate Overage: 0.50 percentage points
Stipulated Loss Value Percentage: 110.000
Maximum Funding Amount: $ 1,500,000.00
B. EQUIPMENT. Pursuant to the terms of the Lease, Lessor agrees to acquire
and lease to Lessee, and Lessee agrees to lease from Lessor, the Equipment
described on each and every Interim schedule A-1 executed by Lessee and Lessor
which refers to this Interim Schedule and is made a part hereof. The term
"Equipment" for the purposes of this Interim Lease Schedule shall include both
Equipment which has been fully installed and accepted by Lessee and Equipment
which is in the process of production and/or installation and has not yet been
accepted by Lessee and for which Lessor has made progress payments. Lessee
agrees that the Equipment is and will be used at all times solely for commercial
purposes, and not for personal, family and household purposes.
C. TERM. Upon and after the date of execution hereof, the Equipment shall be
subject to the terms and conditions of the Lease. The Interim Term of the Lease
with respect to the Equipment shall commence on the Acceptance Date of the
applicable Schedule A-1. Upon the beginning of the Lease Term of a Lease
Schedule (the "Replacement Schedule") executed pursuant to a Commitment Letter
between Lessee and Lessor ("Commitment Letter") and the Master Lease, the
Interim Term of the Lease shall terminate with respect to the Equipment subject
to the Replacement Schedule. Until the beginning of the Lease Term under a
Replacement Schedule, the Interim Term shall be the "Lease Term" as defined in
the Master Lease. In the event that a Replacement Schedule has not been
commenced for the Equipment then remaining subject to this Interim Lease
Schedule on or before the Cut-Off Date referred to above ("Cut-Off Date"),
Lessee shall, without demand from Lessor, pay Lessor all accrued and unpaid
Interim Interest and shall purchase from Lessor (on an AS IS, WHERE IS BASIS
without recourse to or warranty from Lessor, express or implied) all of Lessor's
rights to the Equipment then subject to this Interim Lease Schedule for a
purchase price equal to the Stipulated Loss Value for such Equipment (as
hereinafter defined).
Page 1 of 4
D. INTERIM INTEREST. For the period from and including the date of
disbursement by Lessor of the Funding Amount for each item of Equipment
(pursuant to the Interim Funding Authorizations) to the Commencement Date of
the Replacement Schedule for the item of Equipment, or to such earlier date
as this Interim Lease Schedule shall terminate ("Interim Period"), Lessee
shall pay Lessor the product of (i) the Funding Amount of each item of
Equipment and (ii) the Interim Interest Rate, all divided by three hundred
sixty (360) days and multiplied by the number of days in the Interim Period
for each Interim Funding Authorization (the "Interim Interest"). The total
amount of accrued and unpaid Interim Interest for each item of Equipment
shall be due and payable (i) on demand, or absent demand, monthly, and (ii)
on the earlier of the Commencement Date of each Replacement Schedule, or the
Cut-Off Date or such date as this Interim Lease Schedule shall terminate.
The Funding Amount of each item of Equipment is the total amount of money
disbursed by Lessor for such item of Equipment pursuant to the Interim
Funding Authorizations. "Interim Interest Rate" as used herein means a
variable rate of interest per annum equal to the sum of (i) the Prime Rate,
plus (ii) the Prime Rate Overage as set forth above, with the Interim
Interest Rate changing without notice to the Lessee immediately with each
change in the Prime Rate; provided, however, the Interim Interest Rate shall
not exceed the maximum rate permitted by applicable law.
E. STIPULATED LOSS VALUE. As used herein and in the Master Lease, during the
Interim Term of the Lease, Stipulated boss Value for any item of Equipment shall
equal the Stipulated Loss Value Percentage set forth above of the Lessor's Cost
related to such Equipment. As used herein and in the Master Lease, during the
Interim Term of the Lease, Lessor's Cost shall mean the aggregate Funding Amount
related to such item of Equipment. Any payment due to Lessor pursuant to
Section 9(a) of the Master Lease shall be due within 30 days of the Casualty
Loss.
F. AGREEMENT TO PURCHASE EQUIPMENT. Subject to the terms and conditions
hereof and in the Commitment Letter, and provided no default, or event which
with the passing of time or giving of notice or both would constitute a default,
under the Lease has occurred and is continuing, Lessor agrees to purchase the
Equipment, or make progress payments which are required to effect the purchase
of the Equipment, from various Suppliers on any date occurring on or before the
Cut-Off Date. Lessor shall not be required or obligated to make any purchase or
make any progress payment hereunder if the Funding Amount of such purchase or
progress payments, when added to the aggregate of all previous Funding Amounts
pursuant to this Interim Lease Schedule and all other Interim Lease Schedules
entered into pursuant to the Commitment Letter, would cause the aggregate
Funding Amount to exceed the Maximum Funding Amount set forth above ("Maximum
Funding Amount"). All funds for each and every Equipment purchase or progress
payment shall be paid directly to the applicable Supplier unless Lessor
otherwise agrees. The obligation of Lessor to make any Equipment purchase or
progress payment is subject to the performance by Lessee of all of its
agreements and covenants under the Lease and the fulfillment of the following
conditions:
(1) Lessee has executed and delivered to Lessor all related documents
reasonably required by Lessor for any such purchase or progress payment
(including, without limitation the following documents inform and
substance satisfactory to Lessor: (i) an Interim Schedule A-1 describing
the Equipment; (ii) a Interim Funding Authorization indicating the manner
in which the purchase proceeds are to be disbursed; and (iii) a fully
executed Assignment of Purchase Order).
Page 2 of 4
(2) Lessor has received such executed financing statements, fixture filings,
waiver and/or subordination agreements and other documents as it may
reasonably request to perfect its ownership interest in the Equipment
(including, without limitation, any lien, mortgagee, landlord or similar
waivers).
(3) Lessor has received such other documents, certificates and opinions,
including, but not limited to, supplier's invoices, evidence of insurance,
opinions of Lessee's counsel, as it shall reasonably request.
G. REPLACEMENT SCHEDULE. Immediately upon Lessor's request, Lessee agrees to
execute a Replacement Schedule. The form Of the Replacement Schedule and
Addenda there to and completion of the terms of the Replacement Schedule and
addenda thereto shall be pursuant to the Commitment Letter. Lessor shall not be
obligated to accept the Replacement Schedule except as provided in the
Commitment Letter and the Replacement Schedule. Lessee shall have none of the
options set forth in Section 23 of the Master Lease at the end of the Interim
Term.
H. TITLE TO EQUIPMENT. Lessee agrees that Lessor is or will be the lawful
owner of the Equipment and that good and marketable title to the Equipment shall
remain with Lessor at all times. Lessee at its sole expense will protect and
defend Lessor's good and marketable title to the Equipment against all claims
and demands whatsoever except for Liens created directly by Lessor. This
Interim Lease Schedule is intended to be a lease transaction.
I. OTHER DOCUMENTS; EXPENSES. Lessee agrees to sign and deliver to Lessor any
additional documents deemed desirable by Lessor to effect the terms of the
Master Lease or this Interim Lease schedule including, without limitation,
Uniform Commercial Code financing statements which Lessor is authorized to file
with the appropriate filing officers. Lessee hereby irrevocably appoints Lessor
as Lessee's attorney-in-fact with full power and authority in the place of
Lessee and in the name of Lessee to prepare, sign, amend, file or record any
Uniform Commercial Code financing statements or other documents deemed desirable
by Lessor to perfect, establish or give notice of Lessor's interests in the
Equipment or in any collateral as to which Lessee has granted Lessor a security
interest. The signing or filing of Uniform Commercial Code financing statements
and other recordings are undertaken as a precaution only since the parties
intend this Interim Lease Schedule to be a lease transaction. Lessee shall pay
upon Lessor's written request any actual out-of-pocket costs and expenses paid
or incurred by Lessor in connection with the above terms of this section or the
funding and closing of this Interim Lease schedule.
J. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants that: (a)
Lessee is a corporation, partnership or proprietorship duly organized, validly
existing and in good standing under the laws of the state of its organization
and is qualified to do business and is in good standing under the laws of each
other state in which the Equipment is or will be located; (b) Lessee has full
power, authority and legal right to sign, deliver and perform the Master Lease,
this Interim Lease Schedule and all related documents and such actions have been
duly authorized by all necessary corporate, partnership or proprietorship
action; and (c) the Master Lease, this Interim Lease Schedule and each related
document has been duly signed and delivered by Lessee and each such document
constitutes a legal, valid and binding obligation of Lessee enforceable in
accordance with its terms.
Page 3 of 4
Except as expressly modified hereby, all terms and provisions of the
Agreement shall remain in full force and effect. This Schedule is not binding
or effective with respect to the Lease or Equipment until executed on behalf of
Lessor and Lessee by authorized representatives of Lessor and Lessee,
respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
Lessee:
MANNATECH INCORPORATED
By: /s/ Patrick Cobb
---------------------------------
Title: CFO
------------------------------
Witness: Cindy Bodine
----------------------------
Lessor:
BANC ONE LEASING CORPORATION
By: /s/ Anthony Park
---------------------------------
Title: Funding Authority
------------------------------
Acceptance Date: 2-12-98
Page 4 of 4
CORPORATE LEASE ACKNOWLEDGMENT
State of TEXAS :
: ss
County of DALLAS :
The above mentioned foregoing instrument, was acknowledged before me
this 23rd, of December, 1997 by (Officers' Name) PATRICK D. COBB, (Officer's
Title) CHIEF FINANCIAL OFFICER of MANNATECH, INCORPORATED, a TEXAS
corporation, on behalf of the corporation.
/s/ Vincenza C. Calvey
------------------------------
[Notary Seal] Notary Public
Commission Expires 9-11-2001
LESSEE'S SECRETARY CERTIFICATE OF
MANNATECH, INCORPORATED (the "Corporation")
The undersigned, who is the duly elected and acting Secretary or Assistant
Secretary of the Corporation, hereby certifies that the following is a true
and correct copy of resolutions duly adopted by the Board of Directors of the
Corporation in conformity with its charter, articles of incorporation and
by-laws [select one]
________ at a meeting of said Board duly called and held ______________,
19____ at which a quorum was present and acting
-or-
________ by unanimous written action of said Board as allowed by statute,
effective 12/23, 1997
and that such resolutions have not been amended or altered and are in full force
and effect on the date hereof.
"RESOLVED, that any officer of this Corporation be and is hereby authorized
and empowered in the name and on behalf of this Corporation from time to time
(i) to enter into one or more lease agreements, loan and security agreements
or conditional sale agreements ("Agreements") with Banc One Leasing
Corporation (the "Company") as lessor, secured party or seller, as the case
may be, concerning property to be leased, pledged as collateral, or sold to
this Corporation in such amounts and on such terms and conditions as such
officer deems appropriate; (ii) to mortgage, pledge, assign, and/or grant a
security interest in any of this Corporation's property, (iii) to supplement
or amend any such Agreements, and (iv) to execute and deliver such other
documents (including, without limitation, leases or promissory notes) and to
do and perform all other acts as such officer deems necessary, convenient or
proper to carry out the foregoing; and
FURTHER RESOLVED, that all that any officer shall have done or may do in
connection with the Agreements or the transactions described above is hereby
ratified and approved; and
FURTHER RESOLVED, that the foregoing resolutions shall remain in full force
and effect until written notice of their amendment or rescission shall have been
received by the Company."
The undersigned further certifies that the following are names and specimen
signatures of officers of the Corporation authorized by the above
resolutions, each of whom has been duly elected to hold and currently holds
the office of the Corporation set forth opposite his or her name:
Name Office Signature
------ -------- -----------
Sam Caster President /s/ Sam Caster
- ------------------- ------------------------
Charles Fioretti CEO & Chairman of /s/ Charles Fioretti
- -------------------- the Board ------------------------
____________________ _________ ________________________
Page 1 of 2
Name Office Signature
------ -------- -----------
Patrick Cobb Secretary /s/ Patrick Cobb
- -------------------- ------------------------
____________________ _________ ________________________
____________________ _________ ________________________
IN WITNESS WHEREOF, I have hereto set my hand and affixed the seal of the
Corporation this 23 day of December, 1997.
(Corporate Seal) /s/ Patrick Cobb
---------------------------------------------
Secretary or Assistant Secretary (Select One)
---------
Print Name: Patrick Cobb
Page 2 of 2
Banc One Leasing Corporation
INTERIM SCHEDULE A-1
QUANTITY DESCRIPTION PAGE 1
- --------------------------------------------------------------------------------
All of the property described on the invoices which are referred to in any
and all Interim Funding Authorizations executed in connection with this
Lease, together with all parts, attachments, accessions, additions now or
hereafter related thereto, and all substitutions, replacements, and proceeds
thereof, wherever located, including without limitation insurance proceeds.
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS,
IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Interim Schedule A-1 is attached to and made a part of Interim Lease
Schedule Number 1000063904 and constitutes a true and accurate description of
the equipment.
Lessee agrees that (i) Lessor has not selected, manufactured, sold or
supplied any of the Equipment, (ii) Lease has selected all of the Equipment
and its suppliers, and (iii) Lessee has received a copy of, and approved, the
purchase orders or purchase contracts for the Equipment. AS BETWEEN LESSEE
and LESSOR, LESSEE AGREES THAT: (check one)
X THE EQUIPMENT IS IN THE PROCESS OF PRODUCTION AND/OR INSTALLATION AND
- --- HAS NOT YET BEEN ACCEPTED BY LESSEE.
X (a) LESSEE HAS RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT;
- --- (b) ALL EQUIPMENT IS IN GOOD WORKING ORDER AND COMPLIES WITH ALL
PURCHASE ORDERS OR CONTRACTS AND ALL APPLICABLE SPECIFICATIONS;
(c) LESSEE IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR PURPOSES OF THE LEASE
"AS-IS, WHERE-IS" WITH ALL FAULTS AND (d) LESSEE UNCONDITIONALLY WAIVES
ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF THE EQUIPMENT.
Lessee:
MANNATECH, INCORPORATED
By: /s/ Patrick Cobb
---------------------------
Date: 12/23/97
---------------------------
[LOGO]
May 14, 1997
Bill H. McAnalley, Ph.D.
4921 Corn valley
Grand Prairie, Texas 75052
Re: First Amendment to that Certain Letter of understanding Regarding
Development of Proprietary Information for Mannatech, Incorporated,
("Mannatech" or "Corporation") effective as of August 1, 1997 ("Letter
Agreement") attached for reference as Exhibit "A" hereto, by and
between Bill H. McAnalley, Ph.D. ("BHD") and Mannatech, Incorporated
("Mannatech")
Dear Dr. Mcanalley:
This is to confirm our oral understanding regarding the modification to the
Letter Agreement which has been reached between yourself and Mannatech.
The Letter Agreement will remain in full force and effect, with the
exception of the agreement respecting additional compensation, set forth
commencing on Page 1, and reading as follows:
The Corporation has agreed to pay to you .5% of its corporate Bonus
volume for the united States and Canada [as such Bonus volume is
computed, under the formula published, and in effect from time-to-time
in the official Compensation Plan of the Corporation published by it
as its corporate literature), so long as the Corporation continues to
use any of the proprietary intellectual property of Mannatech, which
you have developed or assisted in developing. This consideration is
in addition to sums paid to you as a salaried employee of the
Corporation. The right to receive this additional compensation shall
not be assignable, except to a corporation entirely controlled by you,
or a trust of which you are the settlor, but otherwise shall fully
inure to the benefit of your heirs and successors.
Page 2
In lieu of the foregoing additional compensation, you will be issued,
within ten (10) days after the execution of this letter, capital stock in
Mannatech in the amount of 303,667 shares. Additionally, Mannatech has agreed to
issue to you at that same time, options to purchase up to 240,000 shares of the
Capital stock of the Mannatech, as set forth in Exhibit "B" hereto.
Notwithstanding any provision contained herein to the contrary, the you agrees
to be bound by the underwriting agreements or requirements by and between the
Mannatech and any underwriter which might provide services to it in connection
with any public offering of its capital stock ("underwriter"). Further, should
such underwriter impose any restrictions upon the exercise, registration or
other rights, concerning the of stock or options conferred hereby, or otherwise
granted under this Agreement, you agree to further be bound by such
requirements, limitations, restrictions, and/or agreements, as agreed to by the
Corporation. You hereby appoint the Corporation as your attorney-in-fact to
execute all documents on your behalf concerning agreements offering the shares
of stock and/or related options, as the case may be, conferred hereby,
including, without limitation, those agreements with the underwriter, referenced
above.
It has further been agreed that the Board of Directors of Mannatech will
officially name you as the Chief Science Officer of the Mannatech, in addition
to your current title of Vice President of Research, Development and New
Products.
Additionally remaining in full force and effect and surviving the
termination of any other agreements between the parties is the Non-Disclosure
Agreement previously executed in favor of Mannatech by yourself.
Assuming that the foregoing comports with your understanding of the
agreement that we have reached in this matter, please signify the same by
executing this letter, and returning a signed copy of the same to our corporate
counsel.
Thank you for your assistance and agreement in this very important matter.
Very truly yours,
Mannatech, incorporated
/s/ Charles E. Fioretti
Charles E. Fioretti
Chairman of the Board
AGREED:
/s/ Bill H. McAnalley
- -----------------------------
Bill H. McAnalley
ACKNOWLEDGEMENT
STATE OF TEXAS Section
COUNTY OF DALLAS Section
BEFORE, ME THE UNDERSIGNED AUTHORITY, personally appeared Bill H.
McAnalley, who swore upon oath that the foregoing document was executed for the
consideration and in the capacity therein stated.
SWORN AND SUBSCRIBED TO BEFORE ME on this the 19 day of August 1997.
/s/ Cheryl Anderson
- ---------------------------
Notary Public {Seal}
August ___ , 1996
Bill H. McAnalley, Ph.D.
4921 Corn valley
Grand Prairie, Texas 75052
RE: Letter of understanding Regarding Development of Proprietary
Information for Mannatech, Incorporated.
Dear Dr. McAnalley:
First, let me confirm to you your employment as Director of Research,
Development and New Products at Mannatech, Incorporated ("Corporation") . Your
employment, as for the majority of our employees, is simply at the will of the
parties, and governed under all policies and procedures applicable to employees
of the Corporation, and applicable state and federal law. We welcome you in
your new role, and look forward to the exciting developments for our company and
the many people using our products, that your expertise will undoubtedly bring.
The second purpose of this letter is to outline your additional
compensation for the development of proprietary compositions, processes, uses,
and the like which will constitute proprietary intellectual property of the
Corporation. Such amounts will be paid monthly, based upon the results of the
preceding months, or otherwise as the parties shall agree, as well as other
duties and obligations that we believe should be discussed for clarity between
the parties.
The Corporation has agreed to pay to you .5% of its corporate Bonus Volume
for the United States and Canada [as such Bonus Volume is computed, under the
formula published, and in effect from time-to-time in the official Compensation
Plan of the Corporation published by it as its corporate literature], so long as
the Corporation or continues to use any of the proprietary intellectual property
of Mannatech, which you have developed or assisted in developing. This
consideration is in addition to sums paid to you as a salaried employee of the
Corporation. The right to receive this additional compensation shall not be
assignable, except to a
1
EXHIBIT
A
corporation entirely controlled by you, or a trust of which you are the settlor,
but otherwise shall fully inure to the benefit of your heirs and successors.
Any idea, technology, know-how, process, patent, formula, product,
composition, iteration, use, information, or other intellectual property
("Intellectual Property") which shall come to you and/or be researched and
developed during your employment with Mannatech, particularly including the
intellectual Property which you directly work on for Mannatech, shall be
determined as follows:
(a) in the event that you have been requested to or offer to develop
particular Intellectual Property for Mannatech, and do so, then such
intellectual Property shall be the sole property of Mannatech;
(b) in the event that you, during the period of your employment with
Mannatech, discover or develop intellectual Property, other than that
which you have been requested or offer to develop for Mannatech
("Additional Intellectual Property"), you shall first offer, in
writing, such Additional intellectual Property to Mannatech.
Mannatech shall have a period of thirty (30) days within which to
accept or reject such Additional intellectual Property. If such
Additional Intellectual Property is not accepted by Mannatech within
such thirty-day (30) period, then such property will be deemed as
rejected by Mannatech, and all rights to the same shall thereafter be
assigned or released by Mannatech to you.
(c) In the further event that Mannatech does not establish, with your
cooperation, a budget and allocate funds for the development and
protection, or otherwise diligently pursue the development and
protection of (or is not in the process of pursing or developing) such
Additional Intellectual Property elected as its property, pursuant to
paragraph (a) hereof, then you, may request, in writing, that such
property right be assigned and transferred to you. Thereafter,
Mannatech will have thirty (30) days, from the date of the receipt of
such written request, within which to either transfer the same to you,
in accordance with your request, or establish a budget and a working
schedule for the development and protection of such Additional
Intellectual Property, and thereafter diligently proceed to develop
and protect such Additional Intellectual Property in accordance with
such budget and working schedule.
(d) Mannatech understands that you have contractual commitments with
Carrington, Laboratories, Inc. and White
2
Gaps, Inc. to develop intellectual property which you have discovered
prior to this date, and that such shall constitute an exception to
this agreement, and Mannatech shall claim no ownership of any such
intellectual property, the foregoing provisions of this agreement
notwithstanding.
You agree to execute any document, accurately prepared by counsel of
Mannatech, which shall serve to preserve the rights to the intellectual Property
of Mannatech, including patent applications and related documents, and transfers
and evidences of ownership of such rights in the Corporation The obligation to
acknowledge ownership of the Intellectual Property in the Corporation and to
participate in the execution of documents to obtain, evidence and secure rights
pertaining to the same, shall survive your employment and this agreement, and
shall bind your heirs, successors, and if applicable, assigns. Accordingly, you
hereby affirm that any rights which might vest in you with regard to any
intellectual Property which shall come to you and/or be researched and developed
during your employment with Mannatech, including without limitation the rights
to manufacture, reproduce, use, publish, distribute, market sell, license or
otherwise exploit, shall be transferred, at various times, at the request of the
Corporation, to it, as its sole property, with no rights, except to the right of
compensation, set forth above, remaining within your ownership.
It is our intention that you, working with others that the Corporation
shall employ or retain on a contract basis, shall develop proprietary
ingredients, formulations and products for the benefit of the Corporation. It is
our specific understanding, based upon your recent proposal that you require
certain resources which you have outlined in your strategic plan of action to
us. The summary of the initial budget approved by the Board of Directors, is
attached as Exhibit "A" hereto. Access to the subject budget shall be through a
procedure, which you and the Corporation will develop together to assure both
your research and development needs, as well as the Corporation's need for
orderly disbursement of funds and accounting.
We will require that you, as well as all persons working with you or under
your supervision, keep full and extensive origin and progress notes on any
proprietary property, including that in process, which you may supervise or work
on for the Corporation from the inception of the idea ("stream of consciousness"
concerning the idea) through the conclusion of the refinement of the same.
We expect, and you agree, that all of the information that you generate in
connection with the Proprietary Property, be kept confidential, and that all
persons, including employees and independent contractors with whom you work be
required to execute a confidentiality agreement which in form is agreeable to
the
3
Corporation and its counsel. All personnel, both contract and employees, under
your supervision shall be admonished by you regarding the methodology of keeping
logs and data to establish ownership and confidentiality over the same. Any
procedures regarding these requirements should be adopted in conjunction with
personnel within the corporate office responsible for compliance and legal
functions. if you should ever be the subject of a subpoena regarding any
Proprietary Property, including any information of confidence, generally,
regarding the Corporation, you agree to notify the Corporation and follow its
direction and that of its counsel regarding any motion to quash, dissolve, limit
or otherwise affect the obligation of the subpoena. The Corporation shallLear
all expense in connection with the retention and compensation of such counsel,
and accordingly will select and direct the same. You agree to follow the
requirements of any final subpoena or order issued by a court of competent
jurisdiction regarding the same.
You agree to fully debrief and explain all Proprietary Property of the
corporation to its officers and designees, as well as assist and/or direct in
the creation of corporate literature and marketing information regarding the
same.
Further, should the Corporation desire to test the efficacy or any other
aspect of the Proprietary Property, you agree to participate, as requested by
the Corporation, in the planning, design, effectuation, implementation, and
analysis of such testing.
You specially represent and warrant that any of the Intellectual Property
that you will research and develop for Mannatech is of independent, and novel
origin, and does not rely in any aspect on other technologies and ideas that you
may have, in the past, conceived, researched and/or developed for others or
yourself in the past, except for technologies and ideas which are within the
public domain. Further, you hereby represent and warrant as follows:
- That to your personal knowledge none of the Intellectual Property of
which you conceive, research or develop, and ultimately convey to the
Corporation shall violate or infringe any patent, copyright, right of privacy,
nor constitute the misuse or misappropriation of any trade secret or
confidential information;
- That you shall take reasonable steps to identify and secure any approvals
or permissions required in connection with the production, manufacture, use or
exploitation of the intellectual Property to the effect that the same have been
or will have been, obtained prior to any transfer of the Intellectual Property
to the Corporation [or if not reasonably obtainable, identified to the
Corporation in writing), and that to the extent the same are secured, such shall
remain in full force and effect with respect to such intellectual Property
during the period of ownership by the
4
Corporation
The Corporation will, at its sole expense, arrange to have filed, first in
your and/or any other inventor's names, with subsequent assignment to the
Corporation, to the extent that the Corporation deems advisable, all patent,
copyright, and other documentary registrations of rights pertaining to the
Intellectual Property (except for trade and service marks pertaining to such
Intellectual Property, which the Corporation shall, from the outset, own
solely), including any foreign registrations and renewals and modifications
thereof. You, in furtherance of this undertaking, agree to execute such
documents and take such other action as may be required to effectuate such
documentation and registration, provided that the full expense related to the
same shall be borne by the Corporations
From time-to-time, as our relationship evolves, we may reach other
requirements, undertakings or provisions which require additional documentation,
and which may either supplement or amend this letter. Such supplements and
amendments shall be binding on the Corporation and yourself only to the extent
that they are included in a writing signed by both parties.
We welcome you, your expertise, and your scientific endeavor for our
Corporation. We genuinely hope that this agreement will constitute a first
effort to being a leader in defining the cutting edge of nutritional and
personal care products for domestic and world markets.
This Letter of Understanding is effective between the parties, as of August
1, 1996.
If the foregoing terms and conditions are agreeable to you, please execute
and return a duplicate of the original of the letter, such to constitute the
agreement between us.
Very truly yours,
MANNATECH, INCORPORATED
Ronald Kozak
Chief Executive Officer
DV:ss
attachment as indicated (budget)
ACCEPTED AND AGREED:
- -------------------------------------
BILL H. MCANALLEY, PHD.
5
APPENDIX I (proposed)
INCENTIVE STOCK OPTION
To: BILL McANALLEY
-----------------------------------------------------------------
Name
4921 Corn Valley, Grand Prairie. Texas 85052
-----------------------------------------------------------------
Address
Date of Grant: June 23, 1997
-------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase 240,000 shares of common stock, $0.001 par value per share ("Common
Stock"), of Mannatech. Incorporated, a Texas corporation (the "Company") at a
price of $1.35 per share pursuant to the Company's 1997 Stock Option Plan (the
"Plan").
Subject to the condition set forth in the immediately following paragraph.
your option may first be exercised ninety (90) days following completion by the
Company of a registered public offering of its securities pursuant to the
requirements of the Securities Act of 1933. as amended. but in any event not
earlier than one (1) yew from date of grant. On and after one year and prior to
two years from the date of grant, your option may be exercised for up to 33 1/3%
of the total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization. merger,
consolidation, transfer of assets, reorganization. conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding yew thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend. stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets. reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus,
subject as aforesaid to the condition set forth in the next paragraph, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
[ten (10)] years from the date of its grant (the "Scheduled Termination Date"),
except if terminated earlier as hereafter provided.
You may exercise your option by giving written notice to the Secretary' of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company. which will be valued by the Secretary of the Company at
the fair market value per
1
EXHIBIT
B
share of the Company's Common Stock (as determined in accordance with the Plan)
on the date of delivery of such-certificates to the Company, accompanied by an
assignment of the stock to the Company; or (c) (unless prohibited by the
Committee) any combination of cash and Common Stock of the Company valued as
provided in clause (b). Any assignment of stock shall be in a form and substance
satisfactory to the Secretary of the Company, including guarantees of
signature(s) and payment of all transfer taxes if the Secretary deems such
guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you, terminate
thirty (30) day's after the date on which your employment by the Company or a
Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death, in which case your option will
terminate one year from the date of termination of employment due to disability
or death (but in no event later than the Scheduled Termination Date). After the
date your employment is terminated, as aforesaid, you may exercise this option
only for he number of shares which you had a right to purchase and did not
purchase on the date your employment terminated. If you are employed by a
Company subsidiary corporation, your employment shall be deemed to have
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee deems in its sole discretion to be similar
circumstances, the number and kind of shares subject to this option and the
option price of such shares shall be appropriately adjusted in a manner to be
determined in the sole discretion of the Committee.
2
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you.
including, for this purpose. your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you. you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein. this option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion of other federal, state and local
payroll and other taxes due in connection with the option exercise.
The following two paragraphs shall be applicable if, on the date
of exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he
will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of l933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to
3
the Company to the effect that the proposed transaction will be exempt from such
registration. The optionee shall execute such instruments, representations,
acknowledgements and agreements as the Company may, in its sole discretion, deem
advisable to avoid any violation of federal, state, local or securities exchange
rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES
LAWS. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
THE PROPOSED TRANSACTION 'WILL BE EXEMPT FROM SUCH REGISTRATION."
The foregoing legend shall be removed upon registration of the legended
shares under the Securities Act of 1933, as amended, and under any applicable
state laws or upon receipt of any opinion of counsel acceptable to the Company
that said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
Subject to the $100,000 per year limitation of Section 422(d) of the Code,
it is the intention of the Company and you that this option shall, if possible,
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if and to the extent that such conformity may be achieved by
amendment.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested. The preceding
sentences of this paragraph, however, shall not apply to the extent of any
inconsistency with a provision or provisions of a written contract of employment
between you and the Company for so long, but only so long, as such contract
remains in full force and effect or the provisions involved survive the
termination of such contract.
Any dispute or disagreement between you and the Company with respect to any
portion of this option or its validity, construction, meaning, performance or
your rights hereunder shall
4
be settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association or its successor, as amended from time to
time. However, prior to submission to arbitration you will attempt to resolve
any disputes or disagreements with the Company over this option amicably and
informally, in good faith. for a period not to exceed two weeks. Thereafter, he
dispute or disagreement will be submitted to arbitration. At any time prior to a
decision from the arbitrator(s) being rendered, you and the Company may resolve
the dispute by settlement. You and the Company shall equally share the costs
charged by the American Arbitration Association or its successor, but you and
the Company shall otherwise be solely responsible for your own respective
counsel fees and expenses. The decision of the arbitrator(s) shall be made in
writing, setting forth the award, the reasons for the decision and award and
shall be binding and conclusive on you and the Company. Further, neither you nor
the Company shall appeal any such award. Judgment of a court of competent
jurisdiction may be entered upon the award and may be enforced as such in
accordance with the provisions of the award.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject Matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
MANNATECH, INCORPORATED,
a Texas corporation
By
---------------------------
Its
------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option and, having
read it hereby signify my understanding of, and my agreement with, its terms and
conditions.
Further in this regard, the undersigned acknowledges that, under Section
422(d) of the Code, to the extent that the aggregate fair market value of stock
with respect to which incentive stock options are exercisable for the first time
by the undersigned during any calendar year exceeds $100,000.00, such options
shall be treated as options which are not incentive options.
- -------------------------------- ------------------------------
(Signature) (Date)
5
COMMERCIAL LEASE AGREEMENT
MEPC QUORUM PROPERTIES II INC.,
as LANDLORD,
and
MANNATECH, INC.
as TENANT
pertaining to 110,157 square feet
in Freeport North Industrial Park,
Coppell, Texas
COMMERCIAL LEASE AGREEMENT
THIS COMMERCIAL LEASE AGREEMENT (this LEASE) is made and entered into by
and between MEPC Quorum Properties II Inc., a Delaware corporation (LANDLORD),
and Mannatech, Inc., a Texas (TENANT).
1. PREMISES/LEASE TERM. In consideration of the mutual obligations of
Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant
hereby takes from Landlord, approximately 110,157 square feet (the PREMISES) in
the approximate 280,000 square foot warehouse building structure (the BUILDING)
owned by Landlord on the land (the LAND) consisting of approximately 14.3978
acres located in the city of Coppell, Dallas County, Texas, as such Land is more
particularly described on EXHIBIT "A" attached hereto and incorporated herein by
reference, together with the non-exclusive use of all rights, privileges,
easements, appurtenances, and amenities belonging to or in any way pertaining to
the Land for a term (the LEASE TERM or the TERM OF THIS LEASE) beginning on the
date of this Lease (hereinafter defined) and ending at 11:59 p.m. on January 19,
2007. The Land, the Building (including the Premises Comprising a part thereof)
and the other Improvements (hereinafter defined) are collectively referred to
herein as the PROJECT. The location of the Premises within the Building and the
configuration of the Project is illustrated by the Site Plan (herein so called)
attached hereto as EXHIBIT "B" and incorporated herein by reference.
2. CONDITION OF PREMISES/AS IS ACCEPTANCE. TENANT REPRESENTS AND
WARRANTS THAT IT HAS HAD AMPLE OPPORTUNITY TO INSPECT, AND THAT IT HAS ACTUALLY
INSPECTED, THE PREMISES AND THE PROJECT AND THAT TENANT HAS FOUND THE PREMISES
AND THE PROJECT TO BE SUITABLE FOR TENANT'S PURPOSES AND IN GOOD AND
SATISFACTORY CONDITION. TENANT ACKNOWLEDGES AND AGREES THAT LANDLORD HAS NOT
MADE ANY REPRESENTATIONS, AGENTS OR PROMISES WITH RESPECT TO THE CONDITION OF
THE PREMISES OR THE PROJECT, INCLUDING THE ENVIRONMENTAL CONDITION, THE
PREMISES' AND THE PROJECT'S STATE OF REPAIR, OR THEIR SUITABILITY FOR ANY
PURPOSE OF TENANT AND THAT LANDLORD HAS MADE NO PROMISES TO ALTER, REMODEL OR
IMPROVE OR REPAIR THE LAND, THE PREMISES OR THE PROJECT OR ANY PORTION THEREOF.
TENANT ACCEPTS THE PREMISES IN ITS "AS IS", "WHERE IS" CONDITION AND "WITH ALL
FAULTS". LANDLORD HEREBY DISCLAIMS ANY AND ALL REPRESENTATIONS, INCLUDING
IMPLIED REPRESENTATIONS, AND SPECIFICALLY INCLUDING, WITHOUT LIMITATION, ANY
REPRESENTATION REGARDING HABITABILITY, REPAIR, WORKMANSHIP OR SUITABILITY FOR
ANY INTENDED PURPOSE.
3. RENT.
A. BASE MONTHLY RENT. Tenant agrees to pay to Landlord the sum of
$3,855,495.00 as rent for the Premises, which sum shall be payable in advance,
as follows (BASE MONTHLY RENT):
- On January 20, 1997 (the RENT COMMENCEMENT DATE), the sum of
$11,543.72; and
- Beginning on February 1, 1997 and continuing through December 31,
2001, the amount of $29,834.19 per month; and
- On January 1, 2002, the sum of $31,610.91; and
- Beginning on February 1, 2002 and continuing through December 31,
2006, the amount of $34,424.06 per month; and
- On January 1, 2007, the sum of $21,098.62.
Each installment of Base Monthly Rent shall be due and payable on the first day
of each calendar month during the Lease Term; provided that one (1) full
installment of Base Monthly Rent is due and payable on the date of this Lease,
such to be applied to the first installment of Base Monthly Rent due on January
20, 1997 and thereafter applied to Base Monthly Rent until fully applied.
PAGE 1
B. ADDITIONAL RENT. Tenant agrees to reimburse Landlord for
Tenant's Proportionate Share (hereinafter defined) of (i) Real Property Taxes
(hereinafter defined), (ii) Landlord's cost of obtaining and maintaining
Landlord's Insurance (hereinafter defined), and (iii) the cost of any
maintenance performed by Landlord under Paragraph 11A(2) below or which, in
Landlord's reasonable discretion, is for the benefit of the Project as a whole
and not reasonably allocable to any specific tenant or tenants (collectively,
the ADJUSTMENTS). During each month of the term of this Lease, on the same day
that Base Monthly Rent is due hereunder, Tenant shall pay to Landlord as
additional Rent an amount equal to 1/12 of Tenant's proportionate Share of the
estimated total annual cost of the Adjustments, as determined by Landlord.
Tenant authorizes Landlord to use such funds to pay such costs. The initial
monthly payments of Adjustments are based upon the estimated amounts for the
current Lease Year (hereinafter defined) and shall be increased or decreased
each Lease Year to reflect the projected actual cost of all Adjustments. If
Tenant's total payments are less than Tenant's proportionate Share of the actual
costs of all such items, Tenant shall pay the difference to Landlord within ten
(10) days after demand. If the total payments of Tenant are more than Tenant's
proportionate Share of the actual costs of all such items, Landlord shall retain
such excess and credit it against Tenant's next monthly estimated payments of
Adjustments. The amount of the Base Monthly Rent and the estimated monthly
payments (based upon a complete calendar month) of Tenant's proportionate Share
of the Adjustments for the Lease Year in which the date of this Lease occurs are
as follows:
(1) Base Monthly Rent $29,834.19
(2) Real property Taxes $ 4,589.88
(3) Insurance $ 458.99
(4) Maintenance $ 917.98
---------
Monthly Payment Total $35,801.04
----------
----------
Tenant's PROPORTIONATE SHARE, as used in this Lease, shall mean a fraction,
the numerator of which is the number of square feet of rentable area contained
in the Premises and the denominator of which is the entire number of square feet
of rentable area contained in the Building (as to costs which do not materially
vary based on the occupancy of the Building) or is the entire rented area
contained in the Building (as to costs which do materially vary based on the
occupancy of the Building). If the Premises is part of a larger development (the
DEVELOPMENT) owned by Landlord and the Building and one or more other buildings
on parts of the Development other than the Land share the benefit of or may
properly be allocated a portion of any expense, Landlord shall reasonably
allocate any such expense among the Building and such other building(s) prior to
applying Tenant's Proportionate Share to such expense.
C. AUDIT OF ADJUSTMENTS. Within ninety (90) days after the end of
each Lease Year, Landlord will provide to Tenant a statement of Adjustments paid
by Landlord for the just ended Lease Year. Tenant may at any time within thirty
(30) days after its receipt of Landlord's statement, but in any event upon ten
(10) days advance written notice to Landlord, audit, inspect and copy the books
and records of Landlord with respect to the Adjustments. Landlord shall
cooperate with Tenant in providing Tenant reasonable access to its books and
records during normal business hours for this purpose. If the results of any
inspection or audit show an overcharge to Tenant of more than five percent (5%)
of the actual amount of Adjustments owed by Tenant, then Landlord shall pay the
reasonable costs of such audit (assuming the audit is performed by a third party
unaffiliated with Tenant and not including the travel, meal or incidental
expenses of the auditor), and Landlord shall credit or refund to Tenant any
overcharge of such items as discovered by the inspection or audit within thirty
(30) days of completion of such inspection or audit. In the event such audit
discloses an overcharge to Tenant of up to but no more than five percent, there
will be no credit or refund to Tenant, and Tenant will pay the cost of the
audit. In the event such audit discloses an undercharge of Adjustments billed
to Tenant, Tenant shall pay Landlord the amount of such undercharge within
thirty (30) days of the completion of such audit and the cost of the audit. In
the event Landlord disputes the amount of Adjustments or Tenant's Proportionate
Share thereof, as determined by Tenant's audit,
PAGE 2
Landlord shall have a period of thirty (30) days from its receipt of Tenant's
audit results to have its own independent auditor inspect Tenant's audit and the
books and records pertaining to the Adjustments and deliver the results thereof
to Tenant. Landlord's failure to conduct such an audit and deliver the results
thereof to Tenant within such thirty (30) day period shall constitute acceptance
by Landlord of the results of Tenant's audit. If Landlord delivers Tenant
Landlord's audit within such thirty (30) day period, Tenant shall have fifteen
(15) days to review and object to the results thereof. The results of
Landlord's audit shall be conclusive and binding upon Tenant unless Tenant
objects in writing, such objections to be specific, to such results within such
fifteen (15) day period.
D. LEASE YEAR. A LEASE YEAR shall mean a twelve (12) month period
commencing each January 1st and ending on the following December 31st; provided,
however, Landlord may from time to time (but no more often than once every
eighteen (18) months) change the twelve (12) month period designated as a Lease
Year by notice thereof to Tenant, in which event the obligations of Tenant
measured by Lease Years shall be prorated as appropriate during any Lease Year
of less than twelve (12) months based on the number of days in any such Lease
Year divided by 365; and provided, further, the first and last Lease Years, and
all obligations of Tenant measured by such Lease Years, shall be prorated as
appropriate based upon the number of days in the applicable Lease Year during
the term of this Lease divided by 365.
E. DEFINITION OF RENT. As used in this Lease, RENT shall mean the
Base Monthly Rent and all other amounts provided for in this Lease to be paid by
Tenant to Landlord, all of which shall constitute rental in consideration for
this Lease and the leasing of the premises. The Rent shall be paid at the times
and in the amounts provided for herein in legal tender of the United States of
America to Landlord at the address specified in Paragraph 31 hereof or to such
other person or at such other address as Landlord may from time to time
designate in writing. Rent shall be paid without notice, demand, abatement,
deduction or offset (unless expressly provided for elsewhere in this Lease) and
shall be a covenant of Tenant independent of any obligation of landlord under
this Lease. Tenant's obligation to pay any installment of Rent shall not be
deemed satisfied until such installment of Rent has actually been received by
Landlord.
F. INTEREST ON DELINQUENT RENT. Any Rent due from Tenant to
Landlord which is not paid when cue shall bear interest at the lower of (i)
eighteen percent (18%) per annum or (ii) the highest rate from time to time
allowed by applicable law, from the date such payment is due until paid, but the
payment of such interest shall not excuse or cure the default. This provision
for default interest shall be in addition to all of Landlord's other rights and
remedies hereunder or at law or equity and shall not be construed as liquidated
damages or as limiting Landlord's remedies in any manner. Any assessed default
interest will be additional Rent owed hereunder.
4. COMPLIANCE WITH LAWS. Tenant shall comply with all Applicable Laws in
connection with Tenant's use and occupancy of the Premises and Tenant's
performance of its obligations under this Lease, all at Tenant's expense. As
used herein the term APPLICABLE LAWS means and includes any and all federal,
state and local laws, ordinances, orders, deed restrictions (specifically
including the Declaration of Protective Covenants dated May 18, 1995 and
recorded in Volume 95098, Page 924, ET SEQ. of the Official Public Records of
Real Property in Dallas County, Texas (as amended, modified, supplemented,
restated and assigned from time to time, the DECLARATION)), easements of record,
rules, and regulations of all governmental bodies (state, federal, and
municipal) applicable to or having jurisdiction over the use, occupancy,
operation and maintenance of the Project, including without limitation, the
Americans With Disabilities Act of 1990, as amended from time to time (ADA), and
Environmental Laws (hereinafter defined), as such may be amended or modified
from time to time.
PAGE 3
5. ALTERATIONS AND IMPROVEMENTS BY TENANT
A. CONDITIONS PRECEDENT TO ALL ALTERATIONS AND IMPROVEMENTS. Except
as expressly permitted by this Paragraph 5, Tenant may not make or permit any
alterations, improvements, or additions in or to the Premises or the Project
without Landlord's prior written consent. All alterations and improvements
desired by Tenant are subject to the following conditions/requirements:
(1) Subject to subparagraph 5B below, all alterations,
improvements and additions will be at the sole cost and expense of Tenant;
(2) All alterations, improvements and additions in and to the
Premises requested by Tenant must be made in accordance with plans and
specifications first approved in writing by Landlord;
(3) Tenant's contractors and subcontractors are subject to
Landlord's prior approval. In addition, each of Tenant's contractor(s) and
subcontractor(s) must deliver evidence satisfactory to Landlord that the
insurance specified on EXHIBIT "C" (attached hereto and incorporated herein
by reference) is in force prior to commencing work;
(4) All alterations, improvements and additions made by Tenant
must comply with all Applicable Laws including, specifically, the ADA, and
applicable building permits and certificates of occupancy. Landlord's
approval of Tenant's plans and specifications for the alterations or
improvements will not act as a confirmation or agreement by Landlord that
the improvements and alterations comply with Applicable Laws;
(5) Tenant must deliver to Landlord evidence that Tenant has
obtained all necessary governmental permits and approvals for the
improvements, alterations and additions prior to starting any work;
(6) All alterations, improvements and additions must be done in
a good and workmanlike manner so as not to damage or alter the primary
structure or structural qualities or the utility or other systems of the
Premises or the Building and is subject to approval by Landlord during and
after construction, in its sole discretion. Tenant agrees to meet with
Landlord's project manager, who for purposes of this Lease shall be Rob
Ahmuty until further notice, as deemed reasonably necessary by such project
manager during any construction by Tenant pursuant to this Paragraph 5 so
that Landlord can evaluate the progress of such work and its impact on the
remainder of the Project;
(7) Lien releases from each of Tenant's contractor(s) and
subcontractor(s) satisfactory to Landlord must be submitted to Landlord
within thirty (30) days after completion of the work performed by the
contractor(s) or subcontractor(s); and
(8) Tenant shall be solely responsible for the safety and
security of all equipment and property installed or placed in, on or about
the Premises by Tenant or any of Tenant's agents, employees, officers,
partners or contractors (together with Tenant, collectively, the TENANT
PARTIES and individually a TENANT PARTY).
B. FINISH ALLOWANCE: notwithstanding subparagraph 5A(1) above,
Landlord grants Tenant an allowance in the amount of $330,471.00 (the FINISH
ALLOWANCE) to be utilized by Tenant in performing alterations and improvements
to the Premises to "finish-out" the Premises. Any improvements or alterations
performed by Tenant and paid for out of the Finish Allowance, including without
limitation, any work related thereto such as design, engineering, and
construction management services, is referred to herein as the TENANT FINISH
WORK. Landlord will pay such invoices up to, but not in excess of, the Finish
Allowance conditioned upon:
PAGE 4
(1) Tenant shall submit all invoices received in connection with
the Tenant Finish Work to Landlord for payment not less than fifteen
(15) days prior to the due date of such invoice. Landlord, at its
option, will not be obligated to pay any invoice not received by such
date; and
(2) Landlord having satisfied itself that all
conditions/requirements set forth in subparagraph 5A above have been
satisfied; and
(3) Landlord having inspected and approved of the work for which
payment is sought, such approval not to be unreasonably withheld; and
(4) The Finish Allowance may not be used or allocated for any
materials or property, or for the labor incurred in constructing or
installing same, that would be characterized as Tenant's Property
under subparagraph 5C below, it being the intention of both parties
hereto that, without limiting subparagraph 5D below, all improvements
and alterations paid for with the Finish Allowance will in all events
and circumstances be Landlord's property.
Any decision to pay or not pay any invoice will be made within ten (10)
business days after receiving the subject invoice; provided, however, that
Landlord may further condition such approval upon the satisfaction of any of the
conditions/requirements of Paragraph 5A or this Paragraph 58 that may not have
been satisfied within such ten (10) day period (I.E., lien waivers). All
invoices will be paid within fifteen (15) days after Landlord has approved the
invoice and is satisfied that all conditions and requirements set forth in
Paragraph 5A and this Paragraph 5B have been satisfied. All cost and expenses
incurred by Tenant in making any alterations or improvements to the Premises or
the Project in excess of the Finish Allowance will be Tenant's sole cost and
expense. If the Finish Allowance has not been fully utilized within one (1)
year after the Commencement Date, and provided that Tenant is not then in
default under this Lease, the remaining balance will be applied to Base Monthly
Rent and Adjustments until the Finish Allowance is exhausted.
C. TENANT'S PROPERTY. Tenant, at its own cost and expense, may
erect such shelves, racks, bins and trade fixtures (collectively, TENANT'S
PROPERTY) within the Premises as it desires and without Landlord's prior
consent provided that (a) such items do not alter the basic character of the
Premises or the Building; (b) such items do not overload or damage the
Premises or the Building or the utility or other systems serving same;
(c) such items may be removed without material injury to the Premises and the
Building; and (d) the construction, erection or installation thereof complies
with all Applicable Laws, applicable building permits and certificates of
occupancy; and (e) provided that Tenant's installation of Tenant's Property
prior to the Commencement Date will be subject to Paragraph 5B above. All of
Tenant's Property shall remain the property of Tenant and shall be removed on
or before the earlier to occur of the date of termination of this Lease or
Tenant's vacating of the Premises. Tenant shall promptly repair any damage
to the Project or the Premises caused by the removal of any of Tenant's
Property. Any of Tenant's Property not so removed and any other property of
Tenant not removed prior to the termination of this Lease or Tenant's
vacating of the Premises shall thereupon be conclusively presumed to have
been abandoned by Tenant, and Landlord may, at its option, take over
possession of any and all of the foregoing and either (i) declare the same to
be the property of Landlord by written notice to Tenant at the address
provided herein or (ii) at the sole cost and expense of Tenant, remove,
store, and/or dispose of the same or any part thereof, all at Tenant's cost,
in any manner that Landlord shall choose without incurring liability to
Tenant or any other person.
D. LANDLORD'S PROPERTY/RESTORATION OF PREMISES BY TENANT. Except as
provided in Paragraph 5C above, all alterations, additions, and improvements
made to, or fixtures or other improvements placed in or on, the Premises,
whether temporary or permanent in character are a part of the Premises and are
the property of Landlord when they are made to or placed in or on the Premises,
without compensation to Tenant;
PAGE 5
provided that, at Landlord's option, upon the termination of this Lease,
Landlord may require Tenant, at Tenant's cost, to remove any improvements, other
than the Tenant Finish Work, made to the Premises or Project by Tenant and
restore the Premises to substantially the condition it was in upon the
completion of the Tenant Finish Work, reasonable wear and tear excepted.
E. ADDITIONAL PARKING AREA. Tenant has informed Landlord that
possible improvements that Tenant may desire include the construction of an
additional parking area in the Adjacent Area (the Adjacent Area is illustrated
on the Site Plan). Landlord agrees not to unreasonably withhold its consent to
such additional parking provided, however, that (i) any construction by Tenant
of an additional parking area shall be subject to all of the requirements and
conditions set forth in Paragraph 5A(1)-(E) above, and (ii) Tenant may not alter
or damage any of the perimeter berms in the Adjacent Area. Plans and
specifications for any additional parking area, as required pursuant to
paragraph 5A(2) above, must include, without limitation, contemplated lighting
systems, landscaping, irrigation/sprinkler systems and striping design for the
new parking area and a restriping design for the existing parking area located
within the Adjacent Area.
F. INDEMNITY. Tenant hereby indemnifies and holds Landlord harmless
from any claims, demands, actions, losses, and damages arising from activities
of Tenant or any Tenant Party, or any of their invitees, in connection with any
alterations, improvements or additions made or contracted for by Tenant.
6. USE. Subject to Applicable Laws, the Premises shall be used only for
the purpose of manufacturing, receiving, storing, shipping and selling (other
than retail) products, materials and merchandise made and/or distributed by
Tenant, and for such other lawful purposes as may be incidental thereto.
Provided that such use is permitted by Applicable Laws, any manufacturing
performed by Tenant at the Premises shall be limited to the manufacture and/or
assembly of pharmaceutical, diet supplement and/or other human health related
products. Outside storage, including without limitation, storage of trucks and
other vehicles, is prohibited without Landlord's prior written consent. Tenant
shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise
or vibrations to emanate from the Premises, nor take any other action that would
constitute a health or environmental hazard or nuisance or that would disturb,
interfere with, or endanger Landlord or the occupant of any other land or
buildings in the vicinity of the Project or any other tenant of the Project.
Tenant's use of the Premises must in any event comply with all Applicable Laws
including, without limitation, the Declaration. TENANT ACKNOWlEDGES AND AGREES
THAT LANDLORD HAS MADE NO REPRESENTATIONS OR WARRANTIES, AND LANDLORD HAS
DISCLAIMED AND HEREBY DOES DISCLAIM, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, THAT THE PREMISES ARE SUITABLE FOR ANY INTENDED PURPOSE OF TENANT,
INCLUDING, WITHOUT LIMITATION, THE MANUFACTURE AND/OR ASSEMBLY, STORAGE,
DISTRIBUTION OR SALE OF PHARMACEUTICAL, DIET SUPPLEMENT AND/OR OTHER HUMAN
HEALTH RELATED PRODUCTS. TENANT SHALL MAKE ITS OWN DETERMINATIONS AS TO THE
SUITABILITY OF THE PREMISES FOR ITS INTENDED USE. BY ENTERING INTO THIS LEASE,
TENANT REPRESENTS AND WARRANTS THAT IT HAS INVESTIGATED AND SATISFIED ITSELF AS
TO WHETHER OR NOT APPLICABLE LAWS PERMIT ITS INTENDED USE OF THE PREMISES AND
THAT TENANT IS RELYING SOLELY UPON SUCH INVESTIGATIONS, AND NOT UPON ANY
REPRESENTATIONS OF LANDLORD, IN ENTERING INTO THIS LEASE. If Tenant's particular
use Of the Premises requires that additional improvements or modifications be
made to the Premises or the Project by Landlord so that the Premises and the
Project complies in all respects with Applicable Laws, Tenant shall be solely
responsible for such costs.
7. HAZARDOUS MATERIALS
A. HAZARDOUS MATERIALS DEFINED. As used in this Lease, the term
HAZARDOUS MATERIALS means and includes (i) any hazardous, toxic or dangerous
waste, substance or material, as defined for purposes of the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, or any other
Applicable Laws applicable to the Premises and establishing liability,
standards, or regulating or requiring action as to the industrial hygiene, use,
generation, treatment, discharge, spillage, storage,
PAGE 6
uncontrolled loss, seepage, filtration, disposal, removal, or existence of a
hazardous, toxic or dangerous waste, substance or material (collectively,
ENVIRONMENTAL LAWS) and (ii) any waste, substance or material which, even if not
so regulated, is known to pose a hazard to the health and safety of persons or
property, specifically including, without limitation, oil and petroleum products
and by-products and asbestos.
B. PROHIBITION OF HAZARDOUS MATERIALS/TENANT'S LIABILITY.
Except for Hazardous Materials that are used only as an incidental part of
Tenant's day-to-day business operations and not as an integral part thereof
(E.G., fuel for forklifts and similar equipment, office supplies, cleaning
solvents), Tenant may not use, treat, handle, store, generate, dispose of or
release or cause or permit any Tenant Party, or any of their invitees, to use,
handle, store, generate, treat, dispose of or release, in, on, under or from the
Premises or the Project any Hazardous Materials. Without limiting any of the
above:
(1) Tenant covenants and agrees that it shall at its own expense
procure, maintain in effect and comply with all conditions of any and all
permits, licenses and other governmental and regulatory approvals required
for Tenant's use of the Premises and any operations or conduct of Tenant
involving the use, handling, generation, treatment, storage, disposal,
management or release of any Hazardous Materials. Tenant shall cause any
and all Hazardous Materials that are to be removed from the Premises to be
transported solely by duly licensed haulers and to duly licensed facilities
for final disposal of such Hazardous Materials. Tenant shall in all
respects, handle, treat, deal with and manage any and all Hazardous
Materials in, on, under or about the Premises as a result of the actions,
conduct or any part of the business operations of Tenant or any Tenant
Party, or any of their invitees, in complete conformity with all Applicable
Laws and prudent industry practices regarding the management of such
Hazardous Materials. All reporting obligations relating to Hazardous
Materials in, on, under or about the Premises as a result of the actions,
conduct or any part of the business operations of Tenant or any Tenant
Party, or any of their invitees, are solely the responsibility of Tenant.
Upon expiration or earlier termination of this Lease, Tenant covenants and
agrees to cause all Hazardous Materials existing in, on, or under the
Premises to be removed from the Premises and transported for use, storage
or disposal in accordance and in compliance with all Applicable Laws. In
addition, and unless Landlord instructs Tenant otherwise, at the expiration
of the term of this Lease, Tenant shall remove all tanks or fixtures which
were placed on the Premises by or on behalf of Tenant or any Tenant Party
during the term of this Lease and which contain, have contained or are
contaminated with, Hazardous Materials;
(2) Tenant shall immediately notify Landlord in writing of (i)
any Tenant Release (hereinafter defined), (ii) any enforcement, clean-up,
removal or other governmental or regulatory action instituted, completed or
threatened against Tenant, the Premises, the Project, or any part thereof
pursuant to any Applicable Laws; (iii) any claim made or threatened by any
person against Tenant, Landlord, the Premises, or the Project relating to
damage, contribution, cost recovery, compensation, loss or injury resulting
from or claimed to result from any Hazardous Materials; and (iv) any
reports made to any environmental agency arising out of or in connection
with any Hazardous Materials in, on or about or under the Premises or with
respect to any Hazardous Materials removed from the Premises, including,
any complaints, notices, warnings, reports or asserted violations in
connection therewith. Tenant shall also provide to Landlord, as promptly
as possible, and in any event within five (5) business days after Tenant
first received or sent the same, with copies of all claims, reports,
complaints, notices, warnings or asserted violations relating in any way to
the Premises or Tenant's use thereof. Tenant shall not take any remedial
action in response to the presence of any Hazardous Materials in, on, about
or under the Premises, nor enter into any settlement agreement, consent,
decree or other compromise in respect to any claims relating to or in any
way connected with the Premises without first notifying Landlord of
Tenant's intention to do so and affording Landlord ample opportunity to
appear, intervene or otherwise appropriately assert
PAGE 7
and protect Landlord's interest with respect thereto;
(3) Tenant shall indemnify, at Landlord's option, defend (with
counsel reasonably acceptable to Landlord), protect and hold Landlord and
each of Landlord's officers, directors, partners, employees, agents,
attorneys, successors and assigns free and harmless from and against any
and all claims, liabilities, damages, costs, penalties, forfeitures, losses
or expenses (including attorneys' fees) for death or injury to any person
or damage to any property whatsoever (including water tables and
atmosphere) arising or resulting in whole or in part, directly or
indirectly, from the presence, release or discharge of Hazardous Materials
in, on, under, upon or from the Premises to the extent that such presence,
release or discharge was caused or permitted by Tenant or any Tenant Party,
or any of their invitees, or from the transportation or disposal of
Hazardous Materials to or from the Premises or the Project by Tenant or any
Tenant Party, or any of their invitees (herein, a TENANT RELEASE). Tenant's
obligations hereunder shall include, without limitation, and whether
foreseeable or unforeseeable, all costs of any required or necessary
repairs, clean-up or detoxification or decontamination of the Premises or
the Project and any other land contaminated or adversely effected by the
Tenant Release and the presence and implementation of any closure, remedial
action or other required plans in connection therewith, and shall survive
the expiration of or early termination of this Lease;
(4) Landlord shall have the right from time, but not more than
once per year unless Landlord in good faith believes a Tenant Release or a
violation of Applicable Laws or this Paragraph 7 may have occurred, to
require Tenant to undertake and submit to Landlord, at Tenant's expense, an
environmental audit from an environmental company reasonably acceptable to
Landlord which audit shall evidence Tenant's compliance with this Paragraph
7. In addition, Landlord may, at its expense, commission an environmental
audit of the Premises at any time after prior written notice to Tenant. If
any lender or governmental agency requires testing to ascertain whether or
not a release of Hazardous Materials has occurred in, on or under the
Premises or the Project, and it its determined that a Tenant Release has in
fact occurred, then, without limitation of any other remedy Landlord may
have hereunder, Tenant shall reimburse the actual costs of the testing to
Landlord on demand as additional Rent (provided that such reimbursement
shall not be in limitation of any of Tenant's other obligations or
Landlord's remedies under this Paragraph 7).
(5) Tenant shall execute affidavits, representations, and the
like from time to time at Landlord's request concerning Tenant's actual
knowledge and belief regarding the presence of Hazardous Materials in, on
or under the Premises.
C. SURVIVAL. The respective covenants, rights. and obligations of
Landlord and Tenant under this Paragraph 7 shall survive the expiration or
earlier termination of this Lease.
8. SIGNAGE. Any signage Tenant desires for the Premises shall be subject
to Landlord's written approval and shall be submitted to Landlord prior to the
Commencement Date of this Lease. Tenant shall repair, paint and/or replace the
building facia surface to which its signs are attached upon vacation of the
Premises, or the removal or alteration of its signage. Tenant shall not (i)
make any changes to the exterior of the Building, (ii) install any exterior
lights, decorations, balloons, flags, pennants, banners or painting, or (iii)
erect or install any signs, windows or door lettering, placards, decorations or
advertising media of any type which can be viewed from the exterior of the
Building, without Landlord's prior written consent. All signs, decorations,
advertising media, blinds, draperies and other window treatment or bars or other
security installations visible from outside the Building shall conform in all
respects to the criteria established by Landlord and Applicable Laws.
PAGE 8
9. TAXES.
A. REAL PROPERTY TAXES. Subject to reimbursement by Tenant as
provided in Paragraph 3B above, Landlord shall pay all taxes, assessments and
governmental charges of any kind and nature and all assessments due to deed
restrictions and/or owner or community associations (collectively referred to
herein as REAL PROPERTY TAXES), that accrue against the Project, or any part
thereof. If at any time during the term of this Lease, there shall be levied,
assessed or imposed on Landlord a capital levy or other tax directly on the Rent
received under this Lease and/or a franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon Rent paid under this Lease, then
all such taxes, assessments, levies or charges, or the part thereof so measured
or based, shall be deemed to be included within the term REAL PROPERTY TAXES for
the purposes hereof. Landlord shall have the right to employ a tax consulting
firm to attempt to assure a fair tax burden on the Land and the Premises within
the applicable taxing jurisdiction. Tenant agrees to pay its Proportionate
Share of the cost of such consultant as additional Rent.
B. PERSONAL PROPERTY TAXES. Tenant shall be liable for all taxes
levied or assessed against Tenant's Property and any other personal property or
fixtures placed or installed in the Premises or the Project by or on behalf of
Tenant. If any such taxes are levied or assessed against Landlord or Landlord's
property and (i) Landlord pays the same, or (ii) the assessed value of
Landlord's property is increased by inclusion of such personal property and
fixtures and Landlord pays the increased taxes, then, Tenant shall pay to
Landlord such taxes within ten (10) days after demand.
10. UTILITIES. Landlord agrees to provide water and electricity lines to
the outside of the exterior walls of the Building. Tenant shall pay for all
water, gas, heat, light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or at the Premises, together with any taxes,
penalties, surcharges or the like pertaining to the Tenant's use of the
Premises, and any maintenance charges for utilities. Tenant shall pay its
Proportionate Share of all charges for jointly metered and common area utilities
as additional Rent. Landlord shall not be liable for any interruption or failure
of utility service at the Premises and all Rent owed pursuant to the terms of
this Lease shall continue to be due notwithstanding such interruption.
11. REPAIRS AND MAINTENANCE.
A. LANDLORD'S OBLIGATION TO REPAIR AND MAINTAIN.
(1) Landlord, at its own cost and expense, shall maintain the
structural soundness of the Building's roof, foundation and exterior walls
in good repair, except for reasonable wear and tear and except for damage
caused by any act or omission of Tenant or any Tenant Party or their
invitees. Landlord may elect to repair any damage caused by Tenant or any
Tenant Party or their invitees, and if Landlord so elects, Tenant shall pay
Landlord the cost or anticipated cost of such repair on demand, subject to
Paragraph 12C hereof. The term WALLS as used herein shell not include
windows, glass or plate glass, doors, special store fronts or office
entries. Tenant shall promptly give Landlord written notice of any defect
or need for repairs, after which Landlord shall make reasonable opportunity
to repair same or cure such defect.
(2) Landlord shall maintain or cause to be maintained all
exterior painting, parking areas and landscaped areas of the Project in
good condition and repair, other than those areas that are expressly
Tenant's obligations under Paragraph 11B below. Tenant shall reimburse
Landlord for Tenant's Proportionate Share of any costs incurred by Landlord
under this paragraph, net of the Adjustments being escrowed monthly for
maintenance under Paragraph 3B above. All such amounts shall be owed to
Landlord as additional Rent.
B. TENANT'S OBLIGATION TO REPAIR AND MAINTAIN. Except only for
maintenance, repair and replacement performed by Landlord pursuant to Paragraph
11A
PAGE 9
hereof, Tenant, at its own cost and expense, shall maintain in good condition
and promptly make all necessary repairs and replacements to (i) all parts of the
Premises, (ii) the water and electricity lines and appurtenances from the
outside of the exterior walls of the Building to and within the Premises, (iii)
any and all overhead doors, loading docks, loading dock levelers and loading
dock equipment, (iv) the walkways, parking areas and facilities, driveways and
alleys located within the Adjacent Area, as illustrated on EXHIBIT "B" attached
hereto, and (v) and any spur track servicing the Premises. Tenant shall also
keep the Adjacent Area in a clean and sanitary condition. If applicable and if
requested by the railroad company, Tenant agrees to sign a joint maintenance
agreement with the railroad company servicing the Premises. Without limitation
of any of the above, from and after the Commencement Date, and regardless of
whether or not Tenant is occupying the Premises, Tenant shall be responsible for
ensuring that the Premises are heated to the extent necessary to prevent any
freeze or cold weather associated damage to the Premises or the Building or any
of the Building systems (I.E., water pipes). Tenant shall be solely responsible
for any damage to the Premises or the Building, or any Building systems, as well
as any other property damage, associated with or resulting from Tenant's failure
to adequately heat the Premises during the Lease Term. Tenant, at its own cost
and expense, shall enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor approved by Landlord
for servicing all hot water, heating and air conditioning systems and equipment
within the Premises; which service contract must include all services suggested
by the equipment manufacturer in its operations/maintenance manual and must
become effective within thirty (30) days of the date Tenant takes possession of
the Premises.
Landlord reserves the right to perform any of Tenant's obligations set
forth under this paragraph including utility line maintenance and any other
items that are otherwise Tenant's obligations under this paragraph to the extent
that Tenant fails to perform its obligations thereunder within the time frames
set forth in Paragraph 18F. In such event, Landlord shall be entitled to an
administrative fee of ten percent (10%) of the costs and expense of all of the
foregoing, and Tenant shall be liable for the cost and expense of such repair,
replacement, maintenance and other such items, as well as the administrative
fee.
12. INSURANCE.
A. LANDLORD'S INSURANCE. Landlord shall maintain insurance covering
the Building (except that Landlord shall not be required to insure any part of
the partitions, fixtures, additions and other improvements that may have been
constructed, erected or installed in or about the Premises or for the benefit
of, or by or for Tenant) in an amount not less than one hundred percent (100%)
of the replacement cost thereof insuring against the perils or Fire, Lightning,
Extended Coverage, Vandalism and Malicious Mischief (collectively, LANDLORD'S
INSURANCE).
B. TENANT'S INSURANCE. Tenant, at its own expense, shall maintain
during the term of this Lease a policy or policies of worker's compensation
(or its equivalent provided such is approved by Landlord, such not to be
unreasonably withheld) and commercial general liability insurance, including
personal injury and property damage, with contractual liability endorsement,
in the amount of Five Hundred Thousand Dollars ($500,000.00) for property
damages and One Million Dollars ($1,000,000.00) per occurrence for personal
injuries or deaths of persons occurring in or about the Premises and the
Project; provided, such limits may be adjusted upward in Landlord's
reasonable discretion based upon inflation or upon the type of business
conducted by Tenant in the Premises. Said policies shall (i) name Landlord as
an additional insured and insure Landlord's contingent liability under this
Lease (except for the worker's compensation policy, which instead shall
include waiver of subrogation endorsement in favor of Landlord), (ii) be
issued on an occurrence (not claims made) basis, (iii) be issued by an
insurance company which is acceptable to Landlord, and (iv) provide that said
insurance shall not be cancelled unless sixty (60) days prior written notice
shall have been given to Landlord. In addition to the above, Tenant shall
maintain insurance insuring the interest of Tenant and covering all of
Tenant's property and all partitions, fixtures, additions and other
improvements that may have been constructed,
PAGE 10
erected or installed in or about the Premises or for the benefit of, or by or
for Tenant that Tenant is entitled to remove upon the termination of this Lease,
and covering all contents of the premises, in an amount not less than one
hundred percent (100%) of the replacement cost thereof insuring against the
perils of Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief.
Said policy or policies or certificates thereof shall be delivered to Landlord
by Tenant upon commencement of the term of the Lease and at least thirty (30)
days prior to the effective date of each renewal of said insurance.
Tenant will not permit the Premises to be used for any purpose or in any
manner that would (i) void the insurance thereon, (ii) increase the insurance
risk, or (iii) cause the disallowance of any sprinkler credits, including
without limitation, use of the Premises for the receipt, storage or handling of
any product, material or merchandise that is explosive or highly inflammable.
If any increase in the cost of any insurance on the Premises or the Building is
caused by Tenant' s use of the Premises, or because Tenant vacates the Premises,
then Tenant shall pay the amount of such increase to landlord upon demand.
C. WAIVER OF SUBROGATION. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS LEASE, LANDLORD AND TENANT HEREBY WAIVE ANY RIGHTS EACH MAY HAVE AGAINST
THE OTHER ON ACCOUNT OF ANY LOSS OR DAMAGE OCCASIONED TO LANDLORD OR TENANT, AS
THE CASE MAY BE (WHETHER OR NOT SUCH LOSS OR DAMAGE IS CAUSED BY THE FAULT OR
NEGLIGENCE OF THE OTHER PARTY), TO THEIR RESPECTIVE PROPERTY, THE PREMISES, ITS
CONTENTS OR TO ANY OTHER PORTION OF THE BUILDING OR THE PROJECT ARISING FROM ANY
RISK THAT WOULD BE COVERED BY ANY INSURANCE REQUIRED TO BE CARRIED UNDER THIS
LEASE. THE PARTIES HERETO EACH, ON BEHALF OF THEIR RESPECTIVE INSURANCE
COMPANIES INSURING THE PROPERTY OF EITHER LANDLORD OR TENANT AGAINST ANY SUCH
LOSS, WAIVE ANY RIGHT OF SUBROGATION THAT IT MAY HAVE AGAINST LANDLORD OR
TENANT, AS THE CASE MAY BE. EACH PARTY TO THIS LEASE AGREES IMMEDIATELY TO GIVE
TO EACH SUCH INSURANCE COMPANY WRITTEN NOTIFICATION OF THE TERMS OF THE MUTUAL
WAIVERS CONTAINED IN THIS PARAGRAPH, AND TO HAVE SAID INSURANCE POLICIES
PROPERLY ENDORSED, IF NECESSARY, TO PREVENT THE INVALIDATION OF SAID INSURANCE
COVERAGES BY REASON OF SAID WAIVERS.
13. LIABILITY/INDEMNIFICATION.
A. LANDLORD'S LIABILITY AND INDEMNITY. Except as otherwise
expressly provided in this Lease, and unless such is due to the gross negligence
or willful misconduct of Landlord, Landlord will not be liable to Tenant or any
Tenant Party for, and Tenant hereby releases Landlord and agrees to hold
Landlord harmless from and against, any injury to person or damage to property
on or about the Premises caused by (i) the Premises becoming out of repair, (ii)
the leakage of gas, oil, water or steam or by electricity emanating from any
part of the Premises, or (iii) any other cause. Except for any claims, rights of
recovery and causes of action that Tenant has expressly herein waved or released
or for which Landlord is not responsible for hereunder, Landlord shall indemnify
and hold Tenant harmless from and against any and all fines, suits, losses,
costs, liabilities, claims, demands, action and judgments of every kind and
character for any injury to any person or damage to any property in, on, or
about the Premises or any part thereof, when such injury or damage shall be
caused by the gross negligence or willful misconduct of Landlord, together with
reasonable court costs and attorneys fees incurred by Tenant in defending same.
Upon the occurrence of an event which Landlord is required to indemnify Tenant
against, and upon demand by Tenant, Landlord shall employ counsel reasonably
acceptable to Tenant and defend Tenant against any liability for such event, all
at Landlord's cost. The provisions of this Section 13A shall survive the
expiration or termination of this Lease with respect to any claims or liability
occurring prior to such expiration or termination.
B. TENANT'S LIABILITY AND INDEMNITY. Tenant shall indemnify and
hold Landlord harmless from and against any and all fines, suits, losses, costs,
liabilities, claims, demands, actions and judgments of every kind and character
(i) arising by reason of any breach, violation or non-performance by Tenant of
any term, provision, covenant, condition or agreement to be performed or abided
by Tenant
PAGE 11
hereunder, and (ii) all claims, demands, actions, damages, losses, costs,
liabilities, expenses and judgments suffered by, recovered from, or asserted
against Landlord or any Landlord Party on account of death, injury or damage to
person or property where such death, injury or damage is caused, in whole or in
part, by Tenant or any Tenant Party or their invitees, together with reasonable
court costs and attorneys fees incurred by Landlord in defending same. Upon the
occurrence of an event which Tenant is required to indemnify Landlord against,
and upon demand by Landlord, Tenant shall employ counsel reasonably acceptable
to Landlord and defend Landlord against any liability for such event, all at
Tenant's cost. The indemnities and covenants of Tenant in this Paragraph 148
are in addition to, and not in limitation of, and other indemnities made by
Tenant elsewhere in this Lease. The provisions of this Section 13B shall
survive the expiration or termination of this Lease with respect to any claims
or liability occurring prior to such expiration or termination.
14. CASUALTY.
A. TERMINATION OF LEASE. If the Premises should be damaged or
destroyed by fire or other peril, Tenant immediately shall give written notice
to Landlord. If: (i) the Building should be totally destroyed by any peril
covered by the insurance to be provided by Landlord under Paragraph 12A above;
or if (ii) the Premises should be so damaged thereby that, in Landlord's
estimation, rebuilding or repairs cannot be completed within one hundred eighty
(180) days after the date of such damage; or if (iii) the Premises should be so
damaged thereby that, in Landlord's estimation, rebuilding or repairs of the
portion thereof required to be insured by Landlord can be substantially
completed within one hundred eighty (180) days after the date of such damage,
but the insurance proceeds available to Landlord will not, in Landlord's
estimation, be sufficient to complete such rebuilding or repairs (due to such
insurance proceeds being applied to mortgage debt or otherwise) and Landlord is
either unable or unwilling to advance sufficient funds to complete such
rebuilding or repairs; then in any of such events this Lease shall cease and
terminate as if and to the extent the effective date of such termination had
been the date originally scheduled for the expiration of the term of this Lease,
and the Rent shall be abated during the previously unexpired term of this Lease,
effective upon the date of the occurrence of such damage.
B. RESTORATION OF PREMISES BY LANDLORD. Subject to the provisions
of Section 14A above, if the Premises should be damaged by any peril covered by
the insurance to be provided by Landlord under Paragraph 12A above, and in
Landlord's estimation, rebuilding or repairs of the portion thereof required to
he insured by Landlord can be substantially completed within one hundred eighty
(180) days after the date of such damage, this Lease shall not terminate, and
Landlord shall restore the Premises to substantially its previous condition,
except that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, additions and other improvements that may have
been constructed, erected or installed in, or about the Premises or for the
benefit of, or by or for Tenant. During any period of rebuilding, repair and
restoration, Landlord shall allow Tenant a fair diminution in Rent. Subject to
Force Majeure, if such repairs and rebuilding of the Premises have not been
substantially completed within one hundred eighty (180) days after the date of
such damage, Tenant, as Tenant's exclusive remedy, say give Landlord notice of
Tenant's intention to terminate the Lease effective as of the date specified in
such notice, which date shall be not less that thirty (30) days after the
notice. If the repairs and rebuilding have not been substantially completed by
the date specified in such notice, Tenant, as Tenant's exclusive remedy, may
immediately terminate this Lease by delivering written notice of termination to
Landlord, in which event the rights and obligations hereunder shall cease and
terminate as if and to the extent the effective date of such termination had
been the date originally scheduled for the expiration of the term of this Lease,
and Rent shall be abated during the previously unexpired term of this Lease,
effective upon the date of the termination.
15. CONDEMNATION. If more than eighty percent (80%) of the Premises are
taken for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof and the taking
PAGE 12
prevents or materially interferes with the use of the Premises for the purpose
for which they were leased to Tenant, this Lease shall terminate and the Rent
shall be abated during the unexpired portion of this Lease, effective on the
date of such taking. If less than eighty percent (80%) of the Premises are
taken for any public or quasi-public use under any governmental law, ordinance
or regulation, or by right of eminent domain, or by private purchase in lieu
thereof, this Lease shall not terminate, but the Rent payable hereunder during
the unexpired portion of this Lease shall be reduced to such extent as may be
fair and reasonable under all of the circumstances. All compensation awarded in
connection with or as a result of any of the foregoing proceedings shall be the
property of Landlord, and Tenant hereby assigns any interest in any such award
to Landlord; provided, however, Landlord shall have no interest in any award
made to Tenant for loss of business or goodwill or for the taking of Tenant's
fixtures and improvements, if a separate award for such items is made to Tenant.
16. ASSIGNMENT AND SUBLETTING.
A. PROHIBITION ON ASSIGNMENT AND SUBLETTING. Tenant shall not have
the right to assign, sublet, transfer or encumber this Lease, or any interest
therein, without the prior written consent of Landlord. Any attempted
assignment, subletting, transfer or encumbrance by Tenant in violation of the
terms and covenants of this paragraph shall be void. If Tenant requests
Landlord's consent to an assignment of this Lease or subletting of all or a part
of the Premises, it shall submit to Landlord, in writing, the name of the
proposed assignee or subtenant, the commencement date of such assignment or
subletting, the nature and character of the business of the proposed assignee or
subtenant and the proposed rates, terms and other pertinent conditions of such
assignment or subletting. Upon receipt of a request for consent to an
assignment or subletting, and unless such request pertains to an assignment or
sublease governed by Paragraph 168 below, Landlord shall have the option (to be
exercised within thirty (30) days from the submission of Tenant's written
request) to (i) cancel this Lease (or the applicable portion thereof as to a
partial subletting) as of the commencement date stated in the above-mentioned
notice of subletting or assignment, unless Tenant withdraws the proposal to
sublet or assign within ten (10) days after Landlord's notice of cancellation is
given, (ii) permit such assignment or subletting, or (iii) reasonably withhold
its consent to such assignment or subletting. If Landlord elects to cancel this
Lease and Tenant does not withdraw the proposal to sublet or assign, then the
term of this Lease (as to the applicable portion of the Premises), and the
tenancy and occupancy of the applicable portion of the Premises by Tenant
hereunder, shall cease, terminate, expire, and come to an end as if the
cancellation date was the original termination date of this Lease with respect
to the applicable portion of the Premises. In the event Landlord consents to a
proposed assignment or subletting and the rent due and payable by any such
assignee or sublessee under any such permitted assignment or sublease (or a
combination of the rent payable under such assignment or sublease plus any bonus
or any other consideration therefor or any payment, incident thereto) exceeds
the Base Monthly Rent payable under Paragraph 3 of this Lease for the applicable
space, net of Tenant's actual reasonable costs incurred in connection with such
assignment or subletting (E.G. attorneys' fees, marketing costs (but not
Tenant's internal costs)) and net of any finish out allowance granted by Tenant
in connection with any assignment or sublease not in excess of market (E.G.,
Tenant may not recover any finish out allowance in excess of that which would
granted to a similarly situated tenant for similar space in similar properties
in the Dallas/Forth Worth area), Tenant shall pay to Landlord all such excess
rent and other excess consideration within ten (10) days following receipt
thereof by Tenant, whether or not such assignment or subletting pertains to an
assignment or subletting permitted under Paragraph 16B below.
B. PERMITTED ASSIGNMENTS/SUBLEASES.
(1) Notwithstanding the provisions of Paragraph 16A, Tenant may,
without the consent of Landlord, at any time assign or otherwise transfer
this Lease or any portion thereof to any Affiliate (hereinafter defined);
or any corporation resulting from the consolidation or merger of Tenant
into or with any other entity; or to any person, firm, entity or
corporation acquiring a majority of Tenant's issued and outstanding capital
stock or substantially all of Tenant's
PAGE 13
assets. As used herein, the term AFFILIATE shall mean a person or entity,
corporate or otherwise, that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control
with Tenant. The term CONTROL means the right and power, direct or
indirect, to direct or cause the direction of the management and policies
of a person or business entity, corporation or otherwise, through ownership
or voting securities, by contract or otherwise; provided, however, that in
the event of an assignment, the assignee shall assume in writing the terms
and conditions set forth herein to be observed and performed by the Tenant
in a form reasonably approved by Landlord. A sublease or assignment
pursuant to this Paragraph 163(1) shall not be subject to.Landlord's
recapture rights set forth in Paragraph 16A above.
(2) Notwithstanding the provisions of Paragraph 16A, and without
limiting the provisions of Paragraph 163(1) above, Landlord agrees not to
unreasonably withhold its consent to a one (1) time sublease of all or a
portion of the Premises by the Tenant named herein provided that such sub
lease has a term not to exceed one (1) calendar year, inclusive of any
renewal or extension rights, and the term of such sublease shall in any
event expire no later than the ninth (9th) anniversary of the Rent
Commencement Date. The subtenant under such sublease shall have no right to
occupy any portion of the Premises in excess of one (1) calendar year. A
sublease pursuant to this Paragraph 16B(2) shall not be subject to
Landlord's recapture rights set forth in Paragraph 16A above. This
Paragraph 16B(2) will only apply to the first sublease having a full term,
inclusive of extension and renewal rights, of one (1) year or less for
which Tenant requests Landlord's consent, and any additional requests for a
consent to any sublease shall be governed solely by the provisions of
Paragraph 16A and 16B(1) above.
C. ASSIGNMENTS IN BANKRUPTCY.
(1) If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq.
(the BANKRUPTCY CODE), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any and all monies or
other considerations constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and be promptly paid or delivered to Landlord.
(2) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed, without
further act or deed, to have assumed all of the obligations arising under
this Lease on and after the date of such assignment. Any such assignee
shall upon demand execute and deliver to Landlord an instrument confirming
such assumption.
D. EFFECT OF ASSIGNMENT. Any assignee, sublessee or transferee of
Tenant's interest in this Lease (all such assignees, sublessees and transferees
being hereinafter referred to as TRANSFEREES), by assuming Tenant's obligations
hereunder, shall assume liability to Landlord for all amounts paid to persons
other than Landlord by such Transferees in contravention of this Paragraph 16.
No assignment, subletting or other transfer, whether consented to by Landlord or
not or permitted hereunder shall relieve the Tenant named herein of any
liability hereunder for the obligations of the "Tenant". If an event of default
occurs while the Premises or any part thereof are assigned or sublet, then
Landlord, in addition to any other remedies herein provided, or provided by law,
may collect directly from such Transferee all rents payable to the Tenant and
apply such rent against any sum due Landlord hereunder. No such collection
shall be construed to constitute a novation or a release of Tenant from the
further performance of Tenant's obligations hereunder.
PAGE 14
17. DEFAULT BY TENANT. The following events (herein individually referred
to as EVENT OF DEFAULT) each shall be deemed to be events of default by Tenant
under this Lease:
A. Tenant shall fail to pay any installment of the Rent herein
reserved when due, or any other payment or reimbursement to Landlord required
herein when due, and such failure shall continue for a period of five (5) days
from the date such payment was due.
B. Tenant or any guarantor of the Tenant's obligations hereunder
shall (i) become insolvent; (ii) admit in writing its inability to pay its
debts; (iii) make a general assignment for the benefit of creditors; (iv)
commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or of any substantial part of its property; or (v) take any action to
authorize or in contemplation of any of the actions set forth above in this
paragraph.
C. Any case, proceeding or other action against the Tenant or any
guarantor of the Tenant's obligations hereunder shall be commenced seeking (i)
to have an order for relief entered against it as debtor or to adjudicate it a
bankrupt or insolvent; (ii) reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii)
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, and such case, proceeding or
other action (a) results in the entry of an order for relief against it which it
is not fully stayed within seven (7) business days after the entry thereof or
(b) shall remain undismissed for a period of forty-five (45) days.
D. Tenant shall (i) vacate all or a substantial portion of the
Premises or (ii) fail to continuously operate its business at the Premises for
the permitted use set forth herein, whether or not Tenant is in default of the
rental payments due under this Lease.
E. Tenant shall fail to discharge any lien placed upon the Premises
or the Project, or any portion thereof, in violation of Paragraph 27 hereof
within twenty (20) days after any such lien or encumbrance is filed.
F. Tenant shall fail to comply with any other terms in this Lease
other than those for which an event of default has been described in this
Paragraph 17, and such failure is not cured within thirty (30) days after
written notice thereof to Tenant, or if such failure cannot reasonably be cured
in thirty (30) days, such time as is reasonable under the circumstances, not to
exceed ninety (90) days, and provided that Tenant must diligently proceed to
cure the default.
18. LANDLORD'S REMEDIES. Upon the occurrence of any event of default
specified in this Lease, Landlord, at its option, may exercise one (1) or more
of the following remedies, in addition to all other rights and remedies provided
at law or in equity.
A. Landlord may, without judicial process, terminate this Lease
(whereupon all obligations and liabilities of Landlord hereunder shall
terminate) and without further notice repossess the Premises without having
any liability therefor (including specifically any liability or duty under
Section 93.002 of the Texas Property Code which is specifically superseded by
this Paragraph 18A) and be entitled to recover all loss and damage Landlord
may suffer by reason of such termination, whether through inability to relet
the Premises on satisfactory terms or otherwise, including without
limitation, accrued Rent and interest thereon, accrued late charges and
interest thereon, the unamortized cost of the Improvements made at Landlord's
expense pursuant to Paragraph 2 hereof or otherwise, broker's fees and
commissions, attorneys' fees,
PAGE 15
moving allowance and any other costs incurred by Landlord in connection with
making or executing this Lease, the cost of recovering the Premises and the
costs of reletting the Premises (including without limitation advertising costs,
brokerage fees, leasing commissions, reasonable attorneys' fees and refurbishing
costs). If such termination is caused by the failure to pay Rent and/or the
abandonment of any substantial portion of the Premises, Landlord may elect, by
sending written notice thereof to Tenant, to receive liquidated damages in an
amount equal to the product of (i) the sum of the all Rent and other charges
payable hereunder for the month during which this Lease is terminated multiplied
by (ii) the lesser of (x) the product of sixty percent (60%) multiplied by the
number of full calendar months which would have remained in the term of this
Lease but for such termination or (y) twenty-four (24). Such liquidated damages
shall be in lieu of the payment of loss and damage accruing after the date of
such termination, but shall not be in lieu of or reduce in any way any amounts
or damages payable by Tenant to Landlord and accruing prior to the date of
termination, which for all purpose shall include, but not be limited to, accrued
Rent and interest thereon, late charges and interest thereon the unamortized
cost of Tenant's improvements, broker's fees, and commissions, attorneys' fees,
any moving allowances and any other costs incurred by Landlord in connection
with making or executing this Lease. Nothing contained in this Lease shall limit
or prejudice the right of Landlord to prove for and obtain in proceedings for
bankruptcy or insolvency by reason of the termination of this Lease, an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, the damages are to be proved,
whether the amount be greater, equal to, or less than the amount of the loss or
damages referred to above.
B. Landlord may, without judicial process, immediately terminate
Tenant's right of possession of the Premises by delivering to Tenant written
notice of such termination (whereupon all obligations and liability of Landlord
hereunder shall terminate), but not terminate this Lease, and, without notice or
demand, enter upon the Premises or any part thereof and take absolute possession
of the same, expel or remove Tenant and any other person or entity who may be
occupying the Premises, by force if necessary, change the locks, without having
any liability therefor (including specifically any liability or duty under
Section 93.002 of the Texas Property Code which is specifically superseded by
this Paragraph 18B) and at Landlord's option, Landlord may relet the Premises or
any part thereof for such terms and such rents as Landlord may in its sole
discretion elect. In the event of a termination of Tenant's possession of the
Premises under this Part B and notwithstanding anything in Section 93.002 of the
Texas Property Code to the contrary, Landlord shall have no obligation
whatsoever to tender to Tenant a key for new locks installed in the Premises and
Tenant shall have no further right to possession of the Premises. In the event
Landlord shall elect so to relet, then rent received by Landlord from such
reletting shall be applied first, to the payment of any indebtedness other than
Rent due hereunder from Tenant to Landlord (in such order as Landlord shall
designate), second, to the payment of any cost of such reletting, including,
without limitation, refurbishing coats, reasonable attorneys' fees, advertising
costs, brokerage fees and leasing commissions, and third, to the payment of Rent
due and unpaid hereunder (in such order as Landlord shall designate), and Tenant
shall satisfy and pay any deficiency upon demand thereof from time to time.
Landlord shall not be responsible or liable for any failure, and Tenant hereby
waives any obligation on the part of Landlord, to relet the Premises or any part
thereof or to collect any rent due upon any such reletting. No re-entry or
taking of possession of the Premises by Landlord pursuant to this Paragraph 18B
shall be construed as an election on Landlord's part to terminate this Lease
unless a written notice of such termination is given to Tenant pursuant to
Paragraph 18A above and, notwithstanding any such reletting without termination,
Landlord may at any time thereafter elect to terminate this Lease for such
previous breach. If Landlord relets the Premises (it being understood and
agreed that Landlord shall have no obligation whatsoever to relet the Premises),
either before or after the termination of this Lease for a rental rate greater
than the Rent provided in this Lease, then for that portion of the Premises that
is subject to such new lease, all such excess rentals shall be and remain the
exclusive property of Landlord, and Tenant shall not be, at any time, entitled
to recover said excess rental.
PAGE 16
C. Landlord may, without judicial process enter upon the Premises,
by force if necessary, without having any civil or criminal liability therefor
(including specifically any liability or duty under Section 93.002 of the Texas
Property Code which is superseded by this Paragraph 18C), and do whatever Tenant
is obligated to do under the terms of this Lease, and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in effecting
compliance with Tenant's obligations under this Lease plus an administrative fee
equal to ten percent (10%) of the amount of such reimbursement. Tenant further
agrees that Landlord shall not be liable for any damages resulting to Tenant
from such action, whether caused by the negligence of Landlord or otherwise.
D. Any repossession of or re-entering on the Premises by Landlord
under this Article shall be without liability or responsibility for damages to
Tenant. No repossession of or re-entering upon the Premises or any part thereof
pursuant to Paragraphs 18B or 18C or otherwise and no reletting of the Premises
or any part thereof pursuant to Paragraph 18B shall relieve Tenant or any
guarantor of its liabilities and obligations hereunder, all of which shall
survive such repossession or re-entering. In the event of any such repossession
of or re-entering upon the Premises or any part thereof by reason of the
occurrence of an event of default, Tenant will continue to pay to Landlord Rent
required to be paid by Tenant.
E. No right or remedy herein conferred upon or reserved to Landlord
is intended to be exclusive of any other right or remedy, and each and every
right and remedy shall be cumulative and in addition to any other right or
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. In addition to the other remedies provided in this Lease, Landlord
shall be entitled, to the extent permitted by applicable law, to injunctive
relief in case of the violation, or attempted or threatened violation, of any of
the covenants, agreements, conditions or provisions of this Lease, or to a
decree compelling performance of any of the covenants, agreements, conditions or
provisions of this Lease, or to any other remedy allowed to Landlord at law or
in equity. Tenant shall indemnify and hold Landlord harmless from any and all
costs, expenses (including reasonable attorneys' fees), claims and causes of
action arising from or in connection with any default by Tenant under this
Lease.
F. If Landlord repossesses the Premises pursuant to the authority
herein granted or provided at law or in equity, then Landlord shall have the
right to (i) keep in place and use or (ii) remove and store all of the
furniture, fixtures and equipment at the Premises, including that which is owned
by or leased to Tenant at all times prior to any foreclosure thereon by Landlord
or repossession thereof by any lessor thereof or third party having a superior
lien thereon. Landlord also shall have the right to relinquish possession of
all or any portion of such furniture, fixtures, equipment and other property to
any person (CLAIMANT) who presents to Landlord a copy of any instrument
represented by Claimant to have been executed by Tenant (or any predecessor of
Tenant) granting Claimant the right under various circumstances to take
possession of such furniture, fixtures, equipment or other property, without the
necessity on the part of Landlord to inquire into the authenticity or legality
of said instrument. The rights of Landlord herein stated shall be in addition
to any and all other rights that Landlord has or may hereafter have at law or in
equity; and Tenant stipulates and agrees that the rights herein granted Landlord
are commercially reasonable.
19. DEFAULT BY LANDLORD AND TENANT'S REMEDIES. If Landlord fails to
perform any of its obligations hereunder within thirty (30) days after written
notice from Tenant specifying such failure, or if such obligations cannot
reasonably be accomplished in thirty (30) days, Landlord has not commenced
performance within such thirty (30) day period and thereafter diligently
prosecutes performance through completion, Tenant's exclusive remedy shall be an
action for actual damages. In no event shall Landlord be liable to Tenant for
consequential, punitive or special damages (or any similar types of damages) by
reason of a failure to perform (or a default) by Landlord hereunder or
otherwise. Unless and until Landlord fails to so cure any default after such
notice, Tenant shall not have any remedy or cause of action by
PAGE 17
reason thereof. All obligations of Landlord hereunder will be construed as
covenants, not conditions; and all such obligations will be binding upon
Landlord only during the period of its ownership of the Premises and not
thereafter. The term "Landlord" shall mean only the owner, for the time being,
of the Premises, and in the event of the transfer by such owner of its interest
in the Premises, such owner shall thereupon be released and discharged from all
covenants and obligations of the Landlord thereafter accruing, but such
covenants and obligations shall be binding during the term of this Lease upon
each new owner for the duration of such owner's ownership. Notwithstanding any
other provisions hereof, Landlord shall not have any personal liability
hereunder. In the event of any breach or default by Landlord in any term or
provision of this Lease, Tenant agrees to look solely to the equity or interest
then owned by Landlord in the Project or the Building of which the Premises are
a part; however, in no event, shall any deficiency judgment or any money
judgment of any kind be sought or obtained against Landlord.
20. BANKRUPTCY.
A. Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of Landlord under this Lease, whether
or not expressly denominated as Rent, shall constitute rent for the purposes of
Section 502(b)(6) of the Bankruptcy Code.
B. This a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person or entity
other than Tenant within the meaning of Sections 365(c) and 365(e)(2) of the
Bankruptcy Code.
21. SECURITY DEPOSIT.
A. Tenant agrees to deposit with Landlord on the date hereof an
initial amount equal to $358,010.25 (the SECURITY DEPOSIT), which shall be
held by Landlord as security for the performance of Tenant's obligations
under this Lease, it being expressly understood and agreed that this deposit
is not an advance rental deposit or a measure of Landlord's damages in case
of Tenant's default. Upon each occurrence of an EVENT OF DEFAULT BY TENANT,
Landlord may use all or part of the Security Deposit to pay past cue Rent or
other payments due Landlord under this Lease, and the cost of any other
damage, injury, expense or liability caused by such event of default without
prejudice to any other remedy provided herein or provided by law. On demand,
Tenant shall pay Landlord the amount that will RESTORE the Security Deposit
to the amount required on the immediately preceding anniversary of the Rent
Commencement Date. The Security Deposit shall be deemed the property of
Landlord, but any remaining balance of such deposit shall be returned by
Landlord to Tenant when Tenant's obligations under this Lease have been
fulfilled and this Lease terminated. Notwithstanding the above, on each
anniversary of the Rent Commencement Date, and provided that Tenant is not
then in default under this Lease and no event has occurred that, if uncured
with the passage of time, would result in an event of default, the Security
Deposit will be reduced by ten percent (10%) and Landlord will remit to
Tenant within fifteen (15) days after such anniversary date (the REDUCTION
PAYMENT DATE) an amount equal to such ten percent (10%) reduction.
B. Landlord agrees to place the Security Deposit in a Certificate of
Deposit in Landlord's name (the CD) with Nations Bank, Dallas, N.A. (branch to
be designated by Landlord). The initial CD shall have a maturity date of not
later than the first anniversary of the Rent Commencement Date and shall
thereafter be renewed for one (1) year terms throughout the Lease Term. All
interest accruing from year-to-year on such CD shall be for the benefit of
Tenant and shall be paid to Tenant by Landlord on the Reduction Payment Date
unless during any one year period beginning and ending on each anniversary of
the Rent Commencement Date (except that the first one year period shall be
deemed to begin on the Commencement Date and end on the first anniversary of the
Rent Commencement Date) there has occurred an event of default by Tenant under
this Lease and Landlord has utilized the Security Deposit, thereby cashing or
drawing down upon the CD, to cure Tenant's default or to recover Landlord's
damages as set forth in subparagraph A above. If during the Lease Term there
occurs an event
PAGE 18
of default due to which Landlord cashes in or draws down upon the CD, Landlord
shall thereafter be relieved and released from any obligation to maintain the
Security Deposit in a certificate of deposit or to otherwise account to Tenant
for any interest on the Security Deposit. Instead, the Security Deposit will be
thereafter held by Landlord, without obligation for interest, in such account or
accounts as Landlord, in its sole discretion, may elect, including commingling
the Security Deposit with other funds of Landlord. TENANT HEREBY RELEASES AND
AGREES TO HOLD LANDLORD HARMLESS FROM ANY LIABILITY, DAMAGES OR LOSSES SUFFERED
OR INCURRED BY TENANT AS A RESULT OF ANY "FAILURE" OF THE INSTITUTION HOLDING
THE SECURITY DEPOSIT (IN THE FORM OF A CD OR CASH).
22. SECURITY INTEREST. In addition to, and without limitation of, the
security for Tenant's performance of its obligations set forth in Paragraph 21
above, to assure payment of all sums due hereunder and the faithful performance
of all other covenants of this Lease, Tenant hereby grants to Landlord an
express contract lien on and security interest in and to the Security Deposit.
On the date this Lease is executed or at any time thereafter upon the request of
Landlord, Tenant shall execute and deliver to Landlord two (2) multiple
originals of a financing statement in form sufficient to perfect the security
interest granted hereunder. A carbon, photographic or other reproduction of
this Lease is sufficient and may be filed as a financing statement. Landlord
shall have all the rights and remedies of a secured party under the Texas
Business and Commerce Code and this lien and security interest may be foreclosed
by process of law. Landlord otherwise waives and negates any and all
contractual liens and security interests, statutory liens and security interests
or constitutional liens and security interests arising by operation of law or
otherwise to which Landlord might now or hereafter be entitled on all property
of Tenant now owned or hereafter placed in or upon the Premises (except for
judgment liens which may hereafter arise in favor of Landlord).
23. SURRENDER UPON TERMINATION. At the termination of this Lease, by its
expiration or otherwise, Tenant immediately shall deliver possession of the
Premises to Landlord with all repairs and maintenance required herein to be
performed by Tenant completed. Prior to Tenant vacating the Premises, Tenant
shall pay to Landlord any amount reasonably estimated by Landlord as necessary
to put the Premises, including without limitation, all heating and air
conditioning systems and equipment therein, in good condition and repair,
reasonable wear and tear excluded. All such amounts shall be used and held by
Landlord for payment of such obligation of Tenant hereunder, with Tenant being
liable for any additional costs therefor upon demand by Landlord, or with any
excess to be returned to Tenant after all such obligations have been determined
and satisfied as the case may be. Any security deposit held by Landlord shall
be credited against the amount due from Tenant under this Paragraph 23. All
obligations of Tenant hereunder not fully performed as of the expiration or
earlier termination of the term of this Lease shall survive the expiration or
earlier termination of the term hereof, including without limitation, all
payment obligations with respect to taxes and insurance and all obligations
concerning the condition and repair of the Premises.
24. HOLDING OVER. If, for any reason, Tenant retains possession of the
Premises after the expiration or termination of this Lease, unless the parties
hereto otherwise agree in writing, such possession shall be subject to
termination by either Landlord or Tenant at any time upon not less than ten (10)
days advance written notice, and all of the other terms and provisions of this
Lease shall be applicable during such period, except that Tenant shall pay
Landlord from time to time, upon demand, as rental for the period of such
possession, an amount equal to 150% of the Base Monthly Rent in effect on the
termination date, computed on a daily basis for each day of such period. No
holding over by Tenant, whether with or without consent of Landlord, will shall
operate to extend this Lease except as otherwise expressly provided. The
preceding provisions of this Paragraph 24 shall not be construed as consent for
Tenant to retain possession of the Premises in the absence of written consent
thereto by Landlord. In addition to the above, Tenant shall be liable to
Landlord for Landlord's actual damages resulting as a result of any holdover by
Tenant.
PAGE 19
25. QUIET ENJOYMENT. Landlord covenants that on or before the Commencement
Date it will have good title to the Premises, free and clear of all liens and
encumbrances, excepting only the lien for current taxes not yet due, such
mortgage or mortgages as are permitted by the terms of this Lease, zoning
ordinances and other building and fire ordinances and governmental regulations
relating to the use of such property, and easements, restrictions and other
conditions of record. Landlord agrees that so long as Tenant pays all amounts
due hereunder and performs all other covenants and agreements herein set forth,
Tenant shall peaceably and quietly have, hold and enjoy the Premises for the
term of this Lease without hindrance or molestation from Landlord, subject to
the terms and provisions of this Lease.
26. ENTRY BY LANDLORD. Landlord and Landlord's agents and representatives
shall have the right to enter the Premises at any reasonable time during
business hours, to inspect the Premises and to make such repairs as may be
required or permitted pursuant to this Lease or to make such repairs or
installations as are necessary for other tenants in the Building. During the
period that is nine (9) months prior to the end of the term of this Lease, upon
telephonic notice to Tenant, Landlord and Landlord's representatives may enter
the Premises during business hours for the purpose of showing the Premises. In
addition, Landlord shall have the right to erect a suitable sign on the Premises
stating the Premises are available. Landlord shall also have the right (but not
the obligation) to enter the Premises at any time, and by force if necessary, in
the case of an emergency. Tenant shall notify Landlord in writing at least
thirty (30) days prior to vacating the Premises and shall arrange to meet with
Landlord for a joint inspection of the Premises prior to vacating. If Tenant
fails to give such notice or to arrange for such inspection, then Landlord's
inspection of the Premises shall be deemed correct for the purpose of
determining Tenant's responsibility for repairs and restoration of the Premises.
27. MECHANICS LIENS. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any mariner to bind the interest of Landlord or Tenant in the Premises or
the Project or to charge the Rent payable hereunder for any claim in favor of
any person dealing with Tenant, including those who may furnish materials or
perform labor for any construction or repairs. Tenant covenants and agrees that
it will pay or cause to be paid all sums legally due and payable by it on
account of any labor performed or materials furnished in connection with any
work performed at the Premises or the Project and that it will indemnify and
hold Landlord harmless from and against any and all loss, cost or expense based
on or arising out of asserted claims or liens against the leasehold estate or
against the right, title and interest of Landlord in the Premises or the Project
or under the terms of this Lease. Tenant agrees to give Landlord immediate
written notice of the placing of any lien or encumbrance against the Premises or
the Project.
28. WAIVER. No waiver by Landlord of any provision of this Lease or of any
default, event of default or breach of Tenant hereunder shall be deemed to be a
waiver of any other provision of this Lease, or of any subsequent default, event
of default or breach by Tenant of the same or any other provision. Landlord's
consent to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act of Tenant. No act or thing done by
Landlord or Landlord's agents during the term of this Lease shall be deemed an
acceptance of a surrender of the Premises, unless done in writing signed by
Landlord. The delivery of the keys to any employee or agent of Landlord shall
not operate as a termination of this Lease or a surrender of the Premises. The
acceptance of any Rent by Landlord following a default, event of default or
breach of this Lease by Tenant shall not constitute a waiver by Landlord of such
default, event of default or breach or any other default, event of default or
breach unless such waiver is expressly stated in writing and signed by Landlord.
29. SUBORDINATION. Tenant accepts this Lease subject and subordinate to
any mortgages and/or deeds of trust now or at any time hereinafter constituting
a lien or charge upon the Premises, provided, however, that if the mortgagee,
trustee, or holder of any such mortgage or deed of trust elects to have Tenant's
interest in this Lease superior to any such instrument, then by notice to Tenant
from such mortgagee, trustee
PAGE 20
or holder, this Lease shall be deemed superior to such lien, whether this Lease
was executed before or after said mortgage or deed of trust. Tenant, at any time
hereafter on demand, shall execute any instruments, releases or other documents
that may be required by any mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage.
30. TENANT ESTOPPELS. Tenant agrees, from time to time, within ten (10)
days after request of Landlord, to deliver to Landlord, or Landlord's designee,
a certificate of occupancy and an estoppel certificate stating that this Lease
is in full force and effect, the date to which Rent has been paid, the unexpired
term of this Lease and such other factual matters pertaining to this Lease as
may be requested by Landlord. It is understood and agreed that Tenant's
obligation to furnish such estoppel certificates in a timely fashion is a
material inducement for Landlord's execution of this Lease.
31. NOTICES. All notices, requests, approvals, and other communications
required or permitted to be delivered under this Lease must be in writing and
are effective (i) on the business day sent if sent by telecopier during normal
business hours and the sending telecopier generates a written confirmation of
sending; (ii) the next business day after delivery to a
nationally-recognized-overnight-courier service for prepaid overnight delivery;
(iii) if orderly delivery of the mail is not then disrupted or threatened, in
which event some method of delivery other than the mail must be used, three (3)
days after being deposited in the United States mail, certified, return receipt
requested, postage prepaid; or (iv) upon actual receipt by the addressee if
delivered personally or by any method other than by telecopier (with written
confirmation), nationally-recognized-overnight-courier service, or mail; in each
instance addressed to Landlord or Tenant, as the case may be, addressed:
if to Landlord, as follows:
MEPC Quorum Properties II Inc.
15303 Dallas Parkway, Suite 100, LB 10
Dallas, Texas 75248
Attn: Property Manager
Telecopy: (972) 851-7012
and, if to Tenant, as follows:
Mannatech, Inc.
2010 North Highway 360
Grand Prairie, Texas 75050
Attn: Ronald E. Kozak
Telecopy: (972) 623-1902
or to such other address or to the attention of such other person as shall be
designated by the applicable party and on fifteen (15) days notice from time to
time in writing and sent in accordance herewith.
32. PARKING. Tenant and its employees, customers and licensees shall have
the exclusive right to use any parking areas that have been specifically
designated for such exclusive use by Landlord on the site plan for the Land
attached hereto as EXHIBIT "B" and incorporated herein by reference, subject to
(i) all rules and regulations promulgated by Landlord in its reasonable
discretion, and (ii) rights of ingress and egress of other lessees of the Land
or the Development, as applicable. Tenant and its employees, customers and
licensees shall not have the right to use any parking area that are from time to
time specifically designated by Landlord for exclusive use by another lessee,
except to the extent necessary for ingress and egress. Landlord shall not be
responsible for enforcing Tenant's parking rights against any third parties.
Tenant agrees not to use more spaces than so provided.
PAGE 21
33. OPTION TO RENEW.
A. If Tenant is not in default under this Lease at the time of the
exercise of this option or at the commencement of the applicable Lease Term
extension, Tenant is granted the option (the OPTION) to extend the Lease Term
for one (1) extension term of five (5) years commencing on the next day after
the expiration of the initial Lease Term by giving Landlord an extension notice
at least twelve (12) months, but not more than fifteen (15) months, prior to the
expiration of the initial Lease Term. Tenant's lease of the Premises during the
extended Lease Term will be upon the same terms as in the Lease for the initial
Lease Term, except that (i) Base Monthly Rent will adjust on the first day of
the extended Lease Term to the Market Rate (defined below), (ii) during the
extended Lease Term Tenant will have no further options or rights to extend the
Lease Term, and (iii) Paragraph 5B shall be deemed omitted.
B. Within thirty (30) days after Landlord receives Tenant's written
notice of its exercise of the Option, Landlord shall deliver a notice to Tenant
(the MARKET RATE NOTICE) specifying the Market Rate for the extended Lease Term,
such to be based upon Landlord's determination of rents being charged for
comparable space in similar properties in the Dallas/Fort Worth area for terms
commensurate with the extended Lease Term and for tenants similarly situated.
Tenant shall have fifteen (15) days (the EXAMINATION PERIOD) from its receipt of
the Market Rate Notice to accept or reject Landlord's designation of the Market
Rate. If Tenant accepts Landlord's designation of the Market Rate, the MARKET
RATE will be as set forth in the Market Rate Notice. If Tenant fails to reject
in writing Landlord's designation of the Market Rate set forth in the market
Rate Notice during the Examination Period, Tenant shall be deemed to have
accepted Landlord's designation of the Market Rate, and Tenant's election to
exercise the Option shall be irrevocable. If Tenant timely rejects Landlord's
designation of the Market Rate prior to the expiration of the Examination Period
and Landlord and Tenant cannot agree in writing on the Market Rate within
fifteen (15) days after the date Landlord receives Tenant's timely rejection of
Landlord's designation of the Market Rate set forth in the Market Rate Notice
(the NEGOTIATION PERIOD), Tenant shall have the right to revoke its exercise of
the Option by written notice to Landlord within five (5) days after the
expiration of the Negotiation Period. If Tenant fails to revoke its exercise of
the Option within this five (5) day period, then Tenant's exercise of the Option
will be irrevocable and the Base Monthly Rent for the extended Lease Term will
be based upon the Market Rate set forth in the Market Rate Notice.
C. Tenant may not assign the Option to any assignee of the Lease.
No sublessee and no assignee may exercise the Option.
D. If the Lease Term is extended under this Paragraph 33, Landlord
shall prepare, and Landlord and Tenant will execute and deliver an amendment to
the Lease extending the Lease Term within fifteen (15) days after the Market
Rate is determined but in no event later than the date that the applicable
extension term commences; provided, however, that the failure of the parties to
enter into such an amendment will not affect the validity of Tenant's exercise
of the Option or the obligations of the parties during the extended Lease Term.
34. MISCELLANEOUS.
A. FINANCIAL STATEMENTS. During each Lease Year, Tenant shall
provide to Landlord true, correct and complete copies of Tenant's year end
financial statements audited by a third party certified public accountant on or
before the sixtieth day after the expiration of Tenant's just completed fiscal
year. In addition, Tenant shall provide other financial data or statements, such
as the most recent quarterly financial statements of Tenant, upon Landlord's
request; provided, however, that Landlord may not request such additional
statements more than once per Lease Year.
B. CONFIDENTIALITY. Tenant shall keep the terms and provisions of
this Lease confidential at all times and not disclose the terms and provisions
hereof to any
PAGE 22
party without Landlord's prior written consent, which may be withheld by
Landlord in its sole discretion. Landlord hereby consents to the disclosure of
the terms and provisions of this Lease to employees of Tenant, Tenant's
attorneys and to any financial institution Tenant is seeking financing from in
connection with this Lease and/or Tenant's operations at the Premises. The
terms of this paragraph and Tenant's agreement thereto are a material inducement
to Landlord entering into this Lease, and Tenant agrees that Landlord may be
severely damaged by a breach of this paragraph and the confidentiality
obligations herein contained. Tenant agrees that in the event of a breach of
this paragraph, Landlord may, in addition to any other remedies it may have
under this Lease or at law or equity, seek injunctive relief against Tenant
and/or recover damages from Tenant.
C. HEADINGS/GENDER. Words of any gender used in this Lease shall be
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, unless the context otherwise requires. The
captions inserted in this Lease are for convenience only and in no way define,
limit or otherwise describe the scope or intent of this Lease, or any provision
hereof, or in any way affect the interpretation of this Lease.
D. RUN WITH THE LAND. The terms, provisions and covenants and
conditions contained in this Lease shall run with the land and shall apply to,
inure to the benefit of, and be binding upon, the parties hereto and upon their
respective heirs, executors, personal representatives, legal representatives,
successor and assigns, except as otherwise herein expressly provided. Landlord
shall have the right to transfer and assign, in whole or in part, its rights and
obligations in the Premises, Building and/or Land that are the subject of this
Lease. Each party agrees to furnish to the other, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of such party to
enter into this Lease.
E. ORGANIZATION AND AUTHORITY. Tenant represents and warrants to
Landlord that (i) Tenant is a duly organized and existing TEXAS corporation and
has the full right and authority to enter into this Lease and to perform all of
its obligations hereunder, (ii) all requisite authorizing actions have been
taken by Tenant in connection with the entering into of this Lease, (iii) this
Lease is the valid, legally binding obligation of and enforceable against Tenant
in accordance with its terms, and (iv) each of the persons signing this Lease on
behalf of Tenant is authorized to do so. Upon request by Landlord, Tenant will
provide a certified copy of the resolutions of the board of directors of Tenant
authorizing the entering into of this Lease by Tenant and the execution hereof
by the persons who sign this Lease on behalf of Tenant.
F. RECORDING. Tenant may not record this Lease or any memorandum
thereof.
G. ENTIRE AGREEMENT. This Lease constitutes the entire
understanding and agreement of the Landlord and Tenant with respect to the
subject matter of this Lease, and contains all of the covenants and agreements
of Landlord and Tenant with respect thereto. Landlord and Tenant each
acknowledge that no representations, inducements, promises or agreements, oral
or written, have been made by Landlord or Tenant, or anyone acting on behalf of
Landlord or Tenant, which are not contained herein, and any prior agreements,
promises, negotiations, or representations not expressly set forth in this Lease
are of no force or effect. This Lease may not be altered, changed or amended
except by an instrument in writing signed by both parties hereto.
H. FORCE MAJEURE. As used in this Lease, FORCE MAJEURE shall mean a
delay caused by reason of fire, acts of God, unreasonable delays in
transportation, embargo, weather (I.E., rain and rain related conditions,
humidity, temperature, wind, etc.), strike, other labor disputes, governmental
preemption of priorities or other controls in connection with a national of
other public emergency, governmental delays in permitting, delays caused by any
governmental disapproval of, or required revisions to, the Finish Plans, or
shortages of fuel, supplies or labor or any similar cause not within Landlord's
reasonable control. Landlord shall not be held responsible for
PAGE 23
delays in the performance of its obligations hereunder caused by Force Majeure,
and such delays shall be excluded from the computation of the tire allowed for
the performance of such obligations. It is expressly agreed that the number of
delay days may include not only the day or days upon which the event of Force
Majeure occurred but the number of days thereafter that work could not resume
due to the occurrence of such event of Force Majeure. By way of example only,
rain on a Sunday, which is not scheduled as a normal work day, may prevent work
for several days thereafter due to mud conditions.
I. SEVERABILITY. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Lease, then and in that event, it is the intention of the
parties hereto that the remainder of this Lease shall not be affected thereby,
and it is also the intention of the parties to this Lease that in lieu of each
clause or provision of this Lease that is illegal, invalid or unenforceable,
there be added, as a part of this Lease, a clause or provision as similar in
terms to such illegal, invalid or unenforceable clause or provision as may be
possible and be legal, valid and enforceable.
J. DATE OF LEASE. All references in this Lease to "the date hereof"
or similar references shall be deemed to refer to the last date, in point of
time, on which all parties hereto have executed this Lease.
K. BROKERS.
(1) Tenant represents and warrants that, except for The Amend
Group (BROKER), Tenant has not dealt with any broker, agent or other person
in connection with this transaction and that, except for Broker, no broker,
agent or other person brought about this transaction through the acts of or
employment by Tenant, and, except with respect to any commission or fee
owed to Broker, Tenant agrees to indemnify and hold Landlord harmless from
and against any claims by any broker, agent or other person claiming a
commission or other form of compensation by virtue of having dealt with
Tenant with regard to this leasing transaction.
(2) Landlord represents and warrants that, except for Broker,
Landlord has not dealt with any broker, agent or other person in connection
with this transaction and that, except for Broker, no broker, agent or
other person brought about this transaction through the acts of or
employment by Landlord. Landlord has agreed to pay Broker a commission
pursuant to a separate written agreement between Landlord and Broker, and
Landlord agrees to indemnify and hold Tenant harmless from and against any
claims by Broker or any broker, agent or other person claiming a commission
or other form of compensation by virtue of having dealt with Landlord with
regard to this leasing transaction.
L. COUNTERPARTS. This Lease may be executed in counterparts, each
being deemed an original, but together constituting only one instrument.
M. TIME FOR PERFORMANCE TIME IS OF THE ESSENCE WITH RESPECT TO ALL
PERFORMANCE OBLIGATIONS CONTAINED IN THIS LEASE.
N. ATTORNEYS FEES. In the event it becomes necessary for either
party hereto to file a suit to enforce this Lease or any provisions contained
herein, the party prevailing in such action shall be entitled to recover, in
addition to all other remedies or damages, reasonable attorneys fees incurred in
such suit.
O. LAW GOVERNING. This Lease shall be construed and interpreted in
accordance with the laws of the State of Texas and the obligations of the
parties hereto are and shall be performable in, and venue for any claim or cause
of action shall reside in, Dallas County, Texas.
PAGE 24
P. AMENDMENTS. This Lease may not be modified or amended, except by
an agreement in writing signed by Landlord and Tenant. The parties may waive
any of the conditions contained herein or any of the obligations of the other
party hereunder, but any such waiver shall be effective only if in writing and
signed by the party waiving such conditions or obligations, except as
specifically set forth herein.
EXECUTED BY Landlord, this 7th day of November, 1996.
MEPC QUORUM PROPERTIES II INC.,
By: /s/ Howard Garfield
-------------------------------------
Name: HOWARD GARFIELD
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
By: /s/ David L. Carlson
-------------------------------------
Name: David L. Carlson
-----------------------------------
Title: Vice President
----------------------------------
EXECUTED BY Tenant, this 7th day of November, 1996.
MANNATECH, INC., a TEXAS corporation
By: /s/ Ronald E. Kozak
-------------------------------------
Name: Ronald E. Kozak
-----------------------------------
Title: Chief Executive Officer
----------------------------------
Exhibits:
- --------
Exhibit A: Land
Exhibit B: Site Plan
Exhibit C: Contractor Insurance Requirements
PAGE 25
EXHIBIT "A"
THE LAND
Being Lot 4R of Replat of a portion of "Freeport North," an addition to the City
of Coppell, Texas, according to the Map thereof recorded in Volume 95245, Page
2050, Map Records of Dallas County, Texas.
EXHIBIT "B"
SITE PLAN
[MAP]
Map illustrates the leased premises.
EXHIBIT "C"
CONTRACTOR INSURANCE REQUIREMENTS
All contractors, subcontractors, suppliers, service providers, moving companies,
and others performing work of any type for Tenant at the Premises shall:
- carry the insurance listed below with companies acceptable to
Landlord; and
- furnish Certificates of Insurance to Landlord evidencing required
coverages at least ten (10) days prior to entry in the Premises and
Renewal Certificates at least thirty (30) days prior to the expiration
dates of Certificates previously furnished.
Certificates of Insurance must provide for thirty (30) days' prior written
notice of cancellation or materiaL change to Landlord.
(1) WORKERS COMPENSATION: Statutory workers compensation insurance covering
full liability under applicable Workers Compensation Laws at the required
statutory limits.
(2) EMPLOYERS' LIABILITY: Employers' liability insurance with the following
minimum limits of liability:
$100,000 Each Accident
$500,000 Disease-Policy Limit
$100,000 Disease-Each Employee
(3) COMMERCIAL GENERAL LIABILITY: This insurance policy must:
(a) Be written on a standard liability policy form (sometimes known as
commercial general liability insurance) BUT WITHOUT exclusionary
endorsements that may delete coverage for products/completed
operations, personal and advertising injury, blanket contractual, fire
legal liability, or medical payments.
(b) Be endorsed to provide that:
- aggregate limits, if any, apply separately to each of the
insured's jobs or projects away from premises owned by or rented
to the insured;
- the insurance is primary and non-contributory to any insurance
provided by Landlord; and
- include the following minimum limits:
$1,000,000 General Aggregate
$1,000,000 Products-Completed Operations Aggregate
$1,000,000 Personal & Advertising Injury
$1,000,000 Each Occurrence
$ 50,000 Fire Damage (Any one fire)
$ 5,000 Medical Expense (Any one person)
(4) AUTOMOBILE LIABILITY: Automobile liability insurance for claims of
ownership, maintenance, or use of owned, non-owned, and hired motor
vehicles at, upon, or away from the Premises with the following minimum
limits:
$500,000 Combined Single Limit Bodily Injury and Property Damage per
Occurrence
(5) EXCESS LIABILITY: Following form excess liability insurance with coverages
at least as broad as the required commercial general liability insurance
with the following minimum limits:
$1,000,000 Each Occurrence
$2,000,000 Aggregate
(6) GENERAL REQUIREMENTS: All policies must be:
- written on an occurrence basis and not on a claims-made basis;
- endorsed to name as additional insureds Landlord, and its respective
officers, directors, employees, agents, partners, and assigns;
- endorsed to waive any rights of subrogation against Landlord and its
respective officers, directors, employees, agents, partners, and
assigns; and primary and non-contributing with, and not in excess of,
any other insurance available to Tenant and Landlord (or any other
entity named as an additional insured).
FIRST AMENDMENT TO COMMERCIAL LEASE AGREEMENT
THIS FIRST AMENDMENT TO COMMERCIAL LEASE AGREEMENT (THIS "AMENDMENT") is
entered into by and between MEPC Quorum Properties II Inc., a Delaware
corporation (LANDLORD) and Mannatech, Inc., a Texas corporation TENANT)
effective as of May 29, 1997.
A. Landlord and Tenant have heretofore entered into a Commercial Lease
Agreement (the LEASE) pursuant to which Landlord leased to Tenant approximately
110,157 square feet in the Building (as defined in the Lease) located on the
Land described on EXHIBIT "A" attached hereto and located in the Freeport North
Industrial Park, Coppell, Texas;
B. Landlord and Tenant now wish to amend the Lease.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which being hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. Paragraph 17A of the Lease is deleted and replaced with the following:
"A. Tenant shall fail to pay any installment of the Rent herein
reserved when due, or any other payment or reimbursement to Landlord
required herein when due, and such failure shall continue for a period of
ten (10) days after receipt of written notice from Landlord; provided
however, that an event of default will occur without any obligation of
Landlord to deliver any notice if Landlord has given Tenant written notice
under this Paragraph 18A on two (2) or more occasions during the twelve
(12) month period preceding the current failure by Tenant to timely pay
Rent (though Tenant in such instances is grated a five (5) day grace period
from the date upon which the subject payment was due)."
2. Paragraph 22 of the Lease is deleted and replaced with the following:
"22. WAIVER OF SECURITY INTEREST. Landlord hereby waives and negates
any and all contractual liens and security interests, statutory liens and
security interests or constitutional liens and security interests arising
by operation of law or otherwise to which Landlord might now or hereafter
be entitled on all property of Tenant now owned or hereafter placed in or
upon the Premises (except for judgment liens which may hereafter arise in
favor of Landlord)."
3. Paragraph 29 of the Lease is deleted and replaced with the following:
"29. SUBORDINATION. Conditioned upon the beneficiary of any mortgages
and/or deeds of trust now existing or hereafter placed upon the Premises
entering into an agreement (herein an ATTORNMENT AGREEMENT with Tenant in
which such beneficiary agrees not to disturb the possession and other
rights of Tenant under this Lease so long as Tenant is not in default in
the performance of its obligations hereunder, and, in the event of the
acquisition of title by such beneficiary through foreclosure proceedings or
a deed in lieu of foreclosure, to accept Tenant as tenant of the Premises
under the terms and conditions of this Lease, Tenant accepts this Lease
subject and subordinate to any mortgages and/or deeds of trust now or
hereafter constituting a lien or charge upon the Premises, provided,
however, that if the mortgagee, trustee, or holder of any such mortgage or
deed of trust elects to have Tenant's interest in this Lease superior to
any such instrument, then by notice to Tenant from such mortgagee, trustee
or holder, this Lease shall be deemed superior to such Lien, whether this
Lease was executed before or after said mortgage or deed of trust. Subject
to the foregoing, Tenant at any time hereafter on demand, shall execute any
instruments, releases or other documents that may be required by any
mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage. For purposes of
this section, Landlord will be deemed to have satisfied the condition of
obtaining an Attornment Agreement if the form thereof required by the
mortgagee is a type or form that is customarily given by institutional
lenders; provided that Tenant shall have the right to attempt to negotiate
more favorable terms:"
4. COUNTERPARTS. This Amendment may be executed in counterparts.
Facsimile signatures will have the same effect as originals.
5. RATIFICATION. The Lease, as amended hereby, is ratified and confirmed
by the parties as being in full force and effect. To the event of any conflict
between the terms of the Lease and this Amendment, this Amendment shall govern.
All capitalized terms herein shall have the same meaning as set forth in the
Lease unless otherwise noted herein. This Amendment is binding on the parties
and their successors and assigns.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
effective as of the date and year first above written.
LANDLORD: MEPC QUORUM PROPERTIES II INC., a
Delaware corporation
By: /s/ Peter Johnson
----------------------------------
Name: PETER JOHNSON
--------------------------------
Title: Executive Vice President
-------------------------------
By: /s/ David L. Carlson
----------------------------------
Name: DAVID L. CARLSON
--------------------------------
Title: VICE PRESIDENT
-------------------------------
TENANT: MANNATECH, INC., a Texas corporation
By: /s/ Charles E. Fioretti
----------------------------------
Name: Charles E. Fioretti
--------------------------------
Title: Chairman of the Board
-------------------------------
2
EXHIBIT "A"
THE LAND
Being Lot 4R of Replat of a portion of "Freeport North," and addition to the
City of Coppell, Texas, according to the Map thereof recorded in Volume 95245,
Page 2050, Map Records of Dallas County, Texas.
SECOND AMENDMENT TO COMMERCIAL LEASE AGREEMENT
THIS SECOND AMENDMENT TO COMMERCIAL LEASE AGREEMENT (this "AMENDMENT")
is entered into by and between MEPC Quorum Properties II Inc., a Delaware
corporation (LANDLORD) and Mannatech, Inc., a Texas corporation (TENANT)
effective as of November 13, 1997.
A. Landlord and Tenant have heretofore entered into a Commercial Lease
Agreement (as previously amended, the LEASE) pursuant to which Landlord
leased to Tenant approximately 110,157 square feet in the Building (as
defined in the Lease) located on the Land described in the Lease, such being
located in the Freeport North Business Park, Coppell, Dallas County, Texas;
and
B. Landlord and Tenant now wish to again amend the Lease.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which being hereby acknowledged, Landlord and Tenant hereby
agree as follows:
1. APPROVAL OF ALTERATIONS. Landlord hereby consents to Tenant's
alteration of the interior of the Premises to include additional office space
of approximately 17,000 square foot as described in the plans and
specifications prepared by The Amend Group, Project No.7069, dated August 6,
1997, Revision No. 1 [Phase IIA] (the PLANS). The improvements and
modifications to be made pursuant to the Plans are herein called the
EXPANSION IMPROVEMENTS). The Expansion Improvements must be constructed in
accordance with the Plans, subject to design/build of the electrical service
in lieu of the design depicted on/in the Plans to be agreed upon by Landlord
and Tenant. Additionally, Landlord's approval of the expansion and of the
Plans notwithstanding, Tenant's alteration of the Premises will be subject to
all other terms, conditions and provisions of Paragraph 5 of the Lease.
2. ADDITIONAL PARKING AREA. Landlord agrees to construct, at its cost
and expense, an additional parking area on the plans and specifications
therefore prepared by the Amend Group, Project No. 6034, dated April 14,
1997, Revision No. 16, subject to the following modifications:
(i) The retaining wall is deleted. The earthen berm will be
reshaped.
(ii) Fencing is excluded.
(iii) Generator pads and bollards are excluded.
(iv) The (17) Savannah Holly and (2,352) Wintercreeper are
excluded.
3. BASE MONTHLY RENT. Paragraph 3A of the Lease shall be, and hereby is,
deleted and replaced with the following new Paragraph 3A.
"A. BASE MONTHLY RENT. Tenant agrees to pay to Landlord the sum of
$4,206,679.30 as rent for the Premises, which sum shall be payable in
advance, as follows (BASE MONTHLY RENT):
- On January 20, 1997 (the RENT COMMENCEMENT DATE), the sum of
$11,548.72; and
- Beginning on February 1, 1997 and continuing through December
31, 1997, the amount of $29,834.19 per month; and
- On January 1, 1998, the sum of $31,077.89; and
- Beginning on February 1, 1998 and continuing through December 31,
2001, the amount of $33,047.10 per month; and
- On January 1, 2002, the sum of $35,001.49; and
- Beginning on February 1, 2002 and continuing through December 31,
2006, the amount of $38,095.96 per month; and
- On January 1, 2007, the sum of $23,349.14.
Each installment of Base Monthly Rent shall be due and payable on the first
day of each calendar month during the Lease Term, provided that one (1) full
installment of Base Monthly Rent is due and payable on the date of this
Lease, such to be applied to the first installment of Base Monthly Rent due
on January 20, 1997 and thereafter applied to Base Monthly Rent until fully
applied."
4. OFF-SITE PARKING. Landlord's execution hereof constitutes its
approval of Tenant entering to an off-site parking lease for purpose of
satisfying any parking requirement imposed by Applicable Laws or as is
necessary for Tenant to obtain a certificate of occupancy for the Premises.
Landlord's consent notwithstanding, such off-site parking lease shall be the
sole obligation of Tenant, and Tenant shall give notice to the lessor under
such lease that Landlord has no obligations with respect thereto. Tenant
further indemnifies and holds Landlord and each Landlord Party harmless from
and against all losses, liabilities, costs (including reasonable attorneys'
fees and court costs), expenses, damages, settlements, judgments, claims,
lease payments, causes of action and demands of every kind or character,
known or unknown, contingent or otherwise, arising out of or in connection
with any such off-site parking leases. Additionally, Landlord makes no
representations or warranties that such leases will be adequate for Tenant's
purposes or will satisfy Applicable Laws pertaining to parking requirements.
Landlord's consent in this paragraph to the off-site parking lease in no way
constitutes a representation by Landlord that the availability of additional
off-site parking will enable Tenant to obtain a certificate of occupancy or
that the Premises will thereafter comply with Applicable Laws. Specifically,
if any applicable governmental authority concludes that the Premises or the
Project does not comply with Applicable Laws due to an insufficiency of
parking as a result of the Expansion Improvements, Landlord may, at its cost,
require that the Expansion Improvements be demolished and the Premises
restored to its condition immediately prior to the construction of the
Expansion Improvements. Other than the for the costs of rehabilitating and
restoring the Premises as contemplated in this paragraph, Tenant indemnifies
Landlord and each Landlord Party harmless from and against all losses,
liabilities, costs (including reasonable attorneys' fees and court costs),
expenses, damages, settlements, judgements, claims, causes of action and
demands of every kind or character, known or unknown, contingent or
otherwise, arising out of or in connection with the fact that the Project
and/or the Premises is not in compliance with Applicable Laws due to the
number of square feet in the Premises designated as office space. Tenant
further releases Landlord and each Landlord Party from any and all damages
suffered or incurred by Tenant of whatever nature, actual, consequential or
speculative, due to the fact that the Project, Building or Premises may not
comply with Applicable Laws due to insufficient parking. Such non-compliance
shall not constitute a default by Landlord under the Lease, constitute a
constructive eviction of Tenant or allow Tenant to terminate the Lease.
5. COUNTERPARTS. This Amendment may be executed in counterparts.
Facsimile signatures will have the same effect as originals.
6. RATIFICATION. The Lease, as amended hereby, is ratified and
confirmed by the parties as being in full force and effect. To the extent of
any conflict between the terms of the Lease and this Amendment, this
Amendment shall govern. All capitalized terms herein, shall have the same
meaning as set forth in the Lease unless otherwise noted herein. This
Amendment is binding on the parties and their successors and assigns.
[SIGNATURES ON FOLLOWING PAGE]
2
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
effective as of the date and year first above written
LANDLORD: MEPC QUORUM PROPERTIES II INC., a
Delaware corporation
By: /s/ Ab Atkins
--------------------------------------
Name: Ab Atkins
------------------------------------
Title: Senior Vice President
-----------------------------------
By: /s/ Peter Johnson
--------------------------------------
Name: Peter Johnson
------------------------------------
Title: Senior Vice President
-----------------------------------
TENANT: MANNATECH, INC., a Texas corporation
By: /s/ Anthony E. Canale
--------------------------------------
Name: Anthony E. Canale
------------------------------------
Title: C.O.O.
-----------------------------------
COMMERCIAL LEASE AGREEMENT
MEPC QUORUM PROPERTIES II INC.,
as LANDLORD,
and
MANNATECH, INC.
as TENANT
pertaining to 74,476 square feet
in Freeport North Industrial Park [Phase III]
Coppell, Texas
COMMERCIAL LEASE AGREEMENT
THIS COMMERCIAL LEASE AGREEMENT (this LEASE) is made and entered into by
and between MEPC QUORUM PROPERTIES II INC., a Delaware corporation (LANDLORD),
and MANNATECH, INC., a Texas corporation (TENANT).
1. PREMISES/LEASE TERM. In consideration of the mutual obligations of
Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant
hereby takes from Landlord, approximately 74,476 square feet (the PREMISES) in
the Building (hereinafter defined) to be constructed by Landlord on an
approximate 27.8 acre tract of land located in the Freeport North Industrial
Park, City of Coppell, Dallas County, Texas, as more particularly described on
EXHIBIT "A" attached hereto and incorporated herein by reference (the LAND)
and illustrated and illustrated on the Site Plan (herein so called) attached
hereto as EXHIBIT "C" and incorporated herein by reference, together with the
non-exclusive use of all rights, privileges, easements, appurtenances, and
amenities belonging to or in any way pertaining to the Project (hereinafter
defined) for a term (the LEASE TERM or the TERM OF THIS LEASE) beginning on
the Commencement Date (hereinafter defined) and ending at 11:59 p.m. on the
last day of the month that is one hundred twenty (120) complete calendar
months after the Rent Commencement Date (hereinafter defined). If the Rent
Commencement Date occurs on the first day of a calendar month, then the month
in which the Rent Commencement Date occurs shall be the first complete
calendar month after the occurrence of the Rent Commencement Date for purposes
of determining such one hundred twenty (120) complete calendar month period.
That portion of the Land upon which the Building (and its appurtenances) are
constructed, the Building (including the Premises comprising a part thereof)
and any other improvements constructed by or on behalf of Landlord on such
portion of the Land are collectively referred to herein as the PROJECT. The
Project is further described by illustration on the Site Plan.
2. IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD.
A. BUILDING. Landlord agrees to construct on the Land an
approximate 297,902 square foot warehouse building structure (the BUILDING)
containing the features generally described on EXHIBIT "B" attached hereto and
incorporated herein by reference and generally situated as shown on the Site
Plan (herein so called) attached hereto as EXHIBIT "C" and incorporated herein
by reference. Landlord agrees to construct the Building in a good and
workmanlike manner.
B. CONSTRUCTION COSTS. Subject to the terms of this paragraph,
Landlord will pay all costs of constructing the Building and any other
improvements described on EXHIBIT "B". Notwithstanding the preceding sentence,
Tenant shall be responsible for the following:
(1) If Landlord performs, at Tenant's request, any work over
and above the work generally described on EXHIBIT "B" (herein, the
ADDITIONAL WORK), the Additional Work together with the cost of preparing
plans and specifications for same will be at Tenant's expense. Landlord
will not be obligated to perform any such Additional Work until Tenant
pays Landlord ten percent (10%) of the estimated cost of the Additional
Work, as estimated by Landlord, with the actual cost of the Additional
Work, less the initial payment by Tenant, being due within ten (10) days
after substantial completion of the Additional Work.
(2) All costs or expenses incurred or suffered by Landlord that
are caused by Tenant Delays. A TENANT DELAY(S) shall mean any delay in
the completion of the Building or any delay in the occurrence of the
Commencement Date caused by a Tenant Party, any delay resulting from the
installation by Tenant or any Tenant Party of any property or equipment
of Tenant in or on the Premises prior to the Commencement Date, any delay
resulting from any request by Tenant for any change or modification to
the plans and specifications for the Building, any delay caused by any
Additional Work requested by Tenant, and any delay due to interference by
Tenant or any Tenant Party with Landlord's engineers, consultants,
contractors or otherwise. As used in this Lease, a TENANT PARTY shall
mean one or more of Tenant, its agents, employees, officers, partners or
contractors.
COMMERCIAL LEASE AGREEMENT PAGE 1
3. COMMENCEMENT DATE/ACCEPTANCE OF PREMISES.
A. COMMENCEMENT DATE. The COMMENCEMENT DATE shall be the date upon
which Landlord's architect reasonably determines that construction of the
Building shell has progressed to a point sufficient to allow Tenant to enter
the Premises and perform any finish work Tenant requires in the Premises (such
to be subject to Paragraph 6 below), provided that this date shall be adjusted
backward (I.E., to an earlier date) by one (1) day for each day that a Tenant
Delay exists. Subject to Tenant Delays and Force Majeure, Landlord agrees to
use reasonable efforts to cause the Commencement Date to occur by October 13,
1997. Tenant's entry into the Premises for purposes of commencing such finish
work shall constitute Tenant's acknowledgement that (i) it has inspected and
accepts the Building and the Project, (ii) the Premises is suitable for the
purpose for which it is leased, subject to completion by Tenant of any finish
work Tenant requires, (iii) the Building and the Project are in good and
satisfactory condition, and (iv) no representations as to the repair of the
Premises or the Project, nor promises to alter, remodel or improve the
Premises or the Project which have been made by Landlord remain unsatisfied.
Upon determination of the actual Commencement Date and Tenant's entry into the
Premises, Tenant agrees to execute an Acceptance of Premises Memorandum in the
form attached hereto and made a part hereof as EXHIBIT "E"; provided, however,
that Tenant's failure to execute the Acceptance of Premises Memorandum will
not delay the occurrence of the Commencement Date.
4. RENT.
A. BASE MONTHLY RENT. Tenant agrees to pay to Landlord rent for
the Premises, in advance, as follows (BASE MONTHLY RENT):
- Beginning on the Rent Commencement Date and continuing through the
last day of the sixtieth (60th) complete calendar month after the
month in which the Rent Commencement Date occurs, $20,170.58 per month
($242,046.96 on an annualized basis); and
- Beginning on the first day of the sixty-first (61st) calendar month
after the month in which the Rent Commencement Date occurs, and
continuing through the remainder of the Lease Term, $23,273.75 per
month ($279,285 on an annualized basis).
B. ADDITIONAL RENT. Tenant agrees to reimburse Landlord for
Tenant's Proportionate Share (hereinafter defined) of (i) Real Property Taxes
(hereinafter defined), (ii) Landlord's actual cost of obtaining and
maintaining Landlord's Insurance (hereinafter defined), and (iii) the actual
cost of any maintenance performed by Landlord under Paragraph 12A(2) below or
which, in Landlord's reasonable discretion, is for the benefit of the Project
as a whole and not reasonably allocable to any specific tenant or tenants
(collectively, the ADJUSTMENTS). During each month of the term of this Lease,
on the same day that Base Monthly Rent is due hereunder, Tenant shall pay to
Landlord as additional Rent an amount equal to 1/12 of Tenant's Proportionate
Share of the estimated total annual cost of the Adjustments, as determined by
Landlord. Tenant authorizes Landlord to use such funds to pay such costs. The
initial monthly payments of Adjustments are based upon Landlord's good faith
estimates for the current Lease Year (hereinafter defined) and shall be
increased or decreased each Lease Year to reflect the projected actual cost of
all Adjustments. If Tenant's total payments are less than Tenant's
Proportionate Share of the actual costs of all such items, Tenant shall pay
the difference to Landlord within ten (10) days after demand. If the total
payments of Tenant are more than Tenant's Proportionate Share of the actual
costs of all such items, Landlord shall notify Tenant of such and retain such
excess and credit it against Tenant's next. monthly estimated payments of
Adjustments. The amount of the Base Monthly Rent and the estimated monthly
payments (based upon a complete calendar month) of Tenant's Proportionate
Share of the Adjustments for the Lease Year in which the date of this Lease
occurs are as follows:
(1) Base Monthly Rent $20,170.58
(2) Real Property Taxes $ 3,723.80
(3) Insurance $ 310.32
(4) Maintenance $ 620.63
----------
Initial Monthly Payment Total $24,825.33
----------
----------
COMMERCIAL LEASE AGREEMENT PAGE 2
TENANT'S PROPORTIONATE SHARE, as used in this Lease, shall mean a
fraction, the numerator of which is the number of square feet of rentable area
contained in the Premises and the denominator of which is the entire number of
square feet of rentable area contained in the Building (as to costs which do
not materially vary based on the occupancy of the Building) or is the entire
rented area contained in the Building (as to costs which do materially vary
based on the occupancy of the Building). If the Project is part of a larger
development constructed by Landlord on the Land (the DEVELOPMENT) and the
Building and one or more other buildings on parts of the Development other
than the Project share the benefit of or may properly be allocated a portion
of any expense, Landlord shall reasonably allocate any such expense among the
Building and such other building(s) prior to applying Tenant's Proportionate
Share to such expense.
C. PAYMENT OF RENT. Base Monthly Rent and Adjustments shall be due
and payable, in advance, beginning on that date which is ninety (90) days
after the Commencement Date (the RENT COMMENCEMENT DATE); provided that one
(1) full installment of Base Monthly Rent and Adjustments totalling $24,825.33
is due and payable on the date of this Lease, such to be applied to the first
installment of Base Monthly Rent and Adjustments due on the Rent Commencement
Date and thereafter applied to Base Monthly Rent and Adjustments until fully
applied. Any installment of Base Monthly Rent or Adjustments due for any
fractional calendar month shall be prorated based upon the actual number of
days in that month. If the Rent Commencement Date occurs on the first day of a
calendar month, then the month in which the Rent Commencement Date occurs
shall be the first complete calendar month after the occurrence of the Rent
Commencement Date for purposes of determining the date upon which Base Monthly
Rent adjusts. As used in this Lease, RENT shall mean the Base Monthly Rent and
all other amounts provided for in this Lease to be paid by Tenant to Landlord,
all of which shall constitute rental in consideration for this Lease and the
leasing of the Premises. All Rent (hereinafter defined) shall be paid at the
times and in the amounts provided for herein in legal tender of the United
States of America to Landlord at the address specified in Paragraph 32 hereof
or to such other person or at such other address as Landlord may from time to
time designate in writing. Rent shall be paid without notice, demand,
abatement, deduction or offset (unless expressly provided for elsewhere in
this Lease) and shall be a covenant of Tenant independent of any obligation of
Landlord under this Lease. Tenant's obligation to pay any installment of Rent
shall not be deemed satisfied until such installment of Rent has actually been
received by Landlord.
D. AUDIT OF ADJUSTMENTS. Within ninety (90) days after the end of
each Lease Year, Landlord will provide to Tenant a statement of Adjustments
paid by Landlord for the just ended Lease Year. Tenant may at any time within
thirty (30) days after its receipt of Landlord's statement, but in any event
upon ten (10) days advance written notice to Landlord, audit, inspect and copy
the books and records of Landlord with respect to the Adjustments and make any
written objections Tenant may have to Landlord's determination of same.
Landlord shall cooperate with Tenant in providing Tenant reasonable access to
its books and records during normal business hours for this purpose. If the
results of any inspection or audit show an overcharge to Tenant of more than
five percent (5%) of the actual amount of Adjustments owed by Tenant, then
Landlord shall pay the reasonable costs of such audit (assuming the audit is
performed by a third party unaffiliated with Tenant and not including the
travel, meal or incidental expenses of the auditor), and Landlord shall credit
or refund to Tenant any overcharge of such items as discovered by the
inspection or audit within thirty (30) days of completion of such inspection
or audit. In the event such audit discloses an overcharge to Tenant of up to
but no more than five percent, there will be no credit or refund to Tenant,
and Tenant will pay the cost of the audit. In the event such audit discloses
an undercharge of Adjustments billed to Tenant, Tenant shall pay Landlord the
amount of such undercharge within thirty (30) days of the completion of such
audit and the cost of the audit. In the event Landlord disputes the amount of
Adjustments or Tenant's Proportionate Share thereof, as determined by Tenant's
audit, Landlord shall have a period of thirty (30) days from its receipt of
Tenant's audit results to have its own independent auditor inspect Tenant's
audit and the books and records pertaining to the Adjustments and deliver the
results thereof to Tenant. Landlord's failure to conduct such an audit and
deliver the results thereof to Tenant within such thirty (30) day period shall
constitute acceptance by Landlord of the results of Tenant's audit. If
Landlord delivers Tenant Landlord's audit within such thirty (30) day period,
Tenant shall have thirty (30) days to review and object to the results
thereof. The results of Landlord's audit shall be conclusive and binding upon
Tenant unless Tenant objects in writing, such objections to be specific, to
such results within such thirty (30) day period.
E. LEASE YEAR. A LEASE YEAR shall mean a twelve (12) month period
commencing each January 1st and ending on the following December 31st;
provided, however, Landlord may from time to time (but no more often than once
every eighteen (18) months) change the twelve (12) month period designated as
a Lease Year by notice thereof to Tenant, in which event the obligations of
Tenant measured by Lease Years shall be prorated as appropriate during any
COMMERCIAL LEASE AGREEMENT PAGE 3
Lease Year of less than twelve (12) months based on the number of days in any
such Lease Year divided by 365; and provided, further, the first and last
Lease Years and all obligations of Tenant measured by such Lease Years, shall
be prorated as appropriate based upon the number of days in the applicable
Lease Year during the term of this Lease divided by 365.
F. INTEREST ON DELINQUENT RENT. Any Rent due from Tenant to
Landlord which is not paid when due shall bear interest from and after the
expiration of any applicable cure or grace period until paid at the lower of
(i) eighteen percent (18%) per annum or (ii) the highest rate from time to
time allowed by applicable law, from the date such payment is due until paid,
but the payment of such interest shall not excuse or cure the default. This
provision for default interest shall be in addition to all of Landlord's other
rights and remedies hereunder or at law or equity and shall not be construed
as liquidated damages or as limiting Landlord's remedies in any manner. Any
assessed default interest will be additional Rent owed hereunder.
5. COMPLIANCE WITH LAWS. Tenant shall comply with all Applicable Laws
in connection with Tenant's use and occupancy of the Premises and Tenant's
performance of its obligations under this Lease, all at Tenant's expense. As
used herein the term APPLICABLE LAWS means and includes any and all federal,
state and local laws, ordinances, orders, deed restrictions (specifically
including the Declaration of Protective Covenants dated May 18, 1995 and
recorded in Volume 95098, Page 924, ET SEQ. of the Official Public Records of
Real Property in Dallas County, Texas (as amended, modified, supplemented,
restated and assigned from time to time, the DECLARATION)), easements of
record, rules, and regulations of all governmental bodies (state, federal, and
municipal) applicable to or having jurisdiction over the use, occupancy,
operation and maintenance of the Project, including without limitation, the
Americans With Disabilities Act of 1990, as amended from time to time (ADA),
and Environmental Laws (hereinafter defined), as such may be amended or
modified from time to time. Notwithstanding the above, if any improvement,
modification or alteration of the Premises or the Project, or any portion
thereof, is required to bring same into compliance with the ADA, or any other
Applicable Laws, and (i) Tenant is not otherwise expressly responsible for
such improvement, modification or alteration under this Lease, (ii) the
necessity for such improvement, modification or alteration was not caused, in
whole or in part, by Tenant or any Tenant Party, and (iii) the necessity for
such improvement, modification or alteration was not due to the specific use
of the Premises by Tenant, then Landlord will undertake such improvement,
modification or alteration and the cost thereof will be charged back to (A)
Tenant to the extent that the improvement, modification or alteration affects
only or is totally within the Premises, and (B) all tenants of the Project,
including Tenant, to the extent that the improvement, modification or
alteration affects the Project as a whole and not any one tenant's particular
leased premises, with each tenant paying its Proportionate Share thereof. Such
costs will be charged over the useful life of the subject improvement,
modification or alteration, as determined under generally accepted accounting
principles, with the assumption that the only portion of such expense
chargeable for any one Lease Year will be a fraction of such expense, the
numerator of which is one and the denominator of which is the estimated useful
life of the improvement, modification or alteration.
6. ALTERATIONS AND IMPROVEMENTS BY TENANT.
A. CONDITIONS PRECEDENT TO ALL ALTERATIONS AND IMPROVEMENTS.
Except as expressly permitted by this Paragraph 6, or unless otherwise agreed
to in writing between Landlord and Tenant, Tenant may not make or permit any
alterations, improvements, or additions in or to the Premises or the Project
without Landlord's prior written consent. All alterations and improvements
desired by Tenant are subject to the following conditions/requirements:
(1) Subject to subparagraph 6B below, all alterations,
improvements and additions will be at the sole cost and expense of Tenant;
(2) All alterations, improvements and additions in and to the
Premises requested by Tenant must be made in accordance with plans and
specifications first approved in writing by Landlord;
(3) Tenant's contractors and subcontractors are subject to
Landlord's prior approval. In addition, each of Tenant's contractor(s) and
subcontractor(s) must deliver evidence satisfactory to Landlord that the
insurance specified on EXHIBIT "F" (attached hereto and incorporated herein
by reference) is in force prior to commencing work;
COMMERCIAL LEASE AGREEMENT PAGE 4
(4) All alterations, improvements and additions made by Tenant
must comply with all Applicable Laws including, specifically, the ADA,
and applicable building permits and certificates of occupancy. Landlord's
approval of Tenant's plans and specifications for the alterations or
improvements will not act as a confirmation or agreement by Landlord that
the improvements and alterations comply with Applicable Laws;
(5) Tenant must deliver to Landlord evidence that Tenant has
obtained all necessary governmental permits and approvals for the
improvements, alterations and additions prior to starting any work;
(6) All alterations, improvements and additions must be done
in a good and workmanlike manner so as not to damage or alter the primary
structure or structural qualities or the utility or other systems of the
Premises or the Building and is subject to approval by Landlord during
and after construction, in its sole discretion. Tenant agrees to meet
with Landlord's project manager, who for purposes of this Lease shall be
Rob Ahmuty until further notice, as deemed reasonably necessary by such
project manager during any construction by Tenant pursuant to this
Paragraph 6 so that Landlord can evaluate the progress of such work and
its impact on the remainder of the Project;
(7) Lien releases from each of Tenant's contractor(s) and
subcontractor(s) satisfactory to Landlord must be submitted to Landlord
within thirty (30) days after completion of the work performed by the
contractor(s) or subcontractor(s); and
(8) Tenant shall be solely responsible for the safety and
security of all equipment and property installed or placed in, on or
about the Premises by Tenant or any Tenant Party.
B. FINISH ALLOWANCE. Notwithstanding subparagraph 6A(1) above,
Landlord grants Tenant an allowance in the amount of $223,425 (the FINISH
ALLOWANCE) to be utilized by Tenant in performing alterations and improvements
to the Premises to "finish-out" the Premises. Any improvements or alterations
performed by Tenant and paid for out of the Finish Allowance, including
without limitation, any work related thereto such as design, engineering, and
construction management services, is referred to herein as the TENANT FINISH
WORK. Landlord will pay such invoices up to, but not in excess of, the Finish
Allowance conditioned upon:
(1) Tenant shall submit all invoices received in connection
with the Tenant Finish Work to Landlord for payment not less than fifteen
(15) days prior to the due date of such invoice. Landlord, at its option,
will not be obligated to pay any invoice not received by such date; and
(2) Landlord having reasonably satisfied itself that all
conditions/requirements set forth in subparagraph 6A above have been
satisfied; and
(3) Landlord having inspected and approved of the work for
which payment is sought, such approval not to be unreasonably withheld,
conditioned or delayed; and
(4) The Finish Allowance may not be used or allocated for any
materials or property, or for the labor incurred in constructing or
installing same, that would be characterized as Tenant's Property under
subparagraph 6C below, it being the intention of both parties hereto
that, without limiting subparagraph 6D below, all improvements and
alterations paid for with the Finish Allowance will in all events and
circumstances be Landlord's property.
Any decision to pay or not pay any invoice will be made within ten (10)
business days after receiving the subject invoice, provided, however, that
Landlord may further condition such approval upon the satisfaction of any of
the conditions/requirements of Paragraph 6A or this Paragraph 6B that may not
have been satisfied within such ten (10) day period (I.E., lien waivers).
Failure to disapprove of an invoice within such ten (10) day period shall
constitute approval thereof. All invoices will be paid within fifteen (15)
days after Landlord has approved the invoice and is satisfied that all
conditions and requirements set forth in Paragraph 6A and this Paragraph 6B
have been satisfied. All cost and expenses incurred by Tenant in making any
alterations or improvements to the Premises or the Project in excess of the
Finish Allowance will be Tenant's sole cost and expense. If the Finish
Allowance has not been fully utilized within one (1) year
COMMERCIAL LEASE AGREEMENT PAGE 5
after the Commencement Date, and provided that Tenant is not then in default
under this Lease, the remaining balance will be applied to Base Monthly Rent
and Adjustments until the Finish Allowance is exhausted. At the end of such
year, Landlord will provide Tenant with a written accounting of the balance,
if any, of the Finish Allowance.
C. TENANT'S PROPERTY. Tenant, at its own cost and expense, may
erect such shelves, racks, bins and trade fixtures (collectively, TENANT'S
PROPERTY) within the Premises as it desires and without Landlord's prior
consent provided that (a) such items do not alter the basic character of the
Premises or the Building; (b) such items do not overload or damage the
Premises or the Building or the utility or other systems serving same; (c)
such items may be removed without material injury to the Premises and the
Building; and (d) the construction, erection or installation thereof complies
with all Applicable Laws, applicable building permits and certificates of
occupancy; and (e) provided that Tenant's installation of Tenant's Property
prior to the Commencement Date will be subject to Paragraph 5B above. All of
Tenant's Property shall remain the property of Tenant and shall be removed on
or before the earlier to occur of the date of termination of this Lease or
Tenant's vacating of the Premises. Tenant shall promptly repair any damage to
the Project or the Premises caused by the removal of any of Tenant's Property.
Any of Tenant's Property not so removed and any other property of Tenant not
removed prior to the termination of this Lease or Tenant's vacating of the
Premises shall thereupon be conclusively presumed to have been abandoned by
Tenant, and Landlord may, at its option, take over possession of any and all
of the foregoing and either (i) declare the same to be the property of
Landlord by written notice to Tenant at the address provided herein or (ii) at
the sole cost and expense of Tenant, remove, store, and/or dispose of the same
or any part thereof, all at Tenant's cost, in any manner that Landlord shall
choose without incurring liability to Tenant or any other person.
D. LANDLORD'S PROPERTY/RESTORATION OF PREMISES BY TENANT. Except
as provided in Paragraph 6C above, all alterations, additions, and
improvements made to, or fixtures or other improvements placed in or on, the
Premises, whether temporary or permanent in character are a part of the
Premises and are the property of Landlord when they are made to or placed in
or on the Premises, without compensation to Tenant; provided that, at
Landlord's option, upon the termination of this Lease, Landlord may require
Tenant, at Tenant's cost, to remove any improvements, other than the Tenant
Finish Work, made to the Premises or Project by Tenant and restore the
Premises to substantially the condition it was in upon the completion of the
Tenant Finish Work, reasonable wear and tear excepted; and further provided
that, if Tenant first properly requested and Landlord gave its consent to such
improvements, Landlord must make such election at the time of giving such
consent.
E. INDEMNITY. Tenant hereby indemnifies and holds Landlord
harmless from any claims, demands, actions, losses, and damages arising from
activities of Tenant or any Tenant Party, or any of their invitees, in
connection with any alterations, improvements or additions made or contracted
for by Tenant.
7. USE. Subject to Applicable Laws, the Premises shall be used only for
the purpose of general office, manufacturing, receiving, storing, shipping and
selling (other than retail) products, materials and merchandise made and/or
distributed by Tenant, and for such other lawful purposes as may be incidental
thereto. Provided that such use is permitted by Applicable Laws, any
manufacturing performed by Tenant at the Premises shall be limited to the
manufacture and/or assembly of pharmaceutical, diet supplement and/or other
human health related products. Outside storage, including without limitation,
storage of trucks and other vehicles, is prohibited without Landlord's prior
written consent. Tenant shall not permit any objectionable or unpleasant
odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor
take any other action that would constitute a health or environmental hazard
or nuisance or that would disturb, interfere with, or endanger Landlord or the
occupant of any other land or buildings in the vicinity of the Project or any
other tenant of the Project. Tenant's use of the Premises must in any event
comply with all Applicable Laws including, without limitation, the Declaration
and Applicable Laws. TENANT SHALL MAKE ITS OWN DETERMINATIONS AS TO THE
SUITABILITY OF THE PREMISES FOR ITS INTENDED USE. BY ENTERING INTO THIS LEASE,
TENANT REPRESENTS AND WARRANTS THAT IT HAS INVESTIGATED AND SATISFIED ITSELF
AS TO WHETHER OR NOT APPLICABLE LAWS PERMIT ITS INTENDED USE OF THE PREMISES
AND THAT TENANT IS RELYING SOLELY UPON SUCH INVESTIGATIONS, AND NOT UPON AND
REPRESENTATIONS OF LANDLORD, IN ENTERING INTO THIS LEASE. If Tenant's
particular use of the Premises requires that additional improvements or
modifications be made to the Premises or the Project by Landlord so that the
Premises and the Project complies in all respects with Applicable Laws, Tenant
shall be solely responsible for such costs.
COMMERCIAL LEASE AGREEMENT PAGE 6
8. HAZARDOUS MATERIALS.
A. HAZARDOUS MATERIALS DEFINED. As used in this Lease, the term
HAZARDOUS MATERIALS means and includes (i) any hazardous, toxic or dangerous
waste, substance or material, as defined for purposes of the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, or any other
Applicable Laws applicable to the Premises and establishing liability,
standards, or regulating or requiring action as to the industrial hygiene,
use, generation, treatment, discharge, spillage, storage, uncontrolled loss,
seepage, filtration, disposal, removal, or existence of a hazardous, toxic or
dangerous waste, substance or material (collectively, ENVIRONMENTAL LAWS) and
(ii) any waste, substance or material which, even if not so regulated, is
known to pose a hazard to the health and safety of persons or property,
specifically including, without limitation, oil and petroleum products and
by-products and asbestos.
B. PROHIBITION OF HAZARDOUS MATERIALS/TENANT'S LIABILITY. Except
for Hazardous Materials that are used only as an incidental part of Tenant's
day-to-day business operations and not as an integral part thereof (E.G., fuel
for forklifts and similar equipment, office supplies, cleaning solvents),
Tenant may not use, treat, handle, store, generate, dispose of or release or
cause or permit any Tenant Party, or any of their invitees, to use, handle,
store, generate, treat, dispose of or release, in, on, under or from the
Premises or the Project any Hazardous Materials. Without limiting any of the
above:
(1) Tenant covenants and agrees that it shall at its own
expense procure, maintain in effect and comply with all conditions of any
and all permits, licenses and other governmental and regulatory approvals
required for Tenant's use of the Premises and any operations or conduct
of Tenant involving the use, handling, generation, treatment, storage,
disposal, management or release of any Hazardous Materials. Tenant shall
cause any and all Hazardous Materials that are to be removed from the
Premises to be transported solely by duly licensed haulers and to duly
licensed facilities for final disposal of such Hazardous Materials.
Tenant shall in all respects, handle, treat, deal with and manage any
and all Hazardous Materials in, on, under or about the Premises as a
result of the actions, conduct or any part of the business operations of
Tenant or any Tenant Party, or any of their invitees, in complete
conformity with all Applicable Laws and prudent industry practices
regarding the management of such Hazardous Materials. All reporting
obligations relating to Hazardous Materials in, on, under or about the
Premises as a result of the actions, conduct or any part of the business
operations of Tenant or any Tenant Party, or any of their invitees, are
solely the responsibility of Tenant. Upon expiration or earlier
termination of this Lease, Tenant covenants and agrees to cause all
Hazardous Materials existing in, on, or under the Premises to be removed
from the Premises and transported for use, storage or disposal in
accordance and in compliance with all Applicable Laws. In addition, and
unless Landlord instructs Tenant otherwise, at the expiration of the term
of this Lease, Tenant shall remove all tanks or fixtures which were
placed on the Premises by or on behalf of Tenant or any Tenant Party
during the term of this Lease and which contain, have contained or are
contaminated with, Hazardous Materials;
(2) Tenant shall immediately notify Landlord in writing
of (i) any Tenant Release (hereinafter defined), (ii) any enforcement,
clean-up, removal or other governmental or regulatory action instituted,
completed or threatened against Tenant, the Premises, the Project, or any
part thereof pursuant to any Applicable Laws; (iii) any claim made or
threatened by any person against Tenant, Landlord, the Premises, or the
Project relating to damage, contribution, cost recovery, compensation,
loss or injury resulting from or claimed to result from any Hazardous
Materials, and (iv) any reports made to any environmental agency arising
out of or in connection with any Hazardous Materials in, on or about or
under the Premises or with respect to any Hazardous Materials removed
from the Premises, including, any complaints, notices, warnings, reports
or asserted violations in connection therewith. Tenant shall also provide
to Landlord, as promptly, as possible, and in any event within five (5)
business days after Tenant first received or sent the same, with copies
of all claims, reports, complaints, notices, warnings or asserted
violations relating in any way to the Premises or Tenant's use thereof.
Tenant shall not take any remedial action in response to the presence of
any Hazardous Materials in/on, about or under the Premises, nor enter
into any settlement agreement, consent, decree or other compromise in
respect to any claims relating to or in any way connected with the
Premises without first notifying Landlord of Tenant's intention to do so
and affording Landlord ample opportunity to appear, intervene or
otherwise appropriately assert and protect Landlord's interest with
respect thereto;
COMMERCIAL LEASE AGREEMENT PAGE 7
(3) Tenant shall indemnify, at Landlord's option, defend
(with counsel reasonably acceptable to Landlord), protect and hold
Landlord and each of Landlord's officers, directors, partners, employees,
agents, attorneys, successors and assigns free and harmless from and
against any and all claims, liabilities, damages, costs, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death or
injury to any person or damage to any property whatsoever (including
water tables and atmosphere) arising or resulting in whole or in part,
directly or indirectly, from the presence, release or discharge of
Hazardous Materials in, on, under, upon or from the Premises to the
extent that such presence, release or discharge was caused or permitted
by Tenant or any Tenant Party, or any of their invitees, or from the
transportation or disposal of Hazardous Materials to or from the Premises
or the Project by Tenant or any Tenant Party, or any of their invitees
(herein, a TENANT RELEASE). Tenant's obligations hereunder shall
include, without limitation, and whether foreseeable or unforeseeable,
all costs of any required or necessary repairs, clean-up or
detoxification or decontamination of the Premises or the Project and any
other land contaminated or adversely effected by the Tenant Release and
the presence and implementation of any closure, remedial action or other
required plans in connection therewith, and shall survive the expiration
of or early termination of this Lease;
(4) Landlord may at any time commission an environmental
audit of the Premises or the Project. If it is determined that a Tenant
Release has in fact occurred, then, without limitation of any other remedy
Landlord may have hereunder, Tenant shall reimburse the actual costs of the
testing to Landlord on demand as additional Rent.
(5) Tenant shall execute affidavits, representations, and
the like from time to time at Landlord's request concerning Tenant's
actual knowledge and belief regarding the presence of Hazardous Materials
in, on or under the Premises.
C. ENVIRONMENTAL STUDIES. Landlord represents that, except as set
forth in any written studies or reports provided to Tenant, Landlord has no
actual knowledge of any adverse environmental conditions affecting the Land;
provided. however, that Landlord makes no representations or warranties
regarding the truth or accuracy of the environmental reports so provided and
Tenant shall rely upon such reports, if at all, at Tenant's sole risk.
D. SURVIVAL. The respective covenants, rights and obligations of
Landlord and Tenant under this Paragraph 8 shall survive the expiration or
earlier termination of this Lease.
9. SIGNAGE. Any signage Tenant desires for the Premises shall be
subject to Landlord's written approval and shall be submitted to Landlord for
approval prior to the Commencement Date of this Lease. Tenant shall repair,
paint and/or replace the building facia surface to which its signs are
attached upon vacation of the Premises, or the removal or alteration of its
signage. Tenant shall not (i) make any changes to the exterior of the
Building, (ii) install any exterior lights, decorations, balloons, flags,
pennants, banners or painting, or (iii) erect or install any signs, windows or
door lettering, placards, decorations or advertising media of any type which
can be viewed from the exterior of the Building, without Landlord's prior
written consent. All signs, decorations, advertising media, blinds, draperies
and other window treatment or bars or other security installations visible
from outside the Building shall conform in all respects to the criteria
established by Landlord and Applicable Laws.
10. TAXES.
A. REAL PROPERTY TAXES. Subject to reimbursement by Tenant as
provided in Paragraph 4B above, Landlord shall pay all taxes, assessments and
governmental charges of any kind and nature and all assessments due to deed
restrictions and/or owner or community associations (collectively referred to
herein as REAL PROPERTY TAXES), that accrue against the Project, or any part
thereof. If at any time during the term of this Lease, there shall be levied,
assessed or unposed on Landlord a capital levy or other tax directly on the
Rent received under this Lease and/or a franchise tax, gross receipts tax (but
not a typical or customary state or federal income tax), assessment, levy or
charge measured by or based, in whole or in part, upon Rent paid under this
Lease, then all such taxes, assessments, levies or charges, or the part
thereof so measured or based, shall be deemed to be included within the term
REAL PROPERTY TAXES for the purposes hereof. Landlord shall have the right to
employ a tax consulting firm to attempt to assure a fair tax burden on the
Project and the Premises within the applicable taxing jurisdiction. Tenant
agrees to pay its Proportionate
COMMERCIAL LEASE AGREEMENT PAGE 8
Share of the cost of such consultant as additional Rent.
B. PERSONAL PROPERTY TAXES. Tenant shall be liable for all taxes
levied or assessed against Tenant's Property and any other personal property
or fixtures placed or installed in the Premises or the Project by or on behalf
of Tenant. If any such taxes are levied or assessed against Landlord or
Landlord's property and (i) Landlord pays the same, or (ii) the assessed value
of Landlord's property is increased by inclusion of such personal property and
fixtures and Landlord pays the increased taxes, then, Tenant shall pay to
Landlord such taxes within ten (10) days after demand. If Tenant later
contests such taxes and is successful in abating or reducing all or a portion
of same, and provided that Tenant has, in fact, reimbursed Landlord for the
taxes paid by Landlord, Landlord will return to Tenant the amount by which
such taxes were reduced or abated, up to the amount Tenant reimbursed Landlord.
11. UTILITIES. Landlord agrees to provide water, sewer and gas utility
lines to the outside of the exterior walls of the Building and electricity
service to be provided to a transformer located at the Project. Tenant shall
pay for all utilities servicing the Premises, including, without limitation
water, gas, heat, light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or at the Premises, together with any taxes,
penalties, surcharges or the like pertaining to the Tenant's use of the
Premises, and any maintenance charges for utilities. Tenant shall pay its
Proportionate Share of all charges for jointly metered and common area
utilities as additional Rent. Landlord shall not be liable for any
interruption or failure of utility service at the Premises and all Rent owed
pursuant to the terms of this Lease shall continue to be due notwithstanding
such interruption.
12. REPAIRS AND MAINTENANCE.
A. LANDLORD'S OBLIGATION TO REPAIR AND MAINTAIN.
(1) Landlord, at its own cost and expense, shall maintain
the structural soundness of the Building's roof, foundation and exterior
walls in good repair, except for reasonable wear and tear and except for
damage caused by any act or omission of Tenant or any Tenant Party or
their invitees. Landlord may elect to repair any damage caused by Tenant
or any Tenant Party or their invitees, and if Landlord so elects, Tenant
shall pay Landlord the cost or anticipated cost of such repair on demand,
subject to Paragraph 13C hereof. The term WALLS as used herein shall not
include windows, glass or plate glass, doors, special store fronts or
office entries. Tenant shall promptly give Landlord written notice of any
defect or need for repairs, after which Landlord shall have reasonable
opportunity to repair same or cure such defect.
(2) Landlord shall maintain or cause to be maintained all
exterior painting, parking areas (inclusive of striping) and landscaped
areas of the Project and utility lines outside the exterior walls of the
Building in good condition and repair, other than those areas that are
expressly Tenant's obligations under Paragraph 12B below. Tenant shall
reimburse Landlord for Tenant's Proportionate Share of any costs incurred
by Landlord under this paragraph, net of the Adjustments being escrowed
monthly for maintenance under Paragraph 4B above. Notwithstanding any of
the above, if it is determined that any specific repair or maintenance
otherwise required to be performed by Landlord under this subparagraph is
caused solely by Tenant, any Tenant Party or any of their invitees,
Tenant shall be solely responsible for the cost of such repair or
maintenance and such shall be paid to Landlord outside of and in addition
to the Adjustments. All such amounts payable under this subparagraph
shall be owed to Landlord as additional Rent.
(3) In the event the Building or the Premises is damaged
or becomes out of repair and such is the obligation of Landlord to repair
or maintain hereunder, Tenant shall provided prompt written notice to
Landlord thereof stating the nature of the needed repairs. Landlord will
then have thirty (30) days to make any necessary repairs or such longer
time as is reasonably necessary with the exercise of due diligence if
such repairs cannot reasonably be completed in thirty (30) days.
Additionally, in the event of an emergency, defined for purposes of this
subparagraph as a condition that if allowed to continue to exist without
repair would result in damage, injury or death to property or person, and
assuming that it is not reasonably feasible for Tenant to give the
required notice to Landlord, then Tenant may make such repairs as are
reasonably necessary to prevent further immediate damage or injury to
person or property; provided that Tenant gives Landlord prompt written
notice of the nature of the emergency and the action taken by Tenant. In
such event, Landlord shall reimburse
COMMERCIAL LEASE AGREEMENT PAGE 9
Tenant within thirty (30) days of invoice for the actual costs of such
repairs made by Tenant.
B. TENANT'S OBLIGATION TO REPAIR AND MAINTAIN. Except only for
maintenance, repair and replacement performed by Landlord pursuant to
Paragraph 12A hereof, Tenant, at its own cost and expense, shall maintain in
good condition and promptly make all necessary repairs and replacements to
(i) all parts of the Premises, (ii) all utility lines and appurtenances from
the exterior walls of the Building to and within the Premises, and (iii) any
and all overhead doors, loading docks, loading dock levelers and loading
dock equipment. Additionally, Tenant shall maintain the walkways, parking
areas and facilities, driveways and alleys located within the Adjacent Area,
as illustrated on EXHIBIT "C" attached hereto, in a reasonably clean and
sanitary condition. Tenant, at its own cost and expense, shall enter into a
regularly scheduled preventive maintenance/service contract with a
maintenance contractor approved by Landlord for servicing all hot water,
heating and air conditioning systems and equipment within the Premises; which
service contract must include all services suggested by the equipment
manufacturer in its operations/maintenance manual and must become effective
within thirty (30) days of the date Tenant takes possession of the Premises.
Landlord reserves the right to perform any of Tenant's obligations set
forth under this paragraph including utility line maintenance and any other
items that are otherwise Tenant's obligations under this paragraph to the
extent that Tenant fails to perform its obligations thereunder within the
time frames set forth in Paragraph 18F. In such event, Landlord shall be
entitled to an administrative fee of ten percent (10%) of the costs and
expense of all of the foregoing, and Tenant shall be liable for the cost and
expense of such repair, replacement, maintenance and other such items, as
well as the administrative fee.
13. INSURANCE.
A. LANDLORD'S INSURANCE. Landlord shall maintain insurance
covering the Building (except that Landlord shall not be required to insure
any part of the partitions, fixtures, additions and other improvements that
may have been constructed, erected or installed in or about the Premises or
for the benefit of, or by or for Tenant, including, without limitation, the
Tenant Finish Work) in an amount not less than one hundred percent (100%) of
the replacement cost thereof insuring against the perils of Fire, Lightning,
Extended Coverage, Vandalism and Malicious Mischief (collectively, LANDLORD'S
INSURANCE).
B. TENANT'S INSURANCE. Tenant, at its own expense, shall maintain
during the term of this Lease a policy or policies of worker's compensation
(or its equivalent provided such is approved by Landlord, such not to be
unreasonably withheld) and commercial general liability insurance, including
personal injury and property damage, with contractual liability endorsement,
in the amount of Five Hundred Thousand Dollars ($500,000.00) for property
damages and One Million Dollars ($1,000,000.00) per occurrence for personal
injuries or deaths of persons occurring in or about the Premises and the
Project; provided, such limits may be adjusted upward in Landlord's
reasonable discretion based upon inflation or upon the type of business
conducted by Tenant in the Premises. Said policies shall (i) name Landlord as
an additional insured and insure Landlord's contingent liability under this
Lease (except for the worker's compensation policy, which instead shall
include waiver of subrogation endorsement in favor of Landlord), (ii) be
issued on an occurrence (not claims made) basis, (iii) be issued by an
insurance company which is acceptable to Landlord, and (iv) provide that said
insurance shall not be cancelled unless thirty (30) days prior written notice
shall have been given to Landlord. In addition to the above, Tenant shall
maintain insurance insuring the interest of Tenant and covering all of
Tenant's property and all partitions, fixtures, additions and other
improvements that may have been constructed, erected or installed in or about
the Premises or for the benefit of, or by or for Tenant, inclusive of the
Tenant Finish Work, and covering all contents of the Premises, in an amount
not less than one hundred percent (100%) of the replacement cost thereof
insuring against the perils of Fire, Lightning, Extended Coverage, Vandalism
and Malicious Mischief. Said policy or policies or certificates thereof shall
be delivered to Landlord by Tenant upon commencement of the term of the Lease
and at least thirty (30) days prior to the effective date of each renewal of
said insurance.
Tenant will not permit the Premises to be used for any purpose or in any
manner that would (i) void the insurance thereon, (ii) increase the insurance
risk, or (iii) cause the disallowance of any sprinkler credits, including
without limitation, use of the Premises for the receipt, storage or handling
of any product, material or merchandise that is explosive or highly
inflammable. If any increase in the cost of any insurance on the Premises or
the Building is caused by Tenant's use of the Premises, or because Tenant
vacates the Premises, then Tenant shall pay the amount of such
COMMERCIAL LEASE AGREEMENT PAGE 10
increase to Landlord upon demand.
C. WAIVER OF SUBROGATION. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS LEASE, LANDLORD AND TENANT HEREBY WAIVE ANY RIGHTS EACH MAY HAVE AGAINST
THE OTHER ON ACCOUNT OF ANY LOSS OR DAMAGE OCCASIONED TO LANDLORD OR TENANT,
AS THE CASE MAY BE (WHETHER OR NOT SUCH LOSS OR DAMAGE IS CAUSED BY THE FAULT
OR SOLE OR CONCURRENT NEGLIGENCE OF, WITH RESPECT TO LOSS OR DAMAGE TO THE
PROPERTY OF TENANT, LANDLORD OR ANY LANDLORD PARTY, OR, WITH RESPECT TO ANY
LOSS OF DAMAGE TO ANY PROPERTY OF LANDLORD, OF TENANT, ANY TENANT PARTY OR
ANY OF THEIR INVITEES), TO THEIR RESPECTIVE PROPERTY, THE PREMISES, ITS
CONTENTS OR TO ANY OTHER PORTION OF THE BUILDING OR THE PROJECT ARISING FROM
ANY RISK THAT WOULD BE COVERED BY ANY INSURANCE REQUIRED TO BE CARRIED UNDER
THIS LEASE (WHETHER OR SUCH INSURANCE IS ACTUALLY CARRIED OR MAINTAINED), OR
OTHERWISE CARRIED BY THE WAIVING PARTY (BUT, AS TO ANY SUCH INSURANCE
OTHERWISE CARRIED, ONLY TO THE EXTENT OF SUCH INSURANCE PROCEEDS ACTUALLY
RECOVERED). THE PARTIES HERETO EACH, ON BEHALF OF THEIR RESPECTIVE INSURANCE
COMPANIES INSURING THE PROPERTY OF EITHER LANDLORD OR TENANT AGAINST ANY SUCH
LOSS, WAIVE ANY RIGHT OF SUBROGATION THAT IT MAY HAVE AGAINST LANDLORD OR
TENANT, AS THE CASE MAY BE. EACH PARTY TO THIS LEASE AGREES IMMEDIATELY TO
GIVE TO EACH SUCH INSURANCE COMPANY WRITTEN NOTIFICATION OF THE TERMS OF THE
MUTUAL WAIVERS CONTAINED IN THIS PARAGRAPH, AND TO HAVE SAID INSURANCE
POLICIES PROPERLY ENDORSED, IF NECESSARY, TO PREVENT THE INVALIDATION OF SAID
INSURANCE COVERAGES BY REASON OF SAID WAIVERS.
14. LIABILITY/INDEMNIFICATION.
A. LANDLORD'S LIABILITY AND INDEMNITY.
(1) RELEASE FROM LIABILITY. Except as otherwise
expressly provided in this Lease, neither Landlord nor any Landlord
Party (hereinafter defined) will be liable to Tenant or any Tenant Party
or any of their invitees for any death or injury to person or damage to
property on or about the Premises or the Project caused by or arising
out of, in whole or in part, (i) the negligence of, or act or omission
of, Tenant or any Tenant Party or any of their invitees, (ii) the
Premises or the Project becoming out of repair, (iii) the leakage of
gas, oil, water or steam or by electricity emanating from any part of
the Premises or the Project, or (iv) any other cause, unless and then
only to the extent such death or injury to person or damage to property
is due to the negligence or willful misconduct of Landlord or any
Landlord Party. As used in this Paragraph 14, a LANDLORD PARTY shall
mean one or more of Landlord's officers, partners, shareholders,
employees, agents or contractors.
(2) LANDLORD'S INDEMNITY OF TENANT. Except for any
claims, rights of recovery and causes of action that Tenant has
expressly herein waived or released or for which Landlord is not
responsible hereunder, Landlord shall indemnify and hold Tenant and each
Tenant Party harmless from and against any and all fines, suits, losses,
costs, liabilities, claims, demands, actions and judgments of every kind
and character, including reasonable court costs and attorneys fees,
suffered by, recovered from, or asserted against Tenant or any Tenant
Party for any injury or death to any person or damage to any property
in, on, or about the Premises or the Project to the extent, and only to
the extent, that such death or injury to person or damage to property is
caused by the negligence or willful misconduct of Landlord or any
Landlord Party. Upon the occurrence of an event which Landlord is
required to indemnify Tenant against, and upon demand by Tenant,
Landlord shall employ counsel reasonably acceptable to Tenant and defend
Tenant against any liability for such event, all at Landlord's cost.
B. TENANT'S INDEMNITY. Except for any claims, rights of recovery
and causes of action that Landlord has expressly herein waived or released or
for which Tenant is not responsible hereunder, Tenant shall indemnify and
hold Landlord and each Landlord Party harmless from and against any and all
fines, suits, losses, costs, liabilities, claims, demands, actions and
judgments of every kind and character, including reasonable court costs and
attorneys fees, suffered by, recovered from, or asserted against Landlord or
any Landlord Party (i) arising by reason of any breach, violation or
COMMERCIAL LEASE AGREEMENT PAGE 11
non-performance by Tenant of any term, provision, covenant, condition or
agreement to be performed or abided by Tenant hereunder, (ii) arising on
account of death, injury or damage to person or property in, on, or about the
Premises or the Project when such death, injury or damage is caused or arises
out of the negligence or willful misconduct of Tenant, any Tenant Party or
any of their invitees, and (iii) with respect to any action brought by a
Tenant Party or any invitee of Tenant or any Tenant Party, arising out of any
matter for which neither Landlord nor any Landlord Party is liable or
responsible hereunder. Upon the occurrence of an event which Tenant is
required to indemnify Landlord or a Landlord Party against, and upon demand
by Landlord, Tenant shall employ counsel reasonably acceptable to Landlord
and defend Landlord or such Landlord Party against any liability for such
event, all at Tenant's cost.
C. LIABILITY FOR ACTS OF TENANT AND LANDLORD PARTIES. The
individual(s) executing this Lease on behalf of Landlord or Tenant, as
applicable, are doing so in their representative capacity only, solely as a
representative of Landlord or Tenant, as applicable, and any liability to
Landlord or any Landlord Party or Tenant or any Tenant Party arising or
resulting hereunder based upon the actions of such individual(s) or any other
Landlord Party or Tenant Party, as applicable, shall merely be that of
Landlord (as to any Landlord Party) or Tenant (as to any Tenant Party) and
not such individual(s) or Landlord Party or Tenant Party.
D. SURVIVAL. The releases, indemnities and covenants of Landlord
and Tenant in this Paragraph 14 are in addition to, and not in limitation of,
any other indemnities made by Landlord or Tenant elsewhere in this Lease. The
provisions of this Section 14 shall survive the expiration or termination of
this Lease with respect to any claims or liability arising out of events
occurring prior to such expiration or termination.
15. CASUALTY.
A. TERMINATION OF LEASE. If the Premises should be damaged or
destroyed by fire or other peril, Tenant immediately shall give written
notice to Landlord. If: (i) the Building should be totally destroyed by any
peril not covered by the insurance to be provided by Landlord under Paragraph
13A above; or if (ii) the Premises should be so damaged thereby that, in
Landlord's estimation, rebuilding or repairs cannot be completed within one
hundred eighty (180) days after the date of such damage; or if (iii) the
Premises should be so damaged thereby that, in Landlord's estimation,
rebuilding or repairs of the portion thereof required to be insured by
Landlord can be substantially completed within one hundred eighty (180) days
after the date of such damage, but the insurance proceeds available to
Landlord will not, in Landlord's estimation, be sufficient to complete such
rebuilding or repairs (due to such insurance proceeds being applied to
mortgage debt or otherwise) and Landlord is either unable or unwilling to
advance sufficient funds to complete such rebuilding or repairs; then in any
of such events this Lease shall cease and terminate as if and to the extent
the effective date of such termination had been the date originally scheduled
for the expiration of the term of this Lease, and the Rent shall be abated
during the previously unexpired term of this Lease, effective upon the date
of the occurrence of such damage. Landlord's determinations under this
paragraph must be made in writing to Tenant within forty-five (45) days after
the subject casualty.
B. RESTORATION OF PREMISES BY LANDLORD. Subject to the provisions
of Section 15.A above, if the Premises should be damaged by any peril covered
by the insurance to be provided by Landlord under Paragraph 13A above, and in
Landlord's estimation, rebuilding or repairs of the portion thereof required
to be insured by Landlord can be substantially completed within one hundred
eighty (180) days after the date of such damage, this Lease shall not
terminate, and Landlord shall restore the Premises to substantially its
previous condition, except that Landlord shall not be required to rebuild,
repair or replace any part of the partitions, fixtures, additions and other
improvements that may have been constructed, erected or installed in, or
about the Premises or for the benefit of, or by or for Tenant. During any
period of rebuilding, repair and restoration, Landlord shall allow Tenant a
reasonable reduction in Rent based upon, among other things, the adverse
effect such casualty and restoration have on Tenant's business operations.
Subject to Force Majeure, if such repairs and rebuilding of the Premises have
not been substantially completed within one hundred eighty (180) days after
the date of such damage, Tenant, as Tenant's exclusive remedy, may give
Landlord notice of Tenant's intention to terminate the Lease effective as of
the date specified in such notice, which date shall be not less that thirty
(30) days after the notice. If the repairs and rebuilding have not been
substantially completed by the date specified in such notice, Tenant, as
Tenant's exclusive remedy, may immediately terminate this Lease by delivering
written notice of termination to Landlord, in which event the rights and
obligations hereunder shall cease and terminate as if and to the extent the
effective date of such termination had been the date originally scheduled for
the expiration of the term
COMMERCIAL LEASE AGREEMENT PAGE 12
of this Lease, and Rent shall be abated during the previously unexpired term
of this Lease, effective upon the date of the termination.
16. CONDEMNATION.
A. MATERIAL TAKING. If any portion of the Premises or the
Project is taken for any public or quasi-public use under governmental law,
ordinance or regulation, or by right of eminent domain, or by private
purchase in lieu thereof and the taking materially interferes with the use of
the Premises for the purpose for which they were leased to Tenant or causes
the Premises or the exclusive parking area designated for Tenant to be in
noncompliance with Applicable Laws, then within thirty (30) days after such
taking Landlord shall notify Tenant as to whether or not Landlord will
reconstitute the Premises or the Project such that the Premises or the
Project once again complies with Applicable Laws or replicate the Premises or
the Project to substantially the condition it was in prior to such taking, as
applicable, within one hundred eighty (180) days after such taking. If
Landlord notifies Tenant that it will not replicate or reconstitute the
Premises or the Project, as applicable, or otherwise fails to complete the
reconstitution or replication within one hundred eighty (180) days after such
taking, then this Lease shall terminate and the Rent shall be abated during
the unexpired portion of this Lease, effective as of the date of such taking.
If Landlord notifies Tenant that it will replicate or reconstitute the
Premises or the Project, as applicable, then this Lease shall not terminate
but Rent accruing after the date of such taking shall be reduced to such
extent as may be fair and reasonable under all of the circumstances (which
may include a abatement of all Rent), effective as of the date of such taking
until the Premises or the Project as applicable, is fully reconstituted or
replicated, at which time Rent will again adjust to the amounts set forth in
Paragraph 4.
B. OTHER TAKING. With respect to any taking not covered by
Paragraph 16A above, this Lease shall not terminate, but the Rent payable
hereunder during the unexpired portion of this Lease shall be reduced to such
extent as may be fair and reasonable under all of the circumstances,
effective as of the date of such taking.
C. CONDEMNATION PROCEEDS. All compensation awarded in connection
with or as a result of any eminent domain or condemnation proceedings shall
be the property of Landlord, and Tenant hereby assigns any interest in any
such award to Landlord; provided, however, Landlord shall have no interest in
any award made to Tenant for loss of business or goodwill or for the taking
of Tenant's fixtures and improvements, if a separate award for such items is
made to Tenant or reasonably allocable to Tenant for the taking of Tenant's
fixtures and improvements that Tenant would be permitted to remove upon
termination of this Lease.
17. ASSIGNMENT AND SUBLETTING.
A. PROHIBITION ON ASSIGNMENT AND SUBLETTING. Tenant shall not
have the right to assign, sublet, transfer or encumber this Lease, or any
interest therein, without the prior written consent of Landlord. Any
attempted assignment, subletting, transfer or encumbrance by Tenant in
violation of the terms and covenants of this paragraph shall be void. If
Tenant requests Landlord's consent to an assignment of this Lease or
subletting of all or a part of the Premises, it shall submit to Landlord, in
writing, the name of the proposed assignee or subtenant, the commencement
date of such assignment or subletting, the nature and character of the
business of the proposed assignee or subtenant and the proposed rates, terms
and other pertinent conditions of such assignment or subletting. Upon receipt
of a request for consent to an assignment or subletting, and unless such
request pertains to an assignment or sublease governed by Paragraph 17B
below, Landlord shall have the option (to be exercised within thirty (30)
days from the submission of Tenant's written request) to (i) cancel this
Lease (or the applicable portion thereof as to a partial subletting) as of
the commencement date stated in the above-mentioned notice of subletting or
assignment, unless Tenant withdraws the proposal to sublet or assign within
ten (10) days after Landlord's notice of cancellation is given, (ii) permit
such assignment or subletting, or (iii) reasonably withhold its consent to
such assignment or subletting. If Landlord elects to cancel this Lease and
Tenant does not withdraw the proposal to sublet or assign, then the term of
this Lease (as to the applicable portion of the Premises), and the tenancy
and occupancy of the applicable portion of the Premises by Tenant hereunder,
shall cease, terminate, expire, and come to an end as if the cancellation
date was the original termination date of this Lease with respect to the
applicable portion of the Premises. In the event Landlord consents to a
proposed assignment or subletting and the rent due and payable by any such
assignee or sublessee under any such permitted assignment or sublease (or a
combination of the rent payable under such assignment or sublease plus any
bonus or any
COMMERCIAL LEASE AGREEMENT PAGE 13
other consideration therefor or any payment, incident thereto) exceeds the
Base Monthly Rent payable under Paragraph 3 of this Lease for the applicable
space, net of Tenant's actual reasonable costs incurred in connection with
such assignment or subletting (E.G., attorneys' fees, marketing costs (but
not Tenant's internal costs)) and net of any finish out allowance granted by
Tenant in connection with any assignment or sublease not in excess of market
(E.G., Tenant may not recover any finish out allowance in excess of that
which would granted to a similarly situated tenant for similar space in
similar properties in the Dallas/Fort Worth area), Tenant shall pay to
Landlord all such excess rent and other excess consideration within ten (10)
days following receipt thereof by Tenant, whether or not such assignment or
subletting pertains to an assignment or subletting permitted under Paragraph
17B below.
B. PERMITTED ASSIGNMENTS/SUBLEASES. Notwithstanding the
provisions of Paragraph 17A, Tenant may, without the consent of Landlord, at
any time assign or otherwise transfer this Lease or any portion thereof to
any Affiliate (hereinafter defined); or any Corporation resulting from the
consolidation or merger of Tenant into or with any other entity; or to any
person, firm, entity or corporation acquiring a majority of Tenant's issued
and outstanding capital stock or substantially all of Tenant's assets. As
used herein, the term AFFILIATE shall mean a person or entity, corporate or
otherwise, that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with Tenant. The
term CONTROL means the right and power, direct or indirect, to direct or
cause the direction of the management and policies of a person or business
entity, corporation or otherwise, through ownership or voting securities, by
contract or otherwise; provided, however, that in the event of an assignment,
the assignee shall assume in writing the terms and conditions set forth
herein to be observed and performed by the Tenant in a form reasonably
approved by Landlord. A sublease or assignment pursuant to this Paragraph 17B
shall not be subject to Landlord's recapture rights set forth in Paragraph
17A above.
C. ASSIGNMENTS IN BANKRUPTCY.
(1) If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Section 101
et. seq. (the BANKRUPTCY CODE), any and all monies or other
consideration payable or otherwise to be delivered in connection with
such assignment shall be paid or delivered to Landlord, shall be and
remain the exclusive property of Landlord and shall not constitute
property of Tenant or of the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered
to Landlord shall be held in trust for the benefit of Landlord and be
promptly paid or delivered to Landlord.
(2) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed,
without further act or deed, to have assumed all of the obligations
arising under this Lease on and after the date of such assignment. Any
such assignee shall upon demand execute and deliver to Landlord an
instrument confirming such assumption.
D. EFFECT OF ASSIGNMENT. Any assignee, sublessee or transferee of
Tenant's interest in this Lease (all such assignees, sublessees and
transferees being hereinafter referred to as TRANSFEREES), by assuming
Tenant's obligations hereunder, shall assume liability to Landlord for all
amounts paid to persons other than Landlord by such Transferees in
contravention of this Paragraph 17. No assignment, subletting or other
transfer, whether consented to by Landlord or not or permitted hereunder
shall relieve the Tenant named herein of any liability hereunder for the
obligations of the "Tenant". If an event of default occurs while the Premises
or any part thereof are assigned or sublet, then Landlord, in addition to any
other remedies herein provided, or provided by law, may collect directly from
such Transferee all rents payable to the Tenant and apply such rent against
any sum due Landlord hereunder. No such collection shall be construed to
constitute a novation or a release of Tenant from the further performance of
Tenant's obligations hereunder.
18. DEFAULT BY TENANT. The following events (herein individually
referred to as EVENT OF DEFAULT) each shall be deemed to be events of default
by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the Rent herein
reserved when due, or any other payment or reimbursement to Landlord required
herein when due, and such failure shall continue for a period of ten (10) days
after receipt of written notice from Landlord; provided, however, that an
event of default will occur without any
COMMERCIAL LEASE AGREEMENT PAGE 14
obligation of Landlord to deliver any notice if Landlord has given Tenant
written notice under this Paragraph 18A on two (2) or more occasions during
the twelve (12) month period preceding the current failure by Tenant to
timely pay Rent (though Tenant in such instances is granted a five (5) day
grace period from the date upon which the subject payment was due).
B. Tenant or any guarantor of the Tenant's obligations hereunder
shall (i) become insolvent; (ii) admit in writing its inability to pay its
debts; (iii) make a general assignment for the benefit of creditors; (iv)
commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all or of any substantial part of its property; or (v) take any
action to authorize or in contemplation of any of the actions set forth above
in this paragraph.
C. Any case, proceeding or other action against the Tenant or any
guarantor of the Tenant's obligations hereunder shall be commenced seeking
(i) to have an order for relief entered against it as debtor or to adjudicate
it a bankrupt or insolvent; (ii) reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors;
(iii) appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action (a) results in the entry of an order for relief
against it which it is not fully stayed within seven (7) business days after
the entry thereof or (b) shall remain undismissed for a period of forty-five
(45) days.
D. OMITTED.
E. Tenant shall fail to discharge any lien placed upon the
Premises or the Project in violation of Paragraph 28 hereof within sixty (60)
days after any such lien or encumbrance is filed against the Premises or the
Project; provided, however, that if Tenant in good faith disputes such lien,
Tenant may contest the lien without being in default hereunder provided that
Tenant bonds the lien to Landlord's reasonable satisfaction and the lien is
in any event removed or extinguished no later than one hundred and twenty
(120) days after filing.
F. Tenant shall fail to comply with any other terms in this Lease
other than those for which an event of default has been described in this
Paragraph 18, and such failure is not cured within thirty (30) days after
written notice thereof to Tenant, such notice to specify the nature of the
default and the action required to cure same, or if such failure cannot
reasonably be cured in thirty (30) days, such time as is reasonable under the
circumstances, not to exceed ninety (90) days, and provided that Tenant must
diligently proceed to cure the default.
19. LANDLORD'S REMEDIES. Upon the occurrence of any event of default
specified in this Lease, Landlord, at its option, may exercise one (1) or
more of the following remedies, in addition to all other rights and remedies
provided at law or in equity.
A. Landlord may, without judicial process, terminate this Lease
(whereupon all obligations and liabilities of Landlord hereunder shall
terminate) and without further notice repossess the Premises without having
any liability therefor (including specifically any liability or duty under
Section 93.002 of the Texas Property Code which is specifically superseded by
this Paragraph 19A) and be entitled to recover all loss and damage Landlord
may suffer by reason of such termination, whether through inability to relet
the Premises on satisfactory terms or otherwise, including without
limitation, accrued Rent and interest thereon, accrued late charges and
interest thereon, the unamortized cost of the Tenant Finish Work made at
Landlord's expense pursuant to Paragraph 2 hereof or otherwise, broker's fees
and commissions, attorneys' fees, moving allowance and any other costs
incurred by Landlord in connection with making or executing this Lease, the
cost of recovering the Premises and the costs of reletting the Premises
(including without limitation advertising costs, brokerage fees, leasing
commissions, reasonable attorneys' fees and refurbishing costs). If such
termination is caused by the failure to pay Rent, Landlord may elect, by
sending written notice thereof to Tenant, to receive liquidated damages in an
amount equal to the product of (i) the sum of the all Rent and other charges
payable hereunder for the month during which this Lease is terminated
multiplied by (ii) the lesser of (x) the product of sixty percent (60%)
multiplied by the number of full calendar months which would have remained in
the term of this Lease but for such termination or (y) twenty-four (24). Such
liquidated damages shall be in lieu of the payment of loss and
COMMERCIAL LEASE AGREEMENT PAGE 15
damage accruing after the date of such termination, but shall not be in lieu
of or reduce in any way any amounts or damages payable by Tenant to Landlord
and accruing prior to the date of termination, which for all purpose shall
include, but not be limited to, accrued Rent and interest thereon, late
charges and interest thereon the unamortized cost of the Tenant Finish Work,
broker's fees and commissions, attorneys' fees, any moving allowances and any
other costs incurred by Landlord in connection with making or executing this
Lease. Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or insolvency
by reason of the termination of this Lease, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether the
amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
B. Landlord may, without judicial process, immediately terminate
Tenant's right of possession of the Premises by delivering to Tenant written
notice of such termination (whereupon all obligations and liability of
Landlord hereunder shall terminate), but not terminate this Lease, and,
without notice or demand, enter upon the Premises or any part thereof and
take absolute possession of the same, expel or remove Tenant and any other
person or entity who may be occupying the Premises, by force if necessary,
change the locks, without having any liability therefor (including
specifically any liability or duty under Section 93.002 of the Texas Property
Code which is specifically superseded by this Paragraph 19B) and at
Landlord's option, Landlord may relet the Premises or any part thereof for
such terms and such rents as Landlord may in its sole discretion elect. In
the event of a termination of Tenant's possession of the Premises under this
Part B and notwithstanding anything in Section 93.002 of the Texas Property
Code to the contrary, Landlord shall have no obligation whatsoever to tender
to Tenant a key for new locks installed in the Premises and Tenant shall have
no further right to possession of the Premises. In the event Landlord shall
elect so to relet, then rent received by Landlord from such reletting shall
be applied first, to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord (in such order as Landlord shall
designate), second, to the payment of any cost of such reletting, including,
without limitation, refurbishing costs, reasonable attorneys' fees,
advertising costs, brokerage fees and leasing commissions, and third, to the
payment of Rent due and unpaid hereunder (in such order as Landlord shall
designate), and Tenant shall satisfy and pay any deficiency upon demand
thereof from time to time. No re-entry or taking of possession of the
Premises by Landlord pursuant to this Paragraph 19B shall be construed as an
election on Landlord's part to terminate this Lease unless a written notice
of such termination is given to Tenant pursuant to Paragraph 19A above and,
notwithstanding any such reletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such previous breach. If
Landlord relets the Premises, either before or after the termination of this
Lease for a rental rate greater than the Rent provided in this Lease, then
for that portion of the Premises that is subject to such new lease, all such
excess rentals shall be and remain the exclusive property of Landlord, and
Tenant shall not be, at any time, entitled to recover said excess rental.
C. Landlord may, without judicial process enter upon the
Premises, by force if necessary, without having any civil or criminal
liability therefor (including specifically any liability or duty under
Section 93.002 of the Texas Property Code which is superseded by this
Paragraph 19C), and do whatever Tenant is obligated to do under the terms of
this Lease, and Tenant agrees to reimburse Landlord on demand for any
expenses which Landlord may incur in effecting compliance with Tenant's
obligations under this Lease plus an administrative fee equal to ten percent
(10%) of the amount of such reimbursement. Tenant further agrees that
Landlord shall not be liable for any damages resulting to Tenant from such
action, whether caused by the negligence of Landlord or otherwise.
D. Any repossession of or re-entering on the Premises by Landlord
under this Article shall be without liability or responsibility for damages
to Tenant. No repossession of or re-entering upon the Premises or any part
thereof pursuant to Paragraphs 19B or 19C or otherwise and no reletting of
the Premises or any part thereof pursuant to Paragraph 19B shall relieve
Tenant or any guarantor of its liabilities and obligations hereunder, all of
which shall survive such repossession or re-entering. In the event of any
such repossession of or re-entering upon the Premises or any part thereof by
reason of the occurrence of an event of default Tenant will continue to pay
to Landlord Rent required to be paid by Tenant.
E. No right or remedy herein conferred upon or reserved to
Landlord is intended to be exclusive of any other right or remedy, and each
and every right and remedy shall be cumulative and in addition to any other
right or remedy given hereunder or now or hereafter existing at law or in
equity or by statute. In addition to the other remedies provided in this
Lease, Landlord shall be entitled, to the extent permitted by applicable law,
to injunctive relief in case of the violation, or attempted or threatened
violation, of any of the covenants, agreements conditions or provisions
COMMERCIAL LEASE AGREEMENT PAGE 16
of this Lease, or to a decree compelling performance of any of the covenants,
agreements, conditions or provisions of this Lease, or to any other remedy
allowed to Landlord at law or in equity. Tenant shall indemnify and hold
Landlord harmless from any and all costs, expenses (including reasonable
attorneys' fees), claims and causes of action arising from or in connection
with any default by Tenant under this Lease.
F. If Landlord repossesses the Premises pursuant to the authority
herein granted or provided at law or in equity, then Landlord shall have the
right to (i) keep in place and use or (ii) remove and store all of the
furniture, fixtures and equipment at the Premises, including that which is
owned by or leased to Tenant at all times prior to any foreclosure thereon by
Landlord or repossession thereof by any lessor thereof or third party having
a superior lien thereon. Landlord also shall have the right to relinquish
possession of all or any portion of such furniture, fixtures, equipment and
other property to any person (CLAIMANT) who presents to Landlord a copy of
any instrument represented by Claimant to have been executed by Tenant (or
any predecessor of Tenant) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or
other property, without the necessity on the part of Landlord to inquire into
the authenticity or legality of said instrument. The rights of Landlord
herein stated shall be in addition to any and all other rights that Landlord
has or may hereafter have at law or in equity; and Tenant stipulates and
agrees that the rights herein granted Landlord are commercially reasonable.
G. To the extent required under Texas law, Landlord agrees to use
reasonable efforts to mitigate any of its damages arising from the occurrence
of an event of default by Tenant involving Tenant's abandonment of the
Premises. Tenant agrees that this requirement to use reasonable efforts will
have been satisfied by Landlord: (i) notifying its leasing agent of the
availability of the Premises for rent, and (ii) showing the Premises to
prospective tenants who request to see the Premises and to prospective
tenants referred to Landlord by Tenant. In no event shall Landlord be deemed
not to have mitigated its damages if Landlord chooses to lease some or all of
other space in the Building or the Project or, as applicable, the
Development, to a prospective tenant, rather than some or all of the Premises.
20. DEFAULT BY LANDLORD AND TENANT'S REMEDIES. If Landlord fails to
perform any of its obligations hereunder within thirty (30) days after
written notice from Tenant specifying such failure, or if such obligations
cannot reasonably be accomplished in thirty (30) days, Landlord has not
commenced performance within such thirty (30) day period and thereafter
diligently prosecutes performance through completion, Tenant's exclusive
remedy shall be an action for actual damages. In no event shall Landlord be
liable to Tenant for consequential, punitive or special damages (or any
similar types of damages) by reason of a failure to perform (or a default) by
Landlord hereunder or otherwise. Unless and until Landlord fails to so cure
any default after such notice, Tenant shall not have any remedy or cause of
action by reason thereof. All obligations of Landlord hereunder will be
construed as covenants, not conditions; and all such obligations will be
binding upon Landlord only during the period of its ownership of the Premises
and not thereafter. The term "Landlord" shall mean only the owner, for the
time being, of the Premises, and in the event of the transfer by such owner
of its interest in the Premises, such owner shall thereupon be released and
discharged from all covenants and obligations of the Landlord thereafter
accruing, but such covenants and obligations shall be binding during the term
of this Lease upon each new owner for the duration of such owner's ownership.
Notwithstanding any provisions of this Lease to the contrary, the liability of
Landlord to Tenant for any default by Landlord under the terms of this Lease
shall be limited to Landlord's interest in the Project, and Tenant agrees to
look solely to Landlord's interest in the Project and for recovery of any
judgment from Landlord, it being intended and agreed that Landlord shall not
be personally liable for any judgment or deficiency.
21. BANKRUPTCY.
A. Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of Landlord under this Lease,
whether or not expressly denominated as Rent, shall constitute rent for the
purposes of Section 502(b)(6) of the Bankruptcy Code.
B. This a contract under which applicable law excuses Landlord
from accepting performance from (or rendering performance to) any person or
entity other than Tenant within the meaning of Sections 365(c) and 365 (e)(2)
of the Bankruptcy Code.
22. SECURITY DEPOSIT. Tenant agrees to deposit with Landlord on the
date hereof an amount equal to
COMMERCIAL LEASE AGREEMENT PAGE 17
$24,825.33 which shall be held by Landlord, without obligation for interest,
as security for the performance of Tenant's obligations under this Lease, it
being expressly understood and agreed that this deposit is not an advance
rental deposit or a measure of Landlord's damages in case of Tenant's
default. Upon each occurrence of an event of default by Tenant, Landlord may
use all or part of the deposit to pay past due Rent or other payments due
Landlord under this Lease, and the cost of any other damage, injury, expense
or liability caused by such event of default without prejudice to any other
remedy provided herein or provided by law. On demand, Tenant shall pay
Landlord the amount that will restore the security deposit to its original
amount. The security deposit shall be deemed the property of Landlord, but
any remaining balance of such deposit shall be returned by Landlord to Tenant
when Tenant's obligations under this Lease have been fulfilled and this Lease
terminated, all in accordance with Applicable Laws.
23. WAIVER OF SECURITY INTEREST. Landlord hereby waives and negates any
and all contractual liens and security interests, statutory liens and
security interests or constitutional liens and security interests arising by
operation of law or otherwise to which Landlord might now or hereafter be
entitled on all property of Tenant now owned or hereafter placed in or upon
the Premises (except for judgment liens which may hereafter arise in favor of
Landlord).
24. SURRENDER UPON TERMINATION. At the termination of this Lease, by
its expiration or otherwise, Tenant immediately shall deliver possession of
the Premises to Landlord in good condition and repair and with all repairs
and maintenance required herein to be performed by Tenant completed,
including, without limitation, repairs and maintenance of all heating and air
conditioning systems and equipment therein, reasonable wear and tear and
damage due to fire or other casualty excepted. All obligations of Tenant
hereunder not fully performed as of the expiration or earlier termination of
the term of this Lease shall survive the expiration or earlier termination of
the term hereof.
25. HOLDING OVER. If, for any reason, Tenant retains possession of the
Premises after the expiration or termination of this Lease, unless the
parties hereto otherwise agree in writing, such possession shall be subject
to termination by either Landlord or Tenant at any time upon not less than
ten (10) days advance written notice, and all of the other terms and
provisions of this Lease shall be applicable during such period, except that
Tenant shall pay Landlord from time to time, upon demand, as rental for the
period of such possession, an amount equal to 150% of the Base Monthly Rent
in effect on the termination date, computed on a daily basis for each day of
such period. No holding over by Tenant, whether with or without consent of
Landlord, shall operate to extend this Lease except as otherwise expressly
provided. The preceding provisions of this Paragraph 25 shall not be
construed as consent for Tenant to retain possession of the Premises in the
absence of written consent thereto by Landlord. In addition to the above,
Tenant shall be liable to Landlord for Landlord's actual damages resulting as
a result of any holdover by Tenant.
26. QUIET ENJOYMENT. Landlord covenants that on or before the
Commencement Date it will have good title to the Premises, free and clear of
all liens and encumbrances, excepting only the lien for current taxes not yet
due, such mortgage or mortgages as are permitted by the terms of this Lease,
zoning ordinances and other building and fire ordinances and governmental
regulations relating to the use of such property, and easements, restrictions
and other conditions of record. Landlord agrees that so long as Tenant pays
all amounts due hereunder and performs all other covenants and agreements
herein set forth, Tenant shall peaceably and quietly have, hold and enjoy the
Premises for the term of this Lease without hindrance or molestation from
Landlord, subject to the terms and provisions of this Lease.
27. ENTRY BY LANDLORD. Landlord and Landlord's agents and
representatives shall have the right to enter the Premises at any reasonable
time during business hours, to inspect the Premises and to make such repairs
as may be required or permitted pursuant to this Lease or to make such
repairs or installations as are necessary for other tenants in the Building.
During the period that is six (6) months prior to the end of the term of this
Lease, upon telephonic notice to Tenant, Landlord and Landlord's
representatives may enter the Premises during business hours for the purpose
of showing the Premises. In addition, Landlord shall have the right to erect
a suitable sign on the Premises stating the Premises are available. Landlord
shall also have the right (but not the obligation) to enter the Premises at
any time, and by force if necessary, in the case of an emergency. Tenant
shall notify Landlord in writing at least thirty (30) days prior to vacating
the Premises and shall arrange to meet with Landlord for a joint inspection
of the Premises prior to vacating. If Tenant fails to give such notice or to
arrange for such inspection, then Landlord's inspection of the Premises shall
be deemed correct for the purpose of determining Tenant's responsibility for
repairs and restoration of the Premises.
COMMERCIAL LEASE AGREEMENT PAGE 18
28. MECHANICS LIENS. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever
upon, or in any manner to bind the interest of Landlord or Tenant in the
Premises or the Project or to charge the Rent payable hereunder for any claim
in favor of any person dealing with Tenant, including those who may furnish
materials or perform labor for any construction or repairs. Tenant covenants
and agrees that it will pay or cause to be paid all sums legally due and
payable by it on account of any labor performed or materials furnished in
connection with any work performed at the Premises or the Project and that it
will indemnify and hold Landlord harmless from and against any and all loss,
cost or expense based on or arising out of asserted claims or liens against
the leasehold estate or against the right, title and interest of Landlord in
the Premises or the Project or under the terms of this Lease. Tenant agrees
to give Landlord immediate written notice of the placing of any lien or
encumbrance against the Premises or the Project.
29. WAIVER. No waiver by either party hereto of any provision of this
Lease or of any default, event of default or breach by the other shall be
deemed to be a waiver of any other provision of this Lease, or of any
subsequent default, event of default or breach by such party of the same or
any other provision. A party's consent to or approval of any act by the other
that requires such approval or consent shall not be deemed to render
unnecessary the obtaining of such consent to or approval of any subsequent
act of such party. No act or thing done by Landlord or Landlord's agents
during the term of this Lease shall be deemed an acceptance of a surrender of
the Premises, unless done in writing signed by Landlord. The delivery of the
keys to any employee or agent of Landlord shall not operate as a termination
of this Lease or a surrender of the Premises. The acceptance of any Rent by
Landlord following a default, event of default or breach of this Lease by
Tenant shall not constitute a waiver by Landlord of such default, event of
default or breach or any other default, event of default or breach unless
such waiver is expressly stated in writing and signed by Landlord.
30. SUBORDINATION. Conditioned upon the beneficiary of any mortgages
and/or deeds of trust now existing or hereafter placed upon the Premises
entering into an agreement (herein an ATTORNMENT AGREEMENT) with Tenant in
which such beneficiary agrees not to disturb the possession and other rights
of Tenant under this Lease so long as Tenant is not in default in the
performance of its obligations hereunder, and, in the event of the
acquisition of title by such beneficiary through foreclosure proceedings or a
deed in lieu of foreclosure, to accept Tenant as tenant of the Premises under
the terms and conditions of this Lease, Tenant accepts this Lease subject and
subordinate to any mortgages and/or deeds of trust now or hereafter
constituting a lien or charge upon the Premises, provided, however, that if
the mortgagee, trustee, or holder of any such mortgage or deed of trust
elects to have Tenant's interest in this Lease superior to any such
instrument, then by notice to Tenant from such mortgagee, trustee or holder,
this Lease shall be deemed superior to such lien, whether this Lease was
executed before or after said mortgage or deed of trust. Subject to the
foregoing, Tenant, at any time hereafter on demand, shall execute any
instruments, releases or other documents that may be required by any
mortgagee for the purpose of subjecting and subordinating this Lease to the
lien of any such mortgage. For purposes of this section, Landlord will be
deemed to have satisfied the condition of obtaining an Attornment Agreement
if the form thereof required by the mortgagee is a type of form that is
customarily given by institutional lenders, provided that Tenant shall have
the right to attempt to negotiate more favorable terms.
31. TENANT ESTOPPELS. Tenant agrees, from time to time, within ten
(10) days after request of Landlord to deliver to Landlord, or Landlord's
designee, a certificate of occupancy and an estoppel certificate stating that
this Lease is in full force and effect, the date to which Rent has been paid,
the unexpired term of this Lease and such other factual matters pertaining to
this Lease as may be requested by Landlord. It is understood and agreed that
Tenant's obligation to furnish such estoppel certificates in a timely fashion
is a material inducement for Landlord's execution of this Lease.
32. NOTICES. All notices, requests, approvals, and other communications
required or permitted to be delivered under this Lease must be in writing and
are effective (i) on the business day sent if sent by telecopier during
normal business hours and the sending telecopier generates a written
confirmation of sending, (ii) the next business day after delivery to a
nationally-recognized-overnight-courier service for prepaid overnight
delivery; (iii) if orderly delivery of the mail is not then disrupted or
threatened, in which event some method of delivery other than the mail must
be used, three (3) days after being deposited in the United States mail,
certified, return receipt requested, postage prepaid; or (iv) upon actual
receipt by the addressee if delivered personally or by any method other than
by telecopier (with written confirmation),
nationally-recognize-overnight-courier service, or mail, in each instance
addressed to Landlord or Tenant,
COMMERCIAL LEASE AGREEMENT PAGE 19
as the case may be, addressed:
if to Landlord, as follows:
MEPC Quorum Properties II Inc.
15303 Dallas Parkway, Suite 100, LB 10
Dallas, Texas 75248
Attn: Property Manager
Telecopy: (972) 851-7012
and, if to Tenant, as follows:
Mannatech, Inc.
600 S. Royal Lane
Suite 200
Coppell, Texas 75019
Attn: Ronald E. Kozak
Telecopy: (972) 471-7389
or to such other address or to the attention of such other person as shall be
designated by the applicable party and on fifteen (15) days notice from time to
time in writing and sent in accordance herewith.
33. PARKING. Tenant and its employees, customers and licensees shall
have the exclusive right to use any parking areas that have been specifically
designated for such exclusive use by Landlord on the Site Plan, subject to
(i) all rules and regulations promulgated by Landlord in its reasonable
discretion, and (ii) rights of ingress and egress of other lessees of the
Project or the Development, as applicable. Tenant and its employees,
customers and licensees shall not have the right to use any parking area that
are from time to time specifically designated by Landlord for exclusive use
by another lessee, except to the extent necessary for ingress and egress.
Landlord shall not be responsible for enforcing Tenant's parking rights
against any third parties. Tenant agrees not to use more spaces than so
provided.
34. OPTION TO RENEW.
A. If Tenant is not in default under this Lease at the time of the
exercise of this option or at the commencement of the applicable Lease Term
extension, Tenant is granted the option (the OPTION) to extend the Lease Term
for one (1) extension term of five (5) years commencing on the next day after
the expiration of the initial Lease Term by giving Landlord all extension
notice at least nine (9) months, but not more than twelve (12) months, prior
to the expiration of the initial Lease Term. Tenant's lease of the Premises
during the extended Lease Term will be upon the same terms as in the Lease
for the initial Lease Term, except that (i) Base Monthly Rent will adjust on
the first day of the extended Lease Term to the Market Rate (defined below),
and (ii) during the extended Lease Term Tenant will have no further options
or rights to extend the Lease Term.
B. Within thirty (30) days after Landlord receives Tenant's written
notice of its exercise of the Option, Landlord shall deliver a notice to Tenant
(the MARKET RATE NOTICE) specifying the Market Rate for the extended Lease Term,
such to be based upon Landlord's reasonable and good-faith determination of
rents being charged for comparable space in similar properties in the
Freeport North Industrial Park, Coppell, Texas, for terms commensurate with
the extended Lease Term and for tenants similarly situated. Tenant shall have
fifteen (15) days (the EXAMINATION PERIOD) from its receipt of the Market
Rate Notice to accept or reject Landlord's designation of the Market Rate. If
Tenant accepts Landlord's designation of the Market Rate, the MARKET RATE
will be as set forth in the Market Rate Notice, and Tenant's election to
exercise the Option shall be irrevocable. If Tenant fails to accept in
writing Landlord's designation of the Market Rate set forth in the Market
Rate Notice during the Examination Period, Tenant shall be deemed to have
rejected Landlord's designation of the Market Rate. If Tenant rejects or is
deemed to have rejected Landlord's designation of the Market Rate and
Landlord and Tenant cannot agree in writing on the Market Rate within the
earlier to occur of (i) fifteen (15) days after the date Landlord receives
Tenant's written rejection of Landlord's designation of
COMMERCIAL LEASE AGREEMENT PAGE 20
the Market Rate set forth in the Market Rate Notice, or (ii) fifteen (15)
days after the expiration of the Tenant is deemed to have rejected Landlord's
designation of the Market Rate as set forth in the Market Rate Notice (in
either of such instances, the NEGOTIATION PERIOD), then Tenant will be deemed
to have elected to revoke its exercise of the Option, and this Lease will
expire in accordance with Paragraph 1 above.
C. Tenant may not assign the Option to any assignee (except an
Affiliate) or sublessee of this Lease. No sublessee and no assignee (except an
Affiliate) may exercise the Option.
D. If the Lease Term is extended under this Paragraph 34, Landlord
shall prepare, and Landlord and Tenant will execute and deliver an amendment
to the Lease extending the Lease Term within fifteen (15) days after the
Market Rate is determined but in no event later than the date that the
applicable extension term commences; provided, however, that the failure of
the parties to enter into such an amendment will not affect the validity of
Tenant's exercise of the Option or the obligations of the parties during the
extended Lease Term.
35. RIGHT OF FIRST REFUSAL ON ADJACENT SPACE.
A. If at any time during the first three (3) years of the Lease
Term Landlord receives a bona fide offer from a third party (the THIRD PARTY
OFFER) for the lease of that space shown on the Site Plan as the Refusal
Space, such consisting of approximately 24,600 square feet, or any portion
thereof, that Landlord wants to accept, and conditioned upon Tenant not then
being in default hereunder, Landlord will first provide Tenant with written
notice (the REFUSAL NOTICE) thereof. Tenant will have seven (7) business days
(the REFUSAL PERIOD) from the date it receives the Refusal Notice to elect to
lease all, but not less than all, of the Refusal Space. If Tenant has not
notified Landlord in writing of such election prior to the expiration of the
Refusal Period, then Tenant shall be deemed to have elected not to lease the
Refusal Space. If Tenant timely and properly elects to lease the Refusal
Space, such lease, shall be on the same terms and conditions for the
Premises, as defined in Paragraph 1 above, provided that Base Monthly Rent
and Adjustments shall be increased proportionately and further provided that
the Work Allowance for the Refusal Space shall be an amount equal to the
product of $3.00 per square foot of the actual Refusal Space multiplied by a
fraction, the numerator of which is the number of months then remaining in
the Lease Term (without giving effect to any option to extend the Lease Term)
and the denominator of which is 122. Tenant's election to lease the Refusal
Space shall be irrevocable once given and from and after the date thereof,
the term PREMISES shall mean and include not only the Premises as defined in
Paragraph 1 above, but also the Refusal Space.
B. In the event Tenant does not elect (or is deemed to have not
elected) to lease the Refusal Space, Landlord shall have a period of two
hundred seventy (270) days from the date the Refusal Period expires (the
MARKETING PERIOD) to market the Refusal Space, or any portion thereof, for
lease on terms wholly within Landlord's discretion and during which period
Landlord will not have any obligations to Tenant under this Paragraph 35. If
Landlord has not entered into a binding lease with a third party during the
Marketing Period, the right of first refusal set forth in this Paragraph 35
shall again become effective and Landlord may not lease the Refusal Space, or
any portion thereof, without compliance with this Paragraph 35; provided,
however, that all rights of Tenant in and under this Paragraph 35 shall in
any event expire on that date which is the third anniversary of the date of
this Lease if not exercised by Tenant prior to such time.
C. Tenant may not assign its rights under this Paragraph 35 to
any assignee or sublessee of this Lease, nor may any sublessee or assignee
have any rights under this Paragraph 35.
D. If Tenant leases the Refusal Space, Landlord shall prepare,
and Landlord and Tenant will execute and deliver an amendment to the Lease
confirming the lease of the Refusal Space and the new Base Monthly Rent and
Adjustments; provided, however, that the failure of the parties to enter into
such an amendment will not affect the validity of Tenant's lease of the
Refusal Space or the obligations of the parties with respect thereto.
36. MISCELLANEOUS.
A. REQUIRED CONSENT. To the extent the approval or consent is
required of any party hereto, such party agrees that such consent or approval
may not be unreasonably withheld, delayed or conditioned unless the provision
COMMERCIAL LEASE AGREEMENT PAGE 21
where the requirement for such consent or approval is imposed includes an
express statement that such approval or consent may be withheld in such
party's sole discretion.
B. FINANCIAL STATEMENTS. During each Lease Year, and upon written
request by Landlord, Tenant shall provide to Landlord true, correct and complete
copies of Tenant's year end financial statements and quarterly, non-audited,
balance sheets certified by the chief financial officer (or its equivalent) of
Tenant.
C. CONFIDENTIALITY. Tenant shall keep the terms and provisions of
this Lease confidential at all times and not disclose the terms and provisions
hereof to any party without Landlord's prior written consent, which may be
withheld by Landlord in its sole discretion. Landlord hereby consents to the
disclosure of the terms and provisions of this Lease to employees of Tenant,
Tenant's attorneys and to any financial institution Tenant is seeking financing
from in connection with this Lease and/or Tenant's operations at the Premises.
The terms of this paragraph and Tenant's agreement thereto are a material
inducement to Landlord entering into this Lease, and Tenant agrees that Landlord
may be severely damaged by a breach of this paragraph and the confidentiality
obligations herein contained. Tenant agrees that in the event of a breach of
this paragraph, Landlord may, in addition to any other remedies it may have
under this Lease or at law or equity, seek injunctive relief against Tenant
and/or recover damages from Tenant.
D. HEADINGS/GENDER. Words of any gender used in this Lease shall
be held and construed to include any other gender, and words in the singular
number shall be held to include the plural, unless the context otherwise
requires. The captions inserted in this Lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this Lease,
or any provision hereof, or in any way affect the interpretation of this
Lease.
E. RUN WITH THE LAND. The terms, provisions and covenants and
conditions contained in this Lease shall run with the land and shall apply to,
inure to the benefit of, and be binding upon, the parties hereto and upon their
respective heirs, executors, personal representatives, legal representatives,
successor and assigns, except as otherwise herein expressly provided. Landlord
shall have the right to transfer and assign, in whole or in part, its rights and
obligations in the Premises, Building and/or Project that are the subject of
this Lease. Each party agrees to furnish to the other, promptly upon demand,
a corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of such party to
enter into this Lease.
F. ORGANIZATION AND AUTHORITY.
(i) Tenant represents and warrants to Landlord that (i) Tenant is
a duly organized and existing Texas corporation and has the full right and
authority to enter into this Lease and to perform all of its obligations
hereunder, (ii) all requisite authorizing actions have been taken by Tenant
in connection with the entering into of this Lease, and (iii) each of the
persons signing this Lease on behalf of Tenant is authorized to do so. Upon
request by Landlord, Tenant will provide a certified copy of the
resolutions of the board of directors of Tenant authorizing the entering
into of this Lease by Tenant and the execution hereof by the persons who
sign this Lease on behalf of Tenant;
(ii) Landlord represents and warrants to Tenant that (i) Landlord
is a duly organized and existing Delaware corporation and has the full
right and authority to enter into this Lease and to perform all of its
obligations hereunder, (ii) all requisite authorizing actions have been
taken by Landlord in connection with the entering into of this Lease, and
(iii) each of the persons signing this Lease on behalf of Landlord is
authorized to do so. Upon request by Tenant, Landlord will provide a
certified copy of the resolutions of the board of directors of Landlord
authorizing the entering into of this Lease by Landlord and the execution
hereof by the persons who sign this Lease on behalf of Landlord.
G. RECORDING. Tenant may not record this Lease or any memorandum
thereof.
H. ENTIRE AGREEMENT. This Lease constitutes the entire
understanding and agreement of the Landlord and Tenant with respect to the
subject matter of this Lease, and contains all of the covenants and
agreements of Landlord and Tenant with respect thereto. Landlord and Tenant
each acknowledge that no representations, inducements, promises or
agreements, oral or written, have been made by Landlord or Tenant, or anyone
acting on behalf of Landlord or Tenant, which are not contained herein, and
any prior agreements, promises, negotiations, or representations not
expressly
COMMERCIAL LEASE AGREEMENT PAGE 22
set forth in this Lease are of no force or effect. This Lease may not be
altered, changed or amended except by all instrument in writing signed by
both parties hereto.
I. FORCE MAJEURE. As used in this Lease, FORCE MAJEURE shall mean
a delay caused by reason of fire, acts of God, unreasonable delays in
transportation, embargo, weather (I.E., rain and rain related conditions,
humidity, temperature, wind, etc.), strike, other labor disputes,
governmental preemption of priorities or other controls in connection with a
national or other public emergency, governmental delays in permitting, delays
caused by any governmental disapproval of, or required revisions to, the
Finish Plans, or shortages of fuel, supplies or labor or any similar cause
not within Landlord's reasonable control. Landlord shall not be held
responsible for delays in the performance of its obligations hereunder caused
by Force Majeure, and such delays shall be excluded from the computation of
the time allowed for the performance of such obligations. It is expressly
agreed that the number of delay days may include not only the day or days
upon which the event of Force Majeure occurred but the number of days
thereafter that work could not resume due to the occurrence of such event of
Force Majeure. By way of example only, rain on a Sunday, which is not
scheduled as a normal work day, may prevent work for several days thereafter
due to mud conditions.
J. SEVERABILITY. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws effective
during the term of this Lease, then and in that event, it is the intention of
the parties hereto that the remainder of this Lease shall not be affected
thereby, and it is also the intention of the parties to this Lease that in
lieu of each clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.
K. DATE OF LEASE. All references in this Lease to "the date
hereof" or similar references shall be deemed to refer to the last date, in
point of time, on which all parties hereto have executed this Lease.
L. BROKERS.
(1) Tenant represents and warrants that, except for The
Amend Group (BROKER), Tenant has not dealt with any broker, agent or other
person in connection with this transaction and that, except for Broker, no
broker, agent or other person brought about this transaction through the
acts of or employment by Tenant, and, except with respect to any commission
or fee owed to Broker, Tenant agrees to indemnify and hold Landlord
harmless from and against any claims by any broker, agent or other person
claiming a commission or other form of compensation by virtue of having
dealt with Tenant with regard to this leasing transaction.
(2) Landlord represents and warrants that, except for
Broker, Landlord has not dealt with any broker, agent or other person in
connection with this transaction and that, except for Broker, no broker,
agent or other person brought about this transaction through the acts of
or employment by Landlord. Landlord has agreed to pay Broker a commission
pursuant to a separate written agreement between Landlord and Broker, and
Landlord agrees to indemnify and hold Tenant harmless from and against any
claims by Broker or any broker, agent or other person claiming a commission
or other form of compensation by virtue of having dealt with Landlord with
regard to this leasing transaction.
M. COUNTERPARTS. This Lease may be executed in counterparts, each
being deemed an original, but together constituting only one instrument.
N. TIME FOR PERFORMANCE. TIME IS OF THE ESSENCE WITH RESPECT TO ALL
PERFORMANCE OBLIGATIONS CONTAINED IN THIS LEASE.
O. ATTORNEYS FEES. In the event it becomes necessary for either
party hereto to file a suit to enforce this Lease or any provisions contained
herein, the party prevailing in such action shall be entitled to recover, in
addition to all other remedies or damages, reasonable attorneys fees incurred
in such suit.
P. LAW GOVERNING. This Lease shall be construed and interpreted in
accordance with the laws of the
COMMERCIAL LEASE AGREEMENT PAGE 23
State of Texas and the obligations of the parties hereto are and shall be
performable in, and venue for any claim or cause of action shall reside in,
Dallas County, Texas.
Q. AMENDMENTS. This Lease may not be modified or amended, except
by an agreement in writing signed by Landlord and Tenant. The parties may
waive any of the conditions contained herein or any of the obligations of the
other party hereunder, but any such waiver shall be effective only if in
writing and signed by the party waiving such conditions or obligations,
except as specifically set forth herein.
EXECUTED BY Landlord, this 29TH day of MAY, 1997.
MEPC QUORUM PROPERTIES II INC., a
Delaware corporation
By: /s/ PETER JOHNSON
----------------------------------
Name: PETER JOHNSON
--------------------------------
Title: Executive Vice President
-------------------------------
By: /s/ DAVID L. CARLSON
----------------------------------
Name: DAVID L. CARLSON
--------------------------------
Title: Vice President
-------------------------------
EXECUTED BY Tenant, this 29TH day of MAY, 1997.
MANNATECH, INC., a Texas corporation
By: /s/ CHARLES E. FIORETTI
----------------------------------
Name: CHARLES E. FIORETTI
--------------------------------
Title: Chairman of the Board
-------------------------------
EXHIBITS:
Exhibit A: Legal Description of 28 Acre Tract
Exhibit B: Shell Building Construction Features
Exhibit C: Site Plan
Exhibit D: Omitted
Exhibit E: Acceptance of Premises Memorandum
Exhibit F: Contractor Insurance Requirements
COMMERCIAL LEASE AGREEMENT PAGE 24
EXHIBIT "A"
LEGAL DESCRIPTION OF 28 ACRE TRACT
Being a tract or parcel of land situated in the William S. Payne Survey,
Abstract No. 1140 and the C. S. Dunnagan Survey, Abstract No. 1655, City of
Coppell, Dallas County, Dallas, Texas, same being a portion of "Freeport
North", a Preliminary-Final Plat recorded in Volume 84203, Page 1835, Dallas
County Plat Records, same also being all of that certain 27.8527 acre Tract 5
conveyed to T/E Freeport North Land, Ltd. by instrument of record in Volume
94222, Page 1168, Dallas County Deed Records, said tract being more
particularly described by metes and bounds as follows:
BEGINING at a 1/2 inch iron rod set in the Easterly line of that certain
157.929 acre tract of land conveyed to San Antonio Savings Association, F.A.
by instrument of record in Volume 92104, Page 4313, Dallas County Deed
Records, same being in the Northwesterly corner of said 27.8527 acre tract,
same being in the Southerly line of Northpoint Drive, 80 feet wide, from
which a 1/2 inch iron rod found bears North 00 degrees 13 minutes 53 seconds
West, 80.21 feet;
THENCE, along said Southerly line, South 89 degrees 45 minutes 41 seconds
East, 1268.29 feet to a 1/2 inch iron rod set for corner;
THENCE, continuing along said Southerly line, South 28 degrees 41 minutes 54
seconds East, 14.50 feet to a 1/2 inch iron rod set for corner in the
Westerly line of Royal Lane, 100 feet wide;
THENCE, along said Westerly line the following five (5) courses:
1) 81.48 feet along the arc of a non-tangent curve to the right having
a radius of 950.00 feet, a central angle of 04 degrees 54 minutes 51
seconds and a chord bearing and distance of South 35 degrees 16 minutes
31 seconds West, 81.45 feet to a 1/2 inch iron rod set for a point of
tangency;
2) South 37 degrees 43 minutes 57 seconds West, 170.92 feet to a 1/2
inch iron rod set for the beginning of a curve;
3) 684.33 feet along the arc of a tangent curve to the left having a
radius of 1050.00, a central angle of 37 degrees 20 minutes 31 seconds
and a chord bearing and distance of South 19 degrees 03 minutes 41
seconds West, 672.28 feet to a 1/2 inch iron rod set for a point of
tangency;
4) South 00 degrees 23 minutes 26 seconds West, 279.79 feet to a 1/2
inch iron rod set for corner;
5) South 45 degrees 23 minutes 26 seconds West, 21.21 feet to a 1/2
inch iron rod set for corner in the Northerly line of Gateview
Boulevard, 60 feet wide;
THENCE, departing said Westerly line and along said Northerly line the
following four (4) courses:
1) North 89 degrees 36 minutes 34 seconds West, 150.17 feet to a 1/2
inch iron rod set for the beginning of a curve;
2) 299.43 feet along the arc of a tangent curve to the left having a
radius of 530.00 feet, a central angle of 32 degrees 22 minutes 11
seconds and a chord bearing and distance of South 74 degrees 12
minutes 20 seconds West, 295.46 feet to a 1/2 inch iron rod set for
a point of reverse curvature;
3) 262.43 feet along the arc of a tangent curve to the right having a
radius of 470.00 feet, a central angle of 32 degrees 00 minutes 00
seconds and a chord bearing and distance of South 74 degrees 01 minutes
15 seconds West, 259.10 feet to a 1/2 inch iron rod set for a point
of tangency;
4) North 89 degrees 58 minutes 45 seconds West, 199.72 feet to a 1/2
inch iron rod set for corner in the common line of said 157.929 acre
tract and said 27.8527 acre tract;
THENCE along said common line, North 00 degrees 02 minutes 58 seconds East,
305.12 feet to a 5/8 inch iron rod found for corner:
THENCE continuing along said common line, North 00 degrees 13 minutes 53
seconds West, 995.31 feet to the POINT OF BEGINNING and CONTAINING 27.8527
acres, 1,213,263 square feet, more or less, of land area within these metes
and bounds.
MANNATECH
EXHIBIT B
SHELL BUILDING CONSTRUCTION FEATURES
SHELL BUILDING CONSTRUCTION FEATURES
- Painted exterior concrete tilt wall construction
- 30' Clear Height to the bottom of the roof joist
- 40' x 41' column bay dimensions
- Four-ply built-up roof system
- 6" thick reinforced concrete floor slab
- 6" thick reinforced concrete truck paving
- 5" thick reinforced concrete car parking
- ESFR fire sprinkler system
- (9) 9' x 10' Vertical lift overhead doors
- (5) 30,000 CFM Rooftop exhaust fans
- 4' x 4' skylights
- The building Fire Pump Room (approx. 12' x 18') is located
within this lease space
CLARIFICATIONS AND EXCLUSIONS
- Fire alarm, security, and/or phone systems excluded
- In-rack fire sprinklers or modifications to overhead system excluded
- Dumpster/compactor power and/or screening excluded
- Draft curtains or modifications/additions to smoke removal
system are excluded
[FLOORPLAN]
EXHIBIT "D"
OMITTED
EXHIBIT "E"
ACCEPTANCE OF PREMISES MEMORANDUM
This memorandum is being executed pursuant to the Commercial Lease
Agreement (the LEASE) executed on the ___ day of ______, 1997, between MEPC
QUORUM PROPERTIES II INC., a Delaware corporation (LANDLORD), and MANNATECH,
INC., a TEXAS (TENANT).
Landlord and Tenant hereby agree that:
1. Tenant acknowledges that (i) it has inspected and accepts the Building and
the Project, (ii) the Premises is suitable for the purpose for which it is
leased, subject to completion by Tenant of any finish work Tenant requires,
(iii) the Building and the Project are in good and satisfactory condition,
and (iv) no representations as to the repair of the Premises or the
Project, nor promises to alter, remodel or improve the Premises or the
Project which have been made by Landlord remain unsatisfied.
2. The Commencement Date of the Lease is the ____ day of _________, 199__.
3. The Rent Commencement Date of the Lease is the ____ day of _______, 199__.
4. The expiration date of the Lease is the ____ day of _________, 1997___.
5. All capitalized terms not defined herein shall have the meaning assigned to
them in the Lease.
Agreed and Executed this ___ day of _______, 1997.
LANDLORD TENANT
MEPC QUORUM PROPERTIES II INC., MANNATECH, INC., a TEXAS corporation
a Delaware corporation
By: By:
------------------------------ ------------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------ ------------------------
By:
------------------------------
Name:
-------------------------
Title:
------------------------
EXHIBIT "F"
CONTRACTOR INSURANCE REQUIREMENTS
All contractors, subcontractors, suppliers, service providers, moving companies,
and others performing work of any type for Tenant at the Premises shall:
- carry the insurance listed below with companies acceptable to
Landlord; and
- furnish Certificates of Insurance to Landlord evidencing required
coverages at least ten (10) days prior to entry in the Premises and
Renewal Certificates at least thirty (30) days prior to the expiration
dates of Certificates previously furnished.
Certificates of Insurance must provide for thirty (30) days' prior written
notice of cancellation or material change to Landlord.
(1) WORKERS COMPENSATION: Statutory workers compensation insurance covering
full liability under applicable Workers Compensation Laws at the required
statutory limits.
(2) EMPLOYERS' LIABILITY: Employers' liability insurance with the following
minimum limits of liability:
$100,000 Each Accident
$500,000 Disease-Policy Limit
$100,000 Disease-Each Employee
(3) COMMERCIAL GENERAL LIABILITY: This insurance policy must:
(a) Be written on a standard liability policy form (sometimes known as
commercial general liability insurance) BUT WITHOUT exclusionary
endorsements that may delete coverage for products/completed
operations, personal and advertising injury, blanket contractual,
fire legal liability, or medical payments.
(b) Be endorsed to provide that:
- aggregate limits, if any, apply separately to each of the
insured's jobs or projects away from premises owned by or rented
to the insured;
- the insurance is primary and non-contributory to any insurance
provided by Landlord; and
- include the following minimum limits:
$1,000,000 General Aggregate
$1,000,000 Products-Completed Operations Aggregate
$1,000,000 Personal & Advertising Injury
$1,000,000 Each Occurrence
$ 50,000 Fire Damage (Any one fire)
$ 5,000 Medical Expense (Any one person)
(4) AUTOMOBILE LIABILITY: Automobile liability insurance for claims of
ownership, maintenance, or use of owned, non-owned, and hired motor
vehicles at, upon, or away from the Premises with the following minimum
limits:
$500,000 Combined Single Limit Bodily Injury and Property
Damage per Occurrence
(5) EXCESS LIABILITY: Following form excess liability insurance with coverages
at least as broad as the required commercial general liability insurance
with the following minimum limits:
$1,000,000 Each Occurrence
$2,000,000 Aggregate
(6) GENERAL REQUIREMENTS: All policies must be:
- written on an occurrence basis and not on a claims-made basis;
- endorsed to name as additional insureds Landlord, and its respective
officers, directors, employees, agents, partners, and assigns;
- endorsed to waive any rights of subrogation against Landlord and its
respective officers, directors, employees, agents, partners, and
assigns; and
- primary and non-contributing with, and not in excess of, any other
insurance available to Tenant and Landlord (or any other entity
named as an additional insured).
FIRST AMENDMENT TO COMMERCIAL LEASE AGREEMENT
THIS FIRST AMENDMENT TO COMMERCIAL LEASE AGREEMENT (this "AMENDMENT") is
entered into by and between MEPC QUORUM PROPERTIES II INC., a Delaware
corporation (LANDLORD) and MANNATECH, INC., a Texas corporation (TENANT)
effective as of November 6, 1997.
A. Landlord and Tenant have heretofore entered into a Commercial Lease
Agreement (the LEASE) pursuant to which Landlord leased to Tenant
approximately 74,476 square feet in the Building (as defined in the Lease)
located on the Land described on EXHIBIT "A" attached to the Lease and
located in the Freeport North Industrial Park, Coppell, Texas;
B. Landlord and Tenant now wish to amend the Lease.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which being hereby acknowledged, Landlord and Tenant hereby
agree as follows:
1. COMMENCEMENT DATE. Landlord and Tenant agree that the COMMENCEMENT
DATE, as that term is used in the Lease, as amended hereby, shall be October
27, 1997.
2. IMPROVEMENTS/TENANT FINISH. Paragraph 2 of the Lease shall be, and
hereby is, deleted and replaced with the following Paragraph 2:
"2. IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD
A. BUILDING. Landlord agrees to construct on the Land an
approximate 297,902 square foot warehouse building structure (the BUILDING)
containing the features generally described on EXHIBIT "B" attached hereto
and incorporated herein by reference and generally situated as shown on the
Site Plan (herein so called) attached hereto as EXHIBIT "C" and
incorporated herein by reference.
B. TENANT FINISH. Landlord agrees to construct within the
Premises the improvements described in the plans and specifications
prepared by Meinhardt & Quintana (ARCHITECT) and set forth on EXHIBIT "G"
attached hereto and incorporated herein by reference (collectively, the
FINISH PLANS). The improvements to be constructed pursuant to the Finish
Plans are collectively referred to herein as the TENANT FINISH WORK). The
Building, the Tenant Finish Work and any other improvements constructed by
Landlord on the Land from time to time, whether pursuant to this Lease or
otherwise, are collectively referred to herein as the IMPROVEMENTS.
C. CONSTRUCTION COSTS. Subject to the terms of this paragraph,
Landlord will pay (i) the cost of all Tenant Finish Work up to, but not in
excess of the $220,928.00 (the WORK ALLOWANCE), which includes any costs
incurred by Landlord in connection with the preparation of the Finish
Plans, and (ii) the cost of constructing the Building and any other
improvements described on EXHIBIT "B". Notwithstanding the preceding
sentence, Tenant shall be responsible for the following:
(1) If prior to commencement of the Tenant Finish Work
Landlord determines that the actual cost of the Tenant Finish Work
will exceed the Work Allowance, or if during construction the actual
cost of the Tenant Finish Work exceeds the Work Allowance, Landlord
will not be obligated to commence the Tenant Finish Work or continue
its construction until it receives from Tenant ten percent (10%) of
the estimated cost by which such amount is in excess, in Landlord's
estimation, of the Work Allowance, with the actual amount of such
excess, less the initial payment by Tenant, being due on the Rent
Commencement Date.
(2) If Tenant requests any redrawing of the Finish
Plans, Tenant will be responsible for the costs of any redrawing of
such plans in connection with such change(s) and shall reimburse
Landlord for such costs upon demand.
(3) If Landlord performs, at Tenant's request, any
work over and above the work generally described in the Finish Plans
or described on EXHIBIT "B" (herein, the ADDITIONAL WORK), including
any additional work which has been approved by written change order
or work order, then, subject to the exhaustion of the Work Allowance,
the Additional Work together with the cost of preparing plans and
specifications for same will be at Tenant's expense. Landlord will not
be obligated to perform any such Additional Work until Tenant pays
Landlord ten percent (10%) of the estimated cost
of the Additional Work, as estimated by Landlord, with the actual cost
of the Additional Work, less the initial payment by Tenant, being due
on the Rent Commencement Date.
(4) All costs or expenses incurred or suffered by
Landlord that are caused by Tenant Delays. A TENANT DELAY(S) shall
mean any delay in the completion of the Improvements or any delay in
the occurrence of the Commencement Date caused by a Tenant Party,
including, without limitation, any delay resulting from the
installation by Tenant or any Tenant Party of any property or
equipment of Tenant in or on the Premises prior to the Rent
Commencement Date, any delay resulting from any request by Tenant for
any change or modification to the Finish Plans, any delay caused by
any Additional Work requested by Tenant, and any delay due to
interference by Tenant or any Tenant Party with Landlord's engineers,
consultants, contractors or otherwise. As used in this Lease, a TENANT
PARTY shall mean one or more of Tenant, its agents, employees,
officers, partners or contractors.
Additionally, Landlord shall receive an administration fee in the total
amount of 2.50% of the total construction costs of the Tenant Finish Work,
as determined by the general contract for the Tenant Finish Work, as same
may be modified by work or change orders. Such fee shall be charged
against the Work Allowance upon the entering into of such general contract
and at the time the cost of any Additional Work is determined. If there is
no remaining balance of the Work Allowance at any time the administration
fee is owed, such shall be paid by Tenant upon demand. Lastly, all
oversight costs charged by Architect in connection with the Tenant Finish
Work shall be charged against the Work Allowance until exhausted and
thereafter paid by Tenant upon demand.
D. MANNER OF CONSTRUCTION. Landlord agrees to construct the
Improvements in a good and workmanlike manner.
E. OWNERSHIP OF IMPROVEMENTS. All Tenant Finish Work and the
other Improvements constructed by or on behalf of Landlord shall at all
times be the sole property of Landlord."
3. RENT COMMENCEMENT/ACCEPTANCE OF PREMISES. Paragraph 3 of the Lease
shall be, and hereby is, deleted and replaced with the following:
"3. RENT COMMENCEMENT DATE/ACCEPTANCE OF PREMISES.
A. RENT COMMENCEMENT DATE. The RENT COMMENCEMENT DATE shall be
the earlier to occur of (i) ninety (90) days after the Commencement Date,
or (ii) the date Tenant takes possession or commences use of the Premises
for any purpose other than merely to perform any work that may be permitted
under Paragraph 6 below.
B. ACCEPTANCE OF PREMISES. Not less than five (5) days prior to
the date Landlord estimates the Tenant Finish Work will be substantially
complete Landlord will notify Tenant of the estimated date that the Tenant
Finish Work will be substantially completed. The term SUBSTANTIALLY
COMPLETED or SUBSTANTIALLY COMPLETE as used herein, means that, in the
reasonable opinion of Landlord's architect, the Tenant Finish Work has been
completed in substantial accordance with the Finish Plans and that the
Premises is in good and satisfactory condition, subject only to completion
of minor punch list items. Upon receipt of Landlord's notification, Tenant
shall verbally notify Landlord of the date Tenant intends to make its
walk-through inspection of the Premises, such date to be on the date
specified in Landlord's notice for the Tenant Finish Work to be
substantially complete or within three (3) days prior to that date.
Landlord and Landlord's architect shall accompany Tenant on the
walk-through inspection so as to mutually determine the punch list of
items to be completed or repaired by Landlord within a reasonable time
after the date of the walk-through inspection (the PUNCH LIST). At the
conclusion of the walk-through inspection, Tenant will be deemed to have
acknowledged that, subject only to Landlord's completion of the Punch List,
(i) it has inspected and accepts the Premises and the Project, (ii) the
Premises is suitable for the purpose for which it is leased, (iii) the
Premises and the Project are in good and satisfactory condition, and
(iv) no representations as to the repair of the Premises or the Project,
nor promises to alter, remodel or improve the Premises or the Project which
have been made by Landlord remain unsatisfied. At the conclusion of the
walk-through inspection Tenant further agrees to execute an Acceptance of
Premises Memorandum in the form attached hereto and made a part hereof as
EXHIBIT "E", whereupon possession of the Premises will be delivered to
Tenant and Tenant will be deemed to have accepted the Premises, and Tenant
FIRST AMENDMENT -- PAGE 2
may thereafter occupy the Premises. Tenant's failure to conduct a
walk-through inspection or execute the Acceptance of Premises Memorandum
will not delay the occurrence of the Rent Commencement Date."
4. PAYMENT OF RENT. Paragraph 4C of the Lease shall be, and hereby is,
deleted and replaced with the following:
"C. PAYMENT OF RENT. Base Monthly Rent and Adjustments shall be due
and payable, in advance, beginning on the Rent Commencement Date; provided
that one (1) full installment of Base Monthly Rent and Adjustments totaling
$24,825.33 is due and payable on the date of this Lease, such to be applied
to the first installment of Base Monthly Rent and Adjustments due on the
Rent Commencement Date and thereafter applied to Base Monthly Rent and
Adjustments until fully applied. Any installment of Base Monthly Rent or
Adjustments due for any fractional calendar month shall be prorated based
upon the actual number of days in that month. If the Rent Commencement Date
occurs on the first day of a calendar month, then the month in which the
Rent Commencement Date occurs shall be the first complete calendar month
after the occurrence of the Rent Commencement Date for purposes of
determining the date upon which Base Monthly Rent adjusts. As used in this
Lease, RENT shall mean the Base Monthly Rent and all other amounts provided
for in this Lease to be paid by Tenant to Landlord, all of which shall
constitute rental in consideration for this Lease and the leasing of the
Premises. All Rent (hereinafter defined) shall be paid at the times and in
the amounts provided for herein in legal tender of the United States of
America to Landlord at the address specified in Paragraph 32 hereof or to
such other person or at such other address as Landlord may from time to
time designate in writing. Rent shall be paid without notice, demand,
abatement, deduction or offset (unless expressly provided for elsewhere in
this Lease) and shall be a covenant of Tenant independent of any obligation
of Landlord under this Lease. Tenant's obligation to pay any installment
of Rent shall not be deemed satisfied until such installment of Rent has
actually been received by Landlord."
5. IMPROVEMENTS/ALTERATIONS BY TENANT. Paragraphs 6A, 6B, and 6C of
the Lease shall be, and hereby are, deleted and replaced with the following:
"A. AFTER COMMENCEMENT DATE. Except as expressly permitted by
this Paragraph 6, Tenant may not make or permit any alterations,
improvements, or additions in or to the Premises without Landlord's prior
written consent. All alterations and improvements desired by Tenant are
subject to the following conditions:
(1) All alterations, improvements and additions will
be at the sole cost and expense of Tenant;
(2) All alterations, improvements and additions in and
to the Premises requested by Tenant must be made in accordance with
plans and specifications first approved in writing by Landlord;
(3) Tenant's contractors and subcontractors are
subject to Landlord's prior approval. In addition, each of Tenant's
contractor(s) and subcontractor(s) must deliver evidence satisfactory
to Landlord that the insurance specified on EXHIBIT "F" (attached
hereto and incorporated herein by reference) is in force prior to
commencing work;
(4) All alterations, improvements and additions made
by Tenant must comply with all Applicable Laws including,
specifically, the ADA, and applicable building permits and
certificates of occupancy. Landlord's approval of Tenant's plans and
specifications for the alterations or improvements will not act as a
confirmation or agreement by Landlord that the improvements and
alterations comply with Applicable Laws;
(5) Tenant must deliver to Landlord evidence that
Tenant has obtained all necessary governmental permits and approvals
for the improvements, alterations and additions prior to starting any
work;
(6) All alterations, improvements and additions must
be done in a good and workmanlike manner so as not to damage or alter
the primary structure or structural qualities or the utility or other
systems of the Premises or the Building and is subject to approval by
Landlord during and after construction, in its sole discretion;
FIRST AMENDMENT -- PAGE 3
(7) Lien releases from each of Tenant's contractor(s)
and subcontractor(s) must be submitted to Landlord within ten (10)
days after completion of the work performed by the contractor(s) or
subcontractor(s); and
(8) Tenant shall be solely responsible for the safety
and security of all equipment and property installed or placed in, on
or about the Premises by a Tenant Party.
B. PRIOR TO THE RENT COMMENCEMENT DATE. Prior to the Rent
Commencement Date, and upon written request by Tenant, Tenant and its
contractors may enter the Premises so that Tenant may perform other work
and decorations Tenant wants in the Premises. This license to enter prior
to the Rent Commencement Date is subject to the conditions set forth in
Paragraph 6A above and, in addition, the following conditions:
(9) Tenant's contractor(s) must work in harmony and
not interfere with Landlord's contractors and subcontractors; and
(10) Landlord may revoke this license if the entry
causes interference with the construction of the Improvements and
Tenant does not immediately cease such interference (or cause its
contractors to immediately cease such interference, as the case may
be) after receipt of notice from Landlord, which notice may be
verbal. Any such interference may be deemed a Tenant Delay.
C. TENANT'S PROPERTY. Tenant, at its own cost and expense, may
erect such shelves, racks, bins and trade fixtures (collectively, TENANT'S
PROPERTY) within the Premises as it desires and without Landlord's prior
consent provided that (a) such items do not alter the basic character of
the Premises or the Building; (b) such items do not overload or damage the
Premises or the Building or the utility or other systems serving same; (c)
such items may be removed without material injury to the Premises and the
Building; and (d) the construction, erection or installation thereof
complies with all Applicable Laws, applicable building permits and
certificates of occupancy; and (e) provided that Tenant's installation of
Tenant's Property prior to the Rent Commencement Date will be subject to
Paragraph 6B above. All of Tenant's Property shall remain the property of
Tenant and shall be removed on or before the earlier to occur of the date
of termination of this Lease or Tenant's vacating of the Premises. Tenant
shall promptly repair any damage to the Project or the Premises caused by
the removal of any of Tenant's Property. Any of Tenant's Property not so
removed and any other property of Tenant not removed prior to the
termination of this Lease or Tenant's vacating of the Premises shall
thereupon be conclusively presumed to have been abandoned by Tenant, and
Landlord may, at its option, take over possession of any and all of the
foregoing and either (i) declare the same to be the property of Landlord
by written notice to Tenant at the address provided herein or (ii) at the
sole cost and expense of Tenant, remove, store, and/or dispose of the same
or any part thereof all at Tenant's cost, in any manner that Landlord shall
choose without incurring liability to Tenant or any other person."
6. EXHIBITS. EXHIBIT "E" to the Lease shall be, and hereby is, deleted
and replaced with EXHIBIT "E" as attached to this Amendment. The Lease shall
be, and hereby is, further amended to add as EXHIBIT "G" thereto the Finish
Plans attached to this Amendment as EXHIBIT "G". EXHIBITS "A"-"D" and "F" are
omitted from this Amendment.
7. COUNTERPARTS. This Amendment may be executed in counterparts.
Facsimile signatures will have the same effect as originals.
8. RATIFICATION. The Lease, as amended hereby, is ratified and
confirmed by the parties as being in full force and effect. To the extent of
any conflict between the terms of the Lease and this Amendment, this
Amendment shall govern. All capitalized terms herein shall have the same
meaning as set forth in the Lease unless otherwise noted herein. This
Amendment is binding on the parties and their successors and assigns.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
effective as of the latter of the two dates set forth below.
LANDLORD: MEPC QUORUM PROPERTIES INC., a Delaware
corporation
By: /s/ Ab Atkins
---------------------------------
FIRST AMENDMENT -- PAGE 4
Name: Ab ATKINS
-------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------
By: /s/ Peter Johnson
---------------------------------
Name: PETER JOHNSON
-------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------
TENANT: MANNATECH, INC. a Texas corporation
By: /s/ (Illegible)
---------------------------------
Name:
-------------------------------
Title: C.O.O.
------------------------------
FIRST AMENDMENT -- PAGE 5
EXHIBITS "A" - "D"
OMITTED
EXHIBIT "E"
ACCEPTANCE OF PREMISES MEMORANDUM
This memorandum is being executed pursuant to the Commercial Lease
Agreement (the LEASE) executed on the _____ day of____________,1999, between
MEPC QUORUM PROPERTIES II INC., a Delaware corporation (LANDLORD), and
MANNATECH, INC., a Texas corporation (TENANT).
Landlord and Tenant hereby agree that:
1. Except for the Punch List Items (as shown on the attached Punch List),
Landlord has fully completed the construction work required under the
terms of the Lease and the Finish Plans attached thereto. Landlord will use
reasonable efforts to complete the Punch List Items within thirty (30) days
after the date hereof.
2. Tenant acknowledges that, subject to the Punch List Items, (i) it has
inspected and accepts the Premises, (ii) the buildings and improvements
comprising the same are suitable for the purpose for which the Premises are
leased, (iii) the Premises are in good and satisfactory condition, and (iv)
no representations as to the repair of the Premises, nor promises to alter,
remodel or improve the Premises which have been made by Landlord remain
unsatisfied.
3. The Rent Commencement Date of the Lease is the ____ day of ___________,
199___.
4. The expiration date of the Lease is the ____ day of__________, _____.
5. All capitalized terms not defined herein shall have the meaning assigned to
them in the Lease.
Agreed and Executed this ______day of ______________, 1998.
LANDLORD TENANT
MEPC QUORUM PROPERTIES II INC., MANNATECH, INC., a Texas corporation
a Delaware corporation a Texas corporation
By: By:
-------------------------- --------------------------------
Name: Name:
------------------------ ------------------------------
Title: Title:
----------------------- -----------------------------
By:
--------------------------
Name:
------------------------
Title:
-----------------------
EXHIBIT "F"
OMITTED
EXHIBIT "G"
Attached hereto are the site plans for the leased property.
ASSIGNMENT OF PATENT RIGHTS
WHEREAS, WE, BILL H. MCANALLEY, H. REGINALD MCDANIEL, D. ERIC MOORE, EILEEN
P. VENNUM and WILLIAM C. FIORETTI, (hereinafter referred to as the "INVENTORS")
are citizens of the United States and reside at the addresses as stated below,
respectively, have jointly made an invention (hereinafter referred to as the
"INVENTION") entitled "COMPOSITIONS OF PLANT CARBOHYDRATES AS DIETARY
SUPPLEMENTS" for which we have filed United States provisional patent
applications, an International Application pursuant to the Patent Cooperation
Treaty ("PCT") designating all countries that were members of the PCT as of
August 4, 1997 and certain direct national foreign patent applications,
including, without limitation, the patents and patent applications listed on
Schedule A;
WHEREAS, MANNATECH, INC. (hereinafter referred to as MANNATECH), a
corporation organized under the laws of the State of Texas, U.S.A. having a
place of business at 600 South Royal Lane, Suite 200, Coppell, TX 75019, is
desirous of acquiring the entire right, title and interest in, to and under the
INVENTION and all patents and patent applications filed thereon, including,
without limitation, the patents and patent applications listed on Schedule A.;
NOW, THEREFORE, for and in consideration of One Dollar ($1.00) and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged jointly and severally by the INVENTORS, we have assigned,
sold, transferred and set over and by these presents do hereby assign, sell,
transfer and set over unto MANNATECH the entire right, title and interest in and
to (a) the INVENTION and worldwide rights therein; (b) the patents and patent
applications listed on Schedule A., including all continuations, divisions,
continuations-in-part and substitutions thereof, and (c) all patents which shall
issue for the INVENTION including without limitation, any and all patents and
patent application listed on Schedule A or any continuations, divisions,
continuations-in-part, renewals or substitutes thereof as well as all reissues,
reexaminations, renewals and extensions thereof, for the United States, its
territories and possessions and all foreign countries, including the right to
file corresponding patent applications on the INVENTION in any and all foreign
countries, and to claim priority under any and all treaties and conventions to
which the United States of America is signatory including the Paris Convention
for the Protection of Industrial Property for such corresponding applications,
or any division, continuation, continuation-in-part or substitution thereof, the
same to be held and enjoyed by MANNATECH, its assigns and successors, as fully
and entirely as the same would have been held and enjoyed by the INVENTORS, had
this assignment not been made.
The INVENTORS jointly and severally covenant and agree that the INVENTORS
will, at any time upon the request and at the expense of MANNATECH, execute and
deliver any and all papers and do all lawful acts that may be necessary or
desirable, in the opinion of MANNATECH, to enable and assist MANNATECH to (a)
obtain patents, both domestic and foreign, on the INVENTION; (b) establish,
maintain and secure title in MANNATECH, its successors and assigns, to the
INVENTION, the patents and patent applications listed on Schedule A including
making such title lawful public record; and (c) defend, establish or otherwise
preserve the validity of the
Page 1 of 8
patents and patent applications listed on the Schedule A against any and all
infringers, and perform such other acts as are necessary to give full force and
effect to this assignment.
The INVENTORS jointly and severally represent and covenant that no
assignment, mortgage, sale, license, pledge, encumbrance or alienation of the
INVENTION or the patents and patent applications listed on Schedule A has been
or will be made or entered into which would conflict with this assignment and
sale.
The INVENTORS jointly and severally hereby irrevocably constitute and
appoint MANNATECH and any officer or agent thereof, with full power of
substitution, as their, his or her true and lawful attorney-in-fact, with full
irrevocable power and authority in their, his or her name to take any and all
action and to execute thereafter any and all documents and instruments which
MANNATECH deems necessary or desirable to accomplish the purposes of this
Agreement.
The INVENTORS jointly and severally authorize MANNATECH, its attorneys and
agents to prosecute the applications listed in Schedule A and to update the
information concerning the applications listed in Schedule A including inserting
the application numbers and filing dates, when known, into the assignment for
the INVENTION. MANNATECH shall send updated copies of Schedule A to the
INVENTORS from time to time.
Page 2 of 8
IN WITNESS WHEREOF, we have duly executed this assignment on the date as
indicated next to our names.
Date: 30 Oct 97 /s/ Bill H. McAnalley
-----------------------------
BILL H. MCANALLEY
Residence Address: 4921 CORN VALLEY
GRAND PRAIRIE, TX 75052
UNITED STATES OF AMERICA
STATE OF TEXAS
COUNTY OF Dallas
BEFORE ME, the undersigned authority, on this day personally appeared Bill
H. McAnalley, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 30 day of OCT., 1997.
/s/ Vincenza C. Calvey
------------------------
VINCENZA C. CALVEY Notary Public in and for
MY COMMISSION EXPIRES said county and state
September 11, 2001
SEAL
VINCENZA C. CALVEY
--------------------------
Printed Name of Notary
My Commission Expires:
9-11-2001
Page 3 of 8
Date: 10/30/97 /s/ H. Reginald McDaniel
-------------------------
H. REGINALD MCDANIEL
Residence Address: 4 WOODLAND DRIVE
MANSFIELD, TX 76063
UNITED STATES OF AMERICA
STATE OF TEXAS
COUNTY OF Dallas
BEFORE ME, the undersigned authority, on this day personally appeared H.
Reginald McDaniel known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 30 day of OCT., 1997.
/s/ Vincenza C. Calvey
--------------------------------
VINCENZA C. CALVEY Notary Public in and for
MY COMMISSION EXPIRES said county and state
September 11, 2001
SEAL VINCENZA C. CALVEY
----------------------------
Printed Name of Notary
My Commission Expires:
9-11-2001
Page 4 of 8
Date: 10/30/97 /s/ D. Eric Moore
-------------------------
D. ERIC MOOORE
Residence Address: 2911 OLD MILL RUN
GRAPEVINE, TX 76057
UNITED STATES OF AMERICA
STATE OF TEXAS
COUNTY OF Dallas
BEFORE ME, the undersigned authority, on this day personally appeared D.
Eric Moore known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 30 day of OCT., 1997.
/s/ Vincenza C. Calvey
--------------------------------
VINCENZA C. CALVEY Notary Public in and for
MY COMMISSION EXPIRES said county and state
September 11, 2001
SEAL VINCENZA C. CALVEY
----------------------------
Printed Name of Notary
My Commission Expires:
9-11-2001
Page 5 of 8
Date: 10/30/97 /s/ Eileen P. Vennum
-------------------------
EILLEEN P. VENNUM
Residence Address: 2229 N. WESTFIELD
GRAND PRAIRIE, TX 75050
UNITED STATES OF AMERICA
STATE OF TEXAS
COUNTY OF Dallas
BEFORE ME, the undersigned authority, on this day personally appeared
Eileen P. Vennum known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 30 day of OCT., 1997.
/s/ Vincenza C. Calvey
--------------------------------
VINCENZA C. CALVEY Notary Public in and for
MY COMMISSION EXPIRES said county and state
September 11, 2001
SEAL VINCENZA C. CALVEY
----------------------------
Printed Name of Notary
My Commission Expires:
9-11-2001
Page 6 of 8
Date: 10/30/97 /S/ William C. Fioretti
-------------------------
WILLIAM C. FIORETTI
Residence Address: 2224 LAKERIDGE DRIVE
GRAPEVINE, TX 76051
UNITED STATES OF AMERICA
STATE OF TEXAS
COUNTY OF Dallas
BEFORE ME, the undersigned authority, on this day personally appeared
William C. Fioretti known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same
for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 30 day of OCT., 1997.
/s/ Vincenza C. Calvey
--------------------------------
VINCENZA C. CALVEY Notary Public in and for
MY COMMISSION EXPIRES said county and state
September 11, 2001
SEAL VINCENZA C. CALVEY
----------------------------
Printed Name of Notary
My Commission Expires:
9-11-2001
Page 7of 8
SCHEDULE A
1) United States Provisional patent application Serial No. 60/022,467 filed
August 9, 1996;
2) United States Provisional patent application Serial No. 60/030,317 filed
November 1, 1996;
3) United States Provisional patent application Serial No. 60/057,017 filed
July 24, 1997;
4) PCT International Application No. PCT/US97/13379 filed August 4, 1997;
5) Argentina patent application Serial No. P97 01 03619 filed August 8, 1997;
6) Malaysian patent application Serial No. ______________ filed August 8,
1997;
7) Philippines patent application Serial No. I-57533 filed August 8, 1997;
8) South African patent application Serial No. 97/7102 filed August 8, 1997;
9) Taiwan patent application Serial No. 86111421 filed August 9, 1997;
10) Thailand patent application Serial No. 038968 filed August 7, 1997; and
11) Venezuelan patent application Serial No. 1592-97 filed August 8,1997.
Page 8 of 8
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of March 31, 1995, is
by and between CARALOE, INC., a Texas corporation ("Seller"), and EMPRISE
INTERNATIONAL, INC., a Texas corporation ("Buyer"),
WITNESSETH:
WHEREAS, Seller desIres to sell to Buyer, and Buyer desires to purchase
from Seller, bulk aloe vera mucilaginous polysaccharide (hereinafter referred to
under the product name of "MANAPOL-TM-") in the quantities, at the price, and
upon the terms and conditions hereinafter set forth; and
WHEREAS, simultaneously with the execution of this Agreement, Seller and
Buyer are entering into a Trademark License Agreement of even date herewith (the
"License Agreement") pursuant to which, among other things, Seller is granting
to Buyer a license to use the product name MANAPOL-TM- in connection with the
labeling, advertising and sale of products manufactured by or for Buyer that
contain MANAPOL-TM-;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
1. TERM. The term of this Agreement shall commence on April 1, 1995, and
shall end at midnight on March 31, 2000, unless sooner terminated as provided
herein (the "Term"). This Agreement shall terminate automatically upon the
expiration or termination of the License Agreement.
2. SALE AND PURCHASE.
(a) Subject to the terms and conditions of this Agreement, Seller shall
sell to Buyer, and Buyer shall purchase from Seller, during each year of the
Term, not less than the quantity of MANAPOL-TM- specified for such year below:
YEAR QUANTITY
---- --------
From April 1, 1995 to March 31, 1996 Not less than 225 kilograms per month
From April 1, 1996 to March 31, 1997 Not less than 225 kilograms per month
From April 1, 1997 to March 31, 1998 Not less than 270 kilograms per month
From April 1, 1998 to March 31, 1999 Not less than 324 kilograms per month
From April 1, 1999 to March 31, 2000 Not less than 388 kilograms per month
(b) Buyer agrees that all MANAPOL-TM- purchased by it hereunder or under
the Supply Agreement between the parties dated May 16, 1994 (the "Prior Supply
Agreement") shall be used only as an additive in human health food products, new
products to include skin care, cosmetics, health care products, those mutually
agreed upon by the parties, and all those currently being sold by Buyer; and
manufactured by or for Buyer that are intended for sale to
the ultimate consumer in the United States or elsewhere, subject to compliance
with Buyer's obligations under the License Agreement, including without
limitation Buyer's obligations under Article III thereof. All food products
manufactured by or for Buyer that contain MANAPOL-TM- purchased by Buyer from
Seller (under this Agreement or the Prior Supply Agreement) are herein called
"Buyer Products".
(c) During the Terms Buyer shall have the exclusive right to purchase
MANAPOL-TM- from Seller or its affiliates for use as an additive in human health
food products that are intended for sale to the ultimate consumer in the United
States, Canada and Mexico.
3. QUALITY. Seller warrants to Buyer that all MANAPOL-TM- sold by Seller
pursuant to this Agreement will conform to the quality specifications set forth
in EXHIBIT A to this Agreement, EXCEPT AS PROVIDED IN THIS PARAGRAPH 3, THERE
ARE NO WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A
PARTICULAR PURPOSE, MADE WITH RESPECT TO THE MANAPOL-TM- TO BE SOLD HEREUNDER,
AND NONE SHALL BE IMPLIED BY LAW.
4. DELIVERIES. Buyer shall instruct Seller from time to time during the
Term, by placing a purchase order with Seller reasonably in advance of the date
Buyer desires MANAPOL-TM- to be delivered to it hereunder, (i) as to the
quantities of MANAPOL-TM- to be delivered to Buyer, (ii) as to the specific date
of delivery, (iii) as to the specific location of delivery and (iv) as to the
carrier or particular type of carrier for such delivery. During the Term, Buyer
shall provide Seller (a) on an annual basis prior to the beginning of each year
of the Term a nonbinding forecast of Buyer's minimum and maximum aggregate
delivery requirements for MANAPOL-TM- for such year (provided that such forecast
for the initial year of the Term shall be provided to Seller by April 15, 1995),
and (b)on a quarterly basis at least 30 days prior to the end of each
three-month period of the Term a forecast acceptable to Seller (which shall be
binding on Buyer) of Buyer's minimum and maximum delivery requirements for
MANAPOL-TM- for each month of the three-month period (provided that such
forecast for the initial three-month period of the Term ending on June 30, 1995,
shall be provided to Seller by April 15, 1995). The quantities of MANAPOL-TM-
ordered by Buyer pursuant to this Agreement from time to time shall be spaced in
a reasonable manner, and Buyer shall order such quantities in accordance with
Buyer's binding forecasts. In no event shall Seller be required to deliver to
Buyer in any three-month period a quantity of MANAPOL-TM- in excess of 125% of
the maximum delivery requirement for such period set forth in the binding
forecast for such period accepted by Seller. Deliveries of MANAPOL-TM- shall be
made by Seller under normal trade conditions in the usual and customary manner
being utilized by Seller at the time and location of the particular delivery.
The MANAPOL-TM- delivered to Buyer hereunder shall be packaged in 3 kilogram or
10 kilogram containers. All deliveries of MANAPOL-TM- to Buyer hereunder shall
be made by Seller F.O.B. at the facilities of Seller or its affiliates located
in Dallas or Irving, Texas.
2
5. PURCHASE PRICE.
(a) All MANAPOL-TM- to be purchased by Buyer under this Agreement shall be
purchased by it, during the first two years of the Term, at a price of $1,200
per kilogram and, during the last three years of the Term, at the price per
kilogram agreed upon by the parties for such three-year period pursuant to the
provisions of Paragraph 5(b) hereof. Buyer shall bear all freight, insurance and
similar costs, and all sales taxes, with respect to such purchases. The purchase
price of MANAPOL-TM-, together with all related freight, insurance and similar
costs, and sales taxes, shall be paid by Buyer to Seller within 30 days after
the date of invoice.
(b) Not later than February 1, 1997, Seller and Buyer shall commence good
with negotiations to determine and agree upon the price of MANAPOL-TM- to be
purchased by Buyer hereunder during the last three years of the Term. If the
parties are unable to so agree on such price by March 15, 1997, this Agreement
shall terminate effective at midnight on March 31, 1997. Nothing contained in
this Paragraph 5(b) shall be deemed to (i) obligate the parties to agree upon
such price, (ii) obligate a party to negotiate with the other party regarding
such price if such other party is then in breach of or in default under this
Agreement or the License Agreement or (iii) limit the rights of the parties
under Paragraph 9 hereof.
6. ROYALTIES.
(a) As additional consideration for the rights granted to Buyer pursuant
to Paragraph 2 hereof, Buyer shall pay to Seller a royalty in an amount equal to
three percent (3%) of the net sales price of all Buyer Products sold by or on
behalf of Buyer or its affiliated companies or their respective distributors on
or after April 1, 1995 that receive "Bonus Volume" as that term is defined in
schedule 1 attached hereto and made a part hereof. Generally, however, the term
"Bonus Volume" shall mean the dollar amount assigned by Buyer to Buyer Products
for the purpose of paying commissions or bonuses to its distributors. It shall
be presumed that all products listed on schedule 1 shall remain thereon unless
both parties mutually agree to their deletion and it shall be further presumed
that all new products shall be added to the schedule unless the parties agree
that they should not. Generally, sales aides, brochures, and travel related
programs are presumed not to be included. Sales Kits will be excluded except
that product listed on schedule 1 will be given a mutually agreed upon
discounted value and a royalty shall be paid on these product inclusions into a
sales kit;
(b) Buyer hereby agrees that payment of royalties to Seller pursuant to
Paragraph 6(a) shall be made with respect to each calendar quarter, and shall be
made within 30 days following the end of each calendar quarter, with respect to
all Buyer Products sold during such calendar quarter. Payment of royalties shall
be accompanied by a report of Buyer to Seller setting forth in reasonable detail
the calculation of such royalties and containing such other information as
Seller may reasonably request in connection with such calculation Buyer agrees
that it will at all times keep complete, separate and accurate books of account
with respect to the sale of Buyer Products in sufficient detail to permit the
accurate preparation of such reports and to enable Seller to ascertain the
royalties accruing and payable hereunder. Buyer further agrees
3
to permit Seller and its authorized representatives to have access to such books
of account during ordinary business hours for the purpose of verifying the
accuracy of Buyer's reports.
(c) The Buyer shall buy the 225 kilograms per month. Buyer shall provide
Seller with the total usage on a monthly basis. When the monthly use of
MANAPOL-TM- exceeds 225 kilograms per month Buyer shall pay Seller a 3% royalty
on all product sales.
7. CONFIDENTIALITY. In the performance of Seller's obligations Pursuant
to this Agreement or the License Agreement, Buyer may acquire from Seller or its
affiliates technical, commercial, operating or other proprietary information
relative to the business or operations of Seller or its affiliates (the
"Confidential Information"). Buyer shall maintain the confidentiality, and take
all necessary precautions to safeguard the secrecy, of any and all Confidential
Information it may acquire from Seller or its affiliates. Buyer shall not use
any of such Confidential Information for its own benefit or for the benefit of
anyone else. Buyer shall not publicly disclose the existence of this Agreement
or the terms hereof without the prior written consent of Seller.
8. FORCE MAJEURE. Seller shall not have any liability hereunder if it
shall be prevented from performing any of its obligations hereunder by reason of
any factor beyond its control, including, without limitation, fire, explosion,
accident, riot, flood, drought, storm, earthquake, lightning, frost, civil
commotion, sabotage, vandalism, smoke, hail, embargo, act of God or the public
enemy, other casualty, strike or lockout, or interference, prohibition or
restriction imposed by any government or any officer or agent thereof ("Force
Majeure"), and Seller's obligations, so far as may be necessary, shall be
suspended during the period of such Force Majeure and shall be canceled in
respect of such quantities of MANAPOL-TM- as would have been sold hereunder but
for such suspension. Seller shall give to Buyer prompt notice of any such Force
Majeure, the date of commencement thereof and its probable duration and shall
give a further notice in like manner upon the upon the termination thereof.
Each party hereto shall endeavor with due diligence to resume compliance with
its obligations hereunder at the earliest date and shall do all that it
reasonably can to overcome or mitigate the effects of any such Force Majeure
upon its obligations wider this Agreement.
9. RIGHTS UPON DEFAULT.
(a) SELLER'S RIGHTS UPON DEFAULT. If Buyer (i) fails to purchase the
quantities of MANAPOL-TM- specified for purchase by Buyer hereunder, (ii) fails
to make a payment hereunder when due or (iii) otherwise breaches any term of
this Agreement, and such failure or breach is not cured to Seller's reasonable
satisfaction within 5 days (in the case of a failure to make a payment) or 30
days (in any other case) after receipt of notice thereof by Buyer, or if Buyer
fails to perform or observe any covenant or condition on its part to be
performed or observed under the License Agreement when required to be performed
or observed, and such failure continues after the applicable grace period, if
any, specified in the License Agreement, Seller may refuse to make further
deliveries hereunder and may terminate this Agreement upon notice to Buyer and,
in addition, shall have such other rights and remedies, including the Seller to
recover damages, as are available to Seller under applicable law or otherwise.
If Buyer
4
becomes bankrupt or insolvent, or if a petition in bankruptcy is filed by or
against it, or if a receiver is appointed for it or its properties, Seller may
refuse to make further deliveries hereunder and may terminate this Agreement
upon notice to Buyer, without prejudice to any rights of Seller existing
hereunder or under applicable law or otherwise. Any subsequent shipment of
MANAPOL-TM- by Seller after a failure by Buyer to make any payment hereunder, or
after any other default by Buyer hereunder, shall not constitute a waiver of any
rights of Seller arising out of such prior default; nor shall Seller's failure
to insist upon strict performance of any provision of this Agreement be deemed a
waiver by Seller of any of its rights or remedies hereunder or under applicable
law or a waiver by Seller of any subsequent default by Buyer in the performance
of or compliance with any of the terms of this Agreement.
(b) BUYER'S RIGHTS UPON DEFAULT. If Seller fails in any material respect
to perform its obligations hereunder, and such failure is not cured to Buyer's
reasonable satisfaction with in 30 days after receipt of notice thereof by
Seller, Buyer shall have the right to refuse to accept further deliveries
hereunder and to terminate this Agreement upon notice to Seller and, in
addition, shall have such other rights and remedies, including the right to
recover damages, as are available to Buyer under applicable law or otherwise.
Any subsequent acceptance of delivery of MANAPOL-TM- by Buyer after any default
by Seller under this Agreement shall not constitute a waiver of any rights of
Buyer arising out of such prior default; nor shall Buyer's failure to insist
upon strict performance of any provision of this Agreement be deemed a waiver by
Buyer of any of its rights or remedies hereunder or under applicable law or a
waiver by Buyer of any subsequent default by Seller in the performance of or
compliance with any of the terms of this Agreement.
10. DISCLAIMER AND INDEMNITY Buyer shall assume all financial and other
obligations for Buyer Products, and Seller shall not incur any liability or
responsibility to Buyer or to third parties arising out of or connected in any
manner with Buyer Products. In no event shall Seller be liable for lost profits,
special damages, consequential damages or contingent liabilities arising out of
or connected in any manner with this Agreement or Buyer Products. Buyer shall
defend, indemnify and hold harmless Seller and its affiliates, and their
respective officers, directors, employees and agents, from and against all
claims, liabilities, demands, damages, expenses and losses (including reasonable
attorneys's fees and expenses) arising out of or connected with (i) any
manufacture, use, sale or other disposition of Buyer Products, or any other
products of Buyer, by Buyer or any other party and (ii) any breach by Buyer of
any of its obligations under this Agreement or the License Agreement.
11. EQUITABLE RELIEF. A breach by Buyer of the provisions of Paragraph
2(b) shall cause Seller to suffer irreparable harm and, in such event, Seller
shall be entitled, as a matter of right, to a restraining order and other
injunctive relief from any court of competent jurisdiction, restraining any
further violation thereof by Buyer, its officers, agents, servants, employees
and those persons in active concert or participation with them. The right to a
restraining order or other injunctive relief shall be supplemental to any other
right or remedy Seller may have, including, without limitation, the recovery of
damages for the breach of such provisions or of any other provisions of this
Agreement.
5
12. SURVIVAL. The expiration or termination of the Term shall not impair
the right or obligation of either party hereto which shall have accrued
hereunder prior to such expiration or termination. The provisions of Paragraphs
2(b), 6, 7, 9, 10 and 11 hereof, and the rights and obligation of the parties
thereunder, shall survive the expiration or termination of the Term.
13. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Texas.
14. SUCCESSION. Neither party hereto may assign or otherwise transfer this
Agreement or any of its rights or obligations hereunder (including, without
limitation, by merger or consolidation) without the prior written consent of the
other party; provided, however, that Seller may assign any of its rights or
obligations hereunder to any affiliate of Seller. Subject to the immediately
preceding sentence, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
15. ENTIRE AGREEMENT. This Agreement and the License Agreement constitute
the entire agreement between the parties hereto relating to the matters covered
hereby and Supersede any and all prior understandings, whether written or oral,
with respect to such matters, including the Prior Supply Agreement. The terms of
this Agreement shall prevail over any inconsistent terms contained in any
purchase order issued by Buyer and acknowledgment or acceptance thereof issued
by Seller. No modification, waiver or discharge of this Agreement or any of its
terms shall be binding unless in writing and signed by the party against which
the modification, waiver or discharge is sought to be enforced. This Agreement
is separate from and, except for the License Agreement, unrelated to any other
agreement between the parties hereto and has been entered into for separate and
independent consideration, the sufficiency of which is hereby acknowledged by
the parties.
16. NOTICES. All notices and other communications with respect to this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered Personally or when duly deposited in the mails, first class mail,
Postage prepaid, to the address set forth below, or such other address hereafter
specified in like manner by one party to the other:
If to Seller: Caraloe, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
If to Buyer: Emprise International, Inc.
2010 North Highway 360
Grand Prairie, Texas 75050
Attention: President
17. INTERPRETATION. In the event that any provision of this Agreement is
illegal, invalid or unenforceable as Written but may be rendered legal, valid
and enforceable by limitation thereof, then such provision shall be deemed to be
legal, valid and enforceable to the
6
maximum extent Permitted by applicable law. The illegality, invalidity or
unenforceability in its entirety of any Provision hereof will not affect the
legality, validity or enforceability of the remaining Provisions of this
Agreement.
18. NO INCONSISTENT ACTIONS. Each party hereto agrees that it will not
voluntarily undertake any action or course of action inconsistent with the
provisions or intent of this Agreement and, subject to the provisions of
Paragraph 8 hereof, will promptly do an acts and take all measures as may be
appropriate to comply with the terms, conditions and provisions of this
Agreement
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
CARALOE, INC
By: /s/ Carlton E. Turner
------------------------------------
Name: Carlton E. Turner
-------------------------------
Title: Chief Operating Officer
-----------------------------
EMPRISE INTERNATIONAL, INC.
By: /s/ William C. Fioretti
-------------------------------------
Name: William C. Fioretti
------------------------------
William C. Fioretti
Title: Chief Executive Officer
7
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of August 14, 1997,
is by and between CARALOE, INC., a Texas corporation ("Seller"), and MANNATECH,
INC., a Texas corporation ("Buyer"),
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, bulk aloe vera mucilaginous polysaccharide (hereinafter referred to
under the product name of "MANAPOL-Registered Trademark- powder") in the
quantities, at the price, and upon the terms and conditions hereinafter set
forth; and
WHEREAS, simultaneously with the execution of this Agreement, Seller and
Buyer are entering into a Trademark License Agreement of even date herewith (the
"License Agreement") pursuant to which, among other things, Seller is granting
to Buyer a license to use the product name MANAPOL-Registered Trademark- in
connection with the labeling, advertising and sale of products manufactured by
or for Buyer that contain MANAPOL-Registered Trademark- powder; as one of the
ingredients in products manufactured by or for Buyer also containing other
ingredients and substances (the "Manufactured Products").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
1. TERM. The term of this Agreement shall commence on August 15, 1997, and
shall end at midnight on August 14, 2000, unless further extended or sooner
terminated as provided herein (such term as extended, herein called the "Term").
The Term (including each one-year extension of the Term) shall be extended
automatically for an additional one-year period, provided that, at least thirty
(30) days prior to the end of the Term, Seller and Buyer mutually agree in
writing on the quantity and price of MANAPOL-Registered Trademark- to be sold by
Seller and purchased by Buyer hereunder during such additional one-year period.
At least sixty (60) days prior to the end of the Term, Seller and Buyer shall
commence good faith negotiations to determine and agree upon such quantity and
price for such additional one-year period. If the parties are unable to so agree
on such quantity and price, this Agreement shall terminate effective at the end
of the current Term. Nothing contained in this Paragraph 1 shall be deemed to
(i) obligate the parties to agree upon such quantity and price, (ii) obligate a
party to negotiate with the other party regarding such quantity and price if
such other party is then in breach of or in default under this Agreement or the
License Agreement or (iii) limit the rights to the parties under Paragraph 8
hereof This Agreement shall terminate automatically upon the expiration or
termination of the License Agreement.
1
2. SALE AND PURCHASE LICENSE.
(a) Subject to the terms and conditions of this Agreement, Seller
shall sell to Buyer, and Buyer shall purchase from Seller, not less than 300
kilograms per month.
(b) Buyer agrees that all MANAPOL-Registered Trademark- powder
purchased by it hereunder shall be used only (i) as an additive in human or
animal health food products (in capsule or liquid form) manufactured by or for
Buyer that are intended for sale to the ultimate consumer in the United States
or elsewhere and subject to compliance with Buyer's obligations under the
License Agreement, including without limitation Buyer's obligations under
Article III thereof. Such food products are herein called "Buyer Products".
3. QUALITY. Seller warrants to Buyer that all MANAPOL-Registered
Trademark- powder sold by Seller pursuant to this Agreement will conform to the
quality specifications set forth in EXHIBIT A to this Agreement. EXCEPT AS
PROVIDED IN THIS PARAGRAPH 3, THERE ARE NO WARRANTIES OR REPRESENTATIONS OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, MADE WITH RESPECT
TO THE MANAPOL-Registered Trademark- POWDER TO BE SOLD HEREUNDER, AND NONE SHALL
BE IMPLIED BY LAW. THE FOREGOING NOTWITHSTANDING, SELLER DOES REPRESENT THAT
THE MANAPOL-Registered Trademark- POWDER DOES MEET THE SPECIFICATIONS OUTLINED
ON EXHIBIT A AND THAT IT IS A FOOD SUPPLEMENT UNDER THE FDA RULES AND
REGULATIONS.
4. INSURANCE. Carrington shall maintain insurance during the term of this
Agreement, and any extensions thereof with not less than the same coverage,
endorsements, limits and notice of cancellation as shown in the insurance
certificate attached hereto as Exhibit C. Carrington shall, within thirty (30)
days after this Agreement is executed by both Parties, provide Mannatech with a
copy of its insurance certificate naming Mannatech as an additional insured and
listing the coverage, endorsements, limits, and notice of cancellation
provisions. Carrington shall not cancel or materially alter such policy without
providing at least thirty (30) days prior written notice to all named insured.
Failure by Carrington to maintain insurance coverage in accordance with this
Article 4 shall constitute a material breach of this Agreement. It is understood
and agreed that the furnishing of such insurance certificate will not relieve
Carrington of its other respective obligations under this Agreement.
5. DELIVERIES. Buyer shall instruct Seller from time to time during the
Term, by placing a purchase order with Seller reasonably in advance of the date
Buyer desires MANAPOL-Registered Trademark- powder to be delivered to it
hereunder, (i) as to the quantities of MANAPOL-Registered Trademark- powder to
be delivered to Buyer, (ii) as to the specific date of delivery, (iii) as to the
specific location of delivery and (iv) as to the carrier or particular type of
carrier for such delivery. Dung the Term, Buyer shall provide Seller (a) on a
quarterly basis commencing on August 15, a binding forecast of Buyer's mi:mum
and maximum aggregate delivery requirements for MANAPOL-Registered Trademark-
powder for such period, and (b) on a yearly basis a good faith forecast
acceptable to Seller (which shall be binding on Buyer) of Buyer's
2
minimum and maximum delivery requirements for MANAPOL-Registered Trademark-
powder for each month of the next twelve (12) month period. The quantities of
MANAPOL-Registered Trademark- powder ordered by Buyer pursuant to this Agreement
from time to time shall be spaced in a reasonable manner, and Buyer shall order
such quantities in accordance with Buyer's binding forecasts. In no event shall
Seller be required to deliver to Buyer in any three-month period a quantity of
MANAPOL-Registered Trademark- powder in excess of 125% of the maximum delivery
requirement for such period set forth in the binding forecast for such period
accepted by Seller. In no event shall Mannatech be required to purchase more
than 300 kilos of Manapol-Registered Trademark- powder per month, unless a
higher minimum monthly amount has been projected by Seller pursuant to 5(a).
Deliveries of MANAPOL-Registered Trademark- powder shall be made by Seller under
normal trade conditions in the usual and customary manner being utilized by
Seller at the time and location of the particular delivery. The
MANAPOL-Registered Trademark- powder delivered to Buyer hereunder shall be
packaged in five (5) kilogram or fifteen (15) kilogram containers. All
deliveries of MANAPOL-Registered Trademark- powder to Buyer hereunder shall be
made by Seller F.O.B. at the facilities of Seller or its affiliates located in
Irving, Texas.
6. PRICE. All MANAPOL-Registered Trademark- powder to be purchased by
Buyer under this Agreement shall be purchased by it, during the first year of
the Term, at a price as outlined in Attachment B, and during each year (if any)
of the Term, at the price per kilogram agreed upon by the parties for such
additional year pursuant to the provisions of Paragraph 1 hereof. Buyer shall
bear all freight, insurance and similar costs, and all sales taxes, with respect
to such purchases. The purchase price of MANAPOL-Registered Trademark- powder,
together with all related freight, insurance and similar costs, and sales taxes,
shall be paid by Buyer to Seller within thirty (30) days after the date of
invoice.
7. CONFIDENTIALITY. In the performance of Seller's obligations pursuant
to this Agreement or the License Agreement, Buyer may acquire from Seller or its
affiliates technical, commercial, operating or other proprietary information
relative to the business or operations of Seller or its affiliates (the
"Confidential Information"). Buyer shall maintain the confidentiality, and take
all necessary precautions to safeguard the secrecy, of any and all Confidential
Information it may acquire from Seller or its affiliates. Buyer shall not use
any of such Confidential Information for its own benefit or for the benefit of
anyone else. Buyer shall not publicly disclose the existence of this Agreement
or the terms hereof without the prior written consent of Seller.
8. FORCE MAJEURE. Seller shall not have any liability hereunder if it
shall be prevented from performing any of its obligations hereunder by reason of
any factor beyond its control, including, without limitation, fire, explosion,
accident, riot, flood, drought, storm, earthquake, lightning, frost, civil
commotion, sabotage, vandalism, smoke, hail, embargo, act of God or the public
enemy, other casualty, strike or lockout, or interference, prohibition or
restriction imposed by any government or any officer or agent thereof ("Force
Majeure"), and Seller's obligations, so fir as may be necessary, shall be
suspended during the period of such Force Majeure and shall be canceled in
respect of such quantities of MANAPOL-Registered Trademark- powder as would have
been sold hereunder but for such suspension. Seller shall give to Buyer prompt
notice of any such Force Majeure, the date of commencement thereof and its
probable duration and shall give a further notice in like manner upon the
termination thereof. Each party hereto shall endeavor with due diligence to
resume compliance with its
3
obligations hereunder at the earliest date and shall do all That it reasonably
can to overcome or mitigate The effects of any such Force Majeure upon its
obligations under this Agreement.
9. RIGHT UPON DEFAULT.
(a) SELLER'S RIGHTS UPON DEFAULT. If Buyer (i) fails to purchase The
quantities of MANAPOL-Registered Trademark- powder specified for purchase by
Buyer hereunder, (ii) fails to make a payment hereunder when due or (iii)
otherwise breaches any term of this Agreement, and such failure or breach is not
cured to Seller's reasonable satisfaction within five (5) days (in the case of a
failure to make a payment) or thirty (30) days (in any other case) after receipt
of notice thereof by Buyer, or if Buyer fails to perform or observe any covenant
or condition on its part to be performed when required to be performed or
observed, and such failure continues after the applicable grace period, if any,
specified in the Agreement, Seller may refuse to make further deliveries
hereunder and may terminate this Agreement upon notice to Buyer and, in
addition, shall have such other rights and remedies, including the right to
recover damages, as are available to Seller under applicable law or otherwise.
If Buyer becomes bankrupt or insolvent, or if a petition in bankruptcy is filed
by or against it, or if a receiver is appointed for it or its properties, Seller
may refuse to make further deliveries hereunder and may terminate this Agreement
upon notice to Buyer, without prejudice to any rights of Seller existing
hereunder or under applicable law or otherwise. Any subsequent shipment of
MANAPOL-Registered Trademark- powder by Seller after a failure by Buyer to make
any payment hereunder, or after any other default by Buyer hereunder, shall not
constitute a waiver of any rights of Seller arising out of such prior default;
nor shall Seller's failure to insist upon strict performance of any provision of
this Agreement be deemed a waiver by Seller of any of its rights or remedies
hereunder or under applicable law or a waiver by Seller of any subsequent
default by Buyer in The performance of or compliance with any of The terms of
this Agreement.
(b) BUYER'S RIGHTS UPON DEFAULT. If Seller fails in any material respect
to perform its obligations hereunder, and such failure is not cured to Buyer's
reasonable satisfaction within 30 days after receipt of notice thereof by
Seller, Buyer shall have the right to refuse to accept further deliveries
hereunder and to terminate this Agreement upon notice to Seller and, in
addition, shall have such other rights and remedies, including the right to
recover damages, as are available to Buyer under applicable law or otherwise.
Any subsequent acceptance of delivery of MANAPOL-Registered Trademark- powder by
Buyer after any default by Seller under this Agreement shall not constitute a
waiver of any rights of Buyer arising out of such prior default; nor shall
Buyer's failure to insist upon strict performance of any provision of this
Agreement be deemed a waiver by Buyer of any of its rights or remedies hereunder
or under applicable law or a waiver by Buyer of any subsequent default by Seller
in the performance of or compliance with any of the terms of this Agreement.
10. DISCLAIMER AND INDEMNITY. Buyer shall assume all financial and other
obligations for Buyer Products, and Seller shall not incur any liability or
responsibility to Buyer or to Third parties arising out of or connected in any
manner with Buyer Products. In no event shall Seller be liable for lost profits,
special damages, consequential damages or contingent liabilities arising out of
or connected in any manner with this Agreement or Buyer Products. Buyer shall
defend, indemnify and
4
hold harmless Seller and its affiliates, and their respective officers,
directors, employees and agents, from and against all claims, liabilities,
demands, damages, expenses and losses (including reasonable attorneys fees and
expenses) arising out of or connected with (i) any manufacture, use, sale or
other disposition of Buyer Products, or any other products of Buyer, by Buyer or
any other party and (ii) any breach by Buyer of any of its obligations under
this Agreement.
11. EQUITABLE RELIEF. A breach by Buyer of the provisions of Paragraph
2(b) shall cause Seller to suffer irreparable harm and, in such event, Seller
shall be entitled, as a matter of right, to a restraining order and other
injunctive relief from any court of competent jurisdiction, restraining any
further violation thereof by Buyer, its officers, agents, servants, employees
and those persons in active concert or participation with them. The right to
a restraining order or other injunctive relief shall be supplemental to any
other right or remedy Seller may have, including, without limitation, the
recovery of damages for the breach of such provisions or of any other
provisions of this Agreement.
12. SURVIVAL. The expiration or termination of the Term shall not impair
the rights or obligations of either party hereto which shall have accrued
hereunder prior to such expiration or termination. The provisions of Paragraphs
2(b), 3, 7, 9, 10 and 11 hereof, and the rights and obligations of the parties
thereunder, shall survive the expiration or termination of the Term.
13. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Texas.
14. SUCCESSION Neither party hereto may assign or otherwise transfer this
Agreement or any of its rights or obligations hereunder (including, without
limitation, by merger or consolidation) without the prior written consent of the
other parry; provided, however, that Seller may assign any of its rights or
obligations hereunder to any affiliate of Seller. Subject to the immediately
preceding sentence, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and theft respective successors and assigns.
15. ENTIRE AGREEMENT. This Agreement and the License Agreement constitute
the entire agreement between the parties hereto relating to the matters covered
hereby The terms of this Agreement shall prevail over any inconsistent terms
contained in any purchase order issued by Buyer and acknowledgment or acceptance
thereof issued by Seller. No modification, waiver or discharge of this Agreement
or any of its terms shall be binding unless in writing and signed by the party
against which the modification, waiver or discharge is sought to be enforced.
This Agreement is separate from and, except for the License Agreement, unrelated
to any other agreement between the parties hereto and has been entered into for
separate and independent consideration, the sufficiency of which is hereby
acknowledged by the parties.
16. NOTICES. All notices and other communications with respect to this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered personally or when duly deposited in the mails, first class mail,
postage prep aid, to the address set forth below, or such other address
hereafter specified in like manner by one party to the other:
5
If to Seller: Caraloe, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: President
If to Buyer: Mannatech, Inc.
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
Attention: President
17. INTERPRETATION. In the event that any provision of this Agreement is
illegal, invalid or unenforceable as written but may be rendered legal, valid
and enforceable by limitation thereof, then such provision shall be deemed to be
legal, valid and enforceable to the maximum extent permitted by applicable law.
The illegality, invalidity or unenforceability in its entirety of any provision
hereof will not affect the legality, validity or enforceability of the remaining
provisions of this Agreement.
18. NO INCONSISTENT ACTIONS. Each party hereto agrees that it will not
voluntarily undertake any action or course of action inconsistent with the
provisions or intent of this Agreement and, subject to the provisions of
Paragraph 7 hereof, will promptly do all acts and take all measures as may be
appropriate to comply with the terms, conditions and provisions of this
Agreement.
6
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written.
CARALOE, INC.
By: /s/ Carlton E. Turner
-------------------------------
Name: CARLTON E. TURNER
-------------------------------
Title: PRES/CEO
-----------------------------
MANNATECH, INC.
By: /s/ Charles E. Fioretti
--------------------------------
Name: CHARLES E. "SKIP" FIORETTI
------------------------------
Title: CHAIRMAN OF THE BOARD
-----------------------------
7
EXHIBIT A
TO THAT CERTAIN TRADEMARK LICENSE AND SUPPLY AGREEMENT
DATED AUGUST 14, 1997 BY AND BETWEEN CARALOE, INC. AND MANNATECH, INC.
MANAPOL-Registered Trademark- POWDER PRODUCT SPECIFICATION
SOURCE:
Freeze dried powder produced from inner gel of Aloe vera L.
PROCESSING:
PATENTED: U.S. and other patents.
PRODUCT SPECIFICATIONS:
Appearance Fine white to beige powder
Complex carbohydrates GREATER THAN OR EQUAL TO 30% of soluble
fraction
Moisture LESS THAN OR EQUAL TO 14%
Residue on ignition LESS THAN OR EQUAL TO 16%
Microbiological purity Meets U.S.P. specifications
Gel Points = 240 mg/oz
Viscosity (cP) @ 4 mg/ml = 40
Total acid value
(as malic acid) = 0.7% by AOAC method
Fiber content (GREATER LESS THAN OR EQUAL TO 60%
THAN 5 MICROMETERS)
8
EXHIBIT B
MANAPOL-Registered Trademark- POWDER
MONTHLY QUANTITY PRICE/KG
- ---------------- --------
200 to 300 Kg $ 1,225/Kg
301 to 400 Kg 1,200/Kg
401 to 500 Kg 1,150/Kg
501 to 600 Kg 1,125/Kg
601 to 700 Kg 1,100/Kg
The above pricing will be re-evaluated in May, 1998 or when monthly purchases
exceed 700 kilograms.
9
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT "Agreement"), effective as of March 31,
1995, is made by and between CARALOE, INC. ("Licensor"), a Texas corporation,
having its principal place of business at 2001 Walnut Hill Lane, Irving, Texas
75038, and EMPRISE INTERNATIONAL, INC. ("Licensee"), a Texas corporation, having
its principal place of business at 2010 North Highway 360, Grand Prairie, Texas
75050.
WITNESSETH:
WHEREAS, simultaneously with the execution of this Agreement, Licensor and
Licensee are entering into an exclusive Supply Agreement of even date herewith
(the "Supply Agreement") for the sale by Licensor and purchase by Licensee of
bulk aloe vera mucilaginous polysaccharide (hereinafter referred to under the
product name of "MANAPOL-TM-") to be used in products manufactured by Licensee
also containing other substances (the "Manufactured Products");
WHEREAS, Carrington Laboratories, Inc., a Texas corporation ("Carrington"),
claims the ownership of the trademark MANAPOL-TM- (the "Mark") and has granted
to Licensor a license to use the Mark and to license others to use it on an
exclusive and/or a nonexclusive basis;
WHEREAS, Licensee is desirous of obtaining from Licensor, and Licensor is
willing to grant to Licensee, a license to use the product name MANAPOL-TM- (the
"Mark") in connection with the advertising and sale of the Manufactured Products
subject to the terms, conditions and restrictions set forth herein; and
WHEREAS, Licensor and Licensee are mutually desirous of insuring the
consistent quality of all products sold in connection with the Mark;
NOW, THEREFORE, in consideration of premises, the mutual covenants,
promises and agreement set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby covenant, promise and agree as follows:
Article 1
LICENSE
1.1 TERMS AND CONDITIONS. Licensor hereby grants to Licensee the
non-transferable right and license to use the Mark in connection with the
labeling, advertising and sale of Manufactured Products manufactured and sold
by Licensee during the term of this Agreement. During the term of this
Agreement, Licensee shall have (a) the exclusive right to use the Mark in
connection with Manufactured Products containing MANAPOL-TM- that are intended
for sale to the ultimate consumer in the United States, Canada and Mexico, and
(b) the non-exclusive right to use the Mark in connection with Manufactured
Products containing MANAPOL-TM- that are intended for sale to the ultimate
consumer in places other than the United States, Canada and Mexico.
1.2 LICENSE COTERMINOUS WITH SUPPLY AGREEMENT. The license
granted by this Agreement shall run conterminously with the Supply Agreement,
and any actions or events which shall operate to extend or terminate the Supply
Agreement shall automatically extend or terminate this Agreement simultaneously.
1.3 SUBLICENSES. Licensee shall not have the right without written
permission from Licensor to grant sublicenses with respect to the license
granted herein; however, Licensee may engage a third party or parties to make
and affix labels for the Manufactured Products in compliance with Articles 2, 3,
and 4 hereof, and/or to distribute and sell the Manufactured Products in
compliance with the terms and conditions of this Agreement. Licensee shall be
expressly obligated to ensure full compliance with all terms and conditions of
this Agreement.
Article 2
CERTAIN OBLIGATIONS OF LICENSEE
2.1 REPRESENTATIONS BY LICENSEE. Licensee shall not represent in any
manner that it owns any right, title or interest in or to the Mark. Licensee
acknowledges that its use of the Mark shall inure to the benefit of Licensor and
shall not create in Licensee's favor any right, title or interest in or to the
Mark.
2.2 DISCONTINUATION OF USE OF MARK. Upon the expiration or termination of
this Agreement, Licensee will cease and desist from all use of the Mark in any
manner and will not adopt or use, without Licensor's prior written consent, any
word or mark which is confusingly or deceptively similar to the Mark, except
that Licensee may continue to use the Mark under the terms and, conditions of
this Agreement in connection with any remaining supplies of MANAPOL-TM-
purchased by Licensee from Licensor until such supplies are exhausted.
2.3 STANDARDS. All products on which the Mark is used by Licensee shall be
of consistent quality and shall meet or exceed all standards set by Licensor, in
Licensor's sole discretion, from time to time. Licensee shall have thirty (30)
days from the receipt of written notice of any change in the standards to comply
with any new requirements.
2.4 FDA COMPLIANCE OF PRODUCTS. All products on which the Mark is used by
Licensee shall be manufactured, packaged, labeled, advertised, marketed and sold
in compliance with (i) the Federal Food, Drug and Cosmetic Act and the rules and
regulations promulgated thereunder, as amended from dine to time, and (ii) all
other applicable laws, rules and relations.
2.5 INSPECTION. Licensor reserves the right to inspect Licensee's
products bearing the Mark and Licensee's manufacturing facilities at all
reasonable times to insure Licensee's compliance with this Agreement.
2.6 USE OF TRADEMARK. Licensee shall not use the Mark except as
specifically set forth herein. Without limiting the generality of the preceding
sentence, Licensee shall not use the Mark in connection with the sale or
advertising of any products other than the Manufactured Products.
2.7 TRADEMARK REGISTRATION. At Licensor's request and expense and, except
as otherwise provided herein at Licensor's sole discretion and option, Licensee
shall take whatever action it reasonably necessary to assist Carrington or its
assigns in registering the Mark with the U.S. Patent and Trademark Office
("USPTO") and/or in perfecting, protecting or enforcing Carrington's and
Licensor's rights in and to the Mark. Licensee understands that Carrington or
its assigns may rely solely on Licensee's use of the Mark to obtain or maintain
registration with the USPTO.
Article 3
MANUFACTURING AND SALE
3.1 MANUFACTURING FACILITIES. All manufacturing of the Manufactured
Products shall be done in the Licensee's facilities or contract facilities that
Licensee confirms meets all terms of this Agreement, including without
limitation Sections 2.3 and 2.4.
3.2 COMBINATION WITH OTHER PRODUCTS. Licensee shall not combine
MANAPOL-TM- with any product or Substance in any manner which would violate any
laws, rules or regulations of any state, federal or other governmental body.
Licensee shall not combine MANAPOL-TM- with any other substance in a
Manufactured Product that is to be advertised or sold for use or consumption by
humans or animals if the approval of the U.S. Food and Drug Administration (the
"FDA") or the U.S. Departs of Agriculture ("USDA") for such use or consumption
is required and has not been obtained.
-2-
3.3 COMPLIANCE BY THIRD PARTIES. Licensee shall take all steps reasonably
necessary to ensure that its distributors and any other parties to whom it sells
any of the Manufactured Products for resale do not relabel, repackage,
advertise, sell or attempt to sell MANAPOL-TM- or any of the Manufactured
Products in a manner that would violate this Agreement if done by Licensee.
3.4 MANAPOL-TM- CONTENT. The amount of MANAPOL-TM- to be contained in
each Manufactured Product shall be determined by mutual written agreement of
Licensor and Licensee. The parties shall meet once each calendar quarter to
determine and agree upon the MANAPOL-TM- content for existing and proposed
Manufactured Products.
Article 4
LABELS AND ADVERTISING
4.1 FDA COMPLIANCE OF LABELS AND ADVERTISING. All labels and advertising
relating to the Manufactured Products offered in connection with the Mark must
strictly comply with all applicable rules and regulations of the FDA and all
other applicable laws, rules and regulations, including but not limited to FDA
requirements relating to product ingredients. Information regarding the
ingredients of MANAPOL-TM- shall be furnished to Licensee by Licensor from time
to time.
4.2 MANDATORY REQUIREMENTS. Licensee shall cause all labels, packaging,
advertising and promotional materials used by it in advertising, marketing and
selling any product manufactured by or on behalf of Licensee that contains
MANAPOL-TM- to contain (i) the Mark, (ii) a statement setting forth the
concentration of MANAPOL-TM- contained in such product, and (iii) the following
legend:
MANAPOL-TM- is a trademark of Carrington laboratories, Inc.
4.3 CLAIMS BY LICENSEE. Licensee hereby agrees not to make, or permit any
of its employees, agents or distributors to make, any claims of any properties
or results relating to MANAPOL-TM- or any Manufactured Product, unless such
claims have received written approval from the FDA.
4.4 FDA OR USDA APPROVAL OF CLAIMS. If Licensee desires to seek FDA or
USDA approval as to any specific claims with respect to MANAPOL-TM- or any
Manufactured Product Licensee hereby agrees to (i) notify Licensor of the claims
and the application prior to filing and (ii) to keep Licensor informed as to the
progress of the application, including but not limited to sending Licensor
copies of all communications or notices to or from the FDA or USDA, as
applicable.
4.5 RIGHT TO APPROVE LABELS, ETC. If Licensor so requests, Licensee shall
not use any label, advertisement or marketing material that contains the Mark
unless such label, advertisement or marketing material has first been submitted
to and approved by Licensor. Licensor shall not unreasonably withhold its
approval of any such label, advertisement or marketing material.
Article 5
RIGHT OF FIRST REFUSAL
5.1 RIGHT OF FIRST REFUSAL. If, during the period of ninety (90) days
immediately following the effective date of this Agreement, Licensor receives
an offer from a third party to purchase quantities of MANAPOL-TM- and obtain an
exclusive license to use the Mark in connection with a product or products
containing MANAPOL-TM- that are intended for sale to the ultimate consumer in
places other than the United States, and Mexico, and such offer is acceptable to
Licensor, Licensor stall give prompt written notice to Licensee setting forth
the terms of such offer. If, within fifteen
-3-
(15) days after Licensee's receipt of such notice, Licensee notifies Licensor in
writing that Licensee is willing to enter into an agreement or agreements with
Licensor on the terms set forth in the third party's offer, Licensor and
Licensee shall enter into an agreement or agreements embodying the terms of such
offer and such other terms as Licensor and Licensee shall mutually agree upon;
provided, however, that Licensor shall not be obligated to enter into any such
agreement or agreements with Licensee if Licensee it in default under the terms
of this Agreement or the Supply Agreement.
Article 6
NEGATION OF WARRANTIES, DISCLAIMER AND INDEMNITY
6.1 NEGATION OF WARRANTIES, ETC. Nothing in this Agreement shall be
construed or interpreted as:
(a) a warranty or representation by Licensor that any product made, used,
sold or otherwise disposed of under the license granted in this Agreement is or
will be free of infringement or the like of the rights of third parties; or
(b) an obligation by Licensor to bring or prosecute actions or suits
against third parties for infringement or the like of the Mark or of any
registration that may subsequently be granted for such Mark; or
(c) granting by implication, estoppel or otherwise any licenses or rights
other than those expressly granted hereunder.
6.2 DISCLAIMER. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES
OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES
OF MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES NO
RESPONSIBILITIES WHATSOEVER WITH RESPECT TO THE USE, SALE OR OTHER DISPOSITION
BY LICENSEE OR ITS CUSTOMERS, VENDEES OR OTHER TRANSFEREES, WITH RESPECT TO THE
MARK OR ANY PRODUCTS MADE OR SOLD BY LICENSEE.
6.3 LIABILITY OF LICENSEE FOR PRODUCTS. Licensee shall assume all
financial and other obligations for the products made and sold by it under this
Agreement and Licensor shall not incur any liability or responsibility to
Licensee or to third parties arising out of or connected in any manner with
Licensee's products made or sold pursuant to this Agreement. In no event shall
Licensor be liable for lost profits, special damages, consequential damages or
contingent liabilities arising out of or in any manner with this Agreement or
the products made or sold by Licensee under this Agreement.
6.4 INDEMNITY OF LICENSOR. Licensee agrees to defend, indemnify and in
hold Licensor, its officers, directors, employees and agents harmless, against
all claims, liabilities, demands, damages, expenses or losses arising out of or
connected with (a) the use by Licensee of the Mark or (b) any use, sale or other
disposition of Licensee's products by Licensee or by any other party.
6.5 NEGATION OF TRADEMARK WARRANTY. Licensee acknowledges that Licensor
makes no warranty, express or implied, with respect to its ownership of any
rights relating to the Mark.
Article 7
TERM AND TERMINATION
7.1 TERM. Unless terminated as provided for herein, this Agreement shall
remain in full force and effect for a five (5)-year period ending at midnight on
March 31, 2000. This Agreement may be extended or renewed
-4-
as provided in Section 1.2, or otherwise by the written agreement of the
parties.
7.2 BREACH OF AGREEMENT. Except as provided otherwise in Section 7.3, if
either party breaches any material provision of this Agreement and fails to cure
the breach within (30) days after receipt of written notice from the
nonbreaching party specifying the breach, then the nonbreaching party may
terminate this Agreement upon written notice to the breaching party, which right
of termination shall be in addition to, and not in lieu of, all other rights and
remedies the nonbreaching party may have against the breaching party under this
Agreement, at law or in equity. Failure by Licensor to give notice of
termination with respect to any such failure shall not be deemed a waiver of its
right at a later date to give such notice if such failure continues or again
occurs, or if another failure occurs. A breach by either party of a material
provision of the Supply Agreement shall be deemed a breach by such party of a
material provision of this Agreement.
7.3 IMMEDIATE TERMINATION. Licensor may immediately terminate this
Agreement, upon written notice to Licensee, upon the occurrence of any one or
more of the following events: (i) Licensee breaches any provision of Articles 2,
3, or 4; (ii) Licensee fails to purchase and/or to pay for the quantities of
MANAPOL-TM- that it is obligated to purchase and pay for under the Supply
Agreement in accordance with the terms thereof; (iii) Licensee voluntarily seeks
protection under any federal or state bankruptcy or insolvency laws; (iv) a
petition for bankruptcy or the appointment of a receiver is filed against
Licensee and is not dismissed within thirty (30) days thereafter; (v) Licensee
makes any assignment for the benefit of its creditors; or (vi) Licensee ceases
doing business.
7.4 SURVIVAL OF PROVISIONS. In the event of termination, cancellation or
expiration of this Agreement for any reason, Sections 2.2, 6.1, 6.2, 6.3, 6.4,
6.5 and 8.1 hereof shall survive such termination, cancellation or expiration
and remain in full force and effect.
Article 8
MISCELLANEOUS
8.1 EQUITABLE RELIEF. A breach or default by Licensee of any of the
provisions of Articles 2,3 and 4 hereof shall cause Licensor to suffer
irreparable harm and, in such event, Licensor shall be entitled, as a matter of
right, to a restraining order and other injunctive relief from any court of
competent jurisdiction, restraining any further violation thereof by Licensee,
its officers, agents, servants, employees and those persons in active concert or
participation with them. The right to a restraining order or other injunctive
relief shall be supplemental to any other right or remedy Licensor may have,
including, without limitation, the recovery of damages for the breach or default
of any of the terms of this Agreement.
8.2 AMENDMENT. This Agreement may be changed, modified, or amended only by
an instrument in writing duly executed by each of the parties hereto.
8.3 ENTIRE AGREEMENT. This Agreement constitutes the full and complete
agreement of the parties hereto and supersedes any and all prior understandings,
whether written or oral, with respect to the subject matter hereof, including
the Trademark License Agreement between the parties dated May 16, 1994.
8.4 NO WAIVER. The failure of either party to insist upon strict
performance of any obligation hereunder by the other party, irrespective of the
length of time for which such failure continues, shall not be a waiver of its
right to demand strict compliance in the future. No consent or waiver, express
or implied, by either party to or of any breach or default in the performance of
any obligation hereunder by the other party shall constitute a consent or waiver
to or of any other breach or default in the performance of the same or any other
obligation hereunder.
8.5 NOTICES. All Notices required or permitted to be made or given
pursuant to this Agreement shall be in writing and shall be considered as
properly given or when personally delivered or when duly deposited in the mails,
-5-
first class mail, postage prepaid, or when transmitted by prepaid telegram, and
addressed to the applicable address first above written or to such other address
as the addressee shall have theretofore specified in a written notice to the
notifying Party.
8.6 ASSIGNMENT. This Agreement or any of the rights or obligations created
herein may be assigned, in whole or in part, by Licensor. However, this
Agreement is personal to Licensee, and Licensee may not assign this Agreement or
any of its rights, duties or obligations under this Agreement to any third party
without Licensor's prior written consent, and any attempted assignment by
Licensee not in accordance with this Section 3.6 shall be void.
8.7 RELATIONSHIP OF PARTIES. Nothing contained herein shall be construed
to create or constitute any employment, agency, partnership or joint venture
arrangement by and between the parties, and neither of them has the power or
authority, express or implied, to obligate or bind the other in any manner
whatsoever.
8.8 REMEDIES CUMULATIVE. Unless otherwise expressly provided herein, the
rights and remedies hereunder are in addition to, and not in limitation of, any
other rights and remedies, at law or in equity, and the exercise or one right or
remedy will not be deemed a waiver other right or remedy.
8.9 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, PROVIDED, HOWEVER, that the foregoing shall not be
deemed to expand or otherwise affect the limitations on assignment and
delegation set forth in Section 3.6 hereof, and except as otherwise expressly
provided in this Agreement, no other person or business entity is intended to or
shall have any right or interest under this Agreement.
8.10 GOVERNING LAW. Agreement shall be governed by and interpreted,
construed and enforced in accordance with the laws of the State of Texas,
excluding, however, any conflicts of law rules that would require the
application of the laws of any other state or country.
8.11 HEADINGS. The headings used in this Agreement are for convenience of
reference only and shall not be used to interpret this Agreement.
8.12 COUNTERPARTS. This Agreement may be exceed in multiple counterparts,
each of which shall be deemed an original and all of which will constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
CARALOE, INC.
By: /s/ Carlton E. Turner
---------------------------------
Name: Carlton E. Turner
--------------------------
Title: Chief Operating Officer
-------------------------
EMPRISE INTERNATIONAL, INC.
By: William C. Fioretti
-----------------------------------
Name: William C. Fioretti
----------------------------
Title: Chief Executive Officer
---------------------------
-6-
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), effective as of August 14,
1997, is made by and between CARALOE, INC. ("Licensor"), a Texas corporation,
having its principal place of business at 2001 Walnut Hill Lane, Irving, Texas
75038, and MANNATECH, INC., ("Licensee"), a Texas corporation, having its
principal place of business at 600 S. Royal Lane, Suite 200, Coppell, Texas
75019.
WITNESSETH:
WHEREAS, simultaneously with the execution of this Agreement, Licensor and
Licensee are entering into an non-exclusive Supply Agreement of even date
herewith (the "Supply Agreement") for the sale by Licensor and purchase by
Licensee of bulk aloe vera mucilaginous polysaccharide (hereinafter referred to
under the product name of"MANAPOL-Registered Trademark- powder") to be used in
products manufactured by Licensee in capsule (the "Manufactured Products");
WHEREAS, Carrington Laboratories, Inc., a Texas corporation ("Carrington"),
claims the ownership of the trademark MANAPOL-Registered Trademark- (the "Mark")
and has granted to Licensor a license to use the Mark and to license others to
use it on an exclusive and/or a non-exclusive basis;
WHEREAS, Licensee is desirous of obtaining from Licensor, and Licensor is
willing to grant to Licensee, a license to use the product name
MANAPOL-Registered Trademark- (the "Mark") in connection with the advertising
and sale of the Manufactured Products subject to the terms, conditions and
restrictions set forth herein; and
WHEREAS, Licensor and Licensee are mutually desirous of insuring the
consistent quality of all products sold in connection with the Mark;
NOW, THEREFORE, in consideration of premises, the mutual covenants,
promises and agreement set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby covenant, promise and agree as follows:
Article 1
LICENSE
1.1 TERMS AND CONDITIONS. Licensor hereby grants to Licensee the
non-transferable right and license to use the Mark in connection with the
labeling, advertising and sale of Manufactured Products manufactured and sold by
Licensee during the term of this Agreement During the term of this Agreement,
Licensee shall have (a) the non-exclusive right to use the Mark in connection
with Manufactured Products containing MANAPOL-Registered Trademark- powder that
are intended for sale to the ultimate consumer in the United States, Canada, and
Mexico, and (b) the non-exclusive right to use the Mark in connection with
Manufactured Products containing MANAPOL-Registered Trademark- powder that are
intended for sale to the ultimate consumer in places other than the United
States and Canada, that are specifically and mutually agreed upon from time to
time and listed in Exhibit A hereto. The countries in Exhibit A may be removed
by Caraloe upon written notice to Mannatech that an exclusive Trademark License
Agreement has been executed for that country. In that event, Mannatech shall no
longer be allowed to use the Manapol-Registered Trademark- Trademark within the
country removed by Caraloe after its existing supplies have been exhausted.
Relative to Japan, Mannatech may use the Trademark on a non-exclusive under the
same conditions as those listed in Exhibit A except no drink may be sold using
Manapol-Registered Trademark- powder or the Trademark.
1.2 LICENSE COTERMINOUS WITH SUPPLY AGREEMENT. The license granted by this
Agreement shall run conterminously with the Supply Agreement, and any actions or
events which shall operate to extend or terminate the Supply Agreement shall
automatically extend or terminate this Agreement simultaneously.
-1-
1.3 SUBLICENSES. Licensee shall not have the right to grant sub licenses
without the written permission of Licensor with respect to the license granted
herein; however, Licensee may engage a third party or parties to make and affix
labels for the Manufactured Products in compliance with Articles 2,3, and 4
hereof, and/or to distribute and sell the Manufactured Products in compliance
with the terms and conditions of this Agreement Licensee shall be expressly
obligated to ensure full compliance with all terms and conditions of this
Agreement.
Article 2
CERTAIN OBLIGATIONS OF LICENSEE AND LICENSOR
2.1 REPRESENTATIONS BY LICENSEE. Licensee shall not represent in any
manner that it owns any right, title or interest in or to the Mark. Licensee
acknowledges that its use of the Mark shall inure to the benefit of Licensor and
shall not create in Licensee's favor any right, title or interest in or to the
Mark.
2.2 DISCONTINUATION OF USE OF MARK. Upon the expiration or termination of
this Agreement, Licensee will cease and desist from all use of the Mark in any
manner and will not adopt or use, without Licensor's prior written consent, any
word or mark which is confusingly or deceptively similar to the Mark, except
that Licensee may continue to use the Mark under the terms and conditions of
this Agreement in connection with any remaining supplies of MANAPOL-Registered
Trademark- powder purchased by Licensee from Licensor until such supplies are
exhausted.
2.3 FDA COMPLIANCE OF PRODUCTS. All products on which the Mark is used by
Licensee shall be manufactured, packaged, labeled, advertised, marketed and sold
in compliance with (i) the Federal Food, Drug and Cosmetic Act and the rules and
regulations promulgated thereunder, as amended from time to time if sold for use
within the United States, and (ii) all other applicable laws, rules and
regulations if sold for use outside of the United States.
2.4 INSPECTION. Upon reasonable notice, Licensor reserves the right to
inspect Licensee's products bearing the Mark and Licensee's manufacturing
facilities at all reasonable times to insure Licensee's compliance with this
Agreement.
2.5 USE OF TRADEMARK. Licensee shall not use the Mark except as
specifically set forth herein. Without limiting the generality of the preceding
sentence, Licensee shall not use the Mark in connection with the sale or
advertising of any products other than the Manufactured Products. Any use of the
trademark, "Manapol-Registered Trademark-" pursuant to this agreement is
non-exclusive. Whenever the Licensee uses the trademark, "Manapol-Registered
Trademark-", it shall also indicate that such name is the registered trademark
of Licensor and shall take all reasonable measures to assure that there is no
confusion of ownership of the mark or the substance which it identifies, the
same being the proprietary property of the Licensee. Likewise, Licensor, if
referring to Ambrotose-TM-, shall indicate that the same is the trademark of
Mannatech, Incorporated and shall take all reasonable measures to assure that
there is no confusion of ownership the mark or the substance which it
identifies, the same being the proprietary property of the Licensor.
2.6 TRADEMARK REGISTRATION. At Licensor's request and expense and, except
as otherwise provided herein at Licensor's sole discretion and option, Licensee
shall take whatever action is reasonably necessary to assist Carrington or its
assigns in registering the Mark with the U.S. Patent and Trademark Office
("USPTO") and/or in perfecting, protecting or enforcing Carrington's and
Licensor's rights in and to the Mark Licensee understands that Carrington or its
assigns may rely solely on Licensee's use of the Mark to obtain or maintain
registration with the USPTO.
Article 3
MANUFACTURING AND SALE
3.1 MANUFACTURING FACILITIES. All manufacturing of the Manufactured
Products shall be done in the Licensee's own facilities or qualified contract
manufacturing facilities.
-2-
3.2 COMBINATION WITH OTHER PRODUCTS. Licensee shall not combine
MANAPOL-Registered Trademark- powder with any product or substance in any manner
which would violate any laws, rules or regulations of any state, federal or
other governmental body. Licensee shall not combine MANAPOL-Registered
Trademark- powder with any other substance in a Manufactured Product that is to
be advertised or sold for use or consumption by humans or animals if the
approval of the U.S. Food and Drug Administration (the "FDA") or the U.S.
Department of Agriculture ("USDA") for such use or consumption is required and
has not been obtained.
3.3 COMPLIANCE BY THIRD PARTIES. Licensee shall take all steps reasonably
necessary to ensure that its distributors and any other parties to whom it sells
any of the Manufactured Products for resale do not relabel, repackage,
advertise, sell or attempt to sell MANAPOL-Registered Trademark- powder or any
of the Manufactured Products in a manner that would violate this Agreement if
done by Licensee.
Article 4
LABELS AND ADVERTISING
4.1 FDA COMPLIANCE OF LABELS AND ADVERTISING. All labels and advertising
relating to the Manufactured Products offered in connection with the Mark must
strictly comply with all applicable rules and regulations of the FDA if sold for
use within the United States, and all other applicable laws, rules and
regulations wherever sold. Information regarding the ingredients of
MANAPOL-Registered Trademark- powder shall be furnished to Licensee by Licensor
from time to time.
4.2 MANDATORY REQUIREMENTS. Licensee shall cause all labels, packaging,
advertising and promotional materials used by it in advertising, marketing and
selling any product manufactured by or on behalf of Licensee that contains
MANAPOL-Registered Trademark- to contain (i) the Mark, (ii) a statement setting
forth the concentration of MANAPOL-Registered Trademark- powder contained in
such product, and (iii) the following legend:
MANAPOL-Registered Trademark- is a registered trademark of Carrington
Laboratories, Inc.
4.3 CLAIMS BY LICENSEE. Licensee hereby agrees not to make, or permit any
of its employees, agents or distributors to make, any claims of any properties
or results relating to MANAPOL-Registered Trademark- powder or any Manufactured
Product which would violate any applicable law.
4.4 FDA OR USDA APPROVAL OF CLAIMS. If Licensee desires to seek FDA or
USDA approval as to any specific claims with respect to MANAPOL-Registered
Trademark- powder or any Manufactured Product, Licensee hereby agrees to (i)
notify Licensor of the claims and the application prior to filling and (ii) to
keep Licensor informed as to the progress of the application, including but not
limited to sending Licensor copies of all communications or notices to or from
the FDA or USDA, as applicable.
4.5 RIGHT TO APPROVE LABELS, ETC. If Licensor so requests, Licensee shall
not use any label, advertisement or marketing material that contains the Mark
unless such label, advertisement or marketing material has first been submitted
to and approved by Licensor. Licensor shall not unreasonably withhold its
approval of any such label, advertisement or marketing material.
-3-
Article 5
NEGATION OF WARRANTIES. DISCLAIMER AND INDEMNITY
5.1 NEGATION OF WARRANTIES, ETC. Nothing in this Agreement shall be
construed or interpreted as:
(a) a warranty or representation by Licensor that any product made, used,
sold or otherwise disposed of under the license granted in this Agreement is or
will be free of infringement or the like of the rights of third parties; or
(b) an obligation by Licensor to bring or prosecute actions or suits
against third parties for infringement or the like of the Mark or of any
registration that may subsequently be granted for such Mark; or
(c) granting by implication, estoppel or otherwise any licenses or rights
other than those expressly granted hereunder.
5.2 DISCLAIMER. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES
OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES
OF MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES,
NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO THE USE, SALE OR OTHER
DISPOSITION BY LICENSEE OR ITS CUSTOMERS, VENDEES OR OTHER TRANSFEREES, WITH
RESPECT TO THE MARK OR ANY PRODUCTS MADE OR SOLD BY LICENSEE. THE FOREGOING
NOTWITHSTANDING, SELLER DOES REPRESENT THAT THE MANAPOL-Registered Trademark-
POWDER DOES MEET THE SPECIFICATIONS OUTLINED ON EXHIBIT A AND THAT IT IS A FOOD
SUPPLEMENT UNDER THE FDA RULES AND REGULATIONS.
5.3 LIABILITY OF LICENSEE FOR PRODUCTS. Licensee shall assume all
financial and other obligations for the products made and sold by it under this
Agreement and Licensor shall not incur any liability or responsibility to
Licensee or to third parties arising out of or connected in any manner with
Licensee's products made or sold pursuant to this Agreement In no event shall
Licensor be liable for lost profits, special damages, consequential damages or
contingent liabilities arising out of or connected in any manner with this
Agreement or the products made or sold by Licensee under this Agreement
5.4 INDEMNITY OF LICENSOR. Licensee Bees to defend, indemnify and hold
Licensor, its officers, directors, employees and agents, harmless against all
claims, liabilities, demands, damages, expenses or losses arising out of or
connected with (a) the wrongful or negligent use by Licensee of the Mark or (b)
any use, sale or other disposition of Licensee's products by Licensee or by any
other party.
5.5 NEGATION OF TRADEMARK WARRANTY. Licensee acknowledges that Licensor
makes no warranty, express or implied, with respect to its ownership of any
rights relating to the Mark.
Article 6
TERM AND TERMINATION
6.1 TERM. Unless terminated earlier as provided for herein, this Agreement
shall remain in full force and effect for a five (5)-year period ending at
midnight on August 14, 2001. This Agreement may be extended or renewed as
provided in Section 1.2, or otherwise by the written agreement of the parties.
6.2 BREACH OF AGREEMENT. Except as provided otherwise in Section 6.3, if
either party breaches any material provision of this Agreement and fails to cure
the breach within thirty (30) days after receipt of written notice from the
nonbreaching party specifying the breach, then the nonbreaching party may
terminate this Agreement upon written notice to the breaching party, which right
of termination shall be in addition to, and not in lieu of all other rights and
remedies the nonbreaching party may have against the breaching party under this
Agreement, at law or in equity. Failure
-4-
by Licensor to give notice of termination with respect to any such failure shall
not be deemed a waiver of its right at a later date to give such notice if such
failure continues or again occurs, or if another failure occurs. A breach by
either party of a material provision of the Supply Agreement shall be deemed a
breach by such party of a material provision of this Agreement.
6.3 IMMEDIATE TERMINATION. Licensor may immediately terminate this
Agreement, upon written notice to Licensee, upon the occurrence of any one or
more of the following events: (i) Licensee breaches any provision of Articles 2,
3, or 4: (ii) Licensee fails to purchase and/or to pay for the quantities of
MANAPOL-Registered Trademark- powder that it is obligated to purchase and pay
for under the Supply Agreement in accordance with the terms thereof, (iii)
Licensee voluntarily seeks protection under any federal or state bankruptcy or
insolvency laws; (iv) a petition for bankruptcy or the appointment of a receiver
is filed against Licensee and is not dismissed within thirty (30) days
thereafter, (v) Licensee makes any assignment for the benefit of its creditors;
or (vi) Licensee ceases doing business.
6.4 SURVIVAL OF PROVISIONS. In the event of termination, cancellation or
expiration of this Agreement for any reason, Sections 2.2, 5. 1, 5.2, 5.3, 5.4,
5.5 and 7.1 hereof shall survive such termination, cancellation or expiration
and remain in fill force and effect.
Article 7
MISCELLANEOUS
7.1 EQUITABLE RELIEF. A breach or default by Licensee of any of the
provisions of Articles 2, 3 and 4 hereof shall cause Licensor to suffer
irreparable harm and, in such event, Licensor shall be entitled, as a matter of
right, to a restraining order and other injunctive relief from any court of
competent jurisdiction, restraining any further violation thereof by Licensee,
its officers, agents, servants, employees and those persons tn active concert or
participation with them. The right to a restraining order or other injunctive
relief shall be supplemental to any other right or remedy Licensor may have,
including, without limitation, the recovery of damages for the breach or default
of any of the terms of this Agreement.
7.2 AMENDMENT. This Agreement may be changed, modified, or amended only by
an instrument in writing duly executed by each of the parties hereto.
7.3 ENTIRE AGREEMENT. This Agreement constitutes the fill and complete
agreement of the parties hereto and supersedes any and all prior understandings,
whether written or oral, with respect to the subject matter hereof.
7.4 NO WAIVER. The failure of either party to insist upon strict
performance of any obligation hereunder by the other party, irrespective of the
length of time for which such failure continues, shall not be a waiver of its
right to demand strict compliance in the future. No consent or waiver, express
or implied, by either party to or of any breach or default in the performance of
any obligation hereunder by the other party shall constitute a consent or waiver
to or of any other breach or default in the performance of the same or any other
obligation hereunder.
7.5 NOTICES. All notices required or permitted to be made or given
pursuant to this Agreement shall be in writing and shall be considered as
properly given or made when personally delivered or when duly deposited in the
mails, first class mail, postage prepaid, or when transmitted by prep aid
telegram, and addressed to the applicable address first above written or to such
other address as the addressee shall have theretofore specified in a written
notice to the notifying party.
7.6 ASSIGNMENT. This Agreement or any of the rights or obligations created
herein may be assigned, in whole or in part, by Licensor. However, this
Agreement is personal to Licensee, and Licensee may not assign this Agreement or
any of its rights, duties or obligations under this Agreement to any third party
without Licensor's prior written consent, and any attempted assignment by
Licensee not in accordance with this Section 7.6 shall be void.
7.7 RELATIONSHIP OF PARTIES. Nothing contained herein shall be construed
to create or constitute any
-5-
employment, agency, partnership or joint venture arrangement by and between the
parties, and neither of them has the power or authority, express or implied, to
obligate or bind the other in any manner whatsoever.
7.8 REMEDIES CUMULATIVE. Unless otherwise expressly provided herein, the
rights and remedies hereunder are in addition to, and not in limitation of, any
other rights and remedies, at law or in equity, and the exercise or one right or
remedy will not be deemed a waiver of any other right or remedy.
7.9 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, PROVIDED, HOWEVER that the foregoing shall not be deemed
to expand or otherwise affect the limitations on assignment and delegation set
forth in Section 7.6 hereof, and except as otherwise expressly provided in this
Agreement, no other person or business entity is intended to or shall have any
right or interest under this Agreement.
7.10 GOVERNING LAW. This Agreement shall be governed by and interpreted,
construed and enforced in accordance with the laws of the State of Texas,
excluding, however, any conflicts of law rules that would require the
application of the laws of any other state or country.
7.11 HEADINGS. The headings used in this Agreement are for convenience of
reference only and shall not be used to interpret this Agreement.
7.12 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which will constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first above written.
CARALOE, INC.
By: /s/ Carlton E. Turner
------------------------------
Name: Carlton E. Turner
-----------------------
Title: President/CEO
----------------------
MANNATECH, INC.
By: /s/ Charles E. "Skip" Fioretti
--------------------------------
Name:Charles E. "Skip" Fioretti
--------------------------
Title: Chairman of the Board
----------------------
-6-
EXHIBIT A
To that certain Trademark License and Supply Agreement
dated August 14, 1997 by and between Caraloe, Inc. and Mannatech, Inc.
Switzerland
The countries of the European Union as of August 14, 1997
Singapore
Malaysia
Australia
New Zealand
The Philippines
Taiwan
Hong Kong
Japan
-7-
[LOGO]
December 23rd, 1997
Mr. Michael L. Finney
Larex, Incorporated
President and Chief Operating Officer
2842 Patton Road
Roseville, Minnesota 55113
RE: Letter Agreement Concerning the Requirements Supply of LAREX
Arabinogalactan Products
Dear Mr. Finney:
Further to our discussions during October, 1997, this Letter Agreement
between Larex-Registered Trademark-, Incorporated as Seller and Mannatech-TM-,
Incorporated as Buyer is intended to set forth the salient terms and conditions
which will govern the sale by the Seller and purchase by the Buyer of Larex
Arabinogalactan nutraceutical products, known as Laraceutical AG Products,
including Manna 2000, (the specifications of such Manna 2000 being set forth in
Exhibit "A" hereto) ("Larex Products"). The subject terms and conditions are as
follows:
1. Up to and including through December, 1998 (and thereafter, if this
Agreement is, by the further agreement of the parties, extended), the Buyer
agrees that it will purchase its requirements for Larex Products, as shall from
time-to-time exist, if any, from the Seller, and the Seller shall sell the same
to Buyer. The obligation of the Seller to sell Larex-Registered Trademark-
Products to the Buyer in the market segment of nutraceuticals for use in
products for human nutritional, health and dietary supplement needs and for
sales of such Products (including as an ingredient) and for distribution of
Larex-Registered Trademark- Products in multi-level, direct and network sales is
exclusive ("Exclusive Market Segments"). This exclusivity does not include the
following applications and market channels of Larex-Registered Trademark-
Products: (a) medical foods with medical or drug claims which are governed or
permitted under the Food, Drug and Cosmetic Act (US, only) so long as the same
do not conflict or compete with claims made and product types of nutraceutical
products or functional foods produced by the Buyer and containing Larex
Products, (b) products referred to as fiber or fiber supplements to enhance
health and body benefits, so long as no claims for efficacy
Page 1
respecting the Larex-Registered Trademark- Products as fiber relate to
carbohydrate function or technology; (c) products used for flavor, color,
texture or function health benefits or other associated properties with respect
to food function so long as no claims for efficacy respecting the
Larex-Registered Trademark- Products for such purposes relate to carbohydrate
function or technology; (d) nutraceutical use where none of the claims relate to
saccharide or carbohydrate technology, activity or efficacy and where
Larex-Registered Trademark- Products are not used in nutraceutical products
which compete with or with claims similar to those product offered for sale,
from time-to-time by the Buyer; and (e) Practitioners/Herbalists/Chinese
Medicines customers to which Seller currently sells Larex-Registered Trademark-
Products as set forth on Exhibit "B" hereto provided such customers do not make
claims as to the Larex Products based upon saccharide or carbohydrate technology
or efficacy. It is specifically agreed between the parties that a claim
relating to the Larex Products, as containing fiber, which may have
cholesterol-lowering attributes, enhancement of bifido bacteria or other
fiber-related benefits, so long as the same do not rely or conflict with claims
related to carbohydrate and/or saccharide technology or efficacy, will not
conflict with the exclusive granted to the Buyer hereunder.
Larex represents and warrants that it will not sell any grade of
arabanogalactan which it produces other than the Laraceutical AG Products for
use in dietary supplements and health products.
For the period of the operation of this Letter Agreement, Larex shall
not sell Larex Products to any third party for use in or as a constituent
component of products to be sold within the Exclusive Market Segments within
the Territory, as set forth below.
The Territory in which in the Exclusive Market Segments shall apply
curing the term of this Agreement shall include North America, Australia, and
the Asian Continent. It is recognized by Buyer that the Seller has previously
appointed exclusive distributors in certain countries who are not currently
bound by the Exclusive Marketing Segment limitations in favor of the Buyer in
this agreement. Therefore, Seller shall use its reasonable best efforts to
work with its existing distributors to protect by concession the Exclusive
Market Segments in favor of Buyer wherever possible. During the term of this
Agreement, however, the Seller shall make no commitments for any of the
Exclusive Market Segments in other countries or continents which might
preclude the granting of Exclusive Market Segments to the Buyer in such other
countries or continents upon renewal or extension of this Agreement, inasmuch
as it is the intention of the Buyer is to extend its products to all feasible
world markets. Such restriction shall not, however, prevent the Seller from
selling Larex-Registered Trademark- Products outside the Territory in any
market segment during the term of this Agreement.
2. Buyer shall make a quarterly forecast for expected quantities in
excess of the Minimum Sales Amount and provide an
Page 2
updated (90) day rolling forecast to the Seller. During each month of the
effective period of this Letter Agreement, the Buyer will provide to the Seller
a projection of its requirements for Larex Products for the month next following
("Purchase Projection"). Such Purchase Projections shall be prepared in good
faith and furnished to the Seller on or before the 20th day of each new quarter
("Projection Delivery Date") in which this Letter Agreement is in effect
beginning with the Second Quarter. Seller shall then invoice the Buyer for the
amount of Larex Products delivered in any Delivery Month, and Buyer shall have
until the end day of the month following the Delivery Month in which to remit
payment for such invoice. In any event the Purchase Projection, and
consequently the minimum amount that the Buyer is required to purchase shall not
be less than the following amount(s) of Larex Products in any specified month in
which this Letter Agreement is in effect, as set forth below ("Minimum Sales
Amount"):
Month Monthly Minimum Purchase
- ----- -------------------------
November & December 1997 MANNA 2000, 2,275kg @ $48.40/kg
L'EXTRA B1000, 1,350kg @ $33.00/kg
January 1998-December 1998 MANNA 2000, 4,546kg @ $48.40/kg
3. In any month in which the Seller receives a Purchase Projection which
contains a projected requirement which it, in its good faith discretion,
determines that it will be unable to fulfil, it will notify the Buyer
immediately; provided the Seller shall be required in all instances to sell and
deliver at lease the Minimum Sales Amount of Larex Products to the Buyer.
4. Seller warrants to Buyer that all Larex Products sold by Seller
pursuant to this Letter Agreement will conform to the quality specifications
set forth in EXHIBIT A to this Agreement and that all Larex Products sold by
the Seller to the Buyer are suitable for use in its line of proprietary
dietary supplement, over-the-counter drug, and cosmetic products ("Mannatech
Products"). The Seller further agrees to notify Buyer if any of the Larex
Products should cease to be generally regarded as safe for human use by any
agency of the federal government of the United States of America or Canada,
any State or local government or subdivision thereof with appropriate
authority to make and enforce such a determination. Larex shall use and
maintain current Good Manufacturing Practices in respect of its manufacture
of Larex Products, being cognizant of the ultimate use in the Mannatech
Products.
5. (a) The pricing, per kilogram of Larex Products, shall be $48.40 USD
per kilogram, F.O.B., dockside of Seller's warehouse facilities, Roseville,
Minnesota.
(b) The prices set forth above are valid through
Page 3
December, 1998, at which time this Letter Agreement shall cease as to its effect
unless both parties mutually agree in writing to extend this Agreement or a new
agreement is initiated with new volume and terms.
6. It is understood by the Seller that the Buyer will use Larex Products
as a source of Arabinogalactan in Ambrotose-TM-, its proprietary ingredient in
its various dietary supplement, cosmetic, health card products that the Buyer
offers for sale in domestic and world markets and sold as Mannatech Products.
During the term of this Letter Agreement, and any extensions as renewals
thereof the Buyer may, without the payment of royalty, but shall not be required
to use the registered trademarks, "Manna 2000-TM-" in identifying the Larex
Products purchased from the Seller and used as a constituent component in
Ambrotose-TM-. Any use of the trademark, "Manna 2000-TM-, pursuant to this
agreement is non-exclusive. Whenever the Buyer uses the trademark, "Manna
2000-TM-", it shall also indicate that such name is the trademark of Seller and
shall take all reasonable measures to assure that there is no confusion of
ownership of the mark or the substance which it identifies, the same being the
proprietary property of the Seller. Likewise, Seller, if referring to
Ambrotose-TM-, shall indicate that the same is the trademark of Mannatech-TM-,
Incorporated and shall take all reasonable measures to assure that there is no
confusion of ownership the mark or the substance which it identifies, the same
being the proprietary property of the Buyer.
7. In the performance of obligations pursuant to this Letter Agreement,
either party might acquire from the other or its affiliates, technical,
commercial, operating or other proprietary information relative to the business
or operations of Seller or its affiliates (the "Confidential Information"). Each
party shall maintain the confidentiality, and take all necessary precautions to
safeguard the secrecy, of any and all Confidential Information it may acquire
from the other party or its affiliates. Neither party shall use any of such
Confidential Information for its own benefit or for the benefit of anyone else.
It is, nevertheless, intended that both parties will likely announce the
existence of this Letter Agreement, which, in and of itself, shall not
constitute Confidential Information. Seller shall execute the Confidentiality
Agreement set forth in Exhibit "C" in respect of this covenant, which shall
survive the performance and/or termination of this Agreement.
8. If either party (i) fails to observe the purchase or supply provisions
of this Letter Agreement, (ii) fails to make a payment hereunder when due or
(iii) otherwise breaches any term of this Agreement, and such failure or breach
is not cured to other party's reasonable satisfaction within 5 days (in the case
of a failure to make a payment or a shipment) or 30 days (in any other case)
after receipt of written notice thereof by other party (which
Page 4
notice shall be given in accordance with Paragraph 14 hereof, and which shall
further state with specificity the nature, extent and required cure of the
contended default), or if either party fails to perform or observe any covenant
or condition on its part to be performed or observed under this Letter Agreement
when required to be performed or observed, and such failure continues after the
applicable grace period specified herein, the non-breaching party may refuse to
continue under this Agreement and may terminate this Agreement upon notice to
the breaching party and, in addition, shall have such other rights and remedies,
including the right to recover damages, as are available to the non-breaching
party under applicable law or otherwise. If either party becomes bankrupt or
insolvent, or if a petition in bankruptcy is filed by or against it, or if a
receiver is appointed for it or its properties, either party may, subject to the
provisions of Section 365 and other applicable provisions of the Bankruptcy
Code, refuse to continue to perform under this Letter Agreement. Any performance
by either party of a failure by the other party to timely or appropriately
perform under the terms of this Letter Agreement, or after any other default by
such other party hereunder, shall not constitute a waiver of any rights of
Seller arising out of such prior default; nor shall either party's failure to
insist upon strict performance of any provision of this Agreement be deemed a
waiver by such party of any of its rights or remedies hereunder or under
applicable law or a waiver by such party of any subsequent default by other
party in the performance of or compliance with any of the terms of this
Agreement.
9. Buyer and Seller both represent, respectively, that each has in full
force and effect, and will during the term of this agreement keep in full force
and effect, products liability insurance covering its respective products. Each
party agrees to name the other party as an additional insured under its products
liability policy or certificate of insurance.
10. The expiration or termination of the term of this Letter Agreement
shall not impair the rights or obligations of either party hereto which shall
have accrued hereunder prior to such expiration or termination. The provisions
of Exhibit "A", and Paragraphs 4 (as to quality requirements) 6 (as to the use
of Larex-Registered Trademark- Products by Buyer), 7 and its related Exhibit
"B", and 9 hereof, and the rights and obligations of the parties under each such
Paragraph and Exhibit, shall survive the expiration or termination of this
Letter Agreement.
11. This Letter Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Texas and in a venue situs
appropriate to Dallas County, Texas.
12. Neither party hereto may assign or otherwise transfer this Letter
Agreement or any of its rights or obligations hereunder (including, without
limitation, by merger or consolidation) without
Page 5
the prior written consent of the other party. This Letter Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Upon merger, acquisition or consolidation of either
party to this agreement, this obligation shall, without further action by either
party, be assumed by the surviving entity of such merger, acquisition or
consolidation.
13. This Letter Agreement constitutes the entire agreement between the
parties hereto relating to the matters covered hereby and supersedes any and all
prior understandings, whether written or oral, with respect to such matters,
including the prior Supply and License Agreements between the parties. The
terms of this Letter Agreement shall prevail over any inconsistent terms
contained in any purchase order issued by Buyer and acknowledgement or
acceptance thereof issued by Seller. No modification, waiver or discharge of
this Agreement or any of its terms shall be binding unless in writing and signed
by the party against which the modification, waiver or discharge is sought to be
enforced.
14. All notices and other communications with respect to this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
personally or when duly deposited in the mails, first class mail, postage
prepaid, to the address set forth below, or such other address hereafter
specified in like manner by one party to the other.
If to Seller: LAREX Incorporated
2852 Patton Road
Roseville, Minnesota 55113
Attention: Bo Nickoloff
If to Buyer: Mannatech, Incorporated
600 S. Royal Lane
Coppell, Texas 75029
Attention: Chairman of the Board
15. In the event that any provision of this Agreement is illegal, invalid
or unenforceable as written but may be rendered legal, valid and enforceable by
limitation thereof, then such provision shall be deemed to be legal, valid and
enforceable to the maximum extent permitted by applicable law. The illegality,
invalidity or unenforceability in its entirety of any provision hereof will not
affect the legality, validity or enforceability of the remaining provisions of
this Agreement.
16. Each party hereto agrees that it will not voluntarily undertake any
action or cause of action inconsistent with the provisions or intent of this
Agreement and, subject to the requirements of notice and opportunity to cure
contained herein, will promptly do all acts and take all measures as may be
Page 6
appropriate to comply with the terms, conditions and provisions of this
Agreement.
If the foregoing comports with your understanding of our agreements in this
matter, please signify the same by affixing your execution below.
Very truly yours,
MANNATECH-TM-, INCORPORATED
A Texas Corporation
/s/ Anthony E. Canale
------------------------------------
Anthony E. Canale,
Chief Operations Officer
AGREED:
LAREX Incorporated
A Minnesota Corporation
By: /s/ Bo Nickoloff
----------------------------
Its: Chief Operating Officer
---------------------------
Page 7
EXHIBIT A
MANNA 2000 SPECIFICATIONS
ATTRIBUTE SPECIFICATION
PURITY (RI) 95% MINIMUM
PHYSICAL STATE
-TEXTURE FREE FLOWING
-FLAVOR SLIGHT
-ODOR SLIGHTLY AROMATIC
ABSORBANCE
-1% SOL. @ 400nm 0.06 AU MAXIMUM
DISSOLUTION
-SINK WET PASS
-LUMPS NONE
BULK DENSITY RECORD
PARTICLE SIZE
-(+) 40 MESH RECORD
pH(1% SOL.) RECORD
BACTI
-APC 1000 CFU/G MAX
-YEAST 10 CFU/G MAX
-MOLD 100 CFU/G MAX
-SALMONELLA NEGATIVE
-COLIFORM 10 CFU/G MAX
-E. COLI 10 CFU/G MAX
-STAPH 1 CFU/G MAX
/s/ Richard D. Lamb
RICHARD D. LAMB
DIRECTOR OF PROCESS TECHNOLOGY
NOVEMBER 26, 1997
EXHIBIT B
Larex currently sells and continues to sell Laraceutical AG to the following
customers:
Biotics
Eclectic
GNC
Intelligent Nutrients
Monarch
NANP
Synergy Co.
Sisu (Canada)
Exhibit C
NONDISCLOSURE AGREEMENT
THIS AGREEMENT is made effective as of December 23, 1997, by and between
Larex, Inc. ("Larex") and Mannatech, Inc., (the "Recipient") to assure the
protection and preservation of the confidential and or proprietary nature of
information to be disclosed or made available by Larex to the Recipient in
connection with certain negotiations or discussions further described in Exhibit
A attached hereto.
1. Subject to the limitations set forth in Section 2, all information
disclosed by Larex to the Recipient shall be deemed to be "Proprietary
Information." In particular, Proprietary Information shall be deemed to include
any trade secret or other confidential information, know-how or data of any
nature concerning the development, use, formulation or manufacture of Larex's
products or prospective products, and any process, techniques, formulae,
chemical compositions, cell line, sample, algorithm, computer program, design,
drawing or test data therefor. Proprietary Information shall further include any
information relating to any marketing, servicing, financing, or personnel matter
relating to Larex or any third party, or their respective present or future
products, sales, suppliers, clients, employees, investors, or business, whether
in oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to include
information which the Recipient can demonstrate:
(a) is now, or hereafter becomes, through no act or failure to act on the
part of the Recipient, generally known or available;
(b) is known by the Recipient at the time of receiving such information as
evidenced by its records;
(c) is hereafter furnished to the Recipient by a third party, as a matter
of right and without restriction on disclosure; or
(d) is the subject of a written permission to disclose provided by Larex.
3. All Proprietary Information shall remain the property of Larex and
shall be returned to Larex promptly upon its request together with all copies
thereof. The Recipient shall protect the Proprietary Information received with
at least the same degree of care used to protect its own Proprietary Information
from unauthorized use or disclosure and shall not use it for any purpose other
than as specified above. The Recipient shall not disclose Larex's Proprietary
Information to any third party without the express written consent of Larex.
Proprietary Information supplied shall not be reproduced in any form except as
required to accomplish the intent of this Agreement. The Recipient shall advise
its employees or agents who might have access to such
Proprietary Information of the confidential nature thereof and shall obtain from
each of such employees and agents an agreement to abide by the terms of this
Agreement.
4. This Agreement shall continue in full force for so long as the
Recipient continues to receive or hold any Proprietary Information. This
Agreement may be terminated at any time by either party upon thirty (30) days
written notice to the other party. The termination of this Agreement shall not
relieve the Recipient of the obligations imposed by Sections 2 and 3 with
respect to Proprietary Information disclosed prior to the effective date of such
termination, which shall survive the termination of this Agreement for a period
of five (5) years from the date of such termination.
5. This Agreement shall be governed by the laws of the State of
Minnesota, excluding its choice of law provisions.
6. This Agreement contains the final, complete and exclusive agreement of
the parties relative to the subject matter hereof and may not be changed,
modified, amended or supplemented except by a written instrument signed by both
parties.
7. Larex shall be entitled to seek injunctive relief in any court of
competent jurisdiction in addition to any other remedy at law or in equity in
the event of a material breach of this Agreement. In the event of any legal
action or proceeding arising out of or resulting from this Agreement, the
prevailing party shall also be entitled to recover its reasonable attorney's
fees and costs thereby incurred.
AGREED TO: AGREED TO:
Larex, Inc. Mannatech, Inc.
2852 Patton Road 600 South Royal Lane, Suite 200
St. Paul, MN 55113 Coppell, TX 75019
U.S.A. U.S.A.
/s/ Bo Nickoloff /s/ Tony Canale
- ----------------------------- -----------------------------
By: Bo Nickoloff By: Mr. Tony Canale
Title:Chief Operating Officer Title: Chief Operating Officer
NONDISCLOSURE AGREEMENT
EXHIBIT A
TO DISCUSS ALL ASPECTS OF ARABINOGALACTAN (AG).
PRODUCT DEVELOPMENT AND DISTRIBUTION AGREEMENT
This Product Development and Distribution Agreement is made effective as of the
15th day of September 1997, by and between New Era Nutrition Inc. of Alberta,
Canada (hereinafter referred to as "New Era") and Mannatech Incorporated of
Texas, USA (hereinafter referred to as "Mannatech").
WITNESSETH:
WHEREAS, New Era is engaged in the research, development, manufacture and sale
of functional foods and nutraceuticals, and possesses particular technology or
know how which it is applying to develop products under its brand and for third
parties;
AND WHEREAS, Mannatech is a marketer and distributor of nutraceutical products
through a multi-level distribution, network;
AND WHEREAS, Mannatech is desirous to engage New Era to develop nutraceutical
food bars which Mannatech will market and distribute in accordance with its
methodology of product distribution in domestic and world markets;
NOW THEREFORE, New Era and Mannatech intending to become legally bound and in
consideration of their mutual covenants and promises herein contained agree as
follows:
1. Subject to and in accordance with the terms and conditions hereof,
Mannatech hereby engages New Era to formulate and develop prototype
nutraceutical food bars which Mannatech intends to exclusively market and
distribute ("Mannatech Bars").
2. Each of Mannatech and New Era have a vested interest to support the
commercial success of Mannatech Bars. Each parry shall reasonably cooperate with
the other and shall apply reasonable efforts as applicable, to assure tide
success of Mannatech Bars through the cycle of product development, manufacture,
marketing, merchandising and sale.
3. In accordance with the provisions of this Agreement. Mannatech may from
time to time, request New Era to perform specific product development as set out
in a proposed written work order ("Proposed Work Order"). The Proposed Work
Order shall contain complete guidelines and specifications for product
development, as the parties may reasonably require in order for New Era to
assess technical and market feasibility including: target consumer(s), intended
price, proposed launch date, jurisdictional and regulatory restrictions,
ingredient contents and restrictions, nutritional specifications, organoleptic
criteria, shelf life, manufacturing process and preferred manufacturer.
4. (a) If New Era agrees to proceed, the parties shall negotiate the terms of
the Work Order including: the projected cost and time for development work, as
well as other technical and business aspects as the parties determine at such
time ("Work Order").
(b) Any subsequent changes to the Work Order shall be in writing and shall
be in the form of a Change Order ("Change Order"). Any and all services to be
performed and products to be developed pursuant to the Work Order and each
Change Order shall constitute the work to be performed under this Agreement (the
"Work"). Any Change Order which increases the Work by more than 10% shall
require written approval of both parties. Mannatech shall compensate New Era for
any Work in excess of the Work Order at a rate of $150.00 per hour.
(c) In respect of each Work Order, New Era and Mannatech will each identify
to the other a technical representative who will have the primary responsibility
to coordinate all product development issues between the parties during the
course of the Work.
(d) Completion of a Work Order to Mannatech's reasonable satisfaction,
shall be evidenced by the provision of completed reasonably acceptable prototype
sample(s) supported by nutritional laboratory analysis which are consistent with
the Work Order or any Change Order(s).
5. (a) During the term of this Agreement or any license between the parties,
provided Mannatech is not in default of a material obligation of this Agreement
or the license at issue (provided (30) days have lapsed without such default
being cured after receipt of a written notice of such default stating with
specificity the nature, extent and cure required regarding such default) New Era
shall not directly or indirectly develop, manufacture or market an "equivalent
or derivative product" means any other multi-level marketing company or any
other form of retail distribution. For the purpose of this Agreement
"equivalent or derivative product" means any bar formulated by New Era which
substantially replicates the Mannatech Bars as to the combination of specific
macro and micro nutrients and claims regarding such micro nutrients, stated
functional features, esthetic and organoleptic features, with or without
Mannatech's proprietary ingredients, an/or formulations. Nothing in this
Agreement is intended to prevent New Era from developing, manufacturing or
marketing any other type of bar.
(b) During the term of this Agreement or any license between the parties,
provided New Era is not in default of a material obligation of this Agreement or
the license at issue (provided (30) days have lapsed without such default being
cured after receipt of a written notice of such default stating with specificity
the nature, extent and cure required regarding such default), Mannatech shall
not directly or indirectly develop, manufacture, acquire for distribution or
market any type of bar including food bar, vitamin bar or nutraceutical bar
derived from any entity other than New Era.
6. Prior to the sale of each Mannatech Bar developed pursuant to this
Agreement, the parties shall enter a licensing agreement with terms in form and
substance similar to that set forth in Exhibit "A". The license agreement may
include additional commercial terms hereafter agreed to by the parties in
respect of each Work Order ("License Agreement"). Each License Agreement which
is executed by New Era and Mannatech shall be attached as an Appendix "A" hereto
and shall form a part of this Agreement. Mannatech shall not assign or transfer
any License Agreement entered pursuant to this Agreement, without the
prior written consent of New Era, except to an affiliate or subsidiary, provided
such affiliate or subsidiary becomes a party to this Agreement and provided
Mannatech remains primarily and jointly liable and responsible for the
performance of all its obligations and those of its transferee or assignee.
7. (a) Mannatech acknowledges the proprietary nature of the technology and
know how applied by New Era in the development of Mannatech Bars from time to
time under this Agreement ("New Era Technology"). New Era retains ownership to
all intellectual property regarding New Era Technology which includes the
recipe, formulation, development, manufacture, technology, know how and process
of the Mannatech Bars. Mannatech shall not directly or through others, for a
period of one year following the expiration of this Product Development and
Distribution Agreement and any License incident thereto, attempt to alter any
Mannatech Bars, without the prior written consent of New Era. So long as the
provisions of the Product Development and Distribution Agreement and any License
Agreement incident thereto are observed, nothing contained herein shall be
deemed to preclude Mannatech from developing its own bar product which is not
based on New Era Technology, provided the Product Development and Distribution
Agreement &id any License Agreement incident thereto have been lawfully
terminated or have expired. (b) All technology which is possessed or entitled
to be possessed by Mannatech prior to the date of this Agreement (hereinafter
"Mannatech Technology"), as evidenced by its books and records, shall remain the
sole property of Mannatech. No license or other right to such technology is
granted therein by this Agreement. Mannatech retains ownership to all
intellectual property in the Mannatech Technology including formulations,
manufacturing processes, technology. and know how as well as Mannatech's
proprietary Ambrotose-TM- and its Metabolically Formulated Dietary Supplement
Profile products.
(c) Mannatech agrees that it will not attempt to interfere, circumvent or
usurp New Era in its contractual negotiations or relations with third parties in
regards to product development or manufacturing.
(d) Any products developed and/or sold by Mannatech in contravention of the
Product Development and Distribution Agreement and any License Agreement
incident thereto, shall be deemed to be the property of and for the benefit of
New Era. If requested Mannatech shall assign, and shall require those over who
it has control to assign, any and all rights determined to conflict or be
inconsistent with New Era's ownership according hereto. The provisions herein
shall survive expiration or termination of this Agreement.
8. The parties agree to maintain information confidential in accordance with
the provisions in this Agreement and the Secrecy Agreement set out in Appendix
"B" attached hereto and forming a part of this Agreement. Either party may
propose to the other such additional provisions as it may reasonably require for
the protection of its confidential information, which the parties shall deal
with in good faith. The provisions herein shall survive expiration or
termination of this Agreement.
9. During the term of this Agreement or any License hereunder, New Era shall
offer Mannatech a first right to distribute any new nutraceutical bar
formulations which New Era intends to offer to third parties for multi-level
marketing. Mannatech shall offer New Era a first right to conduct research and
development, to formulate, provide and manufacture nutraceutical bar products
which it intends to sell. In respect of each offer provided pursuant to this
paragraph, the receiving parry shall provide a complete written proposal within
30 days of receipt of each such offer, which the offering party shall have the
absolute discretion to accept of reject. All information exchanged hereunder
shill be kept confidential and shall not be used for any other purpose. Any
offer hereunder not accepted within 30 days after submission shall be deemed
rejected.
10. In accordance with the terms and provisions of this Agreement, at the
termination of this Agreement or any License incidental thereto (or any renewal
or extension thereof) provided such termination was not the result of a breach
by Mannatech, Mannatech shall have the right and ability to make bar and food
products, particularly using its proprietary ingredients and formulae, so long
as it does not employ any of the Intellectual Property or other proprietary
property of New Era.
11. For any work performed in Canada, New Era shall at its discretion attempt
to secure research and development assistance by grant, matching funds or
strategic relationship from government, academic or scientific institutions, or
industry agency, as may be applicable and in amounts and with conditions or
terms agreed to by the parties, provided that the same shall not negatively
affect any rights of Mannatech hereunder.
12. Subject to earlier payment terms imposed by third parties, all payments
shall be paid by wire transfer or certified check within twenty (20) days after
receipt of an invoice. Invoices shall be accompanied by supporting
documentation.
13. Any reference to either New Era or Mannatech is deemed to include
subsidiary and affiliated companies. This Agreement shall be binding upon the
parties hereto and upon their respective officers, executors, administrators,
legal representatives, successors and assigns. This Agreement may not be
assigned by either party without the prior written consent of the other.
14. This Agreement shall be governed for all purposes by the laws and courts of
the Province of Alberta, Canada. The parties hereby consent and agree not to
oppose the filing of any final, non-appealable judgment in any jurisdiction in
which it owns assets or conducts business. If any provision of this Agreement is
declared void, or otherwise unenforceable, such provision shall be deemed to
have been severed from the Agreement, all other provisions shall otherwise
remain in full force and effect. Notwithstanding the foregoing, the parties
agree that in the event subject matter or length of time set forth in this
Agreement is deemed too restrictive (except the term of the Agreement itself),
in any court proceeding; the court may reduce such restrictions to that which it
deems reasonable under the circumstances, but may not otherwise modify the terms
and conditions of this Agreement.
15. The obligations respecting disclosure and use of secret information shall
survive expiration or termination of this Agreement. In the event of conflict
between the provisions of this Agreement or the Appendices, the more specific
provision shall apply firstly and the more restrictive interpretation secondly.
16. In the event of any dispute under this Agreement, the parties agree to
resolve such dispute through a process of arbitration in accordance with the
Arbitration Act of the Province of Alberta. The parties shall appoint an
arbitrator within 30 days of a party invoking arbitration, failing which the
arbitrator shall forthwith be appointed upon application by either parry to a
court of law. The decision of the arbitrator shall be binding upon the parties.
17. This Agreement and the Appendices hereto constitute the entire
understanding of the parties and replace any and all former agreements,
understanding or representations relating in any way to the subject matter
hereof, and contain all of the terms, conditions, understanding, and promises of
the parties hereto relating to the subject matter, hereof.
IN WITNESS WHEREOF, THE PARTIES EXECUTED THE FOREGOING AGREEMENT AS OF THE DATE
FIRST SET OUT ABOVE.
NEW ERA NUTRITION INC. MANNATECH INCORPORATED
/s/ Saul Katz /s/ Tony Canale
- ----------------------------- -------------------------------------
PRESIDENT CHIEF EXECUTIVE OFFICER
APPENDIX "A" TO A PRODUCT DEVELOPMENT AGREEMENT BETWEEN NEW ERA NUTRITION
INC. AND MANNATECH INCORPORATED DATED SEPTEMBER 15th, 1997 (HEREINAFTER
REFERRED TO AS THE "MASTER AGREEMENT") TERMS DEFINED IN THE MASTER AGREEMENT
SHALL HAVE THE SAME MEANING IN THIS EXHIBIT "A".
LICENSE PROVISIONS:
RE: Work Order for three metabolic profile nutraceutical bars developed to
Licensee requirements and containing its proprietary ingredients, all in
accordance with the Master Agreement ("Mannatech Bars").
LICENSER: New Era Nutrition Inc.
LICENSEE: Mannatech Incorporated.
TERRITORY: Exclusive worldwide.
DURATION: Initial term of five (5) years, with an automatic option for
Licensee to renew the License for three (3) subsequent terms of
three (3) years, provided the License Agreement has not
terminated.
ROYALTY: Licensee shall pay Licenser the following per bar royalty on the
total amount of Mannatech Bars sold by Licensee or offered as a
promotion by Licensee (other than those bars distributed strictly
for sampling purposes and without consideration) and subject to
credits in royalties occasioned by returns of Mannatech Bars, if
any, as follows, all funds are in CDN currency:
(a) 0-5,000,000 bars @ $.10 per bar
(b) 5,000,001 bars and over $.08 per bar
Royalty rates per bar are based on cumulative volume over the
life of the License and are not figured on annual volumes.
Licenser, except by the terms of hereto or as otherwise may be
agreed to by Licensee, is precluded from receiving any other
payment, consideration, concession or thing of value in respect
of the Mannatech Bars, especially including from any third party
who is a vendor or potential vendor of Licensee.
CHANNELS OF
DISTRIBUTION: Multi-level, but precluding retail sales.
TERMS & CONDITIONS:
1. This is a per bar royalty arrangement. Licensee is to pay all costs in
accordance with the Master Agreement, this License Agreement and Appendix
"C".
2. The Licensee shall have the exclusive worldwide right to sell the Mannatech
Bars. The Licensee shall use its best efforts to sell the Mannatech Bars.
The Licenser shall not
sell Mannatech Bars or an equivalent or derivative product, to any third
party, in accordance with the terms of this License Agreement and the
Master Agreement as applicable.
3. Upon approval of Appendix "C" the Licensee shall forthwith provide the
Licenser with a non-refundable retainer equal to 50% of the budgeted cost.
The balance shall be paid forthwith upon receipt of invoices.
4. Licenser and Licensee shall jointly and reasonably agree on manufacturing
issues including: choice of manufacturing facility(s), volume and timing of
bars to be manufactured from time to time, technical specifications
regarding packaging material, cost of manufacturing, as well as such other
reasonable manufacturing specifications consistent with the Work Order to
which the Mannatech Bus shall comport. Licensee shall have final
determination of the choice of manufacturer.
5. The Licenser may, at its sole discretion, determine and implement such
measures it deems necessary to keep its Mannatech Bar formulations
confidential, which measures may include restriction of information to the
manufacturer, and the pre-mixing of particular ingredients prior to their
delivery to the manufacturer, provided the end product shall conform to any
applicable requirement of good manufacturing practices for either foods or
dietary supplements (as specifically identified by Licensee to Licenser)
both in the country of manufacture and intended shipment and sale.
6. All costs (approved in advance by Licensee) relating to product
development, manufacturing and sale shall be to the expense of the
Licensee. There shall be no cost whatsoever to Licenser other than as
specifically set out herein. Without limiting the generality of the
foregoing, cost to the Licensee includes all costs of product development
in accordance with Appendix "C", as well as such additional items as
ingredient acquisition and delivery, manufacturing, packaging, analysis,
regulatory compliance and the ratable portion of Licenser's reasonable
in-house personnel and overhead, as well as subcontracts cost related to
any of the foregoing (as set out in Exhibit "C" and any amendments which
the parties may agree to). All invoices relating to the cost of
manufacturing shall be invoiced to and payable by the Licensee for payment.
The Licensee shall receive the benefit of any volume discounts.
7. The Licenser, as directed and at the request of Licensee, shall act on
behalf of the Licensee in respect of manufacturing matters, but will not
attempt to bind the Licensee to any obligation without the Licensee's
express review and approval. At the request of the Licensee, the Licenser
shall negotiate prices and conditions with bar manufacturers and ingredient
suppliers, and shall make recommendations to the Licensee. The Licenser
shall assist in the coordination of the initial manufacturing process at
the direction of the Licensee ("the first commercial run"). Licenser, at
the direction of the Licensee shall conduct approved communications with
bar manufacturer(s) and ingredient suppliers. In addition to the royalty
payment, the Licensee shall reimburse the Licenser for pre-approved work
regarding aspects of the manufacturing process authorized in advance by the
Licensee, after the first
commercial run on the basis of $150.00 per hour and at! out of pocket
expenses reasonably incurred.
8. The Licensee shall apply its best efforts to market, promote, distribute
and sell the Mannatech Bars in the Territory and through its channel of
distribution. The Licensee shall aggressively launch the sale of each NE
bar within six months from delivery of a prototype acceptable to the
Licensee.
9. The Licensee shall provide the Licenser with sales information, royalty and
all other payments respecting the Mannatech Bars no later than the
twentieth (20th) day of each month, in respect of the preceding month
throughout the effective term of this License Agreement and any renewal or
extension thereof. On a quarterly basis, the Licensee shall provide the
Licenser with sales information (to be prepared by or under the supervision
of a certified accountant) in regard to the Mannatech Bars. Licenser shall
have the right to inspect and bake copies of Licensee records in respect of
operations and sales of Mannatech Bars, provided Licenser provides Licensee
a minimum of forty eight (48) hours notice in writing, and conducts its
review in a manner which does not unreasonably interfere with Licensee's
operations.
10. This License Agreement may be terminated by a party providing a written
notice of a material default by the other party, provided thirty (30) days
have lapsed without such default being cured after receipt of a written
notice of such default stating with specificity the nature, extent and cure
required regarding such default. New Era may terminate this License
Agreement in the event Mannatech fails to achieve minimal annual sales
targets reasonably established by the parties prior to each term in years
in which such requirement is applicable. Minimal sales targets of Mannatech
Bars will be established by the mutual agreement of the parties after the
Licenser shall have commercially sold the Mannatech Bars for a one (1) year
period. The parties shall meet on or before sixty (60) days from the first
anniversary date of the first commercial sale of the Mannatech Bars to in
good faith establish minimal sales targets for each of the following years.
11. All compositions and formulations developed concerning Mannatech Bus
hereunder during performance of the Work Order under the License Agreement
and pursuant to the Master Agreement (hereinafter "Mannatech Bar
Compositions") shall be owned by Licenser. To the extent that Licensee
determines in its sole discretion to seek patent protection for the
Mannatech Bar Composition, the parties agree to cooperate in the filing and
prosecution of any and all patent applications, including continuations,
divisions, reissues and renewals thereof, which cover, in whole or in part,
or otherwise relate to the Mannatech Bar Compositions. Licensee shall be
responsible for the filing and prosecution of each such patent application
as well as the payment of all fees associated therewith and the maintenance
and renewal of any patents that issue from such patent applications.
Licenser and Licensee acknowledge and agree that each party shall own a
one-half (1/2) undivided interest in any patents that issue from such
patent applications and that include at least one claim directed to the
Mannatech Bar Compositions ("Patents"). Licenser and Licensee also
acknowledge and agree that in
the absence of the prior written consent of the other party, neither party
shall grant (i) licenses to third parties to make, use or sell the subject
matter claimed in the Patents, or (ii) covenants not to sue third parties
for infringements of the Patents. Other than license fees to be paid by
Licensee to Licenser according to any License Agreement, Licensee shall in
all cases have a royalty-free license under any and all Patents.
12. The parties agree to cooperate for their mutual benefit in the filing of
any available joint patents for the Mannatech Bars, which will be co-owned,
as the parties shall hereafter agree. Other than license fees to be paid by
the Licensee to the Licenser for product development, there will be no
additional license fees payable by the Licensee for the use of any patents
acquired and owned jointly by the parties which would otherwise be payable
by the Licensee, and are hereby waived. Notwithstanding joint ownership,
all costs relating to patent protection including professional fees and
registration shall be to the expense of the Licensee.
13. In relation to the development, manufacture, marketing and sale of the
Mannatech Bus, the parties shall comply with all applicable rules,
regulations, standards and orders of authoritative bodies whether of
government or industry.
14. Licensee shall indemnify and save Licenser its officers and directors
harmless in any claim or action occasioned by its actions, omissions or
errors whatsoever which may arise from this License Agreement or the Master
Agreement during or after expiration thereof Licenser shall indemnify and
save Licensee its officers and directors harmless in any claim or action
occasioned by its actions, omissions or errors whatsoever which may arise
from this License Agreement or the Master Agreement during or after
expiration thereof.
15. Neither party may make any public statement, whether oral or in writing,
which makes reference to the other party without the specific prior
written approval of the other party in relation to each specific statement.
16. Licenser shall attempt to secure direct government grants up to a total of
CDN $20,000.00 to offset the cost to the Licensee of product development as
set out in Appendix "C", provided that such grants shall not reduce or
negatively or adversely affect the rights of either party hereunder.
17. Both parties shall use their best efforts to adhere to the project budget
estimate as set out in Appendix "C", and actual overall cost to Licensee
may not be exceed more than 10% without the written agreement of both
parties.
AGREED TO AS OF THE 15TH DAY OF SEPTEMBER 1997.
NEW ERA NUTRITION INC. MANNATECH INC. INCORPORATED
/s/ Saul Katz /s/ Tony Canale
- ------------------------------- ----------------------------------------
PRESIDENT CHIEF EXECUTIVE OFFICER
APPENDIX "B" TO A PRODUCT DEVELOPMENT AGREEMENT BETWEEN NEW ERA NUTRITION INC.
AND MANNATECH INCORPORATED DATED SEPTEMBER 15th, 1997 (HEREINAFTER REFERRED TO
AS THE "MASTER AGREEMENT")
NON-DISCLOSURE AGREEMENT
Mannatech Incorporated (the "Promisor") has a principal place of business at
Grand Prairie, Texas USA and New Era Nutrition Inc. (the "Company"), has a
principal place of business at Edmonton, Alberta Canada. In consideration of the
Company agreeing to disclose to the Promisor certain Confidential Information,
the parties hereby agree as follows:
1. PURPOSE: To further a business relationship between the Company and the
Promisor, it is necessary and desirable that the Company disclose and
provide to the Promisor certain business information and product samples
proprietary to the Company, and which the Company considers confidential.
2. DEFINITION: "Confidential Information" includes business, technical
information, know-how and product samples, including but not limited to:
research and development, products, prototypes and samples, inventions,
processes, formulae, specifications, agglomeration of ingredients, trade
and product names, designs or drawings, actual or planned and disclosed by
the Company, either directly or indirectly, in writing, orally, physically,
by drawings or inspection.
3. DISCLOSURE: The Promisor hereby agrees not to disclose Confidential
Information to any person or entity other than as permitted herein, and
agrees to use its best efforts to prevent inadvertent disclosure of
Confidential Information.
4. USE: The Promisor agrees not to use Confidential Information for its own
use or for any purpose except to evaluate whether the Promisor desires to
become engaged with the Company in a business possibility or, after
becoming engaged, to carry out the business with the Company only. The
Promisor agrees not to disclose the Confidential Information except to its
employees on a need to know basis and in compliance with paragraph 8
hereof. The Promisor agrees not to attempt to reverse engineer any
product, sample or prototype of the Company, or without prior written
consent first received from the Company, to analyze any such item for any
purpose whatsoever.
5. TERMINATION OF OBLIGATION: The obligations of paragraphs 3 and 4 hereof,
shall terminate with respect to any particular portion of the Confidential
Information, the earlier of receipt of written release from the Company, or
the third anniversary of this Agreement unless another agreement has
replaced such provisions.
6. PROPERTY RIGHTS AND RETURN OF MATERIALS: All information and materials in
any form furnished to the Promisor by the Company shall remain the property
of the Company, and nothing contained herein shall be construed as giving
the Promisor any license or rights with respect to any information or
materials which may be disclosed to the Promisor. The Promisor shall make
no copies of any Confidential Information without the prior written consent
of the Company. The Promisor shall return to the Company promptly at its
request or upon termination of the business relationship contemplated
herein, all information and materials provided by the Company along with
all copies made thereof.
1
7. DISCLOSURE OF THE COMPANY: Communications from the Promisor to personnel
and authorized representatives of the Company, shall not be in violation of
the rights of any third party.
8. PROMISOR'S EMPLOYEES: Upon disclosing Confidential Information to any
employee or shortly thereafter, the Promisor shall notify the Company in
writing with the name(s) of each such employee(s). Prior to disclosing
Confidential Information to any employee, the Promisor shall first obtain
an executed non-disclosure agreement substantially in the same form as
herein, which protects the Confidential Information.
9. REMEDIES: The Promisor acknowledges that compliance with the provisions of
this Agreement is necessary to protect the proprietary interests of the
Company. The Promisor further acknowledges that any unauthorized use or
disclosure to any third Party in breach of this Agreement may result in
irreparable and continuing damage to the Company and agrees that, in the
event of such a breach, the Company shall be authorized and entitled to
obtain immediately injunctive relief and other remedies to which the
Company may be entitled.
10. MISCELLANEOUS: This Agreement shall he construed in accordance with the
laws of the province of Alberta and the parties attorn to the jurisdiction
of the courts therein. Failure to enforce any provision of this Agreement
shall not constitute a waiver of any term hereof. This Agreement contains
the entire agreement of, and supersedes any and all prior understandings,
arrangements and agreements between the parties hereto, whether oral or
written, with respect to the subject matter thereof. This Agreement is
binding upon and for the benefit of the parties, their successors and
assigns, and cannot be assigned without the consent of the Company.
11. USURPATION OF INFORMATION: Notwithstanding anything to the contrary in this
Agreement, the Promisor acknowledges that it will not circumvent or compete
with the Company, either on its own or with another, in the development,
manufacture, distribution, marketing or sale of any snack or food bar
substantially similar to products, samples and prototypes presented to the
Promisor
- --------------------------------------------------------------------------------
PROMISOR COMPANY
- --------------------------------------------------------------------------------
MANNATECH INCORPORATED NEW ERA NUTRITION INC.
- --------------------------------------------------------------------------------
Officer: Sam Caster Officer: Saul Katz
- --------------------------------------------------------------------------------
Title: President Title: President & CEO
- --------------------------------------------------------------------------------
At: Grand Prairie, Texas At: Edmonton, Alberta
- --------------------------------------------------------------------------------
Dated August 21, 1997 Dated: August 21, 1997
- --------------------------------------------------------------------------------
/s/ Sam Caster /s/ Saul Katz
- --------------------------------------------------------------------------------
2
SEVERANCE AND CONSULTING AGREEMENT
AND COMPLETE RELEASE
This Severance and Consulting Agreement and Complete Release ("Agreement")
is entered into between Mannatech, Incorporated ("Mannatech") and Ronald E.
Kozak ("Kozak").
WHEREAS, Kozak has been employed by Mannatech as Chief Executive Officer;
and
WHEREAS, effective May 1, 1997, Kozak's employment and Employment Agreement
with Mannatech were terminated by mutual agreement of both parties; and
WHEREAS, Kozak's expertise and knowledge relating to various ongoing
matters involving Mannatech or third parties remain valuable to Mannatech; and
WHEREAS, Kozak and Mannatech desire to continue their mutually beneficial
business relationship; and
WHEREAS, as an employee and officer of Mannatech, Kozak has had access to
trade secret, confidential and proprietary information belonging to Mannatech or
third parties, which information constitutes valuable property and other
interests of Mannatech in need of protection; and
WHEREAS, Kozak and Mannatech desire to resolve completely and forever all
claims and differences between them.
NOW, THEREFORE, in consideration of the mutual promises set forth below,
Kozak and Mannatech agree as follows:
1. KOZAK TO RESIGN. Kozak hereby resigns all officer and employee
positions with Mannatech. Upon signing this Agreement, and provided that Kozak
does not later revoke this Agreement in accordance with paragraph 12 below,
Mannatech's corporate and personnel records will reflect that Kozak voluntarily
resigned. Kozak represents that he has returned to Mannatech all property,
without limitation, belonging to Mannatech.
2. PAYMENTS BY MANNATECH. Mannatech agrees that if Kozak does not revoke
this Agreement in accordance with paragraph 12 below, and provided Kozak does
not violate any of his promises set forth in paragraphs 11 and 12 of his
Employment Agreement (which paragraphs survive termination of the Employment
Agreement), Mannatech will:
(a) pay to Kozak a consulting fee at the rate of twenty-five thousand
dollars ($25,000.00) per month for a period of one (1) year from May 1, 1997,
payable in monthly installments, less federal withholding taxes and other
deductions required by law, if any. Mannatech will send Kozak a Form 1099 for
each year in which payments are made;
(b) immediately convey and deliver to Kozak that certain 1996 Lexus L5400
automobile, vehicle identification number JT8BH22F2T0056429, which Mannatech has
previously made available for Kozak's use, including, in recordable form, the
Texas Certificate of Title on said automobile; and
(c) grant to Kozak an option to purchase 200,000 shares of common stock
issued and outstanding in accordance with the terms of that certain Stock Option
Agreement set forth in Exhibit "A" hereto. (Kozak is aware that Mannatech
contemplates an initial public offering of its securities within the next twelve
(12) months.)
Kozak understands and agrees that the above amounts are in excess of what
he is otherwise entitled to receive as a terminated employee of Mannatech, and
that, except for any payments he may be entitled to receive as a terminated
employee under Mannatech's 401(k) plan, he will receive no further or other
salary, benefits, commissions, bonuses (including contributions to or
distributions from the Bonus Volume Limited Partnership described in Paragraph 4
of Kozak's Employment Agreement), accrued but unused vacation, expense
reimbursement or similar payments from Mannatech.
PAGE 2
3. CONTINUED CONSULTING RESPONSIBILITIES. Kozak agrees and covenants
that he will provide reasonable consulting services to Mannatech with respect to
ongoing matters involving subjects for which he was responsible, in whole or in
part, during his employment with Mannatech, for a period of one (1) year from
May 1, 1997. Such consulting services will be provided by Kozak in good faith
on an as needed basis. In connection with any consulting services to be
performed, Kozak shall not be required to travel more than a 50 mile radius of
his then residence at his own expense (the "Consulting Distance"). In the event
that Mannatech should request Kozak to travel beyond the Consulting Distance,
Mannatech shall reimburse Kozak the reasonable and actual out-of-pocket costs of
such travel including, but not limited to, hotel, air fair, taxi/car rental,
meals, and other reasonable per diem expenses.
4. NO FUTURE EMPLOYMENT. Kozak agrees that he will not seek or demand
employment with Mannatech or any of its related companies or successors at any
time in the future.
5. COMPLETE RELEASE BY KOZAK. As a material inducement to Mannatech
to enter into this Agreement, Kozak hereby irrevocably and unconditionally
releases, acquits, and forever discharges Mannatech, as well as each of its
owners, stockholders, predecessors, trustees, successors, holding companies,
assigns, agents, directors, officers, employees, representatives, plan
administrator(s), attorneys, parent companies, divisions, subsidiaries,
affiliates, (and any agents, directors, officers, employees, representatives,
and attorneys of such parent companies, divisions, subsidiaries and
affiliates), past or present, in both their representative and individual
capacities, and all persons acting by, through, under or in concert with any
of them (collectively referred to as the "Mannatech Releasees"), from any and
all claims, causes of action or demands, of any nature whatsoever, known or
unknown, suspected or unsuspected, including any claims or demands for costs,
expenses or attorney's fees. This includes a release of any rights or claims
Kozak may have under the Age Discrimination
PAGE 3
in Employment Act, which prohibits age discrimination in employment; Title VII
of the Civil Rights Act of 1964, which prohibits discrimination in employment
based on race, color, national origin, religion or sex; the Americans With
Disabilities Act, which prohibits discrimination in employment based on a
disability; the Employee Retirement Income Security Act; the Texas Payday Law;
the Texas Workers' Compensation Act; the Texas Commission on Human Rights Act;
and any other federal, state or local law or regulation. This also includes a
release of any claims for wrongful discharge, breach of express or implied
contract, breach of express or implied covenant of good faith and fair dealing,
and any tort claims, including any claim of negligence or gross negligence on
the part of Mannatech or any of the Mannatech Releasees. This release does not
include, however, a release of Kozak's rights, if any, under Mannatech's 401(k)
plan. Moreover, this release does not waive, release, include, or apply to any
and all rights and/or claims which may arise and/or accrue after the date Kozak
signs this agreement, including but not limited to, claims for a breach of this
agreement by Mannatech.
6. COMPLETE RELEASE BY MANNATECH. As a material inducement to Kozak to
enter into this Agreement, Mannatech hereby irrevocably and unconditionally
releases, acquits, and forever discharges Kozak, as well as each of his heirs,
administrators, trustees, representatives, agents, attorneys, executors,
successors and assigns, from any and all claims, causes of action or demands, of
any nature whatsoever, known or unknown, suspected or unsuspected, including any
claims or demands for costs, expenses or attorney's fees. Moreover, this release
does not waive, release, include, or apply to any and all rights and/or claims
which may arise and/or accrue after the date Mannatech signs this agreement,
including but not limited to, claims for a breach of this agreement by Kozak.
7. NO FUTURE LAWSUITS. Kozak and Mannatech agree never to file a lawsuit
asserting any claims that are released in paragraphs 5 and 6.
PAGE 4
8. NO RELEASE OF FUTURE CLAIMS. This Agreement does not waive or release
any rights or claims that Kozak may have under the Age Discrimination in
Employment Act which may arise after the date he signs this Agreement. Moreover,
this release does not waive, release, include, or apply to any and all rights
and/or claims which may arise and/or accrue after the date the parties sign this
agreement, including but not limited to, claims for a breach of this agreement
by either party.
9. NON-ADMISSION OF LIABILITY. Kozak and Mannatech agree that they are
entering into this Agreement to, among other things, resolve any claims or
differences that may exist between them, and to avoid the cost of possible
lawsuits. By entering into this Agreement, neither party admits any wrongdoing.
10. CONSEQUENCES OF VIOLATION OF PROMISES. Kozak agrees that if he
breaches any of the terms of this Agreement, Kozak will not be entitled to a
continuation of the payments referenced in paragraph 2 of this Agreement. Kozak
and Mannatech understand and agree that the consequences of violation of
promises identified in this paragraph do not constitute their exclusive remedies
for breaches of this Agreement, and each shall be entitled to recover such other
and further legal and equitable relief to which he or it may be entitled.
11. PERIOD OF REVIEW AND CONSIDERATION OF AGREEMENT/RIGHT TO CONSULT
ATTORNEY. Kozak has been given a period of 21 days from May 8, 1997 to
review and consider this Agreement before signing it. He may use as much of
this 21-day period as he wishes before signing and he is encouraged to
consult with an attorney before signing this Agreement. Kozak understands
that whether or not to consult with an attorney is his decision.
12. KOZAK'S RIGHT TO REVOKE AGREEMENT. Kozak may revoke this Agreement
within seven days after signing it. Revocation can be made by delivering a
written notice of revocation to Mannatech c/o Deanne Varner, General Counsel,
600 S. Royal Lane, Suite 200, Coppell, TX 75019. For this revocation to be
effective, written
PAGE 5
notice must be received by Ms. Varner no later than the close of business on the
seventh day after Kozak signed this Agreement. If Kozak revokes this Agreement,
it will not be effective or enforceable and he will not receive the payments
described in paragraph 2.
13. RESPONSIBILITY FOR TAXES. Mannatech makes no representations regarding
the taxability of the payments made in accordance with paragraph 2 above, and
Kozak hereby agrees that he is solely responsible for all tax obligations, if
any, including, but not limited to, all reporting and payment obligations, which
may arise as a consequence of such payments, with the exception of any and all
withholding obligations, if any, attributable to Mannatech as a result of the
payments made in accordance with paragraph 2 above, for which obligations
Mannatech will be responsible. Kozak hereby agrees to indemnify and hold
Mannatech and the Mannatech Releasees harmless from and against any and all
loss, cost, damage or expense, including, without limitation, attorney's fees,
incurred by Mannatech and the Mannatech Releasees, arising out of the tax
treatment of any payments received by Kozak as a result of this Agreement,
except Kozak shall not indemnify and hold Mannatech and the Mannatech Releasees
harmless from and against losses, costs, damages, or expenses, including without
limitation, attorney's fees, arising from and/or relating to Mannatech's
withholding obligations, if any, relating to the payments received by Kozak as a
result of this Agreement.
14. PROPER CONSTRUCTION. The language of this Agreement shall be construed
as a whole, according to its fair meaning, and not strictly for or against
either of the parties hereto. The paragraph headings used in this Agreement are
intended solely for convenience of reference and shall not in any manner
amplify, limit, modify or otherwise be used in the interpretation of any of the
provisions hereof.
15. ENTIRE AGREEMENT. This Agreement supersedes all other agreements
between the parties with respect to the subject matter hereof; provided,
however, that Paragraphs 11 and 12 of Kozak's Employment Agreement continue to
survive the termination of the Employment Agreement. With respect to said
Paragraph 12 of
PAGE 6
Kozak's Employment Agreement ("Restrictive Covenant"), Kozak and Mannatech
hereby agree that the one (1) year period shall commence on May 1, 1997, and
that the covered Territory shall, in addition to the United States of America,
include Canada, the Bahamas and all other countries in which Mannatech currently
does business.
16. AGREEMENT TO BE BINDING ON OTHERS. If it becomes effective, this
Agreement will be binding upon Kozak and Mannatech, and their respective heirs,
administrators, trustees, representatives, executors, successors and assigns.
17. AGREEMENT TO BE CONFIDENTIAL. Kozak and Mannatech agree that they
will keep the terms, amount and fact of this Agreement completely confidential,
and that, unless required to do so by law or court order, or if necessary to
enforce this Agreement or defend themselves against claims by the other, they
will not disclose any information concerning this Agreement to anyone (other
than their attorneys and tax advisers, if any, and in the case of Kozak, his
spouse, all of whom shall be subject to and bound by this confidentiality
provision).
18. NO DETRIMENTAL REMARKS OR ACTIONS. Kozak and Mannatech agree that they
will not, directly or indirectly, in any individual or representative capacity
whatsoever, make any statement, oral or written, or perform any act or omission
which is or could be detrimental in any material respect to the reputation or
goodwill of the other (including, in the case of Mannatech, its successors,
affiliates, or related companies); provided, however, that any truthful
statements made by either Kozak or Mannatech in good faith shall not violate
this subsection. Mannatech's obligations under this paragraph extend only to
officers and senior management employees of Mannatech who were officers and/or
senior management employees of Mannatech at the time the statements were made.
19. TEXAS LAW APPLIES. This Agreement will be construed in accordance with
and governed by the laws of the State of Texas.
PAGE 7
20. NO WAIVER OR MODIFICATION. No waiver or modification of this
Agreement will be valid unless in writing and signed by both parties.
21. SEVERABILITY OF PROVISIONS. If any provision in this Agreement shall
be held to be invalid, illegal or unenforceable, this Agreement shall be
construed as if that provision had never been contained in this Agreement and
the remainder of this Agreement shall remain valid and enforceable.
22. Kozak has elected to maintain his current company health insurance
coverage for a period of eighteen (18) months, as provided for by COBRA.
Mannatech has agreed to and will pay all associated premIum costs related to
such health and dental insurance coverage, for a period of six (6) months,
beginning May 1, 1997.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS AS SPECIFIED IN PARAGRAPHS 5, 6, AND 8 ABOVE.
I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THE FOREGOING AGREEMENT, THAT I
UNDERSTAND ALL OF ITS TERMS, AND THAT I AM ENTERING INTO IT VOLUNTARILY.
I FURTHER ACKNOWLEDGE THAT I AM AWARE OF MY RIGHTS TO RENEW AND CONSIDER
THIS AGREEMENT FOR 21 DAYS AND TO CONSULT WITH AN ATTORNEY ABOUT IT, AND STATE
THAT BEFORE SIGNING THIS AGREEMENT, I EXERCISED THESE RIGHTS TO THE FULL EXTENT
THAT I DESIRED.
/s/ Ronald E. Kozak
-------------------------------------
Ronald E. Kozak ("Kozak")
August 1, 1997
-------------------------------------
Date
Subscribed and sworn to before me this 1 day of August , 1997.
/s/ Debbie L. Anthony
-------------------------------------
Notary Public for the State of Oklahoma
County of Oklahoma
My Commission Expires: 5-12-01
---------------
PAGE 8
ACCEPTED AND AGREED:
Mannatech, Incorporated ("Mannatech")
By /s/ [Illegible]
---------------------------------
Title CHIEF EXECUTIVE OFFICER
------------------------------
Date August 13, 1997
-------------------------------
Subscribed and sworn to before me this 13 day of August , 1997.
/s/ Vincenza C. Calvey
-----------------------------------
VINCENZA C. CALVEY Notary Public for the State of Texas
[SEAL] MY COMMISSION EXPIRES County of Dallas
September 11, 1997 My Commission Expires: 9-11-97
-------------
PAGE 9
EXHIBIT 10.23
SUMMARY OF MANAGEMENT BONUS PLAN
The Company's executive officers and certain other members of corporate
management are eligible to receive annual bonuses in addition to their base
salaries. The management bonus plan (the "Plan") is based upon the attainment
by management of certain financial goals of the Company. Until such time as
the shares of the Company's common stock, par value $0.0001 per share, are
registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Plan will be administered by the Board of
Directors of the Company. After such registration, the Plan will be
administered by a compensation committee composed of at least two
"Non-Employee Directors," as such term is defined in rule 16b-3 promulgated
under the Exchange Act.
PROMISSORY NOTE
Dallas County, Texas Date: AUGUST 31, 1997 $45,907.40
For value received, the undersigned, Patrick D. Cobb ("Maker"), promises
to pay to the order of Mannatech, Incorporated ("Payee"), whose business house
is located in Dallas County, Texas, in lawful money of the United States of
America, together with interest from the date hereof on the principal amount
from time to time remaining unpaid, at the rate per annum hereinafter
described. All past due principal hereof and interest thereon shall bear
interest from the maturity of such principal, and both principal and interest
shall be payable to Payee at 600 S. Royal Lane, Coppell, Dallas County,
Texas, or such other place in Dallas County, Texas as Payee may designate in
writing.
This Note shall bear interest at six percent (6%) per annum.
This principal and interest shall be payable as follows: All principal
and interest shall be due and payable upon that date upon which the Maker
first receives good funds derived from the sale of certain of his stock in
Mannatech, Incorporated in connection with the initial public offering of the
same or upon December 31, 1998, whichever shall first occur.
Maker may prepay the obligations of this Note in whole or in part,
without any premium or penalty therefor, the principal amount then remaining
unpaid, together with all accrued interest payable thereon, and interest
shall cease to run from the date of payment of such part or all of the
principal amount hereof as shall so be prepaid. Any such prepayment
hereunder shall be applied first to
accrued interest and the balance to principal, but no part of prepayment
shall, until this Note is fully paid and satisfied, affect the obligations to
continue to pay the regular installments required hereunder until the entire
indebtedness has been paid.
If Maker shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for Maker any arrangement, composition, readjustment, or similar
relief under any present or future statute, law or regulation, or shall file
any answer admitting the material allegations of a petition filed against
Maker in any such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee or receiver, on all or any substantial part of the
properties of Maker, or if a decree or order by a court having jurisdiction
in the premises shall have been entered adjudging the Maker to be bankrupt or
insolvent under the federal bankruptcy laws or any applicable law of the
United States of America or any state law, or appointing a receiver or
trustee or assignee in bankruptcy or insolvency of Maker or any of Maker's
properties, and such decree or order shall have continued undischarged or
unstayed for a period of sixty (60) days; or if Maker shall make an
assignment for the benefit of creditors, or if Maker shall fail to pay this
note or any installment hereof, whether principal or interest, when due, then
Payee shall have the option, to the extent permitted by applicable law, to
declare this Note due and payable, whereupon the entire unpaid principal
balance of this note and all accrued unpaid interest thereon shall at once
2
mature and become due and payable without presentment, demand, protest or
notice of any kind (including, but not limited to, notice of intention to
accelerate or notice of acceleration), all of which are hereby expressly
waived by Maker. The time of payment of this note is also subject to
acceleration in the same manner provided in this paragraph in the event Maker
defaults or otherwise fails to discharge its obligations under any of the
instruments securing payment hereof or relating hereto.
Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, protest, notice of any kind (including, but
not limited to, notice of dishonor, notice of protest, notice of intention to
accelerate and notice of acceleration) and diligence in collecting and
bringing suit against any party hereto and agree (i) to all extensions and
partial payments, with or without notice, before or after maturity, (ii) to
any substitution, exchange or release of any security now or hereafter given
for this note, (iii) to the release of any party primarily or secondarily
liable hereon, and (iv) that it will not be necessary for Payee, in order to
enforce payment of this Note, to first institute or exhaust Payee's remedies
against Maker or any other party liable therefor or against any security for
this Note.
If this Note is not paid at maturity, however, and such maturity is
brought about and is placed in the hands of an attorney for collection, or if
collected through any legal proceedings including but not limited to probate,
insolvency or bankruptcy
3
proceedings, or if suit is brought on the same, Makers agree to pay a
reasonable amount of attorneys' fees and expenses of collection.
If Maker shall fail to pay this Note or any installment hereof, whether
principal or interest, when due, and if Makers shall not have cured such
default in the payment of principal and interest, or either, within ten (10)
days after Makers shall have received from the Payees written notice of such
Payee's intent to accelerate the maturity of this Note, then Payees may, at
their option, without further demand, notice or presentment, all of which are
hereby severally waived by Makers, and by any and all sureties, guarantors,
and endorsers of this Note, accelerate the maturity of this Note, upon which
the entire unpaid balance of the principal hereof together with all accrued
but unpaid interest thereon shall be at once due and payable.
As used in this Note, the term "Maker" shall be deemed to include
Patrick D. Cobb, and any of his successors in interest or assignees.
As used in this Note, the term "Payee" shall be deemed to include
Mannatech, Incorporated, and any subsequent holders hereof.
This Note shall be governed by and construed under the laws of the State
of Texas and the laws of the United States of America.
/s/ Patrick D. Cobb
-----------------------------------
Patrick D. Cobb, Maker
4
PROMISSORY NOTE
Dallas County, Texas Date: AUGUST 31, 1997 $275,444.42
For value received, the undersigned, Samuel L. Caster ("Maker"),
promises to pay to the order of Mannatech, Incorporated ("Payee"), whose
business house is located in Dallas County, Texas, in lawful money of the
United States of America, together with interest from the date hereof on the
principal amount from time to time remaining unpaid, at the rate per annum
hereinafter described. All past due principal hereof and interest thereon
shall bear interest from the maturity of such principal, and both principal
and interest shall be payable to Payee at 600 S. Royal Lane, Coppell, Dallas
County, Texas, or such other place in Dallas County, Texas as Payee may
designate in writing.
This Note shall bear interest at six percent (6%) per annum.
This principal and interest shall be payable as follows: All principal
and interest shall be due and payable upon that date upon which the Maker
first receives good funds derived from the sale of certain of his stock in
Mannatech, Incorporated in connection with the initial public offering of the
same or upon December 31, 1998, whichever shall first occur.
Maker may prepay the obligations of this Note in whole or in part,
without any premium or penalty therefor, the principal amount then remaining
unpaid, together with all accrued interest payable thereon, and interest
shall cease to run from the date of payment of such part or all of the
principal amount hereof as shall so be prepaid. Any such prepayment
hereunder shall be applied first to
accrued interest and the balance to principal, but no part of prepayment
shall, until this Note is fully paid and satisfied, affect the obligations to
continue to pay the regular installments required hereunder until the entire
indebtedness has been paid.
If Maker shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for Maker any arrangement, composition, readjustment, or similar
relief under any present or future statute, law or regulation, or shall file
any answer admitting the material allegations of a petition filed against
Maker in any such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee or receiver, on all or any substantial part of the
properties of Maker, or if a decree or order by a court having jurisdiction
in the premises shall have been entered adjudging the Maker to be bankrupt or
insolvent under the federal bankruptcy laws or any applicable law of the
United States of America or any state law, or appointing a receiver or
trustee or assignee in bankruptcy or insolvency of Maker or any of Maker's
properties, and such decree or order shall have continued undischarged or
unstayed for a period of sixty (60) days; or if Maker shall make an
assignment for the benefit of creditors, or if Maker shall fail to pay this
note or any installment hereof, whether principal or interest, when due, then
Payee shall have the option, to the extent permitted by applicable law, to
declare this Note due and payable, whereupon the entire unpaid principal
balance of this note and all accrued unpaid interest thereon shall at once
2
mature and become due and payable without presentment, demand, protest or
notice of any kind (including, but not limited to, notice of intention to
accelerate or notice of acceleration), all of which are hereby expressly
waived by Maker. The time of payment of this note is also subject to
acceleration in the same manner provided in this paragraph in the event Maker
defaults or otherwise fails to discharge its obligations under any of the
instruments securing payment hereof or relating hereto.
Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, protest, notice of any kind (including, but
not limited to, notice of dishonor, notice of protest, notice of intention to
accelerate and notice of acceleration) and diligence in collecting and
bringing suit against any party hereto and agree (i) to all extensions and
partial payments, with or without notice, before or after maturity, (ii) to
any substitution, exchange or release of any security now or hereafter given
for this note, (iii) to the release of any party primarily or secondarily
liable hereon, and (iv) that it will not be necessary for Payee, in order to
enforce payment of this Note, to first institute or exhaust Payee's remedies
against Maker or any other party liable therefor or against any security for
this Note.
If this Note is not paid at maturity, however, and such maturity is
brought about and is placed in the hands of an attorney for collection, or if
collected through any legal proceedings including but not limited to probate,
insolvency or bankruptcy
3
proceedings, or if suit is brought on the same, Makers agree to pay a
reasonable amount of attorneys' fees and expenses of collection.
If Maker shall fail to pay this Note or any installment hereof, whether
principal or interest, when due, and if Makers shall not have cured such
default in the payment of principal and interest, or either, within ten (10)
days after Makers shall have received from the Payees written notice of such
Payee's intent to accelerate the maturity of this Note, then Payees may, at
their option, without further demand, notice or presentment, all of which are
hereby severally waived by Makers, and by any and all sureties, guarantors,
and endorsers of this Note, accelerate the maturity of this Note, upon which
the entire unpaid balance of the principal hereof together with all accrued
but unpaid interest thereon shall be at once due and payable.
As used in this Note, the term "Maker" shall be deemed to include Samuel
L. Caster, and any of his successors in interest or assignees.
As used in this Note, the term "Payee" shall be deemed to include
Mannatech, Incorporated, and any subsequent holders hereof.
This Note shall be governed by and construed under the laws of the State
of Texas and the laws of the United States of America.
/s/ Samuel L. Caster
-------------------------------------
Samuel L. Caster, Maker
4
PROMISSORY NOTE
Dallas County, Texas Date: AUGUST 31, 1997 $275,444.42
For value received, the undersigned, Charles E. Fioretti ("Maker"),
promises to pay to the order of Mannatech, Incorporated ("Payee"), whose
business house is located in Dallas County, Texas, in lawful money of the
United States of America, together with interest from the date hereof on the
principal amount from time to time remaining unpaid, at the rate per annum
hereinafter described. All past due principal hereof and interest thereon
shall bear interest from the maturity of such principal, and both principal
and interest shall be payable to Payee at 600 S. Royal Lane, Coppell, Dallas
County, Texas, or such other place in Dallas County, Texas as Payee may
designate in writing.
This Note shall bear interest at six percent (6%) per annum.
This principal and interest shall be payable as follows: All principal
and interest shall be due and payable upon that date upon which the Maker
first receives good funds derived from the sale of certain of his stock in
Mannatech, Incorporated in connection with the initial public offering of the
same or upon December 31, 1998, whichever shall first occur.
Maker may prepay the obligations of this Note in whole or in part,
without any premium or penalty therefor, the principal amount then remaining
unpaid, together with all accrued interest payable thereon, and interest
shall cease to run from the date of payment of such part or all of the
principal amount hereof as shall so be prepaid. Any such prepayment
hereunder shall be applied first to
accrued interest and the balance to principal, but no part of prepayment
shall, until this Note is fully paid and satisfied, affect the obligations to
continue to pay the regular installments required hereunder until the entire
indebtedness has been paid.
If Maker shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for Maker any arrangement, composition, readjustment, or similar
relief under any present or future statute, law or regulation, or shall file
any answer admitting the material allegations of a petition filed against
Maker in any such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee or receiver, on all or any substantial part of the
properties of Maker, or if a decree or order by a court having jurisdiction
in the premises shall have been entered adjudging the Maker to be bankrupt or
insolvent under the federal bankruptcy laws or any applicable law of the
United States of America or any state law, or appointing a receiver or
trustee or assignee in bankruptcy or insolvency of Maker or any of Maker's
properties, and such decree or order shall have continued undischarged or
unstayed for a period of sixty (60) days; or if Maker shall make an
assignment for the benefit of creditors, or if Maker shall fail to pay this
note or any installment hereof, whether principal or interest, when due, then
Payee shall have the option, to the extent permitted by applicable law, to
declare this Note due and payable, whereupon the entire unpaid principal
balance of this note and all accrued unpaid interest thereon shall at once
2
mature and become due and payable without presentment, demand, protest or
notice of any kind (including, but not limited to, notice of intention to
accelerate or notice of acceleration), all of which are hereby expressly
waived by Maker. The time of payment of this note is also subject to
acceleration in the same manner provided in this paragraph in the event Maker
defaults or otherwise fails to discharge its obligations under any of the
instruments securing payment hereof or relating hereto.
Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, protest, notice of any kind (including, but
not limited to, notice of dishonor, notice of protest, notice of intention to
accelerate and notice of acceleration) and diligence in collecting and
bringing suit against any party hereto and agree (i) to all extensions and
partial payments, with or without notice, before or after maturity, (ii) to
any substitution, exchange or release of any security now or hereafter given
for this note, (iii) to the release of any party primarily or secondarily
liable hereon, and (iv) that it will not be necessary for Payee, in order to
enforce payment of this Note, to first institute or exhaust Payee's remedies
against Maker or any other party liable therefor or against any security for
this Note.
If this Note is not paid at maturity, however, and such maturity is
brought about and is placed in the hands of an attorney for collection, or if
collected through any legal proceedings including but not limited to probate,
insolvency or bankruptcy
3
proceedings, or if suit is brought on the same, Makers agree to pay a
reasonable amount of attorneys' fees and expenses of collection.
If Maker shall fail to pay this Note or any installment hereof, whether
principal or interest, when due, and if Makers shall not have cured such
default in the payment of principal and interest, or either, within ten (10)
days after Makers shall have received from the Payees written notice of such
Payee's intent to accelerate the maturity of this Note, then Payees may, at
their option, without further demand, notice or presentment, all of which are
hereby severally waived by Makers, and by any and all sureties, guarantors,
and endorsers of this Note, accelerate the maturity of this Note, upon which
the entire unpaid balance of the principal hereof together with all accrued
but unpaid interest thereon shall be at once due and payable.
As used in this Note, the term "Maker" shall be deemed to include
Charles E. Fioretti, and any of his successors in interest or assignees.
As used in this Note, the term "Payee" shall be deemed to include
Mannatech, Incorporated, and any subsequent holders hereof.
This Note shall be governed by and construed under the laws of the State
of Texas and the laws of the United States of America.
/s/ Charles E. Fioretti
----------------------------------
Charles E. Fioretti, Maker
4
INDIVIDUAL GUARANTY
Dated 1/5/98
Master Lease Agreement Date: 1/98
----
Lessee Name: MANNATECH, INCORPORATED
----------------------------------------------------
----------------------------------------------------
Equipment Cost $ 1,500,000.00
-------------
1. For valuable consideration, the receipt of which is hereby
acknowledged, the undersigned jointly and severally conditionally guarantee to
BANC ONE LEASING CORPORATION (hereinafter called "Lessor") the full and prompt
performance by the lessee identified above (hereinafter called "Lessee"), of all
obligations which Lessee now has or may hereafter have to Lessor, including but
not limited to obligations under equipment leases and promissory notes executed
in connection with anticipated equipment leases (including but not limited to
all present and future leases and promissory notes under the Master Lease
identified above, with a total original equipment cost to the Lessor of no more
than the amount of the Equipment Cost set forth above), and unconditionally
guarantee the prompt payment when due (whether at scheduled maturity, upon
acceleration or otherwise) of any and all sums, indebtedness and liabilities of
whatsoever nature, due or to become due, direct or indirect, absolute or
contingent, now or hereafter at any time owed or contracted by Lessee to Lessor,
and all costs and expenses of and incidental to collection of any of the
foregoing, including reasonable attorneys' fees (all of the foregoing
hereinafter called "Obligations"). It is the undersigned's express intention
that this guaranty in addition to covering all present Obligations of Lessee to
Lessor, shall extend to all future Obligations of Lessee to Lessor, whether or
not such Obligations are reduced or entirely extinguished and thereafter
increased or are reincurred, whether or not such Obligations are related to the
Master Lease identified above, whether or not such Obligations exceed the
Equipment Cost identified above, and whether or not such Obligations are
specifically contemplated by the undersigned, Lessee, and Lessor as of the date
hereof.
2. This is an absolute and unconditional guarantee of payment and not of
collection. Lessor shall not be required, as a condition of the liability of
the undersigned, to resort to, enforce or exhaust any of its remedies against
the Lessee or any other party who may be liable for payment on any Obligation or
to resort to, marshall, enforce or exhaust any of its remedies against any
leased property or any property given or held as security for this Guaranty or
any Obligation.
3. The undersigned hereby waive and grant to Lessor, without notice to
the undersigned and without in any way affecting the liability of the
undersigned, the right at any time and from time to time, to extend other and
additional credit, leases, loans or financial accommodations to Lessee apart
from the Obligations, to deal in any manner as it shall see fit with any
Obligation of Lessee to Lessor and with any leased property or security for such
Obligation, including, but not limited to, (i) accepting partial payments on
account of any Obligation, (ii) granting extensions or renewals of all or any
part of any Obligation, (iii) releasing, surrendering, exchanging, dealing with,
abstaining
Page 1 of 4
from taking, taking, abstaining from perfecting, perfecting, or accepting
substitutes for any or all leased property or security which it holds or may
hold for any Obligation, (iv) modifying, waiving, supplementing or otherwise
changing any of the terms, conditions or provisions contained in any Obligation
and (v) the addition or release of any other party or person liable hereon,
liable on the Obligations or liable on any other guaranty executed to guarantee
any of Lessee's Obligations. The undersigned jointly and severally hereby agree
that any and all settlements, compromises, compositions, accounts stated and
agreed balances made in good faith between Lessor and Lessee shall be binding
upon the undersigned.
4. Every right, power and discretion herein granted to Lessor shall be
for the benefit of the successors or assigns of Lessor and of any transferee or
assignee of any Obligation covered by this Guaranty, and in the event any such
Obligation shall be transferred or assigned, every reference herein to Lessor
shall be construed to mean, as to such Obligation, the transferee or assignee
thereof. This Guaranty shall be binding upon each of the undersigned's
executors, administrators, heirs, successors and assigns.
5. This Guaranty shall continue in force for so long as Lessee shall be
obligated to Lessor, and thereafter until Lessor shall have actually received
written notice of the termination hereof from the undersigned, it being
contemplated that Lessee may borrow, lease, repay and subsequently borrow money
from or lease property from, or become obligated to, Lessor from time to time,
and the undersigned, not having given notice of the termination hereof as herein
provided for, shall be deemed to have permitted this Guaranty to remain in full
force and effect for the purpose of inducing Lessor to make further leases or
loans to Lessee; provided, however, no notice of termination of this Guaranty
shall affect in any manner the rights of Lessor arising under this Guaranty with
respect to the following: (a) any Obligation incurred by Lessee in connection
with the Master Lease identified above with a total equipment cost of no more
than the amount of the Total Equipment Cost set forth above, whether such
obligation is in the form of a lease or a promissory note; or (b) any Obligation
incurred by Lessee prior to receipt by Lessor of written notice of termination
or any Obligation incurred after receipt of such written notice pursuant to a
written agreement entered into by Lessor prior to receipt of such notice. The
undersigned expressly waive notice of the incurring by Lessee of any Obligation
to Lessor. The undersigned also waive presentment, demand of payment, protest,
notice of dishonor or nonpayment of or nonperformance of any Obligation.
6. The undersigned hereby waive any claims or rights which they might now
have or hereafter acquire against Lessee or any other person primarily or
contingently liable on any Obligation of Lessee, which claims or rights arise
from the existence or performance of the undersigned's obligations under this
Guaranty or any other guaranty or under any instrument or agreement with respect
to any leased property or any property constituting collateral or security for
this Guaranty or any other guaranty, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, or any
right to participate in any claim or remedy of Lessor or any other creditor
which the undersigned now has or hereafter acquires, whether such claim or right
arises in equity, under contract or statute, at common law, or otherwise.
7. Lessor's rights hereunder shall be reinstated and revived, and this
Guaranty shall be fully enforceable, with respect to any amount at any time paid
on account of the Obligations which thereafter shall be required to be restored
or returned by Lessor upon the bankruptcy, insolvency or reorganization of the
Lessee, the undersigned, or any other person, or as a result of any other fact
or circumstance, all as though such amount had not been paid.
Page 2 of 4
8. The undersigned jointly and severally agree to pay to Lessor all costs
and expenses, including reasonable attorneys' fees, incurred by Lessor in the.
enforcement or attempted enforcement of this Guaranty, whether or not suit is
filed in connection therewith, or in the exercise by Lessor of any right,
privilege, power or remedy conferred by this Guaranty.
9. The undersigned represent and warrant that they have relied
exclusively on their own independent investigation of Lessee, the leased
property and the collateral for their decision to guarantee Lessee's Obligations
now existing or thereaf ter arising. The undersigned agree that they have
sufficient knowledge of the Lessee, the leased property, and the collateral to
make an informed decision about this Guaranty, and that Lessor has no duty or
obligation to disclose any information in its possession or control about
Lessee, the leased property, and the collateral to the undersigned. The
undersigned warrant to Lessor that they have adequate means to obtain from the
Lessee on a continuing basis information concerning the financial condition of
the Lessee and that they are not relying on Lessor to provide such information
either now or in the future.
10. As long as any indebtedness under any of the Obligations remains
unpaid or any credit is available to Lessee under any of the Obligations, the
undersigned agree to furnish to Lessor: (a) annual financial statements setting
forth the financial condition of the undersigned in form and providing such
information as required by Lessor (including without limitation income tax
returns) within 120 days of the end of each calendar year; and (b) such other
financial information as Lessor may from time to time request.
11. No postponement or delay on the part of Lessor in the enforcement of
any right hereunder shall constitute a waiver of such right. The failure of any
person or entity to sign this Guaranty shall not discharge the liability of any
of the undersigned.
12. This Guaranty remains fully enforceable irrespective of any claim,
defense or counterclaim which the Lessee may or could assert on any of the
Obligations including but not limited to failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations, fraud, bankruptcy,
accord and satisfaction, and usury, same of which the undersigned hereby waive
along with any standing by the undersigned to assert any said claim, defense or
counterclaim.
13. This Guaranty contains the entire agreement of the parties and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Guaranty is not intended to replace
or supersede any other guaranty which the undersigned have entered into or may
enter into in the future. The undersigned may enter into additional guaranties
in the future which may or may not refer to the Master Lease identified above
and such guaranties are not intended to replace or supersede this Guaranty
unless specifically provided in that additional guaranty. The interpretation,
construction and validity of this guaranty shall be governed by the laws of the
State of Ohio. With respect to any action brought by Lessor against Guarantor
to enforce any term of this guaranty, Guarantor hereby irrevocably consents to
the jurisdiction and venue of any state or federal court in Franklin County,
Ohio, where Lessor has its principal place of business and where payments are to
be made by Lessee and Guarantor.
Page 3 of 4
ALL PARTIES TO THIS GUARANTY, INCLUDING GUARANTOR AND LESSOR, WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS GUARANTY.
Guarantor:
SAMUEL L. CASTER
- --------------------------------------
SAMUEL L. CASTER
Witness: Patrick Cobb, Secretary
-----------------------------
Page 4 of 4
GUARANTY ACKNOWLEDGMENT
INDIVIDUAL
State of TEXAS :
---------------
: ss
County of DALLAS :
--------------
Before me, a Notary public in and for said County and State, personally
appeared SAMUEL L. CASTER who acknowledged that he/she did sign the foregoing
guaranty and that the same is his/her free and voluntary act and deed.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my seal
this 5TH day of JANUARY , 1998.
VINCENZA C. CALVEY
[SEAL] MY COMMISSION EXPIRES Vincenza C. Calvey
SEPTEMBER 11, 2001 ------------------
Notary Public
ADDENDUM I TO GUARANTY
Dated 12/22/97
-------------------
Individual Guaranty dated as of DECEMBER 22 , 1997
--------------- --
Lessee: Mannatech, Inc.
Master Lease dated DECEMBER, 1997
---------------
Guarantor: Samuel L. Caster
Reference is made to the Individual Guaranty identified above ("Guaranty")
made by the Guarantor identified above ("Guarantor") in favor of Banc One
Leasing Corporation ("Lessor"). This Addendum I modifies the terms and
conditions of the Guaranty. Unless otherwise defined herein, capitalized terms
defined in the Guaranty shall have the same meaning when used herein.
As part of the valuable consideration to induce Lessor to enter into the
Master Lease, Guarantor and Lessor hereby agree as follows:
1. The following is added to Section 10 of the Guaranty:
"Guarantor shall maintain a minimum of $1,000,000 of unencumbered liquidity
at all times. Each calendar quarter Guarantor shall provide Lessor with a
statement as to the calculation of Guarantor's unencumbered liquidity and
identifying the sources of liquidity."
Except as expressly amended by the terms and conditions contained herein,
the Guaranty remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum I as of
the date referenced above.
Samuel L. Caster
- ------------------------- Banc One Leasing Corporation
Samuel L. Caster (Lessor)
(Guarantor)
By: Anthony Park
--------------------------
Witness: Cindy Bodine
-----------------
Title Funding Authority
------------------------
INDIVIDUAL GUARANTY
Dated 1/5/98
Master Lease Agreement Date: 1/98
----
Lessee Name: MANNATECH, INCORPORATED
----------------------------------------------------
----------------------------------------------------
Equipment Cost $ 1,500,000.00
-------------
1. For valuable consideration, the receipt of which is hereby
acknowledged, the undersigned jointly and severally conditionally guarantee to
BANC ONE LEASING CORPORATION (hereinafter called "Lessor") the full and prompt
performance by the lessee identified above (hereinafter called "Lessee"), of all
obligations which Lessee now has or may hereafter have to Lessor, including but
not limited to obligations under equipment leases and promissory notes executed
in connection with anticipated equipment leases (including but not limited to
all present and future leases and promissory notes under the Master Lease
identified above, with a total original equipment cost to the Lessor of no more
than the amount of the Equipment Cost set forth above), and unconditionally
guarantee the prompt payment when due (whether at scheduled maturity, upon
acceleration or otherwise) of any and all sums, indebtedness and liabilities of
whatsoever nature, due or to become due, direct or indirect, absolute or
contingent, now or hereafter at any time owed or contracted by Lessee to Lessor,
and all costs and expenses of and incidental to collection of any of the
foregoing, including reasonable attorneys' fees (all of the foregoing
hereinafter called "Obligations"). It is the undersigned's express intention
that this guaranty in addition to covering all present Obligations of Lessee to
Lessor, shall extend to all future Obligations of Lessee to Lessor, whether or
not such Obligations are reduced or entirely extinguished and thereafter
increased or are reincurred, whether or not such Obligations are related to the
Master Lease identified above, whether or not such Obligations exceed the
Equipment Cost identified above, and whether or not such Obligations are
specifically contemplated by the undersigned, Lessee, and Lessor as of the date
hereof.
2. This is an absolute and unconditional guarantee of payment and not of
collection. Lessor shall not be required, as a condition of the liability of
the undersigned, to resort to, enforce or exhaust any of its remedies against
the Lessee or any other party who may be liable for payment on any Obligation or
to resort to, marshall, enforce or exhaust any of its remedies against any
leased property or any property given or held as security for this Guaranty or
any Obligation.
3. The undersigned hereby waive and grant to Lessor, without notice to
the undersigned and without in any way affecting the liability of the
undersigned, the right at any time and from time to time, to extend other and
additional credit, leases, loans or financial accommodations to Lessee apart
from the Obligations, to deal in any manner as it shall see fit with any
Obligation of Lessee to Lessor and with any leased property or security for such
Obligation, including, but not limited to, (i) accepting partial payments on
account of any Obligation, (ii) granting extensions or renewals of all or any
part of any Obligation, (iii) releasing, surrendering, exchanging, dealing with,
abstaining
Page 1 of 4
from taking, taking, abstaining from perfecting, perfecting, or accepting
substitutes for any or all leased property or security which it holds or may
hold for any Obligation, (iv) modifying, waiving, supplementing or otherwise
changing any of the terms, conditions or provisions contained in any Obligation
and (v) the addition or release of any other party or person liable hereon,
liable on the Obligations or liable on any other guaranty executed to guarantee
any of Lessee's Obligations. The undersigned jointly and severally hereby agree
that any and all settlements, compromises, compositions, accounts stated and
agreed balances made in good faith between Lessor and Lessee shall be binding
upon the undersigned.
4. Every right, power and discretion herein granted to Lessor shall be
for the benefit of the successors or assigns of Lessor and of any transferee or
assignee of any Obligation covered by this Guaranty, and in the event any such
Obligation shall be transferred or assigned, every reference herein to Lessor
shall be construed to mean, as to such Obligation, the transferee or assignee
thereof. This Guaranty shall be binding upon each of the undersigned's
executors, administrators, heirs, successors and assigns.
5. This Guaranty shall continue in force for so long as Lessee shall be
obligated to Lessor, and thereafter until Lessor shall have actually received
written notice of the termination hereof from the undersigned, it being
contemplated that Lessee may borrow, lease, repay and subsequently borrow money
from or lease property from, or become obligated to, Lessor from time to time,
and the undersigned, not having given notice of the termination hereof as herein
provided for, shall be deemed to have permitted this Guaranty to remain in full
force and effect for the purpose of inducing Lessor to make further leases or
loans to Lessee; provided, however, no notice of termination of this Guaranty
shall affect in any manner the rights of Lessor arising under this Guaranty with
respect to the following: (a) any Obligation incurred by Lessee in connection
with the Master Lease identified above with a total equipment cost of no more
than the amount of the Total Equipment Cost set forth above, whether such
obligation is in the form of a lease or a promissory note; or (b) any Obligation
incurred by Lessee prior to receipt by Lessor of written notice of termination
or any Obligation incurred after receipt of such written notice pursuant to a
written agreement entered into by Lessor prior to receipt of such notice. The
undersigned expressly waive notice of the incurring by Lessee of any Obligation
to Lessor. The undersigned also waive presentment, demand of payment, protest,
notice of dishonor or nonpayment of or nonperformance of any Obligation.
6. The undersigned hereby waive any claims or rights which they might now
have or hereafter acquire against Lessee or any other person primarily or
contingently liable on any Obligation of Lessee, which claims or rights arise
from the existence or performance of the undersigned's obligations under this
Guaranty or any other guaranty or under any instrument or agreement with respect
to any leased property or any property constituting collateral or security for
this Guaranty or any other guaranty, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, or any
right to participate in any claim or remedy of Lessor or any other creditor
which the undersigned now has or hereafter acquires, whether such claim or right
arises in equity, under contract or statute, at common law, or otherwise.
7. Lessor's rights hereunder shall be reinstated and revived, and this
Guaranty shall be fully enforceable, with respect to any amount at any time paid
on account of the Obligations which thereafter shall be required to be restored
or returned by Lessor upon the bankruptcy, insolvency or reorganization of the
Lessee, the undersigned, or any other person, or as a result of any other fact
or circumstance, all as though such amount had not been paid.
Page 2 of 4
8. The undersigned jointly and severally agree to pay to Lessor all costs
and expenses, including reasonable attorneys' fees, incurred by Lessor in the
enforcement or attempted enforcement of this Guaranty, whether or not suit is
filed in connection therewith, or in the exercise by Lessor of any right,
privilege, power or remedy conferred by this Guaranty.
9. The undersigned represent and warrant that they have relied
exclusively on their own independent investigation of Lessee, the leased
property and the collateral for their decision to guarantee Lessee's Obligations
now existing or thereafter arising. The undersigned agree that they have
sufficient knowledge of the Lessee, the leased property, and the collateral to
make an informed decision about this Guaranty, and that Lessor has no duty or
obligation to disclose any information in its possession or control about
Lessee, the leased property, and the collateral to the undersigned. The
undersigned warrant to Lessor that they have adequate means to obtain from the
Lessee on a continuing basis information concerning the financial condition of
the Lessee and that they are not relying on Lessor to provide such information
either now or in the future.
10. As long as any indebtedness under any of the Obligations remains
unpaid or any credit is available to Lessee under any of the Obligations, the
undersigned agree to furnish to Lessor: (a) annual financial statements setting
forth the financial condition of the undersigned in form and providing such
information as required by Lessor (including without limitation income tax
returns) within 120 days of the end of each calendar year; and (b) such other
financial information as Lessor may from time to time request.
11. No postponement or delay on the part of Lessor in the enforcement of
any right hereunder shall constitute a waiver of such right. The failure of any
person or entity to sign this Guaranty shall not discharge the liability of any
of the undersigned.
12. This Guaranty remains fully enforceable irrespective of any claim,
defense or counterclaim which the Lessee may or could assert on any of the
Obligations including but not limited to failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations, fraud, bankruptcy,
accord and satisfaction, and usury, same of which the undersigned hereby waive
along with any standing by the undersigned to assert any said claim, defense or
counterclaim.
13. This Guaranty contains the entire agreement of the parties and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Guaranty is not intended to replace
or supersede any other guaranty which the undersigned have entered into or may
enter into in the future. The undersigned may enter into additional guaranties
in the future which may or may not refer to the Master Lease identified above
and such guaranties are not intended to replace or supersede this Guaranty
unless specifically provided in that additional guaranty. The interpretation,
construction and validity of this guaranty shall be governed by the laws of the
State of Ohio. With respect to any action brought by Lessor against Guarantor
to enforce any term of this guaranty, Guarantor hereby irrevocably consents to
the jurisdiction and venue of any state or federal court in Franklin County,
Ohio, where Lessor has its principal place of business and where payments are to
be made by Lessee and Guarantor.
Page 3 of 4
ALL PARTIES TO THIS GUARANTY, INCLUDING GUARANTOR AND LESSOR, WAIVE ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS GUARANTY.
Guarantor:
/s/ CHARLES E. FIORETTI
- --------------------------------------------------
CHARLES E. FIORETTI
Witness: /s/ Cindy Bodine
----------------------------------------
Page 4 of 4
GUARANTY ACKNOWLEDGMENT
INDIVIDUAL
State of TEXAS :
---------------
: ss
County of DALLAS :
--------------
Before me, a Notary public in and for said County and State, personally
appeared CHARLES E. FIORETTI who acknowledged that he/she did sign the
foregoing guaranty and that the same is his/her free and voluntary act and deed.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my seal
this 5TH day of JANUARY, 1998.
VINCENZA C. CALVEY
[SEAL] MY COMMISSION EXPIRES /s/ Vincenza C. Calvey
SEPTEMBER 11, 2001 ----------------------
Notary Public
ADDENDUM I TO GUARANTY
Dated 12/23/97
-------------------------
Individual Guaranty dated as of DECEMBER 23, 1997
--------------- --
Lessee: Mannatech, Inc.
Master Lease dated DECEMBER, 1997
---------------
Guarantor: Charles Fioretti
Reference is made to the Individual Guaranty identified above ("Guaranty")
made by the Guarantor identified above ("Guarantor") in favor of Banc One
Leasing Corporation ("Lessor"). This Addendum I modifies the terms and
conditions of the Guaranty. Unless otherwise defined herein, capitalized terms
defined in the Guaranty shall have the same meaning when used herein.
As part of the valuable consideration to induce Lessor to enter into the
Master Lease, Guarantor and Lessor hereby agree as follows:
1. The following is added to Section 10 of the Guaranty:
"Guarantor shall maintain a minimum of $1,000,000 of unencumbered liquidity
at all times. Each calendar quarter Guarantor shall provide Lessor with a
statement as to the calculation of Guarantor's unencumbered liquidity and
identifying the sources of liquidity."
Except as expressly amended by the terms and conditions contained herein,
the Guaranty remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum I as of
the date referenced above.
/s/ Charles Fioretti
- ------------------------- Banc One Leasing Corporation
Charles Fioretti (Lessor)
(Guarantor)
By: /s/ Anthony Park
---------------------------
Witness: /s/ Cindy Bodine
----------------- Title Funding Authority
------------------------
FORM: 97-07L LEASE
LICENSE: 421X/0856/97
NEW SOUTH WALES
REAL PROPERTY ACT 1900
----------------------------------------------
Office of State Revenue use only
----------------------------------------------
----------------------------------------------
(A) PROPERTY LEASED
if appropriate, specify Folio Identifier: 1/635124 part being Level
the part or premises. 3, 69 Christie Street, St Leonards
----------------------------------------------
----------------------------------------------
(B) LODGED BY
HUNT & HUNT
LTO Box Level 15 Gateway
421 X 1 Macquarie Place, Sydney NSW
2000 DX 214 Sydney (02) 9391.3000
Reference: MPBA:111379784
----------------------------------------------
(C) LESSOR Legal & General Properties No. 1 Pty Limited
(ACN 000 511 624)
(D) The lessor leases to the lessee the property described above.
Encumbrances (if applicable) 1. 2. 3. 4.
----------------------------------------------
(E) LESSEE
Mannatech Australia Pty Limited
L (ACN 082 375 862)
(F) TENANCY:
----------------------------------------------
(G) 1. TERM: Five (5) years
2. COMMENCING DATE: 1 September 1998
3. TERMINATING DATE: 31 August 2003
4. With an OPTION TO RENEW for a period of five (5) years set
out in Clause 17 of Annexure "A".
7. Incorporates the provisions set out in ANNEXURE "A" hereto.
Page 1 OF 2 CHECKED BY (LTO use).............
(H) We certify this dealing correct for the purposes of the Real Property Act
1900.
DATE
----------------------
Signed in my presence by the lessor who is personally known to me.
THE COMMON SEAL of LEGAL & )
GENERAL PROPERTIES NO. 1 PTY )
LIMITED was duly affixed in the presence )
of: )
Signature: Signature:
--------------------- --------------------
Name: Name:
-------------------------- -------------------------
PLEASE PRINT PLEASE PRINT
SECRETARY DIRECTOR
Signed in my presence by the lessor who is personally known to me.
THE COMMON SEAL of MANNATECH )
AUSTRALIA PTY LIMITED was duly )
affixed in the presence of: )
Signature: DAVID CYRIL NOMCHONG Signature: DAVID CYRIL NOMCHONG
--------------------- --------------------
Name: David Cyril Nomchong Name: David Cyril Nomchong
-------------------------- -------------------------
PLEASE PRINT PLEASE PRINT
SECRETARY DIRECTOR
(I) STATUTORY DECLARATION
I solemnly and sincerely declare that: the time for the exercise of
Option to Renew/Purchase in expired lease no. *15* has ended; the
lessee under that lease has not exercised the option; and a variation
of lease extending the term has not been entered into. I make this
solemn declaration conscientiously believing the same to be true and
by virtue of the Oaths Act 1900.
Made and subscribed at____________in the State of________________
on_________19__ in the presence of
---------------------------------
Signature of Witness
---------------------------------
Name of Witness (BLOCK LETTERS)
---------------------------------
Address and Qualification of Witness Signature of Lessor
Page 2 of 2
THIS IS ANNEXURE "A" REFERRED TO IN THE LEASE BETWEEN LEGAL & GENERAL
PROPERTIES NO. 1 PTY LIMITED (AS LESSOR) AND MANNATECH AUSTRALIA PTY LIMITED
(AS LESSEE) DATED THIS ____ DAY OF __________ 1998
- -------------------------------------------------------------------------------
1. INTERPRETATION
- ---------------------
1.1 DEFINITIONS
In this Lease and in any Rules and Regulations made hereunder unless the
contrary intention appears:
"Building" means the Building erected on the Land and known as 69
Christie Street, St Leonards together with any modifications,
extensions or alterations thereto from time to time and together with
the fixtures, fittings, furnishings, plant, machinery and equipment of
the Lessor therein from time to time and including (but without
affecting the generality hereof) the Common Areas herein referred to
and parking areas.
"Common Areas" means such tea rooms, water closets and toilets in the
Building as are designated by the Lessor for use by the Lessee and its
invitees in common with other persons entitled to use the same and also
but for the purpose only of ingress and egress to and from the Demised
Premises the forecourt, entrance, vestibules, corridors, passages,
stairways and landings in the Building and the escalators and lifts
therein, and all gardens, landscaped land and curtilage.
"Demised Premises" means the premises described as demised premises in
the Lease including any part thereof and the fixtures, fittings,
furnishings, plant, machinery and equipment (if any) of the Lessor now
or hereafter installed therein.
"Institute" means the Australian Institute of Valuers and Land Economists
(Inc) NSW Division.
"Land" means the land described as such in the Lease.
"Lease" means this lease and any annexures appendices and schedules
relating thereto.
"Lessee" means the Lessee named and described as such in the Lease and
includes the successors and permitted assigns of the Lessee and where not
repugnant to the context the servants, invitees and agents of the Lessee
who are in or about the premises at any time at the request of or under
the control or direction of the Lessee or in the course of the conduct of
the Lessee's business.
"Lessee's Works" means all those fit-out items in which the right title
and interest vest in the Lessee and as detailed in the First Schedule to
this Lease.
2
"Lessor" means the Lessor named and described as such in the Lease and
includes the successors and assigns of the Lessor and where not repugnant
to the context the servants and agents of the Lessor.
"Reference Schedule" means the Reference Schedule described as such in
the Lease.
"Rules and Regulations" means the Rules and Regulations (if any) of the
Building contained in the Second Appendix hereto and all additions and
variations made thereto by the Lessor from time to time pursuant to
Clause 4.5.
1.2 HEADINGS ETC.
Headings of clauses and marginal notes have been inserted for guidance
only and shall be deemed not to form part of the context.
1.3 SINGULAR, PLURAL ETC
Words importing the singular number shall include the plural and the
masculine gender the feminine or neuter and vice versa and words
importing persons shall include corporations. Any covenant or agreement
on the part of two or more persons shall be deemed to bind them jointly
or severally.
1.4 STATUTES
Reference to a statute or ordinance includes all regulations under and
amendments to that statute or ordinance whether by subsequent statute or
otherwise and a statute or ordinance passed in substitution for the
statute or ordinance referred to or incorporating any of its provisions.
1.5 SATURDAYS SUNDAYS AND PUBLIC HOLIDAYS
Where pursuant to this Lease the day on or by which any act matter or
thing is to be done is a Saturday or a Sunday or a public holiday such
act matter or thing may be done on the next succeeding day which is not
a Saturday or a Sunday or public holiday.
2. EXCLUSION OF IMPLIED COVENANTS AND POWERS
- ------------------------------------------------
2.1 The covenants and powers implied in every lease by virtue of Sections 84,
84A and 85 of the Conveyancing Act, 1919 shall not apply to or be implied
in the Lease except insofar as the same or some parts thereof are
included in the covenants herein contained.
3
3. RENT AND OUTGOINGS
- -------------------------
3.1 PAYMENT OF RENT AND OUTGOINGS
The Lessee will during the term pay to the Lessor the rent and outgoings
of the Building all as specified, calculated and payable in the manner
provided in the First Appendix hereto.
3.2 TERMINATION OR ABATEMENT ON DAMAGE RESUMPTION ETC.
If the Building shall be resumed or taken for public purposes by any
competent authority, or if the whole or any part of the Building shall be
destroyed or damaged by fire, flood, lightning, storm, tempest or other
disabling cause so as (in either case) to render the Building
substantially unfit for the use and occupation of the Lessee, or so as
(in either case) to deprive the Lessee of substantial use of the same,
or so as (in the latter case only) to render the reconstruction of the
Building in its previous form impracticable or undesirable in the
opinion of the Lessor then:-
(a) this Lease may be terminated without compensation by either the
Lessor or the Lessee by notice in writing to the other PROVIDED
ALWAYS that the Lessee shall only be entitled to terminate this
Lease if the Lessor shall have failed to rebuild or reinstate the
Building within a reasonable time after notice in writing from the
Lessee having regard to the extent of the damage and the work
required to rebuild or reinstate the Building;
(b) any such termination as aforesaid shall be without prejudice to
the rights of either party in respect of any antecedent breach
matter or thing;
(c) nothing herein contained or implied shall be deemed to impose any
obligation upon the Lessor to rebuild or reinstate the Building or
to make the same fit for use and occupation of the Lessee;
(d) upon the happening of any such damage or destruction as aforesaid
the rent hereby reserved, and any moneys payable by the Lessee to
the Lessor for the cleaning of the Demised Premises, and the
Lessee's proportion of the outgoings of the Building or a
proportionate part thereof according to the nature and extent of
the damage sustained shall abate until the Building shall have
been rebuilt or reinstated or made fit for the occupation and use
of the Lessee or until the Lease shall be terminated pursuant to
the provisions of paragraph (a) hereof as the case may be;
(e) in the event of any dispute arising out of this Clause the same
shall be referred to arbitration under the provisions of the laws
for the time being in force in the State of New South Wales; and
(f) notwithstanding the aforesaid the Lessee shall have no right of
termination and the payment of rent and other moneys shall not
abate
4
if the destruction or damage was caused or contributed to by the
Lessee, its servants, agents, contractors or other invitees.
3.3 DAMAGE TO PREMISES
If the Demised Premises shall be damaged or destroyed (in whole or part)
by fire, flood, lighting, storm, tempest or other disabling cause so
as (in either case) to render the Demised Premises substantially unfit
for the use and occupation of the Lessee, or so as (in either case) to
deprive the Lessee of substantial use of the same and the Lessor shall
not have served notice upon the Lessee within 30 days of the event or
damage or destruction to the effect that the Lessor will reinstate the
Demised Premises within a reasonable time after service of that notice
having regard to the extent of the damage and work required to rebuild
or reinstate the Demised Premises:-
(a) this Lease may be terminated without compensation by either the
Lessor or the Lessee by notice in writing to the other;
(b) any such termination as aforesaid shall be without prejudice to
the rights of either party in respect of any antecedent breach
matter or thing;
(c) nothing herein contained or implied shall be deemed to impose any
obligation upon the Lessor to rebuild or reinstate the Demised
Premises or to make the same fit for use and occupation of the
Lessee;
(d) upon the happening of any such damage or destruction as aforesaid
the rent hereby reserved, and any moneys payable by the Lessee to
the Lessor for the cleaning of the Demised Premises, and the
Lessee's proportion of the outgoings of the Demised Premises or a
proportionate part thereof according to the nature and extent of
the damage sustained shall abate until the Demised Premises shall
have been rebuilt or reinstated or made fit for the occupation and
use of the Lessee or until the Lease shall be terminated pursuant
to the provisions of paragraph (a) hereof as the case may be;
(e) in the event of any dispute arising out of this Clause the same
shall be referred to arbitration under the provisions of the laws
for the time being in force in the State of New South Wales; and
(f) notwithstanding the aforesaid the Lessee shall have no right of
termination and the payment of rent and other moneys shall not
abate if the destruction or damage was caused or contributed to
by the Lessee, its servants, agents, contractors or other invitees
and the Lessor's insurances are irrecoverable as a result of the
act or omission of the Lessee. its servants, agents, contractors
or invitees.
5
4. USE OF DEMISED PREMISES. ASSIGNMENT AND SUBLETTING
- ---------------------------------------------------------
4.1 PERMITTED USE
Without the prior written consent of the Lessor the Lessee will not use
the Demised Premises or any part thereof, or permit or suffer the same
to be used, for any purpose other than that set out in Item 4 of the
Reference Schedule and will not use or permit or suffer the same to be
used for any other purpose or for any residential purpose whether
temporary or permanent and any storage space forming part of the
Demised Premises shall not be used for any purpose other than storage.
4.2 ASSIGNMENT & SUBLETTING
(a) The Lessee will not during the continuance of this Lease assign,
transfer, sublet, part with, share the possession of, or grant any
licence affecting, or mortgage, charge or otherwise deal with, or
dispose of the Demised Premises or any part thereof or by any act
or deed procure the same or any part thereof to be assigned,
transferred, sublet unto, shared or put into possession of any
person or persons without the prior consent in writing of the
Lessor which consent shall not be unreasonably withheld or
delayed where:
(i) the Lessee is not in default in the observance and
performance of the covenants on the Lessee's part herein
contained;
(ii) the Lessee proposes to assign, transfer, sublet or grant a
licence to an assignee, transferee, sublessee or licensee
who:
(aa) proves to the reasonable satisfaction of the Lessor
that he is a respectable, responsible and solvent
person capable of adequately carrying on the
permitted use specified in Item 4 of the Reference
Schedule;
(bb) enters into a covenant with the Lessor in the form
required by the Lessor that he will duly perform and
observe the covenants on the Lessee's part herein
contained;
(cc) in the case of an assignee or transferee, furnishes
to the Lessor such guarantee or guarantees of the
performance of his obligations under this Lease as
the Lessor shall require;
(dd) in the case of a subletting or licence, is bound to
pay a current market rental or current market
licence fee but in any event not less than a rental
or licence fee at pro rata to the then annual rent
being paid by the Lessee under this Lease;
6
(ee) in the case of a subletting or licence,
enters into a sublease or licence agreement (as the
case may be) in a form acceptable to the Lessor.
(iii) in the case of an assignment or transfer the Lessee enters
into a deed in the form required by the Lessor under which
he releases the Lessor from all claims which the Lessee
then has, or may thereafter have, against the Lessor in
respect of, or in any way arising from this Lease but such
release shall not be required for any claim already
notified in writing to the Lessor by the Lessee.
(iv) The Lessee pays to the Lessor its legal and other costs and
disbursements reasonably incurred in respect of such
assignment, transfer, sublease or grant of licence.
(b) Where the Lessee is a corporation any change in the principal
shareholding altering the effective control of the Lessee shall be
deemed an assignment of this Lease and will require the consent of
the Lessor as aforesaid.
(c) An assignment of this Lease to a related corporation (as defined
in the Corporations Law) shall require the consent of the Lessor
but that consent may not be withheld unless the Lessee shall be in
breach of this Lease at the time of the request for consent to
assign.
4.3 The Lessee will not at any time during the term of this Lease:-
NOXIOUS USES ETC
(a) use, exercise, carry on or permit or suffer to be used, exercised
or carried on, in or upon the Demised Premises, or any part
thereof, any noxious, noisome or offensive act, trade, business,
occupation or calling, or
NUISANCE OR ANNOYANCE
(b) do or omit, or permit or suffer to be done or omitted, any act,
matter or thing whatsoever in upon or about the Demised Premises
or the Building or any part thereof which is or may become an
annoyance, nuisance, grievance or disturbance to any other
occupier or owner of any adjacent premises, or
ANIMALS AND BIRDS
(c) keep any animal or bird in or about the Demised Premises or
Building, or
BURNING OF RUBBISH
(d) burn any rubbish or waste upon the Demised Premises or Building,
or
7
AUCTION OR FIRE SALE
(e) conduct or permit to be conducted on the Demised Premises any
auction, bankrupt or fire sale.
4.4 SIGNS ETC.
The Lessee will:
(a) not without the prior approval in writing of the Lessor such
approval shall not be unreasonably withheld or delayed erect,
display, inscribe, paint, affix or exhibit on or to the interior
or the exterior of the Demised Premises or of the Building so as
to be visible from the Common Area any sign, light, embellishment,
advertisement, name, notice or other device, furnishing, ornament
or object;
(b) upon vacating the Demised Premises or immediately prior thereto at
the request of the Lessor remove the same and make good any damage
or disfigurement caused by reason of such erection, displaying,
inscription, painting, affixing, exhibiting or removal thereof;
(c) advise the Lessor prior to the commencement date of this Lease of
the manner in which the Lessee's business is to be advertised on
the Directory Board maintained by the Lessor in the foyer of the
Building and pay on demand the Lessor's reasonable costs in
providing the same in a style and manner consistent with that
reasonably prescribed by the Lessor for the Directory Board.
4.5 RULES AND REGULATIONS
(a) Notwithstanding anything hereinbefore contained the Lessee shall
not enter or use or permit to be entered or used the Demised
Premises the Building or any Common Areas otherwise than in
accordance with the Rules and Regulations.
ALTERATIONS TO RULES AND REGULATIONS
(b) The Lessor reserves the right at any time and from time to time to
amend, cancel, add to or suspend all or any of the Rules and
Regulations for the time being subsisting and to make such other
and further rules and regulations either in lieu of or in
addition as, in the judgment of the Lessor, may be required for
the management, safety, care or cleanliness of the Demised
Premises or of the Building, or for the preservation of good
order therein, and for the convenience of the occupiers and
invitees thereof provided that no amendment or variation to the
Rules and Regulations shall be inconsistent with the rights of
the Lessee as expressed in this Lease. All such amendments and
additions shall bind the Lessee when written notice thereof
shall have been given to the Lessee. If there shall be any
inconsistency between the provisions of
8
this Lease and the Rules and Regulations the provisions of this
Lease shall prevail.
NON-ENFORCEMENT OF RULES AND REGULATIONS
(c) The Lessor shall not be liable for any loss or damage howsoever
caused arising out of any non-enforcement of the Rules and
Regulations.
4.6 COMPLIANCE WITH NOTICES ETC.
The Lessee will from time to time forthwith comply with all statutes,
ordinances, proclamations, orders or regulations present or future
affecting or relating to the Demised Premises, or the use thereof and
with all requirements which may be made or notices or orders which may
be given by any governmental, semi-governmental, municipal, health,
licensing or any other authority having jurisdiction or authority in
respect of the Demised Premises or the user thereof, and will keep the
Lessor indemnified in respect of all such matters PROVIDED THAT the
Lessee shall not be liable in respect of any structural alterations
the requirement for which was not caused or contributed to by the
Lessee's use or occupation of the Demised Premises.
4.7 HEAVY MACHINERY
The Lessee will not bring upon the Demised Premises any heavy machinery
or other plant or equipment unless the same is reasonably necessary for
the Lessee's use of the Demised Premises as herein provided and in no
event shall any such machinery, plant or equipment be of such nature
or size as to cause or in the reasonable opinion of the Lessor be
likely to cause any structural or other damage to the floors or walls
or any other parts of the Demised Premises or the Building. Before
bringing any such machinery, plant or equipment upon the Demised
Premises or the Building the Lessee shall inform the Lessor of the
Lessee's intention so to do and the Lessor may direct the routing,
installation and location of all such machinery, plant and equipment
and the Lessee shall observe and comply with all such directions. The
Lessor shall have the right to obtain expert advice from a structural
engineer if it considers such advice to be necessary in relation to
the positioning of such heavy machinery and the Lessee agrees to pay
the costs of obtaining such advice.
4.8 USE OF TOILETS ETC
The Lessee shall not use or permit or suffer to be used the toilets,
sinks, drainage and other plumbing facilities in the Demised Premises
or the Common Areas for any purpose other than those for which they
were constructed or provided, and shall not deposit or permit to be
deposited therein any sweepings rubbish or other matter and any damage
thereto by misuse shall be made good by the Lessee forthwith.
9
4.9 RODENTS AND VERMIN
The Lessee will take all reasonable precautions to keep the Demised
Premises free of rodents, vermin, cockroaches, paper lice, fleas and
other pests and in the event of the Lessee failing so to do the Lessee
will if and so often as required by the Lessor but at the cost of the
Lessee employ pest exterminators approved by the Lessor.
4.10 INFECTIOUS ILLNESS
The Lessee will in the event of any infectious illness occurring in the
Demised Premises forthwith give notice thereof to the Lessor and to the
proper authorities and at the expense of the Lessee will thoroughly
fumigate and disinfect the Demised Premises to the satisfaction of the
Lessor and such authorities and otherwise comply with their reasonable
and lawful requirements.
4.11 ACCIDENTS, DEFECTS ETC
The Lessee will give to the Lessor prompt notice in writing of any
accident to or defect or want of repair in any services to or fittings
in the Demised Premises and of any circumstances of which the Lessee
is aware or ought reasonably to be aware likely to be or cause any
danger, risk or hazard to the Demised Premises or to the Building or
any person or property therein.
5. ELECTRICITY AND SERVICES
- -------------------------------
5.1 LESSEE'S PAYMENT OF CHARGES
The Lessee shall pay all charges for electricity, gas, water, oil,
telephone and other services to or from the Demised Premises and
separately metered to the Demised Premises.
5.2 DEFAULT IN PAYMENT BY LESSEE
Should the Lessee make default in the payment of any of the aforesaid
charges the Lessor may pay the same and recover the amount so paid as if
the same was rent payable hereunder on the date on which the Lessor pays
the same.
6. AIR-CONDITIONING ELEVATORS AND ESCALATORS
- ------------------------------------------------
6.1 USE BY LESSEE
Where any plant, machinery or equipment for heating, cooling or
circulating air (all of which are in this clause included in the
expression "air-conditioning plant") or any one or more lifts or
escalators (hereinafter called "elevators") are provided in the
Building or the Demised Premises by the Lessor:-
10
(a) delays or stoppages due to repairs, maintenance, strikes,
accidents or other unavoidable cause excepted, the Lessor shall
endeavor to keep the air-conditioning plant and the elevators
working and reasonably available for the use of the Lessee:
(i) between the hours of 8.00 a.m. and 6.00 p.m. Monday to
Friday inclusive, and
(ii) between such extended hours and/or upon such other days as
the Lessor shall from time to time notify the Lessee, and
(iii) between such extended hours as the Lessee requests at the
Lessee's cost.
NON-INTERFERENCE BY LESSEE
(b) the Lessee will at all times comply with and observe the
reasonable requirements of the Lessor in relation to the
air-conditioning plant and the elevators and will not do, or
permit or suffer to be done, anything in relation to the same
or otherwise which might interfere with or impair the efficient
operation of such air-conditioning plant and elevators;
FAILURE
(c) should the air-conditioning plant or the elevators fail to
function for any reason, the Lessee shall not by reason of any
such failure be entitled to determine this Lease, nor shall the
Lessee have any right of action or claim for compensation or
damages against the Lessor in respect thereof;
MAINTENANCE
(d) the Lessee shall allow the Lessor and the Lessor's engineers to
enter the Demised Premises at any time to install, remove examine
or repair all or any of the air-conditioning plant or the
elevators provided that in and about such work the Lessor shall
not cause any undue interference to the Lessee in the conduct
of its business in the Demised Premises;
PROHIBITED USE
(e) the Lessee will not use or permit to be used the elevators except
any elevator designated as a goods lift other than for the
conveyance of passengers.
11
7. MAINTENANCE, REPAIR, ALTERATIONS, ETC.
- ---------------------------------------------
7.1 REPAIR OF DEMISED PREMISES
The Lessee will during the whole of the term and for so long as the
Lessee may remain in possession or otherwise occupation when where
and so often as need shall be maintain, replace, repair and keep the
whole of the Demised Premises in good and substantial repair order
and condition (having regard to their condition at the commencement
of the Lease) damage by explosion, earthquake, aircraft, riot, civil
commotion, fire, flood, lightning, storm, tempest and reasonable wear
and tear Act of God and war damage only excepted unless any insurance
moneys are irrecoverable through the neglect default or misconduct of
the Lessee its servants agents contractors other invitees and persons
claiming through the Lessee and in such repair order and condition
(except as aforesaid) the Lessee shall peaceably surrender and yield
up to the Lessor the whole of the Demised Premises at the expiration
or sooner determination of the Lease. An inventory of the fixtures,
fittings, furnishings, plant, machinery and equipment of the Lessor
forming part of the Demised Premises at the date of commencement of
the term of the Lease has been signed by the parties by way of
identification and the parties acknowledge that the condition thereof
as at such date is as stated therein.
7.2 The Lessee shall, without affecting the generality of Clause 7.1, at the
Lessee's expense:-
PAINTING AND PAPERING
(a) so often as the Lessor may reasonably require during the term
(which the Lessor may not do at intervals of less than three (3)
years) and in addition during the last year of the term (if in
the Lessor's reasonable opinion it is required and the Lessor
requests it of the Lessee) paint, paper or otherwise appropriately
treat with materials and to standards reasonably determined by
the Lessor such parts of the Demised Premises which have or ought
to have been so treated.
EQUIPMENT OF LESSEE
(b) keep and maintain clean and in good order, repair and condition
all fittings, plant, furnishings and equipment of the Lessee;
DAMAGE TO BUILDING
(c) from time to time make good any breakage, defect or damage to the
Demised Premises, the Building or to any adjoining premises or any
facility or appurtenance thereof occasioned by want of care,
misuse or abuse on the part of the Lessee its servants agents
contractors other invitees and persons claiming through the Lessee
or otherwise occasioned by any breach or default by the Lessee
hereunder or under any Rules or Regulations hereto;
12
CARPETS, BLINDS AND CURTAINS
(d) keep such of the standard carpets and floor coverings in the
Demised Premises and such of the blinds and curtains therein (if
any) as are supplied by the Lessor in good and tenantable repair
and condition and the Lessor shall not be liable for any damage
done thereto arising from use in any way inconsistent with the
occupation of the Demised Premises for the use hereinbefore
permitted and/or the neglect, default or misconduct of the Lessee
or of any servant agent contractor or other invitee of the Lessee
or any person claiming through the Lessee.
7.3 ALTERATIONS
The Lessee shall not without the previous consent in writing of the
Lessor make or suffer or permit to be made any alterations or
additions to the Demised Premises (including but without limiting the
generality thereof the partitions and floor coverings) or drive nails
or screws into or in any way damage or deface any ceilings, walls,
partitions, floors, wood, stone, concrete or iron or metal work
thereof.
7.4 PARTITIONING
(a) The Lessee shall use internal partitions within the Demised
Premises only of such standard as to type, quality, colour and
size as the Lessor shall decide and which shall be installed in
the Demised Premises by a builder approved by the Lessor under
the supervision of an Architect approved by the Lessor and the
Lessee covenants not to make any additions or alterations to the
partitions except according to the said standards and supervision
and with the prior approval in writing of the Lessor all such
approvals not to be unreasonably withheld or delayed.
(b) The cost of internal partitions within the Demised Premises and
the cost of installation thereof including all doors, vents,
glass and other items included in or incidental to the same and
the cost of all additional lights and power outlets and switches
and telephone outlets and alterations and/or additions to the
air-conditioning and/or sprinkler installations which may be
required by law and/or by reason of the position of any such
partitions or the particular requirements of the Lessee together
with all architects and other consultants fees incurred in
connection with the same shall be borne by the Lessee.
7.5 LESSOR'S RIGHT TO INSPECT
When and so often as the Lessor shall require and at all reasonable
times of the day the Lessor may by itself and/or those authorised by
it enter the Demised Premises and view the state of repair and
condition thereof, and make such reasonable investigations as it or
they may deem necessary for the purpose of ascertaining whether or not
there has been any breach of any of the covenants and conditions
herein contained or implied and serve upon the Lessee a notice
13
in writing of any defect requiring it to repair the same in accordance
with any covenant herein contained.
7.6 LESSOR MAY ENTER TO REPAIR
The Lessor shall have the right for itself and all those authorised by it
upon reasonable notice (except in case of emergency when no notice shall
be required) and at all reasonable times to carry out any works, or make
any repairs, alterations or additions to, and to enter upon all or any
part of the Demised Premises, and to use the same for the purpose of
effecting or carrying out any repairs, alterations or additions or other
work which the Lessor may consider necessary or desirable to any part of
the Building or any buildings adjacent thereto from time to time.
7.7 DEFAULT IN REPAIRING
In default of the Lessee repairing any defect according to reasonable
notice the Lessor by itself and/or those authorised by it may enter the
Demised Premises and execute at all reasonable times all or any of the
required repairs as the Lessor may think fit, and in addition to the
Lessor's other remedies recover from the Lessee the cost of such repairs
as the Lessee ought to have effected, including all sums paid on account
of any insurance, indemnities or compensation under the Worker's
Compensation Acts or otherwise with respect thereto.
7.8 REQUIREMENTS OF PUBLIC AUTHORITIES
Without prejudice to the obligations of the Lessee under this Lease, the
Lessor by itself and all those authorised by it may enter the Demised
Premises at all reasonable times with workmen and others and all
necessary materials and appliances, for the purpose of complying with
the terms of any present or future legislation affecting the Demised
Premises or the Building or of any notice by any authority having
jurisdiction or authority over or in respect of the Demised Premises or
the Building in respect of the destruction of insects, rodents or other
pests or for the carrying out of any repairs, alterations or works
(including the provision of air-conditioning, sprinklers, lighting,
power, telephone and other services to the Lessee and other tenants of
the Building for which purpose the Lessor may from time to time require
access to the service ducts, walls, floors and ceilings and the Demised
Premises) and also for the purpose of exercising the powers and
authorities of the Lessor hereunder.
8. CLEANING
- ---------------
8.1 CLEANING SERVICES AND RESPONSIBILITIES
Where it is stated in Item 5 in the Reference Schedule that the Lessee is
not responsible for cleaning the Demised Premises:-
14
(a) the same shall be cleaned and garbage removed therefrom by a
contractor engaged by the Lessor;
(b) the Lessor will in no way be responsible to the Lessee for any
loss of or damage to the property of the Lessee by the contractor
so engaged or any employees of such contractor;
(c) the Lessee will use exclusively the cleaning and garbage removal
service provided by the Lessor and will permit reasonable access
for the person or persons engaged by the Lessor to provide the
cleaning (including window cleaning) of the Premises and garbage
removal therefrom;
(d) the Lessee will during the term pay to the Lessor the cleaning
charge specified calculated and payable in the manner provided in
the First Appendix hereto.
8.2 Where it is stated in Item 5 in the Reference Schedule that the Lessee is
responsible for cleaning the Demised Premises:-
(a) the Lessee will at the Lessee's expense cause the Demised Premises
to be kept clean and free from dirt and rubbish in a proper and
workmanlike manner and particularly shall keep all trade waste
trash and garbage in proper receptacles and arrange for the
regular removal thereof from the Demised Premises:
(b) the Lessee will where required by the Lessor engage for the
aforesaid purposes such cleaning and garbage removal service as is
reasonably approved by the Lessor, but the Lessor will in no way
be responsible to the Lessee for any loss of or damage to the
property of the Lessee by the contractor so engaged or their
employees.
8.3 NO RUBBISH
The Lessee will cause the Demised Premises to be kept free from dirt and
rubbish and particularly shall store and keep all trade waste trash and
garbage in proper receptacles.
9. INSURANCES
- -----------------
9.1 POLICIES TO BE MAINTAINED
The Lessee at all times during the continuance of this Lease and at its
own expense will effect and keep current in respect of the Demised
Premises the following policies of insurance with a reputable,
respectable and solvent insurance company or office and the Lessee shall
produce such policies and certificates of currency for inspection by the
Lessor as and when required:-
15
(a) where applicable, a policy in the joint names of the Lessee and
the Lessor in such amount (not being less than the full insurable
value) and against such risks as the Lessor may require in respect
of all plate glass windows and doors and display showcases upon
the Demised Premises;
(b) a public risk policy for such amount as the Lessor shall from time
to time notify the Lessee and in the absence of such notification
for an amount not less than ten million dollars ($10,000,000.00)
such policy to specifically include the risks set out in Clause
10;
9.2 INSURANCE NOT TO BE AVOIDED
The Lessee will not at any time do or suffer to be done or allowed
anything upon the Demised Premises or the Building or bring or keep
anything therein whereby any insurance relating to the Demised Premises
or the Building may be rendered void or voidable or whereby the rate of
premium on such insurance shall be liable to be increased and that in
case the Lessor shall approve in writing of any proposal of the Lessee
to increase the risk of fire the Lessee will pay all additional premiums
of insurance on the Building (if any) required on account of the
additional risk caused by the use to which the Demised Premises are put
by the Lessee with the consent aforesaid.
9.3 STORAGE OF INFLAMMABLE MATTER
Without prejudice to the generality of the preceding sub-clause the
Lessee will not (other than in accordance with the specified use of the
Demised Premises approved by the Lessor) store chemicals, acetylene,
alcohol or any solid, liquid or gas of an inflammable volatile or
explosive nature and will not use the same or any of them in the Demised
Premises for any purpose.
9.4 COMPLIANCE WITH FIRE REGULATIONS
The Lessee will comply with insurance, sprinkler and fire alarm
regulations in respect of any partitions which may be erected by or on
behalf of the Lessee upon the Demised Premises and the Lessee will pay
to the Lessor the cost of any alteration to the sprinkler and/or fire
alarm installation which may become necessary by reason of the
non-compliance by the Lessee with such regulations or the requirements
of the insurer or the Insurance Council of Australia.
10. RELEASE AND INDEMNITY
- ----------------------------
10.1 The Lessee agrees to occupy and use the Demised Premises and the Building
at the risk of the Lessee and hereby releases to the full extent
permitted by law the Lessor, its servants agents and contractors from
all claims and demands of every kind resulting from any accident damage
death or injury occurring therein except where the same is caused by
neglect, default or misconduct on the part of the Lessor or its servants
agents or contractors.
16
10.2 The Lessee will and does hereby indemnify the Lessor and its servants
agents and contractors in the absence of any neglect default or
misconduct on their part from and against all actions, claims, demands,
loss, damages, costs and expenses incurred or suffered by the Lessor or
its servants agents and contractors or for which the Lessor or its
servants agents or contractors may become liable in respect of any
damage to property or injury to any person which may be suffered or
sustained in, upon or near any part of the Demised Premises or the
Building whether in the occupation of the Lessor or of the Lessee or of
any other person, where such damage or injury results from the use of
the Demised Premises or the Building by the Lessee its servants agents
contractors, other invitees and persons claiming through the Lessee.
10.3 Without limiting the generality of Clause 10.2 the Lessee will and does
hereby indemnify the Lessor from and against all actions, claims,
demands, loss, damage, costs and expenses incurred by the Lessor or for
which the Lessor may become liable in respect of or arising from:-
(a) the negligent use, misuse, waste or abuse by the Lessee or any
servant, agent, contractor, other invitee, or person claiming
through the Lessee of the water, gas, electricity, lighting and
other installations in and facilities of the Demised Premises or
the Building or arising from any faulty fitting or fixture of the
Lessee;
(b) overflow or leakage of water (including rain water) in or from the
Demised Premises and caused or contributed to by any act or
omission on the part of the Lessee or other persons as aforesaid;
(c) loss, damage or injury from any cause whatsoever to property or
person caused or contributed to by the use of the Demised Premises
by the Lessee or other persons as aforesaid; and
(d) loss, damage or injury from any cause whatsoever to the Demised
Premises or the Building or to any property or person within or
without the Demised Premises or the Building occasioned or
contributed to by any act, neglect, default or misconduct by the
Lessee or other persons as aforesaid.
11. HEAD LEASE AND OTHER INTERESTS
- -------------------------------------
11.1 POWER OF ENTRY
The Lessee will at all times permit the Lessor and any persons having any
estate or interest in the Demised Premises superior to or concurrent with
the Lessor to exercise the Lessor's powers to enter and view the Demised
Premises and to carry out repairs, renovations, maintenance and other
work thereon and otherwise to exercise or perform their lawful rights or
obligations in regard thereto.
17
11.2 BENEFIT OF LESSEE'S COVENANTS
In the event of a person other than the Lessor becoming entitled to
receive the rents payable pursuant to the Lease either by operation of
law or otherwise, the Lessee agrees that such persons shall have the
benefit of all covenants and agreements on the part of the Lessee
hereunder and the Lessee at the cost of the Lessor will enter into such
covenant with such other person in this regard as the Lessor may
reasonably require.
11.3 LESSEE'S INTEREST
The Lessor will not permit the Lessee's estate or interest under the
Lease to be determined as a result of any breach by the Lessor of any
obligation on its part to any person having an estate or interest
superior to that of the Lessor.
11.4 LESSOR'S INTEREST
No act, matter or thing whatsoever shall at any time during the term of
this Lease be done or permitted by the Lessee likely to result in the
determination of the estate or interest of the Lessor in the Demised
Premises or the Building or the Land.
12. LESSOR'S COVENANTS
- -------------------------
12.1 QUIET ENJOYMENT
The Lessee, paying the rent payable pursuant to the Lessee and duly and
punctually observing and performing the covenants, obligations and
provisions in the Lease on the part of the Lessee to be observed and
performed shall and may peaceably possess and enjoy the Demised Premises
for the term hereby granted without any interruption or disturbances from
the Lessor or any other person or persons lawfully claiming by, from or
under the Lessor.
12.2 REMOVAL OF LESSEE'S FIXTURES
(a) The Lessee shall at or prior to the expiration of this Lease take,
remove and carry away from the Demised Premises all fixtures,
fittings, plant, equipment or other articles upon the Demised
Premises in the nature of trade or tenant's fixtures including the
Lessee's Works brought upon the Demised Premises by the Lessee but
the Lessee shall in such removal do no damage to the Demised
Premises or to the Building or shall forthwith make good any
damage which the Lessee may occasion thereto and shall remove all
rubbish and shall leave the Demised Premises in a clean state and
condition.
18
LESSEE'S FIXTURES NOT TO BE REMOVED
(b) In the event that the Lessee does not remove and carry away such
fixtures, fittings, plant, equipment or other articles at or prior
to the expiration of the Lease, the Lessor may at the expense of
the Lessee remove and dispose of the same and any such fixtures,
fittings, plant, equipment or other articles not so removed by the
Lessee by that date shall become the property of the Lessor.
12.3 The Lessor agrees to notify the Lessee in writing of any matter which the
Lessor considers to be an event of default under this lease provided that
the Lessor will not be required to notify the Lessee in writing if the
rent is unpaid. The notice must contain sufficient detail of the alleged
default to enable the Lessee to rectify the default. The Lessor agrees
to give any such notice within a reasonable time of the Lessor forming
the view that the Lessee is in default under the lease.
12.4 The Lessor shall take reasonable action to repair those matters for
which the Lessor is responsible within a reasonable time having regard
to the nature of the repairs required.
13. DEFAULT, TERMINATION, ETC.
- ---------------------------------
13.1 DEFAULT
In the event that:
(a) the rent payable pursuant to this Lease or any part thereof shall
be unpaid for the period of fourteen (14) days after any of the
days on which the same ought to have been paid and in accordance
with the covenants for payment herein contained (although no
formal or legal demand shall have been made therefor); or
(b) the Lessee commits, permits or suffers to occur any breach or
default in the due and punctual observance and performance of any
of the covenants, obligations and provisions of this Lease or the
Rules and Regulations; or
(c) the Lessee being a company, an order is made or a resolution is
effectively passed for the winding up of the Lessee (except for
the purpose of reconstruction or amalgamation with the written
consent of the Lessor which consent shall not be unreasonably
withheld); or
(d) the Lessee makes an assignment for the benefit of or enters into
an arrangement or composition with its creditors or stops payment
or is unable to pay its debts within the meaning of the
Corporations Law; or
(e) a receiver is appointed over any property of the Lessee; or
19
(f) execution is levied against the Lessee and not discharged within
thirty (30) days; or
(g) the Lessee, being a natural person, brings his estate within the
operation of any law relating to bankrupts (other than by becoming
a bankrupt), by committing an act of bankruptcy or executing a
deed of arrangement or deed of assignment under the provisions of
the Bankruptcy Act, 1966
THEN but without prejudice to any action or other remedy which the Lessor
has or might or otherwise could have for arrears of rent or breach of
covenant or for damages as a result of any such event, the Lessor at any
time or times thereafter shall have the right to re-enter into and upon
the Demised Premises and repossess and enjoy the same as of its former
estate anything herein contained to the contrary notwithstanding and
furthermore upon such re-entry the Lessor shall have the right to recover
from the Lessee damages as compensation for the loss sustained as a
result of the failure of the Lessee to pay rent and other monies payable
under this Lease and observe and carry out all the other covenants of
this Lease for the period commencing from the date on which the right of
re-entry is exercised and terminating on the date on which, but for the
exercise of the right of re-entry, the term of the Lease would otherwise
expire and upon re-entry the Lessor shall be freed and discharged from
any action, suit, claim or demand by or obligation to the Lessee under
or by virtue of this Lease. Any fixtures, fittings, plant, equipment,
stock-in-trade or other articles of the Lessee in the Demised Premises
shall upon such re-entry become the property of the Lessor.
13.2 LESSOR'S RIGHT TO DAMAGES
In the event that:-
(a) the rent payable pursuant to this Lease or any part thereof shall
be unpaid for the period of fourteen (14) days after any of the
dates on which the same ought to have been paid in accordance
with the covenants for payment herein contained (although no
formal or legal demand shall have been made therefor); or
(b) the Lessee commits, permits or suffers to occur any breach or
default in the due and punctual performance of the covenants
contained in Clauses 3.1 (with respect to outgoings of the
Building), 4.1, 4.2, 4.6, 7.1 and 7.3;
(each such event being referred to in this sub-clause as a "prescribed
default event") the parties hereby acknowledges that the occurrence of
any prescribed default event shall be deemed to be a repudiation of all
of the Lessee's obligations under this Lease THEN but without prejudice
to any other remedy available to the Lessor, the Lessor having exercised
its rights of re-entry as aforesaid shall be entitled to recover from the
Lessee its loss suffered as a consequence of such repudiation provided
that the Lessor may elect to recover such loss as liquidated damages
(not as a penalty) the amount
20
thereof being calculated in accordance with the formula D = (A + B) - C
where:
D is the amount of such liquidated damages.
A is the present value of the amount of the rent and outgoings of the
Demised Premises for which the Lessee is liable in accordance with this
Lease from the date of occurrence of the prescribed default event until
the expiry of the term thereon on the assumption that the Lease was to
continue in force until such expiry but having regard to any provision
of the Lease relating to the calculation of rent and outgoings and
review of rent.
B is the amount of the fees charged by the valuer hereunder in providing
the certificate hereunder.
C is the present value of the amount of the rent expected to be received
from a new tenant in respect of the Demised Premises from the date of
occurrence of the prescribed default event until the expiry of the term
of the Lease taking into account all relevant factors including but not
limited to any rent free period or other inducements usual in the market
for such premises at the time of this calculation.
The amounts required to be ascertained in respect of items A, B and C
shall be determined by a valuer of the Australian Institute of Valuers
and Land Administrators being either a Fellow or Associate of the Valuers
Division (or should such Institute have ceased to exist, of such body or
association as then has substantially the same objects as such Institute)
appointed by the Lessor practising in the state or territory in which
the Demised Premises are situated and such valuer shall act in the
capacity of an expert and not as an arbitrator and his decision shall be
final and binding in all respects.
13.3 LESSOR'S RIGHT TO REMEDY LESSEE'S DEFAULTS
On each and every occasion on which the Lessee omits or neglects to pay
any money or to do or effect anything which the Lessee has in the Lease
covenanted to pay, do or effect then it shall be lawful for but not
obligatory upon the Lessor (and without prejudice to any rights and
powers arising from such default) to pay such money or do or effect such
thing by itself, its architects, contractors, workmen and agents as if
it were the Lessee and for that purpose the Lessor its architects,
contractors and workmen may enter upon the Demised Premises and there
remain for the purpose of doing or effecting any such thing and the
Lessor may recover from the Lessee the amount, expenses and costs of
such payment doing or effecting forthwith.
13.4 INTEREST ON MONEYS OVERDUE
The Lessee will pay to the Lessor interest at the rate equivalent to the
Westpac Banking Corporation Indicator Rate (or if such Rate shall cease
to be published whichever rate having similar purposes is periodically
announced by the Westpac Banking Corporation) plus two percent (2%) per
annum on any
21
moneys due but unpaid for seven (7) days by the Lessee to the Lessor on
any account whatsoever pursuant to the Lease such interest to be
computed from the due date for the payment of the moneys in respect of
which the interest is chargeable until payment of such moneys in full and
to be recoverable in like manner as rent in arrears.
14. GENERAL
- --------------
14.1 WAIVER NEGATIVED
(a) The Lessor's failure to take advantage of any default or breach of
covenant on the part of the Lessee shall not be or be construed as
a waiver thereof, nor shall any custom or practice which may grow
up between the parties in the course of administering this Lease
be construed to waive or to lessen the right of the Lessor to
insist upon the performance by the Lessee of any term, covenant or
condition hereof, or to exercise any rights to the Lessor on
account of any such default;
(b) A waiver by the Lessor of a particular breach or default shall not
be deemed to be a waiver of the same or any other subsequent
breach or default;
(c) The subsequent acceptance of rent under the Lease by the Lessor
shall not be deemed to be a waiver of any preceding breach by the
Lessee of any term, covenant or condition of the Lease, other than
the failure of the Lessee to make the particular payment or
payments of rental so accepted, regardless of the Lessor's
knowledge of such preceding breach at the time of acceptance of
such rent.
14.2 NOTICES
Any notice or other document or writing served or given by the Lessor
under this Lease shall be valid and effectual if served or given under
the hand of the Lessor (being an individual) or under the common seal of
the Lessor or under the hand of any director or attorney or manager or
secretary for the time being of the Lessor (being a company).
14.3 SERVICE OF NOTICES
Without prejudice to any other means of giving notice, any notice or
other document or writing required to be served delivered or given
hereunder shall be sufficiently served on or delivered or given to the
Lessee or Covenantor (as the case may be) if served personally or if left
addressed to the Lessee or Covenantor on the Demised Premises or
forwarded to the Lessee or Covenantor by prepaid post to the last known
place of business or abode of the Lessee or Covenantor, and shall be
sufficiently served on the Lessor if served personally or if addressed
to the Lessor and left at or sent by prepaid post to the Lessor's
registered office for the time being or last known place of business or
abode, and a notice of other document or writing sent by post
22
shall be deemed to be given at the time when it ought to be delivered in
ordinary course of post.
14.4 STAMP DUTY COSTS ETC.
The Lessee shall pay all stamp duty and all the Lessor's legal and other
costs charges and expenses incidental to the preparation, completion,
stamping and registration of this Lease, of any assignment, subletting,
surrender or termination (otherwise than by effluxion of time) of this
Lease and the consent of any person whose consent may be required and any
certificate of registration required by the Lessor, and in case of
default by the Lessee in observing or performing any of its covenants in
the Lease contained or implied, the Lessee shall pay to the Lessor all
legal and other costs, charges and expenses for which the Lessor shall
become liable in consequence of or in connection with such default.
14.5 INSPECTION BY PURCHASER OR TENANT
The Lessee shall at all reasonable times permit the Lessor to show the
Demised Premises to prospective purchasers and will at all times within
the six (6) months immediately preceding the termination of the Lease
allow the Lessor to show the Demised Premises to prospective tenants and
to affix and exhibit where the Lessor shall think fit from time to time
the usual "For Sale" and the usual "To Let" notice, and in each case
with the name and address of the Lessor and/or its agents thereon and
the Lessee will not remove any such notice without the prior written
consent of the Lessor.
14.6 CONSENT OF LESSOR
In any case where pursuant to this Lease or to any Rule or Regulation
made hereunder the doing or executing of any act matter or thing by the
Lessee is dependent upon the consent or approval of the Lessor such
consent or approval may be given or withheld by the Lessor in its
absolute uncontrolled discretion unless otherwise herein provided.
14.7 PARTNERSHIP NEGATIVED
Nothing contained in the Lease shall be deemed or construed by the
parties hereto nor by any third party as creating the relationship of
a partnership or of principal and agent or of joint venture between the
parties hereto, it being understood and agreed that neither the method
of computation of rent, nor any acts of the parties hereto shall be
deemed to create any relationship between the parties hereto other than
the relationship of lessor and lessee upon the terms and conditions only
as provided in this Lease.
14.8 EXCLUSION OF IMPLIED TERMS
(a) The covenants, provisions, terms and agreements contained in the
Lease expressly or by statutory implication cover and comprise the
whole of the agreement between the parties and they expressly
agree
23
and declare that no further or other covenants, agreements,
provisions or terms whether in respect of the Demised Premises or
otherwise shall be deemed to be implied herein or to arise between
the parties by way of collateral or other agreement by reason of
any promise, representation, warranty or undertaking given or
made by either party to the other on or prior to the execution of
this Lease and the existence of any such implication or collateral
or other agreement is hereby negatived.
(b) Without prejudice to the foregoing, the Lessee acknowledges that
no warranty or representation has been given by or on behalf of
the Lessor in respect of the suitability of the Demised Premises
or the Building for any business to be carried on therein, or as
to the fixtures furnishings finish plant and machinery and
equipment of or in the Demised Premises or the Building or as to
other businesses to be carried on in the Building otherwise than
in this Lease expressly contained.
14.9 HOLDING OVER
Should the Lessee continue to occupy the Demised Premises beyond the
expiration of the term of this Lease or any further Lease granted
hereunder with the consent of the Lessor it shall do so hereunder on
and subject to the covenants, terms, conditions and provisions hereof as
a monthy tenant at a monthly rental equal to one (1) month's proportion
of the annual rent payable immediately prior to the expiration of this
Lease (subject to the right of the Lessor to review such rent in
accordance with the First Appendix hereto) or such further Lease (as the
case may be) payable monthly in advance such tenancy being determinable
at the will of either the Lessor or the Lessee by one (1) month's notice
in writing to the other expiring on any day of the week.
14.10 POWER OF ATTORNEY
The Lessee hereby irrevocably appoints the Lessor and the Lessor's
nominee or nominees and their substitute or substitutes jointly and
severally to be the true and lawful attorney or attorneys of the Lessee
to act at any time after the power to re-enter herein contained shall
have become exercisable or shall have been exercised (a sufficient proof
whereof shall be the statutory declaration of the Lessor or any officer
of the Lessor duly authorised by the Lessor in that behalf) to execute
and sign an assignment or a surrender of this Lease and to procure the
same to be registered and for this purpose to use the name of the Lessee
and generally to do, execute and perform any act, deed, matter or thing
relative to the premises as fully and effectually as the Lessee could do
in and about the premises and the Lessee hereby covenants to ratify and
confirm all and whatsoever the said attorney or attorneys shall lawfully
do or cause to be done in and about the said premises.
14.11 MORATORIUM
No statute ordinance proclamation order regulation or moratorium present
or future shall apply to this Lease so as to abrogate extinguish impair
diminish
24
fetter delay or otherwise prejudicially affect any rights powers
remedies or discretions given or accruing to the Lessor.
14.12 ALTERATIONS TO BUILDING
The Lessor shall have the right from time to time to improve extend add
to or reduce the Building or any Common Areas or in any manner whatsoever
alter or deal with the Building or any Common Areas (in both cases
excluding the Demised Premises) PROVIDED THAT in exercising such right
the Lessor will endeavor to cause as little inconvenience to the Lessee
as is practicable in the circumstances.
15. OBLIGATION OF COVENANTOR
- -------------------------------
15.1 In consideration of the Lessor entering into the Lease at the request of
the Covenantor named in Item 6 in the Reference Schedule the Covenantor
and so as to bind his heirs executors administrators and assigns (or, in
the case of a corporation, its successors and assigns) HEREBY COVENANTS
AND AGREES with the Lessor, its successors and assigns that the
Covenantor will be jointly with the Lessee and severally liable to the
Lessor for the due and punctual payment of all rent and other moneys
reserved by and for the due and punctual performance and observance of
all of the terms covenants and conditions on the part of the Lessee
contained in this Lease and in any renewal thereof and also for the
payment to the Lessor of any moneys due to the Lessor by way of mesne
profits recoverable against the Lessee after termination of the Lease or
any renewal thereof and if there be more than one Covenantor named in
Item 6 in the Reference Schedule then this covenant shall bind them and
their respective executors administrators successors and assigns jointly
and each of them severally and it is hereby acknowledged that the
liability of any Covenantor hereunder shall not be affected by any
matter or thing whatever and in particular but without in any way
limiting the generality of the foregoing shall not be affected by:
(a) the death of the Lessee or of any Covenantor;
(b) the giving of time or the granting of other indulgence to the
Lessee or any Covenantor;
(c) any variation of this Lease;
(d) any agreement between the Lessor and the Lessee and/or any
Covenantor whereby the Lessor gives time to the Lessee and/or
Covenantor (as the case may be) or agrees not to sue the Lessee
and/or Covenantor (as the case may be);
(e) any release of the Lessee or any Covenantor. If any payment made
by the Lessee or any Covenantor shall subsequently be avoided
such payment shall not discharge the liability of the Covenantor
or
25
other Covenantors (as the case may be) in respect thereof and all
parties shall be restored to the position in which they respectively
would have been if such payment had not been made. Notwithstanding
anything express or implied to the contrary and notwithstanding previous
actual service on the Covenantor notice of any fact or thing served on
the Lessee shall be deemed to be service on the Covenantor for all
purposes.
16. BANK GUARANTEE
- ------------------
16.1 The Lessee shall deliver to the Lessor on or before execution of this
Lease a valid, enforceable and irrevocable bond in a form approved by
the Lessor in the Lessor's favour from a bank holding an Australian
Banking Licence carrying on business in Sydney to secure unconditional
payment by such Bank to the Lessor of the sum specified in Item 8(a) of
the Reference Schedule hereto ("the sum"). The sum secured by the bond
or any part thereof as determined from time to time by the Lessor but
not exceeding in aggregate the sum shall become payable upon failure by
the Lessee to duly and punctually pay rent and other moneys reserved by
this Lease forthwith upon demand in writing from the Lessor without
reference by the Bank to the Lessee and notwithstanding notice from the
Lessee to the Bank not to pay the Lessor any moneys. Notwithstanding
anything express or implied to the contrary, acceptance of the bond or
payment thereunder shall not thereby affect or limit the rights of the
Lessor hereunder of operate as a waiver of the Lessee's failure breach
non-performance or non-observance. Any part of the bond money so paid
and determined by the Lessor to be in excess of the Lessor's loss,
damages and expenses by reason of the Lessee's aforesaid failure,
breach, non-performance or non-observance shall be accounted for to the
Lessee. If upon the Lessee vacating the Demised Premises the bond has
not become payable hereunder then it shall be released to the Bank
provided always that the Lessee has duly and punctually paid all rent and
other moneys reserved by and duly and punctually performed and observed
all of the terms covenants and conditions on the part of the Lessee
contained in this Lease or any renewal hereof.
16.2 On each occasion on which the rental payable under this Lease is
increased, the Lessee shall deliver to the Lessor within fourteen (14)
days of the final determination of such increased rental, a valid,
enforceable and irrevocable bond in the same form and with the same Bank
(or such other bank as the Lessor may reasonably approve) as the bond
previously delivered, to secure unconditional payment by such bank to the
Lessor of the sum equal to the number of months rent and outgoings
specified in Item 8(b) of the Reference Schedule at the revised rental.
16.3 In the event that the Lessor requires the Lessee's bank to make payment
to the Lessor pursuant to the bond and permits the Lessee to remain in
possession of the Demised Premises pursuant to the terms of this Lease
then the Lessee shall, within fourteen (14) days of notification by the
Lessor to the Lessee that such payment by the Bank has been made,
deliver to the Lessor a further bond in the same form as that previously
delivered, to secure Demised Premises pursuant to the terms of this Lease
then the Lessee shall, within fourteen (14)
26
days of notification by the Lessor to the Lessee that such payment by
the Bank has been made, deliver to the Lessor a further bond in the same
form as that previously delivered, to secure unconditional payment by the
issuing Bank of the difference between a sum equal to the number of
months rent and outgoings specified in Item 8(b) of the Reference
Schedule at the then current rental and the balance remaining payable
pursuant to the existing bond so the Lessor holds bonds securing
unconditional payment by the issuing Bank of an aggregate sum equal to
the number of months rent and outgoings specified in Item 8(b) of the
Reference Schedule at the then current rent.
16.4 Upon delivery to the Lessor of any such bond pursuant to the provisions
of Clause 16.2 or 16.3, the provisions of Clause 16.1 shall apply to such
bond.
16.5 If during the term of this Lease the Lessor shall transfer its ownership
in the Building and shall provide a notice to the Lessee requiring the
amendment to the bank bond to reflect the new Lessor THEN the Lessee
shall take all acts necessary to effect the same within fourteen (14)
days of the Lessor serving such notice.
17. OPTION FOR RENEWAL
- -------------------------
17.1 If the Lessee desires to have a further lease of the Demised Premises for
the further term or term of years (if any) set out in Item 9 in the
Reference Schedule and shall give to the Lessor not less than three (3)
months nor more than nine (9) months previous notice in writing thereof
(time in both cases being of the essence) and shall neither at the date
of such exercise of option nor at the date of expiry of the immediately
preceding term be in default in material respect of the performance of
the terms covenants and conditions by and on the part of the Lessee
herein contained the Lessor shall grant to the Lessee a Lease of the
premises for such further term of years commencing on the day following
the date of expiry of the immediately preceding term and otherwise
subject to such terms, covenants and conditions as this Lease provided
that:-
(a) in the case of the last of the said further terms, this Clause
shall be excluded,
(b) the annual rent for the first year of the further term shall be
the annual rent payable immediately prior to the date of
commencement of the further term, and
(c) Item 2 of the Reference Schedule shall be amended and the
following dates inserted: 1 September 2004 and 1 September 2006.
27
FIRST APPENDIX
1. RENT
The Lessee will during the term of this Lease pay to the Lessor without
demand from the Lessor and without any deduction whatsoever the annual rent
set out in Item 1 in the Reference Schedule such rent to be paid in advance
by regular and consecutive monthly payments each equal to one-twelfth
(1/12th) of the annual rent on the first day of each month in each year
during the term (except the first and last payments which will be
proportionate) the first being payable on the date of commencement of the
term.
2. RENT REVIEW
(a) In this Clause 2 the expression "review date" means the date set out in
Item 2 of the Reference Schedule:
(i) the date of expiry of each period of years set out in Item 2 in
the Reference Schedule during the term hereof and any further
term in both cases computed from the date of commencement of the
relevant term; or
(ii) the date of holding over, where the Lessee holds over under Clause
14.9.
(b) No earlier than ninety (90) days before each review date and at any time
thereafter the Lessor shall have the option by notice given in writing to
the Lessee to increase the Annual Rent to an amount which would at the
relevant review date be the current market rent of the Premises with the
exception of any improvements effected by the Lessee in the Premises
(having regard to all matters then relevant to the determination of such
rent) and reference shall be had to the aggregate of all premises leased
by the Lessee in the Building at each such review date and the amount so
determined shall subject as hereinafter appearing be the annual Rent
payable by the Lessee as from the review date.
(c) The Lessee within a period of twenty-one (21) days after service of any
such notice may by notice in writing to the Lessor dispute that the
amount set out in the notice referred to in sub-clause (b) of this
Clause 2 is the current market rent of the demised premises.
(d) In the event of any dispute between the Lessor and the lessee as to the
current market rent, then both the Lessor and the Lessee, at their own
cost, each shall appoint a valuer who shall determine the current market
rent. Upon such determination being made each valuer shall advise the
party who appointed him of his determination of the current market rent.
Both the Lessor and the Lessee shall have the right to reject the
determination of the current market rent of the valuer appointed by it.
Each of the valuers shall have practiced in the field of valuation of
rentals for similar premises for not less than 2 years prior to their
appointed and shall be either Fellows or Associates of the Institute (or
should such Institute have ceased to exist, of such body or
28
association as then has substantially the same objects as such
Institute). The valuers so appointed may be employees of either the
Lessor of the Lessee.
The factors to be considered by all valuers assessing the current market
rent of the Premises at the relevant review date are:-
(i) any valuer shall be acting as an expert not as an arbitrator;
(ii) there shall be excluded from such assessment any goodwill
attributable to the Lessee's business and the value of the
Lessee's fixtures and fittings in the Premises and also any
deleterious condition of the Premises if such condition results
from any breach of any terms of this Lease by the Lessee;
(iii) regard shall be had to the terms and conditions of this Lease in
particular to any liability on the part of the Lessee to pay a
contribution to the outgoings of the Building;
(iv) regard shall be had to the annual market rental value of
comparable premises based on a lease between a willing Lessor and
a willing Lessee; and
(v) regard shall be had to improvements or refurbishment of the
Premises effected at the instance and expense of the Lessor.
(e) If either the Lessor of the Lessee rejects the determination of the
current market rent of the valuer appointed by it or if the two valuers
cannot agree as to the current market rent, in both cases within thirty
(30) days after the lessor has by notice in writing to the Lessee
advised the Lessee of the name of the valuer appointed by the Lessor, a
third valuer shall be appointed by the two valuers to determine the
current market rent. the determination of the current market rent by the
third valuer shall be binding upon both the Lessor and the Lessee. The
third valuer shall be either a Fellow or an Associate of the Institute
and shall practice in the State of New South Wales and if possible have
at lease five years experience in the determination of market rents for
properties of similar type and location as the Building
(f) Should the Lessee fail to appoint a valuer as aforesaid within twenty-one
(21) days after the Lessor has by notice in writing to the Lessee advised
the Lessee of the name of the valuer appointed by the Lessor, the current
market rent shall be determined by the Lessor's valuer alone.
(g) If the two valuers appointed as aforesaid do not within fourteen (14)
days of their being called upon by either party to do so, appoint a
third valuer as required under sub-clause (e) of this Clause 2, the
Lessor may request the President or other the principal officer for the
time being of the Institute (or such other body or association as
aforesaid) to appoint such third valuer similarly qualified to determine
the current market rent.
29
(h) Should the third valuer (whether appointed under sub-clause (e) of this
Clause 2) fail to determine the said current market rent within thirty
(30) days of his appointment, the Lessor may request the President or
other principal officer as aforesaid to appoint another valuer similarly
qualified in lieu of the third valuer previously appointed.
(i) Should the amount of the reviewed Annual Rent as aforesaid not be
ascertained before the review date the Lessee shall pending ascertainment
thereof continue to pay the Annual Rent at the rate then applicable but
subject to the review thereof together with seventy five percent (75%) of
the amount by which the Lessor's nomination of the current market rent
specified in the notice given under sub-clause (b) hereof exceeds the
annual rental applicable at the review date and upon the reviewed Annual
Rent being ascertained any necessary adjustment of rent calculated from
the review date shall be paid forthwith by the Lessee to the Lessor, or
by the Lessor to the Lessee, as the case may be. The Lessee shall in
addition pay interest on the amount (if any) by which the reviewed Annual
Rent exceeds the Annual Rent applicable at the review date ("the excess
amount") for the period from the review date to the date of payment of
the excess amount ("the relevant period"), such of the relevant period
at the current Westpac Banking Corporation Indicator Lending Rate.
(j) Notwithstanding the foregoing no determination of the annual rent as
aforesaid shall operate to reduce the annual rent payable by the Lessee
below that payable immediately prior to such determination.
(k) All costs incurred in the engagement and use of any valuer other than the
valuers respectively engaged by the lessor and the Lessee pursuant to
sub-clause (d) hereof, shall be borne in equal shares by the Lessor and
the Lessee.
(l) Any valuers appointed in accordance with the foregoing provisions shall
act in all respects in the capacity of experts and not as arbitrators.
The decision of the third valuer appointed pursuant to subclause (e) or
sub-clause (g) of this Clause 2 shall be final and binding in all
respects.
(m) Time in sub-clause (c), (e), (f), (g) and (h) shall be of the essence in
all respects.
3. OUTGOINGS
LESSEE'S PROPORTIONS
(a) The Lessee will during the term of this Lease pay on demand to the Lessor
in Sydney and without any deduction whatsoever the proportion set out in
Item 3 in the Reference Schedule (hereinafter called "the Lessee's
proportion") of all the rates and taxes and other outgoings of the
Building in the manner hereinafter set out PROVIDED THAT should the
Lessor during the term of this Lease or during the period of any holding
over thereunder complete the erection upon the Land of a building or
buildings in addition to those erected
30
thereon or shall extend the existing buildings, the Lessor shall be
entitled to recalculate the said proportion on the same basis on which
the original proportion was calculated but taking into account the
increased lettable area.
RATES AND TAXES
(b) For the purpose of this Clause:
(i) "rates and taxes" shall mean and include all rates, taxes
(exclusive of any income tax payable by the Lessor in respect of
the Lessor's income), charges, assessments, duties and fees of
any public, municipal, government or semi-government body,
authority or department levied, assessed or charged in respect
of the Building and/or the Land (irrespective of the ownership
thereof);
(ii) all rates and taxes irrespective of the period for which they are
levied, assessed or charged shall be deemed to accrue from day to
day and shall be apportioned in respect of time accordingly;
OTHER OUTGOINGS OF THE BUILDING
(c) For the purposes of this Clause:
(i) "other outgoings of the Building" means all costs, charges,
expenses, fees and other outgoings paid or payable by the Lessor
in managing, supervising, maintaining and keeping secure the
Building and the curtilages thereof provided that notwithstanding
any other provision herein the Lessee shall not be obliged to
contribute to items of a capital or structural nature or
commission on the leasing of premises and in particular, but
without limiting the generality of the foregoing, includes:-
(aa) all premiums payable by the Lessor in respect of insurances
relating to the Building and fixtures, fittings and
appliances therein including, but without limiting the
generality of the foregoing, public risk insurance, workers
compensation insurance and loss of rent insurance;
(bb) the cost of all services supplied to the Building
including, but without limiting the generality of the
foregoing, all charges for electricity, gas, water, oil,
telephone, sewerage and garbage services, save and except
where such costs is the responsibility of a particular
occupier of the Building;
(cc) the cost of all services provided by the Lessor for
occupants of the Building and visitors to the Building,
including but without limiting the generality of the
foregoing, the cost of operating, maintaining and repairing
the air conditioning plant, lifts and escalators and other
services in the Building and Common Areas and except where
the Lessee is liable to pay a cleaning charge
31
pursuant to Clause 8.1 of this Lease the costs of cleaning
of the Common Areas;
(dd) all costs for or in connection with maintenance, renovation
and upkeep of the Building including the painting and
repair of the Common areas but excluding the cost of any
structural work and the cost of any work payment for which
is the responsibility of a particular occupier of the
Building; and
(ee) all costs in connection with the management, control and
security of the Building including, but without limiting
the generality of the foregoing, salaries, wages,
superannuation and payroll tax.
(ii) "year" shall be deemed to mean and relate to any year or part of a
year ending on the date set out in Item 7 in the Reference
Schedule or on such other date as the Lessor shall notify the
Lessee in writing or at the expiration or sooner determination of
this Lease (as the case may require) and in respect of all periods
of less than one (1) year all items of an annual or other periodic
nature comprising other outgoings of the Building shall be
apportioned in respect of time as necessary;
STATEMENT FROM LESSOR
(d) As soon as practicable after the date set out in Item 7 or in the
Reference Schedule or such other date as aforesaid in each year the
Lessor will furnish to the Lessee a statement giving reasonable details
of other outgoings of the Building and indicating the amount of the
Lessee's proportion thereof. Except in the case of manifest error
notified by either party to the other within thirty (30) days of the
service of such statement on the Lessee such statement shall be
conclusive evidence as to the matters stated therein. Within thirty (30)
days after service of such statement on the Lessee, the Lessee will pay
to the Lessor the Lessee's proportion.
ESTIMATES BY LESSOR
(e) Notwithstanding the provisions of the foregoing sub-clauses the Lessor
may:
(i) where any rate or tax assessment has not issued for the rating or
taxing period current at the date of expiration or sooner
determination of this Lease notify the Lessee of the Lessor's
reasonable estimate of the Lessee's proportion of such rate or tax
for the period from the date of commencement of the rating or
taxing period to the said date of expiration or sooner
determination of the Lease whereupon the Lessee will forthwith pay
to the Lessor such estimated proportion provided always that upon
the issue of the relevant assessment any necessary adjustment
between the estimated and actual proportion of the Lessee shall
be made and any refund to or further payment by the Lessee shall
be allowed or made by or to the Lessor accordingly;
32
(ii) from time to time notify the Lessee of the Lessor's reasonable
estimate of the Lessee's proportion of the other outgoings of the
Building and for any period not exceeding one (1) year in advance
of the estimate whereupon the Lessee will pay to the Lessor
during such period such estimated proportion by equal monthly
instalments in advance on the days fixed for payment or rent
under this Lease provided always that upon computation of such
other outgoings of the Building at the end of the then current
year as aforesaid any necessary adjustment between the estimated
and actual proportion of the Lessee shall be made and any refund
to or further payment by the Lessee shall be allowed or made by
or to the Lessor accordingly.
4. CLEANING CHARGE
(a) The Lessee will (subject as hereinafter provided) during the term
pay to the Lessor in Sydney without demand from the Lessor and
without any deduction whatsoever the basic cleaning charge (if
applicable) set out in Item 5 in the Reference Schedule which
charge relates to the cost of the cleaning of the Premises and
the Lessee's proportion of the costs of the cleaning of Common
Areas, such cleaning charge to be paid by equal monthly
instalments in advance on the days fixed for the payment of rent
under this Lease.
(b) The Lessor shall from time to time be entitled to increase the
basic cleaning charge only if there be an increase in the costs
to the Lessor of cleaning the Demised Premises and the Common
Areas. The Lessor must decrease the basic cleaning charge if
there is a decrease in the cost to the Lessor of cleaning the
Demised Premises and the Common Areas by that amount which is
fair and reasonable in the circumstances.
(c) The Lessor shall notify the Lessee in writing of the amount of any
increase or decrease in the basic cleaning charge and the date
from which such increase shall be operative and the first payment
by the Lessee to the Lessor upon such notice being given shall be
made at the date next following the service of such notice on
which the next monthly instalment of rent is due under this Lease.
33
SECOND APPENDIX
RULES AND REGULATIONS OF THE BUILDING
1. The Lessee shall not in any way obstruct or permit the obstruction of the
pavement entry arcade vestibules corridors passages halls elevators
stairways fire doors and escape doors relating to the Building or use them
or any of them for any other purpose than for ingress and egress.
2. The Lessee shall not cover or obstruct the floors skylights glazed panels
ventilators and windows that reflect or admit light or air into passageways
or into any part of the Building.
3. The Lessee shall not inscribe paint display of affix any sign advertisement
name flagpole flag or notice on any part of the outside or inside of the
Building except with the consent in writing of the Lessor and then only of
such colour size and style and in such place or places as shall be first
approved by the Lessor. The costs of affixing the Lessee's name and
description on directory boards in main foyer and on the Lessee's floor
shall be paid for by the Lessee.
4. No window blinds window screens or awnings shall be erected without the
approval of the Lessor.
5. Except with the consent in writing of the Lessor no musical instruments
shall be played in or about the Building, but this Rule shall not prohibit
the Lessee from playing background recorded music provided that the volume
is kept at a level which does not cause a nuisance or annoyance to other
Lessees or users of the Building.
6. The Lessee shall not throw anything out of the windows or doors or down the
elevator shafts passages or skylights or into any light areas of the
Building or deposit waste paper or rubbish anywhere except in proper
receptacles or place upon any sill ledge or other like part of the Demised
Premises or Common Areas any article or substance.
7. The Lessee shall not use any method of lighting cooling or heating other
than as prescribed and fixed by the Lessor and under special agreement made
with the Lessor for the purpose and shall not cook within the Demised
Premises except within a designated kitchen area.
8. The Lessee will use or permit to be used for the receipt delivery of other
movement of any goods wares or merchandise or articles of bulk or quantity
only such parts of the Demised Premises and the Common Area and at such
times as the Lessor may from time to time permit and the Lessee will
generally comply with all reasonable requirements of the Lessor in regard
to such matter.
9. The Lessee shall not leave any doors or windows unlocked or unfastened when
the Demised Premises are left unoccupied and the Lessor reserved the right
34
for the Lessors caretaker or other duly authorised person to enter the
Demised Premises and fasten the same if left insecurely fastened.
10. The Lessor will at the expense of the Lessee provide keys for locks on
doors or other openings of the Demised Premises and security cards or keys
and the Lessee will return to the Lessor on the determination of the Lease
all such keys and security cards or keys whether the same have been
supplied by the Lessor or otherwise acquired by the Lessee and shall not
permit the same at any time to come into the possession of any person other
than the Lessee. The Lessee shall not alter the combination of any locks of
the Demised Premises.
11. The Lessee shall not use or permit to be used the Common Areas or any
parking area or any part thereof for any business or commercial purpose for
the display or advertisement of any goods or services nor generally for any
purposes other than a purpose for which the same was intended or provided.
12. No nails, screws or hooks shall be driven into any parts of the Building or
the partitions therein without the Lessor's prior written consent nor shall
any explosive power driven method of fixing articles to ceilings, walls or
floors be used.
13. The Lessor shall be entitled to close the front doors of and any other
entrances to the Building and keep the same closed and locked after the
hour of 6.00 p.m. on weekdays and before the hour of 8.00 a.m. on weekdays
except on Saturdays, Sundays and public holidays when the Lessor may keep
such doors and entrances closed all day provided that the Lessor upon
request by the Lessee shall make arrangements for the Lessee to have access
to the Building at any time outside these hours. If such access is provided
the Lessee shall adhere to all reasonable security precautions set down by
the Lessor from time to time.
14. The Lessor shall provide air-conditioning pursuant to its obligations under
the Lease between the hours of 8.00 a.m. and 6.00 p.m. Should the Lessee
request the provision of air-conditioning outside those hours the Lessor
may at its discretion supply the same and all reasonable costs and expenses
incurred in supplying the same shall be met by the Lessee.
35
REFERENCE SCHEDULE
ITEM 1 ANNUAL RENT
$222,066.00 per annum.
ITEM 2 RENT REVIEW DATES
1 September 2000
1 September 2002
ITEM 3 LESSEE'S PROPORTION OF OUTGOINGS
15.7%
ITEM 4 PERMITTED USE OF PREMISES
Commercial office accommodation, training and meeting facilities and
product showroom.
ITEM 5 CLEANING
(a) The Lessor will provide cleaning.
(b) Basic cleaning charge at commencement of term: $11,428.00.
ITEM 6 COVENANTOR
Nil whilstever the lessee is Mannatech Australia Pty Limited.
ITEM 7 DATE OF EXPIRY OF OUTGOINGS YEAR
31 December.
ITEM 8 BANK GUARANTEE
(a) Initial Sum: $141,020.00.
(b) Number of Months Rent: 6 months.
ITEM 9 OPTION FOR RENEWAL
Five years.
EXHIBIT 16
September 9, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20540
Ladies and Gentlemen:
We have read the third paragraph of the item titled "Experts" in the Form S-1
Registration Statement of Mannatech, Incorporated, filed with the Securities and
Exchange Commission on September 9, 1998, and are in agreement with the
statements contained therein.
Yours very truly,
BELEW AVERITT LLP
Dallas, Texas
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 26, 1998,
relating to the financial statements of Mannatech, Incorporated, which
appears in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However,
it should be noted that PricewaterhouseCoopers LLP has not prepared or
certified such "Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
Dallas, Texas
September __, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 21, 1997, relating
to the financial statements of Mannatech, Incorporated (formerly Emprise
International, Inc. in 1995). We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However, it
should be noted that Belew Averitt LLP has not prepared or certified such
"Selected Financial Data."
/s/ Belew Averitt LLP
- ----------------------
Belew Averitt LLP
Dallas, Texas
September 9, 1998
