<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HERBALIFE INTERNATIONAL, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF HERBALIFE]
- - --------------------------------------------------------------------------------
HERBALIFE INTERNATIONAL, INC.
9800 La Cienega Blvd., Inglewood, CA 90301
Mailing address: P.O. Box 80210, Los Angeles, CA 90080-0210
(310) 410-9600 FAX: (310) 216-7454
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 11, 1995
The 1995 Annual Meeting of Shareholders of Herbalife International, Inc., a
Nevada corporation (the "Company"), will be held beginning at 6:00 p.m. on
Thursday, May 11, 1995 at the DoubleTree Hotel, 5400 West Century Boulevard,
Los Angeles, California, 90045, to consider and vote on the following matters:
1. The election of six directors to serve on the Company's Board of
Directors; and
2. Such other business as may properly come before said Annual Meeting or
any adjournment or postponement thereof (the "Meeting").
April 11, 1995 has been fixed as the record date for shareholders entitled to
vote at the Meeting, and only holders of record of shares of the Company's
Common Stock at the close of business on that day will be entitled to receive
notice of and to vote at the Meeting.
All shareholders are cordially invited to attend the Meeting. To insure your
representation at the Meeting, whether or not you plan to attend, you are urged
to complete and promptly return the enclosed proxy, which is solicited by the
Board of Directors, in the return envelope provided. Returning your proxy does
not deprive you of your right to attend the Meeting and to vote your shares in
person, should you desire to do so.
BY ORDER OF THE BOARD OF
DIRECTORS
/s/ CHRISTOPHER PAIR
CHRISTOPHER PAIR
Secretary
Dated: April 13, 1995
PLEASE DATE AND SIGN THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
<PAGE>
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 1995
----------------
GENERAL INFORMATION
This Proxy Statement is first being mailed on or about April 14, 1995 to all
of the holders of shares of the Common Stock of Herbalife International, Inc.,
a Nevada corporation (the "Company"), in connection with the solicitation by
the Board of Directors of the Company of proxies in the enclosed form to be
used at the Annual Meeting of Shareholders to be held on Thursday, May 11, 1995
beginning at 6:00 p.m. at the DoubleTree Hotel, 5400 West Century Boulevard,
Los Angeles, California 90045, and at any adjournment or postponement thereof
(the "Meeting"), pursuant to the accompanying Notice of Annual Meeting.
Shares represented by a properly executed proxy will be voted as indicated on
the proxy. The form of proxy accompanying this Proxy Statement and the persons
named therein as proxies have been approved by the Board of Directors of the
Company. Any proxy given pursuant to this solicitation is revocable at any time
prior to the voting at the Meeting by (i) notice in writing delivered to the
Secretary of the Company;(ii) submitting a subsequently dated proxy; or (iii)
attending the Meeting, withdrawing the proxy, and voting in person.
It is proposed that at the Meeting action will be taken on the matters set
forth in the accompanying Notice of Annual Meeting and described in this Proxy
Statement. The Board of Directors knows of no other matters which may properly
be presented for action at the Meeting. If any other matters do properly come
before the Meeting, the persons named on the enclosed proxy will have
discretionary authority to vote thereon in accordance with their best judgment.
When proxies in the form accompanying this Proxy Statement are returned
properly executed, the shares represented thereby will be voted as indicated
thereon, and where a choice has been specified by the shareholder on the proxy,
the shares will be voted in accordance with the specification so made. The
expense of soliciting proxies, including the cost of preparing, assembling, and
mailing the material submitted herewith, will be paid for by the Company. In
addition to solicitations by mail, directors, officers and regular employees of
the Company may solicit proxies personally or by telephone, mail, or other
means, for which no compensation shall be paid other than their regular salary
or other usual compensation. Arrangements will also be made as appropriate with
banks, brokerage houses, and other custodians, nominees, and fiduciaries to
forward solicitation materials to the beneficial owners of stock held of record
by such persons, and the Company will, upon request, reimburse said persons for
their reasonable expenses in so doing.
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on April 11, 1995, there were outstanding and
entitled to vote at the Meeting 29,987,954 shares of Common Stock. Each share
of stock outstanding on such date entitles the shareholder of record to one
vote on all matters submitted at the Meeting.
The presence in person or by proxy of shareholders entitled to cast a
majority of all the votes entitled to be cast will constitute a quorum for the
transaction of business at the Meeting.
<PAGE>
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table lists, as of February 23, 1995, information as to the
beneficial ownership of the Company's Common Stock by (i) each of the Company's
directors, (ii) the Company's Chief Executive Officer and each of the four
other most highly compensated executive officers as indicated in the Summary
Compensation Table under "Compensation of Directors and Executive Officers--
Executive Compensation" below, (iii) all directors and executive officers as a
group, and (iv) each person believed by the Company to beneficially own more
than five percent (5%) of the Common Stock outstanding. In each instance,
information as to the number of shares owned and the nature of ownership has
been provided by the individuals identified or described and is not within the
direct knowledge of the Company.
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER(1) OWNED CLASS
---------------------- ------------ ----------
<S> <C> <C>
Mark Hughes(2).................................... 17,629,138 58.79%
9800 La Cienega Blvd.
Inglewood, CA 90301
Dr. David B. Katzin(3)............................ 99,291 *
9800 La Cienega Blvd.
Inglewood, CA 90301
Norman E. Friedmann(4)............................ 375,029 1.25%
9800 La Cienega Blvd.
Inglewood, CA 90301
Christopher Pair(5)............................... 45,000 *
9800 La Cienega Blvd.
Inglewood, CA 90301
David R. Addis(6)................................. 180,000 *
2101 L Street, N.W.
Washington, D.C. 20037
Paul Buxbaum...................................... 7,214 *
17337 Ventura Blvd.
Suite 101
Encino, CA 91316
Edward Hall....................................... 0 0
H.J. Meyers & Co., Inc.
356 North Camden Drive
Beverly Hills, CA 90210
Alan Liker........................................ 0 0
150 South Doheny Drive
Inglewood, CA 90301
All executive officers and directors as a group
(11 persons)(7).................................. 18,460,672 61.24%
</TABLE>
- - --------
* Less than one percent (1%).
(1) The persons in this table have sole voting, investment, and dispositive
power with respect to all shares of the Company's Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
(2) Includes 550,000 shares owned by the Herbalife Family Foundation, as to
which Mr. Hughes acts as the sole trustee but has no pecuniary interest.
(3) Includes 67,200 shares issuable upon exercise of stock options which are
presently exercisable or will become exercisable within 60 days of the date
of this Proxy Statement.
(4) Includes 135,000 unvested restricted stock shares. See "Compensation of
Directors and Executive Officers--Executive Compensation--Employment
Contracts and Change in Control Arrangements."
(5) Includes 45,000 shares issuable upon exercise of stock options which are
presently exercisable or will become exercisable within 60 days of the date
of this Proxy Statement.
2
<PAGE>
(6) Includes 160,000 unvested restricted stock shares. See "Compensation of
Directors and Executive Officers--Executive Compensation---Employment
Contracts and Change in Control Arrangements."
(7) Includes an aggregate of 157,200 shares issuable upon exercise of stock
options which are presently exercisable or will become exercisable within
60 days of the date of this Proxy Statement.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors is presently comprised of six members, all
of whom hold office after election until the next annual meeting of
shareholders, or until their respective successors are elected and qualified.
Accordingly, all six of the Company's directors are to be elected at the
Meeting to one-year terms expiring in 1996.
Each nominee has consented to being named in the Proxy Statement and to serve
if elected. All of the nominees are currently serving as directors of the
Company.
Directors are elected by a plurality of the votes cast. It is the intention
of the persons named in the enclosed form of proxy, unless authorization to do
so is withheld, to vote FOR the election of the six nominees listed below. If
prior to the Meeting any nominee should become unavailable for election, an
event which is not now anticipated by the Board, the proxies will be voted for
the election of such other person or persons as shall be determined by the
persons named in the enclosed form of proxy in accordance with their judgment.
Biographical information follows for each person nominated. Directors' ages
are as of February 23, 1995.
MARK HUGHES, 39, founded the Company's business in 1980. Since that time Mr.
Hughes has controlled the operations of the business either as the sole
individual general partner of the California limited partnership through which
the business was conducted from inception to December 1985, as the President
and Chairman of the Board of the California corporation through which the
business was conducted for the interim period from October 1981 through August
1983, or as the President and Chairman of the Board of Herbalife of America,
Inc., which was the corporate general partner of the California limited
partnership from May through December 1985 and the corporation through which
the business was conducted from January 1986 to November 1986. In November
1986, Mr. Hughes became Chairman of the Board, Chief Executive Officer and
President of the Company (then called Sage Court Ventures, Inc.) when it
acquired Herbalife of America, Inc. in a stock-for-stock reorganization and has
continued in those positions since that time. Mr. Hughes served on the Stock
Option Committee until March 29, 1994.
DR. DAVID B. KATZIN, 49, has 22 years experience in the health care field as
an educator, physician and scientist. Dr. Katzin conducted a private practice
in Los Angeles from 1981 to 1989, dealing with preventive medicine, lifestyles
and nutritional medicine. Dr. Katzin has conducted seminars, lectured publicly
and written extensively on health care issues. Since 1983, he has served as
medical director and owner of Westwood Medical Group, a multi-discipline
medical practice in Los Angeles. Westwood Medical Group has not been an active
practice since March 1989. Since 1985, Dr. Katzin has performed consulting
services for the Company through a contractual arrangement between the Company
and Nutrient Research Consultants Ltd., a California corporation which is
wholly owned by him. See "Certain Transactions." Dr. Katzin was elected a
director of the Company in May 1990. Dr. Katzin received his Ph.D. in
cardiovascular physiology and his M.D. from the University of California at Los
Angeles. Dr. Katzin serves on the Directors Nominating Committee of the Board.
CHRISTOPHER PAIR, 40, joined the Company's predecessor in March 1985 as
Executive Assistant to the President. From 1986 to 1989, he served as Vice
President--Administration for the Company and its predecessors and supervised
all administrative departments of the Company. In May 1991, Mr. Pair became the
Company's Executive Vice President--International and Corporate Administration
and Secretary, and is responsible for the Company's international development.
Mr. Pair has been a director of the Company since May 1990. Prior to 1985, Mr.
Pair served in various management positions with U.S. Leasing, Raytheon
3
<PAGE>
Data Systems and Consolidated Foods. Mr. Pair serves on the Board of Directors
and was formerly Chairman of the International Committee of the Direct Selling
Association, a national trade organization for direct sales companies. Mr. Pair
received his B.S. and M.B.A. from the University of Redlands.
PAUL M. BUXBAUM, 40, is presently Executive Vice President of Buxbaum,
Ginsberg and Associates, a nationwide retail and merchandising consulting firm
based in California. In this capacity, Mr. Buxbaum has served as a consultant
to a wide range of national, regional and local retail companies on all phases
of their operations since 1984. He has also conducted evaluations of retailers,
wholesale distributors and consumer product manufacturers for major financial
institutions. Mr. Buxbaum was elected a director of the Company in August 1991.
Mr. Buxbaum is also the Chairman of the Board of Ames Department Stores, Inc.
Mr. Buxbaum serves on the Audit, Compensation, Stock Option, Directors
Nominating, Finance and Business Development Committees of the Board.
EDWARD J. HALL, 48, has served as the Chief Financial Officer and Managing
Director of H.J. Meyers & Co., an investment banking firm, since March 1991.
Between May 1990 and March 1991, Mr. Hall, a certified public accountant, was
an independent investor. From March 1988 through May 1990, Mr. Hall was an
Executive Vice President of Angeles Corporation, an investment management firm.
Prior to joining Angeles Corporation, Mr. Hall was with Deloitte & Touche,
where he had been a partner in the Audit and Emerging Business Group since
1980. Mr. Hall was elected a director of the Company in March 1992. Mr. Hall is
also a director of H.J. Meyers & Co., Inc. and HJM Group, Inc. Mr. Hall serves
on the Audit, Compensation, Stock Option, Directors Nominating, Finance and
Business Development Committees of the Board.
ALAN LIKER, 57, has served as a business advisor to a number of individuals
and companies during the past several years, including currently Budget Rent-A-
Car of Southern California. Until their sale in 1989, Mr. Liker was a director
of Shaklee Corporation and its Japanese affiliate, Shaklee KK. From 1976 to
1980, he was a principal of Xerox Development Corporation, a strategic planning
unit of Xerox Corporation. Mr. Liker was previously a law professor at the
Harvard University, University of California (Los Angeles) and University of
Southern California law schools. He was elected to the Company's Board in
December 1993 and is currently also a director of First Charter Bank and Shop
Television Network. Mr. Liker serves on the Finance Committee of the Board.
ATTENDANCE AT MEETINGS
The Board of Directors held nine meetings and acted by unanimous written
consent on one occasion during the fiscal year ended December 31, 1994. The
Board has six standing committees, the Audit Committee, established in March
1992, the Compensation Committee, established in August 1991, the Stock Option
Committee, established in September 1991, the Directors Nominating Committee,
established in July 1993, the Finance Committee, established in February 1994,
and the Business Development Committee, established in April 1994. The Audit
Committee recommends engagement of the Company's independent accountants,
approves the services performed by such accountants and reviews and evaluates
the Company's accounting systems and its system of internal accounting
controls. The Compensation Committee makes recommendations to the full Board of
Directors regarding levels and types of compensation of the Company's executive
officers and administers the Executive Incentive Compensation Plan and the 1994
Performance-Based Annual Incentive Compensation Plan. See "Compensation of
Directors and Executive Officers--Executive Compensation--Description of
Certain Plans." The Stock Option Committee administers the Company's 1991 Stock
Option Plan. See "Compensation of Directors and Executive Officers--Executive
Compensation--Description of Certain Plans." The Directors Nominating Committee
evaluates candidates for the Board of Directors and makes recommendations to
the Board for additions. The Finance Committee reviews certain aspects of the
Company's cash management systems. The Business Development Committee develops
and investigates the Company's financing alternatives, tax planning structures
and expansion opportunities. In 1994, the Audit, Compensation, Stock Option,
Directors Nominating, Finance and Business Development Committees met and acted
by unanimous written consent on 5 and 0, 2 and 6, 6 and 0, 0 and 0, 2 and 0,
and 6 and 0 occasions, respectively. In 1994, no director failed to attend at
least 75% of the aggregate number of Board and committee meetings held during
the period of his service.
4
<PAGE>
OTHER KEY EMPLOYEES
NORMAN E. FRIEDMANN, 66, became Executive Vice President and Chief Operating
Officer of the Company in August 1992. From 1989 until August 1992, Mr.
Friedmann provided management consulting services to public companies and
private investors, including the Company beginning in August 1991. From 1987 to
1989, he was the Chief Executive Officer and President of Daisy Systems
Corporation, resigning from those positions approximately five months prior to
the date on which bankruptcy proceedings with respect to that corporation were
commenced. From 1965 to 1987, he was the Chairman of the Board, Chief Executive
Officer, and for a portion of that time, President, of Cordura Corporation, a
New York Stock Exchange listed company of which he was the founder. Prior to
1965, Mr. Friedmann held senior management positions with the Data and
Information Systems Group of International Telephone and Telegraph Corporation
and with the Aerospace Division of ITT Federal Laboratories Incorporated. From
1982 to 1987, Mr. Friedmann served as a consultant to the United States
Secretary of Defense and as a member of the United States Defense Science
Board. He is currently a trustee of the UCLA Foundation. Mr. Friedmann received
his B.S., M.S. and Ph.D. degrees in engineering from the University of
California at Los Angeles.
DAVID R. ADDIS, 46, became Chief Counsel of the Company in December 1992.
From 1979 to 1992, he was a member of the Washington D.C. law firm of
Dickstein, Shapiro and Morin. While at that firm, Mr. Addis provided legal
services to the Company. Previously, Mr. Addis was a Senior Trial Attorney for
the U.S. Department of Justice and was an Assistant U.S. Attorney for the
District of Columbia. Mr. Addis received his B.S. degree from Northwestern
University and his J.D. degree from Yale Law School.
J. MARK HATTENDORF, 44, became Senior Vice President and Chief Financial
Officer of the Company in September 1993. He is responsible for accounting and
finance operations of the Company as well as overseeing the Company's
commercial banking relationships and investor relations activities. From 1991
to 1993, Mr. Hattendorf managed his own consulting firm. From 1989 to 1991, he
was Vice President and Chief Financial Officer of Hydril Company, and from 1977
to 1988 he held various senior management positions with Fox, Inc. and
Twentieth Century Fox Film Corp. Prior to 1977, Mr. Hattendorf was employed
with the international accounting firm currently known as KPMG Peat Marwick.
Mr. Hattendorf received his B.S. and M.B.A. degrees from Loyola Marymount
University and is a certified public accountant.
TIMOTHY GERRITY, 44, joined the Company in May 1985 and is currently the
Senior Vice President--Finance. Mr. Gerrity, a certified public accountant, is
responsible for the accounting operations of the Company. His previous
experience includes management positions with Wickes Corporation, Deloitte &
Touche, and Fluor Corporation. Mr. Gerrity received his B.S. degree from
California State University at Northridge and his M.B.A. from the University of
Southern California.
MICHAEL ROSEN, 48, joined the Company in October 1993 and is currently the
Executive Vice President--Corporate Development. Mr. Rosen's responsibilities
include developing the Company's domestic and international sales and product
literature and managing its expansion into catalog sales. Since 1986, Mr. Rosen
has served as the Chief Executive Officer of Shop Television Network, a company
which he founded. From February 1992 to September 1993, Shop Television Network
was subject to a Chapter 11 reorganization proceeding. In September 1993, the
proceeding was dismissed without the necessity of confirming a reorganization
plan and all creditors were fully repaid.
All of the officers and directors of the Company are subject to a permanent
injunction entered in October 1986 pursuant to the settlement of an action
instituted by the California Attorney General, the State Health Director and
the Santa Cruz County District Attorney. The Company consented to the entry of
this injunction without in any way admitting the allegations of the complaint.
The injunction prevents the Company and such officers and directors from making
certain specified claims in future advertising of the Company's products and
requires the Company to implement certain documentation systems with respect to
payments to the Company's distributors. At the same time, the injunction does
not prevent the Company from continuing to make certain specified claims
concerning its products which have been and are being made, provided that it
has a reasonable basis for making such claims.
5
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Effective January 1993, each director who is not an officer of or consultant
to the Company receives $35,000 per year for his services as a director plus,
effective May 1994, $5,000 per year for each committee of the Board on which he
serves ($10,000 if he serves as chairman of that committee). From October to
December 1992, the foregoing fees were, on an annualized basis, $18,000 and
$2,500, respectively, and from December 1992 to April 1994, the additional
amount paid to directors for their services on committees of the Board was
$10,000 per year for any one or more committees of the Board. Additionally, any
outside directors serving on the board of any of the foreign subsidiaries of
the Company are paid fees of $2,500 annually for each such board on which they
serve. In addition, the Board authorized the issuance, as of April 19, 1993, to
each of Messrs. Buxbaum and Hall of a cash-only stock appreciation right
("SAR") covering 25,000 shares of Common Stock. The SARs will vest in annual
installments on each anniversary of the date of issuance and will be
automatically exercised and redeemed on the date of vesting of each installment
for an amount equal to the fair market value of the Common Stock on such date
less the "exercise price" of $9.00 (the closing sale price of the Common Stock
on April 19, 1993), multiplied by the number of SARs being exercised and
redeemed. Directors who are also officers or consultants receive no separate
compensation for their services as directors. Prior to October 1992, all
directors (including those who were also officers or consultants) were entitled
to receive $1,000 for each meeting of the Board or a committee thereof
attended.
EXECUTIVE COMPENSATION
(1) SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation of the
Company's Chief Executive Officer and four additional most highly compensated
executive officers (including, for this purpose, a consultant to the Company;
see footnote 6 to the table below) whose total annual salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1994 (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ------------------------- ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
SECURITIES
RESTRICTED UNDERLYING
AME AND PRINCIPALN OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) AWARD(S)($)(3) SARS(#) PAYOUTS($) COMPENSATION($)(4)
- - ----------------- ---- ---------- ----------- ------------------ -------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark Hughes 1994 $1,000,000 $2,018,000 $-- $ -- -- $-- $20,525
President and 1993 1,499,992 1,991,436 -- -- -- -- 4,381
Chief Executive 1992 1,602,984 5,072,099 -- -- -- -- 3,263
Officer
Norman E. Friedmann(5) 1994 900,015 394,000 -- -- -- -- 97,884
Executive Vice 1993 900,016 450,000 -- -- -- -- 25,150
President 1992 518,121 75,000 -- 1,631,250 -- -- 442
Chief Operating
Officer
Dr. David B. 1994 814,279 342,000 -- -- -- -- 5,857
Katzin 1993 516,666 450,000 -- -- 300,000 -- 2,475
Consultant(6) 1992 422,667 300,000 -- -- 36,000 -- 2,064
David R. Addis 1994 500,006 302,000 -- -- -- -- 10,063
Executive Vice President 1993 500,006 350,000 -- -- -- -- 3,113
Chief Counsel 1992 37,639 -- -- 2,724,750 -- -- --
Christopher Pair 1994 496,160 450,000 -- -- -- -- 20,019
Executive Vice 1993 300,014 300,000 -- -- 150,000 -- 16,432
President 1992 215,357 175,000 -- -- 75,000 -- 9,877
International and
Corporate
Administration and
Secretary
</TABLE>
6
<PAGE>
- - --------
(1) 1994 amounts (other than for Mr. Pair) include bonuses earned under the
Company's 1994 Performance-Based Annual Incentive Compensation Plan. The
1994 amount for Mr. Pair, a portion of the 1994 amount for Dr. Katzin and
all 1993 amounts (other than for Mr. Hughes) include bonuses paid under a
bonus program falling within the framework of the Company's Executive
Incentive Compensation Plan. The 1993 amount for Mr. Hughes was paid
pursuant to an incentive formula described in the paragraph following this
table. 1992 amounts include bonuses paid under a bonus program falling
within the framework of the Company's Executive Incentive Compensation Plan
for the second half of the year and discretionary bonuses paid with respect
to the first half of the year. See "Description of Certain Plans" and
"Compensation Committee Report."
(2) For each individual named, excludes perquisites, other personal benefits,
securities and property, which did not exceed in any year the lesser of
$50,000 or 10% of the total annual salary and bonus reported for such
individual for such year.
(3) Reflects the issuance of a 225,000 share restricted stock grant to Mr.
Friedmann in August 1992 and a 200,000 share restricted stock grant to Mr.
Addis in December 1992. Vesting of the restricted stock occurs in
cumulative 20% installments commencing one year from the date of issuance
in the case of Mr. Friedmann and commencing January 1, 1994 in the case of
Mr. Addis (except in the case of the January 1, 1995 tranche, the vesting
of which was deferred to April 1, 1995), with full vesting occurring on the
fifth anniversary date in the case of Mr. Friedmann and January 1, 1998 in
the case of Mr. Addis. As of December 31, 1994, the aggregate restricted
stock holdings had a value of $2,278,125 and $2,700,000 in the case of Mr.
Friedmann and Mr. Addis, respectively, at the then current market value (as
represented by the closing price of the Company's Common Stock at December
31, 1994), without giving effect to the diminution of value attributed to
the restrictions on such stock. Regular dividends are paid on the
restricted shares reported in this column. No restricted shares were
awarded to the Named Officers in 1994 or 1993.
(4) For 1994, these amounts represent payments under the Company's 401(k) Tax-
Sheltered Savings Plan, Executive Medical Plan, Executive Long Term
Disability Plan and Executive Life Insurance Plan. See "Description of
Certain Plans." Amounts with respect to the 401(k) Tax-Sheltered Savings
Plan were $10,550 for Mr. Pair; amounts with respect to the Executive
Medical Plan were $8,173, $10,657, $5,238, $124 and $4,839 for Mr. Hughes,
Mr. Friedmann, Dr. Katzin, Mr. Addis and Mr. Pair, respectively; amounts
with respect to the Executive Long Term Disability Plan were $35,387,
$4,462 and $2,039 for Mr. Friedmann, Mr. Addis and Mr. Pair, respectively;
and amounts with respect to the Executive Life Insurance Plan were $12,352,
$51,840, $620, $5,477 and $2,591 for Mr. Hughes, Mr. Friedmann, Dr. Katzin,
Mr. Addis and Mr. Pair, respectively. For 1993, amounts represent payments
under the Company's 401(k) Tax-Sheltered Savings Plan, Executive Medical
Plan, Executive Long Term Disability Plan and Executive Life Insurance
Plan. Amounts with respect to the 401(k) Tax-Sheltered Savings Plan were
$9,018 for Mr. Pair; amounts with respect to the Executive Medical Plan
were $3,841, $25,150, $1,982, $882 and $4,578 for Mr. Hughes, Mr.
Friedmann, Dr. Katzin, Mr. Addis and Mr. Pair, respectively; amounts with
respect to the Executive Long Term Disability Plan were $540, $2,231 and
$2,039 for Mr. Hughes, Mr. Addis and Mr. Pair, respectively; and amounts
with respect to the Executive Life Insurance Plan were $493 and $798 for
Dr. Katzin and Mr. Pair, respectively. For 1992, the amounts represent the
Company's payment of premiums under the Executive Medical Plan and, for Mr.
Pair only, the Company's contributions under the 401(k) Tax-Sheltered
Savings Plan and the payment of premiums under the Executive Long-Term
Disability Plan.
(5) Includes payments to Mr. Friedmann pursuant to a consulting arrangement
entered into in 1991 and in effect through the time that Mr. Friedmann
became an executive officer of the Company in August 1992.
(6) Dr. Katzin is not an executive officer of the Company but is a director of
and serves as a consultant to the Company. See "Management--Directors and
Executive Officers." Dr. Katzin provides a variety of consulting and
related services to the Company through his wholly-owned company, Nutrient
Research Consultants, Ltd. See "Certain Transactions." As a consequence of
these business relationships, Dr. Katzin devotes a substantial portion of
his working time to Company matters and, as a result, is
7
<PAGE>
reflected in the table above. The amounts reflected as "salary" for Dr.
Katzin are the amounts of contractual consulting payments made to his
wholly-owned consulting firm, and the amounts reflected as "bonus" are the
amounts of discretionary performance bonuses awarded by the Board of
Directors in 1992, an award under a bonus program falling within the
framework of the Company's Executive Incentive Compensation Plan for 1993,
and a similar such award plus an award under the Company's 1994 Performance-
Based Annual Incentive Compensation Plan for 1994.
In order to facilitate the completion of the Company's October 1993 offering
of Common Stock, Mr. Hughes, the majority stockholder of the Company, agreed
with the Compensation Committee of the Board of Directors that, following the
completion of the offering but effective for the entire year, his compensation
for 1993 would consist of (i) a base salary of $1.5 million, (ii) an incentive
bonus of $20,000 for each one percent increase in the Company's primary
earnings per share in 1993 as compared to 1992 (prorated based upon any
fractional increase in primary earnings per share), and (iii) perquisites and
reimbursement for expenses in accordance with the Company's prior practice. For
1994, in order to preserve the deductibility by the Company of his compensation
for tax purposes, Mr. Hughes agreed to a further reduction in his salary, to
$1,000,000, and his bonus was paid under the Company's 1994 Performance-Based
Annual Incentive Compensation Plan.
(2) AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information with respect to shares acquired on
exercise and unexercised options to purchase Common Stock granted in fiscal
1994 and prior years.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
VALUE OF UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT AT FISCAL YEAR-
FISCAL YEAR-END (#) END ($)(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- - ------------------------ --------------- ------------ ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Mark Hughes............. -- $ -- -- -- $ -- $ --
Norman E. Friedmann..... 329,000 6,292,125 -- -- -- --
Dr. David B. Katzin..... 47,200 790,600 60,000 341,600 97,500 1,955,692
David R. Addis.......... -- -- -- -- -- --
Christopher Pair........ 65,000 1,418,750 45,000 215,000 168,825 1,354,975
</TABLE>
- - --------
(1) Represents the difference between the closing price of the Company's Common
Stock on December 31, 1994 and the exercise price of the options.
(3) DESCRIPTION OF CERTAIN PLANS
1994 Performance-Based Annual Incentive Compensation Plan
The purpose of the Company's 1994 Performance-Based Annual Incentive
Compensation Plan (the "1994 Plan") is to provide additional compensation as an
incentive to certain key executives and consultants to attain specified
performance objectives of the Company and its subsidiary and affiliated
corporations and to ensure the continued availability of their full-time or
part-time services to the Company. Specifically, the individuals entitled to
participate in the 1994 Plan are those executive officers of the Company whose
compensation might be required to be included in the Company's proxy materials
in connection with its annual meeting of shareholders in the year following the
conclusion of an award period, as determined by the Committee (as defined
below) administering the 1994 Plan. The 1994 Plan will be administered by the
Compensation Committee of the Company's Board, so long as that committee
consists entirely of "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended, or, if that committee fails
to consist entirely of "outside directors," then by another committee of at
least two members of the Board entirely so consisting that is designated by the
Board to administer the 1994 Plan (in either event, the "Committee"). Subject
only to the specific provisions of the 1994 Plan, the Committee is vested with
full powers of administration.
8
<PAGE>
The amount of an available award to a participant or the aggregate amount of
available awards to all participants for each award period is determined based
upon an objective computation (the "Formula") of the actual performance of the
Company relative to pre-established performance goals, as specified in the 1994
Plan. The performance goal or goals included in the Formula for each award
period is determined by the Committee from among the following performance
measures: level of retail sales (in the aggregate or for a particular category
or categories of retail sales); net cash flow; net income; operating income;
earnings per share; return on sales; reduction in expenditure levels for a
particular category or categories of expenses versus a prior period; return on
total capital; and return on equity. The Committee determines the performance
measures or measures, the performance goal or goals and all computations
included within each Formula, each of which may be different for different
award periods or for different participants within a single award period. The
Committee does not have the discretion to increase any award to an amount in
excess of that determined in accordance with the 1994 Plan and the Formula
applicable to a particular award period. However, the Committee may, in its
discretion, (a) designate in advance a maximum dollar award for any award
period with respect to any participant, and/or (b) designate in advance that
certain other incentive award payments (under the 1994 Plan or otherwise) made
to a participant will be deducted from award amounts otherwise earned under the
1994 Plan. Notwithstanding anything in the 1994 Plan to the contrary, no
participant is entitled to earn in excess of $10 million under the 1994 Plan
with respect to any single calendar year.
Award periods under the 1994 Plan may be quarters, calendar years or such
other periods as the Committee may designate. All award periods, performance
measures, performance goals and other aspects of each Formula are designated in
advance of the commencement of each award period by the Committee, except as
otherwise permitted by the proposed regulations under Section 162(m).
To be entitled to receive a full award with respect to an award period, a
participant must continue to be employed by the Company or rendering services
to the Company on the last day of such award period. With respect to
participants whose service relationship terminates during an award period, the
Plan provides for prorated awards based upon satisfaction of performance goals
for the entire award period, with the proration formula to be set by the
Committee in its discretion in advance of the commencement of each award
period. In addition, no award can be paid unless the Committee certifies that
the objective performance goal or goals for the award have been satisfied and
that the amount of the award is no greater than that dictated by the Formula
for the applicable award period. The Committee makes such determinations by
means of written resolutions of the Committee that are maintained in the
records of the Company.
Awards under the 1994 Plan are subject to withholding for applicable
employment and income taxes. The Committee may, in its discretion and subject
to the consent of each affected participant, approve the advance of all or a
portion of a target award to a participant prior to the conclusion of an award
period. Each such advance, if made, is a full recourse obligation of the
participant and bears interest from the date of the advance until repaid or
deemed earned at the applicable Federal rate (as specified in the 1994 Plan)
for loans of comparable term. Each such advance is evidenced by a promissory
note executed by the participant and delivered to the Company.
The 1994 Plan will continue in place until terminated by the Board of
Directors. The Board of Directors may from time to time amend, suspend or
terminate in whole or in part any or all of the provisions of the 1994 Plan;
provided, however, that no such action will adversely affect the right of any
participant with respect to (a) any award to which he or she may have become
entitled under the 1994 Plan prior to the effective date of such amendment,
suspension or termination, or (b) any award period that commenced prior to the
taking of such action by the Board.
Executive Incentive Compensation Plan
In 1992, the Board adopted the Herbalife International, Inc. Executive
Incentive Compensation Plan (as amended in 1993, the "1992 Incentive Plan").
Eligible participants consist of the Company's executive vice presidents, vice
presidents, country managers and other executive officers (other than the
Company's
9
<PAGE>
Chief Executive Officer and President) and consultants as selected by the
Chief Executive Officer. The 1992 Incentive Plan provides for the payment of
bonuses to participants for each year that the 1992 Incentive Plan is in
effect, beginning with 1992. The size of the pool, subject to certain
limitations, is set for each year by the Compensation Committee. Awards are
made to participants based upon the extent to which certain corporate
performance goals and individual performance goals (set in advance by the
Chief Executive Officer together with, in the case of corporate performance
goals, the Compensation Committee) are met. If a goal applicable to a
participant is exceeded or not met, then the participant is entitled to
receive an award in excess of, or equal to a pro rata portion of, as
applicable, the targeted amount. In addition, the Compensation Committee, in
conjunction with the Chief Executive Officer, may make discretionary awards to
participants. To be eligible for payment with respect to a particular award
period, a participant is required to be employed by the Company on the last
day of such award period.
For 1993 and 1994, the Company utilized a bonus arrangement falling within
the framework of the 1992 Incentive Plan. See "Compensation Committee Report--
Annual Incentive Compensation." The 1992 Incentive Plan is expected to
continue to be utilized with respect to certain executives for future periods.
Stock Option Plan
General
The Company's 1991 Stock Option Plan (the "1991 Plan") currently permits the
granting to key employees, directors, consultants and other persons of stock
options to purchase up to 3,500,000 shares of the Company's Common Stock.
However, options may not be granted to any person who owns shares possessing
more than 10% of the total voting power of all classes of capital stock of the
Company. Options under the 1991 Plan may be designated as "incentive stock
options" for federal income tax purposes or as options which are not qualified
for such treatment, or "non-qualified stock options." See "Federal Income Tax
Matters" below. The purpose of the 1991 Plan is to secure for the Company and
its shareholders the benefits arising from stock ownership by key employees,
directors, consultants and other persons selected by the Stock Option
Committee of the Board of Directors. All such persons are eligible to receive
grants under the 1991 Plan, with grant amounts and recipients determined by
the Committee, which is composed of two directors who are "disinterested"
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. Currently, the Stock Option Committee consists of Messrs. Hall and
Buxbaum. As of February 23, 1995, approximately 45 persons were eligible to
participate in the 1991 Plan.
All options granted under the 1991 Plan are non-transferable and exercisable
in installments determined by the Stock Option Committee, except that each
option is to be exercisable in minimum annual installments of 20% commencing
with the first anniversary of the option's grant date. Each option granted has
a term specified in the option agreement, but all options expire no later than
ten years from the date of grant.
In the case of incentive stock options, the exercise price must be at least
equal to the fair market value of the stock on the date the option is granted.
The exercise price of a non-qualified option need not be equal to the fair
market value of the stock at the date of grant, but may be granted with any
exercise price which is not less than 85% of fair market value at the time the
option is granted, as the Stock Option Committee may determine. Upon exercise
of any option, the purchase price must generally be paid in full either in
cash or by certified or cashier's check. However, in the discretion of the
Stock Option Committee, the terms of a stock option grant may permit payment
of the purchase price by means of (i) cancellation of indebtedness owed by the
Company, (ii) delivery of shares of Common Stock already owned by the optionee
(valued at fair market value as of the date of exercise), (iii) delivery of a
promissory note secured by the shares issued, (iv) delivery of a portion of
the shares issuable upon exercise (i.e., exercise for the "spread" on the
option payable in shares), or (v) any combination of the foregoing or any
other means permitted by the Stock Option Committee.
The aggregate fair market value (determined at the time the options are
granted) of the shares covered by incentive stock options granted to any
employee under the 1991 Plan (or any other incentive stock option plan of the
Company) which may become exercisable for the first time in any one calendar
year may not exceed $100,000.
10
<PAGE>
Federal Income Tax Matters
As stated above, participants in the 1991 Plan may be granted either
"incentive" stock options (qualified as such under the Internal Revenue Code of
1986, as amended (the "Code")) or "non-incentive" stock options (customarily
referred to as "non-qualified" stock options). Persons who receive non-
qualified stock options under the 1991 Plan will realize no tax consequence
upon receipt. On the date of option exercise, however, the optionee will
generally have income (and the Company will have a deduction) equal to the
excess of(a) the fair market value of the stock received upon such date less
(b) the option exercise price. If the stock acquired upon exercise of the
option is subject to a "substantial risk of forfeiture," however, the taxable
event will generally be delayed to the date on which the risk of forfeiture
ends, at which time the participant will be taxed on the excess of the stock's
fair market value on such date over the cost of such stock, and the Company
will be entitled to an equal deduction at that time.
In the case of an incentive stock option, however, the employee will
generally not have taxable income upon exercise or lapse of any forfeiture
restrictions. The employee will be taxed only upon the sale of stock received
on the incentive option exercise. If the employee holds the stock for more than
one year after exercise and two years after option grant, the employee's gain
will generally be long-term capital gain, and the Company will not be entitled
to a deduction for compensation paid. Any earlier sale will result in ordinary
income to the employee and an equal deduction for the Company. Depending upon a
particular option holder's circumstances, there may be a favorable differential
tax rate applicable to long-term capital gains.
Upon exercise of incentive stock options, the alternative minimum tax may
apply to optionees because the following constitutes an item of tax preference:
the excess of the fair market value of shares received over the exercise price
of an incentive stock option on the exercise date (unless there is a
disqualifying disposition, as defined in the Code). The alternative minimum tax
may produce a higher tax than the regular income tax applicable to an optionee.
The above summary of tax matters is general in scope and does not apply to
every specific transaction which may arise. Moreover, the rules of government
taxation of non-qualified and incentive stock are complex, and the statement of
tax consequences set forth herein is necessarily general. Finally, Congress is
considering many additional proposals to change the tax laws, and the
interpretation of existing laws and any additional revisions ultimately adopted
could significantly alter the tax requirements and effects covered in this
discussion.
401(k) Tax-Sheltered Savings Plan
The Company maintains a qualified "savings plan" pursuant to Section 401(k)
of the Code. This plan allows any employee who has completed one year of
employment with the Company to contribute each pay period from 2% to 10% of the
employee's earnings for investment in annuity contracts and mutual funds. The
maximum aggregate contribution of all participating employees for any calendar
year may not exceed 15% of the total earnings paid to such participants during
each such year. The Company makes contributions to the plan matching each
employee's contribution up to 3% of the employee's earnings. The plan also
imposes certain restrictions on the aggregate amount which may be contributed
by higher-paid employees in relation to the amount contributed by the remaining
employees. A participating employee is fully vested at all times in his or her
contribution and in the interest credited to such employee's account. However,
the employee may not withdraw all or any portion of his or her account prior to
the date that such employee either (a) incurs total and permanent disability or
(b) terminates employment with the Company. The employee is not fully vested in
the Company's matching contributions until he or she has completed seven years
of service with the Company.
Executive Medical Plan
The Executive Medical Plan is an insured hospital and medical reimbursement
plan covering executives and key employees and their dependents during the
executive's or employee's employment by the Company. The Plan provides coverage
of medical expenses incurred beyond the Company's basic plan. For the fiscal
year ended December 31, 1994, the Plan's cost to the Company was an aggregate
of approximately $88,000.
11
<PAGE>
Executive Long-Term Disability Plan
The Executive Long-Term Disability Plan is an insured disability plan
covering executives and key employees. It provides for extended disability
insurance for such participants with premiums paid by the Company. For the
fiscal year ended December 31, 1994, the Plan's cost to the Company was an
aggregate of approximately $42,000.
Executive Life Insurance Plan
The Executive Life Insurance Plan covers executives and key employees and
provides for life insurance benefits in excess of those available under the
Company's basic plan. Premiums are paid by the Company. For the fiscal year
ended December 31, 1994, the Plan's cost to the Company was an aggregate of
approximately $73,000.
(4) EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Effective as of August 1, 1992, the Company entered into an Employment
Agreement (as amended, the "Friedmann Agreement") with Norman E. Friedmann,
engaging him as the Executive Vice President and Chief Operating Officer of the
Company. For his services, Mr. Friedmann is currently entitled to receive an
annual salary of $900,000, subject to annual review on the same basis as other
executive officers. In addition, he is entitled to participate in incentive
compensation plans on the same basis as other executives. At the time his
employment commenced, Mr. Friedmann received a 225,000 share restricted stock
grant. Such shares vest in cumulative annual installments of 20% commencing on
the first anniversary of the date of grant.
The Friedmann Agreement provides that Mr. Friedmann is entitled to certain
other benefits paid for by the Company, including, among other things, an
automobile allowance, reimbursement of medical expenses for himself, his spouse
and his dependents, term life insurance equal to a multiple of Mr. Friedmann's
base salary, and long-term disability insurance coverage equal to a fraction of
his base salary.
Prior to entry into the Friedmann Agreement, Mr. Friedmann provided
consulting services to the Company under a Consulting Agreement dated as of
October 7, 1991. Pursuant to that agreement, Mr. Friedmann received stock
option grants covering a total of 329,000 shares (which grants are not under
the 1991 Plan), all of which have vested and have been exercised.
The Friedmann Agreement is terminable by either party at any time, with or
without cause, generally upon the giving of 30 days' notice. If the Company
terminates Mr. Friedmann's employment without cause (as defined in the
agreement), it must pay him (in addition to other accrued amounts and benefits)
a severance benefit based upon the number of years of service completed under
the agreement. If such a termination were to occur following Mark Hughes'
ceasing to serve as the Chief Executive Officer of the Company or certain other
defined change-of-control events, then (i) in addition to the severance benefit
described in the preceding sentence, Mr. Friedmann would be entitled to receive
an additional amount based upon, generally, his bonus paid for the preceding
year, and (ii) Mr. Friedmann's restricted stock grant would fully vest.
Effective as of December 1, 1992, the Company entered into a five-year
Employment Agreement (as amended, the "Addis Agreement") with David R. Addis,
engaging him as the Chief Counsel of the Company. For his services, Mr. Addis
is entitled to receive an annual salary of $500,000, subject to upward
adjustment by the Chief Executive Officer of the Company. In addition, Mr.
Addis is entitled to participate in incentive compensation plans on the same
basis as other comparable level executives. At the time his employment
commenced, Mr. Addis received a 200,000 share restricted stock grant. Such
shares vest in cumulative annual installments of 20% commencing on January 1,
1994 (except with respect to the January 1, 1995 tranche, the vesting of which
was deferred to April 1, 1995).
The Addis Agreement provides that Mr. Addis is entitled to certain other
benefits paid for by the Company, including, among other things, an automobile
allowance and participation in various benefit plans.
12
<PAGE>
Under the Addis Agreement, if the Company terminates Mr. Addis's employment
at any time during the term of the Addis Agreement without cause (as defined in
such agreement), it must pay him (in addition to other accrued amounts and
benefits) an amount equal to one year of base compensation. In addition, if
such a termination were to occur following Mark Hughes' ceasing to serve as the
Chief Executive Officer of the Company or certain other defined change-of
control events, then Mr. Addis's restricted stock grant would fully vest.
Effective as of April 3, 1994, the Company entered into a five-year
Employment Agreement (the "Pair Agreement") with Christopher Pair, engaging him
as Executive Vice-President of International and Corporate Administration of
the Company. For his services, Mr. Pair is entitled to receive an annual salary
of $500,000, subject to upward adjustment as the Board or the Compensation
Committee of the Board deems appropriate. In addition, Mr. Pair is entitled to
participate in incentive compensation plans on the same basis as other
comparable level executives.
The Pair Agreement provides that Mr. Pair is entitled to certain other
benefits paid for by the Company, including, among other things, an automobile
allowance, reimbursement of the cost of a health club membership, and
participation in various benefit plans.
Under the terms of the Pair Agreement, if the Company terminates Mr. Pair's
employment at any time during the term of the Pair Agreement without cause (as
defined in such agreement), it must pay him (in addition to other accrued
amounts and benefits) an amount equal to one year of base compensation, plus an
amount equal to the actual bonuses paid to Mr. Pair under the executive
incentive compensation plan in respect of the one fiscal or plan year completed
immediately prior to the date of termination.
(5) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
During 1994, the Company's Compensation Committee consisted of Paul Buxbaum
and Edward Hall. No additional information concerning the Compensation
Committee or the Company's executive officers is required by Item 402 of
Regulation S-K.
(6) COMPENSATION COMMITTEE REPORT
The Company's executive compensation programs are administered by the
Compensation Committee of the Board of Directors and, to the extent summarized
below, the Company's Chief Executive Officer. During 1994, the Compensation
Committee was comprised of two non-employee directors, Messrs. Buxbaum and
Hall.
The compensation policy of the Company is designed to motivate the overall
success of the Company by:
. Attracting, retaining, and rewarding highly qualified and productive
individuals;
. Delivering a significant portion of compensation through performance-
based incentives;
. Directly relating incentive compensation to overall Company and
individual performance; and
. Encouraging executive stock ownership to align the interests of
management with those of shareholders.
Base Salary
The base salary of the Chief Executive Officer is established through
negotiations between the Compensation Committee and Mr. Hughes. For 1994, in
order to preserve the tax deductibility of his compensation by the Company, Mr.
Hughes agreed to a reduction in his base salary to $1,000,000. See "Summary
Compensation Table." Base salaries for each of the other Named Officers were
established through
13
<PAGE>
negotiations between Mr. Hughes and each Named Officer. In particular, the 1994
base salary paid to each of Mr. Friedmann and Mr. Addis was that specified in
the Friedmann Agreement and the Addis Agreement, respectively. See "Employment
Contracts and Change in Control Arrangements."
In setting Mr. Hughes' annual salary and target incentive compensation for
1994, the Compensation Committee considered numerous factors, including Mr.
Hughes' cash compensation relative to that of the Company's leading
distributors and Mr. Hughes' unique role as the preeminent personality in the
selling of the Company's products, the motivation of the sales organization and
the formulation of sales promotional programs. The Compensation Committee
awarded incentive compensation to Mr. Hughes based strictly upon a formula-
based performance measure under the 1994 Plan.
Annual Incentive Compensation
During 1994, cash incentive compensation earned by Messrs. Hughes, Katzin,
Friedmann and Addis was paid pursuant to a formula-based performance program
adopted by the Compensation Committee under the 1994 Plan. The Compensation
Committee utilized an earnings per share formula to establish awards, subject
to maximum award amounts in the case of each participant and discretionary
authority to reduce awards in the case of certain of the Named Officers. No
awards were earned or paid under the 1994 Plan until early 1995, when the
Compensation Committee certified that awards under the performance-based
program had been earned and the amounts thereof. In addition, in 1994 Dr.
Katzin and Mr. Pair earned incentive bonuses pursuant to a bonus arrangement
falling within the framework of the 1992 Incentive Plan. See "Description of
Certain Plans" above. During the year, Mr. Hughes selected those individuals,
among others, for participation in the 1992 Incentive Plan. With respect to
that plan, Mr. Hughes also set the corporate and individual performance goals
for each Named Officer, in conjunction with, as to corporate performance goals,
the Compensation Committee. Likewise, Mr. Hughes set the target bonus award
amounts in conjunction with the Compensation Committee.
For 1994, the participation of Dr. Katzin and Mr. Pair in the 1992 Incentive
Plan was based upon both corporate and individual performance goals. Corporate
performance goals included marketing goals, including the opening of new
international markets and the introduction of new products into existing
markets. Individual performance goals were separately designed for each
individual, and included, for example, general goals relating to the
development of new areas of business. Mr. Hughes made the determination as to
the satisfaction of all corporate and individual performance goals. Within each
category of performance goals (i.e., corporate financial, corporate non-
financial and individual), Mr. Hughes has indicated that he did not assign any
specific weighting to any particular goal or goals for either Dr. Katzin or Mr.
Pair. For 1994, those individuals were determined to have earned 80% and 100%,
respectively, of their targeted bonus amounts under the 1992 Incentive Plan,
entitling them to bonuses under the 1992 Incentive Plan of approximately 12%
and 91%, respectively, of their base salaries. In addition, as noted above, Dr.
Katzin earned an incentive award under the performance-based program for 1994
adopted under the 1994 Plan.
Long-Term Incentive Plans
Executives of the Company are encouraged to own shares of the Company's
Common Stock, thereby aligning the interests of management with those of
shareholders and tying a significant portion of executive compensation to long-
term market performance. The 1991 Plan permits the granting to key employees,
directors, and consultants of stock options to purchase 3,500,000 shares of the
Company's Common Stock. See "Description of Certain Plans--Stock Option Plan."
Vesting restrictions on stock options are set by the Stock Option Committee,
which consisted of Messrs. Hughes and Buxbaum through March 29, 1994 and
Messrs. Buxbaum and Hall for the remainder of the year. All options granted to
executive officers during the last three years have had an exercise price equal
to 100% of fair market value at the time of grant.
In light of his significant ownership position, Mr. Hughes has never received
stock incentive awards.
14
<PAGE>
Tax Issues
For 1995 and later years, the Compensation Committee intends to continue to
seek to structure executive compensation arrangements to preserve the
deductibility of Named Officer compensation under applicable federal and state
income tax laws, including the Omnibus Budget Reconciliation Act of 1993, while
also taking into account the need to provide appropriate incentives to the
Company's key executives. See the discussion above. Because the Omnibus Budget
Reconciliation Act of 1993 is newly enacted and only proposed regulations are
available, no assurance can be given that the Company will preserve the
deductibility of all executive compensation.
March 27, 1995 COMPENSATION COMMITTEE
Paul Buxbaum
Edward Hall
(7) PERFORMANCE GRAPH
Set forth below is a comparison of the yearly percentage change in total
shareholder return of the Company's Common Stock and the returns for the NASDAQ
Composite Index and a designated Peer Group. The total shareholder return
calculation is for the five-year period commencing on December 31, 1989 and
includes the reinvestment of dividends.
The Peer Group for the total shareholder return chart is comprised of
publicly-traded companies possessing the following characteristics similar to
those of the Company:
. Size, as measured by net sales;
. Similarity in selling methodology;
. Comparable products including companies engaged in the distribution of
weight control products, health and nutritional supplements, and skin,
hair, or other personal care products;
. Relatively high insider ownership; and/or
. Particular emphasis on the talents and visibility of the chief executive
officer.
Companies included in the Peer Group are: Beauticontrol Cosmetics, Inc.;
Nature's Sunshine Products, Inc.; Avon Products; Premark International, Inc.;
Amway Japan; and Amway Asia Pacific. Amway Japan is included with respect to
American Depositary Receipts commencing September 1993 (when such securities
began trading in the United States). No data is included for Amway Asia Pacific
through December 31, 1993 since that company began publicly trading in December
1993, but such data is included commencingJanuary 1, 1994.
15
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG HERBALIFE, NASDAQ COMPOSITE INDEX AND PEER GROUP**
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
NASDAQ-OTC
Measurement Period INDEX
(Fiscal Year Covered) HERBALIFE PEER GROUP COMPOSITE
- - --------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Measurement Pt-12/31/89 $ 100 $100 $100
FYE 12/31/90 $ 39 $ 79 $ 82
FYE 12/31/91 $ 200 $145 $129
FYE 12/31/92 $ 721 $172 $149
FYE 12/31/93 $1,051 $149 $171
FYE 12/31/94 $1,038 $156 $165
</TABLE>
* ASSUMES $100 INVESTED ON DECEMBER 31, 1989 IN THE STOCK OF HERBALIFE, THE
NASDAQ-OTC INDEX COMPOSITE, AND PEER COMPANIES (WEIGHTED BY MARKET
CAPITALIZATION).
** TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
16
<PAGE>
CERTAIN TRANSACTIONS
The Company purchases its powder products from Raven Industries, Inc., a
California corporation ("Raven"), one-third of whose stock is owned by Mark
Hughes. In addition, one of the Company's tablet products, Activated Fiber(TM),
is manufactured by D & F Industries, Inc., a California corporation ("D & F"),
pursuant to a licensing agreement from Dynamic Products, Inc., a California
corporation ("Dynamic"), twenty percent and five percent of whose stock is
owned by Mark Hughes and Dr. David B. Katzin, respectively. Two individuals
(not affiliates of the Company) are principal stockholders of each of D & F,
Raven and Dynamic.
In May 1993, the Company entered into requirements contracts with each of
Raven and Dynamic that extend to January 1998. Pursuant to these requirements
contracts, the Company has agreed to purchase all of its requirements of powder
products from Raven and all of its requirements of tablet, capsule, liquid,
cream and lotion products from Dynamic or D & F to the extent each such
manufacturer is capable or becomes capable of manufacturing such products. The
requirements contracts also provide Raven and Dynamic (as well as D & F) a
right of first refusal to establish any manufacturing facility outside of North
America that the Company proposes to develop or acquire, and the right to
receive certain royalty payments in the event that such a manufacturing
facility were constructed or acquired and the right of first refusal was not
exercised.
During 1994, the Company's purchases from Raven and Dynamic amounted to
approximately$41.8 million and $5.8 million, respectively. Mr. Hughes's
ownership interest in Raven and Dynamic and Dr. Katzin's ownership interest in
Dynamic entitle them to a proportionate interest in the profits of those
companies, if any. In 1994, Mr. Hughes's share of the earnings of Raven and
Dynamic totalled approximately $4.5 million and $490,000, respectively, and Dr.
Katzin's share of the earnings of Dynamic totalled approximately $123,000.
Management believes that the price paid under these requirements contracts is
appropriate taking into account the product research, development and
formulation services provided by the companies.
The Company engages Nutrient Research Consultants, Ltd., a California
corporation ("Consultant"), which is wholly owned by Dr. Katzin, to perform
consulting services. Such services consist of assistance in distributor and
supervisor education, identification of new product concepts, product
reformulation and governmental and public relations. Consultant is engaged on a
month-to-month basis pursuant to an oral agreement which has been in effect
since the expiration of a written six-month contract entered into between
Consultant and the Company in 1985. Since February 1992, the Company has paid
Consultant a retainer fee of $33,000 per month. Before February 1992, the
retainer fee was $25,000 per month. The Company may also make additional
payments to Consultant for special research and development services provided
at the Company's request. Management believes that the terms of its agreement
with Consultant fairly reflect the value of the services provided by
Consultant. During the year ended December 31, 1994, Consultant received
approximately $1,156,000 from the Company.
In accordance with the 1994 Plan, during 1994 the Company made advances of
target award amounts to each of Messrs. Hughes, Katzin, Friedmann, Addis and
Rosen. Advances were made in June and December 1994 for all members of the
group, and additional advances were made quarterly throughout 1994 and in the
first quarter of 1995 for Messrs. Friedmann and Addis. As of December 31, 1994,
the principal amount of outstanding advances was $2,103,000, $480,000,
$602,000, $470,000 and $160,000 in the case of Messrs. Hughes, Katzin,
Friedmann, Addis and Rosen, respectively. As of March 3, 1995, the date of
ratification of awards under the 1994 Plan (and, in the case of Dr. Katzin, an
award under the 1992 Incentive Plan for 1994), the remaining outstanding
principal and interest obligations were $151,000, $151,000, $250,000, $232,000
and $60,000 to those persons, respectively. Each advance is a full recourse
obligation of the executive with a maturity date of two years following the
date of the advance. In addition, the advances bear interest at the applicable
federal rate (AFR) for two-year notes at the time of the advances. These rates
varied between 4.51% and 7.92%.
17
<PAGE>
INDEPENDENT CERTIFIED PUBLIC AUDITORS
The firm of Deloitte & Touche LLP ("D&T") has audited the financial
statements of the Company for the year ended December 31, 1994, and has been
selected by the Board of Directors to perform such service for the 1995 fiscal
year. A representative of D&T is expected to be present at the Meeting, with
the opportunity to make a statement if the representative desires to do so.
That representative is also expected to be available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Proposals intended to be submitted to the Company for presentation at its
next Annual Meeting to be held in 1996 must be received by the Company at its
principal executive office shown on the first page of this Proxy Statement no
later than 120 days prior to December 2, 1995, in order to be included in the
proxy material for the 1996 meeting.
1994 ANNUAL REPORT
On March 29, 1995, the Company filed with the Securities and Exchange
Commission its Annual Report on Form 10-K for the fiscal year ended December
31, 1994. Copies of the 1994 Form 10-K may be obtained without charge by
writing to Herbalife International, Inc., 9800 La Cienega Boulevard, Inglewood,
California 90301, Attention: Investor Relations.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CHRISTOPHER PAIR
Christopher Pair
Secretary
18
<PAGE>
HERBALIFE INTERNATIONAL, INC.
9800 LA CIENEGA BOULEVARD
INGLEWOOD, CALIFORNIA 90301
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Christopher Pair and David R. Addis, and each
of them, as Proxy, with the power to appoint his or their substitutes, and
hereby authorizes each of them to represent and to vote as designated below all
shares of Common Stock of Herbalife International, Inc. held of record by the
undersigned on April 11, 1995 at the Annual Meeting of Shareholders to be held
on May 11, 1995, or at any adjournment or postponement thereof.
1. ELECTION OF DIRECTORS
[_] FOR all nominees (Mark Hughes, Christopher Pair,
Dr. David Katzin, Paul Buxbaum, Edward Hall, Alan
Liker, except as indicated to the contrary below)
[_] WITHHOLD AUTHORITY to
vote for all nominees
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write the nominee's name on the line below)
_________________________________________________________________________
2. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN ITEM 1.
Please sign exactly as name
(or names) appears below. When
shares are held by joint
tenants, both must sign. When
signing as attorney, executor,
administrator, parent or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by the President or other
authorized officer. If a
partnership, please sign in
partnership name by an
authorized person.
Date: ____________________________
__________________________________
Signature
__________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE, AND PROMPTLY RETURN
THE PROXY CARD USING THE ENCLOSED ENVELOPE.
