<PAGE> 1
- --------------------------------------------------------------------------------
HERBALIFE INTERNATIONAL, INC.
1800 Century Park East, Los Angeles, California 90067
Tel: (310) 410-9600; Fax: (310) 557-3929
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 21, 1998
The 1998 Annual Meeting of Shareholders (the "Meeting") of Herbalife
International, Inc., a Nevada corporation (the "Company"), will be held
beginning at 6:00 p.m. on Thursday, May 21, 1998 at the Beverly Hilton Hotel,
9876 Wilshire Boulevard, Beverly Hills, California, 90210, to consider and vote
on the following matters:
1. The election of six directors to serve on the Company's Board of
Directors;
2. A proposal to amend the Company's Amended and Restated 1991 Stock
Option Plan (the "Option Plan") to increase the aggregate number of shares
which may be issued upon exercise of all options granted under the Option
Plan (excluding shares previously issued upon option exercise, but
including shares subject to existing outstanding options) from 6,800,000 to
7,500,000; and
3. Such other business as may properly come before said Meeting or any
adjournment or postponement thereof.
April 15, 1998 has been fixed as the record date for shareholders entitled
to vote at the Meeting, and only holders of record of the Company's Class A
Common Stock at the close of business on that day will be entitled to receive
notice of and to vote at the Meeting. Each outstanding share of Class A Common
Stock is entitled to one vote on all matters to be voted on at the Meeting.
Shares of Class B Common Stock have no voting rights at the Meeting.
All shareholders are cordially invited to attend the Meeting. To ensure
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
of Class A Common Stock in person, should you desire to do so.
BY ORDER OF THE BOARD OF DIRECTORS
Christopher Pair
Secretary
Dated: April 21, 1998
PLEASE DATE, MARK AND SIGN THE ACCOMPANYING PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES
NO POSTAGE FOR MAILING IN THE UNITED STATES.
<PAGE> 2
HERBALIFE INTERNATIONAL, INC.
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
VOTING INFORMATION
This Proxy Statement is first being mailed on or about April 21, 1998 to
all of the holders of shares of the voting 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 21, 1998 beginning at 6:00 p.m. at the Beverly Hilton Hotel, 9876
Wilshire Boulevard, Beverly Hills, California 90210, and at any adjournment or
postponement thereof (the "Meeting"), pursuant to the accompanying Notice of
Annual Meeting.
Pursuant to a recapitalization approved by the shareholders on December 11,
1997 (the "Recapitalization"), the Company has two classes of common stock. They
are the Class A Common Stock, $0.01 par value per share (the "Class A Common
Stock"), and the Class B Common Stock, $0.01 par value per share (the "Class B
Common Stock"). The Class A Common Stock and the Class B Common Stock are
collectively referred to in this Proxy Statement as the "Common Stock." Class A
Common Stock is entitled to one vote per share on each matter submitted to vote
at the Meeting. Class B Common Stock has no voting rights at the Meeting.
Shares of Class A Common Stock, 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)
delivering written notice 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 Class A Common Stock
held of record by such persons, and the Company will, upon request, reimburse
said persons for their reasonable expenses in so doing.
At the close of business on April 15, 1998, there were outstanding and
entitled to vote at the Meeting 9,859,048 shares of Class A Common Stock. Each
share of Class A Common 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.
1
<PAGE> 3
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table lists, as of February 23, 1998, information as to the
beneficial ownership of Class A Common Stock and Class B 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 or entity 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>
NUMBER OF NUMBER OF
SHARES OF PERCENT OF SHARES OF PERCENT OF PERCENT OF
NAME AND ADDRESS OF CLASS A CLASS A CLASS B CLASS B COMMON
BENEFICIAL OWNER(1) COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK STOCK
------------------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Mark Hughes(2) 5,666,932 57.2% 11,330,866 58.2% 57.8%
1800 Century Park East
Los Angeles, CA 90067
Christopher Pair(3) 58,250 * 116,498 * *
1800 Century Park East
Los Angeles, CA 90067
Michael E. Rosen(4) 39,449 * 78,898 * *
1800 Century Park East
Los Angeles, CA 90067
Robert A. Sandler(3) 13,333 * 26,666 * *
1800 Century Park East
Los Angeles, CA 90067
Timothy Gerrity(3) 22,999 * 45,999 * *
1800 Century Park East
Los Angeles, CA 90067
Edward J. Hall(3) 5,665 * 11,332 * *
Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, CA 92715
Alan Liker(3) 3,998 * 7,999 * *
150 South Doheny Drive
Beverly Hills, CA 90211
Christopher M. Miner(3) 3,332 * 6,666 * *
Redfish Telemetrix, Inc.
3183 Airway Avenue, Bldg E
Costa Mesa, CA 92626
Fidelity Management & 885,966 9.0% 1,521,932 7.9% 8.3%
Research Company(5)
82 Devonshire Street
Boston, MA 02109
All executive officers and 5,813,958 57.9% 11,627,924 58.9% 58.5%
directors as a group (8
persons)(6)
</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 Common Stock shown as beneficially
owned by them, subject to community property laws where applicable.
(2) Includes 183,333 shares of Class A Common Stock and 366,666 shares of Class
B Stock owned by the Herbalife Family Foundation. Mr. Hughes acts as a
director of the foundation but has no pecuniary interest in the shares. Also
includes 99,999 shares of Class A Common Stock and 199,998 shares of Class B
Common Stock issuable upon exercise of stock options which are exercisable
presently or within 60 days of this Proxy Statement. Also includes 5 million
shares of Class B Common Stock (plus up to an
2
<PAGE> 4
additional 750,000 shares of Class B Common Stock if an underwriting
over-allotment option is exercised) held by affiliates of Mr. Hughes that
are subject to forward purchase contracts with DECS(SM) Trust III, a
Delaware business trust. Pursuant to the terms of the forward purchase
contracts, such shares (or a portion thereof) or an equivalent amount of
cash is required to be delivered to DECS(SM) Trust III in February 2001 in
order to enable DECS(SM) Trust III to settle the DECS(SM) securities issued
by that entity. Until settlement of the DECS(SM), generally, Mr. Hughes'
affiliates retain any voting rights and the right to receive dividends with
respect to the Class B Common Stock. In addition, such shares have been
pledged in favor of DECS(SM) Trust III to secure the obligations under the
forward purchase contracts.
(3) Consists of shares issuable upon exercise of stock options which are
exercisable presently or within 60 days of this Proxy Statement.
(4) Includes 6,667 unvested restricted shares of Class A Common Stock, 13,333
unvested restricted shares of Class B Common Stock, 25,833 shares of Class A
Common Stock and 51,667 shares of Class B Common Stock issuable upon
exercise of stock options which are exercisable presently or within 60 days
of this Proxy Statement.
(5) Information based on Technimetrics Service Report as of December 31, 1997.
(6) Includes an aggregate of 233,408 shares of Class A Common Stock and 466,823
shares of Class B Common Stock issuable upon exercise of stock options which
are exercisable presently or within 60 days of this Proxy Statement.
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<PAGE> 5
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.
All six of the Company's current directors are the nominees to be elected at the
Meeting to one-year terms expiring in 1999.
Each nominee has consented to being named in the Proxy Statement and to
serve if elected.
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 of Directors, 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 and for two
executive officers of the Company. The table sets forth certain information
regarding these individuals (ages are as of January 1, 1998).
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Mark Hughes*............................... 42 Chairman of the Board, Chief Executive
Officer and President
Christopher Pair*.......................... 44 Executive Vice President, Chief Operating
Officer, Secretary, and Director
Michael E. Rosen*.......................... 51 Executive Vice President, Chief Executive
Corporate Marketing and Corporate
Development and Director
Robert A. Sandler.......................... 53 Executive Vice President and General
Counsel
Timothy Gerrity............................ 47 Executive Vice President and Chief
Financial Officer
Edward J. Hall*(1)(2)...................... 51 Director
Alan Liker*(2)............................. 60 Director
Christopher M. Miner*(1)(2)................ 46 Director
</TABLE>
- ---------------
* Nominee.
(1) Member of the Compensation and Stock Option Committees.
(2) Member of the Audit, Finance and Business Development Committees.
MARK HUGHES 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 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 when it acquired Herbalife International of America,
Inc. in a stock-for-stock reorganization and has continued in those positions
since that time.
CHRISTOPHER PAIR joined the Company's predecessor in March 1985 as
Executive Assistant to the President. From May 1991 to November 1996, Mr. Pair
served as the Company's Executive Vice President -- International and Corporate
Administration and Secretary. In November 1996, Mr. Pair became the Company's
Chief Operating Officer. 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 Data Systems and
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<PAGE> 6
Consolidated Foods. Mr. Pair is Vice-Chairman of the Direct Selling Educational
Foundation and serves on its Executive Committee. Mr. Pair is also on the Board
of Directors of the Direct Selling Association and serves on its Long Range
Planning Committee. He also serves on the Board of The Counsel for Responsible
Nutrition. Mr. Pair received his B.S. and M.B.A. from the University of
Redlands.
MICHAEL E. ROSEN joined the Company in August 1993 and is currently
Executive Vice President, and Chief Executive Corporate Marketing and Corporate
Development. Mr. Rosen's responsibilities include the Company's international
and domestic marketing, developing the Company's personal care and cosmetics,
and water treatment products lines, investor relations and external affairs. Mr.
Rosen has served as a director of the Company since May 1996. Prior to joining
the Company, Mr. Rosen was Chairman of the JCP Television Shopping Network,
which he founded in 1986.
ROBERT A. SANDLER joined the Company in January 1997 as its Executive Vice
President and General Counsel. From 1975 to the present, Mr. Sandler has been a
member of Sandler & Morse, a law firm that he co-founded. From 1985 to 1994, Mr.
Sandler served in various capacities with various companies within the Siemens
family of companies, including most recently as the Executive Vice President and
General Counsel of Siemens Pacesetter. Mr. Sandler received his A.B. degree from
the University of California, Los Angeles and his J.D. degree from the
University of Southern California. Mr. Sandler is currently a director of
Physio-Control, a manufacturer of external defribillators.
TIMOTHY GERRITY joined the Company in May 1985 and is currently Executive
Vice President and Chief Financial Officer. Mr. Gerrity, a certified public
accountant, is responsible for the worldwide financial affairs of the Company.
His previous experience includes management positions with Wickes Corporation,
Deloitte & Touche LLP, 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.
EDWARD J. HALL has served as the Chief Financial Officer of Cruttenden Roth
Incorporated, an investment banking firm, since April, 1995. He served in a
similar capacity for H.J. Meyers & Co., Inc. an investment banking firm based in
Beverly Hills, California from March 1991 through March 1995. 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 LLP, where he
had been an audit partner since 1980. Mr. Hall was elected a director of the
Company in March 1992.
ALAN LIKER 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 Budget Group, Inc. Previously he was a
director of First Charter Bank and the JCP Television Shopping Network.
CHRISTOPHER M. MINER has served as the Chief Financial Officer of Wow!
Laboratories, Inc., an oral healthcare company, since July 1996 and as Chief
Executive Officer of Redfish Telemetrix, Inc., a telecommunication company,
since May 1997. Mr. Miner co-founded Vis-A-Vis Communications, Inc. (formerly
Workstation Technologies, Inc.) in 1989. Vis-A-Vis Communications is a leading
developer of interactive communications software and hardware products. Prior to
founding Vis-A-Vis Communications, from 1987 to 1989, Mr. Miner served as Chief
Financial Officer of Technology Marketing, Inc., a custom electronic engineering
organization and board level test product manufacturer. Prior to joining
Technology Marketing, he served as Chief Financial Officer and Director for
Media Systems Technology, Inc., a software manufacturer, from 1981 to 1987. Mr.
Miner received his M.B.A. from California State University in 1976. He was
elected a director of the Company in March 1996.
5
<PAGE> 7
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 10 meetings and acted by unanimous written
consent on 14 occasions during the fiscal year ended December 31, 1997.
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 Finance Committee,
established in February 1994, the Special Committee, established in July 1997,
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. In addition, the Compensation Committee administers the 1994
Performance-Based Annual Incentive Compensation Plan and, in conjunction with
the Chief Executive Officer, the 1992 Executive Incentive Compensation Plan. See
"Compensation of Directors and Executive Officers -- Executive
Compensation -- Description of Certain Plans."
The Stock Option Committee administers the Company's Stock Option Plan. See
"Compensation of Directors and Executive Officers -- Executive
Compensation -- Description of Certain Plans."
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.
The Special Committee evaluated, and made recommendations to the Board of
Directors regarding, the recently completed Recapitalization approved by the
Company's stockholders on December 11, 1997.
In 1997, the Audit, Compensation, Stock Option, Finance, Special and
Business Development Committees met and acted by unanimous written consent on 4
and 0, 6 and 1, 1 and 12, 0 and 0, 6 and 0 and 5 and 0 occasions, respectively.
In 1997, all directors attended at least 75% of the aggregate number of Board
and committee meetings held during the period of his service, with the exception
of Mr. Hughes, who abstained from attending two Board meetings at which matters
raising potential conflicts of interest were considered and was unable to attend
one other Board meeting.
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.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Effective January 1996, each director who is not an officer of or
consultant to the Company receives $45,000 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).
Any outside directors serving on the Board of Directors of any of the foreign
subsidiaries of the Company are paid fees of $2,500 annually for each such Board
on which they serve. Additionally, the Board authorized the issuance, as of
April 19, 1993, to each of Mr. Hall and Paul Buxbaum, a former director of the
Company, of a cash-only stock
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<PAGE> 8
appreciation right ("SAR") covering 25,000 shares of Common Stock as constituted
prior to the Recapitalization (the "Old Common Stock"). The SARs vest in annual
installments and are automatically exercised and redeemed on the date of vesting
of each installment. The amount payable upon each such automatic exercise is
equal to the fair market value of the Common Stock or Old Common Stock, as the
case may be, on the date of exercise less the "exercise price" of $9.00 (the
closing sale price of the Old Common Stock on April 19, 1993) in the case of the
installments that vested in 1994 and 1995 and $7.375 (the closing sale price of
the Old Common Stock on November 1, 1995, the effective date of a repricing of
the SARs) in the case of the installments that will vest thereafter, in each
case multiplied by the number of SARs being exercised and redeemed. In addition,
the Board authorized the issuance, as of November 1, 1995, to each of Messrs.
Buxbaum, Hall and Liker of a cash-only SAR covering 10,000 shares of Old Common
Stock. The SARs vest in five annual installments and are 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 or Old Common Stock, as the case may
be, on such date less the "exercise price" of $7.375 (the closing sale price of
the Old Common Stock on November 1, 1995) multiplied by the number of SARs being
exercised and redeemed. In addition, the Board authorized the issuance, as of
July 15, 1996, to each of Messrs. Buxbaum, Hall, Liker and Miner of a cash-only
SAR covering 25,000 shares of Old Common Stock. The SARs vest in five annual
installments and are automatically exercised and redeemed on the date of vesting
of each installment of an amount equal to the fair market value of the Common
Stock or Old Common Stock, as the case may be, on such date, less the "exercise
price" of $13.00 (the closing sale price of the Old Common Stock on July 15,
1996), multiplied by the number of SARs being exercised and redeemed. Finally,
the Board authorized the issuance, as of November 5, 1996, to each of Messrs.
Hall, Liker and Miner of a cash-only SAR covering 25,000 shares of Old Common
Stock. The SARs vest in five annual installments and are 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 or the Old Common Stock, as the case
may be, on such date, less the "exercise price" of $19.875 (the closing sale
price of the Old Common Stock on November 5, 1996), multiplied by the number of
SARs being exercised and redeemed. In July 1997, all of the outstanding SAR's
described above (except for those held by Mr. Buxbaum) were converted into
options to purchase shares of Common Stock, each with an exercise price equal to
the exercise price of the corresponding SAR, and a vesting schedule identical to
the vesting schedule of the corresponding SAR. Additionally, in April 1997, the
Company granted, under the 1991 Stock Option Plan, 8,333 stock options of Class
A Common Stock and 16,667 stock options of Class B Common Stock to each of
Messrs. Hall, Liker and Miner with a five year vesting schedule. Directors who
are also officers receive no separate compensation for their services as
directors.
7
<PAGE> 9
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 whose total annual salary and bonus exceeded $100,000 during
the fiscal year ended December 31, 1997 (the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- -------------------------------------
AWARDS PAYOUTS
------------------------ ----------
(A) (B) (C) (D) (G) (H)
(E) (F) SECURITIES (I)
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) AWARD(S)($) SARS(#) PAYOUTS($) ($)(3)
------------------ ---- ---------- ----------- ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark Hughes............... 1997 $1,000,012 $6,757,563 $ -- $ -- 1,000,000 $ -- $126,237
President, Chief 1996 1,000,000 6,288,913 -- -- 500,000 -- 126,710
Executive Officer
and Chairman of the 1995 999,211 -- -- -- -- -- 25,971
Board
Christopher Pair.......... 1997 $ 894,615 $ 896,000 $ -- $ -- 200,000 $ -- $216,426
Executive Vice President 1996 699,037 500,000 -- -- 242,500 -- 106,369
and Chief
Operating Officer 1995 647,116 -- -- -- 32,500 -- 21,087
Michael E. Rosen.......... 1997 $ 694,616 $ 784,000 $600,000 -- 150,000 -- $107,220
Executive Vice 1996 500,006 350,000 600,000 -- 100,000 -- 74,744
President,
Chief Executive 1995 496,160 -- 600,000 -- 25,000 -- 21,955
Corporate
Marketing and Corporate
Development
Robert A. Sandler......... 1997 $ 492,884 $ 448,000 $ -- $ -- 325,000 -- 48,022
Executive Vice President
and
General Counsel
Timothy Gerrity........... 1997 $ 447,308 $ 672,000 $ -- -- 75,000 -- $ 84,877
Executive Vice President 1996 347,596 320,000 -- -- 138,875 -- 53,381
and Chief Financial 1995 225,033 -- -- -- 11,250 -- 11,940
Officer
</TABLE>
- ---------------
(1) 1997 amounts and 1996 amounts (other than for Mr. Gerrity in 1996) include
bonuses earned under the Company's 1994 Performance-Based Annual Incentive
Compensation Plan. The 1996 amount for Mr. Gerrity includes bonuses paid
under a bonus program falling within the framework of the Company's 1992
Executive Incentive Compensation Plan. 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. In the case of Mr. Rosen, the listed amount
reflects deferred compensation pursuant to a Deferred Compensation Agreement
between the Company and Mr. Rosen. See "Employment Contracts and Change in
Control Arrangements."
(3) For 1997, these amounts represent payments under the Company's 401(k)
Tax-Sheltered Savings Plan, Executive Medical Plan, Executive Long Term
Disability Plan, Executive Life Insurance Plan and Deferred Compensation
Plan. Amounts with respect to the 401(k) Tax-Sheltered Savings Plan were
$4,800, $4,800, $4,800, and $4,800 for Mr. Pair, Mr. Rosen, Mr. Sandler and
Mr. Gerrity, respectively; amounts with respect to the Executive Medical
Plan were $8,333, $8,333, $8,333, $8,333 and $8,333 for Mr. Hughes, Mr.
Pair, Mr. Rosen, Mr. Sandler and Mr. Gerrity, respectively; amounts with
respect to the Executive Long Term Disability Plan were $4,093, $6,189,
$6,964, $3,575 and $5,302 for Mr. Hughes, Mr. Pair, Mr. Rosen, Mr. Sandler
and Mr. Gerrity, respectively; amounts with respect to the Executive Life
Insurance Plan were $14,284, $97,104 $7,123, $3,519 and $1,663 for Mr.
Hughes, Mr. Pair, Mr. Rosen, Mr. Sandler and Mr. Gerrity, respectively;
amounts with respect to the Deferred Compensation Plan were $100,000,
$90,000, $70,000, $27,795 and $45,000 for Mr. Hughes, Mr. Pair, Mr. Rosen,
Mr. Sandler and Mr. Gerrity, respectively; and amounts for a special
Company-provided vacation payment were $10,000, $10,000, and $20,000 for Mr.
Pair, Mr. Rosen, and Mr. Gerrity, respectively. For 1996, these amounts
represent payments under the Company's 401(k) Tax-Sheltered Savings Plan,
Executive Medical Plan, Executive Long Term Disability Plan, Executive Life
Insurance Plan and Deferred Compensation Plan. Amounts with respect to the
401(k) Tax-Sheltered Savings Plan were $4,500, $4,500 and $4,500 for Mr.
Pair, Mr. Rosen and Mr. Gerrity, respectively; amounts with respect to the
Executive Medical Plan were $8,004, $8,004, $8,004 and $8,004 for Mr.
Hughes, Mr. Pair,
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<PAGE> 10
Mr. Rosen and Mr. Gerrity, respectively; amounts with respect to the
Executive Long Term Disability Plan were $4,093, $6,189, $6,743 and $4,652
for Mr. Hughes, Mr. Pair, Mr. Rosen and Mr. Gerrity, respectively; amounts
with respect to the Executive Life Insurance Plan were $14,140, $17,772,
$5,497 and $1,225 for Mr. Hughes, Mr. Pair, Mr. Rosen and Mr. Gerrity,
respectively; and amounts with respect to the Deferred Compensation Plan
were $100,000, $69,904, $50,000 and $35,000 for Mr. Hughes, Mr. Pair, Mr.
Rosen and Mr. Gerrity, respectively. For 1995, 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 $4,500, $4,500 and $4,500 for Mr.
Pair, Mr. Rosen and Mr. Gerrity, respectively; amounts with respect to the
Executive Medical Plan were $8,004, $8,004, $8,004 and $3,204 for Mr.
Hughes, Mr. Pair, Mr. Rosen and Mr. Gerrity, respectively; amounts with
respect to the Executive Long Term Disability Plan were $4,093, $6,057,
$5,802 and $3,840 for Mr. Hughes, Mr. Pair, Mr. Rosen and Mr. Gerrity,
respectively; and amounts with respect to the Executive Life Insurance Plan
were $13,874, $2,526, $3,649 and $396 for Mr. Hughes, Mr. Pair, Mr. Rosen
and Mr. Gerrity, respectively.
9
<PAGE> 11
(2) OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of Class A Common Stock Options and
Class B Common Stock Options during the fiscal year ended December 31, 1997 to
the Named Officers. No stock appreciation rights were granted to the Named
Officers during such fiscal year.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
OPTIONS/SARS
GRANTED TO
EMPLOYEE EXERCISE GRANT DATE
OPTIONS/SARS IN FISCAL OR BASE EXPIRATION PRESENT
NAME GRANTS(#)(1) YEAR PRICE($/SH)(2) DATE VALUE($)(3)
---- ------------ ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Mark Hughes
Class A 166,667 5.50% 16.375 1/6/07 1,536,053
Class B 333,333 11.01% 16.375 1/6/07 3,072,097
Class A 166,667 5.50% 16.250 4/10/07 1,532,920
Class B 333,333 11.01% 16.250 4/10/07 3,065,830
Christopher Pair
Class A 25,000 0.83% 16.250 4/10/07 229,938
Class B 50,000 1.65% 16.250 4/10/07 459,875
Class A 41,667 1.38% 20.000 11/28/07 435,482
Class B 83,333 2.75% 20.000 11/28/07 870,913
Michael E. Rosen
Class A 16,667 0.55% 16.250 4/10/07 153,295
Class B 33,333 1.10% 16.250 4/10/07 306,580
Class A 33,333 1.10% 20.000 11/28/07 348,363
Class B 66,667 2.20% 20.000 11/28/07 696,737
Robert A. Sandler
Class A 50,000 1.65% 16.375 1/6/07 460,815
Class B 100,000 3.30% 16.375 1/6/07 921,630
Class A 16,667 0.55% 16.250 4/10/07 153,295
Class B 33,333 1.10% 16.250 4/10/07 306,580
Class A 33,333 1.10% 15.688 7/14/07 293,190
Class B 66,667 2.20% 15.688 7/14/07 586,390
Class A 8,333 0.28% 20.000 11/28/07 87,088
Class B 16,667 0.55% 20.000 11/28/07 174,187
Timothy Gerrity
Class A 16,667 0.55% 16.250 4/10/07 153,295
Class B 33,333 1.10% 16.250 4/10/07 306,580
Class A 8,333 0.28% 20.000 11/28/07 87,088
Class B 16,667 0.55% 20.000 11/28/07 174,187
</TABLE>
- ---------------
(1) All options granted in 1997 are exercisable in cumulative 20% installments
commencing one year from date of grant, with full vesting occurring on the
fifth anniversary date with the exception of options granted on November 28,
1997, which were exercisable in cumulative 50% installments commencing one
year from the date of grant, with full vesting occurring on the second
anniversary date.
(2) All options were granted based on the closing price for the Company Common
Stock or Old Common Stock, as the case may be, at the date of grant (as
reported in the Wall Street Journal).
(3) Valuation based upon the Black-Scholes pricing model. Assumptions include:
75.18% price volatility, 6.57% weighted average risk-free rate of return,
3.5% dividend yield and option exercises averaging a 7.7 year term. No
adjustment was made for non-transferability or risk of forfeiture.
10
<PAGE> 12
(3) 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 of Class A Common Stock Options and Class B Common Stock Options and
unexercised options to purchase Class A Common Stock and Class B Common Stock
granted in fiscal 1997 and prior years.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
ACQUIRED VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- ----------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Mark Hughes
Class A -- -- 33,333 466,668 266,664 2,629,175
Class B -- -- 66,666 933,333 566,661 5,725,000
Christopher Pair
Class A 33,749 430,000 53,250 141,335 577,309 584,840
Class B 67,501 859,000 106,498 282,667 1,207,838 1,311,004
Michael E. Rosen
Class A -- -- 22,499 100,001 223,223 460,427
Class B -- -- 44,999 200,001 468,849 1,020,838
Robert A. Sandler
Class A -- -- -- 108,333 -- 495,916
Class B -- -- -- 216,667 -- 1,100,168
Timothy Gerrity
Class A -- -- 19,666 65,334 181,543 291,427
Class B -- -- 39,333 130,667 382,767 648,170
</TABLE>
- ---------------
(1) Represents the difference between the market price of the Company Common
Stock on December 31, 1997 and the exercise price of the options.
(4) TEN YEAR OPTION/SAR REPRICINGS
In March 1997, the Compensation Committee reviewed the exercise price of
certain stock options in light of the current stock trading prices. Based on a
comparison of then current trading prices and the exercise price of such
options, the Committee determined that such options had ceased to provide the
incentives that they were originally intended to provide. Accordingly, on March
13, 1997, the Board of Directors approved the repricing of two option grants to
then current fair market value of the Company's Old Common Stock.
The following table sets forth information with respect to the repricing of
options of Old Common Stock held by any current executive officer of the Company
at any time during the last ten fiscal years of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE EXERCISE LENGTH OF ORIGINAL
UNDERLYING OF OLD COMMON PRICE AT OPTION TERM
OPTIONS/SARS STOCK AT TIME TIME OF REMAINING AT DATE
REPRICED OR OF REPRICING REPRICING OR NEW EXERCISE OF REPRICING OR
NAME DATE AMENDED OR AMENDMENT AMENDMENT PRICE AMENDMENT
(A) (B) (#)(C) ($)(D) ($)(E) ($)(F) (G)
---- ---- ------------ ------------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Mark Hughes............. 1/6/97 500,000 $16.375 $30.75 $16.375 9 years, 8 months
Christopher Pair........ 11/1/95 60,000 7.375 8.87 7.375 7 years
150,000 7.375 15.25 7.375 8 years, 1 month
Michael E. Rosen........ 11/1/95 175,000 7.375 19.875 7.375 8 years, 9 months
Robert A. Sandler....... 1/6/97 150,000 16.375 30.75 16.375 9 years, 8 months
Timothy Gerrity......... 11/1/95 50,000 7.375 15.25 7.375 8 years, 1 month
</TABLE>
11
<PAGE> 13
(5) DESCRIPTION OF CERTAIN PLANS
1994 Performance-Based Annual Incentive Compensation Plan. The Company
maintains an Amended and Restated 1994 Performance-Based Annual Incentive
Compensation Plan (the "1994 Plan") 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 and consultants of the
Company determined by the committee administering the 1994 Plan.
The 1994 Plan is administered by the Compensation Committee of the
Company's Board (the "1994 Plan Committee"). The Board members who currently
administer the 1994 Plan qualify as "outside directors" under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the Board of
Directors does not currently intend to appoint individuals to the 1994 Plan
Committee who are not both "outside directors" under the Code and "disinterested
directors" within the meaning of Rule 16b-3(c) under the Exchange Act.
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. The performance goal
or goals included in the Formula for each award period is selected by the 1994
Plan 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; return on
equity; and increase in the Common Stock price over a specified time period.
The 1994 Plan Committee determines the performance measure 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 1994 Plan 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 1994 Plan 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 and/or (c)
decrease any award 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 1994 Plan 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 1994 Plan
Committee, except as otherwise permitted by the regulations under Section
162(m). Determinations based on a calendar year award period may be made by the
1994 Plan Committee on or before March 31 of the calendar year.
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 1994 Plan
Committee provides for prorated awards based upon satisfaction of performance
goals for the entire award period, with the proration formula to be set by the
1994 Plan Committee in its discretion in advance of the commencement of each
award period. In addition, no award can be paid unless the 1994 Plan 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 1994 Plan Committee makes such
determinations by means of written resolutions of the 1994 Plan Committee that
are maintained in the records of the Company.
12
<PAGE> 14
Awards pursuant to the 1994 Plan may be made, at the discretion of the 1994
Plan Committee, in cash, through the issuance of shares of Class A Common Stock
or Class B Common Stock, or through a combination of any of the foregoing
methods. The total number of shares of Common Stock that may be issued under the
1994 Plan in any fiscal year of the Company, and the total number of shares of
Common Stock that may be issued under the 1994 Plan in any fiscal year of the
Company to any single participant, may not exceed 5% of the number of issued and
outstanding shares of Common Stock at the beginning of the prior fiscal year.
Awards under the 1994 Plan are subject to withholding for applicable
employment and income taxes. The 1994 Plan 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 cash 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.
1992 Executive Incentive Compensation Plan. In 1992, the Board adopted the
Herbalife International, Inc. 1992 Amended and Restated Executive Incentive
Compensation Plan (the "1992 Plan"). Eligible participants under the 1992 Plan
consist of the Company's executive vice presidents, vice presidents, country
managers and other executive officers and key employees (other than the
Company's Chief Executive Officer and President) and consultants as designated
by the Chief Executive Officer in conjunction with the committee administering
the 1992 Plan.
The 1992 Plan is administered by the Compensation Committee of the
Company's Board (the "1992 Plan Committee") in conjunction with the Chief
Executive Officer. The current members of the 1992 Plan Committee are the
members of the Compensation Committee, and the Board of Directors does not
currently intend to appoint individuals to the 1992 Plan Committee who are not
"disinterested directors" within the meaning of Rule 16b-3(c) under the Exchange
Act. In addition, any awards of Common Stock under the 1992 Plan would be
determined and administered solely by the 1992 Plan Committee.
The 1992 Plan provides for the payment of bonuses to participants for each
year that the 1992 Plan is in effect, beginning with 1992. 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 1992 Plan
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 a pro
rata portion of, as applicable, the targeted amount. In addition, the 1992 Plan
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, subject to certain exceptions.
Awards pursuant to the 1992 Plan may be made, at the discretion of the 1992
Plan Committee, in cash, through the issuance of shares of Class A Common Stock
or Class B Common Stock, or through a combination of any of the foregoing
methods. The total number of shares of Common Stock that may be issued under the
1992 Plan in any fiscal year of the Company, and the total number of shares of
Common Stock that may be issued under the 1992 Plan in any fiscal year of the
Company to any single participant, may not exceed the excess of (i) 5% of the
number of issued and outstanding shares of Common Stock at the beginning of the
prior fiscal year, over (ii) the number of shares of Common Stock issued during
the prior fiscal year pursuant to the 1994 Plan.
13
<PAGE> 15
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 1992 Plan; provided,
however, that no such action will adversely affect the right of any participant
with respect to any award to which he or she may have become entitled under the
1992 Plan prior to the effective date of such amendment, suspension or
termination. The 1992 Plan will continue in place until terminated by the Board
of Directors.
For 1994 and 1996 the Company utilized a bonus arrangement falling within
the framework of the 1992 Plan, although the Named Officers did not participate
in the 1992 Plan for 1996, except for Mr. Gerrity. See "Compensation Committee
Report -- Annual Incentive Compensation." The 1992 Plan is expected to continue
to be utilized with respect to certain executives for future periods.
1991 Stock Option Plan. Subject to shareholder approval at the Meeting, the
Board of Directors has approved an amendment to the Option Plan: to increase the
aggregate number of shares which may be issued upon exercise of all options
under the Option Plan. See "Proposal 2 -- Approval of Amended and Restated 1991
Stock Option Plan." The purpose of the Option 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. As of April 9, 1998, approximately 135 persons were
eligible to participate in the Option Plan.
The Option Plan is administered by the Stock Option Committee of the
Company's Board. The Board of Directors does not currently intend to appoint
individuals to the Stock Option Committee who are not both "Non-Employee
Directors" within the meaning of Rule 16b-3 under the Exchange Act and "outside
directors" within the meaning of Section 162(m) under the Code. Currently, the
Stock Option Committee consists of Messrs. Hall and Miner.
Options under the Option 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.
As of April 9, 1998 (i) 1,918,646 shares of Class A Common Stock and
4,003,481 shares of Class B Common Stock were subject to outstanding stock
options and (ii) additional options could be issued under the Option Plan with
respect to 245,686 shares of Common Stock.
Under the Option Plan, the aggregate amount of shares of Class A Common
Stock and Class B Common Stock with respect to which stock options may be
awarded to a participant during any single calendar year may not exceed
1,500,000.
All options granted under the Option 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. Incentive stock options granted to
a person holding more than 10% of the total voting power of the Company's
capital stock must expire within five years from the date of grant.
In the case of incentive stock options, the exercise price must be at least
equal to 100% of the fair market value of the Common Stock on the date the
option is granted. The exercise price for incentive stock option grants to a
person holding more than 10% of the total voting power of the Company's capital
stock must equal 110% of the fair market value of the Common Stock. The exercise
price of a non-qualified option need not be equal to the fair market value of
the Common 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
14
<PAGE> 16
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 Option 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.
Federal Income Tax Matters. As stated above, participants in the Option
Plan may be granted either "incentive" stock options (qualified as such under
the Code) or "non-incentive" stock options (customarily referred to as
"non-qualified" stock options). Persons who receive non-qualified stock options
under the Option 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 non-transferable and subject to a
"substantial risk of forfeiture," however, the taxable event will generally be
delayed to the earliest of the date on which the stock becomes transferable or
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 (although the alternative minimum tax may
apply, as described below) upon exercise or lapse of any forfeiture restrictions
or transfer 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 capital gain, and the Company will not be
entitled to a deduction for compensation paid. Any earlier sale will result at
least in part in ordinary income to the employee and a deduction for the Company
equal to the amount of ordinary income recognized by the employee. Depending
upon a particular option holder's circumstances and the holding period of the
stock after exercise of the option, there may be a favorable differential tax
rate applicable to capital gains.
Upon exercise of incentive stock options, the alternative minimum tax may
apply to optionees because the excess of the fair market value of the shares
received over the exercise price of an incentive stock option constitutes an
item of tax preference. 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 options 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.
Deferred Compensation Plans. The Company maintains two deferred
compensation plans for select groups of management or highly compensated
employees: the Herbalife Management Deferred Compensation Plan, effective
January 1, 1996 (the "Management Plan," applicable to directors and vice
presidents) and the Herbalife Senior Executive Compensation Plan, effective
January 1, 1996 (the "Senior Executive Plan," applicable to eligible employees
at the rank of Senior Vice President and higher) (collectively with the
Management Plan, the "Deferred Compensation Plans"). The Deferred Compensation
Plans are unfunded and their benefits are paid from the general assets of the
Company, except that the Company has contributed certain amounts to a "rabbi
trust" whose assets will be used to pay benefits if the Company remains solvent,
but can be reached by the Company's creditors if the Company becomes insolvent.
The Deferred Compensation Plans allow eligible employees, who are selected by
the administrative committee that manages and administers the plans (the
"Deferred Compensation Committee"), to elect annually to defer up to fifty
percent (50%) of their base annual salary and up to one hundred percent (100%)
of their annual bonus for each calendar year (the "Annual Deferral Amount"). The
Company makes matching contributions on behalf of each participant in the Senior
Executive Plan ("Company Matching Contributions") of one hundred
15
<PAGE> 17
percent (100%) of the amount deferred by each such participant from such
participant's base annual salary up to ten percent (10%) of the participant's
base annual salary. Each participant in either Deferred Compensation Plan has at
all times a fully vested and nonforfeitable interest in each year's
contribution, including interest credited thereto, and in any Company Matching
Contributions, if applicable. In connection with a participant's election to
defer an Annual Deferral Amount, the participant may also elect to receive a
short-term payout, equal to the Annual Deferral Amount plus interest and payable
five or more years from the first day of the year in which the Annual Deferral
Amount is actually deferred. Subject to the short term payout provision and
certain exceptions for unforeseeable financial emergencies, a participant may
not withdraw, without incurring a ten percent (10%) withdrawal penalty, all or
any portion of his or her account under the Deferred Compensation Plans prior to
the date that such participant either (a) is determined by the Deferred
Compensation Committee to have incurred permanent and total disability or (b)
terminates employment with the Company. The Company has amended the Deferred
Compensation Plans effective as of January 1, 1997 in ways which the Company
considers technical and not material for purposes of this discussion.
Retirement Plan. The Company adopted, effective September 1997, a
Supplemental Executive Retirement Plan (the "Retirement Plan") providing
retirement benefits for a select group of management and highly compensated
employees. The Retirement Plan is unfunded and its benefits are paid from the
general assets of the Company, except that the Company has contributed certain
amounts to a "rabbi trust" whose assets will be used to pay benefits if the
Company remains solvent, but can be reached by the Company's creditors if the
Company becomes insolvent. The normal retirement benefit under the Retirement
Plan is 60 quarterly installments payments commencing at age 65, each of which
equals one-quarter of 1.75% of "compensation" times the number of years of
service up to 20 years. The term "compensation" for this purpose means the
average yearly compensation of the five calendar years within the last 10 years
of employment that would yield the highest average. A participant may elect to
receive his or her benefits in a lump sum equal to 90% of the actuarial
equivalent of the remaining quarterly installments.
A participant who reaches the "early retirement date" may choose to retire
and to receive an early retirement benefit equal to the normal retirement
benefit. A participant who becomes disabled shall receive a benefit equal to his
normal retirement benefit. A participant generally reaches his or her early
retirement date when he or she completes 10 years of service and reaches age 55.
An employee whose employment with the company terminates before he or she
reaches early retirement date will receive the actuarial equivalent of his or
her vested benefits paid in a lump sum within 90 days of such termination. Upon
a change in control of the Company, a participant will receive a lump sum
payment equal to the actuarial equivalent of the remaining quarterly
installments. A participant becomes fully vested in his or her interest in the
Retirement Plan on his or her normal or early retirement date, death, or
disability, or on a change in control of the Company. In all other cases, a
participant's vested interest is determined as follows:
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED PERCENTAGE
---------------- -----------------
<S> <C>
less than 5.................................. 0%
5....................................... 20
6....................................... 40
7....................................... 60
8....................................... 80
9....................................... 100
</TABLE>
16
<PAGE> 18
For illustration purposes only, the following table provides examples of
the annual benefit payable under the Retirement Plan beginning at age 65.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Compensation
$ 125,000 $ 32,813 $ 43,750 $ 43,750 $ 43,750 $ 43,750
150,000 39,375 52,500 52,500 52,500 52,500
175,000 45,938 61,250 61,250 61,250 61,250
200,000 52,500 70,000 70,000 70,000 70,000
225,000 59,063 78,750 78,750 78,750 78,750
250,000 65,625 87,500 87,500 87,500 87,500
300,000 78,750 105,000 105,000 105,000 105,000
400,000 105,000 140,000 140,000 140,000 140,000
450,000 118,125 157,500 157,500 157,500 157,500
500,000 131,250 175,000 175,000 175,000 175,000
600,000 157,500 210,000 210,000 210,000 210,000
700,000 183,750 245,000 245,000 245,000 245,000
800,000 210,000 280,000 280,000 280,000 280,000
900,000 236,250 315,000 315,000 315,000 315,000
1,000,000 262,500 350,000 350,000 350,000 350,000
1,100,000 288,750 385,000 385,000 385,000 385,000
1,200,000 315,000 420,000 420,000 420,000 420,000
</TABLE>
Messrs. Hughes, Pair, Rosen, Sandler and Gerrity have 18, 13, 4, 1 and 12 years
of service respectively. "Compensation" covered by the Retirement Plan is equal
to the amounts set forth in the Summary Compensation Table under "Salary."
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 17% of the employee's earnings (but not in excess of
$10,000 per year, adjusted for increases in the cost of living after 1998) for
investment in annuity contracts and mutual funds held by the plan's trust. The
maximum aggregate contribution of all participating employees for any calendar
year may not exceed 20% of the total earnings paid to such participants during
each such year. The Company makes contributions to the plan in an amount equal
to 3% of the earnings of each employee who elects to defer 2% or more of his or
her 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 contributions and in the trust fund's earnings
attributable thereto. The employee has no vested interest in the Company's
contributions and earnings of the trust fund attributable thereto until he or
she completes three years of service with the Company, and is not fully vested
in the Company's contributions and earnings of the trust fund attributable
thereto until he or she has completed seven years of service with the Company.
However, an employee becomes fully vested in the Company's contributions and
earnings of the trust fund attributable thereto on the employee's death,
disability, or reaching the plan's normal retirement age (the later of age 65 or
the completion of five years of service with the Company). An employee may not
withdraw all or any portion of his or her account prior to the date that such
employee either (a) incurs a hardship, or (b) terminates employment 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
17
<PAGE> 19
Company's basic plan. For the fiscal year ended December 31, 1997, the Plan's
cost to the Company was an aggregate of approximately $42,000.
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, 1997, the Plan's
cost to the Company was an aggregate of approximately $26,000.
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, 1997, the Plan's cost to the
Company was an aggregate of approximately $124,000.
(6) EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Effective as of April 3, 1994, the Company entered into a five-year
Employment Agreement with Christopher Pair (the "Pair Agreement"), engaging him
as Executive Vice President of International and Corporate Administration of the
Company. Mr. Pair currently serves as the Company's Executive Vice President and
Chief Operating Officer. For his services, Mr. Pair is entitled to receive an
annual salary of $650,000 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.
Effective as of August 23, 1993, the Company entered into a Restricted
Stock Agreement with Michael Rosen, pursuant to which Mr. Rosen received a
100,000 share restricted stock grant. Such shares vest in cumulative annual
installments of 20%, commencing on August 23, 1994. Under such Restricted Stock
Agreement, if the Company were to terminate Mr. Rosen without cause, or if Mr.
Rosen were to die or retire, in any such event if the event 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. Rosen's
restricted stock grant would fully vest.
In addition, effective as of August 9, 1994, the Company entered into a
Deferred Compensation Agreement with Mr. Rosen, pursuant to which Mr. Rosen has
received and will continue to receive $600,000 in cash deferred compensation
from the Company on each of the first five anniversary dates of such Deferred
Compensation Agreement on which Mr. Rosen remained continuously employed by the
Company. If the Company were to terminate Mr. Rosen without cause (as such term
is defined in the Deferred Compensation Agreement), Mr. Rosen will be deemed to
have earned, as of the termination date, deferred compensation for the year in
which termination occurs in an amount equal to $600,000 prorated on a daily
basis for the number of days in the calendar year through and including the date
of termination. Mr. Rosen is eligible to receive such deferred compensation on
or before the tenth day following the day the deferred compensation is earned,
subject to the right of the Company to delay payment until the Company's
deduction for such payment would no longer be disallowed under Section 162(m) of
the Code. The Company is amending and restating the Deferred Compensation
Agreement in its entirety, effective as of January 1, 1998, to make the
following changes: (1) deferred amounts will bear interest at a rate equal to
the current general account crediting rate on SunLife of Canada's corporate
universal life product, (2) the Company will contribute certain amounts to a
"rabbi trust" whose assets will be used to pay benefits if the Company remains
solvent, but can be reached
18
<PAGE> 20
by the Company's creditors if the Company becomes insolvent, and (3) Mr. Rosen
may elect to receive payments in the form of installments payable over five
years or 10 years, but may receive 90% of the unpaid balance at any time,
provided that such payment would be deductible to the Company and provided that
he would forfeit the remaining 10% of the unpaid balance.
(7) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During 1997, the Company's Compensation Committee consisted of Messrs. Hall
and Miner. No additional information concerning the Compensation Committee or
the Company's executive officers is required by Item 402 of Regulation S-K.
(8) 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.
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 and Annual Incentive Compensation
The base salary of the Chief Executive Officer is established through
negotiations between the Compensation Committee and Mr. Hughes. For 1997, in
order to preserve the tax deductibility of his compensation by the Company, Mr.
Hughes agreed to maintain his base salary at $1,000,000. See "Summary
Compensation Table." Base salaries for each of the other Named Officers were
established through negotiations between Mr. Hughes and each Named Officer. See
"Employment Contracts and Change in Control Arrangements."
In setting Mr. Hughes' annual salary and target incentive compensation for
1998, 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 provided an
opportunity for Mr. Hughes to earn incentive compensation for 1997 based
strictly upon a formula performance measure adopted in accordance with the 1994
Plan.
During 1997, the Compensation Committee utilized an earnings per share
formula to establish target awards under the 1994 Plan, 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. See "Description of Certain
Plans" above. The Company met the earnings per share threshold for 1997, and as
a result bonuses were earned by the Named Officers for the past fiscal year.
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 Option Plan currently permits the granting to
key employees, directors, and consultants of stock options to purchase up to
6,800,000 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. All options granted to executive officers during the
last three
19
<PAGE> 21
years have had an exercise price equal to 100% of fair market value at the time
of grant. During 1997, certain options held by two executive officers were
repriced. See "10 Year Option/SAR's Repricing" above. Beginning in 1996, the
Stock Option Committee began to grant stock options under the Option Plan to Mr.
Hughes, in order to provide him with an additional incentive to promote the
success of the Company. The Compensation and Stock Option Committees believe
that the use of stock options to provide incentive compensation to Mr. Hughes is
appropriate and advisable, since stock options further align Mr. Hughes'
compensation with public shareholders' interests while minimizing the use of
cash resources.
In order to preserve the effectiveness of the Option Plan as an incentive
for executive performance, the Board of Directors, based upon the recommendation
of the Compensation Committee, is seeking shareholder approval of an amendment
to the Company's Option Plan to increase the aggregate number of shares which
may be issued upon exercise of all options under the Option Plan (excluding
shares previously issued upon option exercise but including shares subject to
existing outstanding options) from 6,800,000 to 7,500,000. This amendment to the
Option Plan is further described in Proposal 2.
Tax Issues
For 1998 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. However, no assurance can be given that the Company
will preserve the deductibility of all executive compensation.
COMPENSATION COMMITTEE
Edward J. Hall
Christopher M. Miner
April 21, 1998
20
<PAGE> 22
(9) PERFORMANCE GRAPH
Set forth on the following page 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, 1997 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 commencing January 1, 1994.
<TABLE>
<CAPTION>
Herbalife -
Measurement Period Common Stock Nasdaq Composite
(Fiscal Year Covered) Class A Peer Group Index
<S> <C> <C> <C>
1992 100 100 100
1993 146 117 115
1994 144 134 112
1995 79 171 159
1996 311 215 195
1997 206 188 240
</TABLE>
* Assumes $100 invested on December 31, 1992 in the stock of Herbalife, the
NASDAQ-OTC Composite Index, and peer companies (weighted by market
capitalization).
** Total return assumes reinvestment of dividends.
21
<PAGE> 23
CERTAIN TRANSACTIONS
The Company purchases all its powder products from Raven, one-third of
whose stock is owned by Mark Hughes. In addition, one of the Company's tablet
products, Activated Fiber, is manufactured by D&F pursuant to a licensing
agreement with Dynamic, twenty percent and five percent of whose stock is owned
by Mark Hughes and Dr. David B. Katzin, respectively. Dr. Katzin was a director
of the Company until March 22, 1996 and an executive officer until December 31,
1996, and he is currently the Company's Executive Director of the Medical
Advisory Board. Two individuals (not affiliates of the Company) are principal
stockholders of each of D&F, Raven and Dynamic.
The Company and Mr. Hughes were recently advised by Raven, D&F and Dynamic
that such companies, together with related entities, are in the process of
completing a $225 million bond offering and securing a $50 million secured bank
credit facility. The Company has been advised that a proposed use of proceeds
from this financing is to repurchase the ownership interests in the companies
held by a number of current shareholders, including all of the ownership
interests held by Mr. Hughes and Dr. Katzin. The proposed purchase price for Mr.
Hughes' shares was indicated to be approximately $40 million. The Company was
contacted to secure its consent to the grant of a security interest in the
manufacturers' assets in connection with the proposed bank credit facility;
under the Company's supply agreements with the manufacturers, the granting of
such a security interest requires the Company's consent (which consent may not
be unreasonably withheld). The request for consent has been tentatively approved
by the Company, subject to review of final documents governing the proposed
financing transactions. Mr. Hughes has advised the Company that he has not yet
agreed to the proposed terms of the transactions as they relate to the
repurchase of his ownership interests in Raven and Dynamic, but that discussions
with respect to such terms are continuing. No assurance can be given that any of
the foregoing transactions will be completed or as to their impact, if any, on
the Company.
For the year ended December 31, 1997, the Company's purchases from Raven
and Dynamic amounted to $63.4 million and $3.3 million, respectively. Under the
new three-year supply agreements, the Company is subject to minimum percentage
purchase and other requirements for nutritional supplement, and a small number
of non-nutritional supplement, products falling into specified product
categories. Mr. Hughes' 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 1997, Mr. Hughes' share of the earnings
of Raven and Dynamic totalled $7.8 million and $0.3 million, respectively, and
Dr. Katzin's share of the earnings of Dynamic totalled $77,000. 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.
In accordance with the 1994 Plan, the Company made advances of targeted
performance bonus amounts during 1996 to 1997 to Messrs. Hughes, Pair, Rosen
(1996 only), Sandler (1997 only) and Gerrity (1997 only). As of December 31,
1997, the remaining outstanding principal and accrued interest obligations of
such individuals were $5,571,000 in the case of Mr. Hughes; $948,000 in the case
of Mr. Pair, $165,000 in the case of Mr. Sandler; and $669,000 in the case of
Mr. Gerrity. 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. The rates for existing outstanding advances range
from 5.64% to 5.69%.
The Company has begun steps to pursue an initial public offering of shares
of Herbalife Japan KK ("Herbalife Japan") in Japan. In preparation for the
possible offering, on December 30, 1996 the Company sold shares of Herbalife
Japan to certain of the Company's directors and executive officers, as well as
to resident managers of Herbalife Japan, as an incentive for increased efforts
to facilitate the operation of the Herbalife Japan business and the success of
the offering. The following table lists the purchasers of such
22
<PAGE> 24
shares, the percentage of Herbalife Japan's outstanding shares represented
thereby, and the purchase price paid to the Company by each individual as of the
date of the sale:
<TABLE>
<CAPTION>
PERCENTAGE OF
HERBALIFE JAPAN AGGREGATE
NAME SHARES PRICE(1)
---- --------------- ----------
<S> <C> <C>
Mark Hughes....................... 5.000% $3,300,000
Christopher Pair.................. 0.575 379,500
Michael E. Rosen.................. 0.575 379,500
Timothy Gerrity................... 0.575 379,500
Alan Liker........................ 0.200 132,000
Other............................. 0.075 49,500
----- ----------
Total................... 7.000% $4,620,000
===== ==========
</TABLE>
- ---------------
(1) Purchase price for shares was denominated in Japanese yen; dollar amounts
reflect conversion at the yen-to-dollar exchange rate in effect on the date
of purchase.
The purchase price for the shares was determined, in part, based upon a
formula (the "Formula") prescribed by a Japanese regulatory authority
responsible for certain aspects of public offerings of securities in that
country, as applied to Herbalife Japan's 1995 results of operations. The Board
of Directors of the Company separately sought and obtained a valuation of the
shares from an independent investment banking firm, Houlihan, Lokey, Howard &
Zukin, Inc. ("Houlihan Lokey"), which rendered an opinion to the Board to the
effect that the fair market value of the shares was greater than that determined
under the Formula. Consequently, the purchase price per share was increased to
the fair value of the shares as indicated in the Houlihan Lokey opinion. The
Company's Board of Directors, based in part on the Houlihan Lokey opinion and
the determination of price derived under the Formula (which is utilized
generally in Japan in connection with public offerings) and taking into account
the uncertainty of completion of the offering in Japan and other pertinent
factors, has determined that the purchase price reflects the fair market value
of the shares.
For each of the foregoing individuals, the purchase price for the shares
was paid to the Company approximately 30% in cash and approximately 70% in the
form of a full recourse promissory note bearing interest at 6.31% per annum in
the case of Mr. Hughes (loan denominated in U.S. dollars) and 2.125% per annum
in the case of each individual other than Mr. Hughes (loans denominated in
Japanese yen), with principal and accrued interest payments due over five years
ending December 31, 2002. The aggregate amount outstanding under such promissory
notes at December 31, 1997 was $3.3 million.
In 1997, the Company engaged Mr. Liker, a director of the Company, to
provide consulting services though 1998 in connection with the offering in
Japan. Under the terms of the Company's oral agreement with Mr. Liker, Mr. Liker
is to receive $80,000 in 1997 and $80,000 in 1998 from the Company for such
services.
The Company has not yet determined whether and when to seek to complete an
initial public offering of Herbalife Japan shares. Such determination will be
based, among other things, on economic and financial market conditions in Japan.
There can be no assurance that the Company will seek to complete an initial
public offering in Japan, that the Company will obtain the necessary regulatory
approvals to proceed with such an offering or that any such offering will be
successfully completed. Further, the Company cannot predict the valuation of
Herbalife Japan that would be achieved in such an offering it the impact of such
an offering on the Company's financial condition or results of operations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 1997, the Company believes, based solely on a review of Forms 3, 4
and 5 (including amendments) with which it has been furnished, that all required
Section 16(a) filings relating to the Company were timely made.
23
<PAGE> 25
PROPOSAL 2
APPROVAL OF AMENDED AND RESTATED 1991 STOCK OPTION PLAN
BACKGROUND
The Option Plan currently provides that the aggregate number of shares of
Common Stock that may be issued upon the exercise of all options under the Plan
excluding shares previously issued upon exercise, but including shares subject
to existing outstanding options, shall not exceed Six Million Eight Hundred
Thousand (6,800,000). As of April 9, 1998, 632,187 shares had been issued
pursuant to the Option Plan and an additional 5,922,127 shares were subject to
outstanding options.
DESCRIPTION OF OPTION PLAN AMENDMENTS
The terms of the Option Plan and the proposed amendment thereto is
described above under "Executive Compensation -- Description of Certain
Plans -- Stock Option Plan." That description and the description of the
following proposed amendment to the Option Plan is subject to the full text of
the Option Plan.
The proposed amendment to the Option Plan would provide that the aggregate
number of shares of Common Stock that may be issued under the Option Plan,
excluding shares issued upon the exercise of options prior to the adoption of
the proposed amendment to the Option Plan by the Board of Directors on April 9,
1998, but including shares issuable upon exercise of options outstanding on that
date, shall not exceed Seven Million Five Hundred Thousand (7,500,000). This
would permit the issuance of options with respect to approximately One Million
Six Hundred Thousand (1,600,000) additional shares of Common Stock. The effect
of the proposed amendment is to preserve the benefits to the Company of the
Option Plan by ensuring that employees, consultants and directors who are
eligible to receive options to purchase shares of Common Stock pursuant to the
Option Plan may continue to receive such options. Without such amendment, the
Company would, in the near future, reach the limit of authorized shares which
may be validly issued upon exercise of all options under the Option Plan.
In 1996, the Compensation Committee of the Board of Directors began to
award Mr. Hughes stock options, and the Committee intends to continue to
consider Mr. Hughes for future grants of stock options in recognition of his
contributions to the Company's financial performance. The Compensation Committee
expects to grant stock options to Mr. Hughes at levels deemed appropriate by the
Committee in the future.
OPTION GRANT INFORMATION
The following table sets forth the number of stock options received through
April 9, 1998 under the Option Plan by the Named Officers and all current
executive officers and directors a group.
TOTAL OPTIONS GRANTED UNDER OPTION PLAN
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON
NAME STOCK OPTIONS STOCK OPTIONS
---- -------------- --------------
<S> <C> <C>
Mark Hughes................................... 500,001 999,999
Christopher Pair.............................. 275,001 549,999
Michael E. Rosen.............................. 149,999 300,001
Robert A. Sandler............................. 108,333 216,667
Timothy Gerrity............................... 116,667 233,333
Edward J. Hall................................ 8,333 16,667
Alan Liker.................................... 8,333 16,667
Christopher M. Miner.......................... 8,333 16,667
--------- ---------
All Current Executive Officers and Directors
as a Group (8 Persons)...................... 1,175,000 2,350,000
========= =========
</TABLE>
24
<PAGE> 26
VOTE REQUIRED
Approval of the Board of Directors' action in amending the Option Plan
requires the affirmative vote of the holders of at least a majority of the
shares of outstanding Class A Common Stock represented and voting at the Meeting
and cast on this Proposal 2. Broker abstentions and non-votes will have the
effect of a vote against the Proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
THE PROPOSED AMENDMENT TO THE OPTION PLAN AND, UNLESS DIRECTED OTHERWISE, IT IS
THE INTENTION OF THE PROXIES NAMED IN THE FORM OF PROXY THAT ACCOMPANIES THIS
PROXY STATEMENT TO VOTE FOR THE APPROVAL OF SUCH ADOPTION.
INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP ("D&T") has audited the financial
statements of the Company for the year ended December 31, 1997. 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 1999 must be received by the Company at its
principal executive office shown on the first page of this Proxy Statement no
later than December 31, 1998, in order to be included in the proxy material for
the 1999 meeting.
1997 ANNUAL REPORT
On March 5, 1998, the Company filed with the Securities and Exchange
Commission its Annual Report on Form 10-K for the fiscal year ended December 31,
1997. Copies of the 1997 Form 10-K may be obtained without charge by writing to
Herbalife International, Inc., 1800 Century Park East, Century City, California
90067, Attention: Investor Relations.
BY ORDER OF THE BOARD OF DIRECTORS
CHRISTOPHER PAIR
SECRETARY
25
<PAGE> 27
HERBALIFE INTERNATIONAL, INC.
1800 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Christopher Pair and Robert A. Sandler,
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 Class A Common Stock of Herbalife International, Inc. held of
record by the undersigned on April 15, 1998 at the Annual Meeting of
Shareholders to be held on May 21, 1998 or at any adjournment or postponement
thereof, with the same authority as if the undersigned were personally present.
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
Mark Hughes, Christopher Pair, Michael E. Rosen,
Edward J. Hall, Alan Liker and Christopher M. Miner
(Instructions: To withhold authority to vote for any individual nominee, write
the nominee's or nominees' name(s) on the line below)
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
2. AMENDMENT TO AMENDED AND RESTATED 1991 STOCK OPTION PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting.
(Date and Sign on Reverse Side)
<PAGE> 28
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 AND IN FAVOR OF THE
AMENDMENT TO THE AMENDED AND RESTATED 1991 STOCK OPTION PLAN.
Date: ____________ , 1998
-------------------------
Signature
-------------------------
Signature if held jointly
Please sign exactly as
name (or names) appear(s)
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.
PLEASE MARK, SIGN, DATE, AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE.
