HERBALIFE INTERNATIONAL INC, 424B4, 1998-03-27

HERBALIFE INTERNATIONAL INC
424B4, 1998-03-27
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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<PAGE> 1
As filed pursuant to Rule 424(b)(4)
Registration No. 333-46201

PROSPECTUS LOGO

5,000,000 SHARES

HERBALIFE INTERNATIONAL, INC.
CLASS B COMMON STOCK
($.01 PAR VALUE)
------------------

Pursuant to the terms of the DECS(SM) (the "DECS") representing beneficial
ownership interests in DECS Trust III, a Delaware business trust (the "Trust"),
the Trust may distribute to the holders of the DECS non-voting Class B Common
Stock, par value $.01 per share (the "Class B Stock"), of Herbalife
International, Inc. ("Herbalife" or the "Company") on or about February 15, 2001
(the "Exchange Date"), or upon earlier liquidation of the Trust in certain
circumstances. This Prospectus relates to the distribution by the Trust pursuant
to DECS of up to 5,000,000 shares of Class B Stock, plus up to an additional
750,000 shares of Class B Stock, in the aggregate, that may be delivered
pursuant to DECS issued to cover over-allotments and DECS subscribed for and
purchased by Smith Barney Inc. ("Smith Barney") in connection with the
organization of the Trust, that the Trust may receive from certain personal
holding companies controlled by Mark Hughes, the Company's principal
stockholder, Chairman of the Board, Chief Executive Officer and President (such
companies, together with Mr. Hughes and certain other entities controlled by Mr.
Hughes, the "Selling Stockholder"; see "Selling Stockholder"), under the terms
of separate purchase contracts dated March 25, 1998 between the Selling
Stockholder and the Trust (collectively, the "Contract"). This Prospectus
accompanies a Prospectus of the Trust (the "DECS Prospectus") relating to the
sale of 5,000,000 DECS, plus up to an additional 749,996 DECS solely to cover
over-allotments (the "DECS Offering"). The Company will not receive any of the
proceeds from the sale of the DECS or delivery thereunder of the Class B Stock
to which this Prospectus relates. See "Use of Proceeds." Neither the Company nor
the Selling Stockholder takes any responsibility for any information included in
or omitted from the DECS Prospectus. The DECS Prospectus does not constitute a
part of this Prospectus nor is it incorporated by reference herein.

The Company, its directors and executive officers, and the Selling
Stockholder have agreed, subject to certain exceptions, not to sell, without the
prior written consent of Smith Barney, any of the Company's Class A Common
Stock, par value $.01 per share (the "Class A Stock"), or Class B Stock or any
securities convertible into or exercisable or exchangeable for Class A Stock or
Class B Stock, for a period of 90 days, in the case of the Company and its
directors and executive officers (other than the Selling Stockholder), and one
year, in the case of the Selling Stockholder, after the date of this Prospectus.
See "Plan of Distribution."

In connection with market-making activities in the DECS, Smith Barney may,
subject to certain limitations, from time to time, borrow, return and reborrow
up to 1,000,000 shares of Class B Stock from the Selling Stockholder. See "Plan
of Distribution." Smith Barney is not under any obligation to engage in any such
market-making activities with respect to the DECS, and any such market-making
activities in the DECS actually engaged in by Smith Barney may cease at any
time. The Registration Statement of which this Prospectus forms a part includes
an additional Prospectus relating to shares of Class B Stock which may be
offered and sold by Smith Barney pursuant to such market-making activities.

The Class B Stock is listed for trading on the Nasdaq National Market
System under the symbol "HERBB." On March 25, 1998, the last reported sale price
of the Class B Stock on the Nasdaq National Market System was $23 1/8 per share.
See "Price Range of the Common Stock."

"DECS(SM)" is a service mark of Salomon Brothers Inc.

See "Risk Factors" beginning on page 9 for a discussion of certain factors
that should be carefully considered by prospective purchasers.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

March 25, 1998
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THE DECS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS
A STOCK, THE CLASS B STOCK OR THE DECS, INCLUDING PURCHASES OF THE CLASS B STOCK
OR THE DECS TO STABILIZE THEIR MARKET PRICES AND PURCHASES OF THE CLASS B STOCK
OR THE DECS TO COVER SOME OR ALL OF SHORT POSITIONS IN THE CLASS B STOCK OR THE
DECS MAINTAINED BY THE RESPECTIVE UNDERWRITERS OF THE DECS OFFERING AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."

IN CONNECTION WITH THE DECS OFFERING, CERTAIN UNDERWRITERS (AND SELLING
GROUP MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS B
STOCK, THE CLASS A STOCK OR THE DECS ON THE NASDAQ NATIONAL MARKET SYSTEM IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "PLAN OF DISTRIBUTION."

FORWARD-LOOKING STATEMENTS

Certain information contained in, or incorporated by reference into, this
Prospectus includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and is subject to the safe
harbor created by that Act. These forward-looking statements include, but are
not limited to, statements concerning the opening of new markets, the
introduction of new products and the like, and are generally identified by
phrases such as "the Company expects," "the Company believes," "Management
expects," "Management believes" and words of similar import. There are several
important factors that could cause actual results to differ materially from
those anticipated by the forward-looking statements contained in such
discussions. Additional information about these factors is contained in the
discussions in the "Risk Factors" beginning on page 9 and elsewhere in this
Prospectus and in documents incorporated by reference into this Prospectus.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of the reports, proxy statements and other information may be obtained
from the Public Reference Section of the Commission, at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports, proxy statements and other information concerning the Company are also
available for inspection at the offices of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C., 20006. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company.

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities to which this Prospectus
relates. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules filed as a part thereof. For further
information about the Company and the securities to which this Prospectus
relates, reference is made to the Registration Statement and to the financial
statements, exhibits and schedules filed therewith or incorporated by reference
therein. The statements contained in this Prospectus about the contents of any
contract or other document referred to herein are not necessarily complete, and
where such contract or other document is filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which reference is hereby made for a full statement of the
provisions thereof. The Registration Statement, including the exhibits and
schedules filed as a part thereof or incorporated by reference therein, may be
inspected without charge at the public reference facilities maintained by the
Commission as set forth in the preceding paragraph. Copies of these documents
may be obtained from the Commission at its principal office in Washington, D.C.
upon payment of the charges prescribed by the Commission.

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DOCUMENTS INCORPORATED BY REFERENCE

The following documents have been filed with the Commission by the Company
and are incorporated herein by reference and made a part hereof: (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1997; (ii)
the description of the Company's Class A Common Stock contained in the Company's
Registration Statement on Form 8-A/A filed December 12, 1997; and (iii) the
description of the Company's Class B Common Stock contained in the Company's
Registration Statement on Form 8-A filed December 12, 1997.

All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering to which this Prospectus relates
shall be deemed to be incorporated in this Prospectus by reference and to be a
part hereof from the respective dates of filing of such documents. The Company
will provide, without charge to any person to whom a copy of this Prospectus is
delivered, upon the written or oral request of such person, a copy of any
document incorporated by reference herein other than exhibits to such documents
unless such exhibits are specifically incorporated by reference in such
document. Requests should be directed to Herbalife International, Inc., 1800
Century Park East, Los Angeles, California 90067, Attention: General Counsel
(telephone: (310) 410-9600).

Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
------------------

"DECS(SM)" is a service mark of Salomon Brothers Inc.

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<PAGE> 4

PROSPECTUS SUMMARY

The following information is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus. Unless the context otherwise requires, references
to the "Company" include Herbalife International, Inc. and its consolidated
subsidiaries. Unless otherwise indicated, all information contained herein
assumes no exercise of the underwriters' over-allotment option in the DECS
Offering. See "Plan of Distribution."

THE COMPANY

Herbalife is a network marketing company that sells a wide range of weight
management products, food and dietary supplements and personal care products
worldwide. As of December 31, 1997, the Company conducted business in 36
countries located in Asia/Pacific Rim, Europe and The Americas. Retail sales in
those regions represented 43.2%, 30.4% and 26.4%, respectively, of the Company's
total retail sales in 1997.

The Company has experienced substantial growth in retail sales and net
income in recent years. From 1992 to 1997, the Company's retail sales grew from
$405.1 million to $1.49 billion, representing a compound annual growth rate of
29.8%. From 1992 to 1997, the Company's net income grew from $20.1 million to
$54.7 million, representing a compound annual growth rate of 22.2%.

The Company's products are marketed exclusively through a network marketing
system. This system enables the Company's independent distributors to earn
profits by selling Herbalife products to retail consumers or other distributors.
Distributors may also develop their own distributor downline organizations by
sponsoring other distributors to do business in any market where the Company
operates, entitling the sponsors to receive royalty overrides (cash incentives,
including royalties and bonuses) on product sales within their downline
organizations.

Management believes that Herbalife's network marketing system is ideally
suited to its products, which emphasize a healthy lifestyle, because sales of
such products are strengthened by ongoing personal contact between retail
consumers and distributors, many of whom use the Company's products themselves.
The Company's network marketing system appeals to a broad cross-section of
people throughout the world, particularly those seeking to supplement family
income, start a home business or pursue employment opportunities other than
conventional, full-time employment.

KEY OPERATING STRENGTHS

The Company believes the source of its success is its commitment to serving
the needs of its distributors. The Company provides its distributors with high
quality products and an appealing network marketing system that combines a
highly attractive compensation program with extensive Company-sponsored training
and motivational events and services. The Company has established a strong
operating platform to support distributors and facilitate future growth. The key
components of this platform include the following:

High Quality, Healthy Lifestyle Products. The Company offers high quality
weight management, food and dietary supplement and personal care products, many
of which emphasize herbs and other natural ingredients in order to appeal to
consumer demand for products that contribute to a healthy lifestyle. These three
product categories represented 67.8%, 16.4% and 11.3%, respectively, of total
retail sales in 1997.

Attractive Distributor Compensation Program. The Company believes that it
offers one of the most financially rewarding compensation programs in the
network marketing industry. Combining the various sources of earnings available
to the Company's distributors, the Company's total "pay-out" (including
distributor allowances) on products subject to distributor royalty overrides is
approximately 72% of the Company's suggested retail sales price (before
reflecting a 6% handling fee paid by distributors).

Comprehensive Distributor Support Services. The Company is committed to
training and motivating its distributors and providing ongoing support. The
Company regularly conducts motivational events and training programs, both live
and via the Herbalife Broadcast Network ("HBN"). The Company also utilizes
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teleconferences and a wide range of promotional literature (including catalogs
and newsletters), all in multiple languages and tailored to meet the particular
needs of Herbalife distributors worldwide. In addition to over one hundred
Company-sponsored live events each month, distributors themselves conduct
several thousand local training and motivational events each month.

Proven New Market Expansion Program. The Company has developed a
systematic, proven approach to opening new markets. With the advice of local
legal counsel and other advisors, the Company conducts a detailed analysis of
the new market's regulatory framework, modifies its products and marketing
system as necessary to obtain required regulatory approvals and establishes
plans for product distribution and distributor services within the new market.

GROWTH STRATEGY

The Company plans to continue capitalizing on its strong operating platform
and intends to pursue a growth strategy comprised of the following four
principal elements:

Expand Product Offerings and Develop New Product Lines. The Company is
committed to expanding its product line by developing and offering new products
and introducing existing products into markets where they are not currently
offered. The timely introduction of new, high quality products creates sales
opportunities for distributors, and also serves to generate enthusiasm among
distributors and provide them with additional promotional opportunities to sell
other Company products. During 1997, the Company introduced 17 new products
(exclusive of flavor and color variations) and during 1998 the Company intends
to introduce up to 40 new products (exclusive of flavor and color variations) in
selected markets, including several additions to the weight management program,
an important new line of personal care products and a new line of water
purification systems. The Company will also seek to introduce additional new
product lines in the future, including household products.

Revitalize Sales in Certain Existing Markets. Management continually seeks
to revitalize sales in markets, such as France, Germany, Italy and Spain, that
have experienced an initial period of growth followed by a leveling off or
decline in sales (see "Business -- Geographic Areas of Operations") by, among
other things, providing extensive training and motivational program support to
distributors. In addition, the Company has created regional planning and
strategy groups that include senior members of the Company's distributor base,
increased focus on governmental relations and hired additional distributor
support representatives. The Company also seeks to introduce annually in each
targeted market additional products not previously offered. In certain markets,
the Company has enhanced its presence and visibility by opening new, more
attractive and conveniently located distributor sales centers. The Company
believes that these initiatives favorably impact operations and the Company will
continue to deploy these initiatives in an effort to provide a platform for
renewed growth in the targeted markets in the future.

Expand Into New Markets. The opening of new markets is an important
component of the Company's business strategy. The Company believes there are
numerous additional markets in which its network marketing system and products
should prove successful. The Company opened new markets, Thailand and Chile, in
1997 and plans to open Turkey and Indonesia in 1998. Additional new markets
currently under consideration include China, India, Colombia and Ecuador. The
Company evaluates these and other new markets based, in part, on the Company's
ability to efficiently create a distributor base in potential markets. In
determining when and where to open new markets, the Company will continue to
seek to minimize the impact

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on distributor focus in existing markets and to ensure that adequate distributor
support services and other Company systems are in place to support the growth.

Enhance Sales and Motivational Training. The Company will continue to seek
to increase sales through its network marketing system by utilizing extensive
training and motivational programs. The Company will also produce extravaganzas
and other large scale events and numerous training and motivational programs
worldwide. In addition, the Company will continue to offer extensive training
programs through various methods of telecommunication, including broadcast
faxes, pre-recorded telephone message services and live multi-lingual
teleconferences on a global basis, and will seek to expand the motivational and
training programming and audience of the HBN network. Approximately 20,000 HBN
home systems are currently in place. The Company believes distributors
frequently invite other distributors and customers into their homes to view the
2 to 3 hours of HBN network programming available each week.

RECENT DEVELOPMENTS

In December 1997, the Company's common stock, par value $.01 per share (the
"Old Common Stock") was reclassified into voting Class A Stock and non-voting
Class B Stock. The reclassification of the Old Common Stock is referred to
herein as the "Recapitalization," and the Class A Stock and Class B Stock are
together referred to herein as the "Common Stock." See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent
Developments and Outlook" for a more detailed description of the
Recapitalization.

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THE OFFERING

PLAN OF DISTRIBUTION....... The DECS are being offered by the Trust in the DECS
Offering pursuant to the DECS Prospectus.
Pursuant to the terms of the DECS, the Trust will
distribute to holders of the DECS on the Exchange
Date shares of Class B Stock (or at the Selling
Stockholder's option, the cash equivalent
thereof) and/or such other consideration as is
delivered by the Selling Stockholder to the Trust
(the "Offering"). This Prospectus relates to the
delivery by the Trust pursuant to the DECS of up
to 5,000,000 shares of Class B Stock, plus up to
an additional 750,000 shares of Class B Stock
that may be delivered pursuant to (a) DECS that
may be issued to cover over-allotments and (b)
DECS subscribed for and purchased by Smith Barney
in connection with the organization of the Trust,
that the Trust may receive from the Selling
Stockholder under the terms of the Contract. For
a description of certain relationships between
the Selling Stockholder and the Company, see
"Certain Transactions."

SELLING STOCKHOLDER........ The Selling Stockholder in this offering is Mark
Hughes, the principal stockholder, Chairman of
the Board, Chief Executive Officer and President
of the Company, together with certain personal
holding companies and other entities controlled
by Mr. Hughes. See "Selling Stockholder." As of
February 23, 1998, Mr. Hughes beneficially owned
5,666,932 shares of the Class A Stock and
11,333,866 shares of Class B Stock (which amounts
include 183,333 shares of Class A Stock and
366,666 shares of Class B Stock held by a
charitable foundation of which Mr. Hughes is a
director but with respect to which Mr. Hughes has
no pecuniary interest), representing 57.2% and
58.2% of the Company's outstanding Class A Stock
and Class B Stock, respectively. Assuming the
delivery to the Trust of the maximum number of
shares of Class B Stock that may be required by
the Selling Stockholder to satisfy the Contract
(assuming full exercise of the over-allotment
option in the DECS Offering), Mr. Hughes would
beneficially own 5,583,866 shares of Class B
Stock (including the foundation-owned shares
referred to above), representing 28.7% of the
Company's outstanding Class B Stock as of
February 23, 1998. During the term of the DECS
and the Contract, Mr. Hughes will retain the
right to receive dividends on the shares of Class
B Stock subject to the Contract. See "Plan of
Distribution."

USE OF PROCEEDS............ All of the shares of Class B Stock covered by this
Prospectus are beneficially owned by Mr. Hughes,
who may cause to be delivered such shares to the
Trust pursuant to the Contract. See "Plan of
Distribution." The Company will not receive any
of the proceeds from the sale of the DECS or the
delivery thereunder of the Class B Stock to which
this Prospectus relates. See "Use of Proceeds."

NASDAQ NATIONAL MARKET
SYSTEM SYMBOL OF THE CLASS
B STOCK.................. HERBB

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Retail sales............................. $693,015 $884,058 $923,644 $1,200,144 $1,490,693
Less--Distributor allowances on product
purchases.............................. 328,270 417,177 434,640 568,209 708,241
-------- -------- -------- ---------- ----------
Net sales................................ 364,745 466,881 489,004 631,935 782,452
Cost of sales............................ 103,834 130,707 143,557 168,432 205,070
Royalty overrides........................ 107,381 125,820 138,940 184,669 233,883
-------- -------- -------- ---------- ----------
Gross Profit............................. 153,530 210,354 206,507 278,834 343,499
Marketing, distribution and
administrative expenses................ 88,918 139,629 176,046 210,087 257,514
Restructuring expense.................... -- -- 2,300 -- --
Interest income--net..................... 1,729 2,919 3,404 4,084 4,535
-------- -------- -------- ---------- ----------
Income before income taxes and minority
interest............................... 66,341 73,644 31,565 72,831 90,520
Income taxes............................. 25,160 27,616 11,837 28,040 34,850
Minority interest........................ -- -- -- -- 1,003
-------- -------- -------- ---------- ----------
Net income............................... $ 41,181 $ 46,028 $ 19,728 $ 44,791 $ 54,667
======== ======== ======== ========== ==========
Earnings per share:
Basic.................................. $ 1.52 $ 1.54 $ 0.66 $ 1.50 $ 1.81
Diluted................................ $ 1.47 $ 1.50 $ 0.65 $ 1.43 $ 1.72
Cash dividends per common share.......... $ 0.49 $ 0.80 $ 0.74 $ 0.60 $ 0.60
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------------------------------------------------
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Approximate number of supervisors.................. 41,000 75,000 90,000 99,000 115,000 139,000
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Number of countries................................ 16 24 32 34 36
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities... $ 79,354 $ 59,113 $104,226 $131,039 $122,707
Working capital.................................... 72,723 89,825 85,126 109,662 125,986
Total assets....................................... 130,820 174,057 207,690 269,114 314,580
Long-term obligations.............................. 994 1,014 1,779 2,306 2,666
Stockholders' equity............................... 81,202 109,815 109,530 138,468 154,733
</TABLE>

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RISK FACTORS

Prior to making an investment decision, prospective investors should
consider carefully the information set forth below, as well as the other
information contained in this Prospectus.

DEPENDENCE ON DISTRIBUTORS

The Company's success depends in significant part upon its ability to
attract, maintain and motivate a large base of distributors. In its efforts to
attract and retain distributors, the Company competes with other network
marketing organizations, including those in the weight management, food and
dietary supplement and personal care product industries. In addition, as a
result of the Company's network marketing system and its international
sponsorship program, the distributor organizations headed by a relatively small
number of key distributors are responsible for a significant percentage of total
retail sales (in many cases, including retail sales in several different
countries). The Company does not believe that the loss of any key distributor
would necessarily result in the loss of a significant number of that
distributor's downline organization members because of the Company's generally
good relations with its distributors and because of the significant incomes that
many distributors would forego by ceasing to distribute the Company's products.
However, the loss of a key distributor, together with a significant number of
downline distributors, or the loss of a significant number of distributors for
any reason, could materially adversely affect sales of the Company's products
and could impair the Company's ability to attract new distributors.

The Company's ability to attract and retain distributors has been and could
again be negatively affected by adverse publicity and regulatory action relating
to the Company, its products or its operations, including its network marketing
system. In the mid-1980s, the Company's products and marketing system became the
subject of regulatory scrutiny in the United States, resulting in large part
from claims and representations made about the Company's products (including
impermissible therapeutic claims). The resulting adverse publicity caused a
rapid, substantial loss of distributors in the United States and a corresponding
reduction in sales beginning in 1985. More recently, adverse publicity in other
markets, including Brazil, France and Germany, contributed to a loss of
distributors and a decline in sales in those markets. See "-- Sales and Earnings
Volatility." The Company expects that its business in particular markets will,
from time to time, continue to be adversely affected by negative publicity or
regulatory action. See "Business -- Network Marketing System; Geographic Areas
of Operations; Regulation; Growth Strategy."

REGULATION

In both its United States and foreign markets, the Company is subject to
and affected by extensive governmental regulations, including, among other
things, regulations pertaining to (i) the formulation, manufacturing, packaging,
labeling, distribution, importation, sale and storage of the Company's products,
(ii) product claims and advertising (including direct claims and advertising by
the Company, as well as claims and advertising by distributors for which the
Company may be held responsible), (iii) the Company's network marketing system,
(iv) transfer pricing and similar regulations that affect the level of foreign
taxable income and customs duties, and (v) taxation of distributors, which in
some instances may impose an obligation on the Company to collect the taxes and
maintain appropriate records. See "Business -- Regulation."

The Company could be found not to be in compliance with existing
regulations as a result, among other things, of the ambiguous nature of certain
of the regulations, the considerable interpretive and enforcement discretion
given to regulators or misconduct by distributors, who are generally independent
contractors over whom the Company has limited control. Enforcement actions that
could be undertaken by state and federal regulators include product seizures,
injunctions against further product distribution, requests for product recall,
and possible criminal prosecution. Any assertion or determination that the
Company or its distributors are not in compliance with existing regulations
could have a material adverse effect on the Company. The Company's business has
been materially, adversely affected in the past as a result of regulatory
activities. See "-- Sales and Earnings Volatility."

In addition, the adoption of new regulations in the United States or in any
of the Company's international markets, or changes in the interpretation of
existing regulations, could have a material adverse effect on the
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<PAGE> 10

Company. For example, in September 1997 the United States Food and Drug
Administration (the "FDA") issued regulations governing the labeling and
marketing of dietary supplement products. The regulations cover: 1) the
identification of dietary supplements and their nutrition and ingredient
labeling; 2) the terminology to be used for nutrient content claims, health
content claims, and statements of nutritional support; 3) labeling requirements
for dietary supplements for which "high potency" and "antioxidant" claims are
made; 4) notification procedures for statements on dietary supplements; and 5)
premarket notification requirements for new dietary ingredients in dietary
supplements. The notification procedures became effective in November, 1997,
while the new labeling requirements will not become effective until March 1999.
The Company will be required to revise a substantial number of its product
labels to reflect the new requirements prior to the 1999 effective date,
although the Company does not expect the cost or impact of such actions to be
material. In addition, the Company will be required to continue its ongoing
program of securing substantiation of its product performance claims, and of
notifying the FDA of certain types of performance claims made for its products.

In addition, in certain markets, including the U.S., claims made with
respect to weight management, dietary supplement, personal care or other
products of the Company may change the regulatory status of the products. In the
U.S., for example, it is possible that the FDA could take the position that
claims made in connection with certain of the Company's products place those
products within the scope of an FDA "over-the counter" (OTC) drug monograph. See
"Business -- Regulation." OTC monographs prescribe permissible ingredients and
appropriate labeling language, and require the marketer or supplier of the
products to register and file annual drug listing information with the FDA. A
limited number of the products sold by the Company are labeled as OTC monograph
drugs, and the Company believes that it is in compliance with the applicable
monographs. In the event that the FDA asserted that product claims for other
products caused them to fall within the scope of OTC monographs, the Company
would be required either to comply with the applicable monographs or change the
claims made in connection with the products. There can be no assurance that the
Company could do so effectively, or that any such changes would not adversely
affect sales and marketing of an affected product.

The U.S. Federal Trade Commission ("FTC"), which exercises jurisdiction
over the advertising of all the Company's products, has in the past several
years instituted enforcement actions against several dietary supplement
companies for false and misleading advertising of certain products. These
enforcement actions have resulted in consent decrees and monetary payments by
the companies involved. In addition, the FTC has increased its scrutiny of the
use of testimonials, which are utilized by the Company. While the Company has
not been the target of FTC enforcement action for the advertising of its
products, there can be no assurance that the FTC will not question the Company's
advertising or other operations in the future.

As a marketer of food and dietary supplements and other products that are
ingested by consumers, the Company is subject to the risk that one or more of
the ingredients in its products may become the subject of adverse regulatory
action. For example, one of the ingredients in the Thermojetics(R) original
green herbal tablet is a Chinese herb, Ma Huang, which contains
naturally-occurring ephedrine in small quantities. Ephedrine products have been
the subject of adverse publicity in the United States and other countries
relating to alleged harmful effects, including the deaths of several
individuals. In response to potential federal regulatory proposals that may have
affected the sale of the Thermojetics(R) original green herbal tablet in the
United States, the Company suspended sales of the product for approximately
three months commencing in July 1995 and introduced a reformulated herbal green
tablet that did not contain Ma Huang. When no such regulations were proposed or
issued at that time, the Company renewed sales of Thermojetics(R) original green
herbal tablets in the United States in October 1995 (except in certain states in
which regulations may prohibit or restrict the sale of such product). The
Thermojetics(R) original green herbal tablet accounted for 2.4% and 2.2% of
total retail sales in 1996 and 1997, respectively, although the marketing of the
Thermojetics(R) weight management tablets (original green, green, beige and
yellow) and other products in the Thermojetics(R) line have contributed
significantly to the Company's retail sales. The Company also previously offered
the Thermojetics(R) original green herbal tablet in Canada but, in response to
Canadian marketing issues and regulatory concerns, suspended sales of the
product in February, 1994.

10
<PAGE> 11

The FDA has on record a small number of reports of adverse reactions
allegedly resulting from the ingestion of Ma Huang contained in the Company's
Thermojetics(R) original green tablet. In addition, the Company is a defendant
in three actions alleging adverse reactions to consumption of its original green
Thermojetics(R) product. See "Business -- Regulation." The Company has not
received any communications from the FDA with respect to these reports. However,
many other companies manufacture products containing various amounts of Ma Huang
and the FDA has on record hundreds of reports of adverse reactions to these
products. On April 10, 1996, the FDA issued a statement warning consumers not to
purchase or ingest dietary supplements containing ephedrine that are claimed to
produce such effects as euphoria, heightened awareness, increased sexual
sensations or increased energy, because these products pose significant adverse
health risks, including dizziness, headache, gastrointestinal distress,
irregular heartbeat, heart palpitations, heart attack, strokes, seizures,
psychosis and death. The Company does not market its Ma Huang product with any
of these claims.

On June 4, 1997, the FDA issued a proposed regulation for dietary
supplements containing ephedrine alkaloids. The proposed regulation would
prohibit dietary supplements containing eight milligrams or more of ephedrine
alkaloids per serving, and would not permit such products to contain any other
stimulant, diuretic or laxative ingredients. In addition, labeling of
supplements would be prohibited from suggesting or recommending conditions of
use that would result in an intake of eight milligrams or more of ephedrine
alkaloids within a six-hour period, or a total daily intake of 24 milligrams or
more. The FDA proposal would also require a warning not to take the product for
more than seven days, and would prohibit the supplements from being represented,
either expressly or implicitly, as being suitable for long-term uses, such as
for weight loss or body building. Similarly, claims for increased energy,
increased mental concentration, or enhanced well-being that encourage the
consumer to take more of the product to achieve more of the purported effect
would be required to be accompanied by a warning stating that taking more than
the recommended serving may cause a heart attack, stroke, seizure, or death.

The Company is reviewing the possible impact of the FDA proposal, if it is
finalized in its current form, upon the Company's continued marketing of its
Thermojetics(R) original green tablet. In response to the proposal, or to a
final regulation which is substantially similar to the proposal, the Company may
be required to: (i) withdraw or reformulate its product with reduced ephedrine
levels, or with a substitute for Ma Huang, (ii) relabel its product with
different warnings or revised directions for use, (iii) not make certain
statements, possibly including weight loss, with respect to any product
containing Ma Huang and/or (iv) withdraw its product from the weight management
program and reposition it in a different category. Even in the absence of an FDA
final regulation, the Company may elect to reformulate and/or relabel its
product containing Ma Huang. While the Company believes that its Ma Huang
product could be reformulated and relabeled, there can be no assurance in that
regard or that reformulation and/or relabeling would not have an adverse effect
on sales of such product or related products within the Thermojetics(R) Weight
Management Program, even though such products do not contain Ma Huang. During
1996 and 1997, the Company's 14 weight management products contributed 71.2% and
67.8%, respectively, of total sales.

Governmental regulations in countries where the Company plans to commence
or expand operations may prevent or delay entry into the market. In addition,
the Company's ability to sustain satisfactory levels of sales in its markets is
dependent in significant part on its ability to introduce additional products
into such markets. However, government regulations in the Company's markets,
both domestic and international, can delay or prevent the introduction, or
require the reformulation or withdrawal, of certain of the Company's products.
For example, during the third quarter of 1995, the Company received inquiries
from certain government agencies within Germany and Portugal regarding the
Company's product, Thermojetics(R) Instant Herbal Beverage, relating to the
caffeine content of the product and the status of the product as an "instant
tea," which was disfavored by regulators, versus a "beverage." The sale of this
product in these countries was subsequently suspended by the Company at the
request of the regulators. Further, such regulatory action, whether or not it
results in a final determination adverse to the Company, could create negative
publicity (as it did in Germany with respect to Thermojetics(R) Instant Herbal
Beverage), with detrimental effects on the motivation and recruitment of
distributors and, consequently, on sales. See "Business -- Regulation;
Geographic Areas of Operations."

11
<PAGE> 12

The Company may be subject to challenges to the legality of its network
marketing system based on claims that such system is an illegal "pyramid scheme"
or similar allegations. For example, see the discussion of Webster v.
Omnitrition International, Inc. in "Business -- Regulation." While the Company
believes that its network marketing system complies with all applicable laws,
there can be no assurance that such challenges will not be made or made
successfully or that other legal developments in this area will not have a
material adverse effect on the Company.

DEPENDENCE ON KEY PERSONNEL

The business of the Company, particularly the operation of its distributor
network, is substantially dependent upon the active participation of Mark
Hughes, the Company's principal stockholder, Chairman of the Board, Chief
Executive Officer and President. The loss of Mr. Hughes' services would
adversely affect the business of the Company. The Company does not maintain key
man life insurance on Mr. Hughes.

SALES AND EARNINGS VOLATILITY

The Company's sales and earnings have been subject to significant
volatility in the past. In the mid-1980s, the Company's products and network
marketing system became the subject of regulatory scrutiny in the United States
resulting in large part from claims and representations made about the Company's
products, including impermissible therapeutic claims. Although the Company
responded by instituting certain regulatory compliance measures (see
"Business -- Regulation"), as a result of the adverse publicity generated by the
regulatory activities the Company experienced, beginning in 1985, a rapid,
substantial loss of distributors in the United States and a corresponding
reduction in sales. In addition, the Company's sales in the United States were
adversely affected by competition from other weight management products. As a
consequence, from 1987 (the Company's first full year as a public company)
through 1990, the Company's operations resulted either in net losses ($2.4
million in 1990 and $6.3 million in 1988) or modest net income ($1.0 million in
1989 and $1.1 million in 1987). More recently, adverse publicity and regulatory
action in other markets, including France and Germany, resulted in a loss of
distributors and a decline in sales in those markets, contributing to a
reduction in worldwide net income from $46.0 million in 1994 to $19.7 million in
1995. While net income increased in subsequent periods (to $44.8 million for
1996 and $54.7 for 1997), the Company expects that its business in particular
markets will, from time to time, be adversely impacted by regulatory actions,
negative publicity and competition in those markets. See "-- Dependence on
Distributors" and "Business -- Geographic Areas of Operations; Regulation."

In addition, after entering a new country, the Company has in many
instances experienced an initial period of rapid growth in sales as new
distributors were recruited, followed by a decline in sales. The Company
believes that this sales trend has been due in part to certain distributor
migration patterns as well as regulatory action and adverse publicity in certain
markets. In certain of these markets, the opening of new markets within the same
geographic region or with the same or similar language or cultural bases has
resulted in a corresponding tendency of some key distributors to focus their
attention on business opportunities provided by the new markets instead of
developing their established downline organizations in existing markets.
Additionally, in certain instances, the Company has become aware that sales in
certain existing markets were attributable to purchasers who distributed such
product in countries which had not yet been opened. When these countries were
opened, such sales in existing markets shifted to the newly opened markets,
resulting in a decline in sales in the existing markets.

The Company's weight management products have historically contributed a
significant portion of the Company's total retail sales. During 1996 and 1997,
the Company's 14 weight management products contributed 71.2% and 67.8%,
respectively, of total retail sales, and one of these products contributed 19.2%
and 19.8%, respectively, of total retail sales. Accordingly, the Company could
be materially adversely affected if, because of regulatory constraints, adverse
publicity, competition or other factors, the Company were unable to successfully
market its weight management products in one or more significant markets. See
"Business -- Product Overview."

12
<PAGE> 13

The Company's sales and earnings continue to be subject to significant
potential volatility based upon, among other things, the adverse effect of
distributors' or the Company's failure, and allegations of their failure, to
comply with applicable regulations, which have in the past and could again in
the future result in the removal of certain products from sale in certain
countries, either temporarily or permanently; the negative impact of changes in
or interpretations of regulations that may limit or restrict the sale of certain
of the Company's products, the operation of its network marketing system, the
expansion of its operations into new markets, the introduction of its products
into each market and the recruitment and retention of distributors; the
inability of the Company to introduce new products or the introduction of new
products by the Company's competitors; general conditions in the weight
management, food and dietary supplement and personal care industries or the
network marketing industry; and consumer perceptions of the Company's products
and operations. In particular, because the Company's products are ingested by
consumers or applied to their bodies, the Company is highly dependent upon
consumers' perception of the safety, quality and effectiveness of its products.
As a result, substantial negative publicity, whether founded or unfounded,
concerning one or more of the Company's products or other products similar to
the Company's products could adversely affect the Company's sales and earnings.
In the past, adverse publicity has been connected with prospective regulatory
action, perceived health concerns relating to particular products, issues
related to the Company's network marketing system, disputes between the Company
and certain of its distributors, and other issues relating to the Company's
business.

DEPENDENCE UPON MATERIAL FOREIGN MARKETS

For 1996 and 1997, 76.7% and 80.0% of the Company's total retail sales,
respectively, were generated outside the United States. Such reliance on foreign
markets exposes the Company to the risks associated with foreign operations,
including, among other things, changes in or interpretations of foreign
regulations that may limit the Company's ability to sell certain products,
conduct a network marketing system or repatriate profits to the United States,
and the potential imposition of trade or foreign exchange restrictions or
increased tariffs. The Company is also exposed to risks associated with foreign
currency fluctuations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Developments and Outlook." For
instance, the Company's purchases from suppliers are generally made in U.S.
dollars while its sales to distributors are generally made in local currencies;
accordingly, strengthening of the U.S. dollar versus a foreign currency can have
a negative impact on the Company. Although the Company engages in transactions
to protect against certain risks associated with foreign currency fluctuations,
there can be no assurance that such fluctuations will not have an adverse effect
on the Company. As the Company continues to expand its international operations,
these and other risks associated with international operations are likely to
increase. See "-- Regulation" and "Business -- Geographic Areas of Operations."

In particular, the Company is exposed to risks associated with the current
economic and currency crisis in Asia. Because of the significance of the Asian
markets, and Japan in particular, which has become the Company's largest single
retail sales market, a sustained economic slowdown and/or currency crisis in
Asia could have a material adverse impact on the Company's business.

Further, during 1997, of the 36 countries in which the Company operated
during that period, 24 countries experienced an aggregate increase in retail
sales of $350.5 million as compared with 1996. Japan accounted for 61.2%, and
Russia and Taiwan together accounted for 10.6% of this increase. The growth in
these 24 countries was offset by a $59.9 million aggregate decrease in retail
sales in the remaining 12 countries in which the Company operated during both
years. The Company expects that its business in these and other markets will,
from time to time, be adversely affected by regulatory action, negative
publicity, competition and other factors. See "-- Sales and Earnings Volatility"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments and Outlook."

In addition, the Company's operations in certain markets may be adversely
affected by political, economic and social instability in those countries. For
instance, the Company has elected not to establish a physical presence, through
a sales or distribution center, in Russia due to a difficult business
environment in that country. Instead the Company has chosen to rely on various
import/export companies located in Russia

13
<PAGE> 14

to conduct transactions in the Company's products with Russian distributors. See
"Business -- Geographic Areas of Operations."

UNCERTAINTIES ASSOCIATED WITH BUSINESS EXPANSION

The Company's continued growth is dependent in significant part upon its
ability to expand its operations into new markets. As compared to new market
openings in the past, the Company may have greater difficulty opening new
markets in the future due to greater regulatory barriers, the necessity of
adapting to entirely new regulatory systems and problems related to entering new
markets with different cultural bases and political systems from those
encountered in the past. In addition, the Company's success has been and will
continue to be significantly dependent on its ability to manage rapid growth,
through expansions and enhancements of its worldwide personnel and management
and information, order processing and fulfillment, inventory and shipping
systems and other aspects of operations. From time to time, the Company has
experienced out-of-stock situations with respect to certain products. As the
Company continues to add distributors, products and countries to its operations,
the ability to manage this growth will represent an increasing challenge. See
"Business -- Geographic Areas of Operations; Regulation."

RELATIONSHIP WITH OUTSIDE MANUFACTURERS

All of the Company's products are manufactured by outside companies. Raven
Industries, Inc. ("Raven") currently manufactures all of the Company's powder
products, and D&F Industries, Inc. ("D&F") currently supplies substanatially all
of the Company's tablet products, including Activated Fiber,(TM) one of the
Company's tablet products, pursuant to a licensing agreement with Dynamic
Products, Inc. ("Dynamic"). In 1996 and 1997, aggregate purchases by the Company
from Raven and D&F represented a majority of the Company's product purchases.
Two individuals (not affiliates of the Company) are principal stockholders of
each of D&F, Raven and Dynamic. Mark Hughes owns a one-third ownership interest
in Raven and a one-fifth ownership interest in Dynamic. See "Business -- Product
Overview" and "Certain Transactions." For a number of years prior to 1998, the
Company was subject to requirements contracts with each of Raven, D&F and
Dynamic, pursuant to which the Company agreed to purchase all of its
requirements of powder products from Raven and all of its requirements of
tablet, capsule and certain other products from Dynamic or D&F, to the extent
each such manufacturer was capable of manufacturing such products. In September
1997, the Company entered into new three-year agreements with Raven, D&F and
Dynamic, pursuant to which revised pricing and other provisions became effective
on January 12, 1998. The new contracts provide, among other things, the ability
for the Company to source and develop products with other third party
manufacturers, 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. As a result, and because the
new contracts confirm the Company's ownership of product formulations for
substantially all of the Company's nutritional supplement products, the Company
has the capacity, and has begun to seek, to "second source" particular
nutritional supplement products with multiple manufacturers. Further, the
Company has hired its own staffs of product research and development and product
formulation personnel, and will increasingly rely on its in-house staff for
these functions. However, the Company has historically relied on Raven and D&F
for these services, and will continue to do so, albeit to a lesser extent, in
the future. The Company's ability to enter new markets and sustain satisfactory
levels of sales in each market has been in the past and is likely to continue to
be dependent in significant part upon its own ability and the ability of its
manufacturers, including Raven and D&F, to develop new products and reformulate
existing products for introduction into the Company's markets. See
"Business -- Product Overview -- Product Manufacturing and Development." With
the transition in the Company's relationship with Raven and D&F from exclusive
to nonexclusive contracts, there can be no assurance that the Company will seek
or continue to obtain the same amount or quality of product research,
development or formulation services from Raven and D&F that it has received in
the past. While the Company expects to obtain similar such services from
in-house personnel and alternative manufacturers in the future, there can be no
assurance that there will not be some disruption in the Company's business from
time to time as these support services begin to be provided internally and by
alternative manufacturers. See "Business -- Product Overview -- Product
Manufacturing and Development."
14
<PAGE> 15

The Company and Mr. Hughes were recently advised by Raven, D&F and Dynamic
that such companies are planning to make a bond offering and obtain a secured
bank credit facility, the proceeds of which would be used, in part, to
repurchase the ownership interests in those companies currently held by Mr.
Hughes and Dr. Katzin. See "Certain Transactions."

ABSENCE OF CLINICAL STUDIES AND SCIENTIFIC REVIEW; POTENTIAL MISUSE OF PRODUCTS

In general, the Company's products consist of weight management products,
food and dietary supplements and personal care products (a limited number of
which have been or may be classified in the U.S. as OTC drugs) which the Company
believes do not require approvals from the FDA or, in the United States market,
other regulatory agencies, prior to sale. The Company does not conduct clinical
studies of its products. The Company's products consist of herbs, vitamins,
minerals and other ingredients that the Company regards as safe when taken as
suggested by the Company. However, because the Company is highly dependent upon
consumers' perception of the safety and quality of its products as well as
similar products distributed by other companies, the Company could be adversely
affected in the event any of the Company's products or any similar products
distributed by other companies should prove or be asserted to be harmful to
consumers. In addition, because of the Company's dependence upon consumer
perceptions, any adverse publicity associated with illness or other adverse
effects resulting from consumers' use or misuse of the Company's products or any
similar products distributed by other companies could have a material adverse
impact on the Company. See "Business -- Product Overview."

COMPETITION

The Company is subject to significant competition for the recruitment of
distributors from other network marketing organizations, including those that
market weight management, food and dietary supplement and personal care products
as well as other types of products. Some of the Company's competitors are
substantially larger and have available considerably greater financial resources
than the Company. The Company's ability to remain competitive depends, in
significant part, on the Company's success in recruiting and retaining
distributors through an attractive compensation plan and other incentives.

In addition, the business of marketing weight management, food and dietary
supplement and personal care products is highly competitive. This market segment
includes numerous manufacturers, distributors, marketers, retailers and
physicians that actively compete for the business of consumers both in the
United States and abroad. The market is highly sensitive to the introduction of
new products or weight management plans (including various prescription drugs)
that may rapidly capture a significant share of the market. As a result, the
Company's ability to remain competitive depends in part upon the successful
introduction of new products. See "Business -- Competition."

PRODUCT LIABILITY CLAIMS

As a marketer of food and dietary supplements and other products that are
ingested by consumers or applied to their bodies, the Company may be subjected
to various product liability claims, including, among other things, that its
products contain contaminants or include inadequate instructions as to use or
inadequate warnings concerning side effects and interactions with other
substances. While such claims to date have not been material to the Company and
the Company maintains product liability insurance, it is possible that
widespread product liability claims and the resultant adverse publicity could
negatively affect the Company. See "Business -- Product Overview; Regulation."

CONCENTRATION OF STOCK OWNERSHIP

As of February 23, 1998, Mr. Hughes beneficially owned 5,666,932 shares of
the Class A Stock and 11,333,866 shares of the Class B Stock (which amounts
include 183,333 shares of Class A Stock and 366,666 shares of Class B Stock held
by a charitable foundation of which Mr. Hughes is a director but with respect to
which Mr. Hughes has no pecuniary interest), representing 57.2% and 58.2% of the
outstanding shares of Class A Stock and Class B Stock, respectively, as of
February 23, 1998. Accordingly, Mr. Hughes

15
<PAGE> 16

currently has the power to elect the entire Board of Directors of the Company
and determine the outcome of all matters submitted to the Company's stockholders
for approval. Because Class B Stock is non-voting stock, neither the completion
of the DECS Offering nor the settlement of the DECS will affect Mr. Hughes'
voting power with respect to the Company. Assuming the delivery by the Selling
Stockholder to the Trust of the maximum number of shares of Class B Stock
required to satisfy the Contract (assuming full exercise of the over-allotment
option in the DECS Offering), Mr. Hughes would beneficially own 28.7% of the
Company's currently outstanding Class B Stock (including the foundation-owned
shares referred to above). See "Plan of Distribution" and "Principal and Selling
Stockholders."

SHARES AVAILABLE FOR FUTURE PUBLIC SALE

In addition to shares already publicly held, as of February 23, 1998, (i)
432,258 shares of Class A Stock and 864,520 shares of Class B Stock subject to
outstanding stock options that are currently exercisable have been registered
for sale under the Securities Act in connection with various compensation plans
of the Company, and (ii) 5,666,932 shares of Class A Stock and 6,333,866 shares
of Class B Stock beneficially owned by the Selling Stockholder (not including
the 5,000,000 shares subject to the Contract (assuming that the over-allotment
option relating to the DECS is not exercised)) are currently available for sale
pursuant to Rule 144 under the Securities Act, subject to the volume limitations
contained in the rule. The Company, its directors and executive officers, and
the Selling Stockholder have agreed, subject to certain exceptions, not to sell,
without the prior written consent of Smith Barney, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for such shares
for a period of 90 days, in the case of the Company and its directors and
executive officers (other than the Selling Stockholder), and one year, in the
case of the Selling Stockholder, after the date of this Prospectus. See "Plan of
Distribution." Future sales of substantial amounts of Class A Stock or Class B
Stock could adversely affect prices in the public market.

IMPACT OF THE DECS ON THE MARKET FOR CLASS B STOCK

It is not possible to predict accurately how or whether any market that
develops for the DECS will trade in the secondary market or whether such market
will be liquid. Any market that develops for the DECS is likely to influence and
be influenced by the market for the Class A Stock and the Class B Stock. For
example, the price of the Class A Stock and/or Class B Stock could become more
volatile and could be depressed by investors' anticipation of the potential
distribution into the market of substantial additional amounts of Class B Stock
upon the maturity of the DECS, by possible sales of Class A Stock or Class B
Stock by investors who view the DECS as a more attractive means of equity
participation in the Company and by hedging or arbitrage trading activity that
may develop involving the DECS and the Class B Stock.

USE OF PROCEEDS

All of the shares of Class B Stock covered by this Prospectus are
beneficially owned by the Selling Stockholder. See "Plan of Distribution." The
Company will not receive any of the proceeds from the sale of the DECS or the
delivery thereunder of the Class B Stock to which this Prospectus relates. The
expenses in connection with the issuance and distribution of the DECS and
delivery thereunder of the Class B Stock are being borne by the Selling
Stockholder.

16
<PAGE> 17

PRICE RANGE OF COMMON STOCK

The Old Common Stock has been quoted on the Nasdaq National Market System
under the symbol "HERB" since April 21, 1992. As a result of the
Recapitalization (including a related Class B Stock dividend), as of December
12, 1997, the Old Common Stock was effectively split into the Class A Stock and
the Class B Stock. The Class A Stock and the Class B Stock have been quoted on
the Nasdaq National Market System under the symbols "HERBA" and "HERBB,"
respectively, since December 15, 1997. The table below sets forth, for the
periods indicated, the high and low sales prices of the Old Common Stock, and,
commencing December 15, 1997, the Class A Stock and the Class B Stock, as
reported on the Nasdaq National Market System. The sales prices in the table
were taken from a written summary provided to the Company by Nasdaq. Prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.

<TABLE>
<CAPTION>
SALES PRICE
-----------
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter............................................. $12 1/8 $ 8 5/8
Second Quarter............................................ 16 3/8 10 1/8
Third Quarter............................................. 15 7/8 12 1/2
Fourth Quarter............................................ 32 5/8 15 1/2
1997
First Quarter............................................. $37 3/4 $14 3/4
Second Quarter............................................ 21 1/8 15 3/4
Third Quarter............................................. 26 1/4 14 7/8
Fourth Quarter through December 12, 1997*................. $27 7/8 $19 1/4
Fourth Quarter commencing December 15, 1997
Class A Stock*....................................... $24 $20 1/2
Class B Stock*....................................... 23 20
1998
First Quarter
Class A Stock**...................................... $28 5/8 $19 7/16
Class B Stock**...................................... 27 1/4 17 3/4
</TABLE>

- ---------------

* The Recapitalization became effective December 12, 1997. Beginning December
15, 1997, the Old Common Stock commenced trading as the Class A Stock and the
Class B Stock as a result of the Recapitalization. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments and Outlook." Accordingly, the prices set
forth above relate to the Old Common Stock through December 12, 1997, and the
Class A Stock and Class B Stock, as indicated, commencing on December 15,
1997.

** Reflects high and low sales prices through March 25, 1998.

As of February 23, 1998, 9,816,436 and 19,277,473 shares of the Company's
Class A Stock and Class B Stock, respectively, were issued and outstanding and
were held by 1,010 and 1,011 stockholders of record, respectively. For a recent
closing sale price of the Class B Stock, see the cover page of this Prospectus.

17
<PAGE> 18

DIVIDEND POLICY

Prior to the third quarter of 1992, the Company had never paid a dividend
on its Old Common Stock. In June 1992, the Company announced the adoption of a
cash dividend practice. The Company paid quarterly dividends of $0.18 per share
for the dividends paid on February 11, 1994, May 5, 1994 and August 4, 1994,
increased the dividend to $0.22 per share for the dividends paid on November 3,
1994, February 2, 1995, May 4, 1995 and August 3, 1995, and reduced the dividend
to $0.15 per share for the dividends paid on November 2, 1995, February 15,
1996, May 6, 1996, August 7, 1996, November 7, 1996, February 12, 1997, May 8,
1997, August 1, 1997, November 6, 1997 and February 11, 1998 (with respect to
the Class A Stock and Class B Stock). The declaration of dividends in the future
will be determined by the Board of Directors in its discretion and the amount of
dividends declared and paid in future quarters will depend on, among other
factors, the Company's profitability and other planned uses of the Company's
cash resources. See "Description of Capital Stock."

18
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The selected consolidated financial data set forth below for each of the
years in the five-year period ended December 31, 1997 are derived from the
audited consolidated financial statements of the Company. The selected "Other
Data" set forth below are derived from unaudited internal records maintained by
the Company in the ordinary course of business and, in the opinion of the
Company, reflect a fair statement of the specified data for the periods
presented. The selected financial and other data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Retail sales(1)(2).......................................... $693,015 $884,058 $923,644 $1,200,144 $1,490,693
Less -- Distributor allowances on product purchases(1)...... 328,270 417,177 434,640 568,209 708,241
-------- -------- -------- ---------- ----------
Net sales(1)(2)............................................. 364,745 466,881 489,004 631,935 782,452
Cost of sales............................................... 103,834 130,707 143,557 168,432 205,070
Royalty overrides(1)........................................ 107,381 125,820 138,940 184,669 233,883
-------- -------- -------- ---------- ----------
Gross profit................................................ 153,530 210,354 206,507 278,834 343,499
Marketing, distribution and administrative expenses......... 88,918 139,629 176,046 210,087 257,514
Restructuring expense....................................... -- -- 2,300 -- --
Interest income -- net...................................... 1,729 2,919 3,404 4,084 4,535
-------- -------- -------- ---------- ----------
Income before income taxes and minority interest............ 66,341 73,644 31,565 72,831 90,520
Income taxes................................................ 25,160 27,616 11,837 28,040 34,850
Minority interest(3)........................................ -- -- -- -- 1,003
-------- -------- -------- ---------- ----------
Net income.................................................. $ 41,181 $ 46,028 $ 19,728 $ 44,791 $ 54,667
======== ======== ======== ========== ==========
Earnings per share:
Basic(4).................................................. $ 1.52 $ 1.54 $ 0.66 $ 1.50 $ 1.81
Diluted(4)................................................ $ 1.47 $ 1.50 $ 0.65 $ 1.43 1.72
Cash dividends per common share............................. $ 0.49 $ 0.80 $ 0.74 $ 0.60 0.60
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 28,
---------------------------------------------------------------
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Approximate number of supervisors(5)..................... 41,000 75,000 90,000 99,000 115,000 139,000
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Number of countries(6)................................... 16 24 32 34 36
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities......... $ 79,354 $ 59,113 $104,226 $131,039 $122,707
Working capital.......................................... 72,723 89,825 85,126 109,662 125,986
Total assets............................................. 130,820 174,057 207,690 269,114 314,580
Long-term obligations.................................... 994 1,014 1,779 2,306 2,666
Stockholders' equity..................................... 81,202 109,815 109,530 138,468 154,733
</TABLE>

- ---------------

(1) For a description of retail sales, distributor allowances on product
purchases, net sales and royalty overrides, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Developments and Outlook."

(2) Throughout this Prospectus, retail sales and net sales include license fees
paid by the Company's licensees in certain countries. See
"Business -- Geographic Areas of Operation." License fees were not material
in any year presented.

19
<PAGE> 20

(3) See "Certain Transactions" regarding minority interests in the Company's
Japanese subsidiary.

(4) Basic earnings per share are computed by dividing net income, by the
weighted average number of common shares outstanding. The weighted average
number of common shares outstanding for 1993, 1994, 1995, 1996 and 1997 were
(in thousands) 27,075; 29,864; 29,904; 29,803 and 30,193, respectively.
Diluted earnings per share assumes the maximum dilutive effect of stock
options using the Treasury Stock method. Common shares used in the
calculation for 1993, 1994, 1995, 1996 and 1997 were (in thousands) 28,036;
30,768; 30,313; 31,379 and 31,803, respectively. The Recapitalization did
not change the total number of the Company's outstanding common shares. As a
result, earnings per share was not restated.

(5) Supervisors are those distributors who qualify as supervisors, generally, by
purchasing, either from the Company or other distributors, products
representing at least 4,000 "volume points" in one month or 2,500 "volume
points" in two consecutive months (volume points are point values assigned
to each of the Company's products that are equal in all countries and are
based on the suggested retail price of U.S. products). See
"Business -- Marketing." Every February 28th the Company deletes from the
rank of supervisor those supervisors who did not satisfy the supervisor
qualification requirements during the preceding twelve months. Distributors
who meet the supervisor requirements at any time during the year are
promoted to supervisor status at such time (including any supervisors who
were deleted but who subsequently requalified). The Company relies on
distributors' certifications as to the amount and source of their product
purchases from other distributors. Although the Company applies certain
review procedures with respect to such certifications, they are not directly
verifiable by the Company.

(6) For a list of all the countries in which the Company currently operates, see
"Business -- Geographic Areas of Operations."

20
<PAGE> 21

CAPITALIZATION

The following table sets forth the short-term obligations and
capitalization of the Company as of December 31, 1997 (dollars in thousands).
This table should be read in conjunction with the Consolidated Financial
Statements and the related notes incorporated by reference into this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Short-term obligations
Current maturities of long-term obligations............... $ 1,449
========
Long-term obligations
Bank loans and contracts payable.......................... 2,666
Stockholders' equity
Class A Common Stock, $.01 par value; authorized
33,333,333 shares; issued 9,811,623 shares(1).......... 98
Class B Common Stock, $0.01 par value; authorized
66,666,667; issued 19,818,248 shares(1)................ 198
Paid-in capital in excess of par value.................... 50,319
Retained earnings (includes translation adjustment of
$(4,858)............................................... 104,248
Unearned compensation(2).................................. (152)
Unrealized loss on marketable securities.................. 22
--------
Total stockholders' equity........................ $154,733
--------
Total capitalization.............................. $157,399
========
</TABLE>

- ---------------

(1) Effective December 12, 1997, the Old Common Stock was reclassified into
Class A Stock and Class B Stock pursuant to the Recapitalization. The Class
A Stock and Class B Stock commenced trading on December 15, 1997.

(2) Represents unamortized compensation expense related to restricted stock
grants to one of the Company's executive officers.

21
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RECENT DEVELOPMENTS AND OUTLOOK

The Company utilizes a world-wide network marketing system to market weight
management products, food and dietary supplements and personal care products. As
of December 31, 1997, the Company conducted business in 36 countries located
throughout Asia/Pacific Rim, Europe and The Americas.

The Company has reported increased annual retail sales and net sales in
each year since 1988 and has reported profits for each year since 1990. See
"-- Presentation of Retail Sales." Retail sales increased from $405.1 million in
1992 to $1.49 billion in 1997, representing a compound annual growth rate of
29.8%. From 1992 to 1997 the Company's net income increased from $20.1 million
in 1992 to $54.7 million in 1997, representing a compound annual growth rate of
22.2%.

The Company markets it products globally. For the twelve months ended
December 31, 1997, 80.0% of retail sales were attributable to markets located
outside of the United States. The following summarizes the Company's retail
sales by region for the time periods indicated.

<TABLE>
<CAPTION>
NUMBER OF
COUNTRIES
OPEN AS OF
1995 1996 1997 12/31/97
------ -------- -------- ----------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Asia/Pacific Rim................... $143.5 $ 378.8 $ 643.4 8
Europe............................. 373.9 431.3 453.1 20
The Americas....................... 406.2 390.0 394.2 8
------ -------- -------- ---
Total Retail Sales....... $923.6 $1,200.1 $1,490.7 36
====== ======== ======== ===
</TABLE>

For the twelve months ended December 31, 1997, a relatively small number of
countries accounted for a large proportion of the $290.6 million increase in
retail sales. Of the 36 countries in which the Company operated during the
twelve months ended December 31, 1997, 24 countries experienced an aggregate
increase in retail sales of $350.5 million as compared with 1996, with Japan
alone accounting for 61.2% of the increase. The growth in these 24 countries was
partially offset by a $59.9 million aggregate decrease in retail sales in the
remaining 12 countries in which the Company operated during both periods. As
part of its growth strategy, management implements various initiatives to
revitalize sales in countries where the Company has experienced a loss of retail
sales. See "Business -- Growth Strategy." The concentration of increased retail
sales in a small number of countries is expected to make the Company's earnings
in future periods more susceptible to various risks. See "Risk Factors" and
"Risk Factors -- Dependence Upon Material Foreign Markets."

Subsequent to commencement of operations in 1980, the Company's network of
independent distributors has grown substantially to include 139,000 supervisors
as of February 28, 1998, an increase of 20.9% from the same date in the prior
year, and a much larger number of distributors. The number of supervisors in the
Asia/ Pacific Rim markets increased from approximately 37,000 to 60,000 from
February 28, 1997 to February 28, 1998.

Consistent with the Company's growth strategy, the Company has continued
its efforts to expand its global presence by opening operations in new countries
where the Company believes there is or will be demand for its products and
participation in its network marketing system. From January 1, 1992 through
December 31, 1997, the Company commenced operations in 26 new countries. During
1997, these countries contributed $1.05 billion of retail sales, representing
70.4% of the Company's total retail sales. Japan accounted for $525.7 million of
such sales, representing 35.3% of the Company's retail sales. During 1997, the
Company commenced operations in Thailand and Chile and plans to open new markets
in Turkey and Indonesia in 1998. Additional new markets currently under
consideration include China, India, Colombia and Ecuador. There can be no
assurance that the opening of any new markets will occur as planned or that any
markets opened will generate significant retail sales. See "Business -- Growth
Strategy."

22
<PAGE> 23

The Company is exposed to risks associated with foreign currency
fluctuations. For instance, the Company's purchases from suppliers are generally
made in U.S. dollars while its sales to distributors are generally made in local
currency. Accordingly, strengthening of the U.S. dollar versus a foreign
currency can have a negative impact on the Company. Although the Company engages
in currency hedging transactions to protect against certain risks associated
with foreign currency fluctuations, there can be no assurance that such
fluctuations will not have an adverse effect on the Company.

There are a number of factors that can adversely impact the success of the
Company's business in any of its existing or potential markets. These factors
include the regulatory environment, consumer acceptance of network marketing
companies, the presence of possible competitors, adverse publicity and in-region
cultural or demographic factors. In several of the Company's markets, the
Company has experienced one or several of these factors, resulting in a decline
in retail sales. For instance, in France in late 1994 through 1995, certain
reports erroneously alleged that the Company was in some manner affiliated with
a disfavored religious group. During the third quarter of 1995, the Company
received inquiries from certain governmental agencies within Germany and
Portugal relating to the Company's product, Thermojetics(R) Instant Herbal
Beverage. The inquiries related to the caffeine content of the product and the
status of the product as an "instant tea," which was disfavored by the
regulators, versus a "beverage." The sale of this product in these countries was
subsequently suspended by the Company at the request of the regulators. As a
result of this and other factors, retail sales in Germany declined from $159.5
million in 1994 to $44.1 million for 1997. See "Risk Factors -- Sales and
Earnings Volatility" and "Business -- Geographic Areas of
Operations -- Geographic Sales Trends."

The Company believes that, in certain of its markets, the opening of other
new markets within the same geographic region or with the same or similar
language or cultural bases has resulted in a corresponding tendency of some key
distributors to focus their attention on business opportunities provided by new
markets instead of developing their established downline organizations in
existing markets. Additionally, in certain instances, the Company has become
aware that certain sales in certain existing markets were attributable to
purchasers who distributed such product in countries which had not yet been
opened. When these countries were opened, such sales in existing markets shifted
to the newly opened markets, resulting in a decline in sales in the existing
market.

In order to increase sales in markets, such as France, Germany, Italy and
Spain, that have experienced a leveling off or decline in sales, management has
implemented several revitalization initiatives. These initiatives include
extensive training and motivational programs, appointment of regional planning
and strategy groups that include senior distributors, enhanced government
relations, introduction of new products, and establishment of distributor sales
centers. The Company believes that these initiatives favorably impact operations
and the Company will continue to deploy these initiatives in an effort to
provide a platform for renewed growth. See "Prospectus Summary -- Growth
Strategies -- Revitalize Sales in Certain Existing Markets."

The Company's weight management products have historically contributed a
significant portion of the Company's total retail sales. During 1997, the
Company's 14 weight management products contributed 67.8% of total retail sales,
and one of these products contributed 19.8% of total retail sales. During
January 1998, the Company introduced two new weight management products into
this product line.

In recent years, the Company sought to diversify its product offerings by
substantially expanding its personal care product line to include skin care,
perfumes, hair care, body lotions, soaps and gel products, and by expanding food
and dietary supplement products. From 1994 to 1997, sales of the personal care
product line increased from $26.6 million to $167.9 million, representing 3.0%
and 11.3% of total retail sales. From 1994 to 1997, sales of food and dietary
supplements increased from $86.8 million to $244.6 million, representing 9.8%
and 16.4% of total retail sales. During 1998, the Company intends to introduce
in certain markets up to thirty new personal care products (exclusive of color
variations), and up to eight new food and dietary supplement products (exclusive
of flavor variations), as well as a new line of water purification systems. The
Company will also seek to introduce additional new lines in the future,
including household products.

At a Special Meeting of the Company's shareholders held on December 11,
1997, the Company's shareholders approved the Recapitalization, pursuant to
which the Company's Articles of Incorporation were
23
<PAGE> 24

amended and restated to: (i) effect a one-for-three reverse split (the "Reverse
Split") of the Old Common Stock, (ii) reclassify each resulting whole share of
Old Common Stock as a share of new Class A Stock, (iii) create a new class of
non-voting common stock, designated as Class B Stock, and (iv) fix the relative
rights, powers and limitations of the Class A Stock and the Class B Stock. The
Recapitalization did not change the number of shares of the Company's authorized
capital stock. On December 12, 1997, the Recapitalization became effective and
the Company's Board of Directors declared a dividend of two shares of Class B
Stock on each whole share of Class A Stock resulting from the Reverse Split. On
December 15, 1997, trading of both the Class A Stock and the Class B Stock
commenced on the Nasdaq National Market System.

PRESENTATION OF RETAIL SALES

Throughout this Prospectus, "retail sales" are determined as the gross
sales amounts reflected on the Company's invoices to its distributors. The
Company does not receive the amount reported as "retail sales," and the Company
does not monitor the actual retail prices charged for the Company's products.
"Net sales" represent the actual purchase prices paid to the Company by its
distributors, after giving effect to distributor discounts (referred to as
"distributor allowances"), which total approximately 50% of suggested retail
sales prices. The Company receives its net sales price in cash or through credit
card payments upon receipt of orders from distributors. Importers are utilized
by the Company in some markets and, under certain circumstances, credit terms
are extended. The Company's "gross profit" consists of net sales less (i) "cost
of sales," consisting of the prices paid by the Company to its manufacturers for
products and costs related to product shipments, foreign duties and tariffs and
similar expenses, and (ii) "royalty overrides," currently consisting of (a)
royalties and bonuses, which total approximately 15% and 6%, respectively, on
the suggested retail sales prices of products earned by qualifying distributors
on sales within their distributor organizations, (b) the President's Team Bonus
payable to certain of the Company's most senior distributors in the aggregate
amount of approximately an additional 1% of product retail sales, and (c) other
one-time incentive cash bonuses to qualifying distributors. Royalty overrides,
as reported in the financial statements and selected financial data appearing
elsewhere herein, are net of a handling fee (6% of retail sales effective April
1, 1994, previously 5%) charged by the Company to its distributors on purchases
of products from the Company.

The Company's use of "retail sales" in reporting financial and operating
data reflects the fundamental role of "retail sales" in the Company's accounting
systems, internal controls and operations, including the basis upon which
distributor bonuses are paid. The retail sales price of the Company's products
is reflected in distributor invoices as the price charged to distributors
together with, in most cases, a deduction for the corresponding distributor
allowance. The U.S. retail sales price is used by the Company to calculate,
among other things, royalty overrides and "volume points" earned by
distributors. Volume points are point values assigned to each of the Company's
products that are equal in all countries and are used as a supervisor
qualification criteria. In addition, management relies upon "retail sales" data
reflected in daily sales reports to monitor results of operations in each of the
Company's markets.

The significance of the Company's "net sales" is to reflect, generally, the
prices actually received by the Company after deducting the basic distributor
allowance, but before deducting royalty overrides and bonuses. The ratio of the
Company's "retail sales" to "net sales" is relatively constant because
distributor allowances historically total approximately 50% of suggested retail
sales prices. Accordingly, factors that affect "retail sales" generally have a
corresponding and proportionate effect on "net sales." To the extent the ratio
of "retail sales" to "net sales" varies from period to period, such variances
have resulted principally from sales of the Company's distributor kits and other
educational and promotional materials, for which there are no distributor
allowances. Sales of such items initially decreased and thereafter stabilized as
a percentage of total retail sales since 1991, but such decreases have not had a
material impact on the ratio of the Company's "retail sales" to "net sales" or
on the Company's operating margin.

RESULTS OF OPERATIONS

The Company's results of operations for the periods described below are not
necessarily indicative of results of operations for future periods, which depend
upon numerous factors including the Company's ability in the future to enter new
markets and introduce additional and new products into its markets.
24
<PAGE> 25

1997 COMPARED TO 1996

Retail sales for the twelve months ended December 31, 1997 increased 24.2%
to $1.49 billion, as compared to retail sales of $1.20 billion in the prior
year.

Retail sales in Asia/Pacific Rim increased $264.6 million or 69.9% during
1997 as compared to the prior year. The increase resulted from strong retail
sales in Japan and Taiwan. Retail sales in Japan increased $214.6 million, or
69.0%. Given the rapid increase in retail sales in Japan to current levels,
retail sales in Japan are not expected to continue to increase at historic
rates. In Taiwan, retail sales for 1997 increased $21.4 million, or 81.7%.
Retail sales in other Asia/Pacific Rim countries for 1997 increased $28.6
million, or 69.1% as compared to 1996. The increases in the other Asia/Pacific
Rim countries resulted from the opening of South Korea in November 1996 and
Thailand in June 1997 coupled with increased retail sales in Hong Kong.

Retail sales in Europe increased $21.8 million or 5.1% in 1997 as compared
to the prior year. Within the region, retail sales in Italy and Russia increased
$10.6 million, or 19.4%, and $15.7 million, or 11.1%, respectively, in 1997
compared to 1996. Offsetting the retail sales increases were declines in
Germany, South Africa and Finland of $10.3 million, $8.2 million and $5.6
million, respectively in 1997 as compared to the prior year. Although retail
sales in Germany, South Africa and Finland declined in comparison to the prior
year, they have remained relatively stable over the past four quarters.

Retail sales in the Americas increased $4.1 million, or 1.1% in 1997 as
compared to the prior year. The increase in retail sales primarily resulted from
retail sales increases in the United States, Canada and Mexico of $19.1 million,
$3.6 million and $4.4 million, respectively, and retail sales of $3.4 million
resulting from the opening of Chile in March 1997. Partially offsetting these
increases was a decline in Brazil of $26.1 million, or 34.3%. The retail sales
decrease in Brazil was primarily due to a difficult regulatory environment
which, among other factors, impeded the introduction of new products within the
country. The Company has recently received approval for approximately 30
personal care products and will continue to pursue approval of other new
products within Brazil. During each of the 1997 third and fourth quarters,
retail sales in Brazil increased as compared to the preceding quarters. The 1997
fourth quarter retail sales in Brazil exceeded the same period in 1996 by 9.7%.

In 1997, retail sales in all the product segments demonstrated strong
growth as compared to the prior year period. The increase in personal care
retail sales primarily resulted from a strong reception of the product line in
Japan and its introduction in Russia during July 1996. The increases in the
remaining categories were primarily due to the same factors identified in the
geographical segment discussion above.

Gross profit of $343.5 million for 1997, was $64.7 million, or 23.2% higher
than the gross profit of $278.8 million in the prior year. As a percentage of
retail sales, gross profit for 1997 as compared to the same period in the prior
year decreased modestly from 23.2% to 23.0%. The decrease in gross profit as a
percentage of retail sales primarily resulted from additional royalty override
expenses from a special 1997 distributor incentive program designed to motivate
distributors to achieve incremental sales growth.

Marketing, distribution and administrative expenses, as a percentage of
retail sales, were 17.3% for 1997 as compared to 17.5% for the same period in
1996. These expenses for the same periods increased 22.6% to $257.5 million from
$210.1 million in the prior year. The increase resulted from: (a) higher
in-country distribution expenses primarily due to facility and staff expansions
in Japan, new country openings in Chile and Thailand, and a full year of
operations in South Korea, (b) higher administrative expenses due to staff
additions and other costs related primarily to supporting sales expansion in
foreign countries, and (c) higher marketing costs resulting from increased sales
event activity in 1997.

The weakening of the Japanese Yen against the U.S. Dollar during 1997
resulted in proportionately lower revenues, expenses, and ultimately income when
translated into the U.S. Dollar reporting currency. Comparing the weighted
average exchange rates in effect during 1996 and 1997, the adverse effect of the
weaker Japanese Yen on the Company's net income and earnings per diluted share
for the 1997 period was $7.9 million and approximately $0.25, respectively. The
effect of foreign currency changes of this nature in countries other than Japan
was not material to the operations of the Company.
25
<PAGE> 26

Income taxes of $34.9 million for 1997 increased from $28.0 million in the
prior year. As a percentage of pre-tax income, income taxes remained unchanged
at 38.5% in 1997. To the extent the Company's operations in high tax
jurisdictions, such as Japan, continue to grow disproportionately relative to
the balance of the Company's operations, the Company may not be able to fully
utilize its foreign tax credits in the U.S., which could, accordingly, result in
the Company incurring a higher overall income tax rate on its worldwide
operations in the future.

On December 30, 1996, the Company sold an approximate 7% interest in its
Japanese subsidiary to certain directors and executive officers of the Company.
In 1997, the earnings attributed to this minority interest in the Japanese
subsidiary were $1.0 million. See "Certain Transactions."

Net income for 1997 increased 22.1% to $54.7 million, from $44.8 million
reported in the prior year.

1996 COMPARED TO 1995

Retail sales increased 29.9% to $1.2 billion in 1996 from $923.6 million in
1995. The increase was primarily due to the year to year aggregate sales growth
of $480.4 million in 14 countries (including two countries which opened in
1996): 82.0% of this increase was derived from sales in three countries: Japan,
Russia and Brazil. This increase was partially offset by an aggregate $203.9
million sales decline in the remaining 20 countries in which the Company
operates.

Regionally, retail sales for 1996 as compared to 1995 increased 164.0% in
Asia/Pacific Rim, 15.4% in Europe and declined 4.0% in The Americas. In
Asia/Pacific Rim, combined retail sales of $378.8 million increased by $235.3
million compared with 1995. The increase was due to a significant growth in
sales in Japan which contributed retail sales of $311.1 million in 1996 as
compared to $81.7 million in 1995. The increase in sales in Japan is in part
attributable to the introduction of new products and expansion of existing
product lines and the growth in the distributor network in Japan. In Europe,
combined retail sales for 1996 of $431.3 million increased by $57.4 million
compared to 1995. This increase was due to a full year operation in Russia which
opened during 1995 and contributed retail sales of $142.1 million in 1996 as
compared to $29.6 million in 1995. The most significant decline in Europe was in
Germany with 1996 retail sales of $54.3 million compared to $115.6 million in
1995. The decrease was due in part to the July 1995 suspension of sales of
Thermojetics(R) Instant Herbal Beverage in that country and the adverse
publicity stemming from the suspension.

In The Americas, combined retail sales in 1996 of $390.0 million decreased
by $16.2 million as compared to 1995. The decrease was due to a decline in sales
in the United States and several South American countries, partially offset by
Brazil which opened in the fourth quarter of 1995. The reduction in U.S. retail
sales is attributable in part to the Company's commencement of operations in
Brazil and the continuing effect of the commencement of operations in Russia in
July 1995. The Company is aware that, prior to the opening of Brazil and Russia,
some retail sales in the U.S. were for products purchased in the U.S. but
re-directed to Brazil or Russia by distributors. The Company expects that U.S.
retail sales may be impacted as the expansion of operations into international
markets continues.

The Company's gross profit increased to $278.8 million for 1996 from $206.5
million in 1995. As a percentage of retail sales, the gross profit was 23.2% in
1996 as compared with 22.4% in 1995. This is primarily attributable to higher
sales in Japan where the gross profit is higher due to higher retail selling
prices.

Marketing, distribution and administrative expenses for 1996 increased to
$210.1 million from $176.0 million in 1995. As a percentage of retail sales,
these expenses were 17.5% in 1996 as compared to 19.1% in 1995. The increase in
these expenses is attributable to higher in-country distribution center costs
directly related to sales volume, particularly in Japan and Brazil. In addition,
administrative expenses increased as a result of a continued emphasis and
increased costs of strengthening government and media relations, increased
compensation related to staff additions and incentive compensation awards. Such
increases were partially offset by a decrease in sales promotion expenses in
1996 as compared to 1995. Foreign exchange losses were $3.0 million in 1996 as
compared to losses of $2.6 million in 1995.

26
<PAGE> 27

Income taxes of $28.0 million in 1996 increased from $11.8 million in 1995.
As a percentage of income before income taxes, the income tax rate increased
from 37.5% for 1995 to 38.5% for 1996. The increase is due in part to an
increased proportion of profits in countries which have a higher effective tax
rate. Net income for 1996 increased to $44.8 million from $19.7 million in 1995
because of the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically met its working capital and capital
expenditure requirements, including funding for expansion of operations, through
net cash provided by operating activities.

In 1997, net cash provided by operating activities was $51.2 million,
compared to $65.4 million in 1996. The decrease primarily resulted from (i)
increased inventory levels required to support the Company's growth, and (ii)
higher credit card receivable balances primarily resulting from Japan, where the
collection period related to credit card receivables from banks is longer than
most countries. These reductions were partially offset by increased net income
and additional cash flow provided by increases in royalty overrides and advanced
sales balances.

Capital expenditures for 1997 were $13.1 million compared to $15.4 million
for the prior year. The majority of the 1997 expenditures resulted from
investments in management information systems and the expansion of new and
existing facilities, particularly in the U.S. and Japan. In connection with its
entry into each new market, the Company funds inventory requirements and
typically establishes either a full-service distribution center, sales office, a
fulfillment center or compliance office, or a combination of the foregoing.
While the capital requirements associated with entry into new markets vary, the
Company estimates that up to $7 million will be required for pre-opening
expenses, capital expenditures and other operating cash flow needs associated
with its 1998 new market expansion activities.

Stockholders' equity increased $16.3 million to $154.7 million during 1997.
During 1997, net income of $54.7 million and the issuance of capital stock upon
exercise of stock options, including related tax benefits, of $9.3 million were
partially offset by $18.1 million of dividends declared, stock repurchases of
$26.0 million and a translation loss of $3.9 million. The payment of dividends
is determined by the Board of Directors at its discretion and the amounts of
dividends declared and paid in future quarters will depend, among other factors,
on profitability, as well as other planned uses of the Company's cash resources.

Cash and cash equivalents and marketable securities totaled $122.7 million
at December 31, 1997 compared to $131.0 million at December 31, 1996.

In September, 1997, the Company entered into new agreements with its
suppliers of weight management and food and dietary supplement products. See
"Business -- Product overview -- Product Manufacturing and Development." The new
contracts became effective January 12, 1998 and replace the contracts previously
in effect. The new contracts provide, among other things, the ability for the
Company to source and develop products from other third party manufacturers,
within certain contractual limitations. The new contracts provide the
opportunity for cost savings for certain products; however, the realization of
any product cost savings will be affected by the Company's future product
development.

The Company has not been subjected to material price increases by its
suppliers for several years. The Company believes that it has the ability to
respond to a portion or possibly all of any price increases by raising the price
of its products. Purchases by the Company from its suppliers are generally made
in U.S. Dollars, while sales to distributors are generally made in local
currencies. Consequently, strengthening of the U.S. Dollar versus a foreign
currency can have a negative impact on operating margins and can generate
transaction losses on intercompany transactions. The Company from time to time
enters into forward exchange contracts and other hedging arrangements to manage
its foreign exchange risk on intercompany transactions. During 1997, several
European and Asian currencies weakened against the U.S. Dollar resulting in
foreign exchange loss of $1.6 million as compared to a loss of $3.0 million in
1996.

The Company has conducted a review of its computer systems to consider
upgrades, address the implication of the adoption of a single European Union
currency in 1999 and to identify those areas that require Year 2000 compliance
and is developing an implementation plan to accomplish these objectives. Year
27
<PAGE> 28

2000 compliance refers to the inability of certain computer systems to recognize
dates commencing on January 1, 2000. Such inability has the potential to
materially adversely affect the operation of computer systems. The Company
currently believes that by modifying existing software and converting to new
software for certain tasks, Year 2000 compliance will not pose significant
operational problems and is not anticipated to be material to its financial
position or results of operations in any given year. However, there can be no
assurance that the systems of other companies on which the Company may rely will
be timely converted or that the failure to convert by another company would not
have an adverse effect on the Company. At the present time, the Company
estimates that the incremental cash requirements related to system upgrades,
European Union single currency issues and Year 2000 compliance will total
approximately $10 million to $15 million. Such expenditures will be expensed or
capitalized as appropriate.

In January 1996, the Company's Board of Directors approved a one million
share stock repurchase program, which was completed in April 1997. In April
1997, the Board of Directors adopted an additional $30 million stock repurchase
program which was completed in February 1998. In February 1998, the Board
adopted an additional $20 million stock repurchase program. Pursuant to these
stock repurchase programs, through February 1998 the Company had expended $46.6
million in the aggregate to repurchase a total of 2.5 million shares of Old
Common Stock, Class A Stock and Class B Stock.

The Company has pledged cash and cash equivalents to secure bank financing
primarily for the benefit of its foreign subsidiaries, including letters of
credit, lines of credit, leases, and other obligations. As of December 31, 1997,
an aggregate of $21.2 million had been pledged against $26.4 million of
commitments for debt obligations, contingent guarantees, and foreign exchange
activity. Generally, these debt arrangements expire in less than one year. The
Company also enters into unsecured guarantees related mainly to short-term
currency hedge arrangements. There were no such currency hedges outstanding as
of December 31, 1997.

At December 31, 1997, the Company had $5.5 million of credit facilities of
which $0.3 million is outstanding. The majority of these facilities expire in
1998. These facilities are subject to normal banking terms and conditions and do
not materially restrict the Company's activities.

28
<PAGE> 29

BUSINESS

GENERAL

The Company's products are marketed exclusively through a network marketing
system. This system enables the Company's independent distributors to earn
profits by selling Herbalife products to retail consumers and other
distributors. Distributors may also develop their own distributor downline
organizations by sponsoring other distributors to do business in any market
where the Company operates, entitling the sponsors to receive royalty overrides
on product sales within their downline organizations.

KEY OPERATING STRENGTHS

High Quality, Healthy Lifestyle Products. The Company offers high quality
products, many of which emphasize herbs and other natural ingredients in order
to appeal to consumer demand for products that contribute to a healthy
lifestyle. Herbalife's complete product line consists of 94 products, including
14 weight management, 22 food and dietary supplement and 58 personal care
products, with a varying number of these products offered in each of the
Company's markets. These three product categories represented 67.8%, 16.4% and
11.3% of total retail sales in 1997, respectively.

Attractive Distributor Compensation Program. The Company believes that it
offers one of the most financially rewarding compensation programs in the
network marketing industry. Distributors' earnings are derived from two primary
sources: profits on the resale of products and a series of royalties and
production bonuses on product sales within a distributor's downline
organization. Combining these sources of earnings plus participation in the
President's Team bonus, the Company's total "pay-out" (including distributor
allowances) on products subject to distributor royalty overrides is
approximately 72% of the Company's suggested retail sales price (before
reflecting a 6% handling fee paid by distributors.) Distributors can also
participate in various non-cash awards, such as the Get-A-Way vacations and HBN
satellite dishes offered through various Herbalife promotional programs. In
addition, through its international sponsorship program, the Company affords
distributors the opportunity to earn the same types of compensation both in the
distributor's home country and in any other country where Herbalife operates.

Comprehensive Distributor Support Services. Mark Hughes and the Company's
top distributors, in conjunction with the Company's 307 distributor support and
relations employees and 121 sales and marketing employees, are committed to
training and motivating Herbalife's distributors. The Company strives to
29
<PAGE> 30

effectively and efficiently communicate with its global distributor base by
capitalizing on new technologies and marketing techniques. The Company regularly
conducts motivational events and training programs, both live and via the
Herbalife HBN network and teleconferences, and utilizes a range of promotional
literature (including catalogs and newsletters), all in multiple languages and
tailored to meet the particular needs of Herbalife distributors worldwide. In
addition to over one hundred Company-sponsored live events each month,
distributors themselves conduct several thousand local training and motivational
events each month. The Company seeks to inspire distributor loyalty by making
prompt product deliveries and royalty payments and by providing detailed
distributor earnings statements.

Advanced Global Information Systems. To facilitate the Company's global
expansion, the Company employs advanced computer and telecommunications systems
that link its domestic and international operations and provide timely and
accurate product ordering, royalty payment processing and inventory management.
During 1995, 1996 and 1997, the Company has invested in excess of $15 million to
enhance its computer and telecommunications systems.

Proactive Approach to Government Relations. The Company employs a staff of
government relations personnel throughout the world who take a proactive
approach to working with governmental agencies, in order to create a favorable
business environment for Herbalife and its distributors. In 1994, the Company
formed its Government Relations Group, currently consisting of 10 employees, and
in 1995 it established the position of Chief International Counsel. The Company
has budgeted approximately $6.0 million to government relations activities
worldwide for 1998. The Company's Government Relations Group and international
legal personnel establish relationships with regulators and community leaders in
both new and existing markets and strive to ensure that the Company's products
comply with regulatory requirements. In addition, the Company coordinates its
activities in each market with a network of legal counsel, regulatory
consultants and other advisors to support its worldwide operations.

GROWTH STRATEGY

The Company's strategy for growth consists of the following four principal
elements:

Expand Product Offerings and Developing New Product Lines. The Company is
committed to expanding its product line by developing and offering new products
and introducing existing products into markets where they are not currently
offered. Expanding product offerings and categories is a fundamental part of the
Company's business strategy. The timely introduction of new, high quality
products creates sales opportunities for distributors, and also serves to
generate enthusiasm among distributors and provide them with additional
promotional opportunities to sell other Company products. During 1997, the
Company introduced 17 new products (exclusive of flavor and color variations),
and during 1998 the Company intends to introduce up to 40 new products
(exclusive of flavor and color variations) in selected markets, including
several additions to the weight management program, an important new line of
personal care products and a new line of state-of-the-art water purification
systems, marketed under the name "AquaGenics(TM)." The Company's new nutritional
products include a reformulated meal-replacement powder with greater protein
content, Chew Slim(TM) herbal diet gum, WaferFull(TM) chewable wafers,
MentaBalance(TM) amino acid and herbal supplement and CarboGuard(TM)
micronutrient fiber and herbal supplement. In its Dermajetics(TM) personal care
line, the Company will launch a new line of color cosmetics in selected markets.
The Company will also seek to introduce additional new product lines in the
future, including household products.

extensive training and motivational program support to distributors. In
addition, the Company has created regional planning and strategy groups that
include senior members of the Company's distributor base, increased focus on
governmental relations and hired additional distributor support representatives.
The Company also seeks to introduce annually in each targeted market additional
products not previously offered. In certain markets, the Company has enhanced
its presence and visibility by opening new, more attractive and conveniently
located distributor sales centers. The Company believes that these initiatives
favorably impact operations and the Company will continue to deploy these
initiatives in an effort to provide a platform for renewed growth in the
targeted markets in the future.

Expand Into New Markets. The opening of new markets is an important
component of the Company's business strategy. From January 1, 1992 through
December 31, 1997, the Company has commenced operations in 26 new countries,
consisting of six in Asia/Pacific Rim, 15 in Europe and five in The Americas.
During 1997, these countries contributed $1.05 billion of retail sales,
representing 70.4% of the Company's total retail sales. The Company believes
there are numerous additional markets in which its network marketing system and
products should prove successful. The Company opened new markets, Thailand and
Chile, in 1997 and plans to open Turkey and Indonesia in 1998. Additional new
markets currently under consideration include China, India, Colombia and
Ecuador. The Company evaluates these and other new markets based, in part, on
the Company's ability efficiently to create a distributor base in potential
markets. In determining when and where to open new markets, the Company will
continue to seek to minimize the impact on distributor focus in existing markets
and to ensure that adequate distributor support services and other Company
systems are in place to support the growth.

PRODUCT OVERVIEW

The Company's products include weight management products, food and dietary
supplements, personal care products and educational and promotional materials.
The Company currently markets 94 products, exclusive of variations in product
flavors and colors, reformulations of products to satisfy regulatory
requirements within a particular country and similar variations of the Company's
basic product line. A limited number of the Company's personal care products are
classified in the U.S. as OTC drugs.

31
<PAGE> 32

The following chart summarizes the number of products offered by the
Company in its principal product categories as of December 31, 1997 and retail
sales information by product category during the indicated periods.

PRODUCT SALES BY CATEGORY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1996 1997
------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
PRODUCT CATEGORY (NUMBER OF RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
PRODUCTS IN CATEGORY) SALES SALES SALES SALES SALES SALES
--------------------------- -------- -------- ---------- -------- ---------- --------
(AMOUNTS IN THOUSAND)
<S> <C> <C> <C> <C> <C> <C>
Weight Management(14)............. $694,269 75.2% $ 854,410 71.2% $1,011,122 67.8%
Food and Dietary
Supplements(22)................. 86,714 9.4 168,371 14.0 244,569 16.4
Personal Care Products(58)*....... 107,385 11.6 116,938 9.7 167,931 11.3
Other**........................... 35,276 3.8 60,425 5.1 67,071 4.5
-------- ---------- ----------
$923,644 $1,200,144 $1,490,693
======== ========== ==========
</TABLE>

- ---------------

* Includes a limited number of products that are classified in the U.S. as OTC
drugs.

** Includes distributor kits and other educational and promotional materials.
Such materials are regularly developed and enhanced by the Company and, as a
result, the number of such materials is not presented.

32
<PAGE> 33

The following chart sets forth the number of the Company's products
available as of December 31, 1997 by category in each of the Company's markets
as of that date.

NUMBER OF PRODUCTS OFFERED BY CATEGORY
(AS OF DECEMBER 31, 1997)

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
WEIGHT FOOD AND DIETARY NUMBER OF TOTAL
MANAGEMENT SUPPLEMENT PERSONAL CARE NUMBER OF
YEAR PRODUCTS PRODUCTS PRODUCTS PRODUCTS
COUNTRY ENTERED(1) (14 IN TOTAL) (22 IN TOTAL) (58 IN TOTAL) (94 IN TOTAL)
------- ---------- ------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASIA/PACIFIC RIM
Australia....................... 1982 8 7 43 58
New Zealand..................... 1988 8 6 42 56
Hong Kong....................... 1992 5 1 46 52
Japan........................... 1993 7 2 32 41
Philippines..................... 1994 7 -- -- 7
Taiwan.......................... 1995 4 -- 36 40
Korea........................... 1996 3 1 -- 4
Thailand........................ 1997 5 -- 27 32
EUROPE
United Kingdom.................. 1983 7 9 46 62
Israel.......................... 1989 8 3 25 36
Spain........................... 1989 6 2 45 53
France.......................... 1990 7 -- 44 51
Germany......................... 1991 4 -- 44 48
Italy........................... 1992 7 2 44 53
Portugal........................ 1992 5 1 45 51
Czech Republic.................. 1992 7 3 29 39
Netherlands..................... 1993 6 1 44 51
Belgium......................... 1994 7 4 44 55
Poland.......................... 1994 5 1 20 26
Denmark......................... 1994 7 2 44 53
Sweden.......................... 1994 7 1 44 52
Russia.......................... 1995 12 14 31 57
Switzerland..................... 1995 3 -- 44 47
Austria......................... 1995 2 1 44 47
Norway.......................... 1995 5 1 32 38
Finland......................... 1995 8 3 32 43
South Africa.................... 1995 6 2 42 50
Greece.......................... 1996 2 -- 44 46
THE AMERICAS
United States................... 1980 14 22 52 88
Canada.......................... 1982 8 8 44 60
Mexico.......................... 1989 12 12 24 48
Dominican Republic.............. 1994 6 -- -- 6
Venezuela....................... 1994 5 -- 36 41
Argentina....................... 1994 6 -- 34 40
Brazil.......................... 1995 6 -- -- 6
Chile........................... 1997 5 -- 19 24
</TABLE>

33
<PAGE> 34

- ---------------

(1) Throughout this Prospectus, "entering", "opening", "commencing operations"
or "doing business" in a market or country means that the Company has
obtained either regulatory approval of, or the favorable opinion of local
legal counsel with respect to, its network marketing system, has obtained
all requisite regulatory approvals of at least one product and has commenced
sales and shipment of that product within the market or country. With
respect to Japan, from 1989 through 1992, the Company operated under a
licensing arrangement in Japan and reported license fees with respect
thereto as revenue. Subsequently, in 1993, the Company formed a new Japanese
subsidiary whose revenues were then included in the Company's results of
operations. Accordingly, the Company considers Japan to have been "opened"
in 1993.

Weight Management Products. A majority of the Company's sales are derived
from the 14 weight management products that the Company markets as the
Thermojetics(R) Weight-Management System. These weight management products
include the following: (i) Formula 1, a protein powder in four different flavors
designed as a meal replacement, (ii) the four Thermojetics(R) weight management
tablets (original green, green, beige and yellow), (iii) Thermojetics(R) Herbal
Concentrate, an herbal beverage blended from five natural botanicals, and (iv) a
variety of other nutritional products, such as Cell-U-Loss(R), Activated Fiber,
N.R.G. (Nature's Raw Guarana), Thermo-bond(R) and Aminogen(R). In addition, the
Company has recently introduced four new products to the Thermojetics(R) system:
Chew Slim(TM) herbal diet gum, WaferFull(TM) chewable wafers, MentaBalance(TM)
amino acid and herbal supplement and CarboGuard(TM) micronutrient and herbal
supplement.

Food and Dietary Supplements. The Company's food and dietary supplements
include a variety of products, each containing herbs, vitamins, minerals and
other natural ingredients. Such products are sold under various names, including
Herbal-Aloe, Florafiber, Xtra-Cal, Herbalifeline(R), Tang Kuei Plus, Male Factor
1000(R), Schizandra Plus(R) and A.M. Replenishing and P.M. Cleansing formula. In
addition, in 1996, the Company launched its Health & Fitness Program and Bulk &
Muscle Program, together with a Longetics Program designed for the needs of
mature adults, which offer various products consisting of a protein drink mix, a
multivitamin, mineral and herbal tablet and Cell Activator(R). In 1996, the
Company also introduced products designed to meet the nutritional needs of
children, consisting of Kindermins(R), a liquid multivitamin/ herbal formula,
and Dinomins(TM), a chewable vitamin tablet.

Personal Care Products. The Company's entire personal care product line is
marketed under the name Dermajetics(R), which was initially launched in 1995.
Currently, the Dermajetics(R) product line consists of the following products:
The Skin Survival Kit, consisting of a day and night moisturizer, a deep
cleaning facial mask and a hydrating eye gel, all packaged in a cosmetic bag;
Parfums Vitessence(TM), consisting of six eaux de toilette, three for men and
three for women; Nature's Mirror(R), consisting of a cleanser, toner and
moisturizer for each of three different skin types and four specialty care
products; Good Hair Day, consisting of seven hair care products; Ocean
Currents(R), consisting of three bath products; Aroma Vie(R), consisting of
three aromatic soaps and oils; and other specialty personal care products,
including Herbal Aloe Gel and Lotion, Super APR (Arthritis Pain Relief), a
suncare line and Body Buffing and Toning Cream. In addition, during 1998 the
Company intends to introduce a new line of color cosmetics (lipstick, mascara
and related products) in selected markets.

Educational and Promotional Materials. The Company also sells distributor
kits, which an individual must purchase (at a worldwide average cost of
approximately $87 per kit) in order to become a distributor of the Company, as
well as other educational and promotional materials. Such materials include
sales aids, informational videotapes and cassette recordings. Sales of
distributor kits are not subject to distributor allowances (i.e., the Company
receives the entire retail sales amount from the sale of distributor kits).

Home Technology Products. During 1998, the Company plans to launch its new
AquaGenics(TM) line of home water purification systems. The AquaGenics(TM) line
includes a state-of-the art drinking water filtration system and a shower-head
water filter. In addition, the Company is in the developmental stage for other
home technology products.

34
<PAGE> 35

Product Manufacturing and Development. The Company expands its product line
through the development of new products. New product ideas are derived from a
number of sources, including trade publications, scientific and health journals,
the Company's executives, staffs and consultants and outside parties. In advance
of introducing products into its markets, local counsel and other
representatives retained by the Company investigate product formulation matters
as they relate to regulatory compliance and other issues. The Company's products
are then reformulated to suit both the regulatory and marketing requirements of
the particular market. See "-- Regulation."

All of the Company's products are manufactured by outside companies. Raven
currently manufactures all of the Company's powder products, and D&F currently
supplies substantially all of the Company's tablet and capsule products. For a
number of years prior to 1998, the Company was subject to requirements contracts
with each of Raven, D&F and Dynamic, pursuant to which the Company agreed to
purchase all of its requirements of powder products from Raven and all of its
requirements of tablet, capsule and certain other products from Dynamic or D&F,
to the extent each such manufacturer was capable of manufacturing such products.
In 1996 and 1997, aggregate purchases by the Company from Raven and D&F
represented a majority of the Company's product purchases. In September 1997,
the Company entered into new three-year agreements with Raven, D&F and Dynamic,
pursuant to which revised pricing and other provisions became effective on
January 12, 1998. The new contracts provide, among other things, the ability for
the Company to source and develop products with other third party manufacturers,
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. As a result, and because the new contracts
confirm the Company's ownership of product formulations for substantially all of
the Company's nutritional products, the Company has the capacity, and has begun
to seek, to "second source" particular nutritional supplement products with
multiple manufacturers. In addition, the Company's WaferFull(TM) and Chew
Slim(TM) weight management products are being manufactured for the Company by
new manufacturers. Further, the Company has hired its own staffs of product
research and development and product formulation personnel, and will
increasingly rely on its in-house staff for these functions. However, the
Company has historically relied on Raven and D&F for these services, and will
continue to do so, albeit to a lesser extent, in the future.

The Company's ability to enter new markets and sustain satisfactory levels
of sales in each market has been in the past and is likely to continue to be
dependent in significant part upon its own ability and the ability of its
manufacturers, including Raven and D&F, to develop new products and reformulate
existing products for introduction into the Company's markets. Beginning in
1997, the Company has significantly expanded its in-house product research and
development and product formulation staffs, which now consist of 23 individuals.
With the transition in the Company's relationship with Raven and D&F from
exclusive to non-exclusive contracts, there can be no assurance that the Company
will seek or continue to obtain the same amount or quality of product research,
development or formulation services from Raven and D&F that it has received in
the past. While the Company expects to obtain similar such services from
in-house personnel and alternative manufacturers in the future, there can be no
assurance that there will not be some disruption in the Company's business from
time to time as these support services begin to be provided internally or by
alternative manufacturers.

Pursuant to its new contracts with Raven, D&F and Dynamic, the Company owns
the proprietary rights to substantially all of its weight management products
and food and dietary supplements. However, there can be no assurance that
another company will not replicate one of the Company's products. In addition,
Raven and D&F continue to own certain product formulations and manufacturing
processes relating to certain of the Company's nutritional products. Two
individuals (not affiliates of the Company) are principal stockholders of each
of D&F, Raven and Dynamic. Mark Hughes owns a one-third ownership interest in
Raven and a one-fifth ownership interest in Dynamic. See "Certain Transactions."

Product Return and Buy-Back Policies. All of the Company's products include
a customer satisfaction guarantee. Within thirty days of purchase, any customer
who is not satisfied with an Herbalife product for any reason may return it or
any unused portion to the distributor from whom it was purchased for a full
refund from the distributor or credit toward purchase of another Herbalife
product. Distributors may obtain replacements from the Company for products
returned to them by consumers if they return such products to
35
<PAGE> 36

the Company on a timely basis. In addition, in most jurisdictions, the Company
maintains a buy-back program pursuant to which it will repurchase products sold
to a distributor provided that the distributor resigns as a Company distributor,
returns the product in marketable condition within twelve months of original
purchase and meets certain documentation and other requirements. The Company
believes this buy-back policy addresses a number of the regulatory compliance
issues pertaining to network marketing systems. See "Regulation -- Network
Marketing System." Historically, product returns and buy-backs have not been
significant, averaging 0.7% of annual retail sales during the last five years.

Recent Regulatory Developments. The development and marketing of the
Thermojetics(R) weight management tablets (original green, green, beige and
yellow) and other products in the Thermojetics(R) line have contributed
significantly to the Company's retail sales. One of the ingredients in the
Thermojetics(R) original green herbal tablet is a Chinese herb, Ma Huang, which
contains naturally-occurring ephedrine in small quantities. Ephedrine products
have been the subject of adverse publicity in the United States and other
countries relating to alleged harmful effects, including the deaths of several
individuals. Currently, the Company offers the Thermojetics(R) original green
herbal tablet only in the United States (except in certain states in which
regulations may prohibit or restrict the sale of such product). On April 10,
1996, the FDA issued a statement warning consumers not to purchase or ingest
dietary supplements containing natural sources of ephedrine that are claimed to
produce certain effects (none of which are claimed by the Company's product). On
June 4, 1997, the FDA issued a proposed regulation for dietary supplements
containing ephedrine alkaloids. The proposed regulation would include
prohibitions against dietary supplements containing eight milligrams or more of
ephedrine alkaloids per serving, and would not permit such products to contain
any other stimulant, diuretic or laxative ingredients. In addition, labeling of
supplements would be prohibited from suggesting or recommending conditions of
use that would result in an intake of eight milligrams or more of ephedrine
alkaloids within a six-hour period, or a total daily intake of 24 milligrams or
more. The FDA proposal would also include prohibitions against certain claims of
suitability for weight loss and other uses or benefits. However, no final
regulation has been issued to date. There can be no assurance as to the final
form of any new FDA regulations or that the FDA will not seek to impose
additional regulations, possibly prohibiting, limiting potencies or placing
other restrictions on the sale of such products, or the impact, if any, of any
such regulations or actions on the Company. In addition, in September 1997 the
FDA issued regulations governing the labeling and marketing of dietary
supplement products. The Company will be required to revise a substantial number
of its product labels to reflect the new requirements prior to the 1999
effective date, although the Company does not expect the cost or impact of such
actions to be material. See "Risk Factors -- Regulation" and " --Regulation."

In addition, during the third quarter of 1995, the Company received
inquiries from certain governmental agencies within Germany and Portugal
relating to the Company's product, Thermojetics(R) Instant Herbal Beverage,
which does not contain Ma Huang. The inquiries related to the caffeine content
of the product and the status of the product as an "instant tea," which was
disfavored by the regulators, versus a "beverage." The sale of this product in
these countries was subsequently suspended by the Company at the request of the
regulators. The Company may in the future attempt to reintroduce the product as
a "beverage" in one or both of these markets. See "Risk Factors -- Regulation"
and " --Regulation."

NETWORK MARKETING SYSTEM

The Company's products are distributed exclusively through a network
marketing system consisting of an extensive network of distributors.
Distributors are generally independent contractors who purchase products
directly from the Company or from other distributors for resale to retail
consumers and other distributors. Distributors may elect to work on a full-time
or part-time basis. The Company believes that its network marketing system
appeals to a broad cross-section of people worldwide, particularly those seeking
to supplement family income, start a home business or pursue employment
opportunities other than conventional, full-time employment, and that a majority
of its distributors therefore work on a part-time basis. The Company believes
that its network marketing system is ideally suited to marketing its products
because sales of such products are strengthened by ongoing personal contact
between retail consumers and distributors,

36
<PAGE> 37

many of whom use the Company's products themselves. The Company encourages its
distributors to use the Company's products and to communicate the results of
their use of such products to their retail customers.

Distributors' earnings are derived from several sources. First,
distributors may earn profits by purchasing the Company's products at wholesale
prices (which are discounted 25% to 50% from suggested retail prices depending
on the distributor's level within the Company's distributor network) and selling
the Company's products to retail customers at retail prices. Second,
distributors may earn profits by selling products to distributors within their
downline organization who receive a lower discount percentage than the selling
distributor. Third, distributors who sponsor other distributors and establish
their own downline organizations may earn royalties of 1% to 5% on product sales
on each of up to three downline supervisor levels and production bonuses of 2%
to 6% on product sales within their downline organizations upon becoming a
qualifying "TAB Team" member. Combining these sources of earnings and including
participation in the President's Team bonus (as described below), the Company's
total "pay-out" on products subject to distributor royalty overrides is
approximately 72% of the Company's suggested retail sale price (i.e. 50%
distributor allowance plus up to 22% of suggested retail sales prices in royalty
overrides and similar bonuses, before reflecting a 6% handling fee charged to
distributors by the Company).

Distributors earn the right to receive royalties upon attaining the level
of supervisor and above, and production bonuses upon attaining the level of
Global Expansion Team and above. Once a distributor becomes a supervisor, he or
she has an incentive to qualify (by earning specified amounts of royalties) as a
member of the Global Expansion Team, the Millionaire Team or the President's
Team and thereby receive production bonuses (2%, 4% and 6%, respectively). The
Company believes that the right of distributors to earn royalties and production
bonuses contributes significantly to the Company's ability to retain its most
productive distributors.

To become a distributor, a person must be sponsored by an existing
distributor and must purchase a distributor kit from the Company (except in
Korea, where there is no charge for a distributor kit). To become a supervisor
or qualify for a higher level, distributors must purchase a certain amount of
the Company's products or earn certain amounts of royalties during specified
time periods and must re-qualify for such levels once each year. To attain
supervisor status, generally, a distributor must purchase, either from the
Company or other distributors, products representing at least 4,000 volume
points in one month or 2,500 volume points in two consecutive months (volume
points are point values assigned to each of the Company's products that are
equal in all countries and are based on the suggested retail price of U.S.
products). Supervisors may then attain higher levels (i.e., the Global Expansion
Team, the Millionaire Team or the President's Team) by earning increasing
amounts of royalties based on purchases by distributors within their
organizations. Supervisors contribute significantly to the Company's sales and
certain key supervisors who have attained the highest levels within the
Company's distributor network are responsible for generating a substantial
portion of the Company's sales and for recruiting a substantial number of the
Company's distributors. The following table sets forth the approximate number of
the Company's supervisors at the dates indicated:

<TABLE>
<CAPTION>
FEBRUARY 28,*
--------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Approximate Number of
Supervisors................. 18,000 41,000 75,000 90,000 99,000 115,000 139,000
</TABLE>

- ---------------

* Every February 28th, the Company deletes from the rank of supervisor those
supervisors who did not satisfy the supervisor qualification requirements
during the preceding twelve months. Distributors who meet the supervisor
requirements at any time during the year are promoted to supervisor status at
such time (including any supervisors who were deleted, but who subsequently
requalified). The Company relies on distributors' certifications as to the
amount and source of their product purchases from other distributors. Although
the Company applies certain review procedures with respect to such
certifications, they are not directly verifiable by the Company.

The Company also has two compensation and incentive programs designed to
motivate distributors at both the most senior and junior levels within the
Company's distributor network. The Company's most senior

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<PAGE> 38

distributors consist of approximately 345 distributors (as of December 31, 1997)
who comprise the President's Team and who work closely with Mark Hughes to
develop and implement new initiatives and strategies for increasing sales and
distributor productivity throughout the Company's entire distributor
organization. Qualifying President Team members have the opportunity to
participate in the President's Bonus, which in 1998 consists of a total
available awards package of one percent of the Company's 1997 total product
retail sales, or approximately $14.2 million. The distribution of the
President's Bonus is determined by Mark Hughes and is based in part upon each
President Team member's participation in corporate-sponsored training and
motivational events. In this manner, the Company attempts to involve its most
senior distributors in the development and growth of the Company in order to
support the sales, training, motivation and strategic planning efforts of Mark
Hughes. In addition to these programs, the Company periodically offers a variety
of special promotions related to particular products or sales periods, involving
special cash bonuses and other awards, such as Get-A-Way vacations.

For the Company's most junior distributors, those who have not yet attained
supervisor status, the Company instituted a "Success Builder" program. This
program permits a distributor who purchases products representing 1,000 volume
points in one month to obtain a 42% distributor allowance from suggested retail
prices on the Company's products, rather than the standard 25%. In addition, in
1996, the Company introduced the Herbalife Advantage Program ("HAP"), which uses
a product brochure that enables the Company's junior distributors to obtain an
extra 10% distributor allowance over the standard 25% and to order products by
individual unit (rather than by cases) to better suit their inventory and usage
needs. The Success Builder and HAP programs are designed to provide incentives
to distributors who are in the initial stages of building distributor
organizations and to encourage them to reach supervisor status.

The Company seeks to expand its distributor base in each market by offering
distributors attractive compensation opportunities. The Company believes its
international sponsorship program provides a significant advantage to its
distributors as compared with distributors in certain other network marketing
organizations because the program permits distributors in any country to sponsor
distributors in other countries (where the Company is licensed to do business
and where the Company has obtained required product approvals) and to earn the
same level of royalties and bonuses on sales by those distributors as if both
distributors resided in the same country.

The Company maintains a computerized system for processing distributor
orders and calculating distributor royalties and bonus payments which enables it
to remit such payments promptly to distributors. The Company believes that
prompt remittance of royalties is vital to maintaining a motivated network of
distributors and that its distributors' loyalty to the Company has been enhanced
by the Company's history of consistently making royalty and bonus payments on a
scheduled basis.

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<PAGE> 39

GEOGRAPHIC AREAS OF OPERATIONS

The following chart sets forth the countries in which the Company currently
operates, the year operations were commenced in each country and retail sales
information by country from 1993 to 1997.

RETAIL SALES BY COUNTRY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
YEAR ------------------------------------------------------------------------------------------
COUNTRY(1) ENTERED 1993 1994 1995 1996 1997
- --------------------------- ------- --------------- --------------- --------------- --------------- ------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Australia.................. 1982 $ 20,602 $ 29,155 $ 30,803 $ 24,059 $ 20,644
New Zealand................ 1988 2,497 3,206 2,535 1,799 1,802
Hong Kong.................. 1992 3,853 5,323 10,783 11,698 21,808
Japan(6)................... 1993 686 18,759 81,730 311,117 525,738
Philippines................ 1994 80 13,219 1,935 1,264
Taiwan..................... 1995 4,424 26,226 47,644
Korea...................... 1996 1,951 14,631
Thailand(7)................ 1997 9,907
-------- -------- -------- ---------- ----------
ASIA/PACIFIC RIM........... 27,638 56,523 143,494 378,785 643,438
-------- -------- -------- ---------- ----------
United Kingdom............. 1983 24,930 30,769 15,296 12,487 11,833
Israel(3).................. 1989 30,359 73,278 30,133 8,419 8,132
Spain...................... 1989 47,662 30,733 15,730 9,792 9,371
France..................... 1990 97,306 46,968 13,129 12,379 12,913
Germany.................... 1991 83,068 159,482 115,555 54,340 44,059
Italy...................... 1992 77,842 72,009 56,687 54,449 65,026
Portugal................... 1992 13,328 11,073 8,934 3,097 3,545
Czech Republic............. 1992 10,005 24,423 15,112 13,733 14,758
Netherlands................ 1993 7,009 17,581 18,237 15,248 18,188
Belgium.................... 1994 1,965 3,775 2,370 2,310
Poland..................... 1994 792 6,238 16,218 13,883
Denmark.................... 1994 2,377 11,263 3,747 4,699
Sweden..................... 1994 1,799 17,845 16,488 21,061
Russia(4).................. 1995 29,593 142,078 157,819
Switzerland................ 1995 4,911 14,412 17,315
Austria.................... 1995 3,134 7,385 10,076
Norway..................... 1995 367 8,279 14,822
Finland.................... 1995 300 14,702 9,073
South Africa(5)............ 1995 7,707 21,497 13,337
Greece..................... 1996 227 898
-------- -------- -------- ---------- ----------
EUROPE..................... 391,509 473,249 373,946 431,347 453,118
-------- -------- -------- ---------- ----------

United States.............. 1980 246,984 294,987 333,595 279,596 298,661
Canada..................... 1982 10,100 10,789 12,042 13,848 17,452
Mexico..................... 1989 16,784 25,422 15,125 11,590 15,973
Dominican Republic(2)...... 1994 2,500 101 33 127
Venezuela.................. 1994 1,527 11,152 5,568 3,667
Argentina.................. 1994 19,061 10,006 3,185 4,784
Brazil..................... 1995 24,183 76,192 50,094
Chile(7)................... 1997 3,379
-------- -------- -------- ---------- ----------
THE AMERICAS............... 273,868 354,286 406,204 390,012 394,137
-------- -------- -------- ---------- ----------
Total Retail Sales..... $693,015 $884,058 $923,644 $1,200,144 $1,490,693
======== ======== ======== ========== ==========
</TABLE>

39
<PAGE> 40

- ---------------

(1) The Company records sales data based on the country from which distributor
orders are shipped by the Company. Sales by distributors to other
distributors or retail consumers may occur in other countries, although such
sales generally violate geographic limitations imposed by the Company on
product sales.

(2) Sales in the Dominican Republic are shipped from the United States.

(3) The Company initiated operations in Israel in 1989 through a licensing
arrangement that was terminated in 1990. In 1991, the Company began
operating in Israel through a wholly-owned subsidiary. Accordingly, sales
data for Israel are reported only for 1991 and subsequent periods.

(4) The Company operates through various import/export companies located in
Russia to conduct transactions in the Company's products with Russian
distributors.

(5) Because sales in South Africa are not large enough to be treated as a
separate segment, they are included with sales from the European region.

(6) In 1989 through 1992 the Company operated under a licensing arrangement in
Japan and recorded license fees with respect thereto as revenue. A new
Japanese subsidiary was formed in November 1993 whose results from that date
are reported above. Approximately 93.0% of the outstanding capital stock of
the Japanese subsidiary is owned by the Company, with the remainder owned by
certain officers and directors of the Company. In addition, the Company has
begun steps to pursue an initial public offering of shares of the Japanese
subsidiary in Japan. See "Certain Transactions."

(7) The Company initiated operations in Chile and Thailand in the first and
second quarters of 1997, respectively.

Geographic Sales Trends. The opening of new markets is an important
component of the Company's business strategy. From January 1, 1992 through
December 31, 1997, the Company commenced operations in 26 new countries. In
1997, these countries contributed $1.05 billion of retail sales, representing
70.4% of the Company's total retail sales. Japan accounted for $525.7 million of
such sales, representing 35.3% of retail sales. Consistent with its growth
strategy, the Company opened markets in Thailand and Chile in 1997 and plans to
open Turkey and Indonesia in 1998. Additional new markets currently under
consideration include China, India, Colombia and Ecuador.

After entering a new country, the Company has in many instances experienced
an initial period of rapid growth in sales as new distributors were recruited,
followed by a decline in sales. The Company believes that a significant factor
affecting these markets has been the opening of other new markets within the
same geographic region or with the same or similar language or cultural bases
and the corresponding tendency of some distributors to focus their attention on
the business opportunities provided by new markets instead of developing their
established downline organizations in existing markets. Additionally, in certain
instances, the Company has become aware that certain sales in certain existing
markets were attributable to purchasers who distributed such product in
countries which had not yet been opened. When these countries were opened, such
sales in existing markets shifted to the newly opened markets, resulting in a
decline in sales in the existing markets. In determining when and where to open
new markets, the Company will continue to seek to minimize the impact on
distributor focus in existing markets and to ensure that adequate distributor
support services and other Company systems are in place to support the growth.

Another significant factor contributing to such sales declines is the
adverse publicity that sometimes arises when the Company experiences rapid
growth within a market, thus drawing the attention of the media and the
Company's competitors. The Company believes such unfavorable press reports are
generally based upon a lack of familiarity with the Company and its network
marketing system and often originate from competitive forces in the local
market. For instance, in France in late 1994 through 1995, certain reports
erroneously alleged that the Company was in some manner affiliated with a
disfavored religious group. In other cases, including a situation in France that
resulted in the arrest of certain Herbalife distributors, adverse publicity has
arisen from allegations of tax improprieties, which typically occur when a
country applies its tax laws for the first time to a sales and distribution
system that is relatively new to that country, as is often the case with the
Company's network marketing system. See "-- Regulation -- Transfer Pricing and
Similar Regulations." The effect of occasional adverse publicity has at times
also led to increased regulatory scrutiny
40
<PAGE> 41

in certain countries, which may also have an adverse effect on sales. For
example, during the third quarter of 1995, the Company received inquiries from
certain governmental agencies within Germany and Portugal related to the
Company's product, Thermojetics(R) Instant Herbal Beverage. The inquiries
related to the caffeine content of the product and the status of the product as
an "instant tea," which was disfavored by the regulators, versus a "beverage."
The sale of this product in these countries was subsequently suspended by the
Company at the request of the regulators. The Company may in the future attempt
to reintroduce the product as a "beverage" in one or both of these markets.

Management continually seeks to revitalize sales in markets, such as
France, Germany, Italy and Spain, that have experienced an initial period of
growth followed by a leveling off or decline in sales, including by providing
extensive training and motivational program support to distributors. In
addition, the Company has created regional planning and strategy groups that
include senior members of the Company's distributor base, increased focus and
budgets for governmental relations and hired additional distributor support
representatives. The Company also seeks to introduce annually in each targeted
market additional products not previously offered. In certain markets, the
Company has enhanced its presence and visibility by opening new, more attractive
and conveniently located distributor sales centers. The Company believes that
these initiatives favorably impact operations and the Company will continue to
deploy these initiatives in an effort to provide a platform for renewed growth.

Asia/Pacific Rim. Retail sales in Asia/Pacific Rim increased $264.6 million
or 69.9% during 1997 as compared to the prior year. The increase resulted from
strong retail sales in Japan and Taiwan. Retail sales in Japan increased $214.6
million, or 69.0%. Given the rapid increase in retail sales in Japan to current
levels, retail sales in Japan are not expected to continue to increase at
historic rates. In Taiwan, retail sales for 1997 increased $21.4 million, or
81.7%. Retail sales in other Asia/Pacific Rim countries for 1997 increased $28.6
million, or 69.1% as compared to 1996. The increases in the other Asia/Pacific
Rim countries resulted from the opening of South Korea in November 1996 and
Thailand in June 1997 coupled with increased retail sales in Hong Kong.

Europe. Retail sales in Europe increased $21.8 million or 5.1% in 1997 as
compared to the prior year. Within the region, retail sales in Italy and Russia
increased $10.6 million, or 19.4%, and $15.7 million, or 11.1%, respectively, in
1997 compared to 1996. Offsetting the retail sales increases were declines in
Germany, South Africa and Finland of $10.3 million, $8.2 million and $5.6
million, respectively in 1997 as compared to the prior year. Although retail
sales in Germany, South Africa and Finland declined in comparison to the prior
year, they have remained relatively stable over the past four quarters.

The Americas. Retail sales in the Americas increased $4.1 million, or 1.1%
in 1997 as compared to the prior year. The increase in retail sales primarily
resulted from retail sales increases in the United States, Canada and Mexico of
$19.1 million, $3.6 million and $4.4 million, respectively and retail sales of
$3.4 million resulting from the opening of Chile in March, 1997. Partially
offsetting these increases was a decline in Brazil of $26.1 million, or 34.3%.
The retail sales decrease in Brazil was primarily due to a difficult regulatory
environment which, among other factors, impeded the introduction of new products
within the country. The Company has recently received approval for approximately
30 personal care products and will continue to pursue approval of other new
products within Brazil. During each of the 1997 third and fourth quarters,
retail sales in Brazil increased as compared to the preceding quarters. The 1997
fourth quarter retail sales in Brazil exceeded the same period in 1996 by 9.7%.

The Company is exposed to risks associated with the current economic and
currency crises in Asia. Because of the significance of the Asian markets, and
Japan in particular, which has become the Company's largest single retail sales
market, a sustained economic slowdown and/or currency crisis in Asia could have
a material adverse impact on the Company's business. It is not possible for the
Company to predict the future economic climate in Asia.

New Market Expansion Program. The Company engages in a structured and
thorough analysis of potential new markets, including analysis of regulatory
conditions, product approval procedures, competitive forces, synergies between
new and existing countries and distributor presence or interest in new markets,
before selecting markets to enter. When the Company decides to enter a new
market, it first hires local legal
41
<PAGE> 42

counsel with expertise in the product approval process to help ensure that the
Company's network marketing system and products comply with all applicable
regulations and that the Company's profits may be expatriated. In addition,
local counsel helps to establish favorable public relations in the new market by
acting as an intermediary between the Company and local regulatory authorities,
public officials and business people. Local counsel is also responsible for
explaining the Company's products and product ingredients to appropriate
regulators and, when necessary, arranging for local technicians to conduct
required ingredient analysis tests of the Company's products. In recent years,
the Company has expanded its hiring of local firms with experience in
governmental relations and public relations prior to opening a market in order
to ensure a more favorable business environment upon entering the market.

Where regulatory approval in a foreign market is required, the Company's
local counsel work with regulatory agencies to confirm that all of the
ingredients of the Company's products are permissible within the new market.
During the regulatory compliance process, the Company may alter the formulation,
packaging or labeling of its products to conform to applicable regulations as
well as local variations in customs and consumer habits, and the Company may
modify certain aspects of it network marketing system as necessary to comply
with applicable regulations. Where reformulations of the Company's principal
weight management products are required, the Company has historically found
substitute or replacement ingredients to be readily available, although there
can be no assurance in this regard in the future. Where regulatory approval in a
foreign market is not required, the Company obtains the favorable opinion of
local counsel as to compliance with all applicable regulations. See
"-- Regulation."

Following completion of the regulatory compliance phase, the Company
undertakes the steps necessary to meet the operational requirements of the new
market. The Company has recently developed a centralized distribution and
telephone ordering system. In the majority of its new markets, the Company
establishes a storefront sales center in one or more major cities and provides
for product purchases by telephone. Product is shipped to the purchaser from a
warehouse located in the general geographic region. In addition, the Company
initiates plans to satisfy the inventory, personnel and transportation
requirements of the new market, and the Company modifies its distributor
manuals, cassette recordings, video cassettes and other training materials as
necessary to be suitable for the new market. In certain instances where the
Company has achieved rapid sales growth in a new market, such as in Japan and
Brazil, the Company has experienced inventory shortages as a result of the large
demand for the Company's products.

Although the Company intends to expand into new markets, there can be no
assurance that the Company can open markets on a timely basis or that such new
markets will prove to be profitable. Significant regulatory and legal barriers
must be overcome before marketing can begin in any new market. In addition,
expansion of the Company's operations into new markets entails substantial
working capital and capital expenditure requirements associated with both the
regulatory compliance and operations phases of the process. The lead-time and
costs associated with opening anticipated new markets may significantly exceed
those of entering new markets in the past due to greater regulatory barriers,
the necessity of adapting to entirely new regulatory systems and problems
related to entering new markets with different cultural bases and political
systems from those encountered in the past. The lead-time necessary to open a
new market is generally up to two years but may be more.

PRODUCT DISTRIBUTION

The Company's weight management products, food and dietary supplements and
some personal care products are distributed to foreign markets either from the
facilities of the Company's manufacturers or from the Company's Los Angeles
distribution center. Products are distributed in the United States market from
the Los Angeles distribution center or from the Company's Memphis distribution
center. Products are generally transported by cargo ship or plane to the
Company's international markets and are warehoused in either one of the
Company's foreign distribution centers or a contracted third party warehouse and
distribution center. After arrival of the products in a foreign market,
distributors purchase the products from the local distribution center or the
associated sales center. The Company's Dermajetics(R) personal care products are
predominantly manufactured in Europe and the United States. The products
manufactured in Europe are shipped to a centralized warehouse facility in
Strasbourg, from which delivery by ship or plane to other international
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<PAGE> 43

markets occurs. The Company's new line of color cosmetics products are being
manufactured in Italy and Germany, and the AquaGenics(TM) products are being
manufactured in the United States.

Beginning in 1996 and continuing in 1997, the Company undertook the process
of reconfiguring its European product distribution system. As a part of this
process, the Company has reduced the number of European warehousing facilities
from nine to five and has opened new distribution sales centers. These sales
service centers are conveniently located and attractively designed in order to
encourage local distributors to meet and network with each other and learn more
about Herbalife's products, marketing system and upcoming events. In addition,
the Company has opened a central sales ordering facility in the United Kingdom
for answering and processing telephone orders from throughout Europe. Operators
at this center are capable of conversing in 17 different languages. As part of
this reconfiguration, the Company also implemented a new inventory management
system in the U.S., the U.K., France, Germany and Japan. The new European system
has resulted in improved inventory management. Management anticipates that the
reconfigured European distribution system, featuring centralized distribution
and telephone ordering systems coupled with convenient storefront distributor
service centers, will be the model for developing distribution and distributor
service systems in other regions of the world.

MANAGEMENT INFORMATION AND TELECOMMUNICATIONS SYSTEMS

In order to facilitate its continued growth and support distributor
activities, the Company continually upgrades its management information and
telecommunications systems. These systems include, among other things: (i) a
centralized host computer located in the Company's Inglewood, California
Operations Center, which is linked to Herbalife's international markets through
a dedicated wide area network that provides on-line, real-time computer
connectivity and access; (ii) local area networks of personal computers within
Herbalife's markets, serving the Company's regional administrative staffs; (iii)
an international e-mail system through which Herbalife employees communicate;
(iv) a standardized Northern Telecom Meridian telecommunications system
connecting all of the Company's markets; and (v) a new inventory management
system that has recently been installed in the U.S., the U.K., France, Germany
and Japan. These systems are designed to provide, among other things, financial
and operating data for management, timely and accurate product ordering, royalty
payment processing and inventory management and detailed distributor records.
During 1995, 1996 and 1997, the Company has invested in excess of $15 million to
enhance its computer and telecommunications systems. Additional significant
expenditures, including those to address computer system upgrades relating to
the adoption of a single European Union currency in 1999 and Year 2000
compliance issues, are planned for the next several years. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

REGULATION

In both its United States and foreign markets, the Company is subject to
and affected by extensive laws, governmental regulations, administrative
determinations, court decisions and similar constraints (as applicable, at the
federal, state and local levels) including, among other things, regulations
pertaining to (i) the formulation, manufacturing, packaging, labeling,
distribution, importation, sale and storage of the Company's products, (ii)
product claims and advertising (including direct claims and advertising by the
Company as well as claims and advertising by distributors, for which the Company
may be held responsible), (iii) the Company's network marketing system, (iv)
transfer pricing and similar regulations that affect the level of foreign
taxable income and customs duties, and (v) taxation of distributors, which in
some instances may impose an obligation on the Company to collect the taxes and
maintain appropriate records. See "Risk Factors -- Regulation."

Products. The formulation, manufacturing, packaging, storing, labeling,
advertising, distribution and sale of the Company's products are subject to
regulation by one or more governmental agencies, including the Food and Drug
Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer
Product Safety Commission ("CPSC"), the United States Department of Agriculture
("USDA"), the Environmental Protection Agency ("EPA") and the United States
Postal Service. The Company's activities are also regulated by various agencies
of the states, localities and foreign countries in which the Company's products
43
<PAGE> 44

are manufactured, distributed and sold. The FDA, in particular, regulates the
formulation, manufacture and labeling of foods, dietary supplements and OTC
drugs, such as those distributed by the Company. FDA regulations require the
Company and its suppliers to meet relevant good manufacturing practice ("GMP")
regulations for the preparation, packing and storage of these products. GMP's
for dietary supplements have yet to be promulgated but are expected to be
proposed.

The 1994 Dietary Supplement Health and Education Act ("DSHEA") revised the
provisions of the Federal Food, Drug and Cosmetic Act ("FFDCA") concerning the
composition and labeling of dietary supplements and, the Company believes, is
generally favorable to the dietary supplement industry. The legislation creates
a new statutory class of "dietary supplements." This new class includes
vitamins, minerals, herbs, amino acids and other dietary substances for human
use to supplement the diet, and the legislation grandfathers, with certain
limitations, dietary ingredients that were on the market before October 15,
1994. A dietary supplement which contains a new dietary ingredient (i.e., one
not on the market before October 15, 1994) will require evidence of a history of
use or other evidence of safety establishing that it is reasonably expected to
be safe. Manufacturers of dietary supplements which make a "statement of
nutritional support," which are statements describing certain types of product
performance characteristics, must have substantiation that the statement are
truthful and not misleading.

The majority of the products marketed by the Company are classified as
dietary supplements under the FFDCA. In addition, the adoption of new
regulations in the United States or in any of the Company's international
markets, or changes in the interpretation of existing regulations, could have a
material adverse effect on the Company. In September 1997 the FDA issued
regulations governing the labeling and marketing of dietary supplement products.
The regulations cover: 1) the identification of dietary supplements and their
nutrition and ingredient labeling; 2) the terminology to be used for nutrient
content claims, health content claims, and statements of nutritional support; 3)
labeling requirements for dietary supplements for which "high potency" and
"antioxidant" claims are made; 4) notification procedures for statements on
dietary supplements; and 5) premarket notification requirements for new dietary
ingredients in dietary supplements. The notification procedures became effective
in November, 1997, while the new labeling requirements will not become effective
until March 1999. The Company will be required to revise a substantial number of
its product labels to reflect the new requirements prior to the 1999 effective
date although the Company does not expect the cost or impact of such actions to
be material. In addition, the Company will be required to continue its ongoing
program of securing substantiation of its product performance claims, and of
notifying the FDA of certain types of performance claims made for its products.
The Company's substantiation program involves compiling and reviewing the
scientific literature pertinent to the ingredients contained in the Company's
products.

In addition, in certain markets, including the U.S., claims made with
respect to weight management, dietary supplement, personal care or other
products of the Company may change the regulatory status of the products. In the
U.S., for example, it is possible that the FDA could take the position that
claims made for certain of the Company's products place those products within
the scope of an FDA "over-the counter" (OTC) drug monograph. OTC monographs
prescribe permissible ingredients and appropriate labeling language, and require
the marketer or supplier of the products to register and file annual drug
listing information with the FDA. A limited number of the products sold by the
Company are labeled as OTC monograph drugs, and the Company believes that it is
in compliance with the applicable monographs. In the event that the FDA asserted
that product claims for other products caused them to fall within the scope of
OTC monographs, the Company would be required either to comply with the
applicable monographs or change the claims made in connection with the products.
There can be no assurance that the Company could do so effectively, or that any
such changes would not adversely affect sales and marketing of an affected
product.

relating to alleged harmful effects, including the deaths of several
individuals. Currently, the Company offers the Thermojetics(R) original green
herbal tablet only in the United States (except in certain states in which
regulations may prohibit or restrict the sale of such product). In response to
potential federal regulatory proposals that may have affected the sale of the
Thermojetics(R) original green tablets in the United States, the Company
suspended sales of the product for approximately three months commencing in July
1995 and introduced a reformulated herbal green tablet that did not contain Ma
Huang. When no such regulations were proposed or issued at that time, the
Company renewed sales of Thermojetics(R) original green herbal tablets in the
United States in October 1995 (except in certain states in which regulations may
prohibit or restrict the sale of such product). During the three-month
suspension period, the Company did not experience a material change in the level
of sales of the reformulated Thermojetics(R) green tablets versus sales of the
Thermojetics(R) original green tablets in the recently preceding months.
However, it is possible that a longer suspension period could have resulted in a
decrease in sales of the reformulated Thermojetics(R) green tablets or other
products within the Thermojetics(R) Weight Management System (even though such
products do not contain Ma Huang). The Thermojetics(R) green tablets accounted
for 2.4% and 2.2% of retail sales in 1996 and 1997, respectively, although the
marketing of the Thermojetics(R) weight management tablets (original green,
green, beige and yellow) and other products in the Thermojetics(R) line have
contributed significantly to the Company's retail sales. The Company also
previously offered the Thermojetics(R)original green herbal tablet in Canada
but, in response to Canadian marketing issues and regulatory concerns, suspended
sales of the product in February 1994.

The FDA has on record a small number of reports of adverse reactions
allegedly resulting from the ingestion of Ma Huang contained in the Company's
Thermojetics(R) original green tablet. The Company has not received any
communications from the FDA with respect to these reports. However, many other
companies manufacture products containing various amounts of Ma Huang and the
FDA has on record hundreds of reports of adverse reactions to these products.
The Company is a defendant in three legal actions by individuals claiming that
ingestion of Thermojetics(R) original green tablets caused them to suffer
serious medical problems. The Company believes that it has substantial defenses
to these actions and that the matters are not material. On April 10, 1996, the
FDA issued a statement warning consumers not to purchase or ingest dietary
supplements containing ephedrine that are claimed to produce such effects as
euphoria, heightened awareness, increased sexual sensations or increased energy,
because these products pose significant adverse health risks, including
dizziness, headache, gastrointestinal distress, irregular heartbeat, heart
palpitations, heart attack, strokes, seizures, psychosis and death. The Company
does not market its Ma Huang product with any of these claims. On June 4, 1997,
the FDA issued a proposed regulation for dietary supplements containing
ephedrine alkaloids. The proposed regulation would prohibit dietary supplements
containing eight milligrams or more of ephedrine alkaloids per serving, and
would not permit such products to contain any other stimulant, diuretic, or
laxative ingredients. In addition, labeling of supplements would be prohibited
from suggesting or recommending conditions of use that would result in an intake
of eight milligrams or more of ephedrine alkaloids within a six-hour period, or
a total daily intake of 24 milligrams or more. The FDA proposal would also
require a warning not to take the product for more than seven days, and would
prohibit the supplements from being represented, either expressly or implicitly,
as being suitable for long-term uses, such as for weight loss or body building.
Similarly, claims for increased energy, increased mental concentration, or
enhanced well-being that encourage the consumer to take more of the product to
achieve more of the purported effect would be required to be accompanied by a
warning stating that taking more than the recommended serving may cause a heart
attack, stroke, seizure, or death.

Although tests performed by an independent laboratory indicate that the
Company's original green Thermojetics(R) product contains less than the eight
milligrams of ephedrine alkaloids per serving permitted under the FDA proposal,
the Company is reviewing the possible impact of the FDA proposal, if it is
finalized in its current form, upon the Company's continued marketing of its
Thermojetics(R) original green tablet. In response to the proposal, or to a
final regulation which is substantially similar to the proposal, the Company may
be required to: (i) withdraw or reformulate its product with reduced ephedrine
levels, or with a substitute for Ma Huang, (ii) relabel its product with
different warnings or revised directions for use, (iii) not make certain
statements, possibly including weight loss, with respect to any product
containing Ma Huang and/or (iv) withdraw its product from the weight management
program and reposition it in a different category. Even
45
<PAGE> 46

in the absence of an FDA final regulation, the Company may elect to reformulate
and/or relabel its product containing Ma Huang. While the Company believes that
its Ma Huang product could be reformulated and relabeled, there can be no
assurance in that regard or that reformulation and/or relabeling would not have
an adverse effect on sales of such product or related products within the
Thermojetics(R) Weight Management Program, even though such products do not
contain Ma Huang. During 1996 and 1997, the Company's weight management products
contributed 71.2% and 67.8%, respectively, of total sales.

Some of the products marketed by the Company are considered conventional
foods and are currently labeled as such. Both this category of products and
dietary supplements are subject to the Nutrition, Labeling and Education Act
("NLEA"), and regulations promulgated thereunder, which regulates health claims,
ingredient labeling and nutrient content claims characterizing the level of a
nutrient in the product.

In foreign markets, prior to commencing operations and prior to making or
permitting sales of its products in the market, the Company may be required to
obtain an approval, license or certification from the country's ministry of
health or comparable agency. Where a formal approval, license or certification
is not required, the Company nonetheless seeks a favorable opinion of counsel
regarding the Company's compliance with applicable laws. Prior to entering a new
market in which a formal approval, license or certificate is required, the
Company works extensively with local authorities in order to obtain the
requisite approvals. The approval process generally requires the Company to
present each product and product ingredient to appropriate regulators and, in
some instances, arrange for testing of products by local technicians for
ingredient analysis. Such approvals may be conditioned on reformulation of the
Company's products or may be unavailable with respect to certain products or
certain ingredients. Product reformulation or the inability to introduce certain
products or ingredients into a particular market may have an adverse effect on
sales. The Company must also comply with product labeling and packaging
regulations that vary from country to country. The Company's failure to comply
with such regulations can result in, among other things, a product being removed
from sale in a particular market, either temporarily or permanently.

The FTC, which exercises jurisdiction over the advertising of all the
Company's products, has in the past several years instituted enforcement actions
against several dietary supplement companies for false and misleading
advertising of certain products. These enforcement actions have resulted in
consent decrees and monetary payments by the companies involved. In addition,
the FTC has increased its scrutiny of the use of testimonials, which are
utilized by the Company. While the Company has not been the target of FTC
enforcement action for the advertising of its products, there can be no
assurance that the FTC will not question the Company's advertising or other
operations in the future.

In certain countries, the Company may also be affected by regulations
applicable to the activities of its distributors because in some countries the
Company is, or regulators may assert that the Company is, responsible for its
distributors' conduct, or such regulators may request or require that the
Company take steps to ensure its distributors' compliance with regulations. The
types of regulated conduct include, among other things, representations
concerning the Company's products, income representations made by the Company
and/or distributors, public media advertisements (which in foreign markets may
require prior approval by regulators) and sales of products in markets in which
such products have not been approved, licensed or certified for sale. In certain
markets, it is possible that improper product claims by distributors could
result in the Company's products being reviewed or re-reviewed by regulatory
authorities and, as a result, being classified or placed into another category
as to which stricter regulations are applicable. In addition, certain labeling
changes might be required.

Through its manuals, seminars and other training materials and programs,
the Company attempts to educate its distributors as to the scope of permissible
and impermissible activities in each market. The Company also investigates
allegations of distributor misconduct. However, the Company's distributors are
generally independent contractors, and the Company is not able to monitor
directly all distributor activities. As a consequence, there can be no assurance
that the Company's distributors comply with applicable regulations. Misconduct
by distributors has in the past and could again have a material adverse effect
on the Company in a particular market or in general. See "Risk Factors -- Sales
and Earnings Volatility."

46
<PAGE> 47

The Company is unable to predict the nature of any future laws,
regulations, interpretations or applications, nor can it predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products not able to be reformulated,
imposition of additional recordkeeping requirements, expanded documentation of
the properties of certain products, expanded or different labeling and
scientific substantiation regarding product ingredients, safety or usefulness.
Any or all such requirements could have a material adverse effect on the
Company's results of operations and financial condition.

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.

Network Marketing System. The Company's network marketing system is subject
to a number of federal and state regulations administered by the FTC and various
state agencies as well as regulations in foreign markets administered by foreign
agencies. Regulations applicable to network marketing organizations are
generally directed at ensuring that product sales are ultimately made to
consumers and that advancement within such organizations be based on sales of
the organizations' products rather than investments in the organizations or
other non-retail sales related criteria. For instance, in certain markets there
are limits on the extent to which distributors may earn royalties on sales
generated by distributors that were not directly sponsored by the distributor.
Where required by law, the Company obtains regulatory approval of its network
marketing system or, where such approval is not required, the favorable opinion
of local counsel as to regulatory compliance. However, the Company remains
subject to the risk that, in one or more of its markets, its marketing system
could be found not to be in compliance with applicable regulations. Failure by
the Company to comply with these regulations could have a material adverse
effect on the Company in a particular market or in general. See "-- Product
Distribution."

The Company is also subject to the risk of challenges to the legality of
its network marketing system. For example, in Webster v. Omnitrition
International, Inc., 79 F.3d 776 (9th Cir.), cert. denied, 136 L. Ed. 2d 115,
117 S. Ct. 176 (1996), the "multi-level marketing" program of Omnitrition
International, Inc. ("Omnitrition") was challenged in a class action by certain
Omnitrition distributors who alleged that Omnitrition was operating an illegal
"pyramid scheme" in violation of federal and state laws. The Company believes
that its network marketing system satisfies the standards set forth in the
Omnitrition case and other applicable statutes and caselaw defining a legal
marketing system, in part based upon significant differences between the
Company's marketing system and that described in the Omnitrition case. Further,
it is an ongoing part of the Company's business to monitor and respond to
regulatory and legal developments, including those that may affect its network
marketing system. However, the regulatory requirements concerning network
marketing systems do not include "bright line" rules and are inherently
fact-based. An adverse judicial determination with respect to the Company's
network marketing system could have a material adverse effect on the Company.
Among other things, such a determination could require the Company to make
modifications to its network marketing system, result in negative publicity or
have a negative impact on distributor morale. In addition, further adverse
rulings by the courts in the Omnitrition litigation or other similar litigation
could have a material adverse effect on the Company, even if the Company's
network marketing system is not itself challenged.

Transfer Pricing and Similar Regulations. In many foreign countries, the
Company is subject to transfer pricing regulations, restrictions on management
fees charged by the Company to its local subsidiary and similar regulations and
restrictions designed to ensure that appropriate levels of income are reported
as earned by the local subsidiary and taxed by the foreign governmental
authorities. In addition, the Company's operations in foreign countries are
subject to regulations designed to ensure that appropriate levels of customs
duties are assessed on the importation of the Company's products.
47
<PAGE> 48

While the Company believes it is in substantial compliance with all
applicable regulations and restrictions, it is subject to the risk that foreign
governmental authorities could audit its transfer pricing and related practices
and assert that additional taxes are owed. For example, the Company is currently
subject to pending or proposed audits which are at various levels of review,
assessment or appeal in a number of foreign jurisdictions, including Italy,
France and Germany, involving transfer pricing issues, income taxes, value added
taxes, withholding taxes and related interest and penalties in material amounts.
In certain circumstances, additional taxes, interest and penalties have been
assessed, and the Company will be required to litigate to reverse the
assessments. In addition, Italian criminal tax proceedings are pending against
the managing director of the Company's Italian subsidiary in his capacity as
such with respect to certain tax issues affecting the Company (and not affecting
distributors or the taxation of distributors). The Company has been advised by
its Italian tax counsel that referral of tax charges to criminal authorities in
Italy is a relatively common procedure (pursuant to statutory provisions
requiring referral of specific types of claims based upon the amounts thereof)
and in any event the Company believes that it has strong defenses to the
charges. None of the pending or proposed audits, assessments or litigation is
expected to have a material adverse effect on the Company. However, ultimate
resolution of these matters may take several years and the outcome is uncertain.

In the event that such audits or assessments are concluded adversely to the
Company, the Company believes that it could generally offset or mitigate the
consolidated effect of foreign taxes required to be paid through the use of U.S.
foreign tax credits. However, depending upon the years at issue, the Company
might not be able to amend prior U.S. tax returns to obtain the benefit of such
credits. Furthermore, to the extent that the Company's operations in high tax
jurisdictions such as Japan grow disproportionately relative to the balance of
Company's operations, the Company may be unable to fully utilize its foreign tax
credits in the U.S., which could, accordingly, result in the Company paying a
higher overall effective tax rate on its worldwide operations. Because the laws
and regulations governing U.S. foreign tax credits are complex and depend, among
other things, on tax treaties with foreign nations in addition to U.S. tax laws,
there can be no assurance that the Company would in fact be able to take
advantage of any tax credits.

Other Regulations. The Company is also subject to a variety of other
regulations in various foreign markets, including regulations pertaining to
social security assessments and value added taxes, employment and severance pay
requirements, import/export regulations and antitrust issues. As an example, in
many markets, the Company is substantially restricted in the amount and types of
rules and termination criteria that it can impose on distributors without
causing social security assessments to be payable by the Company on behalf of
such distributors and without incurring severance obligations to terminated
distributors. In some countries, the Company may be subject to such obligations
in any event.

Failure by the Company to comply with such regulations could have a
material adverse effect on the Company in a particular market or in general.
Such assertions or the effect of adverse regulations in one market could
adversely affect the Company in other markets as well by causing increased
regulatory scrutiny in those other markets or as a result of the negative
publicity generated in those other markets. See "Risk Factors -- Dependence Upon
Material Foreign Markets."

Compliance Procedures. As indicated above, the Company, its products and
its network marketing system are subject, both directly and indirectly through
distributors' conduct, to numerous federal, state and local regulations both in
the United States and foreign markets. Beginning in 1985, the Company began to
institute formal regulatory compliance measures by developing a system to
identify specific complaints against distributors and to remedy any violations
by distributors through appropriate sanctions, including warnings, suspensions
and, when necessary, terminations. In its manuals, seminars and other training
programs and materials, the Company emphasizes that distributors are prohibited
from making therapeutic claims for the Company's products.

The Company's general policy regarding acceptance of distributor
applications from individuals who do not reside in one of the Company's markets
is to refuse to accept such individual's distributor application. From time to
time, exceptions to the policy are made on a country-by-country basis.

In order to comply with regulations that apply to both the Company and its
distributors, the Company conducts research into the applicable regulatory
framework (typically, with the assistance of local legal
48
<PAGE> 49

counsel and other representatives) prior to entering any new market to identify
all necessary licenses and approvals and applicable limitations on the Company's
operations in that market. The Company devotes substantial resources to
obtaining such licenses and approvals and bringing its operations into
compliance with such limitations. The Company also researches laws applicable to
distributor operations and revises or alters its distributor manuals and other
training materials and programs to provide distributors with guidelines for
operating a business, marketing and distributing the Company's products and
similar matters, as required by applicable regulations in each market. However,
the Company is not able to monitor its supervisors and distributors effectively
to ensure that they refrain from distributing the Company's products in
countries where the Company has not commenced operations, and the Company does
not devote significant resources to such monitoring.

In addition, regulations in existing and new markets are often ambiguous
and subject to considerable interpretive and enforcement discretion by the
responsible regulators. Moreover, even when the Company believes that it and its
distributors are initially in compliance with all applicable regulations, new
regulations are regularly being added and the interpretation of existing
regulations is subject to change. Further, the content and impact of regulations
to which the Company is subject may be influenced by public attention directed
at the Company, its products or its network marketing system, so that extensive
adverse publicity about the Company, its products or its network marketing
system may result in increased regulatory scrutiny.

It is an ongoing part of the Company's business to anticipate and respond
to such new and changing regulations and make corresponding changes in the
Company's operations to the extent practicable. In furtherance of these efforts,
in 1994 the Company formed its Government Relations Group, currently consisting
of 10 employees, and in 1995 created the position of Chief International
Counsel. The Company has budgeted approximately $6.0 million to government
relations activities worldwide for 1998. The Company's Government Relations
Group and international legal personnel seek to establish relationships with
regulators and community leaders in both new and existing markets and strive to
ensure that the Company's products and network marketing system comply with
regulatory requirements. However, while the Company devotes considerable
resources to maintaining its compliance with regulatory constraints in each of
its markets, there can be no assurance that the Company would be found to be in
compliance with applicable regulations in all of its markets at any given time
or that the regulatory authorities in one or more markets will not assert,
either retroactively or prospectively or both, that the Company's operations are
not in full compliance. Such assertions or the effect of adverse regulations in
one market could negatively affect the Company in other markets as well by
causing increased regulatory scrutiny in those other markets or as a result of
the negative publicity generated in those other markets. Such assertions could
have a material adverse effect on the Company in a particular market or in
general. Furthermore, depending upon the severity of regulatory changes in a
particular market and the changes in the Company's operations that would be
necessitated to maintain compliance, such changes could result in the Company
experiencing a material reduction in sales in such market or determining to exit
such market altogether. In such event, the Company would attempt to devote the
resources previously devoted to such market to a new market or markets or other
existing markets, but there can be no assurance that such transition would not
have an adverse effect on the Company's business and results of operations
either in the short or long term.

TRADEMARKS

The Company uses the umbrella trademarks Herbalife(R), Thermojetics(R),
Dermajetics(R) and several other trademarks and tradenames in connection with
its products and operations. Trademark registrations are either issued or
pending in the United States Patent and Trademark Office and in comparable
agencies in many other countries. The Company considers its trademarks and
tradenames to be an important factor in its business. The Company's product
formulations are not protected by patents and are generally not patentable.

COMPETITION

The Company is subject to significant competition for the recruitment of
distributors from other network marketing organizations, including those that
market weight management products, food and dietary supplements and personal
care products, as well as other types of products. Some of the Company's
competitors are substantially larger and have available considerably greater
financial resources than the Company. The Company's ability to remain
competitive depends, in significant part, on the Company's
49
<PAGE> 50

success in recruiting and retaining distributors through an attractive
compensation plan and other incentives. The Company believes that its production
bonus program, international sponsorship program and other compensation and
incentive programs provide its distributors with significant earning potential.
However, there can be no assurance that the Company's programs for recruitment
and retention of distributors will be successful. See "Risk
Factors -- Competition."

EMPLOYEES

As of December 31, 1996 and 1997, the Company had 1,180 and 1,459 full-time
employees, respectively. These numbers do not include the Company's
distributors, who generally are independent contractors rather than employees of
the Company. The Company considers its employee relationships to be
satisfactory. Except for certain employees in Mexico, none of the Company's
employees is a member of any labor union, and the Company has never experienced
any business interruption as a result of any labor disputes.

PROPERTIES

The Company leases all of its physical properties located in the United
States. The Company's executive offices, re-located to Century City, California
in February 1996, include approximately 86,000 square feet of general office
space under a lease that expires in January 2006. The Company leases an
aggregate of approximately 97,000 square feet of office space, computer
facilities and conference rooms at the Operations Center in Inglewood,
California, under a lease that expires in October 2006, and approximately
146,000 square feet of warehouse space in two separate facilities located in Los
Angeles and Memphis. The Los Angeles and Memphis agreements have terms through
May 2001 and August 2006, respectively. The Company also leases warehouse and
office space in a majority of its other geographic areas of operations. The
Company believes that its existing facilities are adequate to meet its current
requirements and that comparable space is readily available at each of these
locations.

LEGAL MATTERS

The Company is from time to time engaged in routine litigation incident to
the conduct of its business. The Company regularly reviews all pending
litigation matters in which it is involved and establishes reserves deemed
appropriate by management for such litigation matters. The Company believes that
no litigation currently pending against it will have a material adverse effect
on its consolidated financial position and results of operations. See
"-- Regulation -- Transfer Pricing and Similar Regulations" for a discussion of
certain pending tax matters.

HISTORY AND ORGANIZATION

The Company began operations in February 1980 as a California limited
partnership and operated in that form through December 1985, with the exception
of an interim period from October 1981 through August 1983 when the business was
operated through a California corporation. In January 1986, the Company's
business was transferred from the California limited partnership to its
corporate general partner, Herbalife International of America, Inc. ("Herbalife
of America"). In November 1986, Herbalife of America was acquired in a
stock-for-stock reorganization by Sage Court Ventures, Inc. ("Sage Court"). As a
result of the acquisition, Herbalife of America became a wholly-owned subsidiary
of Sage Court and the former stockholders of Herbalife of America acquired a
controlling interest in Sage Court. Sage Court's name was formally changed to
Herbalife International, Inc. in December 1986.

The Company's principal executive offices are located at 1800 Century Park
East, Los Angeles, California 90067, and its telephone number is (310) 410-9600.

50
<PAGE> 51

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors
and executive officers of the Company (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 of
Corporate Development/Marketing, and Director
Timothy Gerrity.................. 47 Executive Vice President and Chief Financial Officer
Robert A. Sandler................ 53 Executive Vice President and General Counsel
Edward J. Hall(1),(2)............ 51 Director
Alan Liker(2).................... 60 Director
Christopher M. Miner(1),(2)...... 46 Director
</TABLE>

- ---------------

(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 Board of Herbalife of America, Inc., which
was the corporate general partner of the California limited partnership from May
through December 1985 and the corporation through which the business was
conducted from January 1986 to November 1986. In November 1986, Mr. Hughes
became Chairman of the Board, Chief Executive Officer and President of the
Company when it acquired Herbalife 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 Consolidated Foods. Mr. Pair serves on the
Board of Directors of the Direct Selling Educational Foundation and also serves
on the Direct Selling Association Long Range Planning Committee. 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 of Corporate Development/Marketing.
Mr. Rosen's responsibilities include developing the Company's international and
domestic marketing, sales literature, the Company's personal care and cosmetics
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 Chief Executive Officer of Shop Television Network, which he founded
in 1986.

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

51
<PAGE> 52

& 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.

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 & Morris, 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 defribrillators.

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 Shop Television Network.

CHRISTOPHER M. MINER founded Secure Soft and co-founded Vis-A-Vis
Communications, Inc. (formerly Workstation Technologies, Inc.) in 1996 and 1989,
respectively. Vis-A-Vis Communications is a leading developer of interactive
communications software and hardware products. Mr. Miner currently serves as the
Chief Executive Officer for Secure Soft and Chief Financial Officer for Wow!
Laboratories, Inc. 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.

52
<PAGE> 53

SELLING STOCKHOLDER

The following table sets forth the beneficial ownership of shares of Common
Stock by the Selling Stockholder as of February 23, 1998, the number of shares
of Class B Stock offered hereby and the percentage of the Company's outstanding
Common Stock at February 23, 1998 that the Selling Stockholder would
beneficially own assuming the Selling Stockholder delivers 5,000,000 shares of
Class B Stock on the Exchange Date.
<TABLE>
<CAPTION>
SHARES OFFERED
BEFORE THE OFFERING HEREBY
------------------------------------------------------------- AFTER THE OFFE
---------- -----------------------
NUMBER OF PERCENT NUMBER OF PERCENT PERCENT NUMBER OF PERCENT PERCENT
SHARES OF OF SHARES OF OF OF SHARES OF OF OF
NAME AND ADDRESS OF CLASS A CLASS A CLASS B CLASS B COMMON CLASS B CLASS A CLASS B
BENEFICIAL OWNER (1) STOCK(2) STOCK(2) STOCK(2) STOCK(2) STOCK(2) STOCK(3) STOCK STOCK(3)
-------------------- --------- ---------- ---------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark Hughes(4)........... 5,666,932 57.2% 11,333,866 58.2% 57.8% 5,000,000 57.2% 32.5%
1800 Century Park East
Los Angeles, CA 90067

G
----------
PERCENT
OF
NAME AND ADDRESS OF COMMON
BENEFICIAL OWNER (1) STOCK(3)
-------------------- ----------
<S> <C>
Mark Hughes(4)........... 40.8%
1800 Century Park East
Los Angeles, CA 90067
</TABLE>

- ---------------

(1) Except as otherwise indicated, 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 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 Stock and 199,998 shares of Class B
Stock issuable upon exercise of stock options which are exercisable
presently or within 60 days of this Prospectus. Shares of Class B Stock
deliverable pursuant to the Contract (including shares of Class B Stock
that may be delivered pursuant to DECS issued to cover over-allotments and
DECS subscribed for and purchased by Smith Barney in connection with the
organization of the Trust) are held by personal holding companies
indirectly controlled by Mr. Hughes. See Note 4 below.

(3) Assumes the Selling Stockholder delivers 5,000,000 shares of Class B Stock
on the Exchange Date. Does not take into account 750,000 shares of Class B
Stock that may be delivered pursuant to DECS issued to cover
over-allotments and DECS subscribed for and purchased by Smith Barney in
connection with the organization of the Trust, or up to 1,000,000 shares of
Class B Stock that may be loaned to Smith Barney pursuant to the Securities
Loan Agreement (as defined in "Plan of Distribution"). The Selling
Stockholder may satisfy its obligations under the DECS by delivering shares
of Class B Stock (or at the Selling Stockholder's option, the cash
equivalent thereof) and/or such other consideration as is delivered by the
Selling Stockholder to the Trust. See the DECS Prospectus for a description
of the Selling Stockholder's obligations under the DECS.

(4) The Selling Stockholder in the Offering consists of (i) the Mark Hughes
Family Trust, a trust of which Mr. Hughes is the sole trustee (the "Family
Trust"), and (ii) Delaware limited liability companies indirectly
controlled solely by Mr. Hughes (the "Delaware LLCs"). The Family Trust
directly and indirectly controls the Delaware LLCs. The Delaware LLCs
consist of four companies designated by letters as MH Holdings III N, O, P
and Q, as well as MH Holdings I and MH Holdings II, which together own all
of the interests in the MH Holdings III companies.

53
<PAGE> 54

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. For a description of contractual
arrangements between the Company and each of Raven, D&F and Dynamic, see
"Business -- Product Overview -- Product Manufacturing and Development." The
Company and Mr. Hughes were recently advised by Raven, D&F and Dynamic that such
companies are planning to make a $225 million bond offering and secure a $50
million secured bank credit facility. They indicated to the Company and Mr.
Hughes that a proposed use of proceeds from this financing would be 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 sell his shares in the
manufacturers, but will consider the terms of a proposed transaction in due
course. 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 Performance-Based Incentive Compensation Plan,
the Company made advances of targeted performance bonus amounts during 1996 to
1997 to Messrs. Hughes, Pair, Rosen, 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

54
<PAGE> 55

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 agreement with Mr. Liker, Mr. Liker
received $80,000 in 1997 and is to receive $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 factors, 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 or the
impact of such an offering on the Company's financial condition or results of
operations.

DESCRIPTION OF CAPITAL STOCK

As a result of the Recapitalization, the Company's authorized capital stock
consists of 100,000,000 shares of common stock with a par value of $.01 per
share, consisting of Thirty-Three Million Three Hundred and Thirty-Three
Thousand Three Hundred and Thirty-Three (33,333,333) shares of Class A Stock and

55
<PAGE> 56

Sixty-Six Million Six Hundred and Sixty-Six Thousand Six Hundred and Sixty-Seven
(66,666,667) shares of Class B Stock (collectively, "Common Stock"), and
100,000,000 shares of undesignated preferred stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent
Developments and Outlook." The following description of the Company's capital
stock does not purport to be complete or to give full effect to the provisions
of statutory or common law and is in all respects qualified by reference to the
applicable provisions of the Company's Amended and Restated Articles of
Incorporation.

COMMON STOCK

As of February 23, 1998, there were 9,816,436 shares of Class A Stock
issued and outstanding held by 1,010 stockholders of record. As of February 23,
1998, there were 19,277,473 shares of Class B Stock issued and outstanding held
by 1,011 stockholders of record. The holders of Class A Stock are entitled to
one vote for each share held and have no preemptive or other rights to subscribe
for additional shares from the Company. There are no cumulative voting rights,
with the result that the holder of more than 50% of the Class A Stock is able to
elect all of the Company's directors. The holders of Class B Stock are entitled
to vote separately as a class only with respect to (i) amendments to the
Company's Amended and Restated Articles of Incorporation that alter or change
the relative or other rights given to the holders of Class B Stock, and (ii)
such other matters as may require separate class voting under the Company's
Amended and Restated Articles of Incorporation or by law. Holders of Class B
Stock are not entitled to any other voting rights. Holders of Common Stock are
entitled to such dividends as may be declared by the Board of Directors out of
funds legally available therefor. Holders of Class B Stock are entitled to the
same dividends payable with respect to the Class A Stock, provided, however, the
Board of Directors may, in its discretion, pay greater dividends of cash or
property (except for a distribution in liquidation) with respect to the Class B
Stock. See "Dividend Policy." Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive pro rata the net
assets of the Company remaining after the payment of the full preferential
amount to which the holders of any outstanding class of preferred stock are
entitled and after payment of all creditors. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of preferred stock
that the Company may designate and issue in the future.

PREFERRED STOCK

There are currently no shares of the Company's preferred stock outstanding.
The Company's Board of Directors is authorized to issue from time to time up to
100,000,000 shares of preferred stock in one or more series, to determine the
rights, preferences, privileges and restrictions with respect thereto and to fix
the number and designation of shares constituting any series.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corp., Glendale, California.

PLAN OF DISTRIBUTION

Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Trust, the Company, the Selling
Stockholder and the Underwriters named below, the Trust has agreed to sell to
each of the Underwriters, and each of the Underwriters severally has agreed to
purchase, the aggregate number of DECS set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS DECS
------------ ---------
<S> <C>
Smith Barney Inc.......................................... 3,500,000
Prudential Securities Incorporated........................ 1,500,000
---------
Total........................................... 5,000,000
=========
</TABLE>

56
<PAGE> 57

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the DECS offered pursuant to the DECS Prospectus if
any of the DECS are purchased.

The Trust has been advised by the Underwriters that they propose to offer
the DECS directly to the public initially at the public offering price set forth
on the cover of the DECS Prospectus and to certain dealers at such prices less a
concession not in excess of $0.40 per DECS. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per DECS to other
dealers. After the initial public offering, such public offering price and such
concession and reallowance may be changed.

The Company, its directors and executive officers, and the Selling
Stockholder have each agreed not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Common Stock or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise, for a period of 90 days, in the case of the Company and its directors
and executive officers (other than the Selling Stockholder), and one year, in
the case of the Selling Stockholder, from the date of this Prospectus without
the prior written consent of Smith Barney; provided, however, that (x) Herbalife
may issue, or grant options for, Common Stock pursuant to any stock plan for
employees or directors, or any employee benefit plan, in effect on the date of
this Prospectus, or pursuant to any stock options outstanding on the date of
this Prospectus and (y) such agreements will not restrict the ability of the
Selling Stockholder to engage in any of the transactions described in clause (i)
or (ii) above in connection with (a) the offering by the Trust of the DECS or
any delivery of shares of Class B Stock pursuant to the terms of the DECS, (b)
the loaning of shares of Class B Stock pursuant to the Securities Loan Agreement
(as defined below), or (c) sales by the Herbalife Family Foundation, a
charitable trust of which Mr. Hughes is a director but with respect to which Mr.
Hughes has no pecuniary interest. If any such consent were given it would not
necessarily be preceded or followed by a public announcement thereof.

The Trust has granted to the Underwriters an option, exercisable for the
30-day period after the date of the DECS Prospectus, to purchase up to an
additional 749,996 DECS from the Trust, at the same price per DECS as the
initial DECS to be purchased by the Underwriters. The Underwriters may exercise
such option only for the purpose of covering over-allotments, if any, incurred
in connection with the sale of DECS offered pursuant to the DECS Prospectus. To
the extent that the Underwriters exercise such option, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase the same
proportion of the DECS as the number of DECS to be purchased and offered by such
Underwriter in the above table bears to the total number of initial DECS to be
purchased by the Underwriters. In addition, Smith Barney purchased four DECS in
connection with the organization of the Trust.

The DECS will be a new issue of securities with no established trading
market. The DECS have been approved for quotation on the Nasdaq National Market
System under the symbol "HERBL." The Underwriters intend to make a market in the
DECS, subject to applicable laws and regulations. However, the Underwriters are
not obligated to do so and any such market-making may be discontinued at any
time at the sole discretion of the Underwriters without notice. Accordingly, no
assurance can be given as to the liquidity of such market.

The Underwriting Agreement provides that Herbalife will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respect thereof, and that the Selling Stockholder (including the Family
Trust) will guarantee the indemnity and contribution obligations of the Company.

Pursuant to the Contract, the Trust has agreed, subject to the terms and
conditions set forth therein, to purchase from the Selling Stockholder an
aggregate number of shares of Class B Stock equal to the aggregate number of
DECS to be purchased by the Underwriters from the Trust pursuant to the
Underwriting
57
<PAGE> 58

Agreement (including the DECS to be purchased by the Underwriters upon exercise
of the over-allotment option plus the number of DECS purchased by Smith Barney
in connection with the organization of the Trust). Pursuant to the terms of the
Contract, the Selling Stockholder will be obligated to deliver to the Trust at
the Exchange Date of the DECS a number of shares of Class B Stock (or, at the
Selling Stockholder's option, the cash equivalent) and/or such other
consideration as permitted or required by the terms of the Contract, that are
expected to have the same value as the shares of Class B Stock delivered
pursuant to the DECS. The closing of the offering of the DECS is conditioned
upon the closing of the purchase of the Class B Stock pursuant to the Contract.
For further information, see the DECS Prospectus.

In connection with the DECS Offering, Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the DECS, the Class
A Stock, or the Class B Stock. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M, pursuant to
which such persons may bid for or purchase DECS or Class B Stock for purposes of
stabilizing their market prices. The Underwriters also may create short
positions for the account of the Underwriters by selling more DECS in connection
with the DECS Offering than they are committed to purchase from the Trust, and
in such case may purchase DECS in the open market following the completion of
the DECS Offering to cover all or a portion of such short positions. The
Underwriters may also cover all or a portion of such short positions by
exercising the Underwriters' over-allotment options in the DECS Offering. In
addition, Smith Barney, on behalf of the Underwriters, may impose "penalty bids"
under contractual arrangements whereby it may reclaim from a dealer
participating in this offering the selling concession with respect to DECS that
are distributed in this offering but subsequently purchased of the account of
either Underwriter in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the DECS, the Class A
Stock or the Class B Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.

In connection with the DECS Offering, certain Underwriters and selling
group members who are qualifying registered market makers on the Nasdaq National
Market System may engage in passive market making transactions in the Class B
Stock, the Class A Stock or the DECS on the Nasdaq National Market System in
accordance with Rule 103 of Regulation M. Passive market making transactions
must comply with certain volume and price limitations and be identified as such.
In general, a passive market maker may display its bid at a price not in excess
of the highest independent bid for the security, and if all independent bids are
lowered below the passive market maker's bid, then such bid must be lowered when
certain purchase limits are exceeded.

In connection with the offering of the DECS, Mark Hughes (or affiliates
thereof) (the "Lender") and Smith Barney have entered into a Securities Loan
Agreement (the "Securities Loan Agreement") which provides that, subject to
certain restrictions and with the agreement of the Lender, Smith Barney may from
time to time borrow, return and reborrow shares of Class B Stock from the Lender
(the "Borrowed Securities"); provided, however, that the number of Borrowed
Securities at any time may not exceed 1,000,000 shares, subject to adjustment
for certain dilutive events. The Securities Loan Agreement is intended to
facilitate market-making activity in the DECS by Smith Barney. Smith Barney may
from time to time borrow shares of Class B Stock under the Securities Loan
Agreement for the purpose of settling short sales of Class B Stock, or for the
purpose of returning shares of Class B Stock previously borrowed by Smith Barney
to settle short sales of Class B Stock, in each case, where such short sales
were entered into by Smith Barney to hedge any long position in the DECS
resulting from its market-making activities. Such sales will be made in the
over-the-counter market at market prices prevailing at the time of sale or at
prices related to such market prices. Market conditions will dictate the extent
and timing of Smith Barney's market-making transactions in the DECS and the
consequent need to borrow shares of Class B Stock. The availability of shares of
Class B Stock under the Securities Loan Agreement at any time is not assured and
any such availability does not assure market-making activity with respect to the
DECS and any market-making actually engaged in by Smith Barney may cease at any
time. The foregoing description of the Securities Loan Agreement does not
purport to be complete and is qualified in its entirety by reference to such
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.

58
<PAGE> 59

In the ordinary course of their respective businesses, certain of the
Underwriters and their respective affiliates have engaged in and may in the
future engage in commercial and investment banking transactions with the
Company, the Selling Stockholder and their respective affiliates.

LEGAL MATTERS

Certain legal matters in connection with the Class B Stock offered hereby
will be passed upon for the Company by Irell & Manella LLP, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Cleary, Gottlieb, Steen & Hamilton, New York, New York.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 incorporated in this Prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and has been included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.

59
<PAGE> 60

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements............ 2
Available Information................. 2
Documents Incorporated by Reference... 3
Prospectus Summary.................... 4
Risk Factors.......................... 9
Use of Proceeds....................... 16
Price Range of Common Stock........... 17
Dividend Policy....................... 18
Selected Consolidated Financial and
Operating Data...................... 19
Capitalization........................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 29
Management............................ 51
Selling Stockholder................... 53
Certain Transactions.................. 54
Description of Capital Stock.......... 55
Plan of Distribution.................. 56
Legal Matters......................... 59
Experts............................... 59
</TABLE>

======================================================
======================================================

5,000,000 SHARES
HERBALIFE
INTERNATIONAL, INC.
CLASS B COMMON STOCK
(PAR VALUE $.01 PER SHARE)

[HERBALIFE LOGO]
------------
PROSPECTUS
MARCH 25, 1998
------------

======================================================