<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1/A
AMENDMENT NO. 2
TO
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
HERBALIFE INTERNATIONAL, INC.
(Name of Subject Company)
MH MILLENNIUM HOLDINGS LLC
MH MILLENNIUM ACQUISITION CORP.
MARK HUGHES
(Bidders)
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
426908208 (CLASS A)
426908307 (CLASS B)
(Cusip Number of Class of Securities)
MH MILLENNIUM HOLDINGS LLC
MH MILLENNIUM ACQUISITION CORP.
MARK HUGHES
C/O HERBALIFE INTERNATIONAL, INC.
1800 CENTURY PARK EAST
LOS ANGELES, CA 90067
ATTN. TIMOTHY GERRITY
TEL. (301) 410-9600
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
COPY TO:
ANTHONY T. ILER, ESQ.
IRELL & MANELLA LLP
333 SOUTH HOPE STREET, SUITE 3300
LOS ANGELES, CA 90071
(213) 620-1555
(Continued on following pages)
(Page 1 of pages)
<PAGE> 2
CUSIP No. 426908208 14D-1/A Page 2
426908307
================================================================================
1. Name of Reporting Persons MH MILLENNIUM HOLDINGS LLC
S.S. or I.R.S. Identification Nos. of Above Persons 95-475-8098
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a)/X/
(b)/ /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Sources of Funds
Not Applicable
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization
DELAWARE
- --------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
(1)
- --------------------------------------------------------------------------------
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7
(1)
- --------------------------------------------------------------------------------
10. Type of Reporting Person
CO
================================================================================
(1) MH Millennium Holdings LLC owns no shares of any class of common stock of
the Company. The Mark Hughes Family Trust (the "Trust"), however, which is
the sole member of MH Millennium Holdings LLC, as of September 8, 1999
beneficially owned 5,704,331 Class A Shares and 11,258,665 Class B Shares,
(including 308,331 Class A Shares and 466,665 Class B Shares which the Trust
has a right to acquire within 60 days of the date hereof), representing in
the aggregate 55.4% of the outstanding Class A Shares and 59.0% of the
outstanding Class B Shares, respectively. Mark Hughes is the sole trustee
of The Mark Hughes Family Trust and its beneficiary.
<PAGE> 3
CUSIP No. 426908208 14D-1/A Page 3
426908307
================================================================================
1. Name of Reporting Persons MH MILLENNIUM ACQUISITION CORP.
S.S. or I.R.S. Identification Nos. of Above Persons 95 475 7938
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a)/X/
(b)/ /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Sources of Funds
SC/BK/OO (subordinated debentures)
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization
NEVADA
- --------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
(2)
- --------------------------------------------------------------------------------
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7
(2)
- --------------------------------------------------------------------------------
10. Type of Reporting Person
CO
================================================================================
(2) MH Millennium Acquisition Corp. owns no shares of any class of common stock
of the Company. MH Millennium Holdings LLC, however, owns 100% of MH
Millennium Acquisition Corp. For further information, see note 1 on page 2
of this Schedule 14D-1.
<PAGE> 4
CUSIP No. 426908208 14D-1/A Page 4
426908307
================================================================================
1. Name of Reporting Persons Mark Hughes
S.S. or I.R.S. Identification Nos. of Above Persons
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a)/X/
(b)/ /
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Sources of Funds
Not Applicable
- --------------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization
United States
- --------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
(3)
- --------------------------------------------------------------------------------
8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7
(3)
- --------------------------------------------------------------------------------
10. Type of Reporting Person
IN
================================================================================
(3) Mr. Hughes, directly or indirectly, is the beneficial owner of 5,704,331
Class A Shares and 11,258,665 Class B Shares, excluding 183,333 Class A
Shares and 366,666 Class B Shares owned by the Herbalife Family Foundation
(in which Mr. Hughes has no pecuniary interest) and including 308,331 Class
A Shares and 466,663 Class B Shares issuable upon exercise of stock options
that are exercisable within 60 days of September 1, 1999. The Class A Shares
and the Class B Shares beneficially owned by Mr. Hughes or entities
controlled by him, calculated in accordance with the SEC's Exchange Act Rule
13d-3, represented 55.4% of the total outstanding Class A Shares and 59.0%
of the total outstanding Class B Shares as of September 1, 1999.
<PAGE> 5
Page 5
MH Millennium Acquisition Corp., a Nevada corporation (the "Purchaser"),
hereby amends and supplements its Tender Offer Statement on Schedule 14D-1,
filed on September 17, 1999 (as amended, the "Schedule 14D-1"), relating to the
offer by the Purchaser to purchase all outstanding shares of Class A common
stock and Class B common stock of Herbalife International, Inc., a Nevada
corporation, as set forth in this Amendment No. 2. The item numbers and
responses thereto below are in accordance with the requirements of Schedule
14D-1. Capitalized terms used but not defined herein have the meanings
assigned to them in the 14D-1.
ITEM 10. ADDITIONAL INFORMATION
Item 10(e) of the Schedule 14D-1 is hereby amended to read as follows:
On September 14, 1999, two putative class action lawsuits, one entitled
Patricia Lisa and Harbor Finance Partners v. Mark Hughes, et al., Case No. BC
216711, and the other entitled Stuart H. Savett v. Herbalife International,
Inc., et al., Case No. BC 216761, were filed in the Superior Court of the State
of California, County of Los Angeles, challenging the fairness of the proposed
transaction. Four similar lawsuits were later filed in the same court, one on
September 15, 1999, entitled Kenneth Schweitzer v. Herbalife International, Inc.
et al., Case No. BC 216823, two others on September 16, 1999, entitled Frances
Longstreth v. Herbalife International, Inc., et al., Case No. BC 216911 and Rae
Ellen Plattus vs. Christopher Pair, et al., Case No. BC 16904 and one on
September 17, 1999, entitled Lee Brenin vs. Mark Hughes, et al., Case No.
BC 216932. In addition, two similar lawsuits were filed in the District Court,
Clark County, Nevada, one on September 14, 1999, entitled Colleen M. Tharp vs.
Herbalife International, Inc., et al., Case No. A408158II, and the other on
September 15, 1999, entitled Francis Mcfarlain, IRA vs. Herbalife International,
Inc., et al., Case No. A408159I. These lawsuits are referred to collectively
herein as the "Lawsuits."
The Lawsuits challenge the fairness of the proposed transaction to the
Company's Public Stockholders, alleging, among other things, that the price to
be paid in the Offer and the Merger does not reflect the value of the Company's
assets, and that the Offer and the Merger are unfair because they will deprive
the Public Stockholders of the ability to share proportionately in the Company's
future growth in profits and earnings. The Lawsuits also allege that the Special
Committee was not independent, and that the Company's directors breached their
fiduciary duties to the Public Stockholders in approving the proposed
transactions. The plaintiffs have requested an injunction prohibiting the
defendants from proceeding with the proposed transactions, unspecified damages,
costs and attorneys' fees, and other relief.
The Company and Mr. Hughes believe that the Lawsuits are without merit and
plan to vigorously defend them and any other actions that may be brought in
connection with the proposed transactions. There can be no assurances, however,
with regard to the outcome of any such suits or to the impact that an adverse
result would have on the Company's and the Purchaser's ability to consummate the
Offer, the Merger and the related transactions.
The Company believes that additional lawsuits may have been filed but the
Company has not yet been served with such lawsuits.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
The information set forth in Item 11 is hereby amended and supplemented
by adding the following exhibit:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(b)(1) Letter from Donaldson, Lufkin & Jenrette Securities
Corporation to The Board of Directors and the Special
Committee of Herbalife International, Inc., dated September
13, 1999.
(g)(1) Complaint in Patricia Lisa and Harbor Finance Partners vs.
Mark Hughes, et al., Case No. BC 216711 (CA Sup. Ct.,
September 14, 1999).
(g)(2) Complaint in Stuart H. Savett vs. Herbalife International,
Inc., et al., Case No. BC 216761 (CA Sup. Ct., September 14,
1999).
(g)(3) Complaint in Kenneth Schweitzer vs. Herbalife
International, Inc., et al., Case No. BC 216823 (CA Sup.
Ct., September 15, 1999).
(g)(4) Complaint in Frances Longstreth vs. Herbalife
International, Inc., Case No. BC 216911 (CA Sup. Ct.,
September 16, 1999).
(g)(5) Complaint in Rae Ellen Plattus vs. Christopher Pair, et
al., Case No. BC 216904 (CA Sup. Ct., September 16, 1999).
(g)(6) Complaint in Colleen M. Tharp vs. Herbalife International,
Inc., Case No. A408158II (NV Dist. Ct., September 14, 1999).
(g)(7) Complaint in Francis Mcfarlain, IRA vs. Herbalife
International, Inc., Case No. A408159I (NV Dist. Ct.,
September 15, 1999).
(g)(8) Complaint in Lee Brenin vs. Mark Hughes, et al., Case No.
BC 216932 (CA Sup. Ct., September 17, 1999).
<PAGE> 6
Page 6
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: September 23, 1999
MH MILLENNIUM HOLDINGS LLC:
By: /s/ MARK HUGHES
------------------------------------------
Name: Mark Hughes
Title: Managing Member
MH MILLENNIUM ACQUISITION CORP.:
By: /s/ MARK HUGHES
------------------------------------------
Name: Mark Hughes
Title: President
/s/ MARK HUGHES
------------------------------------------
MARK HUGHES
<PAGE> 7
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(b)(1) Letter from Donaldson, Lufkin & Jenrette Securities
Corporation to The Board of Directors and the Special
Committee of Herbalife International, Inc., dated September
13, 1999.
(g)(1) Complaint in Patricia Lisa and Harbor Finance Partners vs.
Mark Hughes, et al., Case No. BC 216711 (CA Sup. Ct.,
September 14, 1999).
(g)(2) Complaint in Stuart H. Savett vs. Herbalife International,
Inc., et al., Case No. BC 216761 (CA Sup. Ct., September 14,
1999).
(g)(3) Complaint in Kenneth Schweitzer vs. Herbalife
International, Inc., et al., Case No. BC 216823 (CA Sup.
Ct., September 15, 1999).
(g)(4) Complaint in Frances Longstreth vs. Herbalife
International, Inc., Case No. BC 216911 (CA Sup. Ct.,
September 16, 1999).
(g)(5) Complaint in Rae Ellen Plattus vs. Christopher Pair, et
al., Case No. BC 216904 (CA Sup. Ct., September 16, 1999).
(g)(6) Complaint in Colleen M. Tharp vs. Herbalife International,
Inc., Case No. A408158II (NV Dist. Ct., September 14, 1999).
(g)(7) Complaint in Francis Mcfarlain, IRA vs. Herbalife
International, Inc., Case No. A408159I (NV Dist. Ct.,
September 15, 1999).
(g)(8) Complaint in Lee Brenin vs. Mark Hughes, et al., Case No.
BC 216932 (CA Sup. Ct., September 17, 1999).
<PAGE> 1
EXHIBIT (b)(1)
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
September 13, 1999
Private and Confidential
The Board of Directors
The Special Committee of the Board of Directors
Herbalife International, Inc.
1800 Century Park East
Los Angeles, CA 90067
Dear Sirs:
We understand that Mark Hughes ("Hughes"), Chief Executive Officer of
Herbalife International, Inc. (the "Company"), has proposed to acquire all of
the publicly traded stock of the Company in a "going private" transaction (the
"Transaction"). The Transaction will include the following principal elements:
(i) the purchase of all publicly held shares of the Company's Class A and Class
B common stock not already owned by Hughes for a price of $17.00 per share; (ii)
the acceleration and retirement of all outstanding options for their respective
spread values (other than options held by Hughes); (iii) a loan to Hughes (or
entity(ies) controlled by Hughes) which will ultimately be used to satisfy his
obligations under the outstanding DECS securities; and (iv) a loan to Hughes (or
entity(ies) controlled by Hughes) which will be used as collateral for the
Proposed Financing defined below.
The Company has advised us that the funds required to consummate the
Transaction (including estimated transaction fees and other expenses) will be
approximately $500 million and that the Company has approximately $5 million of
existing indebtedness. The Company has further advised us that the Transaction
will be financed in part with a combination of borrowings under a senior credit
facility (the "Credit Facility") and the issuance of high yield securities (the
"Securities", together with the Credit Facility, the "Proposed Financing"). The
amount of the Credit Facility and the Securities is currently contemplated not
to exceed $440 million in the aggregate. The remaining $60 million will be
funded using cash from the Company's balance sheet. In addition, the Company has
advised us that Hughes will "roll-over" 11.2 million shares of Class A and Class
B common stock in the transaction valued (at $17.0 per share) at approximately
$190 million. The Company has asked Donaldson, Lufkin & Jenrette Securities
Corporation and its affiliates ("DLJ") to act as sole managing underwriter or
sole placement agent and sole arranger and syndication agent in connection with
the sale of the Securities and the arrangement of the Credit Facility.
Based on the information the Company has provided to us to date and our
analysis of the current market conditions for new issuances of high yield debt
securities and syndication of new leveraged senior credit facilities in general
and of comparable issuers and comparable securities and credit facilities in
particular and in the securities markets in general, we are pleased to inform
you that we are highly confident of our ability to sell the Securities and
arrange the Credit Facility to finance the Transaction as described above,
subject to the matters set forth in the following
<PAGE> 2
Herbalife International, Inc.
September 13, 1999
Page 2
paragraph. The structure, amount, covenants and terms of the Proposed Financing,
including the total cost of capital, will be determined by DLJ in consultation
with the Company based on market conditions at the time of the sale, placement
and/or arrangement and on the structure and documentation of the Transaction.
Our ability to consummate the sale, placement and/or arrangement of the
Proposed Financing is subject to: (i) the amount, terms and conditions of the
Securities, the Credit Facility and all other debt and equity financing for the
Transaction and all related documentation being satisfactory in form and
substance to DLJ; (ii) the terms and conditions of the Transaction and related
transactions and documentation thereof being consistent with that previously
provided to, and reviewed by, us; (iii) the business, condition (financial or
otherwise), results of operation, assets, liabilities and prospects of the
Company being consistent with the projections provided to us and otherwise
satisfactory to DLJ; (iv) the absence of any material adverse change in the
business, condition (financial or otherwise), results of operations, assets,
liabilities or prospects of the Company; (v) the receipt of all necessary
governmental, regulatory and third party approvals and consents in connection
with the Transaction; (vi) the execution and delivery of documentation with
respect to the Securities and the Credit Facility and the offering, sale,
placement, arrangement and/or syndication thereof (including, but not limited
to, the underwriting agreement, purchase agreement, placement agreement and/or
senior debt commitment and fee letter) that is satisfactory in form and
substance to DLJ; (vii) the availability of audited and unaudited historical
financial statements of the Company (including pro forma financial statements)
meeting the requirements of Regulation S-X for Form S-1 registration statements
that are satisfactory in form and substance to DLJ; (viii) satisfactory market
conditions for new issuances of high yield debt securities and syndication of
new leveraged senior credit facilities in general and of comparable issuers and
comparable securities and credit facilities in particular and in the securities
markets in general; (ix) consummation of the sale of the Securities and the
arrangement of the Credit Facility by March 31, 2000; and (x) our having
reasonable time to market the Proposed Financing with the assistance of
management of the Company, based on our experience in comparable transactions
sold in comparable markets. Although subsequent developments may affect our
views in this letter, we do not have any obligation to inform you of any change
in our views or to withdraw or reaffirm this letter.
This letter shall be treated as confidential and is being provided to
the Company solely in connection with the Transaction and may not be used,
circulated, quoted or otherwise referred to in any document, except with DLJ's
prior written consent. Please note that this letter is not a commitment to
purchase, place or arrange the Proposed Financing or any other securities, loans
or indebtedness of the Company.
We look forward to working with you toward the successful completion of
the proposed financing.
Sincerely,
/s/ WILLIAM BAUMGART
William Baumgart
Vice President
<PAGE> 1
EXHIBIT (g)(1)
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
CENTRAL DISTRICT
PATRICIA LISA and HARBOR FINANCE ) Civ. No.
PARTNERS, On Behalf of Themselves )
and All Others Similarly Situated, ) CLASS ACTION
) Department 59
Plaintiffs, )
) COMPLAINT BASED UPON
vs. ) UNFAIR BUSINESS
) PRACTICES, SELF DEALING
MARK HUGHES, CHRISTOPHER PAIR, ) AND BREACH OF FIDUCIARY
MICHAEL E. ROSEN, EDWARD J. HALL, ) DUTY
ALAN LIKER, TIMOTHY GERRITY and )
HERBALIFE INTERNATIONAL INC., )
)
Defendants. )
- -------------------------------------
<PAGE> 2
Plaintiffs, by their attorneys, allege upon information and belief,
except as to paragraph 4 which plaintiffs allege upon knowledge, as follows:
NATURE OF THE CASE
1. This is a shareholders' class action brought by plaintiffs on behalf
of themselves and other stockholders of Herbalife International Inc.
("Herbalife" or the "Company"), seeking injunctive relief and/or monetary
damages arising from defendants' breach of their fiduciary duties to the public
stockholders of Herbalife.
JURISDICTION AND VENUE
2. This action is brought to remedy violations of California law by
the defendants. The amount in controversy is in excess of the jurisdictional
minimum of this court.
3. While defendant Herbalife is organized under the laws of the state
of Nevada, it maintains its headquarters. from which it does a substantial
portion of its business, in Los Angeles, California, within Los Angeles County.
Furthermore, many, if not all, of the acts and transactions complained of
herein, including discussions regarding the transaction complained of, occurred
in substantial part through the Company's offices in Los Angeles. Many of the
defendants named herein reside in, maintain an office in, and/or conduct
business relevant to this litigation in Los Angeles County.
THE PARTIES
4. Plaintiffs Patricia Lisa and Harbor Finance Partners are
stockholders of defendant Herbalife.
- 2 -
<PAGE> 3
5. Defendant Herbalife is a corporation duly organized and existing
under the laws of the Nevada, with its principal offices located at 1800
Century Park East, Los Angeles, California 90067. Herbalife markets
nutritional, weight management and personal care products worldwide through
independent distributors who purchase products directly from the Company. As of
April 20, 1999, there were over 28.5 million shares of Herbalife Class A and
Class B shares outstanding.
6. Defendant Mark Hughes ("Hughes") is founder of Herbalife and is
Chairman of the Board, Chief Executive Officer and President of the Company.
Defendant Hughes owns approximately 54% of the outstanding voting Class A
shares of Herbalife and approximately 58% of the outstanding non-voting Class B
shares of Herbalife.
7. Defendant Christopher Pair ("Pair") is the Executive Vice President
and Chief Operating Officer of Herbalife and a member of its Board of Directors.
8. Defendant Michael E. Rosen ("Rosen") is the Executive Vice
President and Chief Executive Corporate Marketing and Corporate Development of
Herbalife and a member of its Board of Directors.
9. Defendant Timothy Gerrity ("Gerrity") is the Executive Vice
President and Chief Financial Officer of Herbalife and a member of its Board of
Directors.
10. Defendants Edward J. Hall and Alan Liker and are the remaining
members of the Board of Directors of Herbalife.
- 3 -
<PAGE> 4
11. The defendants named in paragraphs 6 through 10 are sometimes
collectively referred to therein as the "Individual Defendants."
12. The Individual Defendants as officers and/or directors of Herbalife
have a fiduciary relationship and responsibility to plaintiffs and the other
common public stockholders of Herbalife and owe to plaintiffs and the other
class members the highest obligations of good faith, loyalty, fair dealing,
due care and candor.
CLASS ACTION ALLEGATIONS
13. Plaintiffs bring this action pursuant to Section 382 of the California
Code of Civil Procedure on its own behalf and as a class action on behalf of all
common stockholders of Herbalife, or their successors in interest, who are being
and will be harmed by defendants' actions described below (the "Class").
Excluded from the Class are defendants herein and any person, firm, trust,
corporation, or other entity related to or affiliated with any of defendants.
14. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. There are thousands of Herbalife stockholders of record who are
located throughout the United States;
(b) There are questions of law and fact which are common to the
Class and which predominate over questions affecting any individual Class
members, including: whether defendants have acted or are continuing to act in a
manner
- 4 -
<PAGE> 5
calculated to benefit themselves at the expense of the Herbalife public
stockholders; and whether plaintiffs and the other Class members would be
irreparably damaged if the defendants are not enjoined in the manner described
below;
(c) Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature. The claims
of plaintiffs are typical of the claims of the other members of the Class and
plaintiffs have the same interests as the other members of the Class.
Accordingly, plaintiffs are adequate representatives of the Class and will
fairly and adequately protect the interests of the Class; and
(d) Plaintiffs anticipate that there will be no difficulty in the
management of this litigation.
15. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
CLAIM FOR RELIEF
16. Defendant Hughes currently owns 5.4 million Class A shares of
Herbalife, or approximately 54% of the Class A shares outstanding, and owns
10.8 million Class B shares of Herbalife, or approximately 58% of the Class B
shares outstanding.
17. On September 13, 1999, Herbalife announced that its Board of
Directors had accepted a definitive offer from defendant Hughes for a
transaction in which entities controlled by defendant Hughes would acquire all
of the outstanding Class A and Class B common stock of Herbalife for $17 per
share in cash.
- 5 -
<PAGE> 6
As reported, the buy-out will be structured as a cash tender offer to be
followed by a cash merger.
18. While the consideration offered represents a premium over Herbalife's
current share price, defendant Hughes has timed his offer to take advantage of
Herbalife's depressed share price to the detriment of Herbalife's public
shareholders. Herbalife's stock traded at prices above $16 per share as
recently as January of 1999. Moreover, in reporting Herbalife's first-quarter
financial results on April 21, 1999, defendant Hughes expressly noted that the
Company was "taking the steps necessary" that would "enable us to grow our
overall business and position us for long-term growth."
19. As set forth above, Herbalife has six board members, the majority of
whose loyalties are, at best, divided in the instant transaction. The
Individual Defendants are beholden to Hughes and can not be expected to act in
the best interest of Herbalife's minority stockholders.
20. The purpose of the proposed merger transaction is to enable Hughes,
through entities he controls, to acquire the shares of Herbalife he does not
already own and Herbalife's valuable assets for his own benefit and the benefit
of entities he controls at the expense of the Herbalife's public stockholders.
21. The Individual Defendants are in a position of control and power over
Herbalife's minority stockholders and have access to internal financial
information about Herbalife, its true value, expected increase in true value
and the benefits to Hughes and entities he controls of 100% ownership of
Herbalife to
-6-
<PAGE> 7
which plaintiffs and the Class members are not privy. Defendants are using
their positions of power and control to benefit Hughes in this transaction, to
the detriment of the Herbalife common stockholders.
22. In proposing the merger, Hughes and the other Individual Defendants
have committed or threatened to commit the following acts to the detriment and
disadvantage of Herbalife's public stockholders:
(a) They have undervalued Herbalife's common stock by ignoring the
full value of the Company's assets and future prospects. The proposed merger
consideration does not reflect the value of Herbalife's valuable assets; and
(b) They timed the announcement of the proposed buy-out to place an
artificial lid on the market price of Herbalife's common stock which is unfair
to Herbalife's public stockholders.
23. As a result of the foregoing, plaintiffs and the other members of the
Class will be irreparably harmed in that they will not receive their fair
portion of the value of Herbalife's assets and business and will be prevented
from obtaining the real value of their equity ownership of the Company. Unless
the proposed acquisition is enjoined by the Court, defendants will continue to
breach their fiduciary duties owed to plaintiffs and the other members of the
Class and will consummate the proposed acquisition, to the irreparable harm of
the members of the Class.
24. Plaintiffs and the other members of the Class have no adequate remedy
at law.
-7-
<PAGE> 8
WHEREFORE, plaintiffs pray for judgement and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiffs as Class representatives;
B. Preliminarily and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert with, or
for them, from preceding with, consummating or closing the proposed transaction;
C. In the event the proposed transaction is consummated, rescinding
it and setting it aside;
D. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
E. Awarding costs and disbursements, including plaintiffs' counsel's
fees and experts' fees; and
F. Granting such other and further relief as to the Court may deem
just and proper.
Dated: September 14, 1999
ABBEY, GARDY & SQUITIERI, LLP
/s/ JAMES JAY SEIRMARCO
----------------------------------------
JAMES JAY SEIRMARCO (194307)
595 Market Street, Suite 2500
San Francisco, CA 94105
Telephone: 415 538-3725
-8-
<PAGE> 9
- and -
ABBEY, GARDY & SQUITIERI, LLP
ARTHUR M. ABBEY
MARK C. GARDY
KARIN E. FISCH
212 East 39th Street
New York, New York 10016
Telephone: 212-889-3700
Attorneys for Plaintiff
OF COUNSEL:
FARUQI & FARUQI, LLP
415 Madison Avenue
New York, New York 10017
(212) 986-1074
- 9 -
<PAGE> 1
EXHIBIT (g)(2)
ORIGINAL FILED
MILBERG WEISS BERSHAD SEP 14 1999
HYNES & LERACH LLP LOS ANGELES
WILLIAM S. LERACH (68581) SUPERIOR COURT
DARREN J. ROBBINS (168593)
600 West Broadway, Suite 1800 CASE ASSIGNED TO CLASS ACTION
San Diego, CA 92101 DEPARTMENT 59 FOR ALL PRETRIAL
Telephone: 619/231-1058 PROCEEDINGS. CASE IS ASSIGNED
FOR TRIAL AS FOLLOWS.
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
STUART H. SAVETT, On Behalf of ) Case No: B C216761
Himself and All Others Similarly )
Situated, ) CLASS ACTION
)
Plaintiff, ) COMPLAINT BASED UPON SELF-
) DEALING AND BREACH OF
vs. ) FIDUCIARY DUTY
)
HERBALIFE INTERNATIONAL, INC., )
MARK HUGHES, CHRISTOPHER PAIR, )
MICHAEL E. ROSEN, ROBERT A. )
SANDLER, TIMOTHY GERRITY, )
EDWARD J. HALL, ALAN LIKER, )
CHRISTOPHER M. MINER, and DOES 1 - )
25, inclusive, )
)
Defendants. ) DEMAND FOR JURY TRIAL
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 2
Plaintiff, by his attorneys, alleges upon information and belief, except
for those allegations which pertain to plaintiff, which allegations are based
upon personal knowledge, as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over the cause of action asserted
herein pursuant to the California Constitution, Article VI, Section 10, because
this case is a cause not given by statute to other trial courts.
2. This Court has jurisdiction over Herbalife International, Inc.
("Herbalife" or the "Company") because this defendant is a citizen of
California with its principal place of business located at 1800 Century Park
East, Los Angeles, California. All of the Individual Defendants are citizens of
California. This action is not removable.
3. Venue is proper in this Court because the conduct at issue took
place and had an effect in this County.
PARTIES
4. Plaintiff Stuart H. Savett is a stockholder of Herbalife.
5. Defendant Herbalife is a corporation that operates as a marketer of
nutritional, weight management and personal care products in 44 countries.
Herbalife's common shares are listed and publicly traded on the NASDAQ.
6. Defendant Mark Hughes ("Hughes") is Chairman of the Board of
Directors, Chief Executive Officer and President of Herbalife. Hughes is
attempting to take Herbalife private in a management-led buyout ("MBO").
7. Defendant Christopher Pair is a director and Executive Vice
President, Chief Operating Officer and Secretary of Herbalife.
8. Defendant Michael E. Rosen is a director and Executive Vice
President and Chief Executive of Corporate Marketing and Corporate Development
of Herbalife.
9. Defendant Robert A. Sandler is an Executive Vice President and
General Counsel of Herbalife.
-1-
<PAGE> 3
10. Defendant Timothy Gerrity is a director and Executive Vice President
and Chief Financial Officer of the Company.
11. Defendants Edward J. Hall, Alan Like and Christopher M. Miner are
directors of Herbalife.
12. The true names and capacities of defendants sued herein under
California Code of Civil Procedure Section 474 as Does 1 through 25, inclusive,
are presently not known to plaintiff, who therefore sues these defendants by
such fictitious names. Plaintiff will seek to amend this Complaint and include
these Doe defendants' true names and capacities when they are ascertained. Each
of the fictitiously named defendants is responsible in some manner for the
conduct alleged herein and for the injuries suffered by the Class.
13. The defendants named in paragraphs 6-11 are sometimes collectively
referred to herein as the "Individual Defendants."
14. The Individual Defendants as officers and/or directors of Herbalife
have a fiduciary relationship and responsibility to plaintiff and the other
public common stockholders of Herbalife and owe to plaintiff and the other
Class members the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action pursuant to section 382 of the
California Code of Civil Procedure on his own behalf and as a class action on
behalf of all common stockholders of Herbalife, or their successors in
interest, who are being and will be harmed by defendants' actions described
below (the "Class"). Excluded from the Class are defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any defendant.
16. This action is properly maintainable is a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. Herbalife has both Class A and Class B shares. There are over
9.9 million shares of Herbalife Class A and over 18.6 million Class B stock
issued and trading on NASDAQ, and thousands of Herbalife stockholders of record
who are located throughout the United States;
-2-
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 4
(b) There are questions of law and fact which are common to the
Class, including whether the defendants have engaged or are continuing to act
in a manner calculated to benefit themselves at the expense of Herbalife's
public stockholders, and whether plaintiff and other members of the Class would
be irreparably damaged if the defendants are not enjoined in the manner
described below;
(c) The defendants have acted or refused to act on grounds generally
applicable to the Class thereby making appropriate final injunctive relief with
respect to the Class as a whole;
(d) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class; and
(e) Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
17. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
BACKGROUND AND CLAIM FOR RELIEF
18. Herbalife is a corporation with its principal executive offices
located in Los Angeles County. Herbalife is a marketer of nutritional, weight
management and personal care products world wide.
19. Defendant Hughes is President, CEC and Chairman of the Board of
Directors of Herbalife. Hughes has beneficial ownership of 54% of Herbalife's
Class A shares and 58% of Herbalife's Class B shares.
20. In the summer of 1999, Herbalife was just beginning to recover from
the impact of a very challenging currency environment, particularly in Asia and
Russia, which was primarily responsible for a sharp decrease in Herbalife's
international sales growth which began in the second quarter of 1998. A
challenging currency environment depressed not
- 3 -
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 5
only Herbalife's sales growth but also its stock price which traded at as high
as $29.00 on March 5, 1998 and ultimately succumbed to increasing currency
problems, trading at as low as $8.00 on October 14, 1998.
21. On April 21, 1999, Herbalife announced that its retail sales for the
first quarter of 1999 had increased 7.6% to $428 million from $398 million for
the corresponding quarter of the prior year. The Company further reported that
its net income for the first quarter had decreased to $11.7 million compared
with $14.8 million for the corresponding quarter of the prior year. The decrease
was primarily due to Herbalife's expenses which it had incurred in connection
with the Company's currency hedging program and its year 2000 conversion costs.
Commenting on the results, defendant Hughes stated:
"Although we continue to face the challenge of a global economy, we are
taking the steps necessary in each of or regions that we believe will
enable us to continue to grow our overall business and position us for a
long term success."
22. On July 21, 1999, Herbalife announced that its retail sales for the
second quarter of 1999 had increased 7% to $425 million from $398 million in
the 1998 comparable quarter. The Company also reported that its net income had
declined from $12.2 million compared to $15.3 million for the corresponding
1998 quarter. In addition, the Company also revealed that several of its
regions were experiencing explosive growth. In the Americas, retail sales for
the second quarter had leaped 16% to $136 million from $117 million in the
comparable 1998 quarter. In Mexico and Canada, retail sales leaped 86% and 25%,
respectively. Even in the regions where Herbalife had been facing a dramatic
and challenging currency environment, it was beginning to see a complete
turnaround. In the Asia/Pacific Rim region, the Company revealed that retail
sales had increased by 8%, South Korea retail sales had leaped almost 600%,
Hong Kong retail sales had leaped 41% and Taiwan retail sales had leaped 15%.
23. Just as the Company's challenging currency environment appeared to
have turned around and its costs associated with year 2000 compliance had been
almost fully
- 4 -
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 6
expensed, Herbalife announced that it had received and approved a buyout offer
from defendant Hughes, the Company's Chairman, President and Chief Executive
Officer.
24. On September 13, 1999, Herbalife announced that its Board of
Directors had accepted a definitive offer from defendant Hughes for a
transaction in which all of the outstanding Class A and Class B shares not
currently owned by Hughes would be acquired by various entities controlled and
owned by defendant Hughes for $17.00 per share, for a total transaction value
of $486 million. Hughes proposes to acquire the remaining shares he does not
already own via a tender offer which is scheduled to close October 15, 1999.
25. The purpose of the MBO is to enable Hughes to acquire one hundred
percent (100%) equity ownership of Herbalife and its valuable assets for his
own benefit at the expense of Herbalife's public stockholders who will be
deprived of their equity investment and the benefits thereof, including, among
other things, the expected growth in the Company's profitability.
26. The price of $17.00 per share to be paid to Class members is unfair
and inadequate because, among other things:
(a) The announcement of the proposed MBO was made at a time when the
Company's stock price was stuck near a 52-week low;
(b) Hughes timed the announcement of the MBO to place an artificial
lid or cap on the market price for Herbalife stock to enable him to acquire the
stock at the lowest possible price;
(c) Although the buyout price of $17.00 per share represents a
premium over the market price on the day prior to the announcement of the MBO,
this is not reflective of the Company's value; and in fact, the price of
Herbalife was trading at depressed levels in the last year resulting from year
2000 costs and currency fluctuations, which costs are almost fully expensed and
which currency issues have just begun to turn around;
-5-
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 7
(d) That defendants adopted a repricing of the Directors' Options
Plan ("Directors' Plan") which was designed to entice the Board, including the
purported "independent" Special Committee to approve Hughes' offer to acquire
the Company, thereby assuring that Hughes would be able to conduct the MBO at
less than fair-market value. In fact, each and every option grant was revised
below the proposed acquisition price as set forth below:
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
MARK HUGHES
Class A 166,667 $30.75 $16.375
166,667 16.25 8.00
166,667 13.00 8.00
375,000 22.125 8.00
166,667 16.375 8.00
MARK HUGHES
Class B 333,333 $30.75 $16.375
333,333 16.25 6.625
333,333 13.00 6.625
333,333 16.375 6.625
CHRISTOPHER PAIR
Class A 20,000 $ 8.875 $ 7.375
50,000 15.25 7.375
25,000 16.25 8.00
39,167 13.00 8.00
41,667 19.875 8.00
41,667 20.00 8.00
CHRISTOPHER PAIR
Class B 40,000 $ 8.870 $ 7.375
100,000 15.25 7.375
50,000 16.25 6.625
78,333 13.00 6.625
20,833 7.375 6.625
83,333 19.875 6.625
83,333 20.00 6.625
150,000 19.625 6.625
40,000 7.375 6.625
33,333 7.375 6.625
</TABLE>
-6-
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 8
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
MICHAEL ROSEN
Class A 58,333 $19.875 $ 7.375
16,667 16.25 8.00
33,333 19.875 8.00
33,333 20.00 8.00
MICHAEL ROSEN
Class B 116,667 $19.875 $ 7.375
33,333 16.25 6.625
8,333 7.375 6.625
66,667 19.875 6.625
66,667 20.00 6.625
150,000 19.625 6.625
70,000 7.375 6.625
ROBERT SANDLER
Class A 50,000 $30.75 $16.375
16,667 16.25 8.00
33,333 15.6875 8.00
8,333 20.00 8.00
50,000 16.375 8.00
ROBERT SANDLER
Class B 100,000 $30.75 $16.375
33,333 16.25 6.625
66,667 15.6875 6.625
16,667 20.00 6.625
50,000 19.625 6.625
100,000 16.375 6.625
TIMOTHY GERRITY
Class A 16,667 $15.25 $7.375
16,667 16.25 8.00
21,250 13.00 8.00
25,000 19.875 8.00
8,333 20.00 8.00
TIMOTHY GERRITY
Class B 33,333 $15.25 $ 7.375
33,333 16.25 6.625
42,500 13.00 6.625
7,500 7.375 6.625
50,000 19.875 6.625
16,667 20.00 6.625
100,000 19.625 6.625
20,000 7.375 6.625
</TABLE>
-7-
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 9
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
EDWARD HALL
Class A 8,333 $16.25 $ 8.00
6,667 13.00 8.00
8,333 19.875 8.00
EDWARD HALL
Class B 16,667 $16.25 $ 6.625
13,333 13.00 6.625
16,667 19.875 6.625
4,000 7.375 6.625
50,000 19.625 6.625
ALAN LIKER
Class A 8,333 $16.25 $ 8.00
6,667 13.00 8.00
8,333 19.875 8.00
ALAN LIKER
Class B 16,667 $16.25 $ 6.625
4,000 7.375 6.625
13,333 13.00 6.625
16,667 19.875 6.625
50,000 19.625 6.625
CHRISTOPHER MINER
Class A 8,333 $16.25 $ 8.00
8,333 19.875 8.00
5,867 13.00 8.00
CHRISTOPHER MINER
Class B 16,667 $16.25 $ 6.625
16,667 19.875 6.625
13,333 13.00 6.625
50,000 19.625 6.625
</TABLE>
27. By reason of defendants' positions with Herbalife, defendants are in
possession of non-public information concerning the financial condition and
prospects of Herbalife, and especially the true value and expected increased
future value of Herbalife and its assets, which they have not disclosed to
Herbalife's public stockholders.
28. Hughes is intent on paying the lowest buyout price to Class members,
whereas he and the other defendants are duty-bound to maximize shareholder
value. The defendants
-8-
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 10
have clear and material conflicts of interest and are acting to better the
interests of themselves at the expense of Herbalife's public shareholders.
29. The Board members identified herein have irremediable positions of
conflict and cannot be expected to act in the best interest of Herbalife's
public stockholders in connection with this proposed MBO, beholden as they are
to Hughes. They have received millions of dollars in payoffs -- via option
repricing -- and have acquiesced to Hughes' acquisition proposal. They alone
have the authority to vote to allow the MBO that is being proposed by Hughes and
to thereby deprive Herbalife's public shareholders of the true value of their
Herbalife shares.
30. The sole purpose of the proposed MBO is to enable Hughes to acquire
the shares of Herbalife that he does not already own, as well as Herbalife's
valuable assets, for his own benefit at the expense of Herbalife's minority
stockholders.
31. The proposed MBO is wrongful, unfair and harmful to Herbalife's
public stockholders, and represents an effort by Hughes to aggrandize his own
financial position and interests at the expense of and to the detriment of
Class members. The MBO is an attempt to deny plaintiff and the other members of
the Class their right to share proportionately in the true value of Herbalife's
valuable assets, future growth in profits and earnings, while usurping the same
for the benefit of Herbalife and Hughes on unfair and inadequate terms.
32. As a result of defendants' unlawful actions, plaintiff and the other
members of the Class will be damaged in that they will not receive their fair
portion of the value of Herbalife's assets and business and will be prevented
from obtaining the real value of their equity ownership of the Company.
33. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
o Undertake an appropriate evaluation of Herbalife's worth as an
acquisition candidate.
-9-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 11
o Act independently so that the interests of Herbalife's public
stockholders will be protected, including, but not limited to the retention
of independent advisors and/or the appointment of a truly independent
Special Committee of some or all of the members of Herbalife's Board to
consider the Herbalife offer and negotiate with Mark Hughes on behalf of
Herbalife's public stockholders.
o Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all conflict
be resolved in the best interest of Herbalife's public stockholders.
o If an acquisition transaction is to go forward, require that the
defendants disclose Herbalife's favorable third quarter financial results.
Defendants have timed the MBO to close just days before they would be
required to reveal Herbalife's 3Q results.
34. As a result of the defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their proportionate share of the value
of the Company's assets and business, and have been and will be prevented from
obtaining a fair price for their common stock.
35. Defendants, in failing to disclose the material non-public
information in their possession as to the value of Herbalife's assets, the full
extent of the future earnings potential of Herbalife and its expected increase
in profitability, are engaging in self-dealing, are not acting in good faith
toward plaintiff and the other members of the Class, and have breached and are
breaching their fiduciary duties to the members of the Class.
36. As a result of the defendants' unlawful actions, plaintiff and the
other members of the Class will be irreparably harmed in that they will not
receive their fair portion of the value of Herbalife's assets and business and
will be prevented from obtaining the real value of their equity ownership of the
Company. Unless the proposed acquisition is enjoined by the Court, defendants
will continue to breach their fiduciary duties owed to plaintiff and the members
of the Class, will not engage in arm's-length negotiations on the acquisition
terms, and will not supply to Herbalife's minority stockholders sufficient
information to enable them to cast informed votes on the proposed acquisition
and may consummate the proposed acquisition, all to the irreparable harm of the
members of the Class.
-10-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 12
37. Plaintiff and the other members of the Class have no adequate remedy
at law.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment and relief as follows:
1. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
2. Declaring that defendants have breached their fiduciary and other
duties to plaintiff and the other members of the Class;
3. Entering an order requiring defendants to take the steps set forth
herein;
4. Preliminarily and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert with, or for
them, from proceeding with, consummating or closing the proposed transaction;
5. In the event the MBO is consummated, rescinding it and setting it
aside;
6. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
7. Awarding costs and disbursements, including plaintiff's counsel's
fees and experts' fees; and
8. Granting such other and further relief as the Court may deem just and
proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED this 14th day of September, 1999.
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
/s/ WILLIAM S. LERACH
------------------------------
WILLIAM S. LERACH
-11-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 13
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
Attorney for Plaintiff
-12-
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 1
EXHIBIT (g)(3)
MILBERG WEISS BERSHAD ORIGINAL FILED
HYNES & LERACH LLP SEP 15 1999
WILLIAM S. LERACH (68581) LOS ANGELES
DARREN J. ROBBINS (168593) SUPERIOR COURT
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
LAW OFFICES OF RICHARD
D. KRANICH
RICHARD D. KRANICH
120 Broadway, Suite 1016
New York, NY 10271-0074
Telephone: 212/608-8965
Attorneys for Plaintiff
CASE ASSIGNED TO CLASS ACTION DEPARTMENT 59
FOR ALL PRETRIAL PROCEEDINGS. CASE IS ASSIGNED
FOR TRIAL AS FOLLOWS
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
KENNETH SCHWEITZER, On Behalf of ) Case No: BC216823
Himself and All Others Similarly Situated, )
) CLASS ACTION
Plaintiff, )
) COMPLAINT BASED UPON SELF
vs. ) DEALING AND BREACH OF
) FIDUCIARY DUTY
HERBALIFE INTERNATIONAL, INC., )
MARK HUGHES, CHRISTOPHER PAIR, )
MICHAEL E. ROSEN, ROBERT A. )
SANDLER, TIMOTHY GERRITY, )
EDWARD J. HALL, ALAN LIKER, )
CHRISTOPHER M. MINER, and DOES 1- )
25, inclusive, ) DEMAND FOR JURY TRIAL
)
Defendants. )
- ---------------------------------------------
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 2
Plaintiff, by his attorneys, alleges upon information and belief, except
for those allegations which pertain to plaintiff, which allegations are based
upon personal knowledge, as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over the cause of action asserted herein
pursuant to the California Constitution, Article VI, Section 10, because this
case is a cause not given by statute to other trial courts.
2. This Court has jurisdiction over Herbalife International, Inc.
("Herbalife" or the "Company") because this defendant is a citizen of
California with its principal place of business located at 1800 Century Park
East, Los Angeles, California. All of the Individual Defendants are citizens of
California. This action is not removable.
3. Venue is proper in this Court because the conduct at issue took place
and had an effect in this County.
PARTIES
4. Plaintiff Kenneth Schweitzer is a stockholder of Herbalife.
5. Defendant Herbalife is a corporation that operates as a marketer of
nutritional, weight management and personal care products in 44 countries.
Herbalife's common shares are listed and publicly traded on the NASDAQ.
6. Defendant Mark Hughes ("Hughes" is Chairman of the Board of Directors,
Chief Executive Officer and President of Herbalife. Hughes is attempting to take
Herbalife private in a management-led buyout ("MBO").
7. Defendant Christopher Pair is a director and Executive Vice President,
Chief Operating Officer and Secretary of Herbalife.
8. Defendant Michael E. Rosen is a director and Executive Vice President
and Chief Executive of Corporate Marketing and Corporate Development of
Herbalife.
9. Defendant Robert A. Sandler is an Executive Vice President and General
Counsel of Herbalife.
-1-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 3
10. Defendant Timothy Gerrity is a director and Executive Vice
President and Chief Financial Officer of the Company.
11. Defendants Edward J. Hall, Alan Liker and Christopher M. Miner are
directors of Herbalife.
12. The true names and capacities of defendants sued herein under
California Code of Civil Procedure Section 474 as Does 1 through 25, inclusive,
are presently not known to plaintiff, who therefore sues these defendants by
such fictitious names. Plaintiff will seek to amend this Complaint and include
these Doe defendants' true names and capacities when they are ascertained. Each
of the fictitiously named defendants is responsible in some manner for the
conduct alleged herein and for the injuries suffered by the Class.
13. The defendants named in paragraphs 6-11 are sometimes collectively
referred to herein as the "Individual Defendants."
14. The Individual Defendants as officers and/or directors of Herbalife
have a fiduciary relationship and responsibility to plaintiff and the other
public common stockholders of Herbalife and owe to plaintiff and the other
Class members the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action pursuant to Section 382 of the
California Code of Civil Procedure on his own behalf and as a class action on
behalf of all common stockholders of Herbalife, or their successors in
interest, who are being and will be harmed by defendants' actions described
below (the "Class"). Excluded from the Class are defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any defendant.
16. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. Herbalife has both Class A and Class B shares. There are over
9.9 million shares of Herbalife Class A and over 18.6 million Class B stock
issued and trading on NASDAQ, and thousands of Herbalife stockholders of record
who are located throughout the United States;
-2-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 4
(b) There are questions of law and fact which are common to the
Class, including whether the defendants have engaged or are continuing to act
in a manner calculated to benefit themselves at the expense of Herbalife's
public stockholders, and whether plaintiff and other members of the Class would
be irreparably damaged if the defendants are not enjoined in the manner
described below;
(c) The defendants have acted or refused to act on grounds
generally applicable to the Class thereby making appropriate final injunctive
relief with respect to the Class as a whole;
(d) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class. Accordingly,
plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class; and
(e) Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
17. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
BACKGROUND AND CLAIM FOR RELIEF
18. Herbalife is a corporation with its principal executive offices
located in Los Angeles County. Herbalife is a marketer of nutritional, weight
management and personal care products world wide.
19. Defendant Hughes is President, CEO and Chairman of the Board of
Directors of Herbalife. Hughes has a beneficial ownership of 54% of Herbalife's
Class A shares and 58% of Herbalife's Class B shares.
20. In the summer of 1999, Herbalife was just beginning to recover from
the impact of a very challenging currency environment, particularly in Asia and
Russia, which was primarily responsible for a sharp decrease in Herbalife's
international sales growth which began in the second quarter of 1998. A
challenging currency environment depressed not
-3-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 5
only Herbalife's sales growth but also its stock price which traded at as high
as $29.00 on March 5, 1998 and ultimately succumbed to increasing currency
problems, trading at as low as $8.00 on October 14, 1998.
21. On April 21, 1999, Herbalife announced that its retail sales for the
first quarter of 1999 had increased 7.6% to $428 million from $398 million for
the corresponding quarter of the prior year. The Company further reported that
its net income for the first quarter had decreased to $11.7 million compared
with $14.8 million for the corresponding quarter of the prior year. The decrease
was primarily due to Herbalife's expenses which it had incurred in connection
with the Company's currency hedging program and its year 2000 conversion costs.
Commenting on the results, defendant Hughes stated:
"Although we continue to face the challenge of a global economy, we are
taking the steps necessary in each of our regions that we believe will
enable us to continue to grow our overall business and position us for a
long term success."
22. On July 21, 1999, Herbalife announced that its retail sales for the
second quarter of 1999 had increased 7% to $425 million from $398 million in
the 1998 comparable quarter. The Company also reported that its net income had
declined from $12.2 million compared to $15.3 million for the corresponding
1998 quarter. In addition, the Company also revealed that several of its
regions were experiencing explosive growth. In the Americas, retail sales for
the second quarter had leaped 16% to $136 million from $117 million in the
comparable 1998 quarter. In Mexico and Canada, retail sales leaped 86% and 25%,
respectively. Even in the regions where Herbalife had been facing a dramatic
and challenging currency environment, it was beginning to see a complete
turnaround. In the Asia/Pacific Rim region, the Company revealed that retail
sales had increased by 8%, South Korea retail sales had leaped almost 600%,
Hong Kong retail sales had leaped 41% and Taiwan retail sales had leaped 15%.
23. Just as the Company's challenging currency environment appeared to
have turned around and its costs associated with year 2000 compliance had been
almost fully
- 4 -
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 6
expensed, Herbalife announced that it had received and approved a buyout offer
from defendant Hughes, the Company's Chairman, President and Chief Executive
Officer.
24. On September 13, 1999, Herbalife announced that its Board of
Directors had accepted a definitive offer from defendant Hughes for a
transaction in which all of the outstanding Class A and Class B shares not
currently owned by Hughes would be acquired by various entities controlled and
owned by defendant Hughes for $17.00 per share, for a total transaction value of
$486 million. Hughes proposes to acquire the remaining shares he does not
already own via a tender offer which is scheduled to close October 15, 1999.
25. The purpose of the MBO is to enable Hughes to acquire one hundred
percent (100%) equity ownership of Herbalife and its valuable assets for his
own benefit at the expense of Herbalife's public stockholders who will be
deprived of their equity investment and the benefits thereof, including, among
other things, the expected growth in the Company's profitability.
26. The price of $17.00 per share to be paid to Class members is unfair
and inadequate because, among other things:
(a) The announcement of the proposed MBO was made at a time when
the Company's stock price was stuck near a 52-week low;
(b) Hughes timed the announcement of the MBO to place an artificial
lid or cap on the market price for Herbalife stock to enable him to acquire the
stock at the lowest possible price;
(c) Although the buyout price of $17.00 per share represents a
premium over the market price on the day prior to the announcement of the MBO,
this is not reflective of the Company's value; and in fact, the price of
Herbalife was trading at depressed levels in the last year resulting from year
2000 costs and currency fluctuations, which costs are almost fully expensed and
which currency issues have just begun to turn around;
(d) That defendants adopted a repricing of the Directors' Options
Plan ("Directors' Plan") which was designed to entice the Board, including the
purported "independent" Special Committee to approve Hughes' offer to acquire
the Company, thereby
-5-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 7
assuring that Hughes would be able to conduct the MBO at less than fair-market
value. In fact, each and every option grant was revised below the proposed
acquisition price as set forth below:
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
MARK HUGHES
Class A 166,667 $30.75 $16.375
166,667 16.25 8.00
166,667 13.00 8.00
375,000 22.125 8.00
166,667 16.375 8.00
MARK HUGHES
Class B 333,333 $30.75 $16.375
333,333 16.25 6.625
333,333 13.00 6.625
333,333 16.375 6.625
CHRISTOPHER PAIR
Class A 20,000 $ 8.875 $ 7.375
50,000 15.25 7.375
25,000 16.25 8.00
39,167 13.00 8.00
41,667 19.875 8.00
41,667 20.00 8.00
CHRISTOPHER PAIR
Class B 40,000 $ 8.870 $ 7.375
100,000 15.25 7.375
50,000 16.25 6.625
78,333 13.00 6.625
20,833 7.375 6.625
83,333 19.875 6.625
83,333 20.00 6.625
150,000 19.625 6.625
40,000 7.375 6.625
33,333 7.375 6.625
MICHAEL ROSEN
Class A 58,333 $19.875 $ 7.375
16,667 16.25 8.00
33,333 19.875 8.00
33,333 20.00 8.00
MICHAEL ROSEN
Class B 116,667 $19.875 $ 7.375
33,333 16.25 6.625
8,333 7.375 6.625
66,667 19.875 6.625
66,667 20.00 6.625
150,000 19.625 6.625
70,000 7.375 6.625
</TABLE>
-6-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 8
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
ROBERT SANDLER
Class A 50,000 $13.75 $16.375
16,667 16.25 8.00
33,333 15.6875 8.00
8,333 20.00 8.00
50,000 16.375 8.00
ROBERT SANDLER
Class B 100,000 $30.75 $16.375
33,333 16.25 6.625
66,667 15.6875 6.625
16,667 20.00 6.625
50,000 19.625 6.625
100,000 16.375 6.625
TIMOTHY GERRITY
Class A 16,667 $15.25 $7.375
16,667 16.25 8.00
21,250 13.00 8.00
25,000 19.875 8.00
8,333 20.00 8.00
TIMOTHY GERRITY
Class B 33,333 $15.25 $ 7.375
33,333 16.25 6.625
42,500 13.00 6.625
7,500 7.375 6.625
50,000 19.875 6.625
16,667 20.00 6.625
100,000 19.625 6.625
20,000 7.375 6.625
EDWARD HALL
Class A 8,333 $16.25 $ 8.00
6,667 13.00 8.00
8,333 19.875 8.00
EDWARD HALL
Class B 16,667 $16.25 $ 6.625
13,333 13.00 6.625
16,667 19.875 6.625
4,000 7.375 6.625
50,000 19.625 6.625
ALAN LIKER
Class A 8,333 $16.25 $ 8.00
6,667 13.00 8.00
8,333 19.875 8.00
</TABLE>
-7-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 9
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----------
<S> <C> <C> <C>
ALAN LIKER
Class B 16,667 $16.25 $ 6.625
4,000 7.375 6.625
13,333 13.00 6.625
16,667 19.875 6.625
50,000 19.625 6.625
CHRISTOPHER MINER
Class A 8,333 $16.25 $ 8.00
8,333 19.875 8.00
5,867 13.00 8.00
CHRISTOPHER MINER
Class B 16,667 $16.25 $ 6.625
16,667 19.875 6.625
13,333 13.00 6.625
50,000 19.625 6.625
</TABLE>
27. By reason of defendants' positions with Herbalife, defendants are in
possession of non-public information concerning the financial condition and
prospects of Herbalife, and especially the true value and expected increased
future value of Herbalife and its assets, which they have not disclosed to
Herbalife's public stockholders.
28. Hughes is intent on paying the lowest buyout price to Class members,
whereas he and the other defendants are duty-bound to maximize shareholder
value. The defendants have clear and material conflicts of interest and are
acting to better the interests of themselves at the expense of Herbalife's
public shareholders.
29. The Board members identified herein have irremediable positions of
conflict and cannot be expected to act in the best interest of Herbalife's
public stockholders in connection with this proposed MBO, beholden as they are
to Hughes. They have received millions of dollars in payoffs -- via option
repricing -- and have acquiesced to Hughes' acquisition proposal. They alone
have the authority to vote to allow the MBO that is being proposed by Hughes and
to thereby deprive Herbalife's public shareholders of the true value of their
Herbalife shares.
-8-
- -------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 10
30. The sole purpose of the proposed MBO is to enable Hughes to acquire
the shares of Herbalife that he does not already own, as well as Herbalife's
valuable assets, for his own benefit at the expense of Herbalife's minority
stockholders.
31. The proposed MBO is wrongful, unfair and harmful to Herbalife's
public stockholders, and represents an effort by Hughes to aggrandize his own
financial position and interests at the expense of and to the detriment of
Class members. The MBO is an attempt to deny plaintiff and the other members of
the Class their right to share proportionately in the true value of Herbalife's
valuable assets, future growth in profits and earnings, while usurping the same
for the benefit of Herbalife and Hughes on unfair and inadequate terms.
32. As a result of defendants' unlawful actions, plaintiff and the other
members of the Class will be damaged in that they will not receive their fair
portion of the value of Herbalife's assets and business and will be prevented
from obtaining the real value of their equity ownership of the Company.
33. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
- Undertake an appropriate evaluation of Herbalife's worth as an
acquisition candidate.
- Act independently so that the interests of Herbalife's public
stockholders will be protected, including, but not limited to, the
retention of independent advisors and/or the appointment of a truly
independent Special Committee of some or all of the members of Herbalife's
Board to consider the Herbalife offer and negotiate with Mark Hughes on
behalf of Herbalife's public stockholders.
- Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all conflicts
be resolved in the best interests of Herbalife's public stockholders.
- If an acquisition transaction is to go forward, require that the
defendants disclose Herbalife's favorable third quarter financial results.
Defendants have timed the MBO to close just days before they would be
required to reveal Herbalife's 3Q results.
34. As a result of the defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not
-9-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 11
receive their proportionate share of the value of the Company's assets and
business, and have been and will be prevented from obtaining a fair price for
their common stock.
35. Defendants, in failing to disclose the material non-public
information in their possession as to the value of Herbalife's assets, the full
extent of the future earnings potential of Herbalife and its expected increase
in profitability, are engaging in self-dealing, are not acting in good faith
toward plaintiff and the other members of the Class, and have breached and are
breaching their fiduciary duties to the members of the Class.
36. As a result of the defendants' unlawful actions, plaintiff and the
other members of the Class will be irreparably harmed in that they will not
receive their fair portion of the value of Herbalife's assets and business and
will be prevented from obtaining the real value of their equity ownership of
the Company. Unless the proposed acquisition is enjoined by the Court,
defendants will continue to breach their fiduciary duties owed to plaintiff
and the members of the Class, will not engage in arm's-length negotiations on
the acquisition terms, and will not supply to Herbalife's minority stockholders
sufficient information to enable them to cast informed votes on the proposed
acquisition and may consummate the proposed acquisition, all to the
irreparable harm of the members of the Class.
37. Plaintiff and the other members of the Class have no adequate remedy
at law.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment and relief as follows:
1. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
2. Declaring that defendants have breached their fiduciary and other
duties to plaintiff and the other members of the Class;
3. Entering an order requiring defendants to take the steps set forth
herein;
4. Preliminarily and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert with, or for
them, from proceeding with, consummating or closing the proposed transaction;
5. In the event the MBO is consummated, rescinding it and setting it
aside;
-10-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 12
6. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
7. Awarding costs and disbursements, including plaintiff's counsel's fees
and experts' fees; and
8. Granting such other and further relief as the Court may deem just and
proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED this 15th day of September, 1999.
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
/s/ WILLIAM S. LERACH /by /s/ [SIGNATURE ILLEGIBLE]
---------------------------------------------------
WILLIAM S. LERACH
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
LAW OFFICES OF RICHARD
D. KRANICH
RICHARD D. KRANICH
120 Broadway, Suite 1016
New York, NY 10271-0074
Telephone: 212/608-8965
Attorneys for Plaintiff
-11-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 1
EXHIBIT (g)(4)
MILBERG WEISS BERSHAD
HYNES & LERACH LLP ORIGINAL FILED
WILLIAM S. LERACH (68581) SEP 16 1999
DARREN J. ROBBINS (168593) LOS ANGELES
600 West Broadway, Suite 1800 SUPERIOR COURT
San Diego, CA 92101
Telephone: 619/231-1058
Attorneys for Plaintiff
CASE ASSIGNED TO CLASS ACTION DEPARTMENT 59
FOR ALL PRETRIAL PROCEEDINGS, CASE IS ASSIGNED
FOR TRIAL AS FOLLOWS.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
COPY
FRANCES LONGSTRETH, On Behalf of ) Case No.: B C216911
Herself and All Others Similarly Situated, )
) COMPLAINT BASED UPON SELF
Plaintiff, ) DEALING AND BREACH OF
) FIDUCIARY DUTY
vs. )
)
HERBALIFE INTERNATIONAL, INC., )
MARK HUGHES, CHRISTOPHER PAIR, )
MICHAEL E. ROSEN, ROBERT A. )
SANDLER, TIMOTHY GERRITY, )
EDWARD J. HALL, ALAN LIKER, )
CHRISTOPHER M. MINER, and DOES 1- )
25, inclusive, )
)
Defendants. ) DEMAND FOR JURY TRIAL
- ---------------------------------------------
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 2
Plaintiff, by her attorneys, alleges upon information and belief, except
for those allegations which pertain to plaintiff, which allegations are based
upon personal knowledge, as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over the cause of action asserted herein
pursuant to the California Constitution, Article VI, Section 10, because this
case is a cause not given by statute to other trial courts.
2. This Court has jurisdiction over Herbalife International, Inc.
("Herbalife" or the "Company") because this defendant is a citizen of
California with its principal place of business located at 1800 Century Park
East, Los Angeles, California. All of the Individual Defendants are citizens
of California. This action is not removable.
3. Venue is proper in this Court because the conduct at issue took place
and had an effect in this County.
PARTIES
4. Plaintiff Frances Longstreth is a stockholder of Herbalife.
5. Defendant Herbalife is a corporation that operates as a marketer of
nutritional, weight management and personal care products in 44 countries.
Herbalife's common shares are listed and publicly traded on the NASDAQ.
6. Defendant Mark Hughes ("Hughes") is Chairman of the Board of
Directors, Chief Executive Officer and President of Herbalife. Hughes is
attempting to take Herbalife private in a management-led buyout ("MBO").
7. Defendant Christopher Pair is a director and Executive Vice
President, Chief Operating Officer and Secretary of Herbalife.
8. Defendant Michael E. Rosen is a director and Executive Vice President
and Chief Executive of Corporate Marketing and Corporate Development of
Herbalife.
9. Defendant Robert A. Sandler is an Executive Vice President and
General Counsel of Herbalife.
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 3
10. Defendant Timothy Gerrity is a director and Executive Vice
President and Chief Financial Officer of the Company.
11. Defendants Edward J. Hall, Alan Liker and Christopher M. Miner are
directors of Herbalife.
12. The true names and capacities of defendants sued herein under
California Code of Civil Procedure Section 474 as Does 1 through 25, inclusive,
are presently not known to plaintiff, who therefore sues these defendants by
such fictitious names. Plaintiff will seek to amend this Complaint and include
these Doe defendants' true names and capacities when they are ascertained. Each
of the fictitiously named defendants is responsible in some manner for the
conduct alleged herein and for the injuries suffered by the Class.
13. The defendants named in paragraphs 6-11 are sometimes collectively
referred to herein as the "Individual Defendants."
14. The Individual Defendants as officers and/or directors of Herbalife
have a fiduciary relationship and responsibility to plaintiff and the other
public common stockholders of Herbalife and owe to plaintiff and the other
Class members the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action pursuant to Section 382 of the
California Code of Civil Procedure on her own behalf and as a class action on
behalf of all common stockholders of Herbalife, or their successors in
interest, who are being and will be harmed by defendants' actions described
below (the "Class"). Excluded from the Class are defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any defendant.
16. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. Herbalife has both Class A and Class B shares. There are over
9.9 million shares of Herbalife Class A and over 18.6 million Class B stock
issued and trading on NASDAQ and thousands of Herbalife stockholders of record
who are located throughout the United States;
-2-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 4
(b) There are questions of law and fact which are common to the
Class, including whether the defendants have engaged or are continuing to act
in a manner calculated to benefit themselves at the expense of Herbalife's
public stockholders, and whether plaintiff and other members of the Class would
be irreparably damaged if the defendants are not enjoined in the manner
described below;
(c) The defendants have acted or refused to act on grounds
generally applicable to the Class thereby making appropriate final injunctive
relief with respect to the Class as a whole;
(d) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class. Accordingly,
plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class; and
(e) Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
17. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
BACKGROUND AND CLAIM FOR RELIEF
18. Herbalife is a corporation with its principal executive offices
located in Los Angeles County. Herbalife is a marketer of nutritional, weight
management and personal care products world wide.
19. Defendant Hughes is President, CEO and Chairman of the Board of
Directors of Herbalife. Hughes has a beneficial ownership of 54% of Herbalife's
Class A shares and 58% of Herbalife's Class B shares.
20. In the summer of 1999, Herbalife was just beginning to recover from
the impact of a very challenging currency environment, particularly in Asia and
Russia, which was primarily responsible for a sharp decrease in Herbalife's
international sales growth which began in the second quarter of 1998. A
challenging currency environment depressed not
-3-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 5
only Herbalife's sales growth but also its stock price which traded at as high
as $29.00 on March 5, 1998 and ultimately succumbed to increasing currency
problems, trading at as low as $8.00 on October 14, 1998.
21. On April 21, 1999, Herbalife announced that its retail sales for the
first quarter of 1999 had increased 7.6% to $428 million from $398 million for
the corresponding quarter of the prior year. The Company further reported that
its net income for the first quarter had decreased to $11.7 million compared
with $14.8 million for the corresponding quarter of the prior year. The
decrease was primarily due to Herbalife's expenses which it had incurred in
connection with the Company's currency hedging program and its year 2000
conversion costs. Commenting on the results, defendant Hughes stated:
"Although we continue to face the challenge of a global economy, we are
taking the steps necessary in each of our regions that we believe will
enable us to continue to grow our overall business and position us for a
long term success."
22. On July 21, 1999, Herbalife announced that its retail sales for the
second quarter of 1999 had increased 7% to $425 million from $398 million in
the 1998 comparable quarter. The Company also reported that its net income had
declined from $12.2 million compared to $15.3 million for the corresponding
1998 quarter. In addition, the Company also revealed that several of its
regions were experiencing explosive growth. In the Americas, retail sales for
the second quarter had leaped 16% to $136 million from $117 million in the
comparable 1998 quarter. In Mexico and Canada, retail sales leaped 86% and 25%,
respectively. Even in the regions where Herbalife had been facing a dramatic
and challenging currency environment, it was beginning to see a complete
turnaround. In the Asia/Pacific Rim region, the Company revealed that retail
sales had increased by 8%, South Korea retail sales had leaped almost 600%,
Hong Kong retail sales had leaped 41% and Taiwan retail sales had leaped 15%.
23. Just as the Company's challenging currency environment appeared to
have turned around and its costs associated with year 2000 compliance had been
almost fully
-4-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 6
expensed, Herbalife announced that it had received and approved a buyout offer
from defendant Hughes, the Company's Chairman, President and Chief Executive
Officer.
24. On September 13, 1999, Herbalife announced that its Board of
Directors had accepted a definitive offer from defendant Hughes for a
transaction in which all of the outstanding Class A and Class B shares not
currently owned by Hughes would be acquired by various entities controlled and
owned by defendant Hughes for $17.00 per share, for a total transaction value
of $486 million. Hughes proposed to acquire the remaining shares he does not
already own via a tender offer which is scheduled to close October 15, 1999.
25. The purpose of the MBO is to enable Hughes to acquire one hundred
percent (100%) equity ownership of Herbalife and its valuable assets for his
own benefit at the expense of Herbalife's public stockholders who will be
deprived of their equity investment and the benefits thereof, including, among
other things, the expected growth in the Company's profitability.
26. The price of $17.00 per share to be paid to Class members is unfair
and inadequate because, among other things:
(a) The announcement of the proposed MBO was made at a time when the
Company's stock price was stuck near a 52-week low;
(b) Hughes timed the announcement of the MBO to place an artificial
lid or cap on the market price for Herbalife stock to enable him to acquire the
stock at the lowest possible price;
(c) Although the buyout price of $17.00 per share represents a
premium over the market price on the day prior to the announcement of the MBO,
this is not reflective of the Company's value; and in fact, the price of
Herbalife was trading at depressed levels in the last year resulting from year
2000 costs and currency fluctuations, which costs are almost fully expensed and
which currency issues have just begun to turn around;
(d) That defendants adopted a repricing of the Directors' Options
Plan ("Directors' Plan") which was designed to entice the Board, including the
purported "independent" Special Committee to approve Hughes' offer to acquire
the Company, thereby
-5-
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COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 7
assuring that Hughes would be able to conduct the MBO at less than fair-market
value. In fact, each and every option grant was revised below the proposed
acquisition price as set forth below:
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
MARK HUGHES
Class A 166,667 $30.75 $16.375
166,667 16.25 8.00
166,667 13.00 8.00
375,000 22.125 8.00
166,667 16.375 8.00
MARK HUGHES
Class B 333,333 $30.75 $16.375
333,333 16.25 6.625
333,333 13.00 6.625
333,333 16.375 6.625
CHRISTOPHER PAIR
Class A 20,000 $ 8.875 $ 7.375
50,000 15.25 7.375
25,000 16.25 8.00
39,167 13.00 8.00
41,667 19.875 8.00
41,667 20.00 8.00
CHRISTOPHER PAIR
Class B 40,000 $ 8.870 $ 7.375
100,000 15.25 7.375
50,000 16.25 6.625
78,333 13.00 6.625
29,833 7.375 6.625
83,333 19.875 6.625
83,333 20.00 6.625
150,000 19.625 6.625
40,000 7.375 6.625
33,333 7.375 6.625
MICHAEL ROSEN
Class A 58,333 $19.875 $ 7.375
16,667 16.25 8.00
33,333 19.875 8.00
33,333 20.00 8.00
MICHAEL ROSEN
Class B 116,667 $19.875 $ 7.375
33,333 16.25 6.625
8,333 7.375 6.625
66,667 19.875 6.625
66,667 20.00 6.625
150,000 19.625 6.625
70,000 7.375 6.625
</TABLE>
-6-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 8
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
ROBERT SANDLER
Class A 50,000 $30.75 $16.375
16,667 16.25 8.00
33,333 15.6875 8.00
8,333 20.00 8.00
50,000 16.375 8.00
ROBERT SANDLER
Class B 100,000 $30.75 $16.375
33,333 16.25 6.625
66,667 15.6875 6.625
16,667 20.00 6.625
50,000 19.625 6.625
100,000 16.375 6.625
TIMOTHY GERRITY
Class A 16,667 $15.25 $7.375
16,667 16.25 8.00
21,250 13.00 8.00
25,000 19.875 8.00
8,333 20.00 8.00
TIMOTHY GERRITY
Class B 33,333 $15.25 $ 7.375
33,333 16.25 6.625
42,500 13.00 6.625
7,500 7.375 6.625
50,000 19.875 6.625
16,667 20.00 6.625
100,000 19.625 6.625
20,000 7.375 6.625
EDWARD HALL
Class A 8,333 $16.25 $ 8.00
6,667 13.00 8.00
8,333 19.875 8.00
EDWARD HALL
Class B 16,667 $16.25 $ 6.625
13,333 13.00 6.625
16,667 19.875 6.625
4,000 7.375 6.625
50,000 19.625 6.625
ALAN LIKER
Class A 8,333 $16.25 $ 8.00
6,667 13.00 8.00
8,333 19.875 8.00
</TABLE>
-7-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 9
<TABLE>
<CAPTION>
Number of
Securities Underlying Exercise Price At
Options/SARS Time of Repricing New Exercise
Name Repriced or Amended Or Amendment Price
---- ------------------- ------------ -----
<S> <C> <C> <C>
ALAN LIKER
Class B 16,667 $16.25 $ 6.625
4,000 7.375 6.625
13,333 13.00 6.625
16,667 19.875 6.625
50,000 19.625 6.625
CHRISTOPHER MINER
Class A 8,333 $16.25 $ 8.00
8,333 19.875 8.00
5,867 13.00 8.00
CHRISTOPHER MINER
Class B 16,667 $16.25 $ 6.625
16,667 19.875 6.625
13,333 13.00 6.625
50,000 19.625 6.625
</TABLE>
27. By reason of defendants' positions with Herbalife, defendants are in
possession of non-public information concerning the financial condition and
prospects of Herbalife, and especially the true value and expected increased
future value of Herbalife and its assets, which they have not disclosed to
Herbalife's public stockholders.
28. Hughes is intent on paying the lowest buyout price to Class members,
whereas he and the other defendants are duty-bound to maximize shareholder
value. The defendants have clear and material conflicts of interest and are
acting to better the interests of themselves at the expense of Herbalife's
public shareholders.
29. The Board members identified herein have irremediable positions of
conflict and cannot be expected to act in the best interest of Herbalife's
public stockholders in connection with this proposed MBO, beholden as they are
to Hughes. They have received millions of dollars in payoffs -- via option
repricing -- and have acquiesced to Hughes' acquisition proposal. They alone
have the authority to vote to allow the MBO that is being proposed by Hughes and
to thereby deprive Herbalife's public shareholders of the true value of their
Herbalife shares.
-8-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 10
30. The sole purpose of the proposed MBO is to enable Hughes to acquire
the shares of Herbalife that he does not already own, as well as Herbalife's
valuable assets, for his own benefit at the expense of Herbalife's minority
stockholders.
31. The proposed MBO is wrongful, unfair and harmful to Herbalife's
public stockholders, and represents an effort by Hughes to aggrandize his own
financial position and interests at the expense of and to the detriment of
Class members. The MBO is an attempt to deny plaintiff and the other members of
the Class their right to share proportionately in the true value of Herbalife's
valuable assets, future growth in profits and earnings, while usurping the same
for the benefit of Herbalife and Hughes on unfair and inadequate terms.
32. As a result of defendants' unlawful actions, plaintiff and the
other members of the Class will be damaged in that they will not receive their
fair portion of the value of Herbalife's assets and business and will be
prevented from obtaining the real value of their equity ownership of the
Company.
33. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
- Undertake an appropriate evaluation of Herbalife's worth as an
acquisition candidate
- Act independently so that the interests of Herbalife's public
stockholders will be protected, including, but not limited to, the
retention of independent advisors and/or the appointment of a truly
independent Special Committee of some or all of the members of
Herbalife's Board to consider the Herbalife offer and negotiate with
Mark Hughes on behalf of Herbalife's public stockholders.
- Adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all
conflicts be resolved in the best interests of Herbalife's public
stockholders.
- If an acquisition transaction is to go forward, require that the
defendants disclose Herbalife's favorable third quarter financial
results. Defendants have timed the MBO to close just days before they
would be required to reveal Herbalife's 3Q results.
34. As a result of the defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not
-9-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 11
receive their proportionate share of the value of the Company's assets and
business, and have been and will be prevented from obtaining a fair price for
their common stock.
35. Defendants, in failing to disclose the material, non-public
information in their possession as to the value of Herbalife's assets, the full
extent of the future earnings potential of Herbalife and its expected increase
in profitability, are engaging in self-dealing, are not acting in good faith
toward plaintiff and the other members of the Class, and have breached and are
breaching their fiduciary duties to the members of the Class.
36. As a result of the defendant's unlawful actions, plaintiff and the
other members of the Class will be irreparably harmed in that they will not
receive their fair portion of the value of Herbalife's assets and business and
will be prevented from obtaining the real value of their equity ownership of
the Company. Unless the proposed acquisition is enjoined by the Court,
defendants will continue to breach their fiduciary duties owed to plaintiff and
the members of the Class, will not engage in arm's-length negotiations on the
acquisition terms, and will not supply to Herbalife's minority stockholders
sufficient information to enable them to cast informed votes on the proposed
acquisition and may consummate the proposed acquisition, all to the irreparable
harm of the members of the Class.
37. Plaintiff and the other members of the Class have no adequate
remedy at law.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for judgment and relief as follows:
1. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
2. Declaring that defendants have breached their fiduciary and other
duties to plaintiff and the other members of the Class;
3. Entering an order requiring defendants to take the steps set forth
herein;
4. Preliminary and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert with, or
for them, from proceeding with, consummating or closing the proposed
transaction;
5. In the event the MBO is consummated, rescinding it and setting it
aside;
-10-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 12
6. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
7. Awarding costs and disbursements, including plaintiff's counsel's
fees and experts' fees; and
8. Granting such other and further relief as the Court may deem just and
proper.
JURY DEMAND
Plaintiff demands a trial by jury.
DATED this 16th day of September, 1999.
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH
DARREN J. ROBBINS
/s/ WILLIAM S. LERACH
--------------------------
WILLIAM S. LERACH
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
Attorneys for Plaintiff
-11-
- --------------------------------------------------------------------------------
COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
<PAGE> 1
EXHIBIT (g)(5)
ORIGINAL FILED
SEP 16 1999
LOS ANGELES
SUPERIOR COURT
KEVIN M. PRONGAY (087010)
JON W. BORDERUD (134355)
PRONGAY & BORDERUD
12121 Wilshire Boulevard, Suite 400
Los Angeles, CA 90025
Telephone: (310) 207-2848
James V. Bashian
Oren Giskan
LAW OFFICES OF JAMES V. BASHIAN, P.C.
500 Fifth Avenue, Suite 2700
New York, NY 10110
Telephone: (212) 921-4110
Attorneys for Plaintiff
CASE ASSIGNED TO CLASS ACTION DEPARTMENT 59
FOR ALL PRETRIAL PROCEEDINGS. CASE IS ASSIGNED
FOR TRIAL AS FOLLOWS.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES, CENTRAL DISTRICT
RAE ELLEN PLATTUS, on behalf of ) Case No: BC216904
herself and all others similarly )
situated, ) Class Action
)
Plaintiff, ) CLASS ACTION COMPLAINT FOR
) BREACH OF FIDUCIARY DUTY AND
vs. ) JURY DEMAND
)
CHRISTOPHER PAIR, HERBALIFE )
INTERNATIONAL INC., MARK )
HUGHES, MICHAEL E. ROSEN, )
EDWARD J. HALL, ALAN LIKER, and )
CHRISTOPHER M. MINER )
)
Defendants. )
CLASS ACTION COMPLAINT
Plaintiff, by her undersigned attorneys, for her class action complaint
against defendants, alleges upon knowledge as to her own acts and upon
information and belief as to all other matters, as follows:
NATURE OF THE ACTION
1. Plaintiff brings this action individually and as a class action on
<PAGE> 2
behalf of all persons, other than defendants, who own the securities of
Herbalife International, Inc. ("Herbalife" or the "Company") and who are
similarly situated, for compensatory damages and injunctive relief arising from
the offer to acquire the remaining shares of Herbalife that its controlling
shareholder, Mark Hughes ("Hughes"), does not already own (the "Offer" or the
"Transaction"). Alternatively, in the event that the Offer for Herbalife is
consummated, plaintiff seeks to recover damages caused by the breach of
fiduciary duties owed by the individual defendants (as defined below). The
proposed Transaction and the acts of the individual defendants, as more
particularly alleged herein, constitute a breach of defendants' fiduciary
duties to plaintiff and the class and a violation of applicable legal standards
governing the defendants herein.
2. The individual defendants' decision to consider and pursue the
proposed transaction with Hughes was given in breach of their fiduciary duties
owed to Herbalife's stockholders to take all necessary steps to ensure that the
stockholders will receive the maximum value realizable for their shares in any
transaction effecting the change of corporate control. In the context of this
action, the Board, having expressed a willingness to consider the terms of the
Offer, must take all reasonable steps to assure the maximization of stockholder
value, including the implementation of a bidding mechanism to foster a fair
auction of the Company to the highest bidder or the exploration of strategic
alternatives that will return greater or equivalent short-term value to the
plaintiff and the class.
PARTIES
3. Plaintiff is a resident of Los Angeles County and has been a
continuous owner of shares of Herbalife common stock at all relevant times
described herein.
4. Defendant Herbalife is a marketer and distributor of health and
1
<PAGE> 3
personal care products, duly organized and existing under the laws of the State
of Nevada, with its principal offices located at 1800 Century Park East, Los
Angeles, California 90067.
5. Defendant Hughes, at all time material hereto, has been Herbalife's
Chairman of the Board of Directors, President and CEO. Hughes currently owns
54% of Herbalife's Class A shares of common stock and 58% of Herbalife's Class
B Shares.
6. Defendant Christopher Pair ("Pair"), at all times material hereto,
has been the Executive Vice President, Secretary, Chief Operating Officer, and
a Director of Herbalife.
7. Defendant Michael E. Rosen ("Rosen"), at all times material hereto,
has been Executive Vice President and a Director of the Company.
8. Defendant Edward J. Hall, Alan Liker, and Christopher M. Miner, at
all times material hereto, have been Directors of the Company.
9. The defendants named in paragraphs 5 through 8 above are hereinafter
referred to as the "Individual Defendants."
10. The Individual Defendants, by reason of their corporate directorship
and/or executive positions, are fiduciaries to and for the Company's
stockholders, which fiduciary relationship requires them to exercise their best
judgment, and to act in a prudent manner and in the best interests of the
Company's stockholders.
11. Each defendant herein is sued individually as a conspirator and aider
and abettor, as well as in his capacity as an officer and/or director of the
Company, and the liability of each arises from the fact he or she has engaged
in all or part of the unlawful acts, plans, schemes, or transactions complained
of herein.
CLASS ACTION ALLEGATIONS
12. Plaintiff brings this actions pursuant to ss 382 of the California
Code.
2
<PAGE> 4
of Civil Procedure individually on her own behalf and as a class action, on
behalf of all stockholders of the Company (except the defendants herein and any
person, firm, trust, corporation, or other entity related to or affiliated with
any of the defendants) and their successors in interest, who are or will be
threatened with injury arising from defendants' actions as more fully described
herein (the "Class").
13. This action is properly maintainable as a class action for the
following reasons.
a. The Class is so numerous that joinder of all members is
impracticable. There are hundreds, if not thousands, of stockholders who hold
the approximately twenty million shares of Herbalife common stock outstanding
and traded on the NASDAQ Exchange. The disposition of their claims in a class
action will be of benefit to the parties and the Court. The record holders of
the Company's securities can be easily determined from the stock transfer
journals maintained by Herbalife or its agents.
b. A class action is superior to other methods for the fair and
efficient adjudication of the claims herein asserted, and no unusual
difficulties are likely to be encountered in the management of this action as a
class action. The likelihood of individual class members prosecuting separate
claims is remote.
c. There is a well-defined community of interest in the questions
of law and fact involved affecting the members of the Class. Among the
questions of law and fact common to the Class, which predominate over questions
affecting any individual class member are, inter alia, whether:
i. the proposed Transaction is grossly unfair to Herbalife's public
stockholders;
ii. defendants willfully and wrongfully failed to maximize stockholder
3
<PAGE> 5
value through an adequate auction or market check process;
iii. defendants have breached or aided and abetted the breach of the
fiduciary and other common law duties owned by them to plaintiff and
the members of the Class; and
iv. plaintiff and the other members of the Class would be irreparably
damaged were the proposed Transaction complained of herein
consummated.
d. Plaintiff is a member of the Class and is committed to
prosecuting this action. Plaintiff has retained competent counsel experienced
in litigation of this nature. The claims of plaintiff are typical of the claims
of other members of the Class, and plaintiff has the same interests as the
other members of the Class. Plaintiff does not have interests antagonistic to
or in conflict with those he seeks to represent. Plaintiff is an adequate
representative of the Class.
e. The likelihood of individual class members prosecuting separate
individual actions is remote due to the relatively small loss suffered by each
Class member as compared to the burden and expense of prosecuting litigation of
this nature and magnitude. Absent a class action, defendants are likely to
avoid liability for their wrongdoing, and Class members are unlikely to obtain
redress for their wrongs alleged herein. There are no difficulties likely to be
encountered in the management of the Class claims. Plaintiff's claims are
typical of the claims of other members of the Class and plaintiff has no
interest adverse to the Class. Further, plaintiff has retained counsel
experienced in class action litigation and will fairly and adequately protect
the interests of the Class. This Court is an appropriate forum for this
dispute.
SUBSTANTIVE ALLEGATIONS
14. By the acts, transactions, and courses of conduct alleged herein,
4
<PAGE> 6
defendants, individually and as part of a common plan and scheme and/or aiding
and abetting one another in total disregard of their fiduciary duties, are
attempting to deprive plaintiff and the Class of the true value of their
investment in the Company.
15. On September 13, 1999, the financial news media reported that
defendant Hughes offered to purchase the shares of Herbalife that he did not
already own for $486 million in cash.
16. Hughes owns approximately 54% of Herbalife's Class A shares of common
stock and 58% of Herbalife's Class B shares.
17. The consideration to be paid to Herbalife's public stockholders is
grossly unfair, inadequate, and substantially below the fair or inherent value
of the Company.
18. Hughes timed the transaction to take advantage of Herbalife's
depressed stock price, which Hughes has publicly stated is undervalued. In
light of the foregoing, defendants have breached their fiduciary obligations to
maximize stockholder value and have not fully informed themselves about whether
greater value can be achieved through the sale of the Company to a third party
in a manner designed to obtain the highest possible price for Herbalife's
public stockholders.
19. The proposed Offer is wrongful, unfair, and harmful to Herbalife
stockholders, and represents an attempt by the Individual Defendants to
aggrandize or, at a minimum, maintain their personal and financial positions and
interests through continued management positions and to enrich themselves, as
well as Hughes, at the expense of and to the detriment of the public
stockholders of the Company. The proposed Offer will deny class members their
right to share proportionately in the true value of Herbalife's valuable assets,
profitable business, and future growth in profits and earnings, while usurping
the same for the benefit of the defendants at an unfair and
5
<PAGE> 7
inadequate price.
20. By reason of the foregoing, defendants herein have willfully
participated in unfair dealing toward plaintiff and the other members of the
Class and have engaged in and substantially assisted and aided and abetted each
other in breach of the fiduciary duties owed by them to the Class.
21. Defendants have violated fiduciary and other common law duties owed
to plaintiff and the other members of the Class in that they have not, and are
not, exercising independent business judgment, have acted and are acting to the
detriment of the Class in order to benefit themselves and/or their colleagues.
22. As a result of defendants' actions, plaintiff and the Class have been
and will be damaged, in that they are the victims of unfair dealing, and are
not receiving the fair value of Herbalife's assets and businesses.
23. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the Class, and will succeed in
their plan to enrich themselves by excluding the Class from its fair
proportionate share of Herbalife's valuable assets and businesses, all to the
irreparable harm of the Class.
24. Plaintiff and the Class have no adequate remedy of law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
a. declaring that this lawsuit is properly maintainable as a class
action and certifying the plaintiff as proper representative of the Class;
b. declaring that defendants and each of them have committed or
aided and abetted a gross abuse of trust and have breached their fiduciary
duties to plaintiff and the other members of the Class;
c. preliminarily and permanently enjoining defendants and their
counsel, agents, employees, and all persons acting under, in concert with, or
for them,
6
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND JURY DEMAND
<PAGE> 8
from proceeding with, consummating the Transaction with Hughes;
d. immunizing the vote of all defendants who have any connection with
Hughes, in any vote by the Herbalife Board of Directors pertaining to any change
of control transaction with Hughes;
e. in the event the Transaction with Hughes is consummated,
rescinding it and setting it aside;
f. ordering defendants to permit a stockholders' committee, comprised
of class members and the representative, to ensure a fair procedure, adequate
procedural safe-guards, and independent input by plaintiff and the Class in
connection with any transaction for Herbalife's shares;
g. awarding compensatory damages against defendants, jointly and
severally, in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
h. awarding plaintiff and the Class their costs and disbursements and
reasonable allowances for plaintiff's counsel and experts' fees and expenses;
and
i. granting such other and further relief as may be just and proper.
Dated: September 16, 1999
PRONGAY & BORDERUD
Kevin M. Prongay
Jon W. Borderud
/s/ KEVIN M. PRONGAY
-------------------------
Kevin M. Prongay
12121 Wilshire Boulevard, Suite 400
Los Angeles, CA 90025
Telephone: (310) 207-2848
7
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND JURY DEMAND
<PAGE> 9
LAW OFFICES OF JAMES V. BASHIAN,
P.C.
James V. Bashian
Oren Giskan
500 Fifth Avenue, Suite 2700
New York, NY 10110
Telephone: (212) 921-4110
Attorneys for Plaintiff
JURY DEMAND
Plaintiff demands trial by jury on all issues of fact.
PRONGAY & BORDERUD
Kevin M. Prongay
Jon W. Borderud
/s/ KEVIN M. PRONGAY
--------------------------
Kevin M. Prongay
12121 Wilshire Boulevard, Suite 400
Los Angeles, CA 90025
Telephone: (310) 207-2848
LAW OFFICES OF JAMES V. BASHIAN,
P.C.
James V. Bashian
Oren Giskan
500 Fifth Avenue, Suite 2700
New York, NY 10110
Telephone: (212) 921-4110
Attorneys for Plaintiff
8
CLASS ACTION COMPLAINT FOR BREACH OF FIDUCIARY DUTY AND JURY DEMAND
<PAGE> 1
EXHIBIT (g)(6)
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
G. MARK ALBRIGHT
Nevada State Bar No. 001394
801 S. rancho Drive, suite D-4
Las Vegas, NV 89106
(702) 384-7111
Attorneys for Plaintiff
FILED SEPTEMBER 14, 1999
DISTRICT COURT
CLARK COUNTY, NEVADA
COLLEEN M. THARP on behalf of )
herself and all others similarly ) CLASS ACTION COMPLAINT
situated, )
)
Plaintiff, )
)
-against- ) Arbitration Exemption
) Claimed Amount In Question
HERBALIFE INTERNATIONAL INC., ) Exceeds $40,000.00 and
ROBERT SANDLER, CHRISTOPHER M. ) Class Action
MINER, MICHAEL E. ROSEN, ALAN D. )
LIKER, EDWARD J. HALL, )
CHRISTOPHER PAIR, MARK HUGHES )
and TIMOTHY GERRITY, )
- -----------------------------------
Defendants.
Plaintiff, by her attorneys, for her complaint against defendants,
alleges upon personal knowledge with respect to paragraph 2, and upon
information and belief based, inter alia, upon the investigation of counsel, as
to all other allegations herein, as follows:
NATURE OF THE ACTION
1. This is a stockholder's class action on behalf of the public
stockholders of Herbalife International Inc. ("Herbalife" or the "Company"),
against certain of its officers and directors and the principal shareholder of
Herbalife to enjoin certain actions of defendants related to the proposed
acquisition of the outstanding shares of Herbalife common stock by its principal
shareholder, to the execution of other bona fide bidders.
<PAGE> 2
THE PARTIES
2. Plaintiff Colleen M. Tharp is, and at all relevant times has been,
the owner of Class A common stock of defendant Herbalife.
3. Defendant Herbalife is a Nevada corporation with its principal
executive officers located at 1800 Century Park East, Los Angeles, California.
Herbalife has two classes of common stock issued and outstanding: Class A voting
stock; and non-voting Class B common stock.
4. Defendants Robert Sandler, Christopher M. Miner, Michael E. Rosen,
Alan D. Liker, Edward J. Hall, Christopher Pair, Mark Hughes and Timothy
Gerrity are all members of the Company's Board of Directors. In addition,
defendant Sandler is Executive Vice President and General Counsel of the
Company, defendant Miner is Executive Vice President and Chief
Executive-Development and Marketing of the Company, defendant Pair is Chief
Operating Officer of the Company, defendant Hughes is Chairman, President,
Founder and CEO of the Company and defendant Gerrity is Chief Financial Officer
of the Company.
5. Defendant Hughes owns and controls 54% of the Company's Class A
common stock and 58% of the Company's non-voting Class B common stock.
6. By virtue of their positions as directors and/or officers of
Herbalife and/or their exercise of control and dominant ownership over the
business and corporate affairs of Herbalife, each and every of the
Individual Defendants (especially Hughes) has, and at all relevant times had,
the power to control and influence, and did control and influence and cause
Herbalife to engage in the practices complained of herein. Each Individual
Defendant owed and owes Herbalife and its stockholders fiduciary obligations and
was and is required to: use his ability to control and manage Herbalife in a
fair, just and equitable manner; act in furtherance of the best interests of
Herbalife and it stockholders; refrain from abusing his positions of control;
and not to favor his own interests at the expense of Herbalife and its
stockholders.
7. As discussed in detail below, Hughes, in concert with the Individual
Defendants, who together control the actions of Herbalife, have breached their
fiduciary duties to Herbalife's
2
<PAGE> 3
public stockholders by acting to cause or facilitate Hughes's acquisition of
the publicly-held shares of Herbalife, to the exclusion of all other bidders,
for unfair and inadequate consideration, and colluding in Hughes's coercive
tactics in accompanying such buy-out.
8. Each defendant herein is sued individually as a conspirator and aider
and abettor, as well as in the case of the Individual Defendants, in their
capacity as directors an/or officers of Herbalife and the liability of each
arises from the fact that they have engaged in all or part of the unlawful
acts, plans, schemes, or transactions complained of herein.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this action individually and as a class action on
behalf of all stockholders of Herbalife (excluding from the Class the
defendants herein and any person, firm, trust, corporation or other entity
related to or affiliated with any of the defendants) and their successors in
interest, pursuant to Rule 23 of the Rules of Civil Procedure for the Nevada
District Courts (the "Class").
10. This action is properly maintainable as a class action.
11. The Class is so numerous that joinder of all members is impracticable.
As of July 31, 1999, Herbalife had 9,982,300 shares of Class A common stock
issued and outstanding and 18,604,515 shares of Class B common stock issued and
outstanding.
12. There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
(a) Whether defendants have engaged in and are continuing to engage
in conduct which unfairly benefits Hughes at the expense of the members of the
Class;
(b) Whether the Individual Defendants, as officers and/or directors
of the Company, and Hughes, the principal stockholder of Herbalife, are
violating their fiduciary duties to plaintiff and the other members of the
Class;
(c) Whether plaintiff and other members of the Class would be
irreparably damaged were defendants not enjoined from the conduct described
herein; and
3
<PAGE> 4
(d) Whether defendants have initiated and timed their buy-out of
Herbalife shares to unfairly benefit Hughes at the expense of Herbalife's
public shareholders.
13. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of other members of the Class and plaintiff
has the same interests as the other members of the Class. Plaintiff is an
adequate representative of the Class.
14. Defendants have acted and are about to act on ground generally
applicable to the Class, thereby making it appropriate to render final
injunctive, or corresponding declaratory relief, with respect to the Class.
15. A class action is superior to other methods for the fair and
efficient adjudication of the claims herein asserted, and no unusual
difficulties are likely to be encountered in the management of this class
action. Since the damages suffered by individual class members may be
relatively small, the expense and burden of individual litigation makes it
impossible for members of the Class to individually seek redress for the
wrongful conduct alleged.
SUBSTANTIVE ALLEGATIONS
16. On September 13, 1999, after the close of the markets, Herbalife
issued a press release announcing that its Board of Directors had accepted a
definitive offer from Hughes for a transaction in which all of the outstanding
Class A and Class B shares not presently owned by Hughes will be acquired by
entities controlled by Hughes for $17 per share cash.
17. According to the press release, a "Special Committee" composed of
purportedly independent directors reviewed the terms of the transaction and
approved it. Given Hughes
4
<PAGE> 5
stranglehold over the Company and its operations, any review by the Special
Committee is a sham.
18. Hughes, by reason of his substantial ownership of Herbalife's voting
common stock, is in a position to ensure effectuation of the management led
leveraged buy-out without regard to its fairness to Herbalife's public
shareholders. Hughes and his allies on Herbalife's Board are acting to force
Herbalife's public shareholders to relinquish their Herbalife shares without an
adequate process to ensure that these shareholders receive the highest price
attainable under the circumstances for such shares.
19. Thus, Hughes has the power and is exercising his power to acquire
Herbalife's shares and dictate terms which are in Hughes's best interest,
regardless of the wishes or best interests of the class members or the
intrinsic value of Herbalife's stock.
20. Because Hughes is in possession of proprietary corporate information
concerning Herbalife's future financial prospects, the degree of knowledge and
economic power between Hughes and the class members is unequal, making it
grossly and inherently unfair for Hughes to obtain the remaining Herbalife's
shares without an adequate process.
21. By using his domination and control as a means to force the
consummation of the leveraged buy-out transaction, Hughes is violating his
duties as the Company's principal shareholder.
22. Defendants, acting in concert, are violating their fiduciary duties
owed to the public shareholders of Herbalife and are putting their own personal
interests ahead of the interests of Herbalife's public shareholders. To act
consistent with their fiduciary duties, the Individual Defendants should
evaluate all available alternatives, including negotiating with any other
potential suitors, which they have failed to do.
23. Defendants have initiated an active sales process and, thus, have
assumed enhanced duties to maximize shareholder value. In that regard,
defendants must adequately ensure that no conflict of interest exists between
their own interests and their fiduciary obligations to maximize stockholder
value and act in the shareholders' best interests or, if such conflicts exist,
to ensure that they will be resolved in the best interests of the Company's
public stockholders.
5
<PAGE> 6
24. Plaintiff seeks preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiff and the Class of their rights to realize a full and fair
value for their stock at a substantial premium over the market price and to
compel defendants to carry out their fiduciary duties to maximize shareholder
value in selling Herbalife.
25. Defendants' fiduciary obligations require them to:
(a) act independently so that the interests of Herbalife's public
stockholders will be protected;
(b) adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation of entire fairness or,
if such conflicts exist, to ensure that all the conflicts are resolved in the
best interests of Herbalife's public stockholders; and
(c) provide Herbalife's stockholders with truly independent
representation in the negotiations with Hughes and the other bidders for the
Company.
26. By reason of the foregoing, defendants have breached and will
continue to breach their duties to the public shareholders of Herbalife and are
engaging in improper, unfair dealing and wrongful and coercive conduct.
27. Plaintiff and the Class will suffer irreparable harm unless
defendants are enjoined from breaching their fiduciary duties and from carrying
out the aforesaid plan and scheme.
28. By reason of the foregoing, defendants have violated the fiduciary
duties which each of them owes to plaintiff and the other members of the Class.
29. Each of the defendants has colluded in and rendered substantial
assistance in the accomplishment of the wrongdoing complained of herein. In
taking the actions, as particularized herein, to aid and abet and substantially
assist the wrongs complained of, all defendants acted with an awareness of the
primary wrongdoing and realized that their conduct would substantially assist
the accomplishment of that wrongdoing and were aware of their overall
contribution to the conspiracy, common scheme and course of wrongful conduct.
6
<PAGE> 7
30. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class,
and are prepared to consummate a buy-out on unfair and inadequate terms which
will exclude the Class from its fair proportionate share of Herbalife's
valuable assets and businesses, all to the irreparable harm of the Class, as
aforesaid.
31. Plaintiff and the other class members are immediately threatened by
the acts and transactions complained of herein, and lack an adequate remedy at
law.
WHEREFORE, plaintiff demands judgment and preliminary and permanent
relief, including injunctive relief, in his favor and in favor of the Class and
against defendants as follows:
A. Declaring that this action is properly maintainable as a class
action, and certifying plaintiff as a class representative;
B. Declaring that the defendants and each of them have committed or
participated in a gross abuse of trust and have breached their fiduciary duties
to plaintiff and other members of the Class or aided and abetted such breaches;
C. Enjoining the leveraged buy-out transaction and, if such
transaction is consummated, rescinding the transaction;
D. Requiring defendants to abide by and uphold their fiduciary
responsibilities in selling the Company and to fully insulate themselves from
any conflicts of interest that interfere with that would interfere with their
duties;
E. Awarding plaintiff and the Class compensatory damages and/or
rescissory damages;
F. Awarding plaintiff the costs and disbursements of this action,
including allowance for plaintiff's attorneys' and experts' fees; and
G. Granting such other, and further relief as this Court may deem
to be just and proper.
7
<PAGE> 8
JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
DATED: September 14, 1999
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
By: /s/ G. MARK ALBRIGHT
-------------------------------
G. Mark Albright
Nevada Bar No. 001394
William H. Stoddard
Nevada Bar No. 001477
Quail Park Suite D-4
801 South Rancho Drive
Las Vegas, Nevada 89106
(702) 384-7111
Of Counsel:
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
LAW OFFICES OF LAWRENCE G. SOICHER
300 Park Avenue, 20th Floor
New York, NY 10022
(212) 980-700
<PAGE> 1
EXHIBIT (g)(7)
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
G. MARK ALBRIGHT
Nevada State Bar No. 001394
801 S. Rancho Drive, Suite D-4
Las Vegas, NV 89106
(702) 384-7111
Attorneys for Plaintiff
FILED
SEP 15 9:41 AM '99
[ILLEGIBLE]
CLERK
DISTRICT COURT
CLARK COUNTY, NEVADA
FRANCIS MCFARLAIN, IRA, on
behalf of himself and all others similarly
situated,
Plaintiff,
-against-
HERBALIFE INTERNATIONAL, INC.,
ROBERT SANDLER, CHRISTOPHER M.
MINER, MICHAEL E. ROSEN, ALAN D.
LIKER, EDWARD J. HALL,
CHRISTOPHER PAIR, MARK HUGHES
and TIMOTHY GERRITY,
Defendants.
- -------------------------------------
CLASS ACTION COMPLAINT
A408159
I
ARBITRATION EXEMPTION
CLAIMED AMOUNT IN QUESTION
EXCEEDS $40,000.00 AND
CLASS ACTION
Plaintiff, by her attorneys, for her complaint against defendants, alleges
upon personal knowledge with respect to paragraph 2, and upon information and
belief based, inter alia, upon the investigation of counsel, as to all other
allegations herein, as follows:
NATURE OF THE ACTION
1. This is a stockholder's class action on behalf of the public
stockholders of Herbalife International Inc. ("Herbalife" or the "Company"),
against certain of its officers and directors and the principal shareholder of
Herbalife to enjoin certain actions of defendants related to the proposed
acquisition of the outstanding shares of Herbalife common stock by its
principal shareholder, to the exclusion of other bona fide bidders.
<PAGE> 2
THE PARTIES
2. Plaintiff Francis McFarlain, IRA, is and at all relevant times has
been, the owner of Class B common stock of defendant Herbalife.
3. Defendant Herbalife is a Nevada corporation with its principal
executive officers located at 1800 Century Park East, Los Angeles, California.
Herbalife has two classes of common stock issued and outstanding: Class A voting
stock; and non-voting Class B common stock.
4. Defendants Robert Sandler, Christopher M. Miner, Michael E. Rosen,
Alan D. Liker, Edward J. Hall, Christopher Pair, Mark Hughes and Timothy
Gerrity are all members of the Company's Board of Directors. In addition,
defendant Sandler is Executive Vice President and General Counsel of the
Company, defendant Miner is Executive Vice President and Chief
Executive-Development and Marketing of the Company, defendant Pair is Chief
Operating Officer of the Company, defendant Hughes is Chairman, President,
Founder and CEO of the Company and defendant Gerrity is Chief Financial Officer
of the Company.
5. Defendant Hughes owns and controls 54% of the Company's Class A
common stock and 58% of the Company's non-voting Class B common stock.
6. By virtue of their positions as directors and/or officers of
Herbalife and/or their exercise of control and dominant ownership over the
business and corporate affairs of Herbalife, each and every of the Individual
Defendants (especially Hughes) has, and at all relevant times had, the power to
control and influence, and did control and influence and cause Herbalife to
engage in the practices complained of herein. Each Individual Defendant owed and
owes Herbalife and its stockholders fiduciary obligations and was and is
required to: use his ability to control and manage Herbalife in a fair, just and
equitable manner; act in furtherance of the best interests of Herbalife and its
stockholders; govern Herbalife in such a manner as to heed the expressed views
of its public shareholders; refrain from abusing his positions of control; and
not to favor his own interests at the expense of Herbalife and its stockholders.
7. As discussed in detail below, Hughes, in concert with the Individual
Defendants, who together control the actions of Herbalife, have breached their
fiduciary duties to Herbalife's
2
<PAGE> 3
public stockholders by acting to cause or facilitate Hughes's acquisition of
the publicly-held shares of Herbalife, to the exclusion of all other bidders,
for unfair and inadequate consideration, and colluding in Hughes's coercive
tactics in accompanying such buy-out.
8. Each defendant herein is sued individually as a conspirator and aider
and abettor, as well as in the case of the Individual Defendants, in their
capacity as directors and/or officers of Herbalife and the liability of each
arises from the fact that they have engaged in all or part of the unlawful
acts, plans, schemes, or transactions complained of herein.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this action individually and as a class action on
behalf of all stockholders of Herbalife (excluding from the Class the
defendants herein and any person, firm, trust, corporation or other entity
related to or affiliated with any of the defendants) and their successors in
interest, pursuant to Rule 23 of the Rules of Civil Procedure for the Nevada
District Courts (the "Class").
10. This action is properly maintainable as a class action.
11. The Class is so numerous that joinder of all members is impracticable.
As of July 31, 1999, Herbalife had 9,982,300 shares of Class A common stock
issued and outstanding and 18,604,515 shares of Class B common stock issued and
outstanding.
12. There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
(a) Whether defendants have engaged in and are continuing to engage
in conduct which unfairly benefits Hughes at the expense of the members of the
Class;
(b) Whether the Individual Defendants, as officers and/or directors
of the Company, and Hughes, the principal stockholder of Herbalife, are
violating their fiduciary duties to plaintiff and the other members of the
Class;
(c) Whether plaintiff and the other members of the Class would be
irreparably damaged were defendants not enjoined from the conduct described
herein; and
3
<PAGE> 4
(d) Whether defendants have initiated and timed their buy-out of
Herbalife shares to unfairly benefit Hughes at the expense of Herbalife's
public shareholders.
13. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of other members of the Class and plaintiff
has the same interests as the other members of the Class. Plaintiff is an
adequate representative of the Class.
14. Defendants have acted and are about to act on grounds generally
applicable to the Class, thereby making it appropriate to render final
injunctive, or corresponding declaratory relief, with respect to the Class.
15. A class action is superior to other methods for the fair and
efficient adjudication of the claims herein asserted, and no unusual
difficulties are likely to be encountered in the management of this class
action. Since the damages suffered by individual class members may be
relatively small, the expense and burden of individual litigation makes it
impossible for members of the Class to individually seek redress for the
wrongful conduct alleged.
SUBSTANTIVE ALLEGATIONS
16. On September 13, 1999, after the close of the markets, Herbalife
issued a press release announcing that its Board of Directors had accepted a
definitive offer from Hughes for a transaction in which all of the outstanding
Class A and Class B shares not presently owned by Hughes will be acquired by
entities controlled by Hughes for $17 per share cash.
17. According to the press release, a "Special Committee" composed of
purportedly independent directors reviewed the terms of the transaction and
approved it. Given Hughes
4
<PAGE> 5
stranglehold over the Company and its operations, any review by the Special
Committee is a sham.
18. Hughes, by reason of his substantial ownership of Herbalife's voting
common stock, is in a position to ensure effectuation of the management led
leveraged buy-out without regard to its fairness to Herbalife's public
shareholders. Hughes and his allies on Herbalife's Board are acting to force
Herbalife's public shareholders to relinquish their Herbalife share without an
adequate process to ensure that these shareholders receive the highest price
attainable under the circumstances for such shares.
19. Thus, Hughes has the power and is exercising his power to acquire
Herbalife's shares and dictate terms which are in Hughes's best interest,
regardless of the wishes or best interests of the class members or the
intrinsic value of Herbalife's stock.
20. Because Hughes is in possession of proprietary corporate information
concerning Herbalife's future financial prospects, the degree of knowledge and
economic power between Hughes and the class members is unequal, making it
grossly and inherently unfair for Hughes to obtain the remaining Herbalife's
shares without an adequate process.
21. By using his domination and control as a means to force the
consummation of the leveraged buy-out transaction, Hughes is violating his
duties as the Company's principal shareholder.
22. Defendants, acting in concert, are violating their fiduciary duties
owed to the public shareholders of Herbalife and are putting their own personal
interests ahead of the interests of Herbalife's public shareholders. To act
consistent with their fiduciary duties, the Individual Defendants should
evaluate all available alternatives, including negotiating with any other
potential suitors, which they have failed to do.
23. Defendants have initiated an active sales process and, thus, have
assumed enhanced duties to maximize shareholder value. In that regard,
defendants must adequately ensure that no conflict of interest exists between
their own interests and their fiduciary obligations to maximize stockholder
value and act in the shareholders' best interests or, if such conflicts exist,
to ensure that they will be resolved in the best interests of the Company's
public stockholders.
5
<PAGE> 6
24. Plaintiff seeks preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiff and the Class of their rights to realize a full and fair
value for their stock at a substantial premium over the market price and to
compel defendants to carry out their fiduciary duties to maximize shareholder
value in selling Herbalife.
25. Defendants' fiduciary obligations require them to:
(a) act independently so that the interests of Herbalife's public
stockholders will be protected;
(b) adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation of entire fairness or,
if such conflicts exist, to ensure that all the conflicts are resolved in the
best interests of Herbalife's public stockholders; and
(c) provide Herbalife's stockholders with truly independent
representation in the negotiations with Hughes and the other bidders for the
Company.
26. By reason of the foregoing, defendants have breached and will
continue to breach their duties to the public shareholders of Herbalife and are
engaging in improper, unfair dealing and wrongful and coercive conduct.
27. Plaintiff and the Class will suffer irreparable harm unless
defendants are enjoined from breaching their fiduciary duties and from carrying
out the aforesaid plan and scheme.
28. By reason of the foregoing, defendants have violated the fiduciary
duties which each of them owes to plaintiff and the other members of the Class.
29. Each of the defendants has colluded in and rendered substantial
assistance in the accomplishment of the wrongdoing complained of herein. In
taking the actions, as particularized herein, to aid and abet and substantially
assist the wrongs complained of, all defendants acted with an awareness of the
primary wrongdoing and realized that their conduct would substantially assist
the accomplishment of that wrongdoing and were aware of their overall
contribution to the conspiracy, common scheme and course of wrongful conduct.
6
<PAGE> 7
30. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class,
and are prepared to consummate a buy-out on unfair and inadequate terms which
will exclude the Class from its fair proportionate share of Herbalife's
valuable assets and businesses, all to the irreparable harm of the Class, as
aforesaid.
31. Plaintiff and the other class members are immediately threatened by
the acts and transactions complained of herein, and lack an adequate remedy at
law.
WHEREFORE, plaintiff demands judgment and preliminary and permanent
relief, including injunctive relief, in his favor and in favor of the Class and
against defendants as follows:
A. Declaring that this action is properly maintainable as a class
action, and certifying plaintiff as a class representative;
B. Declaring that the defendants and each of them have committed or
participated in a gross abuse of trust and have breached their fiduciary duties
to plaintiff and other members of the Class or aided and abetted such breaches;
C. Enjoining the leveraged buy-out transaction and, if such
transaction is consummated, rescinding the transaction;
D. Requiring defendants to abide by and uphold their fiduciary
responsibilities in selling the Company and to fully insulate themselves from
any conflicts of interest that interfere with that would interfere with their
duties;
E. Awarding plaintiff and the Class compensatory damages and/or
rescissory damages;
F. Awarding plaintiff the costs and disbursements of this action,
including allowance for plaintiff's attorneys' and experts' fees; and
G. Granting such other, and further relief as this Court may deem
to be just and proper.
7
<PAGE> 8
JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
DATED: September 14, 1999
ALBRIGHT, STODDARD, WARNICK
& ALBRIGHT
By: /s/ G. MARK ALBRIGHT
-------------------------------
G. Mark Albright
Nevada Bar No. 001394
William H. Stoddard
Nevada Bar No. 001477
Quail Park Suite D-4
801 South Rancho Drive
Las Vegas, Nevada 89106
(702) 384-7111
Of Counsel:
WOLF, HALDENSTEIN, ADLER, FREEMAN
& HERZ
270 Madison Avenue
New York, NY 10016
(212) 545-4600
(212) 545-4653 Fax
<PAGE> 1
EXHIBIT (g)(8)
LIONEL Z. GLANCY #134180 ORIGINAL FILED
PETER A. BINKOW #173848 SEPTEMBER 17, 1999
LAW OFFICES OF LIONEL Z. GLANCY LOS ANGELES
1801 Avenue of the Stars, Suite 311 SUPERIOR COURT
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
ROBERT I. HARWOOD
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
488 Madison Avenue
New York, New York 10022
Telephone: (212) 935-7400
Facsimile: (212) 753-3630
Attorneys for Plaintiff
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
CASE ASSIGNED TO CLASS ACTION DEPARTMENT 59 FOR ALL
PRETRIAL PROCEEDINGS. CASE IS ASSIGNED FOR TRIAL AS FOLLOWS
LEE BRENIN, On Behalf of Herself ) CIV. NO.
and All Others Similarly Situated, )
) CLASS ACTION
) ------------
Plaintiff, ) COMPLAINT BASED UPON
) UNFAIR BUSINESS
vs. ) PRACTICES, SELF DEALING
) AND BREACH OF FIDUCIARY DUTY
MARK HUGHES, CHRISTOPHER PAIR, ) ____________________________
MICHAEL E. ROSEN, EDWARD J. HALL, )
ALAN LIKER, TIMOTHY GERRITY and )
HERBALIFE INTERNATIONAL INC., ) B C216932
)
Defendants. )
______________________________________)
Plaintiff, by her attorneys, alleges upon information and belief, except
as to paragraph 4 which plaintiff alleges upon knowledge, as follows:
1
<PAGE> 2
NATURE OF THE CASE
1. This is a shareholder class action brought by plaintiff on behalf of
herself and other stockholders of Herbalife International Inc. ("Herbalife" or
the "Company"), seeking injunctive relief and/or monetary damages arising from
defendants' breach of their fiduciary duties to the public stockholders of
Herbalife.
JURISDICTION AND VENUE
2. This action is brought to remedy violations of California law by the
defendants. The amount in controversy is in excess of the jurisdictional
minimum of this court.
3. While defendant Herbalife is organized under the laws of the state of
Nevada, it maintains its headquarters, from which it does a substantial portion
of its business, in Los Angeles, California, within Los Angeles County.
Furthermore, many, if not all, of the acts and transactions complained of
herein, including discussions regarding the transaction complained of, occurred
in substantial part through the Company's offices in Los Angeles. Many of the
defendants named herein reside in, maintain an office in, and/or conduct
business relevant to this litigation in Los Angeles County.
THE PARTIES
4. Plaintiff Lee Brenin is a stockholder of defendant Herbalife.
5. Defendant Herbalife is a corporation duly organized and existing
under the laws of Nevada, with its principal offices
2
<PAGE> 3
located at 1800 Century Park East, Los Angeles, California, 90067. Herbalife
markets nutritional, weight management and personal care products worldwide
through independent distributors who purchase products directly from the
Company. As of April 20, 1999, there were over 28.5 million shares of Herbalife
Class A and Class B shares outstanding.
6. Defendant Mark Hughes ("Hughes") is the founder of Herbalife and is
Chairman of the Board, Chief Executive Officer and President of the Company.
Defendant Hughes owns approximately 54% of the outstanding voting Class A
shares of Herbalife and approximately 58% of the outstanding non-voting Class B
shares of Herbalife.
7. Defendant Christopher Pair ("Pair") is the Executive Vice President
and Chief Operating Officer of Herbalife and a member of its Board of
Directors.
8. Defendant Michael E. Rosen ("Rosen") is the Executive Vice President
and Chief Executive Corporate Marketing and Corporate Development of Herbalife
and a member of its Board of Directors.
9. Defendant Timothy Gerrity ("Gerrity") is the Executive Vice President
and Chief Financial Officer of Herbalife and a member of its Board of Directors.
10. Defendants Edward J. Hall and Alan Liker are the remaining members of
the Board of Directors of Herbalife.
11. The defendants named in paragraphs 6 through 10 are sometimes
collectively referred to herein as the "Individual
3
<PAGE> 4
Defendants."
12. The Individual Defendants as officers and/or directors of Herbalife
have a fiduciary relationship and responsibility to plaintiff and the other
common public stockholders of Herbalife and owe to plaintiff and the other
Class members the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
13. Plaintiff brings this action pursuant to section 382 of the
California Code Of Civil Procedure on its own behalf and as a class action on
behalf of all common stockholders of Herbalife, or their successors in interest,
who are being and will be harmed by defendants' actions described below (the
"Class"). Excluded from the Class are defendants herein and any person, firm,
trust, corporation, or other entity related to or affiliated with any of
defendants.
14. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. There are thousands of Herbalife stockholders of record who are
located throughout the United States;
(b) There are questions of law and fact which are common to the
Class and which predominate over questions affecting any individual Class
members, including: whether defendants have acted or are continuing to act in a
manner
4
<PAGE> 5
calculated to benefit themselves at the expense of the Herbalife public
stockholders; and whether plaintiff and the other Class members would be
irreparably damaged if the defendants are not enjoined in the manner described
below;
(c) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class; and
(d) Plaintiff anticipates that there will be no difficulty in the
management of this litigation.
15. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
CLAIM FOR RELIEF
16. Defendant Hughes currently owns 5.4 million Class A shares of
Herbalife, or approximately 54% of the Class A shares outstanding, and owns
10.8 million Class B shares of Herbalife, or approximately 58% of the Class B
shares outstanding.
17. On September 13, 1999, Herbalife announced that its Board of
Directors had accepted a definitive offer from defendant Hughes for a
transaction in which entities controlled by defendant Hughes would acquire all
of the outstanding Class A
5
<PAGE> 6
and Class B common stock of Herbalife for $17 per share in cash. As reported,
the buy-out will be structured as a cash tender offer to be followed by a cash
merger.
18. While the consideration offered represents a premium over Herbalife's
current share price, defendant Hughes has timed his offer to take advantage of
Herbalife's depressed share price to the detriment of Herbalife's public
shareholders. Herbalife's stock trade at prices above $16 per share as recently
as January of 1999. Moreover, in reporting Herbalife's first-quarter financial
results on April 21, 1999, defendant Hughes expressly noted that the Company
was "taking the steps necessary" that would "enable us to grow our overall
business and position us for long-term growth."
19. As set forth above, Herbalife has six board members, the majority of
whose loyalties are, at best, divided in the instant transaction. The
Individual Defendants are beholden to Hughes and cannot be expected to act in
the best interest of Herbalife's minority stockholders.
20. The purpose of the proposed merger transaction is to enable Hughes,
through entities he controls, to acquire the shares of Herbalife he does not
already own and Herbalife's valuable assets for his own benefit and the benefit
of entities he controls at the expense of the Herbalife's public stockholders.
21. The Individual Defendants are in a position of control and power over
Herbalife's minority stockholders and have
6
<PAGE> 7
access to internal financial information about Herbalife, its true value,
expected increase in true value and the benefits to Hughes and entities he
controls of 100% ownership of Herbalife to which plaintiff and the Class
members are not privy. Defendants are using their positions of power and
control to benefit Hughes in this transaction, to the detriment of the
Herbalife common stockholders.
22. In proposing the merger, Hughes and the other Individual Defendants
have committed or threatened to commit the following acts to the detriment and
disadvantage of Herbalife's public stockholders;
(a) They have undervalued Herbalife's common stock by ignoring the
full value of the Company's assets and future prospects. The proposed merger
consideration does not reflect the value of Herbalife's valuable assets; and
(b) They timed the announcements of the proposed buy-out to place an
artificial lid on the market price of Herbalife's common stock which is unfair
to Herbalife's public stockholders.
23. As a result of the foregoing, plaintiff and the other members of the
Class will be irreparably harmed in that they will not receive their fair
portion of the value of Herbalife's assets and business and will be prevented
from obtaining the real value of their equity ownership of the Company. Unless
the proposed acquisition is enjoined by the Court, defendants will continue to
breach their fiduciary duties
7
<PAGE> 8
owed to plaintiff and the other members of the Class and will consummate the
proposed acquisition, to the irreparable harm of the members of the Class.
24. Plaintiff and the other members of the Class have no adequate remedy
at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as Class representative;
B. Preliminarily and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert
with, or for them, from proceeding with, consummating or closing the
proposed transactions;
C. In the event the proposed transaction is consummated, rescinding it
and setting it aside;
D. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with
prejudgment interest at the maximum rate allowable by law;
E. Awarding costs and disbursements, including plaintiff's counsel's
fees and experts' fees; and
8
<PAGE> 9
F. Granting such other and further relief as to the Court may deem just
and proper.
DATED: September 16, 1999
LAW OFFICES OF LIONEL Z. GLANCY
By: /s/ LIONEL Z. GLANCY
-----------------------------------
LIONEL Z. GLANCY, ESQ.
PETER A. BINKOW, ESQ.
1801 Avenue of the Stars, Suite 308
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
ROBERT I. HARWOOD, ESQ.
488 Madison Avenue
New York, New York 10022
Telephone: (212) 935-7400
Fax: (212) 753-3630
Attorneys for Plaintiff
9
