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As filed with the Securities and Exchange
Commission on July 6, 1999 Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
HERBALIFE INTERNATIONAL, INC.
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NEVADA 22-2695420
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(State of Incorporation or Organization) (I.R.S. Employer Identification Number)
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1800 Century Park East
Los Angeles, California 90067
(310) 410-9600
(Address of principal executive offices)
HERBALIFE SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN
HERBALIFE MANAGEMENT DEFERRED COMPENSATION PLAN
HERBALIFE MASTER TRUST AGREEMENT FOR
DEFERRED COMPENSATION PLANS AMENDED AND
RESTATED 1991 STOCK OPTION PLAN OF HERBALIFE
INTERNATIONAL, INC.
(Full title of the plans)
-----------------
ROBERT A. SANDLER, ESQ.
HERBALIFE INTERNATIONAL, INC.
1800 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
(310) 410-9600
(Agent for service)
------------------
IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO:
ANTHONY T. ILER, ESQ.
IRELL & MANELLA LLP
333 S. HOPE ST., SUITE 3300
LOS ANGELES, CALIFORNIA 90071
(213) 620-1555
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT.
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to be Offering Price Per Aggregate Offering Registration
to be registered registered(1) Share Price(2) Fee
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Common Stock ($.01 per value) (3) 5,000,000 shares $10.438 $51,720,000 $14,379.00
- ---------------------------------------- ------------------- -------------------- -------------------- -------------
Deferred Compensation Obligations (4) $24,000,000 100% $24,000,000 $ 6,672.00
- ---------------------------------------- ------------------- -------------------- -------------------- -------------
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(1) A total of 9,510,000 shares were registered on: (i) the Form S-8
Registration Statement filed on August 1, 1991 at which time payment of
the registration fee of $140.63 for 1,000,000 shares was made, (ii) the
Form S-8 Registration Statement filed on August 9, 1993, at which time
payment of the registration fee of $16,906.00 for 3,254,000 shares was
made, (iii) the Form S-8 Registration Statement filed on September 6,
1994, at which time payment of the registration fee of $728.45 for
100,000 shares was made (iv) the Form S-8 Registration Statement filed
on November 15, 1996, at which time payment of the registration fee of
$37,172.41 for 5,000,000 shares was made and (v) the Form S-8
Registration Statement filed on October 8, 1997, at which time payment
of the registration fee of $ 1,325 for 156,000 shares was made
(collectively, the "Prior Registrations"). The shares registered
pursuant to this Form S-8 are in addition to the shares previously
registered under the Prior Registrations.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 based upon the
average of the high and low sale prices of the higher of Class A Common
Stock and Class B Common Stock on the Nasdaq National Market System
("NASDAQ-NMS") on June 29, 1999.
(3) The Common Stock of Herbalife International, Inc., par value $.01 per
share, is classified as Class A Common Stock ("Class A Stock") and
Class B Common Stock ("Class B Stock"). Under the 1991 Option Plan,
stock options may be awarded with respect to both Class A Stock and
Class B Stock. Accordingly, the 5,000,000 shares of Common Stock being
registered pursuant to this Registration Statement may be designated as
either Class A Stock or Class B Stock.
(4) The Deferred Compensation Obligations are unsecured obligations of
Herbalife International, Inc. to pay deferred compensation in the
future in accordance with the terms and conditions of the Herbalife
Senior Executive Deferred Compensation Plan, Herbalife Management
Deferred Compensation Plan and the Herbalife Master Trust Agreement for
Deferred Compensation Plan.
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EXPLANATORY NOTE
On August 1, 1991 Herbalife International, Inc. (the "Company") filed a
Registration Statement on Form S-8, registering 1,000,000 shares of common
stock, $0.01 par value per share ("Common Stock") relating to the issuance of
shares pursuant to the Herbalife International, Inc. 1991 Stock Option Plan (the
"1991 Plan"). On August 9, 1993, filed a Registration Statement on Form S-8
containing a prospectus meeting the requirements of Part I of Form S-3 relating
to reofferings by certain persons of 3,254,000 shares Common Stock, relating to
the issuance of shares pursuant to the 1991 Plan and certain employment
agreements with executive officers. On September 6, 1994, the Company filed a
Registration Statement on Form S-8 which registered an additional 100,000 shares
of the Company's Common Stock acquired by an officer of the Company pursuant to
a restricted stock agreement with the Company and contained a revised reoffer
prospectus reflecting the additional shares registered thereby as well as
certain additional disclosures. On November 15, 1996, the Company filed a
Registration Statement on Form S-8, containing a reoffer prospectus, meeting the
requirements of Part I of Form S-3, which registered an additional 5,000,000
shares of the Company's Common Stock which have been or may be acquired pursuant
(i) the 1991 Plan (ii) the Herbalife International, Inc. Amended and Restated
1994 Performance-Based Annual Incentive Compensation Plan (the "1994 Plan") and
(iii) the Herbalife International, Inc. 1992 Amended and Restated Executive
Incentive Compensation Plan (the "1992 Plan"). On October 8, 1997, the Company
filed another registration on form S-8, registering an additional 156,000 shares
of Common Stock relating to non-qualified stock options granted to non-employee
directors of the Company.
The 1996 Registration Statement on Form S-8 also registered $9,000,000
in unsecured obligations of the Company to pay deferred compensation in the
future in accordance with the terms and conditions of the Herbalife Senior
Executive Deferred Compensation Plan, the Herbalife Management Deferred
Compensation Plan and the Herbalife Master Trust Agreement for Deferred
Compensation Plans (the "Deferred Compensation Obligations").
Pursuant to General Instruction E of Form S-8, this Registration
Statement on Form S-8 (the "Registration Statement") registers an additional
5,000,000 shares of the Company's Common Stock which may be acquired pursuant to
the 1991 Plan, and contains a revised reoffer prospectus reflecting the
additional shares registered hereby as well as certain additional disclosures.
In 1997, the Company effected a recapitalization whereby the Common Stock was
reclassified as Class A Common Stock, $0.01 par value, (the "Class A Stock") and
Class B Common Stock, $0.01 par value, (the "Class B Stock") The Class A Stock
and the Class B Stock are collectively referred to as the Common Stock. Class A
Stock is entitled to one vote per share on all matters submitted for stockholder
approval, while Class B Stock has no voting rights except as required by law.
Under the 1991 Plan, stock options may be awarded with respect to both Class A
Stock and Class B Stock. Accordingly, the 5,000,000 shares of Common Stock being
registered pursuant to this Registration Statement may be designated as either
Class A Stock or Class B Stock.
This Form S-8 also registers $24,000,000 in unsecured obligations of
the Company to pay deferred compensation in the future in accordance with the
terms and conditions of the Deferred Compensation Obligations.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Pursuant to the requirements of the Note to Part I of Form S-8 and Rule
428(b)(1) of the Rules under the Securities Act of 1933, as amended, the
information required by Part I of Form S-8 is incorporated by reference in the
Reoffer Prospectus which follows. The Reoffer Prospectus, together with the
documents incorporated by reference pursuant to Item 3 of Part II of this
Registration Statement, constitutes the Section 10(a) Prospectus.
REOFFER PROSPECTUS
The material which follows, up to but not including the pages beginning
on Part II of this Registration Statement, constitutes a prospectus prepared in
accordance with the applicable requirements of Part I of Form S-3 and General
Instruction C to Form S-8, to be used in connection with resales of securities
acquired under the Registrant's 1991 Stock Option Plan.
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HERBALIFE INTERNATIONAL, INC.
COMMON STOCK
($.01 PAR VALUE)
5,000,000 SHARES
--------------
This Prospectus relates to 5,000,000 shares of common stock, $0.01 par
value per share ("Common Stock"), of Herbalife International, Inc., a Nevada
corporation (the "Company"), which may be offered from time to time by one or
all of the selling shareholders named herein (the "Selling Shareholders") or,
pursuant to General Instruction C to Form S-8, in a supplement to this
Prospectus. The Company will receive no part of the proceeds of such sales. The
Company has agreed to pay certain costs and expenses incurred in connection with
the registration of the shares of Common Stock offered hereby, except that the
Selling Shareholders shall be responsible for all selling commissions, transfer
taxes and related charges in connection with the offer and sale of such shares.
See "Plan of Distribution."
The Selling Shareholders may sell all or a portion of the shares
offered hereby from time to time on the National Market System of the National
Association of Securities Dealers Automated Quotation System (the "NASDAQ-NMS")
at prevailing prices at the time of such sales, at prices related to such
prevailing prices or at negotiated prices. The Selling Shareholders may effect
such transactions by selling to or through one or more broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders. The Selling
Shareholders and any broker-dealers that participate in the distribution may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by such
broker-dealers and any profits realized on the resale of shares by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Selling Shareholders may agree to indemnify such broker-dealers against
certain liabilities, including liabilities under the Securities Act.
To the extent required, the specified shares to be sold, the public offering
price, the names of any such broker-dealers, and any applicable commission or
discount with respect to any particular offer will be set forth in a supplement
to this Prospectus. See "Plan of Distribution."
The Common Stock of the Company is traded on the NASDAQ-NMS. On
June 29, 1999, the closing sale price of the Company's Class A Common Stock was
$10.375 per share and the closing sale price of the Company's Class B Common
Stock was $8.438.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
For information concerning certain factors relating to this offering,
see "Risk Factors."
The date of this Prospectus is July 6, 1999.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION..................................................... 6
DOCUMENTS INCORPORATED BY REFERENCE........................................ 7
THE COMPANY................................................................ 7
RISK FACTORS............................................................... 9
USE OF PROCEEDS............................................................ 23
SELLING SHAREHOLDERS....................................................... 23
PLAN OF DISTRIBUTION...................................................... 25
LEGAL MATTERS............................................................. 26
EXPERTS................................................................... 26
</TABLE>
You should only rely on the information contained or incorporated by
reference in this Prospectus and in any prospectus supplement. No one has been
authorized to provide you with different information. The shares of Common Stock
are not being offered in any jurisdiction where the offer is not permitted. You
should not assume that the information in this Prospectus or in any prospectus
supplement is accurate as of any date other that the date on the front of the
documents.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Seven World Trade Center, New York, New York 10048
and Northwestern Atrium Center, 500 W. Madison Street, 14th Floor, Chicago,
Illinois 60661. Copies may be obtained at the prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Most of the Company's filings with the
Commission are also available free of charge at the Commission's web site at
http://www.sec.gov.
The Company has filed with the Commission a registration statement on
Form S-8 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, as permitted by
the rules and regulations of the Commission. For further
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information with respect to the Company and the shares of Common Stock offered
hereby, reference is hereby made to the Registration Statement, including the
exhibits filed or incorporated as a part thereof. Statements contained herein
concerning the provisions of any document are not necessarily complete and in
each instance reference is made to the copy of the document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its entirety
by reference to the copy of the applicable documents filed with the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company under the
Exchange Act with the Commission are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-K for the year ended December 31, 1998; (2)
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999; and (3) the description of the Company's Common Stock as set forth in the
registration statement filed by the Company on Form 8-A pursuant to Section
12(g) of the Exchange Act, and any amendments thereto filed with the Commission
for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the Common Stock made hereby shall be deemed
to be incorporated in this Prospectus by reference and to be a part hereof from
the date of filing of such documents, except as to any portion of any future
Annual or Quarterly Report to the Company's shareholders that is not deemed to
be filed under said provisions. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide you, without charge, on the request of such
person, a copy of any and all of the information that has been or may be
incorporated by reference in this Prospectus, other than exhibits thereto.
Written or oral requests for such copies should be directed to Herbalife
International, Inc. at its executive offices, located at 1800 Century Park East,
Los Angeles, California 90067, Attention: General Counsel. The Company's
telephone number is (310) 410-9600.
THE COMPANY
GENERAL
We are a network marketing company and we sell a wide range of weight
management products, food and dietary supplements and personal care products
worldwide. As of December 31, 1998, we conducted business in 42 countries
located in Asia/Pacific Rim, Europe and The Americas. Retail sales in those
regions represented 42.0%, 29.4% and 28.6%, respectively, of our total retail
sales in 1998. We operate through 42 domestic and foreign subsidiaries,
virtually all of which we wholly-own. Except as the context otherwise
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requires, references to "we" or the "Company" include Herbalife International,
Inc. and its operating subsidiaries.
In recent years, we have experienced substantial growth in retail
sales. From 1994 to 1998, our retail sales grew from $884.1 million to $1.64
billion, representing a compound annual growth rate of 17%.
Our products are marketed exclusively through a network marketing
system. This system enables our independent distributors to earn profits by
selling Herbalife products to retail consumers or other distributors.
Distributors may also develop their own distributor downline organizations by
sponsoring other distributors to do business in any market where we operate,
entitling the sponsors to receive royalty overrides (cash incentives, including
royalties and bonuses) on product sales within their downline organizations.
Our management believes that our network marketing system is ideally
suited to our products, which emphasize a healthy lifestyle, because sales of
such products are strengthened by ongoing personal contact between retail
consumers and distributors, many of whom use our products themselves. Our
network marketing system appeals to a broad cross-section of people throughout
the world, particularly those seeking to supplement family income, start a home
business or pursue employment opportunities other than conventional, full-time
employment.
HISTORY AND ORGANIZATION
We began operations in February 1980 as a California limited
partnership and operated in that form through December 1985, with the exception
of an interim period from October 1981 through August 1983 when the business was
operated through a California corporation. In January 1986, we transferred our
business from the California limited partnership to a corporate general partner,
Herbalife International of America, Inc. ("Herbalife of America"). In November
1986, Sage Court Ventures, Inc. ("Sage Court") acquired Herbalife of America in
a stock-for-stock reorganization. As a result of the acquisition, Herbalife of
America became a wholly-owned subsidiary of Sage Court and the former
shareholders of Herbalife of America acquired a controlling interest in Sage
Court. Sage Court formally changed its name to Herbalife International, Inc. in
December 1986.
In October 1993, we, as a company, together with certain shareholders,
sold a total of 6,047,000 shares of Common Stock in a Public Offering (the "1993
Offering"). As part of this transaction, we issued and sold 2,647,000 shares.
In December 1997, our common stock was reclassified into a voting class
of common stock (the "Class A Stock") and a non-voting class of common stock
(the "Class B Stock"). The reclassification of the old common stock is referred
to in this Prospectus as the "Recapitalization," and the Class A Stock and Class
B Stock are together referred to as the "Common Stock."
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RISK FACTORS
You should consider carefully the information set forth below, as well
as the other information contained in this Prospectus, in determining whether to
purchase shares of Common Stock offered hereby.
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WE DEPEND IN SIGNIFICANT PART UPON OUR ABILITY TO ATTRACT, MAINTAIN AND
MOTIVATE A LARGE BASE OF DISTRIBUTORS.
- --------------------------------------------------------------------------------
Our success depends in significant part upon our ability to attract,
maintain and motivate a large base of distributors. In our efforts to attract
and retain distributors, we compete with other network marketing organizations,
including those in the weight management, food and dietary supplement and
personal care product industries. In addition, as a result of our network
marketing system and our international sponsorship program, the distributor
organizations headed by a relatively small number of key distributors are
responsible for a significant percentage of our total retail sales (in many
cases, including retail sales in several different countries). Our ability to
sell our products and to attract new distributors would be materially adversely
affected if, for any reason, we were to lose a significant number of
distributors.
Adverse publicity and regulatory action relating to our business, our
products or our operations, including our network marketing system, has and
could again have a negative effect on our ability to attract, motivate and
retain distributors . In the mid-1980s, our products and marketing system became
the subject of regulatory scrutiny in the United States, resulting in large part
from claims and representations made about our products (including impermissible
therapeutic claims). The resulting adverse publicity caused a rapid, substantial
loss of distributors in the United States and, beginning in 1985, a
corresponding reduction in sales. More recently, we lost a significant number of
distributors in other markets, including Brazil, France and Germany, because of
adverse publicity. As a consequence, our sales in those markets declined. We
expect that negative publicity or regulatory action will, from time to time,
continue to adversely affect our business in particular markets.
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REGULATIONS GOVERNING OUR INDUSTRY COULD HAVE A SIGNIFICANT NEGATIVE
EFFECT ON OUR BUSINESS.
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In both our United States and foreign markets, we are subject to and
affected by extensive laws, governmental regulations, administrative
determinations, court decisions and similar constraints (at the federal, state
and local levels). The kinds of constraints that are imposed on us include,
among other things, regulations pertaining to:
(1) the formulation, manufacturing, packaging, labeling, distribution,
importation, sale and storage of our products;
(2) product claims and advertising (including direct claims and advertising
by us as a Company as well as claims and advertising by distributors,
for which we may be held responsible);
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(3) our network marketing system;
(4) transfer pricing and similar regulations that affect the level of
foreign taxable income and customs duties; and
(5) taxation of distributors, which in some instances may impose on us an
obligation to collect the taxes and maintain appropriate records.
We could be found to be in violation of existing regulations as a
result, among other things, of the ambiguous nature of certain of the
regulations, the considerable interpretive and enforcement discretion given to
regulators or instances of misconduct by distributors. We have a limited ability
to control any misconduct by our distributors because they are generally
independent contractors. State and federal regulators could undertake a number
of enforcement actions against us as a result of any misconduct by our
distributors, including, (1) seizing our products, (2) enjoining us from further
product distribution, (3) recalling our products and (4) possible criminal
prosecution. If a governmental organization were to assert or determine that we,
as a company, or our distributors are not in compliance with existing
regulations, our business could be materially adversely affected. In the past,
regulatory activities of the kind described above has had a material adverse
effect on our business.
We are unable to predict the nature of any future laws, regulations,
interpretations or applications, nor can we predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on our business. In the future, however, regulators could require (1)
the reformulation of certain products that we may be unable to reformulate, (2)
additional recordkeeping, (3) expanded documentation of the properties of
certain products, (4) changes to the labeling of our Products and (5) additional
scientific substantiation regarding product ingredients, safety or usefulness.
Any or all such requirements could have a material adverse effect on our results
of operations and financial condition.
The adoption of new regulations or changes in the interpretation of
existing regulations in the United States or in any of the international markets
in which we operate, could have a material adverse effect on our business. For
example, in September 1997, the Food and Drug Administration (the "FDA") issued
regulations governing the labeling and marketing of dietary supplement products.
The regulations cover: 1) the identification of dietary supplements and their
nutrition and ingredient labeling; 2) the terminology to be used for nutrient
content claims, health content claims, and statements of nutritional support; 3)
labeling requirements for dietary supplements for which "high potency" and
"antioxidant" claims are made; 4) notification procedures for statements on
dietary supplements; and 5) premarket notification requirements for new dietary
ingredients in dietary supplements.
The notification procedures became effective in November, 1997, and the
new labeling requirements became effective in March, 1999. As a result of these
changes, we were required to revise a substantial number of our product labels
to reflect the new requirements by the effective date. The cost or impact of
such actions have not been material. In addition, we are required to continue
our ongoing program of securing
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substantiation of our product performance claims and of notifying the FDA of
certain types of performance claims we make for our products. On various
occasions, the FDA sent us "courtesy letters," objecting to certain performance
claims we had proposed. Generally, in those instances, we revised our product
claims to reflect the FDA's comments.
It is possible that the FDA could take the position that claims made
for certain of our products place those products within the scope of an FDA
over-the-counter ("OTC") drug monograph. OTC monographs prescribe permissible
ingredients and appropriate labeling language, and require the marketer or
supplier of the products to register and file annual drug listing information
with the FDA. A limited number of our products are labeled as OTC monograph
drugs, and we believe we are in compliance with the applicable monographs. In
the event that the FDA asserts that claims about other Herbalife products caused
them to fall within the scope of OTC monographs, we would be required either to
comply with the applicable monographs or change our claims with respect to these
products. We cannot be sure that we could do so effectively, or that any such
changes would not adversely affect our sales and marketing of an affected
product.
As a marketer of food and dietary supplements and other products that
are ingested by consumers, we are subject to the risk that one or more of the
ingredients in our products may become the subject of adverse regulatory action.
An example of a product that may become subject to adverse regulatory
action is Thermojetics(R) original green herbal tablet. One of the ingredients
in the Thermojetics(R) original green herbal tablet is a Chinese herb, Ma Huang,
which contains naturally occurring ephedrine in small quantities. Ephedrine
products have been the subject of adverse publicity in the United States and
other countries relating to its alleged harmful effects, including the deaths of
several individuals. Currently, we offer the Thermojetics(R) original green
herbal tablet only in the United States (except in certain states in which
regulations may prohibit or restrict the sale of such product).
For approximately three months commencing in July 1995, we suspended
sales of Thermojetics(R) original green tablets in the United States and
introduced a reformulated herbal green tablet that did not contain Ma Huang
because we anticipated that the sale of Ma Huang could have been affected by
federal regulations. In October 1995, as no such regulations were proposed or
issued, we renewed sales of Thermojetics(R) original green herbal tablets in the
United States (except in certain states in which regulations may prohibit or
restrict the sale of such product). During the three-month suspension period, we
did not experience a material change in the level of sales of the reformulated
Thermojetics(R) green tablets versus sales of the Thermojetics(R) original green
tablets in the recently preceding months. It is possible, however, that a longer
suspension period could have resulted in a decrease in sales of the reformulated
Thermojetics(R) green tablets or other products within the Thermojetics(R)
Weight Management System (even though such other products do not contain Ma
Huang). This is so because, although Thermojetics(R) original green tablets
accounted only for approximately 2% of retail sales in 1997 and 1998, the
original green tablet is part of the marketing of the Thermojetics(R) weight
management tablets (which also include green, beige and yellow tablets) and
other products in the Thermojetics(R) line that as a whole contributed
significantly to our retail sales.
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We cannot be sure that in the future we will be permitted to continue
to offer products that contain Ma Huang. The FDA has on record a small number of
reports of adverse reactions allegedly resulting from the ingestion of Ma Huang
contained in the Thermojetics(R) original green tablet. We have not received any
communications from the FDA with respect to these reports, but we believe that
we have substantial defenses to these actions and that the matters are not
material. Many other companies, however, manufacture products containing various
amounts of Ma Huang and the FDA has on record hundreds of reports of adverse
reactions to these products. On April 10, 1996, the FDA issued a statement
warning consumers not to purchase or ingest dietary supplements containing
ephedrine that are claimed to produce such effects as euphoria, heightened
awareness, increased sexual sensations or increased energy, because these
products pose significant adverse health risks, including dizziness, headache,
gastrointestinal distress, irregular heartbeat, heart palpitations, heart
attack, strokes, seizures, psychosis and death. We do not market our Ma Huang
product with any of these claims.
On June 4, 1997, the FDA issued a proposed regulation for dietary
supplements, such as Thermojetics(R) original green tablet, which contain
ephedrine alkaloids. The proposed regulation would prohibit dietary supplements
containing eight milligrams or more of ephedrine alkaloids per serving, and
would not permit such products to contain any other stimulant, diuretic, or
laxative ingredients. In addition, labeling of supplements containing ephedrine
alkaloids would be prohibited from suggesting or recommending conditions of use
that would result in an intake of eight milligrams or more of ephedrine
alkaloids within a six-hour period, or a total daily intake of 24 milligrams or
more. The FDA proposal would also require a warning to refrain from taking the
product for more than seven days, and would prohibit the supplements from being
represented, either expressly or implicitly, as being suitable for long-term
uses, such as for weight loss or body building. Similarly, claims for increased
energy, increased mental concentration, or enhanced well-being that encourage
the consumer to take more of the product to achieve more of the purported effect
would be required to be accompanied by a warning stating that taking more than
the recommended serving may cause a heart attack, stroke, seizure, or death.
Although tests performed by an independent laboratory indicate that our
original green Thermojetics(R) product contains less than the eight milligrams
of ephedrine alkaloids per serving permitted under the FDA proposal, we are
reviewing the possible impact of the FDA proposal, if it is finalized in its
current form, upon our continued marketing of its Thermojetics(R) original green
tablet. In response to the proposal, or to a final regulation which is
substantially similar to the proposal, we may be required to: (1) withdraw or
reformulate our product with reduced ephedrine levels, or with a substitute for
Ma Huang, (2) relabel our product with different warnings or revised directions
for use, (3) refrain from making certain statements, possibly including weight
loss, with respect to any product containing Ma Huang and/or (4) withdraw our
product from the weight management program and reposition it in a different
category. Even in the absence of an FDA final regulation, we may elect to
reformulate and/or relabel our product containing Ma Huang. We cannot be sure
that we could reformulate or relabel our Ma Huang product effectively or that
reformulation and/or relabeling would not have an adverse effect on
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<PAGE> 13
sales of such product or related products within the Thermojetics(R) Weight
Management Program, even though such products do not contain Ma Huang.
We are also aware that, in certain of the international markets in
which we operate, there has been recent adverse publicity concerning products
that contain substances generally referred to as "genetically modified
organisms" ("GMOs"). In some markets, the possibility of health risks thought to
be associated with GMOs has prompted proposed or actual governmental regulation.
A number of our products contain substances that would or might be classified as
GMOs. We cannot anticipate the extent to which regulations in the markets in
which we operate will restrict the use of GMOs in our products or the impact of
such regulations on our business in those markets. In response to any applicable
regulations, we would, where practicable, attempt to reformulate our products to
satisfy such regulations, and we believe, based upon currently available
information, that compliance with regulatory requirements in this area should
not have a material adverse effect on our business. However, because publicity
and governmental scrutiny of GMOs is a relatively new and evolving area, there
can be no assurance in this regard.
Governmental regulations in countries where we plan to commence or
expand operations may prevent or delay our entry into those markets. In
addition, our ability to sustain satisfactory levels of sales in the markets in
which we operate depends in significant part on our ability to introduce
additional products into such markets. Government regulations in these markets,
however, can delay or prevent the introduction, or require the reformulation or
withdrawal, of certain of our products. For example, during the third quarter of
1995, we received inquiries from certain government agencies within Germany and
Portugal regarding Thermojetics(R) Instant Herbal Beverage, relating to (1) the
caffeine content of the product and (2) the status of the product as an "instant
tea," which was disfavored by regulators, versus a "beverage." In those
instances we suspended the sale of this product in these countries at the
request of local regulators. Further, such regulatory action, whether or not it
results in a final adverse determination to us, could create negative publicity
(as it did in Germany with respect to Thermojetics(R) Instant Herbal Beverage),
with detrimental effects on the motivation and recruitment of distributors and,
consequently, on sales.
The U.S. Federal Trade Commission (the "FTC"), which exercises
jurisdiction over the advertising of all our products, has in the past several
years instituted enforcement actions against several dietary supplement
companies for false and misleading advertising of certain products. These
enforcement actions have resulted in consent decrees and monetary payments by
the companies involved. In addition, the FTC has increased its scrutiny of the
use of testimonials, which we also utilize. While we have not been the target of
FTC enforcement action for the advertising of our products, we cannot be sure
that the FTC will not question our advertising or other operations in the
future. In November of 1998, the FTC issued a guide for the dietary supplement
industry, describing how the FTC applies the law which it administers to dietary
supplements advertisements. It is unclear whether issuance of this guide
indicates that the FTC will subject advertisements of this kind, including ours,
to increased surveillance to ensure compliance with the principles set forth in
the guide.
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<PAGE> 14
Regulations applicable to the activities of our distributors may also
affect our business because in some countries we are, or regulators may assert
that we are, responsible for our distributors' conduct. In these countries,
regulators may request or require that we take steps to ensure that our
distributors comply with local regulations. Regulated conduct include, among
other things, representations concerning our products, income representations
made directly by us and/or our distributors, public media advertisements (which
in foreign markets may require prior approval by regulators) and sales of
products in markets in which such products have not been approved, licensed or
certified for sale. In certain markets, it is possible that improper product
claims by distributors could result in our products being reviewed or
re-reviewed by regulatory authorities and, as a result, being classified or
placed into another category as to which stricter regulations are applicable.
Through our manuals, seminars and other training materials and
programs, we attempt to educate our distributors as to the scope of permissible
and impermissible activities in each market. We also investigate allegations of
distributor misconduct. Our distributors, however, are generally independent
contractors, and we are unable to monitor directly all their activities. As a
consequence, we cannot be sure that our distributors comply with applicable
regulations. Misconduct by distributors has in the past and could again have a
material adverse effect our business in a particular market or in general.
Our network marketing system is subject to a number of federal and
state regulations administered by the FTC and various state agencies as well as
regulations in foreign markets administered by foreign agencies. Regulations
applicable to network marketing organizations are generally directed at ensuring
that product sales are ultimately made to consumers and that advancement within
such organizations are based on sales of the organizations' products rather than
investments in the organizations or other non-retail sales related criteria. For
instance, in certain markets there are limits on the extent to which a
distributor may earn royalties on sales generated by distributors that were not
directly sponsored by him or her. To minimize the risk that we may be violating
applicable regulations, we either obtain regulatory approval of our network
marketing system or, where such approval is not required, the favorable opinion
of local counsel as to regulatory compliance. Nevertheless, we remain subject to
the risk that, in one or more markets, our marketing system could be found not
to be in compliance with applicable regulations. Our failure to comply with
these regulations could have a material adverse effect on our business in a
particular market or in general.
We are also subject to the risk of private party challenges to the
legality of our network marketing system. For example, in Webster v. Omnitrition
International, Inc., 79 F.3d 776 (9th Cir. 1996), the "multi-level marketing"
program of Omnitrition International, Inc. ("Omnitrition") was challenged in a
class action by certain Omnitrition distributors who alleged that Omnitrition
was operating an illegal "pyramid scheme" in violation of federal and state
laws. We were recently named as a defendant in a case that, among other things,
attempts to challenge the legality of our marketing system. We believe that our
network marketing system satisfies the standards set forth in the Omnitrition
case and other applicable statutes and case law defining a legal marketing
system, in part based upon significant differences between our marketing system
and that described in the Omnitrition
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<PAGE> 15
case. Further, it is an ongoing part of the our business to monitor and respond
to regulatory and legal developments, including those that may affect its
network marketing system. The regulatory requirements concerning network
marketing systems, however, do not include "bright line" rules and are
inherently fact-based. An adverse judicial determination with respect to our
network marketing system could have a material adverse effect on our business.
Among other things, such a determination could require us to make modifications
to our network marketing system, result in negative publicity or have a negative
impact on distributor morale. In addition, adverse rulings by courts in any
proceedings challenging the legality of multi-level marketing systems, even in
those not involving us directly, could have a material adverse effect on our
operations.
In many foreign countries, we are subject to transfer pricing
regulations, restrictions on the management fees we charge to our local
subsidiary and similar regulations and restrictions designed to ensure that
appropriate levels of income are reported as earned by the local subsidiary and
taxed by the foreign governmental authorities. In addition, our operations in
foreign countries are subject to regulations designed to ensure that appropriate
levels of customs duties are assessed on the importation of our products. While
we believe we are in substantial compliance with all applicable regulations and
restrictions, we are subject to the risk that foreign governmental authorities
could audit our transfer pricing and related practices and assert that
additional taxes are owed. For example, we are currently subject to pending or
proposed audits which are at various levels of review, assessment or appeal in a
number of foreign jurisdictions, including Italy and France, involving transfer
pricing issues, income taxes, value added taxes, withholding taxes and related
interest and penalties in material amounts. In certain circumstances, additional
taxes, interest and penalties have been assessed, and we will be required to
litigate to reverse the assessments. In addition, Italian criminal tax
proceedings are pending against the former managing director of our Italian
subsidiary in his capacity as such with respect to certain tax issues affecting
us as a Company (and not affecting distributors or the taxation of
distributors). We have been advised by our Italian tax counsel that referral of
tax charges to criminal authorities in Italy is a relatively common procedure
(pursuant to statutory provisions requiring referral of specific types of claims
based upon the amounts thereof) and in any event we believe that we have strong
defenses to the charges. We expect that none of the pending or proposed audits,
assessments or litigation will have a material adverse effect on our business.
Ultimate resolution of these matters, however, may take several years and the
outcome is uncertain.
We are also subject to a variety of other regulations in various
foreign markets, including regulations pertaining to social security assessments
and value added taxes, employment and severance pay requirements, import/export
regulations and antitrust issues. As an example, in many markets, we are
substantially restricted in the amount and types of rules and termination
criteria that we can impose on distributors without having to pay social
security assessments on behalf of such distributors and without incurring
severance obligations to terminated distributors. In some countries, we may be
subject to such obligations in any event.
Our failure to comply with such regulations could have a material
adverse effect on our business in a particular market or in general. Such
assertions or the effect of adverse regulations in one market could adversely
affect us in other markets as well by causing
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<PAGE> 16
increased regulatory scrutiny in those other markets or as a result of the
negative publicity generated in those other markets.
- --------------------------------------------------------------------------------
WE DEPEND ON MR. HUGHES' PARTICIPATION IN THE COMPANY.
- --------------------------------------------------------------------------------
Our business, particularly the operation of our distributor network,
depends substantially upon the active participation of Mark Hughes, the
Company's principal shareholder, Chairman of the Board, Chief Executive Officer
and President. The loss of Mr. Hughes' services would adversely affect our
business. We do not maintain key man life insurance on Mr. Hughes.
- --------------------------------------------------------------------------------
OUR SALES AND EARNINGS ARE POTENTIALLY VOLATILE.
- --------------------------------------------------------------------------------
In the mid-1980s, our products and network marketing system became the
subject of regulatory scrutiny in the United States resulting in large part from
claims and representations made about our products, including impermissible
therapeutic claims. Although we responded by instituting certain regulatory
compliance measures, as a result of the adverse publicity generated by the
regulatory activities we experienced, beginning in 1985, a rapid, substantial
loss of distributors in the United States and a corresponding reduction in
sales. In addition, our sales in the United States were adversely affected by
competition from other weight management products. As a consequence, from 1987
(our first full year as a public company) through 1990, our operations resulted
either in net losses or modest net income. More recently, because of adverse
publicity and regulatory action in other markets, including France and Germany,
we lost a significant number of distributors and our sales in those markets
declined, contributing to a reduction in worldwide net income from $46.0 million
in 1994 to $19.7 million in 1995. While our net income increased in subsequent
periods, we expect that our business in particular markets will, from time to
time, be adversely impacted by regulatory actions, negative publicity and
competition in those markets.
After entering a new country, we have in many instances experienced an
initial period of rapid growth in sales, as new distributors were recruited,
followed by a decline in sales. We believe that certain distributor migration
patterns as well as regulatory action and adverse publicity in certain markets
have caused this fluctuation in our sales. In some of these markets, the opening
of new markets within the same geographic region or with the same or similar
language or cultural bases has resulted in a corresponding tendency of some key
distributors to focus their attention on business opportunities provided by the
new markets instead of developing their established downline organizations in
existing markets. Additionally, in certain instances, we have become aware that
a substantial number of sales in certain existing markets were attributable to
distributors who sold our products in countries which had not yet been opened.
When we later opened these countries, the sales in the existing markets shifted
to the newly opened markets, resulting in a decline in sales in the existing
markets.
Our weight management products have historically contributed a
significant portion of our total retail sales. During 1997 and 1998, our 20
weight management products contributed approximately 30% of total retail sales.
Accordingly, we could be materially
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<PAGE> 17
adversely affected if, because of regulatory constraints, adverse publicity,
competition or other factors, we were unable to successfully market our weight
management products in one or more significant markets.
Our sales and earnings continue to be subject to significant potential
volatility based upon, among other things, the adverse effect of our
distributors' failure or our failure as a company, and allegations of such
failure, to comply with applicable regulations. In the past, this failure or
alleged failure to comply with regulations resulted in the removal of certain
products from sale in certain countries, either temporarily or permanently. In
addition, future changes in regulations may limit or restrict (1) the sale of
certain of our products, (2) the operation of our network marketing system, (3)
the expansion of our operations into new markets, (4) the introduction of our
products into each market and (5) the recruitment and retention of distributors,
and our ability to introduce new products.
Our sales may also be negatively affected by the introduction of new
products by our competitors, general conditions in the weight management, food
and dietary supplement and personal care industries, the network marketing
industry and consumer perceptions of our products and operations. In particular,
because our products are ingested by consumers or applied to their bodies, we
are highly dependent upon consumers' perception of the safety, quality and
effectiveness of our products. As a result, substantial negative publicity,
whether founded or unfounded, concerning one or more of our products or other
products similar to ours could adversely affect our sales and earnings. In the
past, adverse publicity has been connected with (1) prospective regulatory
action, (2) perceived health concerns relating to particular products, (3)
issues related to our network marketing system, (4) disputes between us and
certain of our distributors, and (5) other issues relating to our business.
- --------------------------------------------------------------------------------
BECAUSE WE CONTINUE TO DEPEND ON FOREIGN MARKETS, OUR EXPOSURE TO THE
ADDITIONAL RISKS ASSOCIATED WITH FOREIGN OPERATIONS IS LIKELY TO INCREASE.
- --------------------------------------------------------------------------------
Because we rely on foreign markets, we are exposed to the risks
associated with foreign operations, including, among other things, changes in or
interpretations of foreign regulations that may limit our ability to sell
certain products, conduct a network marketing system or repatriate profits to
the United States, and the potential imposition of trade or foreign exchange
restrictions or increased tariffs. We are also exposed to risks associated with
foreign currency fluctuations. For instance, generally we purchase our products
in U.S. dollars while our sales to distributors are generally made in local
currencies; accordingly, strengthening of the U.S. dollar versus a foreign
currency can have a negative impact on our revenue. Although we engage in
transactions to protect against certain risks associated with foreign currency
fluctuations, there can be no assurance that such fluctuations will not have an
adverse effect. As we continue to expand our international operations, these and
other risks associated with international operations are likely to increase.
Specifically, we are exposed to risks associated with the current
economic and currency crisis in Asia. Because of the significance of the Asian
markets, and Japan in particular, which has become our largest single retail
sales market, a sustained economic slowdown and/or currency crisis in Asia could
have a material adverse impact on our business.
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<PAGE> 18
In addition, our operations in certain markets may be adversely
affected by political, economic and social instability in those countries. For
instance, we have elected not to establish a physical presence, through a sales
or distribution center, in Russia due to a difficult business environment in
that country. Instead we have chosen to rely on various import/export companies
located in Russia to sell our products to Russian distributors.
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<PAGE> 19
- --------------------------------------------------------------------------------
WE ARE SUBJECT TO THE UNCERTAINTIES ASSOCIATED WITH BUSINESS EXPANSION.
- --------------------------------------------------------------------------------
Our continued growth is dependent in significant part upon our ability
to expand our operations into new markets. As compared to new market openings in
the past, we may have greater difficulty opening new markets in the future due
to greater regulatory barriers, the necessity of adapting to entirely new
regulatory systems and problems related to entering new markets with different
cultural bases and political systems from those encountered in the past. In
addition, our success will continue to depend significantly on our ability to
manage rapid growth, through expansions and enhancements of our worldwide
personnel and management and information, order processing and fulfillment,
inventory and shipping systems and other aspects of operations. From time to
time, we have experienced out-of-stock situations with respect to certain
products. As we continue to add distributors, products and countries to our
operations, our ability to manage this growth will be increasingly challenging.
- --------------------------------------------------------------------------------
BECAUSE WE DEPEND ON OUR OUTSIDE MANUFACTURERS TO CREATE NEW PRODUCTS,
OUR RELATIONSHIP WITH THEM IS CRUCIAL TO OUR BUSINESS.
- --------------------------------------------------------------------------------
All of our products are manufactured by outside companies. Raven
Industries, Inc. ("Raven") currently manufactures most of our powder products,
and D&F Industries, Inc. ("D&F") currently supplies most of our tablet and
capsule products. In 1997 and 1998, our aggregate purchases from Raven and D&F
represented a majority of our total product purchases. For a number of years
prior to 1998, we were required under contracts with each of Raven, D&F and
Dynamic Products, Inc. ("Dynamic") (another one of our major suppliers), to
purchase all our powder products from Raven and all our tablet, capsule and
certain other products from Dynamic or D&F, to the extent each such manufacturer
was capable of manufacturing such products. In September 1997, we entered into
new three-year agreements with Raven, D&F and Dynamic that became effective on
January 12, 1998, pursuant to which we revised pricing and other provisions. The
new contracts provide, among other things, that we may source and develop
products with other third party manufacturers, subject to minimum percentage
purchase and other requirements for nutritional supplement, and a small number
of non-nutritional supplement, products falling into specified product
categories. As a result, and because the new contracts confirm our ownership of
product formulations for substantially all of our nutritional supplement
products, we have the capacity, and have begun to seek, to "second source"
particular nutritional supplement products with multiple manufacturers. Further,
we have begun to conduct our own product research and development and product
formulation, and will increasingly rely on our in-house staff for these
functions. Historically, however, we have relied on Raven and D&F for these
services, and will continue to do so, albeit to a lesser extent, in the future.
Our ability to enter new markets and sustain satisfactory levels of
sales in each market has been in the past and is likely to continue to be
dependent in significant part upon our own ability and the ability of our
manufacturers, including Raven and D&F, to develop new products and reformulate
existing products for introduction into the markets in which we operate. With
the transition in our relationship with Raven and D&F from exclusive to
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<PAGE> 20
nonexclusive contracts, there can be no assurance that we will seek or continue
to obtain the same amount or quality of product research, development or
formulation services from Raven and D&F that we have received in the past. While
we expect to obtain similar such services from in-house personnel and
alternative manufacturers in the future, there can be no assurance that there
will not be some disruption in our business from time to time as these support
services begin to be provided internally and by alternative manufacturers.
On April 23, 1998, Raven and D&F and Dynamic concluded a bond offering.
Part of the proceeds from the offering was used to repurchase certain ownership
interests in such entities, including the entire ownership interest of Mr.
Hughes in Raven and Dynamic (representing 1/3 and 1/5 of the formerly
outstanding, ownership, respectively), as well as the entire ownership interest
of an employee (formerly a Director and Executive Officer) of the Company in
Dynamic (representing 5% of the formerly outstanding ownership). Because Mr.
Hughes no longer has an economic link to our major suppliers, we are less
certain that we will be able to maintain our current relationship with these
manufacturers.
- --------------------------------------------------------------------------------
WE ARE EXPOSED TO POTENTIAL LIABILITY BECAUSE WE DO NOT CONDUCT
INDEPENDENT CLINICAL STUDIES AND SCIENTIFIC REVIEW OF OUR PRODUCTS AND BECAUSE
OF POTENTIAL MISUSE OF OUR PRODUCTS.
- --------------------------------------------------------------------------------
In general, our products consist of weight management products, food
and dietary supplements and personal care products (a limited number of which
have been or may be classified in the U.S. as OTC drugs), which we believe do
not require approvals from the FDA or, in the United States market, other
regulatory agencies, prior to sale. We do not conduct clinical studies of our
products. Our products consist of herbs, vitamins, minerals and other
ingredients that we regard as safe when taken as we suggest. Nevertheless,
because we are highly dependent upon consumers' perception of the safety and
quality of our products as well as similar products distributed by other
companies, we could be adversely affected in the event any of our products or
any similar products distributed by other companies should prove or be asserted
to be harmful to consumers. In addition, because of our dependence upon consumer
perceptions, any adverse publicity associated with illness or other adverse
effects resulting from consumers' use or misuse of our products or any similar
products distributed by other companies could have a material adverse impact on
our business.
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OUR COMPETITORS COULD CAPTURE A SIGNIFICANT SHARE OF OUR MARKET.
- --------------------------------------------------------------------------------
We are subject to significant competition for the recruitment of
distributors from other network marketing organizations, including those that
market weight management, food and dietary supplement and personal care products
as well as other types of products. Some of our competitors are substantially
larger than we are and have available considerably greater financial resources
than we do. Our ability to remain competitive depends, in significant part, on
our success in recruiting and retaining distributors through an attractive
compensation plan and other incentives.
In addition, the business of marketing weight management, food and
dietary supplement and personal care products is highly competitive. This market
segment includes numerous manufacturers, distributors, marketers, retailers and
physicians that actively
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<PAGE> 21
compete for the business of consumers both in the United States and abroad. The
market is highly sensitive to the introduction of new products or weight
management plans (including various prescription drugs) that may rapidly capture
a significant share of the market. As a result, our ability to remain
competitive depends in part upon the successful introduction of new products.
- --------------------------------------------------------------------------------
PRODUCT LIABILITY CLAIMS AND THE RESULTING ADVERSE PUBLICITY COULD
NEGATIVELY AFFECT OUR BUSINESS.
- --------------------------------------------------------------------------------
As a marketer of food and dietary supplements and other products that
are ingested by consumers or applied to their bodies, we may be subjected to
various product liability claims, including, among other things, that our
products contain contaminants, include inadequate instructions as to use or
inadequate warnings concerning side effects and interactions with other
substances. While such claims to date have not been material to us and we
maintain product liability insurance, it is possible that widespread product
liability claims and the resultant adverse publicity could negatively affect our
business.
- --------------------------------------------------------------------------------
THERE ARE SIGNIFICANT COSTS AND RISKS ASSOCIATED WITH THE YEAR 2000
ISSUES.
- --------------------------------------------------------------------------------
We are undertaking projects to address Year 2000 issues. The "Year 2000
issue" is the result of computer programs being written using two digits rather
than four to define the applicable year. If our computer programs with
date-sensitive functions are not Year 2000 compliant, they may fail or make
miscalculations due to interpreting a date including "00" to mean 1900, not
2000. The result may be disruptions to operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
We have established a project team to identify and address our Year
2000 risks and issues in an attempt to ensure the integrity and reliability of
our information systems and business processes. The project team has (1)
completed a review of our computer systems worldwide relating to order
processing, distribution disbursements, and other financial systems and (2)
developed a comprehensive project plan (the "Plan") as a means for ensuring the
Year 2000 compliance of all information technology ("IT") systems, including
applications, operating systems, mainframe, mid-range and client server
platforms and all non-information technology ("Non-IT") systems, including
embedded applications and equipment. In addition, our project team is seeking to
ensure that key third parties are Year 2000 compliant. We have identified high
risk applications that are critical to our business, and, therefore, have
designed our Plan to address these systems first.
Our Plan includes remediating certain existing software and converting
to new software for certain other applications. The Plan is underway and we
believe it will be completed by the end of the third quarter of 1999. Testing
and certification of our computer systems and their applications is scheduled to
be completed shortly thereafter. In addition, we have developed contingency
plans for both software that has been selected for remediation and for those
applications that will have to be replaced. The project team has also developed
a third contingency plan (applicable to both remediation and replacement
efforts) which involves the development of certain manual procedures that could
be utilized to render our IT and Non-IT systems Year 2000 compliant. It is
expected that the Plan
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<PAGE> 22
together with the contingency plans will enable us to achieve Year 2000
compliance in a timely fashion.
Our project team has also identified and contacted key third parties to
determine the status of their Year 2000 compliance and any probable impact on
us. If key third parties are not Year 2000 compliant and their non-compliance
causes a material disruption to any of their businesses, our business could be
materially adversely affected. Disruptions could also include, among other
things, (1) a financial institution's inability to take and transfer funds; (2)
an interruption in delivery of supplies from vendors; (3) a loss of voice and
data connections; (4) a loss of power to our facilities; and (5) other
interruptions in the normal course of our operations, the nature and extent of
which is hard to foresee. We will continue to evaluate the nature of these
risks, but at this time we are unable to determine the probability that any such
risk will occur, or if it does occur, what the nature, length of other effects,
if any, it may have.
The financial impact of making any required system changes or other
remediation efforts cannot be known precisely at this time, but it is not
expected to be material to our financial position, results of operations, or
cash flows.
Under the current Plan, Year 2000 compliance should not pose
significant operational problems. While we believe we will be able to resolve
the Year 2000 issue in a timely manner, if we are unable to complete the
installation of replacement systems and the required changes to existing
critical systems, or if those with whom we conduct business are unsuccessful in
implementing timely solutions, the Year 2000 issue could have a material adverse
effect on our operations and results of operations, including on our ability to
process and distribute orders.
- --------------------------------------------------------------------------------
THE EURO CONVERSION WILL REQUIRE US TO IMPLEMENT CERTAIN MODIFICATIONS
TO THE WAY WE OPERATE IN EUROPEAN MARKETS.
- --------------------------------------------------------------------------------
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted a single European Currency -- the Euro. The conversion rates between the
existing sovereign currencies and the Euro have been fixed. The Euro is traded
on currency exchanges and is used in business transactions. Beginning in January
2002, new Euro-denominated bills and coins will be issued, and existing
currencies will be withdrawn from circulation.
We have conducted a review of its information and business systems, and
those of our European affiliates, to address the impact of the Euro conversion.
We have initially offered both the existing currencies and the Euro to settle
distributor sales and will ultimately offer to process orders in the Euro
currency. To prepare for this transition, certain computer systems will require
modifications or replacement. In December 1998, we completed the initial
remediation and testing process, the cost of which was approximately $500,000.
We are still evaluating subsequent phases to the Euro conversion, which may
include, among other things, system modifications to allow payment of
distributor royalties in Euro. The incremental costs associated with these
subsequent phases will not be significant as the system modifications will be
incorporated into our year 2000 efforts. In response to the Euro conversion, we
may make certain price adjustments to ensure pricing consistency within the
European market.
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<PAGE> 23
- --------------------------------------------------------------------------------
BECAUSE MR. HUGHES CONTINUES TO CONTROL THE COMPANY, OUR OTHER
SHAREHOLDERS MAY BE UNABLE TO EFFECT CHANGES WHICH THEY MAY FIND DESIRABLE.
- --------------------------------------------------------------------------------
As of the date of this Prospectus, Mr. Hughes beneficially owns
5,875,264 shares of the Class A Stock and 11,600,531 shares of the Class B
Stock. Such amounts include shares issuable upon exercise of stock options
within 60 days of the date hereof, 183,333 shares of Class A Stock and 366,666
shares of Class B Stock held by a charitable foundation of which Mr. Hughes is a
director but with respect to which Mr. Hughes has no pecuniary interest and 5
million shares of Class B Stock held by affiliates of Mr. Hughes that are
subject to forward purchase contracts with DECS(SM) Trust III, a Delaware
business trust. Mr. Hughes' ownership interest represents 57.0% and 60.7% of the
outstanding shares of Class A Stock and Class B Stock, respectively.
Accordingly, Mr. Hughes currently has the power to elect the entire Board of
Directors of the Company and determine the outcome of all matters submitted to
the Company's shareholders for approval.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered hereby.
SELLING SHAREHOLDERS
The shares of Common Stock covered by this Prospectus are being
registered for reoffers and resales by Selling Shareholders of the Company who
have or may acquire such shares pursuant to the exercise of options that may be
granted under the Company's 1991 Stock Option Plan (the "1991 Plan") or that
have been granted pursuant to or may be acquired upon exercise of options
granted under certain employment and restricted stock agreements with executive
officers. The Selling Shareholders named below may resell all, a portion, or
none of the shares that they have acquired or may acquire pursuant to the
exercise of options.
Key employees deemed to be "affiliates" of the Company who acquire
registered Common Stock under the Plan may be added to the Selling Shareholders
listed below from time to time, either by means of a post-effective amendment
hereto or by use of a prospectus filed pursuant to Rule 424 under the Securities
Act. An "affiliate" is defined in Rule 405 under the Securities Act as a "person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with," the Company.
The following table shows the names of the Selling Shareholders, their
positions with the Company, the number of shares of Common Stock known by the
Company to be beneficially owned by them as of date of this Prospectus, the
number of shares covered by this Prospectus and the number of shares of Common
Stock to be owned by each Selling Shareholder if such Selling Shareholder were
to sell all of his shares of Common Stock covered by this Prospectus.
-23-
<PAGE> 24
<TABLE>
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
<CAPTION>
SELLING SHAREHOLDER POSITION WITH THE COMPANY NUMBER OF NUMBER OF NUMBER OF PERCENTAGE OF
SHARES SHARES COVERED SHARES HELD COMMON STOCK
BENEFICIALLY BY THIS AFTER OFFERING BENEFICIALLY
OWNED(1) PROSPECTUS (2) (2)(3) OWNED AFTER
(3) OFFERING(3)
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Mark Hughes (5) Chairman, President and 5,875,264 (A) (2) 5,875,264 (A) 59.5%
Chief Executive Officer 11,600,531 (B) 11,600,531 (B)
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
Christopher Pair (6) Director, Executive Vice 118,082 (A) (2) 118,082 (A) 1.3%
President, Chief 266,163 (B) 266,163 (B)
Operating Officer and
Secretary
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
Michael E. Rosen (7) Director, Executive Vice 75,417 (A) (2) 75,417 (A) (4)
President, Chief 180,832 (B) 180,832 (B)
Executive Corporate
Marketing and Corporate
Development
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
Robert A. Sandler (6) Executive Vice President 44,164 (A) (2) 44,164 (A) (4)
and General Counsel 98,331 (B) 98,331 (B)
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
Timothy Gerrity (6) Executive Vice President 47,332 (A) (2) 43,082 (A) (4)
and Chief Financial 114,665 (B) 114,665 (B)
Officer
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
Edward J. Hall (8) Director 12,997 (A) (2) 12,997 (A) (4)
35,997 (B) 35,997 (B)
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
Alan Liker (6) Director 10,664 (A) (2) 10,664 (A) (4)
31,331 (B) 31,331 (B)
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
Christopher M. Miner (6) Director 9,197 (A) (2) 9,197 (A) (4)
33,331 (B) 33,331 (B)
- ------------------------------ -------------------------- ----------------- ----------------- ---------------- ---------------
</TABLE>
(1) In the Table above, Class A Stock and Class B Stock are referred to as "(A)"
or "(B)," respectively.
(2) Includes an indeterminate number of shares which may have been or may be
issued under the Company's 1991 Plan, up to an aggregate number of shares equal
to the shares covered by this Reoffer Prospectus. See "Explanatory Note."
(3) Assumes that no additional shares are purchased and sold by any Selling
Shareholder.
(4) Less than one percent of outstanding shares.
(5) Includes 183,333 shares of Class A Stock and 366,666 shares of Class B Stock
owned by the Herbalife Family Foundation. Mr. Hughes acts as a director of the
foundation but has no pecuniary interest in the shares. Also includes 308,331
shares of Class A Stock and 466,663 shares of Class B Stock issuable upon
exercise of stock options which are exercisable presently or within 60 days of
this Reoffer Prospectus. Also includes 5 million shares of Class B Stock held by
affiliates of Mr. Hughes that are subject to forward purchase
-24-
<PAGE> 25
contracts with DECS(SM) Trust III, a Delaware business trust. Pursuant to the
terms of the forward purchase contracts, such shares (or a portion thereof) or
an equivalent amount of cash is required to be delivered to DECS(SM) Trust III
in February 2001 in order to enable DECS(SM) Trust III to settle the DECS(SM)
securities issued by that entity. Until settlement of the DECS(SM), generally,
Mr. Hughes' affiliates retain any voting rights and the right to receive
dividends with respect to the Class B Common Stock. In addition, such shares
have been pledged in favor of DECS(SM) Trust III to secure the obligations under
the forward purchase contracts.
(6) Includes shares issuable upon exercise of stock options which are
exercisable presently or within 60 days of this Reoofer Prospectus.
(7) Includes 64,164 shares of Class A Stock and 158,330 shares of Class B Stock
issuable upon exercise of stock options which are exercisable presently or
within 60 days of this Reoffer Prospectus.
(8) Includes 10,664 shares of Class A Stock and 31,331 shares of Class B Stock
issuable upon exercise of stock options which are exercisable presently or
within 60 days of this Reoffer Prospectus.
PLAN OF DISTRIBUTION
The sale of all or a portion of the shares of Common Stock offered
hereby by the Selling Shareholders may be effected from time to time on the
NASDAQ-NMS at prevailing prices at the time of such sales, at prices related to
such prevailing prices or at negotiated prices. The Selling Shareholders may
effect such transactions by selling to or through one or more broker-dealers,
and such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders. The Selling
Shareholders and any broker-dealers that participate in the distribution may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions received by such broker-dealers and any profits realized on the
resale of shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Shareholders may agree to
indemnify such broker-dealers against certain liabilities, including liabilities
under the Securities Act.
To the extent required under the Securities Act, a supplement to this
Prospectus will be filed disclosing (a) the name of any such broker-dealers, (b)
the number of shares involved, (c) the price at which such shares are to be
sold, (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this Prospectus, as supplemented, and (f) other facts material to the
transaction.
There is no assurance that any of the Selling Shareholders will sell
any or all of the shares of Common Stock offered hereby.
The Company has agreed to pay certain costs and expenses incurred in
connection with the registration of the shares of Common Stock offered hereby,
except that the Selling Shareholders shall be responsible for all selling
commissions, transfer taxes and related charges in connection with the offer and
sale of such shares.
-25-
<PAGE> 26
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by the law firm of Irell & Manella LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
-26-
<PAGE> 27
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed with the Commission by the Company are
incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998;
(2) the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1999, and
(3) the description of the Common Stock contained in the Form
8-A Registration Statement registering the Common Stock pursuant to
Section 12(g) of the Exchange Act, and any amendments thereto filed
with the Commission for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date this Registration Statement
is filed with the Commission, and prior to the filing of a post-effective
amendment which indicates that all securities offered by this Registration
Statement have been sold or which deregisters all such securities then remaining
unsold, shall be deemed to be incorporated by reference in this Registration
Statement and to be a part hereof from the date of the filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that a statement contained herein or
in any subsequently filed document which also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such prior statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement,
except as indicated herein.
ITEM 4. DESCRIPTION OF SECURITIES.
The Company maintains three deferred compensation plans for select
groups of management or highly compensated employees: the Herbalife Management
Deferred Compensation Plan, effective January 1, 1996 (the "Management Plan,"
applicable to directors and vice presidents) and the Herbalife Senior Executive
Compensation Plan, effective January 1, 1996 (the "Senior Executive Plan,"
applicable to eligible employees at the rank of Senior Vice President and
higher) and the Herbalife International of America, Inc. Executive Officer
Deferred Compensation Plan effective December, 1998 (collectively with the
Management Plan, the "Deferred Compensation Plans"). The Deferred Compensation
Plans allow eligible employees, who are selected by the administrative committee
that manages and administers the plans (the "Deferred Compensation Committee"),
to elect annually to defer up to fifty percent (50%) of their base annual salary
and up to one hundred percent (100%) of their annual bonus for each calendar
year (the "Annual Deferral Amount"). The Company makes matching contributions on
behalf of each
-27-
<PAGE> 28
participant in the Senior Executive Plan ("Company Matching Contributions") of
one hundred percent (100%) of the amount deferred by each such participant from
such participant's base annual salary up to ten percent (10%) of the
participant's base annual salary. The Senior Executive Plan was recently amended
to provide that, if the Annual Deferral Amount of any Participant designated by
the Compensation Committee of the Company equals or exceeds ten percent (10%) of
his or her Annual Base Salary, the Company Matching Contribution is equal to
twenty percent (20%) of his or her Annual Base Salary. Each participant in
either Deferred Compensation Plan has at all times a fully vested and
nonforfeitable interest in each year's contribution, including interest credited
thereto, and in any Company Matching Contributions, if applicable. In connection
with a participant's election to defer an Annual Deferral Amount, the
participant may also elect to receive a short-term payout, equal to the Annual
Deferral Amount plus interest and payable five or more years from the first day
of the year in which the Annual Deferral Amount is actually deferred. Subject to
the short term payout provision and certain exceptions for unforeseeable
financial emergencies, a participant may not withdraw, without incurring a ten
percent (10%) withdrawal penalty, all or any portion of his or her account under
the Deferred Compensation Plans prior to the date that such participant either
(a) is determined by the Deferred Compensation Committee to have incurred
permanent and total disability or (b) dies or otherwise terminates employment
with the Company.
The Deferred Compensation Plans are unfunded and their benefits are
paid from the general assets of the Company, except that the Company has
contributed certain amounts to a "rabbi trust" whose assets will be used to pay
benefits if the Company remains solvent, but can be reached by the Company's
creditors if the Company becomes insolvent.
A participant's right or the right of any other person to the Deferred
Compensation obligations cannot be assigned, alienated, sold, garnished,
transferred, pledged or encumbered except by a written designation of a
beneficiary under the Deferred Compensation Plans, or, if no beneficiary
designation has been made, to the participant's surviving spouse. If the
participant has no surviving spouse, the benefits remaining under the Deferred
Compensation Plans shall be paid to the participant's issue upon the principle
of representation, and if there is no such issue, to the participant's estate.
The Company reserves the right to amend or terminate the Deferred
Compensation Plans at any time, except that no such amendment or termination
shall adversely affect the right of each Participant to the balance of his or
her deferred account as of the date of such amendment or termination.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the General Corporation Law of Nevada ("GCL")
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the
-28-
<PAGE> 29
corporation, by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of any action by or in the right of the corporation, no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent that
the court in which such action or suit was brought or other court of competent
jurisdiction determines that in view of all the circumstances of the case such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. Section 78.751 further provides that to the extent a
director or officer of a corporation has been successful in the defense of any
action, suit or proceeding referred to above or in the defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
The Articles of Incorporation, as amended (the "Articles"), and
Restated By-Laws of the Company provide, in effect, that to the extent and under
the circumstances permitted by Section 78.751 of the GCL and subject to certain
conditions, the Company shall indemnify any person who was or is a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding of the type described above by reason of the fact that he or she is
or was a director or officer of the Company or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation.
The Company has also entered into indemnification agreements with each
of its directors and executive officers providing, among other things, that the
director or officer shall be indemnified to the fullest extent permitted by
applicable law against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in any action, suit or proceeding of the
type described above by reason of the fact that he or she is or was a director
or officer of the Company or is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation. In furtherance of
such indemnification agreements, the Company has established a $1,000,000 trust
fund from which payments owing under the indemnification agreements may be made.
The initial term of the trust is ten years.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
None.
-29-
<PAGE> 30
ITEM 8. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit Description Footnote
Number Number
<S> <C> <C>
4 Form of Class A Common Stock and Class B Common Stock Certificates (5)
5 Legal Opinion of Irell & Manella LLP (6)
23.1 Consent of Independent Auditors - Deloitte & Touche LLP (6)
23.2 Consent of Irell & Manella LLP (included in legal opinion filed as Exhibit 5) (6)
24 Power of Attorney (included on the signature pages filed herewith) (6)
99.1 Herbalife Executive Officer Deferred Compensation Plan (6)
99.2 Herbalife Senior Executive Deferred Compensation Plan (2)
99.3 Herbalife Management Deferred Compensation Plan (2)
99.4 Herbalife Master Trust Agreement For Deferred Compensation Plans . (2)
99.5 Amended and Restated 1991 Stock Option Plan of Herbalife International, Inc. (3), (4)
</TABLE>
- ----------------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(3) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1996 Annual Meeting of Stockholders.
(4) Incorporated by reference to the Company's Definitive Proxy Statement
relating to its 1998 Annual Meeting of Stockholders.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
(6) Filed herewith.
ITEM 9. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement
(or the most recent post-effective amendment hereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement; and
-30-
<PAGE> 31
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(a)(i) and (1)(a)(ii) will not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned registrant hereby further undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described under Item 6 above, or
otherwise, the registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
-31-
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on this July
6, 1999.
HERBALIFE INTERNATIONAL, INC.
(a Nevada corporation)
Registrant
By: /s/ CHRISTOPHER PAIR
---------------------------------------------------
Christopher Pair
Executive Vice President - Chief Operating Officer,
Secretary and Director
-32-
<PAGE> 33
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of Herbalife International,
Inc., a Nevada corporation, do hereby constitute and appoint Mark Hughes,
Chairman, President and Chief Executive Officer, the lawful attorney-in-fact and
agent, with full power and authority to do any and all acts and things and to
execute any and all instruments which said attorney and agent determines to be
necessary or advisable or required to enable said corporation to comply with the
Securities Act of 1933, as amended, and any rules or regulation or requirements
of the Commission in connection with this Registration Statement. Without
limiting the generality of the foregoing power and authority, the powers granted
include the power and authority to sign the names of the undersigned officers
and directors in the capacities indicated below to this Registration Statement,
to any and all amendments, both pre-effective and post-effective, and
supplements to this Registration Statement and to any and all instruments or
documents filed as part of or in connection with this Registration Statement or
amendments or supplements thereof, and each of the undersigned hereby ratifies
and confirms all that said attorney and agent shall do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of July 6, 1999.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated below.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ MARK HUGHES Chairman, President and Chief Executive Officer of
- ----------------------------- Herbalife International, Inc. (Principal Executive
Mark Hughes Officer)
/s/ CHRISTOPHER PAIR Director, Executive Vice President, Chief Operating
- ----------------------------- Officer and Secretary
Christopher Pair
/s/ MICHAEL E. ROSEN Director, Executive Vice President, Chief Executive
- ----------------------------- Corporate Marketing and Corporate Development
Michael Rosen
/s/ TIMOTHY GERRITY Executive Vice President and Chief Financial Officer of
- ----------------------------- Herbalife International, Inc. (Principal Financial and
Timothy Gerrity Accounting Officer)
/s/ ROBERT A. SANDLER Executive Vice President and General Counsel
- ----------------------------
Robert A. Sandler
</TABLE>
-33-
<PAGE> 34
/s/ EDWARD J. HALL Director
- -----------------------------
Edward J. Hall
/s/ ALAN LIKER Director
- -----------------------------
Alan Liker
/s/ CHRISTOPHER M. MINER Director
- -----------------------------
Christopher M. Miner
-34-
<PAGE> 35
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO FORM S-8
UNDER
SECURITIES ACT OF 1933
HERBALIFE INTERNATIONAL, INC.
<TABLE>
- -------------- --------------------------------------------------------------------------------------- ----------------
<CAPTION>
Exhibit Description Page No./
Number (Footnote)
- -------------- --------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
4 Form of Class A Common Stock and Class B Common Stock Certificates (5)
5 Legal Opinion of Irell & Manella LLP (6)
23.1 Consent of Independent Auditors - Deloitte & Touche LLP (6)
23.2 Consent of Irell & Manella LLP (included in legal opinion filed as Exhibit 5) (6)
24 Power of Attorney (included on the signature pages filed herewith) (6)
99.1 Herbalife Executive Officer Deferred Compensation Plan (6)
99.2 Herbalife Senior Executive Deferred Compensation Plan (2)
99.3 Herbalife Management Deferred Compensation Plan (2)
99.4 Herbalife Master Trust Agreement For Deferred Compensation Plans . (2)
99.5 Amended and Restated 1991 Stock Option Plan of Herbalife International, Inc. (3), (4)
</TABLE>
(1) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
(2) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
(3) Incorporated by reference to the Company's Definitive Proxy
Statement relating to its 1996 Annual Meeting of Stockholders.
(4) Incorporated by reference to the Company's Definitive Proxy
Statement relating to its 1998 Annual Meeting of Stockholders.
(5) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
(6) Filed herewith.
-35-
<PAGE> 1
EXHIBIT 5
LEGAL OPINION OF IRELL & MANELLA LLP
[LETTERHEAD OF IRELL & MANELLA LLP]
July 6, 1999
Herbalife International, Inc.
1800 Century Park East
Los Angeles, California 90067
Ladies and Gentlemen:
We have acted as counsel for Herbalife International, Inc., a Nevada
corporation (the "Company"), in connection with the proposed filing with the
Securities and Exchange Commission expected to be made on or about July 6, 1999
under the Securities Act of 1933, as amended, of a Registration Statement on
Form S-8 (the "Registration Statement") for the purpose of registering (i)
5,000,000 shares of the Company's Common Stock, par value $.01 per share (the
"Shares") and (ii) $24,000,000 in Deferred Compensation Obligations which
represent unsecured obligations of the Company to pay compensation in the future
in accordance with the terms and conditions of the Herbalife Senior Executive
Deferred Compensation Plan, the Herbalife Management Deferred Compensation Plan,
the Herbalife of America, Inc. Executive Officer Deferred Compensation Plan and
the Herbalife Master Trust Agreement for Deferred Compensation Plans (the
"Deferred Compensation Plans"). As your counsel in connection with this
transaction, we have examined such matters and documents as we have deemed
necessary or relevant as a basis for this opinion.
Based on these examinations, it is our opinion that (i) the Shares,
when issued and paid for in the manner referred to in the Registration
Statement, will be legally and validly issued, fully-paid and non-assessable and
(ii) the Deferred Compensation Obligations, when issued in accordance with the
provisions of the Deferred Compensation Plans, will be valid and binding
obligations of the Company, enforceable in accordance with their terms, except
as enforcement thereof may be limited by bankruptcy, insolvency or other laws of
general applicability relating to or affecting enforcement of creditors' rights
or by general equity principles.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to this firm under the caption
"Legal Matters" in the Reoffer Prospectus forming a part of this Registration
Statement.
Very Truly Yours,
/s/ IRELL & MANELLA LLP
--------------------------
Irell & Manella LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Herbalife International, Inc. on Form S-8 of our report dated
February 24, 1999, appearing in the Annual Report on Form 10-K of Herbalife
International, Inc. for the year ended December 31, 1998 and to the reference to
us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
Deloitte & Touche LLP
Los Angeles, CA
July 1, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Reference is made to the signature pages of this Registration
Statement.
<PAGE> 1
EXHIBIT 99.1
HERBALIFE INTERNATIONAL OF AMERICA, INC.
EXECUTIVE OFFICER DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1998
RECITALS
A. Michael Rosen ("Participant") is the Executive Vice President and
Chief Executive of Corporate Marketing and Corporate Development of Herbalife
International, Inc., a Nevada corporation ("Parent").
B. Participant and Parent entered into a Deferred Compensation Agreement
as of August 9, 1994 ("Prior Deferred Compensation Agreement"), providing for
the payment of deferred compensation to Participant.
C. Participant is not yet entitled to receive payment of any deferred
compensation under the Prior Deferred Compensation Agreement
D. Participant, Herbalife International of America, Inc., a California
corporation ("Company") and Parent wish to convert the benefits payable under
the Prior Deferred Compensation Agreement into benefits payable under this Plan
of the Company.
E. The purpose of this Plan is to provide specified benefits to the
Participant.
F. The Company maintains the "Trust," as hereafter defined.
ARTICLE I.
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated meanings:
1.1 "Additional Deferral Amounts" means the amounts credited to
Participant's Account Balance pursuant to Section 2.2.
1.2 "Account Balance" has the meaning set forth in Section 3.1.
1.3 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 4, that are entitled to
receive benefits under the Plan upon the death of the Participant.
<PAGE> 2
1.4 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.5 "Board" shall mean the board of directors of the Company.
1.6 "Cause" means Participant's deliberate and intentional refusal to
perform his duties to the Company after demand for such performance by
the Company's Chief Executive Officer or Board of Directors that
specifically identifies the manner in which the Company alleges that
Participant has not performed his duties; embezzlement or fraud (other
than any acts or omissions of Participant pursuant to the directions of
the Company's Chief Executive Officer or Board of Directors) in the
preparation of any materially false or misleading report, registration
statement or other filing with the Securities Exchange Commission; gross
negligence or reckless behavior by Participant which results in
demonstrable material harm to the Company and/or any of its affiliates;
or Participant's conviction for any crime or act involving moral
turpitude.
1.7 "Change in Control" shall mean the first to occur of any of the
following events:
(1) Any "person" (as that term is used in Section 13 and 14(d)(2) of
the Securities Exchange Act of 1934 ("Exchange Act")), other
than Mark Hughes, the Hughes Family Trust or any entity with
respect to which Mark Hughes has investment or dispositive power
or authority, after the date hereof becomes the beneficial owner
(as that term is used in Section 13(d) of the Exchange Act),
directly or indirectly, of 50 percent or more of the Company's
capital stock entitled to vote in the election of directors;
(2) During, any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof, unless the
election or the nomination for election by the Company's
shareholders of each new director was approved by a vote of at
least three-quarters of the directors still in office who were
directors at the beginning of the period;
(3) Any consolidation or merger of the Company, other than a
consolidation or merger of the Company in which the holders of
the common stock of the Company immediately prior to the
consolidation or merger
-2-
<PAGE> 3
hold more than 50 percent of the common stock of the surviving
corporation immediately after the consolidation or merger;
(4) The shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(5) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a
"controlled group of corporations" (as defined in Section 1563
of the Code) in which the Company is a member.
1.8 "Claimant" shall have the meaning set forth in Section 7.1.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.10 "Committee" shall mean the administrative committee appointed to manage
and administer the Plan in accordance with its provisions pursuant to
Article 6.
1.11 "Company" shall mean HERBALIFE INTERNATIONAL OF AMERICA, INC., a
California corporation.
1.12 "Crediting Rate" shall mean, for each Plan Year, an interest rate equal
to the current general account crediting rate on SunLife of Canada's
corporate universal life product in effect on January 1 of such Plan
Year.
1.13 "Employer" shall mean Parent, the Company and/or any of its subsidiaries
that have been selected by the Board to participate in the Plan.
1.14 "Parent" means Herbalife International, Inc., a Nevada corporation.
1.15 "Participant" shall mean Michael Rosen.
1.16 "Plan" shall mean the Company's Executive Officer Deferred Compensation
Plan, which shall be evidenced by this instrument, as it may be amended
from time to time.
1.17 "Plan Year" shall be the calendar year, starting with 1998.
1.18 "Prior Deferred Compensation Agreement" means that certain Deferred
Compensation Agreement dated as of August 9, 1994 by and between Parent
and Participant.
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1.19 "Termination of Employment" shall mean the ceasing of employment of
Participant with all Employers, voluntarily or involuntarily, for any
reason (including, without limitation, death, disability, retirement or
involuntary discharge).
1.20 "Trust" shall mean the Herbalife Master Trust Agreement For Deferred
Compensation Plans established pursuant to that certain Master Trust
Agreement dated as of January 1, 1996, between the Company and the
trustee named therein, as amended from time to time.
ARTICLE II.
PARTICIPANT'S ACCOUNT BALANCE;
CREDITING OF ADDITIONAL DEFERRAL AMOUNTS
2.1 At any time, the Participant's "Account Balance" shall mean the sum of
(a) $1,225,000, (b) the Additional Deferral Amounts credited to
Participant pursuant to Section 2.2, plus (c) interest on (a) and (b)
credited in accordance with all the applicable interest crediting
provisions of the Plan, reduced by (d) all distributions or payments
from such Account. This account shall be a bookkeeping entry only and
shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to the Participant pursuant to
the Plan.
2.2 On each of August 9, 1998 and August 9, 1999 (each, an "Anniversary
Date") Participant shall be credited an Additional Deferral Amount of
$600,000, if, on such date, Participant has been continuously employed
by any Employer since the date of this Plan. If Participant's Employment
is Terminated prior to an Anniversary Date, Participant shall not be
entitled to Additional Deferral Amounts with respect to such Anniversary
Date or any subsequent Anniversary Date; provided, however, if
Participant's Employment is Terminated by an Employer without Cause (and
Participant is not immediately employed by another Employer) prior to an
Anniversary Date, Participant shall be credited, as of the date of
Termination of Employment, with a prorated Additional Deferral Amount,
based on an annual amount of $600,000 pro-rated based on the number of
days between (i) if the Termination of Employment occurs before August
9, 1998, August 9, 1997 (provided, however, that the amount of
$1,225,000 set forth in clause (a) of Section 2.1 includes an annual
amount of $600,000 pro-rated based on the number of days between August
9, 1997 and December 31, 1997, which shall not be duplicated in any
proration based on the number of days between August 9, 1997 and the
date of Termination of Employment), or, if the Termination of Employment
occurs on or after August 9,
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1998, August 9, 1998, and (ii) the date of Termination of Employment.
2.3 No Additional Deferral Amounts shall be credited after August 9, 1999.
2.4 INTEREST CREDITING PRIOR TO DISTRIBUTION. Interest shall be credited and
compounded monthly on a Participant's Account Balance based on the
Participant's Account Balance on the first day of each calendar month
during the Plan Year. The rate of interest for crediting shall be the
Crediting Rate. For purposes of crediting interest, (a) if an Additional
Deferral Amount is credited to the Account Balance, such Account Balance
shall be deemed to be increased on the last day of the month before the
month in which such Additional Deferral Amount is credited, and (b) if a
distribution is made under this Plan, the Account Balance shall be
deemed to be reduced as of the last day of the month before the month in
which the distribution is made.
2.5 WITHHOLDING TAXES. For each Plan Year in which an Additional Deferral
Amount is being withheld, the Parent shall ratably withhold from that
portion of the Participant's other compensation that is not being
deferred, the Participant's share of FICA, FUTA, or other withholding
taxes required to be withheld at the time of deferral on the deferred
amounts. There shall be deducted from each payment to the Participant or
a Beneficiary under the Plan all FICA or other taxes which are required
to be withheld by the Employer from such payment. If any taxes,
including FICA or other employment taxes with respect to the Account
Balance, are required to be withheld before the time of payment, the
Employer may withhold such amounts from the Participant's other
compensation that is not being deferred. If necessary, the Committee
shall reduce the Account Balance in order to comply with this Section
2.5.
ARTICLE III.
PAYMENT OF ACCOUNT BALANCE
3.1 PAYMENT OF ACCOUNT BALANCE. The Account Balance shall be paid in cash to
Participant under this Article III only when, if and to the extent that
the payment thereof would not subject Parent to a limitation on the
deductibility of Participant's compensation pursuant to the provisions
of Section 162(m) of the Code as in effect on the date of payment. The
extent to which payment of Account Balance shall be made pursuant to
this Article III shall be determined by the Committee in its sole
discretion, based on its good faith estimate and determination of
Participant's total annual compensation
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for each applicable year (including, but not limited to, the value of
any restricted stock scheduled to vest during such year), whether
Participant may be a covered executive under Section 162(m) for such
year and other pertinent factors.
3.2 FORM OF DISTRIBUTION. Participant may elect, on a form prescribed by the
Committee, to receive distributions (subject to the limitations of
Section 3.1) in one lump sum, or in substantially equal monthly
installments over a period of 60 months, or over 120 months. Participant
may change his election by submitting a new election form to the
Committee, provided that any such election form is submitted at least
three years before distributions first become payable under this Article
III (the "Commencement Date"). The election form most recently accepted
by the Committee at least three years before the Commencement Date shall
govern the form of distribution. If Participant never submits an
election form, or the Committee has not accepted an election form at
least three years before the Commencement Date, Participant shall be
deemed to have elected to receive distributions in the form of a lump
sum. A lump sum payment or the first installment payment shall be made
within 60 days after the Commencement Date.
3.3 WITHDRAWAL ELECTION. If Participant has begun to receive distributions
in installments under Section 3.2, Participant may elect, at any time,
but subject to the limitations of Section 3.1, to withdraw all but not
less than all of his remaining Account Balance in one lump sum, less a
10 percent withdrawal penalty (the net amount is referred to as the
"Withdrawal Amount"). Participant shall make this election by giving the
Committee written notice on a form prescribed by the Committee. The
withdrawal penalty shall be 10 percent of Participant's Account Balance
immediately before the date on which Participant gives such notice. The
Withdrawal Amount shall be paid within 60 days after the date on which
Participant gives such notice. Upon payment of the Withdrawal Amount,
Participant shall permanently forfeit the 10 percent withdrawal penalty.
3.4 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the limitations of Section
3.1, if Participant dies before he begins to receive distributions under
this Article III, his Beneficiary shall receive a Pre-Retirement
Survivor Benefit equal to the Participant's Account Balance. The
Pre-Retirement Survivor Benefit shall be paid in the form elected by
Participant under Section 3.2, or, if no election has been made and
accepted by the Committee within three years before Participant's death,
monthly for 10 years. However, the Pre-Retirement Survivor
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Benefit payment may be made as a lump sum at the request of the
Beneficiary and at the sole and absolute discretion of the Committee.
The first (or only payment, if made in lump sum) shall be made within 60
days of the Committee's receiving proof of the Participant's death.
3.5 DEATH BEFORE COMPLETION OF DISTRIBUTIONS. If Participant dies after
beginning to receive installment distributions but before all
installments are paid in full, Participant's unpaid installments
payments shall (subject to the limitations of Section 3.1) continue and
shall be paid to Participant's Beneficiary (a) over the remaining number
of months and in the same amounts as the installment distributions would
have been paid to Participant had Participant survived, or (b) in a lump
sum if requested by the Beneficiary and allowed at the sole and absolute
discretion of the Committee. The lump sum payment will be the
Participant's Account Balance at the time of such lump sum payment.
ARTICLE IV.
BENEFICIARY DESIGNATION
4.1 BENEFICIARY. Participant shall have the right, at any time, to designate
his Beneficiary (both primary as well as contingent) to receive any
benefits payable under the Plan to a Beneficiary upon the death of
Participant. The Beneficiary designated under this Plan may be the same
as or different from the Beneficiary designation under any other plan of
an Employer in which Participant participates.
4.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. Participant shall
designate his Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated
agent. Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee's rules and procedures,
as in effect from time to time. Where required by law or by the
Committee, in its sole and absolute discretion, if Participant names
someone other than his spouse as a Beneficiary, a spousal consent, in
the form designated by the Committee, must be signed by Participant's
spouse and returned to the Committee. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by
Participant and accepted by the Committee prior to his death.
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4.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary
shall be effective until received, accepted and acknowledged in writing
by the Committee or its designated agent.
4.4 NO BENEFICIARY DESIGNATION. If Participant fails to designate a
Beneficiary as provided in Sections 4.1, 4.2 and 4.3 above, or, if all
designated Beneficiaries predecease Participant or die prior to complete
distribution of Participant's benefits, then Participant's designated
Beneficiary shall be his surviving spouse. If Participant has no
surviving spouse, the benefits remaining under the Plan shall be paid to
Participant's issue upon the principle of representation, and if there
is no such issue, to Participant's estate.
4.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its sole and absolute discretion,
to cause Participant's Employer to withhold such payments until this
matter is resolved to the Committee's satisfaction.
4.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to
Participant, and Participant's rights under this Plan shall terminate
upon such full payment of benefits.
ARTICLE V.
TERMINATION, AMENDMENT OR MODIFICATION
5.1 TERMINATION. Parent reserves the right to terminate the Plan at any
time. Upon the termination of the Plan, Participant's Account Balance
shall be paid out in full to Participant.
5.2 AMENDMENT. The Plan may be amended by agreement of the Company and
Participant.
5.3 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Articles 2 and 3 of the Plan shall completely discharge all obligations
to Participant under this Plan and the Plan shall terminate.
ARTICLE VI.
ADMINISTRATION
6.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee, to be
known as the Herbalife Deferred Compensation Plan Committee, which shall
consist of
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individuals approved by the Board. The Participant may be a members of
the Committee, but must recuse himself on any matter of personal
interest that comes before the Committee. The Committee shall also have
the discretion and authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of this Plan
and decide or resolve any and all questions including interpretations of
this Plan, as may arise in connection with the Plan.
6.2 AGENTS. In the administration of this Plan, the Committee may, from time
to time, employ agents and delegate to them such administrative duties
as it sees fit and may from time to time consult with counsel who may be
counsel to any Employer.
6.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
6.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee against any and all claims, losses,
damages, expenses or liabilities arising from any action or failure to
act with respect to this Plan, except in the case of willful misconduct
by the Committee or any of its members.
6.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee
on all matters relating to the compensation of the Participant and such
other pertinent information as the Committee may reasonably require.
ARTICLE VII.
CLAIMS PROCEDURE
7.1 PRESENTATION OF CLAIM. Participant or a Beneficiary (such Participant or
Beneficiary being referred to below as a "Claimant") may deliver to the
Committee a written claim for a determination with respect to the
amounts distributable to such Claimant from the Plan. If such a claim
relates to the contents of a notice received by the Claimant, the claim
must be made within 60 days after such notice was received by the
Claimant. All other claims must be made within 180 days of the date on
which the event that caused the claim to arise occurred. The claim must
state with particularity the determination desired by the Claimant.
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7.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
claim within 60 days of the making of the claim, and shall notify the
Claimant in writing:
(1) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(2) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by
the Claimant:
(a) the specific reason(s) for the denial of the claim, or
any part of it;
(b) specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(c) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(d) an explanation of the claim review procedure set forth
in Section 7.3 below.
7.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review procedure
begins. the Claimant (or the Claimant's duly authorized representative):
(1) may review pertinent documents;
(2) may submit written comments or other documents; and/or
(3) may request a hearing, which the Committee, in its sole
discretion, may grant.
7.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial. unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a
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manner calculated to be understood by the Claimant, and it must contain:
(1) specific reasons for the decision;
(2) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(3) such other matters as the Committee deems relevant.
7.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article VII is a mandatory prerequisite to a Claimant's right to
commence any arbitration under Section 7.6 with respect to any claim for
benefits under this Plan.
7.6 ARBITRATION. If, after the review process, a claimant seeks further
redress, the subject of the dispute shall be submitted to arbitration in
accordance with the procedures hereinafter provided in this Section 7.6
(the "Procedures"), which arbitration shall be the exclusive remedy of
the parties hereto. The resulting arbitration award shall be deemed a
final order of a court having jurisdiction over the subject matter and
shall not be appealable.
(1) Should any controversy arise between the parties as to which the
parties are unable to effect a satisfactory resolution, upon
demand of any party, such controversy shall be submitted to
arbitration before a single arbitrator in Los Angeles County,
California, in accordance with the terms and provisions of these
Procedures and the then most- applicable rules of the American
Arbitration Association (or any successor organization) to the
extent that such rules are not inconsistent with the provisions
of these Procedures. The remedial authority of the arbitrator
shall be the same as, but no greater than, would be the remedial
power of a court having jurisdiction over the parties and their
dispute.
(2) A party desiring to submit to arbitration any such controversy
shall furnish its demand for arbitration in writing to the other
party, which demand shall contain a brief statement of the
matter in controversy. In the event the parties are unable to
agree upon an arbitrator, the parties shall select a single
arbitrator from a list of nine arbitrators drawn by the parties
at random from the "Independent" (or "Gold Card") list of
retired judges. If the parties are unable to agree upon an
arbitrator from the list so drawn, then the parties
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shall each strike names alternately from the list, with the
first to strike being determined by lot. After each party has
used four strikes, the remaining name on the list shall be the
arbitrator.
(3) The parties shall be entitled to conduct discovery as permitted
under Section 1283.05 of the California Code of Civil Procedure.
(4) Each party shall furnish the Arbitrator and the other party with
a written statement of matters it deems to be in controversy for
purposes of the arbitration procedures. Such statement shall
also include all arguments, contentions and authorities which it
contends substantiate its position.
(5) Such Arbitrator shall render this decision as soon as possible
but not later than sixty (60) days after conclusion of hearings
before such Arbitrator. The decision shall be in writing and
counterpart copies thereof shall be delivered to each of the
parties.
(6) Any filing or administrative fees shall be borne initially by
the party requesting administration by the American Arbitration
Association. If both parties request such administration, the
fees shall be borne initially by the party incurring such fees
as provided by the rules of the American Arbitration
Association. The initial fees and costs of the arbitrator shall
be borne equally between the parties. The prevailing party in
such arbitration, as determined by the arbitrator, and in any
enforcement or other court proceedings, shall be entitled to the
extent permitted by law, to reimbursement from the other party
for all of the prevailing party's costs (including but not
limited to the arbitrator's compensation), expenses, and
attorneys' fees.
ARTICLE VIII.
TRUST
8.1 PAYMENTS TO TRUST. The Employer shall transfer over to the Trust, as
soon as practicable after the execution of this Plan, the sum of
$1,225,000, and the Additional Deferral Amount as soon as practicable
after it is credited to Participant's Account under Section 2.2. All
amounts paid to the Trust under this Section 8.1, and any income, gains,
and losses thereon, shall be held in a subtrust which shall be separate
from the other assets of the Trust but which shall otherwise be subject
to all of the terms and provisions of the Trust.
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8.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Participant and the creditors of the Employers to the
assets transferred to the Trust. The Employers shall at all times remain
liable to carry out their obligations under the Plan. The Employers'
obligations under the Plan may be satisfied with Trust assets
distributed pursuant to the terms of the Trust.
ARTICLE IX.
MISCELLANEOUS
9.1 UNSECURED GENERAL CREDITOR. Participant and his Beneficiaries, heirs,
successors and assigns shall have no legal or equitable right, interest
or claim in any property or assets of an Employer. Any and all of an
Employer's assets shall be, and remain, the general, unpledged and
unrestricted assets of the Employer. The Employer shall not be obligated
to make or acquire any particular investment (including, but not limited
to, an investment in SunLife of Canada's corporate universal life
product), or to maintain any investment which it does make. An
Employer's obligation under the Plan shall be merely that of an unfunded
and unsecured promise to pay money in the future.
9.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
benefits shall be defined only by the Plan. An Employer shall have no
obligation to Participant under the Plan except as expressly provided in
the Plan.
9.3 NONASSIGNABILITY. Neither Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are expressly
declared to be unassignable and non-transferable. No part of the amounts
payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by the Participant or any other person, nor be
transferable by operation of law in the event of Participant's or any
other person's bankruptcy or insolvency.
9.4 COORDINATION WITH OTHER BENEFITS. The benefits provided for Participant
and Participant's Beneficiary under the Plan are in addition to any
other benefits available to such Participant under any other plan or
program for employees of Participant's Employer. The Plan shall
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supplement and shall not supersede, modify or amend any other such plan
or program except as may otherwise be expressly provided; provided,
however, that the Plan supersedes and replaces the Prior Deferred
Compensation Agreement.
9.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and Participant. Such employment is hereby acknowledged to be
an "at will" employment relationship that can be terminated at any time
for any reason, with or without cause, unless expressly provided in a
written employment agreement. Nothing in this Plan shall be deemed to
give Participant the right to be retained in the service of any
Employer, either as an employee or a director, or to interfere with the
right of any Employer to discipline or discharge Participant at any
time.
9.6 FURNISHING INFORMATION. Participant or his Beneficiary will cooperate
with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order
to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
9.7 TERMS. Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural
or the singular, as the case may be, in all cases where they would so
apply. The masculine pronoun shall be deemed to include the feminine and
VICE VERSA, unless the context clearly indicates otherwise.
9.8 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
9.9 GOVERNING LAW. Subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended, the provisions of this Plan
shall be construed and interpreted according to the laws of the State of
California.
9.10 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to:
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Mr. John Price
Senior Vice President of Worldwide Administration
HERBALIFE INTERNATIONAL OF AMERICA, INC.
Post Office Box 80210
Los Angeles, CA 90080-0210
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.
Any notice or filing required or permitted to be given to Participant
under this Plan shall be sufficient if in writing and hand-delivered, or sent by
mail, to the last known address of Participant.
9.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of Participant's Employer and its successors and assigns and
Participant, Participant's Beneficiaries, and their permitted successors
and assigns.
9.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of
Participant who has predeceased Participant shall automatically pass to
Participant and shall not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor shall such interest
pass under the laws of intestate succession.
9.13 VALIDATION. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been inserted
herein.
9.14 INCOMPETENT. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to
the guardian, legal representative or person having the care and custody
of such minor, incompetent or incapable person. The Committee may
require proof of minority, incompetency, incapacity or Guardianship. as
it may deem appropriate prior to distribution of the benefit. Any
payment of a benefit shall be a payment for the account of Participant
and Participant's Beneficiary, as the case may be, and shall be a
complete discharge of any liability under the Plan for such payment
amount.
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9.15 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any
portion of Participant's benefit under this Plan becomes taxable to
Participant prior to receipt, Participant may petition the Committee for
a distribution of assets sufficient to meet Participant's tax liability
(including additions to tax, penalties and interest). Upon the grant of
such a petition, which grant shall not be unreasonably withheld,
Participant's Employer shall distribute to Participant immediately
available funds in an amount equal to Participant's federal, state and
local tax liability associated with such taxation (which amount shall
not exceed Participant's vested Account Balance), which liability shall
be measured by using Participant's then current highest federal, state
and local marginal tax rate, plus the rates or amounts for the
applicable additions to tax, penalties and interest. If the petition is
granted, the tax liability distribution shall be made within 90 days of
the date when Participant's petition is granted. Such a distribution
shall reduce the benefits to be paid under this Plan.
9.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company is
aware that upon the occurrence of a Change in Control, the Board (which
might then be composed of new members) or a shareholder of the Company,
or of any successor corporation might then cause or attempt to cause the
Company or such successor to refuse to comply with its obligations under
the Plan and might cause or attempt to cause the Company to institute,
or may institute, arbitration or litigation seeking to deny Participants
the benefits intended under the Plan. In these circumstances, the
purpose of the Plan could be frustrated. Accordingly, if, following a
Change in Control, it should appear to Participant that the Company or
the Committee has failed to comply with any of its obligations under the
Plan or any agreement thereunder or, if the Company or any other person
takes any action to declare the Plan void or unenforceable or institutes
any arbitration, litigation or other legal action designed to deny,
diminish or to recover from Participant or any Beneficiary the benefits
intended to be provided, then the Company irrevocably authorizes such
person to retain counsel of his or her choice at the expense of the
Company to represent such person in connection with the initiation or
defense of any arbitration, litigation or other legal action, whether by
or against the Company, the Committee, or any director, officer,
shareholder or other person affiliated with the Company or any successor
thereto in any jurisdiction.
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IN WITNESS WHEREOF, the Company has signed this Plan document on
_____________, 1998, to be effective as of January 1, 1998.
HERBALIFE INTERNATIONAL OF AMERICA, INC.,
a California corporation
By:_____________________________________
Its:____________________________________
AGREED AND ACKNOWLEDGED
HERBALIFE INTERNATIONAL, INC.
By:____________________________
Its:___________________________
MICHAEL ROSEN
_______________________________
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