<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
------------------------
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
HERBALIFE INTERNATIONAL, INC.
(Name of Subject Company)
HERBALIFE INTERNATIONAL, INC.
(Name of Person Filing Statement)
------------------------
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
426908208 (CLASS A)
426908307 (CLASS B)
(CUSIP Number of Class of Securities)
------------------------
CHRISTOPHER PAIR
EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER AND SECRETARY
HERBALIFE INTERNATIONAL, INC.
1800 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067-1501
(310) 410-9600
(Name, Address and Telephone Number of Person Authorized to
Receive Notice and Communications on Behalf of Person Filing Statement)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ANTHONY T. ILER, ESQ. JOHN M. NEWELL, ESQ.
IRELL & MANELLA LLP LATHAM & WATKINS
333 SOUTH HOPE STREET, SUITE 3300 633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90071
(213) 620-1555 (213) 485-1234
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Herbalife International, Inc., a Nevada
corporation (the "Company" or "Herbalife"), and the address of the principal
executive offices of the Company is 1800 Century Park East, Los Angeles,
California 90067. The title of the class of equity securities to which this
statement relates is (i) the Class A common stock, par value $.01 per share of
the Company (the "Class A Shares") and (ii) the Class B common stock, par value
$.01 per share of the Company (the "Class B Shares" and, together with the Class
A Shares, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the cash tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") and the Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"), each dated
September 17, 1999, of MH Millennium Acquisition Corp., a Nevada corporation
(the "Purchaser") and a wholly owned subsidiary of MH Millennium Holdings LLC, a
Delaware limited liability company (the "Parent"), to purchase all of the
outstanding Shares at a price of $17.00 per Share (the "Offer Price"), net to
the seller in cash without interest thereon, subject to certain conditions set
forth in the Offer to Purchase, dated September 17, 1999 (as may be amended and
supplemented from time to time, the "Offer to Purchase") and the related Letter
of Transmittal (the terms and conditions of which, together with any supplements
or amendments thereto, collectively constitute the "Offer"). The Parent is an
entity controlled and beneficially owned by Mark Hughes, the Company's founder,
Chairman, Chief Executive Officer, President and principal stockholder ("Mr.
Hughes") (see "Special Factors -- Interests of Certain Persons" in the Offer to
Purchase). The Offer is being made by the Purchaser pursuant to the Agreement
and Plan of Merger, dated as of September 13, 1999 (the "Merger Agreement"), by
and among the Company, the Parent, the Purchaser, Mr. Hughes, and The Mark
Hughes Family Trust (the "Family Trust"), a copy of which is filed as Exhibit
(b)(1) hereto and incorporated herein by reference. Subject to certain terms and
conditions of the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger") as soon as practicable after the consummation of the
Offer, with the Company being the surviving corporation in the Merger (the
"Surviving Corporation"). The Schedule 14D-1 states that the address of the
principal executive offices of the Parent and the Purchaser is 1800 Century Park
East, Los Angeles, California 90067. The Offer to Purchase, the form of Letter
of Transmittal and a copy of the joint press release issued by the Company and
the Purchaser on September 13, 1999 are filed hereto as Exhibits (a)(2), (a)(3)
and (b)(2), respectively, and incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the entity
filing this statement, are set forth in Item 1 above and are incorporated herein
by reference. All information contained in this Schedule 14D-9 or incorporated
herein by reference concerning the Parent, the Purchaser, Mr. Hughes, the Family
Trust or their respective officers, directors, representatives or affiliates, or
any actions or events with respect to any of them, was provided by the Parent,
the Purchaser or Mr. Hughes, respectively, and the Company takes no
responsibility for the accuracy of such information.
(b) Except as described or referred to below, there exists on the date
hereof no material contract, arrangement or understanding and no actual or
potential conflict of interest between the Company or its affiliates and: (i)
the Company or its executive officers, directors or affiliates; or (ii) the
Parent, the Purchaser or their executive officers, directors or affiliates.
ARRANGEMENTS WITH DIRECTORS, EXECUTIVE OFFICERS OR AFFILIATES OF THE COMPANY
The information set forth in "Special Factors -- Interests of Certain
Persons" and "The Tender Offer -- Section 7. Certain Information Concerning the
Company" in the Offer to Purchase is incorporated herein by reference. Certain
information relating to the directors and executive officers of the Company is
set forth in Schedule II to the Offer to Purchase.
1
<PAGE> 3
Indemnification of Company's Directors and Officers. Pursuant to the
provisions of the Merger Agreement, the Parent has agreed that all rights to
indemnification and exculpation (including the advancement of expenses) from
liabilities for acts or omissions occurring at or prior to the effective time of
the Merger (the "Effective Time") of the current or former directors and
officers existing on September 13, 1999 or at the Effective Time pursuant to the
Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), the Company's Restated Bylaws (the "Bylaws") and any
indemnification agreements, each as in effect on September 13, 1999, shall be
assumed and shall survive the Merger. In addition, the Surviving Corporation
shall maintain in effect (for not less than six years from the Effective Time),
directors' and officers' liability insurance with the same or substantially
similar coverage to the directors' and officers' liability insurance policies
effective prior to the Merger.
The Company's Articles of Incorporation include provisions that eliminate
the personal liability of its directors for monetary damages to the fullest
extent permitted by law. The Articles of Incorporation also include
authorization to indemnify any agent, including directors and officers, in
excess of that otherwise permitted by applicable law. In addition, the Bylaws
provide for indemnification under certain circumstances of directors, officers,
employees and agents in actions by third parties and in actions by or in the
right of the Company. Furthermore, the Bylaws include an authorization for the
Company to purchase and maintain insurance on behalf of any of its agents
against liability asserted or incurred by such agent in such capacity. The
Articles of Incorporation and the Bylaws are filed hereto as Exhibits (c)(1) and
(c)(2), respectively, and incorporated herein by reference.
In addition to the foregoing, the Company has entered into individual
indemnity agreements with each of its directors and certain executive officers
which provide that the Company shall indemnify each such person to the fullest
extent permitted by law. The indemnity agreements specify procedures for
determining entitlement to indemnification and advancement of expenses and
contain various other provisions designed to clarify the right of directors and
officers to indemnity. A form of indemnity agreement is filed as Exhibit (c)(3)
hereto and incorporated herein by reference.
These indemnity agreements, together with the Articles of Incorporation and
Bylaws, may require the Company to indemnify its directors and executive
officers to the fullest extent permitted by law against certain liabilities that
may arise by reason of their status or service as directors or executive
officers of the Company, including liabilities arising from actions or omissions
which may constitute a breach of a duty owed to either the Company or its
stockholders.
THE MERGER AGREEMENT
The Company, the Parent, the Purchaser, Mr. Hughes and the Family Trust
entered into the Merger Agreement on September 13, 1999. The complete text of
the Merger Agreement is filed as Exhibit (b)(1) hereto and incorporated herein
by reference, and is summarized in "The Tender Offer -- Section 9. The Merger
Agreement" in the Offer to Purchase, which summary is incorporated herein by
reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation. The Special Committee of the Board of Directors (the
"Board" or the "Board of Directors") comprised solely of independent directors
(the "Special Committee") has unanimously (i) approved the Merger Agreement and
determined that the terms of the Offer and the Merger are fair to, and in the
best interests of, the stockholders of the Company (other than Mr. Hughes and
entities controlled and beneficially owned directly or indirectly by Mr. Hughes
(collectively, the "Continuing Stockholder")) (the "Public Stockholders"), (ii)
recommended that the Board of Directors approve the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger and (iii)
determined that the Board of Directors should recommend that the Public
Stockholders accept the Offer and tender their Shares pursuant to the Offer.
The Board, at a special meeting held on September 13, 1999, having received
the unanimous recommendation of the Special Committee, has unanimously (with Mr.
Hughes abstaining) (i) determined that the terms of the Offer, the Merger and
the Merger Agreement are fair to, and in the best interests of, the
2
<PAGE> 4
Public Stockholders, (ii) approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger and (iii) recommended
that the Public Stockholders accept the Offer and tender their Shares pursuant
to the Offer. A copy of the Company's letter to stockholders, dated as of
September 17, 1999, is filed as Exhibit (a)(1) hereto and incorporated herein by
reference.
(b) Reasons for the Recommendations of the Special Committee and the Board
of Directors.
BACKGROUND OF THE OFFER AND THE MERGER
During 1998, Herbalife experienced a significant deterioration in its stock
market valuation. This began in July 1998 and continued during August, September
and October 1998. Herbalife's Class A Shares and Class B Shares, which traded as
high as $29 and $27 1/4 per share, respectively, in May and March of 1998,
traded at prices as low as $7 1/2 and $6 in October 1998. Valuations have since
increased, but only to levels that remain significantly below the market
valuations experienced during the first half of 1998. On September 13, 1999, the
last trading day prior to the announcement of the execution of the Merger
Agreement, the closing sale prices for Herbalife's Class A Shares and Class B
Shares were $12 and $9 5/32 per share, respectively.
Following the decline in the Company's stock price in the second half of
1998, Mr. Hughes and the other senior executives of Herbalife began to consider
preliminarily strategic alternatives for Herbalife in view of Herbalife's
unsatisfactory stock market performance. Senior executives of Herbalife
considered that Herbalife would have greater flexibility as a private company to
invest in the future of Herbalife, particularly given the longer term pay-off
anticipated from investments in new geographic and product markets. Among other
things, senior executives of Herbalife considered that certain of the markets
that Herbalife is in the process of opening, such as China and India, will
require a substantially greater lead-time and investment in infrastructure than
countries opened by Herbalife in the past. The Indian market, which Herbalife
has been preparing to open since 1995, is expected to be open in the fourth
quarter of 1999. The Chinese market, which Herbalife has been preparing to open
since 1997, awaits finalization of marketing and manufacturing plans and is not
expected to be open until late in the year 2000 or early in 2001. In addition,
Herbalife senior executives considered that new markets, such as China and
India, might be less likely to deliver the rapid growth historically experienced
in many new markets, such as Japan. These types of investments may require
significant up-front expenditures, the benefits of which may not be apparent in
Herbalife's financial results until significantly later periods. The senior
executives of Herbalife considered that, as a public company, Herbalife would
have less flexibility to make long-term investments such as these.
Beginning in September 1998, senior executives of Herbalife and Mr. Hughes
began to have preliminary communications with several investment banking firms
concerning possible alternatives to increase shareholder value. Certain of these
firms addressed the advantages and disadvantages of various capital-markets
transactions, including a going private transaction, a leveraged
recapitalization transaction financed in part by a private equity sponsor and a
"Dutch auction" self-tender by Herbalife. Based on the discussions with these
investment banks and the factors discussed above, Mr. Hughes and Herbalife's
senior management determined that a going private transaction was superior to
the other alternatives in terms of enhancing shareholder value. From September
1998 through March 1999, senior executives of Herbalife interviewed several
investment banking firms to obtain their views concerning the advisability of,
and their qualifications to advise senior executives of Herbalife on the
structuring and financing of, such a transaction. In addition, during this
period senior executives of Herbalife met with a representative of one private
equity sponsor firm. Representatives of Donaldson, Lufkin & Jenrette Securities
Corporation ("Donaldson, Lufkin & Jenrette") were first interviewed on March 31,
1999. At that time and in subsequent meetings and conversations, representatives
of Donaldson, Lufkin & Jenrette provided preliminary views concerning the
feasibility and financing of a going private transaction, as well as other
possible transaction structures. On April 23, 1999, Herbalife formally engaged
Donaldson, Lufkin & Jenrette to advise Herbalife and to arrange for the
financing for a possible transaction. Such engagement did not include a request
to render, and Donaldson, Lufkin & Jenrette has not at any time rendered, an
opinion with respect to the fairness of any price proposed in connection with
the going private transaction.
3
<PAGE> 5
In the fourth quarter of 1998, senior executives of Herbalife began work on
a multi-year business plan containing certain projections of future operating
performance, which was completed in January 1999. A principal feature of the
plan was a projected sales growth rate of 5% per year starting in the year 2000.
See "Special Factors -- Certain Financial Projections" in the Offer to Purchase.
In addition, Herbalife and its legal, accounting and tax advisors also began
considering structures for a going private transaction. In particular, Herbalife
and its tax advisors began to consider a number of structures for obtaining the
necessary financing while minimizing Herbalife's worldwide effective tax rate.
Following its engagement, Donaldson, Lufkin & Jenrette began to assist Herbalife
and its advisors to address structuring issues.
In addition, immediately following its engagement, Donaldson, Lufkin &
Jenrette began its "due diligence" review of Herbalife, including financial,
business and legal information requested by Donaldson, Lufkin & Jenrette and
provided by Herbalife. In particular, Herbalife provided its multi-year business
plan to Donaldson, Lufkin & Jenrette. On April 26, 1999, Donaldson, Lufkin &
Jenrette met with representatives of Herbalife to receive general presentations
regarding Herbalife's business. In addition, legal counsel for Donaldson, Lufkin
& Jenrette commenced a legal due diligence review. This review involved written
requests for information, on-site inspections of documents at Herbalife's
headquarters and telephone conferences with representatives of, and advisors to,
Herbalife worldwide.
In May and June of 1999, Herbalife continued to provide Donaldson, Lufkin &
Jenrette with financial and business information and its legal counsel with
legal information. In addition, during this period various structural aspects of
the transaction were considered in detail. As they were considered, each of
these aspects of the transaction was analyzed in relation to the multi-year
business plan. These included further analysis of the optimal structure of third
party indebtedness from the point of view of minimizing Herbalife's worldwide
effective tax rate, the degree of benefit to Herbalife if recapitalization
accounting treatment for the transaction were available, the treatment of
minority interests in Herbalife's Japanese subsidiary and the nature and extent
of Herbalife's senior executives' continuing equity participation in Herbalife
after any transaction. In particular, senior executives of Herbalife formulated
the general terms of the new stock option plan. See "Special
Factors -- Interests of Certain Persons -- New Stock Option Plan" in the Offer
to Purchase. Herbalife's senior executives and Donaldson, Lufkin & Jenrette also
continued discussions regarding the expected uses of proceeds in the
transaction. In particular, senior executives of Herbalife informed Donaldson,
Lufkin & Jenrette that as part of any proposal, Mr. Hughes indicated that he
would seek a significant amount of personal liquidity in connection with the
transaction, plus an additional amount to enable him to satisfy (through
companies he controls) his obligations to DECS Trust III. Mr. Hughes' concern
about personal liquidity was based upon his belief that, as a private company
with significant debt-service obligations, he expected that his ability to
receive dividends on his common stock, which historically have been significant,
would be extremely limited. In addition, any such proposal would include this
amount in view of the lack of liquidity he would have in his investment in
Herbalife if it became a private company. Mr. Hughes informed Donaldson, Lufkin
& Jenrette that this amount (not including the amount needed to satisfy the
obligations to DECS Trust III) would be $125 million. Representatives of
Deloitte & Touche, which provided the tax advice to Mr. Hughes and Herbalife in
connection with the transaction, proposed that these sums should be provided to
Mr. Hughes in the form of loans from Herbalife to one or more entities owned by
Mr. Hughes to be made at the closing of any transaction. The terms of these
loans are described in "Special Factors -- Interests of Certain Persons -- The
Board of Directors" in the Offer to Purchase.
At a meeting on June 7, 1999, Mr. Hughes and his tax advisors began
consideration of the structure of the loans to Mr. Hughes.
Donaldson, Lufkin & Jenrette advised the senior executives of Herbalife
that a cash price of $12.50 per Share in the going private transaction should be
proposed. Mr. Hughes and Herbalife's senior executives concluded that $12.50 per
Share would be a fair price to offer to Herbalife's stockholders.
In late June and early July 1999, senior executives of Herbalife, in
consultation with Herbalife's tax and legal advisors, finalized the terms of the
proposed loans to a limited liability company controlled and beneficially owned
by Mr. Hughes. These terms included securing the $125 million loan with the
investments
4
<PAGE> 6
anticipated to be purchased using the proceeds from that loan, and having Mr.
Hughes personally guarantee the $66 million loan.
On July 8, 1999, at a special meeting of the Board of Directors, Mr. Hughes
delivered to the Board of Directors a proposal to pursue an acquisition of
Herbalife in a going private transaction. This proposal expressed the interest
of Mr. Hughes in acquiring 100% ownership of Herbalife through companies he
controls. In particular, the proposal provided that all stockholders of
Herbalife other than Mr. Hughes would be entitled to receive $12.50 in cash for
each Share owned by them and that all stock options held by Herbalife option
holders, excluding those held by Mr. Hughes, would be accelerated as to vesting
and would be canceled in exchange for cash payments equal to the difference, if
any, between $12.50 and the exercise price of the options multiplied by the
number of Shares subject to such options. On July 8, 1999, the $12.50 offer
price represented a 17% and 45% premium to the closing prices of the Class A
Shares and Class B Shares, respectively. Mr. Hughes' proposal included the same
proposed price per Share for each of the Company's two classes of Shares as a
result of provisions in Herbalife's charter requiring an identical price in
specified transactions as well as fiduciary duty considerations. In addition,
the proposal provided that an entity controlled by Mr. Hughes would receive two
loans from Herbalife totaling approximately $191 million and that certain
members of Herbalife's senior management would participate in a new stock option
plan, for which shares representing approximately 16.5% of the post-transaction
fully diluted equity of Herbalife would be reserved for future issuance. In
making his proposal, Mr. Hughes stated that he had no intention of selling any
of his Shares. Mr. Hughes' proposal was accompanied by a draft form of merger
agreement.
At the special meeting, Mr. Michael E. Rosen, a member of the Board of
Directors and Herbalife's Executive Vice President and Chief Executive Corporate
Marketing and Corporate Development, explained the proposal. Because Mr. Hughes
and certain other members of the Board of Directors would have a continuing
financial interest in any transaction arising out of the proposal, the Board of
Directors established the Special Committee. The Special Committee was given
exclusive authority to evaluate, negotiate and decide whether or not to engage
in the transaction (which was initially proposed as a one-step long-form merger)
and certain related transactions. Messrs. Edward Hall and Christopher Miner,
members of the Board of Directors with significant business and financial
experience, were named as the members of the Special Committee. These two
directors were chosen because neither of them had a conflict of interest in
relation to the proposed transaction. The Board of Directors authorized the
Special Committee to establish such procedures, review such information and
engage such financial advisors and legal counsel as it deemed necessary to fully
and adequately make determinations about Mr. Hughes' proposal and to accept the
proposal, reject the proposal, or seek to negotiate with Mr. Hughes regarding
the terms of the proposed transaction, and to fulfill its other duties.
At the special meeting of the Board of Directors, Mr. Hughes delivered a
letter from Donaldson, Lufkin & Jenrette to Herbalife, dated July 7, 1999, to
the effect that, based on information provided to Donaldson, Lufkin & Jenrette
to that date, subject to certain conditions, it was highly confident that the
financing needed for the proposed transaction could be arranged.
Also, a representative of Deloitte & Touche LLP ("Deloitte & Touche")
present at the special meeting described the general tax and accounting aspects
of the proposal, and representatives of Irell & Manella LLP (the legal advisor
to the Company and Mr. Hughes) present at the special meeting described the
Board of Directors' fiduciary duties in relation to the proposal.
On July 12, 1999, the Special Committee engaged Latham & Watkins as its
legal counsel to advise the Special Committee regarding its duties in response
to the proposal. The Special Committee and Latham & Watkins discussed on several
occasions the procedures to be followed in analyzing the proposal and any other
offers from Mr. Hughes or others to acquire Herbalife. Latham & Watkins advised
the Special Committee concerning the Special Committee's legal responsibilities
and the legal principles applicable to, and the legal consequences of, actions
taken by the Special Committee with respect to the proposal and any other offers
from Mr. Hughes.
The Special Committee provided to Latham & Watkins the draft merger
agreement provided to the Board of Directors at the July 8, 1999 meeting,
together with the other documents provided at such meeting.
5
<PAGE> 7
Beginning on July 13, 1999, Latham & Watkins submitted requests for legal
documents to Irell & Manella LLP, which were also given to Herbalife. Over the
next few weeks, Herbalife provided the documents requested, including the
multi-year business plan referred to above.
On July 21, 1999, after having interviewed several nationally recognized
investment banking firms, the Special Committee engaged Bear Stearns to serve as
its financial advisor for the purpose of advising the Special Committee and
assisting the Special Committee in any negotiations with Mr. Hughes and, if
necessary, delivering a fairness opinion to the Special Committee in connection
with the proposed transaction. On July 21, 1999, the Special Committee
instructed Bear Stearns to commence its investigation and analysis of the value
of Herbalife and the proposal of Mr. Hughes. Thereafter, Bear Stearns submitted
to the Company its requests for business and financial information.
On behalf of the Special Committee, Latham & Watkins requested that
Herbalife provide members of the Special Committee with compensation for serving
on the Special Committee. By unanimous written consent dated July 23, 1999, the
Board of Directors approved compensation for the Special Committee in
recognition of the added efforts and time they would need to expend during their
assignment. The terms of this compensation are described under "Special
Factors -- Interests of Certain Persons -- The Board of Directors" in the Offer
to Purchase.
During the period from July 21, 1999 to August 11, 1999, Bear Stearns
reviewed financial and other information concerning Herbalife, including
Herbalife's audited and interim financial statements, Herbalife's multi-year
financial model, and other information concerning Herbalife described in
"Special Factors -- Opinion of Financial Advisor to the Special Committee" in
the Offer to Purchase. Bear Stearns also met with members of Herbalife's
management on several occasions.
On July 28, 1999, the Special Committee met with Herbalife's senior
executives, Bear Stearns, Donaldson, Lufkin & Jenrette, Irell & Manella LLP and
Latham & Watkins to receive presentations from Herbalife's senior executives
about the proposed transaction and Herbalife's business, prospects, financial
position and financial statements. In addition, management of Herbalife
presented Herbalife's multi-year business plan, which included projections of
future operating performance.
On July 30, 1999, Bear Stearns and Latham & Watkins met with Mr. Hughes to
discuss his views of Herbalife's business and prospects and his reasons for
proposing the transaction. Representatives of Donaldson, Lufkin & Jenrette and
Irell & Manella LLP were also present at the meeting.
On August 5, 1999, Bear Stearns met with Herbalife's Chief Financial
Officer and certain members of the finance department for a more detailed review
of various aspects of Herbalife's historical and projected financial
performance. With respect to projections, Bear Stearns and the Company's
representatives discussed in detail the assumptions used in the preparation of
the projections, as well as alternative assumptions that management had also
considered at the time the projections were prepared.
On August 10, 1999, the Special Committee held a telephonic meeting at
which Bear Stearns and Latham & Watkins participated. At the meeting,
representatives of Bear Stearns presented the preliminary conclusions of their
valuation analysis to the members of the Special Committee. The representatives
of Bear Stearns indicated that, based on the information that they had received
to date, they would be unable to recommend that Bear Stearns' valuation
committee approve the issuance of a fairness opinion at the proposed $12.50
merger price. In addition, representatives of Latham & Watkins reviewed the
other proposed terms of the transaction with the Special Committee and concluded
that they could not recommend that the Special Committee accept the terms and
conditions offered in the initial proposal. The Special Committee determined
that, before taking action to reject the initial proposal, Mr. Hughes should be
given the opportunity to further explain his proposal to the Special Committee.
Accordingly, that same day, the members of the Special Committee
participated in a teleconference call with representatives of Herbalife,
Donaldson, Lufkin & Jenrette, Irell & Manella LLP, Bear Stearns and Latham &
Watkins. In this conference call, Donaldson, Lufkin & Jenrette and Irell &
Manella LLP provided additional information to the Special Committee and its
advisors regarding Mr. Hughes' views as to the fairness of the proposed
transaction.
6
<PAGE> 8
On August 11, 1999, the Special Committee held a further telephonic meeting
at which Bear Stearns and Latham & Watkins participated. The views expressed on
the previous day's conference call were discussed in detail. Bear Stearns and
Latham & Watkins both indicated that their views as to the fairness of the
proposed transaction had not been materially altered as a result of the previous
conference call. After further discussion, the Special Committee voted
unanimously to reject Mr. Hughes' initial proposal, and directed the Special
Committee's advisors to communicate the rejection to Mr. Hughes' advisors.
On August 12, 1999, the Special Committee delivered a letter to Mr. Hughes
stating that it had consulted with its legal and financial advisors and on
August 11, 1999 had resolved to reject Mr. Hughes' initial proposal. Prior to
delivering the letter, Bear Stearns and Latham & Watkins informed Donaldson,
Lufkin & Jenrette and Irell & Manella LLP that the Special Committee rejected
the proposal based on the insufficient value of the proposal and the terms of
the draft merger agreement supplied with Mr. Hughes' July 8, 1999 proposal. Bear
Stearns and Latham & Watkins indicated that the Special Committee's view was
that, given the inadequacy of Mr. Hughes' proposal, negotiations on that
proposal would not be productive.
On August 12, 1999, Mr. Hughes delivered a letter to the Special Committee
requesting additional information regarding the reasons for the Special
Committee's rejection.
On August 13, 1999, senior executives of Herbalife, together with
representatives of Donaldson, Lufkin & Jenrette and Bear Stearns as well as
Latham & Watkins and Irell & Manella LLP, participated in a telephonic
conference call during which the reasons for the Special Committee's rejection
of Mr. Hughes' offer were described in greater detail. During this call, the
Special Committee's advisors generally described their approach to analyzing the
fairness of Mr. Hughes' initial proposal. From a financial standpoint, Bear
Stearns discussed broadly the valuation methods that it employed in reaching its
conclusion that the proposed offer price was inadequate. From a legal
standpoint, Latham & Watkins indicated that the Special Committee objected to
several aspects of the merger agreement, including the lack of a meaningful
public stockholder voice in the approval of the transaction, the absence of
dissenters' rights, the lack of financing commitments, terms governing the
payment and reimbursement of expenses, the inclusion of a "material adverse
change" condition in Mr. Hughes' favor, the extensive nature of the proposed
representations and warranties from Herbalife to Mr. Hughes, and certain other
provisions. Bear Stearns and Latham & Watkins indicated that, on the basis of
the foregoing financial and legal analyses, the Special Committee had concluded
that Mr. Hughes' initial offer should be rejected. Neither the Special Committee
nor its advisors offered to Mr. Hughes a counter-proposal or indicated what
price they believed would be acceptable.
Between August 13, 1999 and August 19, 1999, senior executives of Herbalife
discussed possible responses to the Special Committee's action with its
financial and legal advisors. In particular, the senior executives consulted
with Donaldson, Lufkin & Jenrette regarding possibly raising the price per Share
to be offered in the proposal. Mr. Hughes consulted with his advisors and
considered the views expressed by Bear Stearns on the August 13, 1999 telephonic
conference call. On August 18, 1999, a representative of Donaldson, Lufkin &
Jenrette informed a representative of Bear Stearns that Mr. Hughes might be
willing to offer a price of $14.50 to $15.00 per Share, and also address
substantially all of the legal concerns the Special Committee had expressed in
regard to the proposed merger agreement. On August 19, 1999, a representative of
Donaldson, Lufkin & Jenrette received an indication from a representative of
Bear Stearns that the Special Committee might be willing to consider an offer in
the $15.00 per Share price range as a basis for commencement of discussions, but
that such a price was probably below the price that the Special Committee
considered acceptable by a significant amount. The representative from
Donaldson, Lufkin & Jenrette acknowledged that a $15.00 offer might not be
sufficient for the Special Committee, but that his understanding from Mr. Hughes
was that he was unwilling at that time to offer significantly more than $15.00
per Share.
On August 19, 1999, Mr. Hughes delivered a letter to the Special Committee
that offered a price of $15.00 per Share and indicated that he believed he would
be able to meet a majority of the Special Committee's concerns regarding the
other terms of the proposed merger agreement. In addition, Mr. Hughes' letter
invited the Special Committee and its advisors to meet with Mr. Hughes and his
advisors so that details of his proposal and the basis for his belief in its
fairness could be discussed.
7
<PAGE> 9
On August 20, 1999, Bear Stearns informed Donaldson, Lufkin & Jenrette that
it believed that the Special Committee would not accept the offer contained in
Mr. Hughes' August 19th letter. On August 24, 1999, Bear Stearns and Donaldson,
Lufkin & Jenrette, as well as Latham & Watkins and Irell & Manella LLP,
participated in a telephonic conference call to discuss further valuation and
legal issues. A representative of Irell & Manella LLP described possible
modifications to the merger agreement to address concerns previously articulated
by the Special Committee. Principally, the representative indicated a
willingness of Mr. Hughes to condition the proposed transaction on obtaining a
"majority of the minority" vote in favor of the merger, as well as Mr. Hughes'
willingness to grant dissenters' rights, even though dissenters' rights would
not otherwise be available under Nevada corporate law. In addition, the
representative indicated that Mr. Hughes might be willing to eliminate the
condition in the merger agreement that there be no material adverse change in
Herbalife's business, on the assumption that there would be a financing
condition to consummation of the proposed transaction. Mr. Hughes' advisors
indicated that Mr. Hughes was unwilling to remove the financing condition, and
was unwilling to provide financing commitments. Advisors to the Special
Committee expressed concern about the lack of financing commitments, especially
in light of the significant loans proposed to be made to Mr. Hughes at closing,
and the effect that these loans may have on the marketability of the financing.
Mr. Hughes' advisors indicated that the proposed loans were a fundamental
element of Mr. Hughes' willingness to proceed with the transaction, and that
Donaldson, Lufkin & Jenrette took the loans into account in issuing their
"highly confident" letter. Advisors to the Special Committee also indicated that
the Special Committee did not find a commitment for Herbalife to pay all
expenses of the proposed transaction in all scenarios to be acceptable and asked
for a schedule of expenses incurred and proposed to be incurred in connection
with the proposed transaction, which was provided the next day. Advisors to the
Special Committee also expressed a concern about the one-step merger structure
of the proposal because the possibility of delays would be greater in a merger
as compared to a tender offer.
Following the discussion of legal points, Bear Stearns and Donaldson,
Lufkin & Jenrette discussed valuation issues. In particular, Donaldson, Lufkin &
Jenrette described the premiums to market implied by Mr. Hughes' current offer.
In addition, Donaldson, Lufkin & Jenrette explained that the conditions that may
have contributed to the Company's recent stock price performance were unlikely
to change in the near term. Donaldson, Lufkin & Jenrette also indicated that
there was a limited universe of public companies comparable to Herbalife. Bear
Stearns believed that there were several companies that were relevant
comparisons to Herbalife and that some of these companies suggested higher
valuations for Herbalife. At the conclusion of the call, Bear Stearns and Latham
& Watkins indicated that they would discuss the call with the members of the
Special Committee and have further discussions with Mr. Hughes' advisors at a
later date.
On August 24, 1999 and again on August 27, 1999, the Special Committee held
telephonic meetings at which representatives of Bear Stearns and Latham &
Watkins participated. At these meetings, the Special Committee discussed in
detail the proposed terms of Mr. Hughes' revised proposal. The Special Committee
directed its advisors to continue discussions with Mr. Hughes and his advisors
to determine whether Mr. Hughes' revised proposal could be improved further.
On September 7, 1999, representatives of Herbalife, Bear Stearns,
Donaldson, Lufkin & Jenrette, Irell & Manella LLP and Latham & Watkins met to
discuss Mr. Hughes' proposal. A representative of Irell & Manella LLP summarized
the unresolved legal issues that the Special Committee identified as being
particularly significant, including the lack of financing commitments, the
requirement that Herbalife pay all expenses of the proposed transaction even if
the transaction were not completed, and the structure of the transaction as a
merger rather than as a tender offer followed by a merger. A representative of
Latham & Watkins described the disadvantages of a merger from the Special
Committee's perspective. In particular, he noted that a merger would generally
take longer to consummate than a tender offer, resulting in delay and
potentially added risk to stockholders that the transaction is not consummated.
In addition, a tender offer provided greater flexibility in the timing of
raising the financing for the transaction. Irell & Manella LLP and Donaldson,
Lufkin & Jenrette indicated that, for the reasons described by the Latham &
Watkins representative, Mr. Hughes might be agreeable to a tender offer
structure. They also indicated that Mr. Hughes could not accept any transaction
which required that he obtain financing commitments (particularly bridge
financing commitments) because of the associated expense of obtaining
commitments
8
<PAGE> 10
and the potentially onerous terms of bridge financing, but that, under certain
circumstances, he might be agreeable to paying a portion of the expenses of a
failed transaction. After further discussion, a representative of Donaldson,
Lufkin & Jenrette, based on discussions with Mr. Hughes, indicated to Bear
Stearns that Mr. Hughes would be willing to consider a final offer of $16.50 per
share and possibly agree to a limited expense reimbursement provision, but that
he would not compromise on the issue regarding financing commitments. Bear
Stearns informed Donaldson, Lufkin & Jenrette that, based on its prior
discussions with the Special Committee, it did not believe that such an offer
would be acceptable to the Special Committee. After further discussions among
Mr. Hughes and his advisors, Donaldson, Lufkin & Jenrette informed Bear Stearns
that Mr. Hughes would be prepared to offer a final price of $17.00 per share and
agree to pay up to $2 million of his own expenses (including expenses incurred
by Herbalife for his benefit) under certain circumstances. As part of this
proposal, Mr. Hughes would not agree to provide financing commitments. In
addition, Mr. Hughes' offer indicated a willingness to structure the transaction
as a tender offer, if the legal and financial advisors for the Special Committee
and Mr. Hughes jointly concluded that a tender offer was preferable from a
timing and flexibility standpoint. Donaldson, Lufkin & Jenrette indicated to
Bear Stearns that Mr. Hughes had indicated that the $17.00 proposal was
absolutely his best and final offer, and that any attempt by the Special
Committee or its advisors to seek additional cash consideration would be
unacceptable to Mr. Hughes and would seriously affect his willingness to proceed
in further negotiations with the Special Committee. Bear Stearns indicated that,
based on prior discussion with the Special Committee, Bear Stearns believed that
the Special Committee might be receptive to Mr. Hughes' final proposal.
On September 8, the Special Committee held a telephonic meeting at which
representatives of Bear Stearns and Latham & Watkins participated. Bear Stearns
and Latham & Watkins updated the Special Committee on the developments at the
meeting on September 7, and obtained the Special Committee's authorization to
continue negotiations with Mr. Hughes and his advisors.
Between September 7 and 10, Irell & Manella LLP and Latham & Watkins
further negotiated the specific terms of the merger agreement. Revisions agreed
upon included the restructuring of the transaction to a cash tender offer,
followed by a cash merger.
On September 10, 1999, Mr. Hughes delivered a letter to the Special
Committee setting forth an offer on substantially the same terms outlined in the
September 7, 1999 meeting. Herbalife's advisors also delivered a revised draft
version of the merger agreement and a revised draft letter from Donaldson,
Lufkin & Jenrette as to its confidence that the requisite financing for the
transaction could be arranged.
On September 13, 1999, the Special Committee met in person with
representatives of Bear Stearns and Latham & Watkins to consider and vote upon
Mr. Hughes' revised proposal. Representatives of Latham & Watkins discussed the
duties of the Special Committee members in evaluating the most recent proposal
from Mr. Hughes. They reviewed with the Special Committee the history of the
process undertaken by the Special Committee to date. In addition, they
summarized the terms of the proposed merger agreement, and discussed the
concessions that had been made by Mr. Hughes in the terms of the transaction, as
compared to what had originally been proposed. Thereafter, representatives of
Bear Stearns made a detailed presentation regarding their views and analyses of
various aspects of the proposed transaction, the terms of the proposed merger
agreement, and other matters. At this meeting, Bear Stearns delivered its
written opinion, that, based upon the matters presented to the Special Committee
and as set forth in its opinion, as of the date of the opinion, the
consideration proposed to be received in the proposed tender offer and merger is
fair, from a financial point of view, to the Public Stockholders. After
discussion and consideration, the Special Committee unanimously approved the
Merger Agreement, determined that the terms of the tender offer and the merger
are fair to, and in the best interests of, the Public Stockholders, recommended
that the Board of Directors approve the Merger Agreement and determined that the
Board of Directors should recommend that the Public Stockholders of Herbalife
accept the proposed tender offer and tender their Shares pursuant to the
proposed tender offer.
Following the Special Committee meeting, a meeting of the full Board of
Directors was convened at the corporate offices of Herbalife. All directors were
present except for Mr. Pair, who participated by telephone. In addition,
representatives of Donaldson, Lufkin & Jenrette, Irell & Manella LLP and Latham
& Watkins were present. Mr. Hall, on behalf of the Special Committee, reported
that the Special Committee had resolved to
9
<PAGE> 11
recommend to the Board of Directors that Mr. Hughes' proposal be accepted. He
indicated that the Special Committee had received a presentation from Bear
Stearns and its written opinion to the effect that the consideration to be
received in the proposed tender offer and the proposed merger is fair, from a
financial point of view, to the Public Stockholders. He indicated that the
Special Committee had also received a presentation from Latham & Watkins on the
terms of the proposed agreement and plan of merger, including various provisions
that had been negotiated to improve the agreement from the perspective of Public
Stockholders. Representatives of Irell & Manella LLP then summarized the terms
of the agreement and plan of merger, as finally negotiated with the
representatives of the Special Committee, and reviewed with the Board of
Directors draft resolutions relating to the proposed transactions. A
representative of Irell & Manella LLP also summarized the fiduciary standard
applicable to directors in approving transactions of this nature. A
representative of Latham & Watkins then summarized for the full Board of
Directors the activities of the Special Committee over the preceding
approximately two months, including the numerous meetings and telephone
conferences. The representative indicated that, in addition to price, the
Special Committee placed importance on several improvements achieved in the
terms of the proposal, including among other things (i) the addition of a
requirement that a majority of the Class A Shares and a majority of the Class B
Shares, other than those owned by Mr. Hughes, be tendered in the proposed tender
offer in order for the transaction to proceed; (ii) the inclusion of dissenters'
rights, even though not mandated by Nevada corporate law; (iii) the conversion
of the merger structure to a cash tender offer to be followed by a cash merger;
(iv) the requirement that Herbalife continue to make regular quarterly dividends
and make a special "stub" dividend for the period in which the transactions
close; (v) the inclusion of only minimal representations and warranties from
Herbalife; (vi) Mr. Hughes' obligation to pay up to $2 million of the expenses
incurred by him or on his behalf in the event that the Merger Agreement were to
be terminated under specified circumstances; and (vii) the condition in favor of
Herbalife that a solvency opinion from an independent valuation expert be
delivered at the closing. Donaldson, Lufkin & Jenrette delivered a letter to the
Board of Directors dated September 13, 1999 reiterating their confidence that
the requisite financing for the transaction could be arranged.
Following further discussion, there was a motion to approve and adopt the
resolutions pertaining to the Merger Agreement and related matters. The
resolutions were approved and adopted by the Board of Directors unanimously,
with Mr. Hughes abstaining from the vote.
Immediately following the meeting, Herbalife, Mr. Hughes and his related
entities entered into the definitive Merger Agreement, and Herbalife issued a
press release announcing that its Board of Directors had accepted Mr. Hughes'
proposal and entered into the definitive Merger Agreement.
REASONS FOR THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS
In recommending approval of the Merger Agreement and the transactions
contemplated thereby, and recommending that the Public Stockholders tender their
Shares pursuant to the Offer, the Special Committee considered a number of
factors, including:
(i) The results of operations, financial condition, assets,
liabilities, business strategy and prospects of the Company and the nature
of the industry in which the Company competes. The members of the Special
Committee and its advisors also had discussions with members of the
Company's management regarding such business, conditions and prospects. In
reviewing the Company's business prospects, the Special Committee reviewed
the Company's potential international expansion markets, and the
significant investment and expense associated with entering those markets.
The Special Committee also reviewed the volatility in the Company's
financial results in recent periods caused by its dependence on
international markets, including Asia, Russia and Latin America;
(ii) The opinion of Bear Stearns (the "Bear Stearns Opinion") dated
September 13, 1999 that, as of the date of such opinion and based upon and
subject to certain factors and assumptions stated therein, the
consideration to be received in the Offer and the Merger is fair, from a
financial point of view, to the Public Stockholders. THE FULL TEXT OF THE
BEAR STEARNS OPINION IS ATTACHED TO THIS SCHEDULE 14D-9 AND FILED AS
EXHIBIT (b)(3) HERETO AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS
ARE URGED TO READ THE BEAR
10
<PAGE> 12
STEARNS OPINION IN ITS ENTIRETY AND TO READ THE DESCRIPTION OF SUCH OPINION
UNDER THE CAPTION "SPECIAL FACTORS -- OPINION OF FINANCIAL ADVISOR TO THE
SPECIAL COMMITTEE" IN THE OFFER TO PURCHASE;
(iii) Current and historical market prices and trading history of the
Shares, including the relatively low trading volume of the Shares;
(iv) The relationship of the Offer Price to the current market price
and the historical market prices for the Shares and the fact that the Offer
Price represents a premium of approximately 42% over the per Share closing
price of the Class A Shares and approximately 86% over the per Share
closing price of the Class B Shares on September 13, 1999, the last trading
day prior to the public announcement of execution of the Merger Agreement.
The historical market prices of the Shares during the time the Shares have
been publicly traded are deemed relevant because they indicate the
arms'-length trading prices of the Shares for that period as determined in
the open market;
(v) The fact that the public float for the Shares consists of only
approximately 46% of the outstanding Class A Shares and 42% of the
outstanding Class B Shares. Because of the limited float and relatively low
trading volume in the Shares, the Special Committee believed that attempts
to sell significant portions of the Shares would cause substantial downward
pressure on market prices, and therefore believed that an offer by Mr.
Hughes represents an opportunity for Public Stockholders to realize a
higher price for such Shares than might be realized in market transactions;
(vi) The fact that the Merger Agreement includes an obligation on the
part of the Parent and the Purchaser to make a first-step cash tender
offer, thereby enabling stockholders who tender their Shares to receive
cash consideration without waiting for the Merger to be consummated. In
addition, stockholders who do not tender their Shares pursuant to the Offer
would receive in the Merger the same cash price per Share paid by the
Parent and the Purchaser in the Offer (unless such stockholders elect to
exercise their dissenters' rights);
(vii) The fact that the per Share price to be received in the Offer
and the Merger is payable in cash, thereby eliminating any uncertainties in
valuing the consideration to be received by the stockholders;
(viii) The availability by the terms of the Merger Agreement of
dissenters' rights under the Nevada Revised Statutes pursuant to which
stockholders of the Company who dissent from the Merger may have the fair
value of their Shares judicially determined;
(ix) The unlikelihood that the Company would be able to effect a
transaction for the sale of the Company without the cooperation of Mr.
Hughes, as well as the unlikelihood that a prospective acquiror would make
a serious offer for the Shares not owned by Mr. Hughes and his affiliates
without also entering into an agreement with Mr. Hughes. The Special
Committee concluded that, in view of Mr. Hughes' stated unwillingness to
sell his Shares to a third party, it was not likely that any party other
than Mr. Hughes would propose a transaction that was more favorable to the
Company and its stockholders. Accordingly, the Special Committee and Bear
Stearns were not authorized to, and did not, solicit third party
indications of interest to acquire the Company as a whole or any of its
businesses. In the event that the Company should receive a proposal from a
third party, the terms of the Merger Agreement permit the Board of
Directors to provide information to and negotiate with such party and to
modify or withdraw its recommendation to the stockholders if the Board of
Directors determines that its failure to take such action would be
inconsistent with its fiduciary duties under applicable law;
(x) The fact that the Parent and the Purchaser have advised the
Company that they are not aware of any offer having been made from any
other person regarding the acquisition of the Company or any significant
portion of its assets or equity securities;
(xi) The Special Committee's recognition that consummation of the
Merger will preclude the Public Stockholders from participating in any
future growth of the Company; however, in the view of the Special
Committee, this loss of opportunity was adequately reflected in the Offer
Price of $17.00 per Share;
11
<PAGE> 13
(xii) The Special Committee's consideration of the likelihood of the
consummation of the proposed transaction in light of (a) the fact that the
Parent and the Purchaser have provided the Special Committee with copies of
a "highly confident" letter with respect to the Offer and the Merger, but
had not provided financing commitments, (b) the limited nature of the other
conditions to the Offer and the Merger, (c) the significant percentage of
Shares owned by the Continuing Stockholder, and (d) the proposed structure
of the transaction and anticipated closing date;
(xiii) The arm's-length negotiations between the Special Committee and
its representatives and Mr. Hughes and his representatives, including that
the negotiations resulted in (a) a substantial increase in the price at
which the Purchaser was prepared to acquire the Shares, from $12.50 per
Share to $17.00 per Share, and (b) the Special Committee's belief,
confirmed by Bear Stearns in their discussions with Donaldson, Lufkin &
Jenrette, that $17.00 per Share was the highest price that could be
obtained from Mr. Hughes under the circumstances;
(xiv) The terms of the Offer, the Merger and the Merger Agreement,
including provisions that (a) without the consent of the Special Committee,
the Merger Agreement may not be amended and the Purchaser may not reduce
the Offer Price or the number of Shares to be purchased, modify the form of
consideration to be paid in the Offer, impose additional conditions to the
Offer or amend or modify any other material term of the Offer in a manner
materially adverse to the holders of Shares, (b) the recommendation of the
Special Committee may be withdrawn, modified or amended to the extent the
Special Committee believes it necessary to do so in the exercise of its
fiduciary duties and (c) it is a condition to the Merger that all Shares
validly tendered and not withdrawn pursuant to the Offer shall have been
purchased by the Purchaser;
(xv) The requirement of the Minimum Condition (as defined in
"Introduction" in the Offer to Purchase) that the Offer cannot be
consummated unless at least a majority of both the Class A Shares and the
Class B Shares outstanding at the date of the execution of the Merger
Agreement (other than Shares owned by the Continuing Stockholder) are
tendered pursuant to the Offer and not withdrawn;
(xvi) The nature of the "highly confident" letter received by the
Board of Directors and the Special Committee with respect to the Offer and
the Merger, including the identity of the institution providing such
letter, their knowledge of the Company and their experience in consummating
financing for transactions such as the Offer and the Merger, and the
conditions to such letter; and
(xvii) The fact that the Merger Agreement requires that the Company
continue to pay regular quarterly cash dividends on the Shares until the
Effective Time, and requires the Company to declare pro rata special
dividends at the same rate at the consummation of the Offer and the Merger
with respect to the "stub" period since the most recent regularly quarterly
dividend payment record date.
The foregoing discussion of the information and factors considered by the
Special Committee is not meant to be exhaustive but includes the material
factors considered by the Special Committee in reaching its conclusions and
recommendations. In view of the variety of factors considered in its reaching a
determination, the Special Committee did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its conclusions and recommendations. In addition,
individual members of the Special Committee may have given different weights to
different factors.
In reaching its determinations referred to above, the Board of Directors
considered the following factors, each of which, in the view of the Board of
Directors, supported such determinations:
(i) The conclusions and recommendations of the Special Committee;
(ii) The factors referred to above as having been taken into account
by the Special Committee; and
(iii) The fact that the Offer Price and the terms and conditions of
the Merger Agreement were the result of arm's-length negotiations among the
Special Committee, the Company and Mr. Hughes and their respective
advisors.
12
<PAGE> 14
The Board of Directors, including the members of the Special Committee,
also believes that the Offer and the Merger are procedurally fair because, among
other things:
(i) The Special Committee consisted of two non-employee independent
directors appointed to represent the interests of the Public Stockholders;
(ii) The Special Committee retained and received advice from its
independent legal counsel, Latham & Watkins;
(iii) The Special Committee retained and received an opinion from Bear
Stearns as its independent financial advisor to assist it in evaluating a
potential transaction with the Parent and the Purchaser;
(iv) The detailed review by the Special Committee and its advisors of
the business and financial condition of the Company;
(v) The deliberations pursuant to which the Special Committee
evaluated the Offer and the Merger;
(vi) The $17.00 Offer Price and the other terms and conditions of the
Merger Agreement resulted from active arm's-length bargaining between
representatives of the Special Committee, on the one hand, and
representatives of Mr. Hughes, on the other hand;
(vi) The Minimum Condition (which may not be waived without the
consent of the Special Committee) has the effect of requiring the holders
of a majority of both the Class A Shares and the Class B Shares (other than
the Continuing Stockholder) to tender their Shares into the Offer in order
for it to be consummated; and
(vii) The availability of dissenters' rights to the Public
Stockholders.
The Board of Directors and the Special Committee recognized that the Merger
was not structured to require the approval of a majority of the stockholders of
the Company other than the Continuing Stockholder, and that the Continuing
Stockholder currently has sufficient voting power to approve the Merger without
the affirmative vote of any other stockholder of the Company. The Continuing
Stockholder acted by written consent on September 13, 1999, to approve and adopt
the Merger and the Merger Agreement. However, the Special Committee and the
Board of Directors also recognized that, since (x) it is a condition to the
Merger that the Purchaser shall have purchased all Shares validly tendered and
not withdrawn pursuant to the Offer, and (y) it is a condition (waivable only
with the consent of the Special Committee) to consummation of the Offer that
there be validly tendered and not withdrawn at least a majority of the issued
and outstanding Class A Shares and Class B Shares without regard to the Shares
owned by the Continuing Stockholder (i.e., the Minimum Condition), the Merger is
effectively conditioned on satisfaction of the Minimum Condition.
The Board of Directors recognized that consummation of the Offer and the
Merger will deprive current stockholders of the opportunity to participate in
the future growth prospects of the Company, and, therefore, in reaching its
conclusion to approve the Offer and the Merger, determined that the historical
results of the operations and future prospects of the Company are adequately
reflected in the Offer Price. The members of the Board of Directors, including
the members of the Special Committee, evaluated the Parent's and the Purchaser's
proposal, the Offer and the Merger in light of their knowledge of the business,
financial condition and prospects of the Company, and based upon the advice of
financial and legal advisors. In light of the number and variety of factors that
the Board of Directors considered in connection with their evaluation of the
Offer and the Merger, the Board of Directors did not find it practicable to
assign relative weights to any of the foregoing factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Special Committee engaged Bear Stearns to act as its financial advisor
in connection with the Offer and the Merger. Pursuant to the terms of its
engagement letter dated July 21, 1999 (the "Bear Stearns Engagement Letter"),
the Special Committee has agreed to have the Company (i) pay Bear Stearns a non-
refundable retainer in the amount of $400,000 payable upon signing the Bear
Stearns Engagement Letter,
13
<PAGE> 15
(ii) pay Bear Stearns an additional cash fee of $1.35 million in connection with
the delivery of the Bear Stearns Opinion, and (iii) reimburse Bear Stearns for
all reasonable out-of-pocket expenses (including fees and disbursements of
counsel, and of other consultants and advisors retained by Bear Stearns). The
Company has also agreed to indemnify Bear Stearns and certain related persons
against certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
Except as described herein, neither the Company, the Board, the Special
Committee, nor any person acting on their behalf has employed, retained or
compensated any other person to make solicitations or recommendations to
stockholders on its behalf concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth herein, no transactions in the Shares have been
effected during the past 60 days by the Company or, to the best of the Company's
knowledge, by any executive officer, director, affiliate or subsidiary of the
Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, all of the Company's executive officers, directors,
affiliates or subsidiaries (other than the Continuing Stockholder) currently
intend to tender all Shares which are held of record or beneficially owned by
such persons pursuant to the Offer, other than Shares, if any, held by such
persons which, if tendered, could cause such person to incur liability under the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended.
In connection with the Merger Agreement, Mr. Hughes has agreed not to tender in
response to the Offer any of the Shares beneficially owned by the Continuing
Stockholder and to ensure that none of the Shares beneficially owned by the
Continuing Stockholder will be cancelled for cash in the Merger.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in this Schedule 14D-9 or in the Offer to Purchase,
to the best of the Company's knowledge, no discussions or negotiations are
underway or are being undertaken by the Company, in response to the Offer, the
Merger or the Merger Agreement that relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries, (iii) a
tender offer for or other acquisition of securities by or of the Company, or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described in this Schedule 14D-9 or in the Offer to Purchase,
to the best of the Company's knowledge, there is no transaction, board
resolution, agreement in principle or a signed contract in response to the Offer
that relates to or would result in (i) an extraordinary transaction, such as a
merger or reorganization, involving the Company or any of its subsidiaries, (ii)
a purchase, sale or transfer of a material amount of assets by the Company or
any of its subsidiaries, (iii) a tender offer for or other acquisition of
securities by or of the Company, or (iv) any material change in the present
capitalization or dividend policy of the Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) The information set forth in "The Tender Offer -- Section 12. Certain
Legal Matters, Regulatory Approvals" in the Offer to Purchase is incorporated
herein by reference.
(b) The information set forth in "Special Factors -- Certain Litigation" in
the Offer to Purchase is incorporated herein by reference.
14
<PAGE> 16
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------
<C> <S>
(a)(1) Letter to Stockholders dated as of September 17, 1999.*
(a)(2) Offer to Purchase, dated September 17, 1999 (incorporated by
reference to Exhibit (a)(1) to the Schedule 14D-1).*
(a)(3) Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(2) to the Schedule 14D-1).*
(a)(4) Summary Advertisement, dated September 17, 1999
(incorporated by reference to Exhibit (a)(7) to the Schedule
14D-1).*
(b)(1) Agreement and Plan of Merger, dated as of September 13,
1999, by and among Parent, Purchaser, Mr. Hughes, the Family
Trust and the Company (incorporated by reference to Exhibit
(c)(1) to the Schedule 14D-1).*
(b)(2) Press Release issued by the Company on September 13, 1999
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated September 15, 1999).
(b)(3) Opinion of Bear, Stearns & Co. Inc. dated September 13,
1999.*
(c)(1) Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K dated December 12,
1997).
(c)(2) Restated Bylaws of the Company (incorporated by reference to
the Company's Registration Statement on Form S-1 (No.
33-66576) dated October 8, 1994).
(c)(3) Form of Indemnification Agreement (incorporated by reference
to the Company's Registration Statement on Form S-1 (No.
33-66576) dated October 8, 1994).
</TABLE>
- ---------------
* Included in materials being distributed to stockholders of the Company.
15
<PAGE> 17
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
HERBALIFE INTERNATIONAL, INC.
By: /s/ CHRISTOPHER PAIR
------------------------------------
Name: Christopher Pair
Title: Executive Vice President,
Chief Operating Officer and
Secretary
Dated: September 17, 1999
16
<PAGE> 1
[HERBALIFE LOGO]
September 17, 1999
Dear Stockholder:
We are pleased to inform you that on September 13, 1999, Herbalife
International, Inc. (the "Company") entered into an Agreement and Plan of Merger
(the "Merger Agreement") with MH Millennium Holdings LLC (the "Parent"), MH
Millennium Acquisition Corp. (the "Purchaser"), Mark Hughes and The Mark Hughes
Family Trust, which provides for the acquisition of the Company by the
Purchaser. As contemplated by the Merger Agreement, the Purchaser has commenced
a tender offer (the "Offer") to purchase all of the Company's outstanding shares
of Class A common stock (the "Class A Shares") and Class B common stock (the
"Class B Shares" and, together with the Class A Shares, the "Shares") at a price
of $17.00 per Share in cash.
Following the successful completion of the Offer, the Purchaser will be
merged with and into the Company (the "Merger"), and all Shares not purchased in
the Offer, other than Shares owned by the Continuing Stockholder (defined as
Mark Hughes and other entities controlled and beneficially owned by him), the
Parent, the Purchaser, the Company or those stockholders who have perfected
dissenters' rights pursuant to the terms of the Merger Agreement, will be
converted into the right to receive $17.00 per Share in cash.
THE COMPANY'S BOARD OF DIRECTORS (THE "BOARD"), HAVING RECEIVED THE
RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD CONSISTING SOLELY OF
INDEPENDENT DIRECTORS (THE "SPECIAL COMMITTEE"), HAS UNANIMOUSLY (WITH MARK
HUGHES ABSTAINING): (I) DETERMINED THAT THE TERMS OF THE OFFER, THE MERGER AND
THE MERGER AGREEMENT, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S
STOCKHOLDERS OTHER THAN THE CONTINUING STOCKHOLDER (THE "PUBLIC STOCKHOLDERS"),
(II) APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER AND (III) RECOMMENDED THAT THE PUBLIC
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Offer is conditioned upon, among other things, (i) there being tendered
and not withdrawn prior to the expiration date of the Offer at least a majority
of the Class A Shares and at least a majority of the Class B Shares outstanding
as of September 13, 1999, excluding Shares owned by the Continuing Stockholder
(the "Minimum Condition"), and (ii) the Purchaser obtaining financing for the
Offer, the Merger and related transactions. The Minimum Condition is not
waivable by the Purchaser or the Parent without the consent of the Company,
acting through the Special Committee. The Continuing Stockholder owns a majority
of the outstanding voting Class A Shares and has acted by written consent to
approve and adopt the Merger Agreement. As a result, assuming that the Offer is
consummated, no additional stockholder action is required to consummate the
Merger.
In arriving at its recommendation, the Special Committee and the Board gave
careful consideration to a number of factors which are described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9, including the opinion
of the Special Committee's financial advisor, Bear, Stearns & Co. Inc., that the
consideration to be received in the Offer and the Merger is fair, from a
financial point of view, to the Public Stockholders.
Additional information with respect to the Offer and the Merger is
contained in the enclosed Schedule 14D-9. We urge you to read and consider this
information carefully in making your decision with respect to tendering your
Shares pursuant to the Offer.
On behalf of the management and directors of the Company, we thank you for
the support you have given the Company.
Sincerely Yours,
/s/ CHRISTOPHER PAIR
Christopher Pair, Executive Vice
President,
Chief Operating Officer and Secretary
<PAGE> 1
[BEAR, STEARNS & CO. INC. LETTERHEAD]
September 13, 1999
The Special Committee of the Board of Directors
Herbalife International, Inc.
1800 Century Park East
Los Angeles, CA 90067
Gentlemen:
We understand that Herbalife International, Inc. ("Herbalife") and one or
more entities directly or indirectly controlled by Mark Hughes (the "Principal
Shareholder") propose to enter into a merger agreement dated September 13, 1999,
(the "Agreement") pursuant to which all outstanding shares of Class A and Class
B common stock of Herbalife other than those already owned by the Principal
Shareholder will receive $17.00 per share in cash (the "Consideration to be
Received") by means of a tender offer (the "Tender Offer") followed by a
subsequent merger (the "Merger"). The Agreement also provides for the cashing
out of each outstanding option to acquire Herbalife common stock (other than
those held by the Principal Shareholder) at a price equal to $17.00 per share
less the applicable exercise price of such option. Further, the Agreement calls
for Herbalife to make certain loans (which may be forgiven under certain
circumstances) to the Principal Shareholder in the aggregate amount of
approximately $215 million (such series of transactions herein collectively
referred to as the "Transaction"). You have provided us with a copy of the
Agreement in substantially final form. We note that although the Principal
Shareholder controls a majority of the Class A and Class B common stock, the
Agreement provides for a condition to the Transaction that requires holders of
at least a majority of the outstanding shares of each class of Herbalife common
stock not owned by the Principal Shareholder to tender such shares in the Tender
Offer. The Agreement also provides for the right for holders of Class A and
Class B common stock to dissent and receive appraised value for their shares.
You have asked us to render our opinion as to whether the Consideration to
be Received is fair, from a financial point of view, to the shareholders of
Herbalife, excluding the Principal Shareholder.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed the Agreement;
- reviewed Herbalife's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1996 through 1998, and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999;
- reviewed certain operating and financial information, including
projections, provided to us by management relating to Herbalife's
business and prospects;
- met with certain members of Herbalife's senior management to discuss
Herbalife's business, operations, historical and projected financial
statements and future prospects;
- reviewed the historical prices, valuation parameters and trading volumes
of the Class A and Class B common stock of Herbalife;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which we deemed generally
comparable to Herbalife;
- reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Herbalife;
- performed discounted cash flow analyses based on the projections for
Herbalife furnished to us; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
<PAGE> 2
The Special Committee of the Board of Directors of
Herbalife International, Inc.
Page 2
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections provided to us by Herbalife. With respect to
Herbalife's projected financial results, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of Herbalife as to the expected future
performance of Herbalife. We have not assumed any responsibility for the
independent verification of any such information or of the projections provided
to us, and we have further relied upon the assurances of the senior management
of Herbalife that they are unaware of any facts that would make the information
and projections provided to us incomplete or misleading. In arriving at our
opinion, we have not performed or obtained any independent appraisal of the
assets or liabilities of Herbalife, nor have we been furnished with any such
appraisals.
We note that the Principal Shareholder owns a majority of the shares of
Class A and Class B common stock of Herbalife. We also note that the Principal
Shareholder has represented to us and to the Special Committee of the Board of
Directors of Herbalife (the "Special Committee") that he has no intention of
selling any of his holdings of Herbalife common stock. Accordingly, we have not
solicited, nor were we asked to solicit, third party acquisition interest in
Herbalife. We have assumed that the representations and warranties made in the
Agreement are true and that the Transaction (including the Merger) will be
completed in accordance with the terms of the Agreement. Our opinion is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof.
We have acted as a financial advisor to the Special Committee in connection
with the Transaction and have received a fee for such services. In the ordinary
course of business, Bear Stearns may actively trade the equity and debt
securities of Herbalife for our own account and for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is intended for the benefit and use of
the Special Committee and does not constitute a recommendation to the Special
Committee or any holders of Herbalife common stock as to whether to tender their
shares in the Tender Offer or how to vote in connection with the Merger. This
opinion does not address Herbalife's underlying business decision to pursue the
Transaction. This letter is not to be used for any other purpose, or reproduced,
disseminated, quoted to or referred to at any time, in whole or in part, without
our prior written consent; provided, however, that this letter may be included
in its entirety in any tender offer document or proxy statement to be
distributed to the holders of Herbalife common stock in connection with the
Transaction.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be Received is fair, from a financial point of
view, to the shareholders of Herbalife, excluding the Principal Shareholder.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ DAVIES B. BELLER
----------------------------------
Davies B. Beller
Senior Managing Director
2
