<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
HERBALIFE INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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<PAGE> 2
HERBALIFE LOGO
--------------------------------------------------------------------------------
HERBALIFE INTERNATIONAL, INC.
1800 Century Park East, Los Angeles, California 90067
Tel: (310) 410-9600; Fax: (310) 557-3929
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 27, 2000
The 2000 Annual Meeting of Shareholders (the "Meeting") of Herbalife
International, Inc., a Nevada corporation (the "Company"), will be held
beginning at 6:00 p.m. on Thursday, July 27, 2000 at the Beverly Hilton Hotel,
9876 Wilshire Boulevard, Beverly Hills, California, 90210, to consider and vote
on the following matters:
1. The election of six directors to serve on the Company's Board of
Directors; and
2. Such other business as may properly come before the Meeting or any
adjournment or postponement thereof.
May 31, 2000 has been fixed as the record date for shareholders entitled to
vote at the Meeting, and only holders of record of the Company's Class A Common
Stock at the close of business on that day will be entitled to receive notice
of, and to vote at, the Meeting. Each outstanding share of Class A Common Stock
is entitled to one vote on all matters to be voted on at the Meeting. Shares of
the Company's Class B Common Stock have no voting rights at the Meeting.
All shareholders are cordially invited to attend the Meeting. To ensure
your representation at the Meeting, whether or not you plan to attend, you are
urged to complete and promptly return the enclosed proxy, which is solicited by
the Board of Directors, in the return envelope provided. Returning your proxy
does not deprive you of your right to attend the Meeting and to vote your shares
of Class A Common Stock in person, should you desire to do so.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROBERT A. SANDLER
Robert A. Sandler
Secretary
Dated: June 26, 2000
PLEASE DATE, MARK AND SIGN THE ACCOMPANYING PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE FOR MAILING IN THE UNITED STATES.
<PAGE> 3
HERBALIFE INTERNATIONAL, INC.
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
JULY 27, 2000
VOTING INFORMATION
This Proxy Statement is first being mailed on or about June 26, 2000 to all
of the holders of shares of the voting common stock of Herbalife International,
Inc., a Nevada corporation (the "Company"), in connection with the solicitation
by the Company's board of directors (the "Board of Directors" or the "Board") of
proxies in the enclosed form to be used at the Annual Meeting of Shareholders to
be held on Thursday, July 27, 2000 beginning at 6:00 p.m. at the Beverly Hilton
Hotel, 9876 Wilshire Boulevard, Beverly Hills, California 90210, and at any
adjournment or postponement thereof (the "Meeting"), pursuant to the
accompanying Notice of Annual Meeting.
Pursuant to a recapitalization approved by the shareholders on December 11,
1997, the Company has two classes of common stock. They are the Class A Common
Stock, $0.01 par value per share (the "Class A Common Stock"), and the Class B
Common Stock, $0.01 par value per share (the "Class B Common Stock"). The Class
A Common Stock and the Class B Common Stock are collectively referred to in this
Proxy Statement as the "Common Stock." Class A Common Stock is entitled to one
vote per share on each matter submitted to vote at the Meeting. Class B Common
Stock has no voting rights at the Meeting.
Shares of Class A Common Stock, represented by a properly executed proxy,
will be voted as indicated on the proxy. The form of proxy accompanying this
Proxy Statement and the persons named therein as proxies have been approved by
the Board of Directors. Any proxy given pursuant to this solicitation is
revocable at any time prior to the voting at the Meeting by (1) delivering
written notice to the Secretary of the Company, (2) submitting a subsequently
dated proxy, or (3) attending the Meeting, withdrawing the proxy, and voting in
person.
It is proposed that, at the Meeting, action will be taken on the matters
set forth in the accompanying Notice of Annual Meeting and described in this
Proxy Statement. The Board of Directors knows of no other matters that may
properly be presented for action at the Meeting. If any other matters do
properly come before the Meeting, the persons named on the enclosed proxy will
have discretionary authority to vote thereon in accordance with their best
judgment.
When proxies in the form accompanying this Proxy Statement are returned
properly executed, the shares represented thereby will be voted as indicated
thereon, and, where a choice has been specified by the shareholder on the proxy,
the shares will be voted in accordance with the specification so made. The
expense of soliciting proxies, including the cost of preparing, assembling and
mailing the material submitted herewith, will be paid for by the Company. In
addition to solicitations by mail, directors, officers and regular employees of
the Company may solicit proxies personally or by telephone, mail or other means,
for which no compensation shall be paid other than their regular salary or other
usual compensation. Arrangements also will be made as appropriate with banks and
brokerage houses and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of Class A Common Stock held of
record by such persons, and the Company will, upon request, reimburse said
persons for their reasonable expenses in so doing.
At the close of business on May 31, 2000, the record date for the Meeting,
there were outstanding and entitled to vote at the Meeting 9,985,936 shares of
Class A Common Stock. Each share of Class A Common Stock outstanding on such
date entitles the shareholder of record to one vote on all matters submitted at
the Meeting.
The presence in person or by proxy of shareholders entitled to cast a
majority of all the votes entitled to be cast will constitute a quorum for the
transaction of business at the Meeting. Abstentions and broker non-votes will be
counted as shares that are present for purposes of determining the presence of a
quorum. There
<PAGE> 4
will be no cumulative voting for members of the Board of Directors. The six
nominees who receive the greatest number of votes cast will be elected to the
Board of Directors. Accordingly, abstentions and broker non-votes will not
affect the election of directors.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table lists, as of June 16, 2000, information as to the
beneficial ownership of Class A Common Stock and Class B Common Stock by (i)
each of the Company's directors and director -- nominees, (ii) the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers as indicated in the Summary Compensation Table under
"Compensation of Directors and Executive Officers -- Executive Compensation"
below, (iii) all directors and executive officers as a group, and (iv) each
person or entity believed by the Company to beneficially own more than five
percent (5%) of the Common Stock outstanding. In each instance, information as
to the number of shares owned and the nature of ownership has been provided by
the individuals identified or described and is not within the direct knowledge
of the Company.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF PERCENT OF SHARES OF PERCENT OF PERCENT OF
NAME AND ADDRESS OF CLASS A CLASS A CLASS B CLASS B COMMON
BENEFICIAL OWNER(1) COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK STOCK
------------------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Mark Hughes Family
Trust(2)(3)................... 6,271,001 57.7% 11,792,001 60.0% 59.2%
1800 Century Park East
Los Angeles, CA 90067
Christopher Pair(3)(4).......... 70,103 * 265,802 1.4% 1.2%
1800 Century Park East
Los Angeles, CA 90067
Michael E. Rosen(5)............. 113,751 1.1% 302,219 1.6% 1.4%
10445 Wilshire Blvd.
Los Angeles, CA 90024
Conrad Lee Klein(3)(4).......... 94,582 * 189,166 1.0% *
1800 Century Park East
Los Angeles, CA 90067
Robert A. Sandler(4)............ 68,331 * 156,665 * *
1800 Century Park East
Los Angeles, CA 90067
Timothy Gerrity(4).............. 64,082 * 168,166 * *
1800 Century Park East
Los Angeles, CA 90067
John Reynolds(3)................ 66,696 * 178,392 * *
1800 Century Park East
Los Angeles, CA 90067
Edward J. Hall(6)............... 18,665 * 57,329 * *
P.O. Box 407
Newport Beach, CA 92662
Alan Liker(4)................... 16,332 * 52,663 * *
150 South Doheny Drive
Beverly Hills, CA 90211
Christopher M. Miner(4)......... 14,198 * 49,997 * *
1800 Century Park East
Los Angeles, CA 90067
Francis X. Tirelli.............. 0 * 0 * *
2025 Garcia Avenue
Mountain View, CA 94043
Fidelity Management & Research
Company(7).................... 1,037,500 10.4% 2,010,500 10.8% 10.7%
82 Devonshire Street
Boston, MA 02109
All executive officers and
directors as a group (8
persons)(8)................... 460,044 4.4% 1,242,007 6.3% 5.6%
</TABLE>
2
<PAGE> 5
---------------
* Less than one percent (1%).
(1) To the Company's knowledge, the persons in this table have sole voting,
investment, and dispositive power, either directly or through one or more
entities controlled by such person, with respect to all shares of the Common
Stock shown as beneficially owned by them, subject to community property
laws where applicable.
(2) Includes 875,001 shares of Class A Common Stock and 999,999 shares of Class
B Common Stock issuable upon exercise of stock options which are exercisable
presently or within 60 days of this Proxy Statement. Also includes 5 million
shares of Class B Common Stock held by affiliates of the Trust that are
subject to forward purchase contracts with DECS(SM) Trust III, a Delaware
business trust. Pursuant to the terms of the forward purchase contracts,
such shares (or a portion thereof) or an equivalent amount of cash is
required to be delivered to DECS(SM) Trust III in February 2001 in order to
enable DECS(SM) Trust III to settle the DECS(SM) securities issued by that
entity. Until settlement of the DECS(SM), generally, the Trust's affiliates
retain any voting rights and the right to receive dividends with respect to
the Class B Common Stock. In addition, such shares have been pledged in
favor of DECS(SM) Trust III to secure the obligations under the forward
purchase contracts.
(3) The Mark Hughes Family Trust (the "Trust") has three co-trustees (each of
whom shall be referred to as a "Co-Trustee" and collectively as the
"Co-Trustees"): Messrs. Christopher Pair, Conrad Lee Klein and John
Reynolds. The Trust is a trust organized under the laws of the State of
California.
As a result of the death of Mark Hughes on May 21, 2000, the Trust
became irrevocable, Mark Hughes ceased to be sole trustee thereof, and the
Co-Trustees acquired voting and dispositive power over all the shares
formerly beneficially owned or controlled by Mr. Hughes. At the present
time, all decisions of the Trust are made by a majority of the three
Co-Trustees and no single Co-Trustee has the right, by himself, to take
action on behalf of the Trust unless authorized to do so by a majority of
the three Co-Trustees.
As set forth in this table, each of the Co-Trustees owns certain
securities of the Company in which the Trust has no interest.
(4) Consists of shares issuable upon exercise of stock options which are
exercisable presently or within 60 days of this Proxy Statement.
(5) Includes 102,498 shares of Class A Common Stock and 249,717 shares of Class
B Common Stock issuable upon exercise of stock options which are exercisable
presently or within 60 days of this Proxy Statement. Effective June 14,
2000, Mr. Rosen ceased to be employed by the Company and ceased to serve as
Executive Vice President and Chief Executive -- Corporate
Development/Marketing.
(6) Includes 16,332 shares of Class A Common Stock and 52,663 shares of Class B
Common Stock issuable upon exercise of stock options which are exercisable
presently or within 60 days of this Proxy Statement.
(7) Information based on Bigdough.com service report as of March 31, 2000.
(8) Includes an aggregate of 446,458 shares of Class A Common Stock and
1,214,839 shares of Class B Common Stock issuable upon exercise of stock
options which are exercisable presently or within 60 days of this Proxy
Statement.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is presently comprised of six members, all of whom
hold office after election until the next annual meeting of shareholders, or
until their respective successors are elected and qualified. Four of the
Company's current directors, Messrs. Pair, Klein, Hall and Miner, and two new
nominees, Messrs. Reynolds and Tirelli, are the nominees to be elected at the
Meeting to one year terms expiring in 2001. Except for Mr. Klein, who became a
director shortly after the death of Mark Hughes on May 21, 2000, all of the
Company's current directors were serving on the Board of Directors as of the
Company's last annual meeting.
3
<PAGE> 6
Each nominee has consented to being named in this Proxy Statement and to
serve if elected.
Directors are elected by a plurality of the votes cast. It is the intention
of the persons named in the enclosed form of proxy, unless authorization to do
so is withheld, to vote FOR the election of the six nominees listed below. If,
prior to the Meeting, any nominee should become unavailable for election, an
event that is not now anticipated by the Board of Directors, the proxies will be
voted for the election of such other person or persons as shall be determined by
the persons named in the enclosed form of proxy in accordance with their
judgment.
Biographical information follows for each person nominated and for three
executive officers of the Company. The table sets forth certain information
regarding these individuals (ages are as of June 16, 2000).
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Christopher Pair*................. 45 Director, President and Chief
Executive Officer
Conrad Lee Klein*................. 71 Director, Executive Vice
President, Chief Business Affairs
Officer
John Reynolds*.................... 66 Nominee
Edward J. Hall*(1)(2)............. 53 Director
Christopher M. Miner*(1)(2)....... 48 Director
Francis Tirelli*.................. 46 Nominee
Robert A. Sandler................. 56 Executive Vice President, General
Counsel and Secretary
Timothy Gerrity................... 49 Executive Vice President and Chief
Financial Officer
Brian L. Kane..................... 54 Executive Vice President, Chief
Operating Officer
</TABLE>
---------------
* Nominee
(1) Member of the Compensation Committee and the Stock Option Committee.
(2) Member of the Audit Committee, the Finance Committee and the Business
Development Committee. During the past year, Mr. Alan Liker, a director,
served on these committees. Mr. Liker is not a nominee for director at the
Meeting.
CHRISTOPHER PAIR joined us in March 1985 as Executive Assistant to the
President. From May 1991 to November 1996, Mr. Pair served as our Executive Vice
President -- International and Corporate Administration and Secretary. In
November 1996, he became our Executive Vice President and Chief Operating
Officer. In May 2000, he became Acting President and Chief Executive Officer and
in June 2000, he became President and Chief Executive Officer. Mr. Pair has been
one of our directors since May 1990, and prior to June of 2000 was our Corporate
Secretary. Mr. Pair is one of three Co-Trustees of the Mark Hughes Family Trust.
Prior to 1985, Mr. Pair served in various management positions with U.S.
Leasing, Raytheon Data Systems and Consolidated Foods. He is Vice-Chairman of
the Direct Selling Educational Foundation and serves on its Executive Committee.
Mr. Pair also is Vice-Chairman of the Board of Directors of the Direct Selling
Association, and is a member of its Executive and Finance Committee and its
Long-Range Planning Committee. In addition, he serves on the Board of Directors
of the Counsel for Responsible Nutrition and The American Herbal Products
Association, the Board of Directors and the Executive Committee of the Consumer
Healthcare Products Association, and he is a member of the CEO Council of The
World Federation of Direct Selling Associations. Mr. Pair received his B.S. and
M.B.A. degrees from the University of Redlands.
CONRAD LEE KLEIN served as outside counsel to the Company starting in 1983
until 1994 when he joined Herbalife in his present capacity as Executive Vice
President/Chief Business Affairs Officer. His duties involve major business
matters and contracts. Mr. Klein also provides assistance to the Legal
Department in transactional and litigation matters. Mr. Klein was appointed a
director in May 2000 and is a Co-Trustee of the Mark Hughes Family Trust. Mr.
Klein's former professional activities involved serving as a Captain in the Air
Force (Res.) JAG Department, Counsel to California's State Labor Commissioner,
California Deputy Attorney General, General Counsel for the California Horse
Racing Board and Counsel to the California
4
<PAGE> 7
State Medical Board. Mr. Klein received a B.S. and a J.D. from New York
University and an L.L.M. from the University of Southern California.
JOHN REYNOLDS has been Chairman of the Board of Harris Steel & Copper
Incorporated since 1996, and a director of Tatum Petroleum Corporation since
1986. Mr. Reynolds founded Keyline Sales Incorporated in 1974, a sales and
marketing agency in the plumbing industry. Mr. Reynolds was President and CEO of
Keyline from its inception to his departure in 1997. Mr. Reynolds is the father
of the late Mark Hughes and is a Co-Trustee of the Mark Hughes Family Trust.
EDWARD J. HALL, a certified public accountant, is an independent investor.
From April 1995 through November 1998, he served as the Chief Financial Officer
of Cruttenden Roth Incorporated, an investment banking firm. He served in a
similar capacity for H.J. Meyers & Co., Inc. an investment banking firm based in
Beverly Hills, California from March 1991 through March 1995. From 1988 through
1990, Mr. Hall was an Executive Vice President of Angeles Corporation, an
investment management firm. Prior to joining Angeles Corporation, Mr. Hall was
with Deloitte & Touche LLP, where he had been an audit partner since 1980. Mr.
Hall was elected a director of the Company in March 1992.
CHRISTOPHER M. MINER has served as a business advisor to a number of
companies and private investors during the past several years, including Redfish
Telemetrix, Inc., a telecommunications company, where he served as CEO and CFO
from May 1997 to December 1999. He has served as Chief Financial Officer of Wow!
Laboratories, Inc., an oral healthcare company, from July 1996 to December 1998.
Mr. Miner co-founded Vis-A-Vis Communications, Inc. (formerly Workstation
Technologies, Inc.) in 1989. Vis-A-Vis is a developer of interactive
communications software and hardware products. Prior to founding Vis-A-Vis
Communications, from 1987 to 1989, Mr. Miner served as the Chief Financial
Officer of Technology Marketing, Inc., a custom electronic engineering
organization and board level test product manufacturer. Before joining
Technology Marketing, he served as the Chief Financial Officer and Director for
Media Systems Technology, Inc., a software manufacturer, from 1981 to 1987. Mr.
Miner received his M.B.A. from California State University in 1976. He was
elected a director of the Company in March 1996.
FRANCIS TIRELLI has been the Chief Operating Officer of the Professional
Services Group of myCFO, an Internet-based financial services firm, since
October 1999. Mr. Tirelli served since 1978 at Deloitte & Touche LLP and since
September 1997 was regional managing partner for Deloitte's western region. Mr.
Tirelli served on the management committee and board of directors for Deloitte &
Touche prior to his departure. He is a member of several accounting societies,
including the American Institute of Certified Public Accountants, the
Connecticut Society of Certified Public Accountants, and the California Society
of Certified Public Accountants. He holds a B.S. in business administration from
Boston College and an M.B.A. from Babson College.
ROBERT A. SANDLER joined us in January 1997 as our Executive Vice President
and General Counsel. In June 2000 he became our Corporate Secretary. From 1975
to the present, Mr. Sandler has been a member of Sandler & Morse, a law firm
that he co-founded. From 1985 to 1994, Mr. Sandler served in various capacities
with various companies within the Siemens family of companies, including most
recently as the Executive Vice President and General Counsel of Siemens
Pacesetter. He received his A.B. degree from the University of California, Los
Angeles and his J.D. degree from the University of Southern California.
Currently, Mr. Sandler is a director of Physic-Control, a manufacturer of
external defibrillators.
TIMOTHY GERRITY joined us in May 1985, and he currently serves as our
Executive Vice President and Chief Financial Officer. Mr. Gerrity, a certified
public accountant, is responsible for our worldwide finance, accounting, tax,
treasury and investor relations. His previous experience includes various
management positions with Wickes Corporation, Deloitte & Touche LLP and Fluor
Corporation. Mr. Gerrity recently was appointed a member of the Finance
Committee of the Direct Selling Association. He received his B.S. degree from
California State University at Northridge and his M.B.A. degree from the
University of Southern California.
BRIAN L. KANE joined us in 1993 as Vice President of our European
operations. In 1995, Mr. Kane became a Senior Vice President-Worldwide
Distribution and served in that position until June 2000, when he was appointed
as Executive Vice President, Chief Operating Officer of the Company. Mr. Kane
has a Ph.D. in Chemistry from Birmingham University in England, and is a Fellow
of the Institute of Marketing (UK). Mr. Kane began his career with Proctor &
Gamble and subsequently held senior management positions in health care and
consumer products with Richardson-Vicks, Hobson plc and Bristol-Myers Squibb.
5
<PAGE> 8
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 6 meetings and acted by unanimous written
consent on 4 occasions during the fiscal year ended December 31, 1999.
The Board has five standing committees: (1) the Audit Committee,
established in March 1992; (2) the Compensation Committee, established in August
1991; (3) the Stock Option Committee, established in September 1991; (4) the
Finance Committee, established in February 1994; and (5) the Business
Development Committee, established in April 1994.
The Audit Committee recommends engagement of the Company's independent
accountants, approves the services performed by such accountants, and reviews
and evaluates the Company's accounting systems and its system of internal
accounting controls.
The Compensation Committee makes recommendations to the full Board of
Directors regarding levels and types of compensation of the Company's executive
officers. In addition, the Compensation Committee administers the 1994
Performance-Based Annual Incentive Compensation Plan (the "1994 Plan") and, in
conjunction with the Chief Executive Officer, the 1992 Executive Incentive
Compensation Plan (the "1992 Plan"). See "Compensation of Directors and
Executive Officers -- Executive Compensation -- Description of Certain Plans."
The Stock Option Committee administers the Company's Amended and Restated
1991 Stock Option Plan. See "Compensation of Directors and Executive
Officers -- Executive Compensation -- Description of Certain Plans."
The Finance Committee reviews certain aspects of the cash management
systems of the Company.
The Business Development Committee develops and investigates the Company's
financing alternatives, tax planning structures and expansion opportunities.
In 1999, the Audit Committee, the Compensation Committee, the Stock Option
Committee, the Finance Committee and the Business Development Committee met on
4, 10, 0, 4 and 0 occasions, respectively. In 1999, the Audit Committee, the
Compensation Committee, the Finance Committee and the Business Development
Committee acted by unanimous written consent on 0, 0, 2, 0 and 0 occasions,
respectively. In 1999, all directors attended at least 75% of the aggregate
number of Board and committee meetings held during the period of his service.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Each director who is not one of our officers or consultants receives
$45,000 per year for his services as a director, plus (1) $5,000 per year for
each committee of our Board on which he serves or (2) $10,000 if he serves as
chairman of a committee. Any outside directors serving on the board of directors
of any of our foreign subsidiaries are paid fees of $2,500 annually for each
foreign subsidiary board on which they serve. Directors who also are officers
receive no separate compensation for their services as directors.
From September 1999 through April 2000 Messrs. Hall and Miner served on a
Special Committee of the Board of Directors established in connection with the
going-private transaction proposed by Mr. Hughes in September 1999 and
terminated in April 2000 due to difficult conditions in the credit markets. In
addition to their normal directors fees, they each received $95,000 for serving
on the Special Committee. The Special Committee was terminated in April 2000.
6
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the annual and
long-term compensation of our Chief Executive Officer and four additional most
highly compensated executive officers for the fiscal year ended December 31,
1999 (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
--------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING PAYOUTS ALL OTHER
NAME AND COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) AWARD(S)($) SARS(#) PAYOUTS($) ($)(3)
------------------ ---- ---------- ----------- ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark Hughes(4)............ 1999 $1,000,056 $9,550,000 $240,300 -- $187,019
Former President, Chief 1998 1,000,011 4,500,000 -- -- 375,000 -- 129,013
Executive Officer 1997 1,000,012 6,757,563 -- -- 1,000,000 -- 126,237
and Chairman of the
Board
Christopher Pair(5)....... 1999 $1,000,000 $1,838,000 $115,000 -- 129,439 -- $399,525
Former Executive Vice
President 1998 1,098,558 920,000 -- -- 150,000 -- 227,483
and Chief Operating
Officer 1997 894,615 896,000 -- -- 200,000 -- 216,426
Michael E. Rosen(6)....... 1999 $1,000,001 $1,314,500 $715,000 -- 29,439 -- $297,415
Former Executive Vice
President,............ 1998 896,154 630,000 600,000 -- 150,000 -- 128,080
Chief Executive
Corporate 1997 694,616 784,000 600,000 -- 150,000 -- 107,220
Marketing and Corporate
Development
Robert A. Sandler......... 1999 $ 800,000 $ 643,998 $ 60,000 -- -- -- $100,679
Executive Vice President 1998 697,115 360,000 -- -- 50,000 -- 96,660
and General Counsel 1997 492,884 448,000 -- -- 325,000 -- 48,022
Timothy Gerrity........... 1999 $ 700,000 $ 966,000 $ 60,000 -- -- -- $ 92,200
Executive Vice President 1998 548,692 540,000 -- -- 100,000 -- 81,441
and Chief Financial
Officer 1997 447,308 672,000 -- -- 75,000 -- 84,877
</TABLE>
---------------
(1) The 1999, 1998 and 1997 amounts include bonuses earned under the 1994
Performance-Based Annual Incentive Compensation Plan (the "1994 Plan"). See
"-- Description of Benefit Plans -- 1994 Performance-Based Annual Incentive
Compensation Plan." The 1999 amount for Mr. Rosen excludes an aggregate of
$1,077,500 in bonuses paid in 1999 pursuant to individual performance goals
established under the 1994 Plan; such amounts were previously reported as
earned by Mr. Rosen pursuant to a deferred compensation arrangement with
him.
(2) The listed amounts for 1997 and 1998 reflect deferred compensation pursuant
to a Deferred Compensation Agreement between us and Mr. Rosen. See
"-- Employment Contracts and Change in Control Arrangements." For 1999, the
listed amounts represent payments for car allowances for Mr. Hughes, Mr.
Pair, Mr. Sandler and Mr. Gerrity. In the case of Mr. Rosen, the listed
amount for 1999 represents payments for a car allowance in the amount of
$115,000 and earned deferred compensation in the amount of $600,000.
(3) For 1999, these amounts represent payments under the 401(k) Tax-Sheltered
Savings Plan, Executive Medical Plan, Executive Long Term Disability Plan,
Executive Life Insurance Plan and Deferred Compensation Plan. The amount
with respect to the 401(k) Tax-Sheltered Savings Plan was $4,800 for each of
Mr. Pair, Mr. Rosen, Mr. Sandler and Mr. Gerrity. The amount with respect to
the Executive Medical Plan was $7,136 for each of Mr. Hughes, Mr. Pair, Mr.
Rosen, Mr. Sandler and Mr. Gerrity. Amounts with respect to the Executive
Long Term Disability Plan were $2,960, $10,317, $8,587, $2,960 and $5,337
for Mr. Hughes, Mr. Pair, Mr. Rosen, Mr. Sandler and Mr. Gerrity,
respectively. Amounts with respect to the Executive Life Insurance Plan were
$200,349, $99,969, $5,783 and $4,927 for Mr. Pair, Mr. Rosen, Mr. Sandler
and Mr. Gerrity, respectively. Amounts with respect to the Deferred
Compensation Plan were $176,923, $176,923, $176,923, $80,000 and $70,000 for
Mr. Hughes, Mr. Pair, Mr. Rosen, Mr. Sandler and Mr. Gerrity, respectively.
(4) Mr. Hughes died on May 21, 2000.
(5) Mr. Pair became Acting President and Chief Executive Officer effective May
22, 2000, and then became President and Chief Executive Officer effective
June 6, 2000.
(6) Effective June 14, 2000, Mr. Rosen ceased to be employed by the Company and
ceased to serve as Executive Vice President and Chief Executive -- Corporate
Development/Marketing.
7
<PAGE> 10
(2) OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth
grants of options to purchase shares of Class A Stock ("Class A Stock Options")
and options to purchase shares of Class B Stock ("Class B Stock Options") during
the fiscal year ended December 31, 1999 to the Named Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE GRANT DATE
OPTIONS IN FISCAL OR BASE EXPIRATION PRESENT
NAME GRANTED(#)(1) YEAR(%) PRICE($/SH)(2) DATE VALUE($)(3)
---- ------------- ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Mark Hughes
Class A......................... -- -- -- -- --
Class B......................... -- -- -- -- --
Christopher Pair
Class A......................... -- -- -- -- --
Class B......................... 129,439 65.37% $8.625 4/15/09 $381,580
Michael E. Rosen
Class A......................... -- -- -- -- --
Class B......................... 29,439 14.87% $8.625 4/15/09 $ 86,785
Robert A. Sandler
Class A......................... -- -- -- -- --
Class B......................... -- -- -- -- --
Timothy Gerrity
Class A......................... -- -- -- -- --
Class B......................... -- -- -- -- --
</TABLE>
---------------
(1) Options granted in 1999 to Christopher Pair and Michael Rosen are
exercisable in cumulative 50% installments commencing one year from date of
grant, with full vesting occurring on the second anniversary.
(2) We granted all options based on the closing price for our Common Stock, as
reported on the Nasdaq National Market.
(3) In accordance with the rules of the Securities and Exchange Commission, we
used the Black Scholes option pricing model to estimate the grant date
present value of the options set forth in this table. We cannot predict or
estimate the future price of our Common Stock, and no option pricing model,
including the Black Scholes model, can accurately determine the value of an
option. Accordingly, we cannot assure you that the value realized by an
officer, if any, will be at or near the value estimated in accordance with
the Black Scholes model. The assumptions that we used for the valuation
include: 59.78% price volatility; 5.08% weighed average risk free rate of
return; 5.5% dividend yield and options exercises averaging 3.4 year term.
We did not make any adjustment for non-transferability or risk of
forfeiture.
(3) AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES. The following table sets forth information with respect to: (1)
shares of Common Stock acquired on exercise of
8
<PAGE> 11
Class A Stock Options and Class B Stock Options in 1999 and (2) unexercised
options to purchase shares of Class A Stock or Class B Stock that we granted in
fiscal 1999 and prior years.
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark Hughes
Class A................... -- -- 308,331 566,670 1,965,610 3,612,521
Class B................... -- -- 466,663 533,336 3,149,975 3,600,018
Christopher Pair
Class A................... -- -- 61,369 33,106 391,227 211,051
Class B................... -- -- 152,966 365,453 1,032,521 2,207,930
Michael E. Rosen
Class A................... -- -- 99,165 23,335 656,656 148,761
Class B................... -- -- 228,331 196,108 1,541,234 1,264,851
Robert A. Sandler
Class A................... -- -- 48,331 60,002 308,110 382,513
Class B................... -- -- 106,665 160,002 719,989 1,080,014
Timothy Gerrity
Class A................... -- -- 56,499 28,501 368,775 181,694
Class B................... -- -- 132,999 137,001 897,743 924,757
</TABLE>
---------------
(1) Represents the difference between the market price of our Common Stock on
December 31, 1999 and the exercise price of the options.
(4) DESCRIPTION OF BENEFIT PLANS.
1994 Performance-Based Annual Incentive Compensation Plan. We maintain the
1994 Plan (1) to provide additional compensation as an incentive to some key
executives and consultants to attain the specified performance objectives of
Herbalife and our subsidiaries and affiliated corporations and (2) to ensure the
continued availability of their full-time or part-time services to us.
Specifically, the individuals entitled to participate in the 1994 Plan are those
Herbalife executive officers and consultants determined by the Compensation
Committee of our Board of Directors (the "Compensation Committee"), which acts
as administrator of the 1994 Plan.
The amount of an available award to a participant or the aggregate amount
of available awards to all participants for each award period is determined by
the Compensation Committee based upon an objective computation (the "Formula")
of our actual performance relative to pre-established performance goals. The
performance goals included in the Formula for each award period are selected by
the Compensation Committee from among the following performance measures: (1)
level of retail sales, in the aggregate or for a particular category or
categories of retail sales; (2) net cash flow; (3) net income; (4) operating
income; (5) earnings per share; (6) return on sales; (7) reduction in
expenditure levels for a particular category or categories of expenses versus a
prior period; (8) return on total capital; (9) return on equity; and (10)
increase in the price of our Common Stock over a specified time period. No
participant is ever entitled to earn in excess of $10 million under the 1994
Plan with respect to any single calendar year. With respect to participants
whose service relationship terminates during an award period, the Compensation
Committee provides for prorated awards based upon satisfaction of performance
goals for the entire award period, with the proration formula to be set by the
Compensation Committee in its discretion.
Awards granted pursuant to the 1994 Plan may be made (1) in cash, (2)
through the issuance of shares of Class A Stock or Class B Stock, or (3) through
a combination of either of these methods. The total number of shares of Common
Stock that may be issued under the 1994 Plan in any fiscal year may not exceed
5% of the number of issued and outstanding shares of Common Stock at the
beginning of the prior fiscal year. The
9
<PAGE> 12
Compensation Committee may, in its discretion and subject to the consent of each
affected participant, approve the advance of all or a portion of a target cash
award to a participant prior to the conclusion of an award period. Each advance,
if made, is a full recourse obligation of the participant and bears interest
from the date of the advance until repaid or deemed earned at the applicable
Federal rate, as specified in the 1994 Plan, for loans of a comparable term.
1992 Executive Incentive Compensation Plan. In 1992, our Board adopted the
Herbalife International, Inc. 1992 Amended and Restated Executive Incentive
Compensation Plan (the "1992 Plan"). Eligible participants under the 1992 Plan
consist of our executive vice presidents, vice presidents, country managers and
other executive officers and key employees (other than our Chief Executive
Officer and President) and consultants as designated by our Chief Executive
Officer in conjunction with the Compensation Committee, which administers the
1992 Plan.
The 1992 Plan provides for the payment of bonuses to participants for each
year that the 1992 Plan is in effect. Awards are made to participants based upon
the extent to which corporate performance goals and individual performance goals
(set in advance by our Chief Executive Officer together with, in the case of
corporate performance goals, the Compensation Committee) are met. To be eligible
for payment with respect to a particular award period, a participant is required
to be employed by us on the last day of the award period, subject to specified
exceptions. Awards granted pursuant to the 1992 Plan may be made (1) in cash,
(2) through the issuance of shares of Class A Stock or Class B Stock, or (3)
through a combination of either of these methods. The total number of shares of
Common Stock that may be issued under the 1992 Plan in any fiscal year may not
exceed the excess of (1) 5% of the number of issued and outstanding shares of
Common Stock at the beginning of the prior fiscal year over (2) the number of
shares of Common Stock issued during the prior fiscal year pursuant to the 1994
Plan.
1991 Option Plan. The purpose of our Amended and Restated 1991 Stock Option
Plan (the "Option Plan") is to secure for us and our stockholders the benefits
arising from stock ownership by key employees, directors, consultants and other
persons selected by the Stock Option Committee of our Board of Directors (the
"Stock Option Committee"), which administers the Option Plan. As of December 31,
1999, approximately 150 persons were eligible to participate in the Option Plan.
Options granted under the Option Plan may be designated as (1) "incentive
stock options" for federal income tax purposes or (2) options that are not
qualified for this treatment, or "non-qualified stock options." All options
granted under the Option Plan are non-transferable (except that limited estate
planning and similar transfers of non-qualified stock options are permitted) and
are exercisable in installments determined by the Stock Option Committee, except
that each option is to be exercisable in minimum annual installments of 20%
commencing with the first anniversary of the option's grant date. Each option
granted has a term specified in the option agreement, but all options expire no
later than ten years from the date of grant. Incentive stock options granted to
a person holding more than 10% of the total voting power of our capital stock
must expire within five years from the date of grant.
In the case of incentive stock options, the exercise price must be at least
equal to 100% of the fair market value of our Common Stock on the date the
option is granted. The exercise price for incentive stock option grants to a
person holding more than 10% of the total voting power of our capital stock must
equal 110% of the fair market value of our Common Stock. The exercise price of a
non-qualified option need not be equal to the fair market value of our Common
Stock at the date of grant, but may be granted with any exercise price that is
not less than 85% of fair market value at the time the option is granted, as the
Stock Option Committee may determine.
Deferred Compensation Plans. We maintain three deferred compensation plans
for select groups of management or highly compensated employees: (1) the
Herbalife Management Deferred Compensation Plan, effective January 1, 1996 (the
"Management Plan"), which is applicable to directors and vice presidents; (2)
the Herbalife Senior Executive Compensation Plan, effective January 1, 1996 (the
"Senior Executive Plan"), which is applicable to eligible employees at the rank
of Senior Vice President and higher; and (3) the Herbalife International of
America, Inc. Executive Officer Deferred Compensation Plan. The Management Plan
and the Senior Executive Plan are referred to below as the "Deferred
Compensation Plans." The
10
<PAGE> 13
Executive Officer Deferred Compensation Plan is described below under
"Employment Contracts and Change in Control Arrangements."
The Deferred Compensation Plans are unfunded and their benefits are paid
from our general assets, except that we have contributed amounts to a "rabbi
trust" whose assets will be used to pay benefits if we remain solvent, but can
be reached by our creditors if we become insolvent. The Deferred Compensation
Plans allow eligible employees, who are selected by the administrative committee
that manages and administers the plans (the "Deferred Compensation Committee"),
to elect annually to defer up to 50% of their annual base salary and up to 100%
of their annual bonus for each calendar year (the "Annual Deferral Amount"). We
make matching contributions on behalf of each participant in the Senior
Executive Plan ("Herbalife Matching Contributions") of 100% of the amount
deferred by each participant from the participant's annual base salary, up to
(1) 15% of the participant's annual base salary in the case of a participant who
is an Executive Vice President, (2) 12.5% of the participant's annual base
salary in the case of a participant who is a Senior Vice President, and (3) 10%
(or such greater percentage, not to exceed 15%, that the Deferred Compensation
Committee may determine in the case of any particular participant) of the
participant's annual base salary in the case of any other participant.
Furthermore, our Compensation Committee may designate any participant to receive
an Herbalife Matching Contribution of 20% of his or her annual base salary if
the Annual Deferral Amount of such designated participant equals or exceeds 10%
of such designated participant's annual base salary. Our Compensation Committee
has designated Messrs. Hughes, Rosen and Pair to receive the enhanced Herbalife
Matching Contributions.
Each participant in a Deferred Compensation Plan may determine how his or
her Annual Deferral Amount and Herbalife Matching Contributions (if any) will be
deemed to be invested by choosing among several investment funds or indices
designated by the Deferred Compensation Committee. The Deferred Compensation
Plans, however, do not require us actually to acquire or hold any investment
fund or other assets to fund the Deferred Compensation Plans. The entire
interest of each participant in a Deferred Compensation Plan is always fully
vested and nonforfeitable. 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
two 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
specified 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 (1) is determined by the Deferred
Compensation Committee to have incurred permanent and total disability or (2)
dies or otherwise terminates employment with us.
Retirement Plan. We adopted, effective September 1997, a Supplemental
Executive Retirement Plan (the "Retirement Plan") providing retirement benefits
for a select group of management and highly compensated employees. The
Retirement Plan is unfunded and its benefits are paid from our general assets,
except that we have contributed amounts to a "rabbi trust" whose assets will be
used to pay benefits if we remain solvent, but can be reached by our creditors
if we become insolvent. The normal retirement benefit under the Retirement Plan
is 60 quarterly installment payments commencing at age 65, each of which equals
one-quarter of 1.75% of "compensation" times the number of years of service, up
to 20 years. The term "compensation" for this purpose means the average yearly
base compensation of the five calendar years within the last 10 years of
employment that would yield the highest average. A participant may elect at any
time to receive a lump sum equal to 90% of the actuarial equivalent of his or
her vested benefits under the Retirement Plan, in which case the participant
will forfeit his or her remaining benefits under such plan and cease to
participate in such plan.
A participant who reaches the "early retirement date" may choose to retire
and to receive an early retirement benefit equal to the normal retirement
benefit. A participant who becomes disabled will receive a benefit equal to his
normal retirement benefit. A participant generally reaches his or her early
retirement date when he or she completes 10 years participation in the plan and
reaches age 55. An employee whose employment with us terminates before he or she
reaches early retirement date will receive the actuarial equivalent of his or
her vested benefits paid in a lump sum within 90 days of the termination. Upon a
change in
11
<PAGE> 14
control of Herbalife, a participant will receive a lump sum payment equal to (1)
the actuarial equivalent of the normal retirement benefit, or (2) if payment of
benefits has begun, the actuarial equivalent of the remaining quarterly
installments. A participant becomes fully vested in his or her interest in the
Retirement Plan on his or her normal or early retirement date, death, or
disability, or upon a change in control of Herbalife. If a participant's
employment is terminated for cause, we have the discretion to reduce his or her
vested benefit to zero. In all other cases, we determine a participant's vested
interest as follows:
<TABLE>
<CAPTION>
VESTED
YEARS OF PARTICIPATION IN PLAN PERCENTAGE
------------------------------ ----------
<S> <C>
less than 5....................... 0%
5............................ 20
6............................ 40
7............................ 60
8............................ 80
9............................ 100
</TABLE>
The administrator of the Retirement Plan has the discretion to credit a
participant with additional years of service as of his or her commencement of
participation in the Retirement Plan.
For illustration purposes only, the following table provides examples of
the annual benefit payable under the Retirement Plan beginning at age 65.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
COMPENSATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 32,813 $ 43,750 $ 43,750 $ 43,750 $ 43,750
150,000 39,375 52,500 52,500 52,500 52,500
175,000 45,938 61,250 61,250 61,250 61,250
200,000 52,500 70,000 70,000 70,000 70,000
225,000 59,063 78,750 78,750 78,750 78,750
250,000 65,625 87,500 87,500 87,500 87,500
300,000 78,750 105,000 105,000 105,000 105,000
400,000 105,000 140,000 140,000 140,000 140,000
450,000 118,125 157,500 157,500 157,500 157,500
500,000 131,250 175,000 175,000 175,000 175,000
600,000 157,500 210,000 210,000 210,000 210,000
700,000 183,750 245,000 245,000 245,000 245,000
800,000 210,000 280,000 280,000 280,000 280,000
900,000 236,250 315,000 315,000 315,000 315,000
1,000,000 262,500 350,000 350,000 350,000 350,000
1,100,000 288,750 385,000 385,000 385,000 385,000
1,200,000 315,000 420,000 420,000 420,000 420,000
</TABLE>
Messrs. Hughes, Pair, Rosen, Sandler and Gerrity have 20, 14, 9, 3 and 14
years of participation, respectively. "Compensation" covered by the Retirement
Plan is equal to the amounts set forth in "Summary Compensation Table" under the
heading "Salary."
401(k) Profit Sharing Plan. We maintain a tax-qualified profit sharing plan
pursuant to Sections 401(a) and 401(k) of the Code (the "401(k) Plan"). The
401(k) Plan allows any eligible employee, including specified common-law
employees, to contribute each pay period from 2% to 17% of the employee's
earnings (but not in excess of $10,500 per year, as adjusted for increases in
the cost of living after 2000) for investment in mutual funds held by the 401(k)
Plan's trust. We make contributions to the 401(k) Plan in an amount equal to 3%
of the earnings of each employee who elects to defer 2% or more of his or her
earnings. The 401(k) Plan also imposes restrictions on the aggregate amount that
may be contributed by higher-paid employees in relation to the amount
contributed by the remaining employees. A participating employee is fully
12
<PAGE> 15
vested at all times in his or her contributions and in the trust fund's earnings
attributable to his or her contributions. The employee has no vested interest in
our contributions and earnings of the trust fund attributable to our
contributions until he or she completes three years of service with us, and the
employee is not fully vested in our contributions and earnings of the trust fund
attributable to our contributions until he or she has completed seven years of
service with us. However, an employee becomes fully vested in our contributions
and earnings of the trust fund attributable to our contributions (1) upon the
employee's death, (2) upon the employee's disability, or (3) upon the employee
reaching the 401(k) Plan's normal retirement age, which is the latter of age 65
and the completion of five years of service with us. An employee may not
withdraw all or any portion of his or her account prior to the date that the
employee either (1) incurs a hardship or (2) terminates employment with us.
Executive Medical Plan. The Executive Medical Plan is an insured hospital
and medical reimbursement plan covering executives and key employees and their
dependents during the executive's or employee's employment by us. The Executive
Medical Plan provides coverage of medical expenses incurred beyond our basic
plan. For the fiscal year ended December 31, 1999, the Executive Medical Plan's
cost to us was approximately $36,000.
Executive Long-Term Disability Plan. The Executive Long-Term Disability
Plan is an insured disability plan covering executives and key employees. It
provides for extended disability insurance for its participants with premiums
paid by us. For the fiscal year ended December 31, 1999, the Executive Long-Term
Disability Plan's cost to us was approximately $30,000.
Executive Life Insurance Plan. The Executive Life Insurance Plan covers
executives and key employees and provides for life insurance benefits in excess
of those available under our basic plan. Premiums are paid by us. For the fiscal
year ended December 31, 1999, the Executive Life Insurance Plan's cost to us was
approximately $311,000.
(5) EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS. Effective as
of August 9, 1994, we entered into a Deferred Compensation Agreement with Mr.
Rosen, pursuant to which Mr. Rosen received $600,000 in cash deferred
compensation from us on each of the first five anniversary dates of such
Deferred Compensation Agreement. Mr. Rosen's right to receive such deferred
compensation is subject to our right to delay payment until our deduction for
the payment would no longer be disallowed under Section 162(m) of the Code. We
have amended and restated the Deferred Compensation Agreement in its entirety as
the Herbalife International of America, Inc. Executive Officer Deferred
Compensation Plan, (the "Executive Officer Plan"), effective as of January 1,
1998, to make the following changes: (1) deferred amounts will bear interest at
a rate equal to the current general account crediting rate on SunLife of
Canada's corporate universal life product effective on January 1st of each year;
(2) we will contribute amounts to a "rabbi trust" whose assets will be used to
pay benefits if we remain solvent, but can be reached by our creditors if we
become insolvent; and (3) Mr. Rosen may elect to receive payments in the form of
installments payable over five years or 10 years, but may receive 90% of the
unpaid balance at any time, provided that the payment would be deductible to us
and provided that he would forfeit the remaining 10% of the unpaid balance.
(6) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During
1999, the Compensation Committee consisted of Messrs. Edward Hall and
Christopher Miner.
(7) COMPENSATION COMMITTEE REPORT
The Company's executive compensation programs are administered by the
Compensation Committee and, to the extent summarized below, the Company's Chief
Executive Officer.
The compensation policy of the Company is designed to motivate the overall
success of the Company by:
- Attracting, retaining and rewarding highly qualified and productive
individuals;
- Delivering a significant portion of compensation through
performance-based incentives;
- Directly relating incentive compensation to overall Company and
individual performance; and
13
<PAGE> 16
- Encouraging executive stock ownership to align the interests of
management with those of shareholders.
Base Salary and Annual Incentive Compensation
The base salary of the Chief Executive Officer is established through
negotiations between the Compensation Committee and Mr. Hughes. For 1999, in
order to preserve the tax deductibility of his compensation by the Company, Mr.
Hughes agreed to maintain his base salary at approximately $1,000,000. See the
Summary Compensation Table under "Compensation of Directors and Executive
Officers -- Executive Compensation." Base salaries for each of the other Named
Officers were established through negotiations between Mr. Hughes and each Named
Officer. See "-- Employment Contracts and Change in Control Arrangements."
In setting Mr. Hughes' annual salary and target incentive compensation for
1999, the Compensation Committee considered numerous factors, including Mr.
Hughes' cash compensation relative to that of the Company's leading distributors
and Mr. Hughes' unique role as the preeminent personality in the selling of the
Company's products, the motivation of the sales organization and the formulation
of sales promotional programs. The Compensation Committee provided an
opportunity for Mr. Hughes to earn incentive compensation for 1999 based
strictly upon a formula performance measure adopted in accordance with the 1994
Plan.
During 1999, the Compensation Committee utilized an earnings per share
formula to establish target awards under the 1994 Plan and, with respect to
Messrs. Hughes, Pair and Rosen, a sales-based formula, subject to maximum award
amounts in the case of each participant and discretionary authority to reduce
awards in the case of certain of the Named Officers. See "-- Description of
Certain Plans -- 1994 Performance-Based Annual Incentive Compensation Plan." The
Company met the earnings per share and sales thresholds for 1999 (except with
respect to one of the Named Officers for the second quarter), and as a result
bonuses were earned by the Named Officers for the past fiscal year.
Long-Term Incentive Plans
Executives of the Company are encouraged to own shares of the Common Stock,
thereby aligning the interests of management with those of shareholders and
tying a significant portion of executive compensation to long-term market
performance. The vesting schedules for stock options are set by the Stock Option
Committee. All options granted to executive officers have had an exercise price
equal to 100% of fair market value on the date of grant. Beginning in 1996, the
Stock Option Committee began to grant stock options under the Option Plan to Mr.
Hughes, in order to provide him with an additional incentive to promote the
success of the Company. The Compensation Committee and the Stock Option
Committee believe that the use of stock options to provide incentive
compensation to Mr. Hughes is appropriate and advisable, since stock options
further align Mr. Hughes' compensation with public shareholders' interests while
minimizing the use of cash resources.
Tax Issues
For 2000 and later years, the Compensation Committee intends to continue to
seek to structure executive compensation arrangements to preserve the
deductibility of Named Officer compensation under applicable federal and state
income tax laws, including the Omnibus Budget Reconciliation Act of 1993, while
also taking into account the need to provide appropriate incentives to the
Company's key executives. However, no assurance can be given that the Company
will preserve the deductibility of all executive compensation.
COMPENSATION COMMITTEE
Edward J. Hall
Christopher M. Miner
June 26, 2000
14
<PAGE> 17
(9) PERFORMANCE GRAPH
The graph set forth below shows the value of an investment of $100 on
December 31, 1994 in each of (1) the Class A Common Stock, (2) the Nasdaq
Composite Index and (3) a designated peer group (the "Peer Group"). All values
assume the reinvestment of any dividends and are calculated as of December 31st
of each year.
The Peer Group is comprised of publicly traded companies possessing the
following characteristics similar to those of the Company:
- Size, as measured by net sales;
- Similarity in selling methodology;
- Distribution of comparable products, including the distribution of weight
control products, health and nutritional supplements, and skin, hair or
other personal care products;
- Relatively high insider ownership; and/or
- Particular emphasis on the talents and visibility of the chief executive
officer.
Companies included in the Peer Group are: Beauticontrol Cosmetics, Inc.;
Nature's Sunshine Products, Inc.; Avon Products; Premark International, Inc.;
Amway Japan; and Amway Asia Pacific.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
THE COMPANY, THE NASDAQ COMPOSITE INDEX AND THE PEER GROUP*
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
HERBALIFE - CLASS A STOCK
COMMON STOCK NASDAQ COMPOSITE INDEX PEER GROUP
------------------------- ---------------------- ----------
<S> <C> <C> <C>
12/31/94 100 100 100
12/31/95 55 141 127
12/31/96 216 174 161
12/31/97 143 213 140
12/31/98 100 300 164
12/31/99 106 542 141
</TABLE>
---------------
* The stock price performance shown in the performance graph for the Class A
Common Stock is historical and is not necessarily indicative of future stock
price performance.
15
<PAGE> 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, we began to seek regulatory approvals to make an initial public
offering of shares of Herbalife of Japan in Japan. On December 30, 1996, in
preparation for the possible offering, we sold shares of Herbalife of Japan to
some of our directors and executive officers, as well as to resident managers of
Herbalife of Japan, as an incentive for increased efforts to facilitate the
operation of the Herbalife of Japan business and the success of the offering.
The following table lists the purchasers of the shares, the percentage of
Herbalife of Japan's outstanding shares represented thereby, and the purchase
price paid to us by each individual as of the date of the sale:
<TABLE>
<CAPTION>
PERCENTAGE OF
HERBALIFE JAPAN AGGREGATE
NAME SHARES PRICE(1)
---- --------------- ----------
<S> <C> <C>
Mark Hughes....................... 5.000% $3,300,000
Christopher Pair.................. 0.575 379,500
Michael E. Rosen.................. 0.575 379,500
Timothy Gerrity................... 0.575 379,500
Alan Liker........................ 0.200 132,000
Other............................. 0.075 49,500
----- ----------
Total................... 7.000% $4,620,000
===== ==========
</TABLE>
---------------
(1) The purchase price for shares of Herbalife of Japan was denominated in
Japanese yen. The dollar amounts reflect conversion at the yen-to-dollar
exchange rate in effect on the date of purchase of the shares.
The purchase price for the shares was determined, in part, based upon a
formula prescribed by a Japanese regulatory authority responsible for some
aspects of public offerings of securities in that country, as applied to
Herbalife of Japan's 1995 results of operations. Our Board of Directors
separately sought and obtained a valuation of the shares from an independent
investment banking firm, Houlihan, Lokey, Howard & Zukin, Inc., which rendered
an opinion to the effect that the fair market value of the capital stock of
Herbalife of Japan was $66 million. This amount was in excess of the formula
prescribed by the Japanese regulatory authority. Consequently, the purchase
price per share was increased to the fair market value of the shares as
indicated in the Houlihan, Lokey, Howard & Zukin opinion. Our Board of
Directors, based in part on the Houlihan, Lokey, Howard & Zukin opinion and the
determination of price derived under the formula (which is utilized generally in
Japan in connection with public offerings) and taking into account the
uncertainty of completion of the offering in Japan and other pertinent factors,
has determined that the purchase price reflects the fair market value of the
shares.
For each of the foregoing individuals, the purchase price for the shares
was paid to us approximately 30% in cash and approximately 70% in the form of a
full recourse promissory note bearing interest at 6.31% per annum in the case of
Mr. Hughes (loan denominated in U.S. dollars) and 2.125% per annum in the case
of each individual other than Mr. Hughes (loans denominated in Japanese yen),
with principal and accrued interest payments due over five years ending December
31, 2002. The aggregate amount outstanding under the promissory notes at
December 31, 1999 was $1.8 million.
In 1997, we engaged Mr. Liker to provide consulting services though 1999 in
connection with the offering in Japan. Under the terms of the oral agreement
with Mr. Liker, he received $80,000 in 1999 from us for his consulting services.
In accordance with our 1994 Plan, we made advances of targeted performance
bonus amounts during 1997 and 1998 to Mr. Hughes, during 1997, 1998 and 1999 to
Mr. Pair, during 1998 to Mr. Rosen, and during 1997 and 1998 to each of Mr.
Sandler and Mr. Gerrity. As of December 31, 1999, the remaining outstanding
principal and accrued interest obligations for Mr. Pair and Mr. Sandler were
$1,060,507 and $182,647, respectively. As of December 31, 1999, there were no
remaining outstanding principal and accrued interest obligations in the case of
Mr. Hughes, Mr. Rosen, and Mr. Gerrity. During 1999, the highest outstanding
principal and accrued interest obligations were $1,965,499 in the case of Mr.
Hughes, $1,060,507 in the case of
16
<PAGE> 19
Mr. Pair, $369,935 in the case of Mr. Rosen, $182,647 in the case of Mr.
Sandler, and $552,947 in the case of Mr. Gerrity. Each advance is a full
recourse obligation of the executive with a maturity date not exceeding two
years following the date of the advance. In addition, the advances bear interest
at the applicable federal rate (AFR) for two-year notes at the time of advances.
The interest rates for any outstanding advances during 1999 ranged from 4.67% to
5.75%. As of February 29, 2000 all the advances were repaid, with the exception
of one loan to Mr. Pair in the principal amount of $575,000.
In addition, we made a loan of $1,964,000 to Mr. Hughes during 1999. Such
loan is a demand obligation and bears interest at the rate of 4.62% per annum,
the AFR for obligations of such maturity at the time of the loan. As of December
31, 1999, the entire amount of the loan, plus accrued interest of approximately
$83,000, was outstanding.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 1999, the Company believes, based solely on a review of Forms 3, 4
and 5 (including amendments) with which it has been furnished, that all filings
required pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, relating to the Company were timely made.
INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP has audited the financial statements of
the Company for the year ended December 31, 1999. A representative of Deloitte &
Touche LLP is expected to be present at the Meeting, with the opportunity to
make a statement if the representative desires to do so. That representative
also is expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Proposals intended to be submitted to the Company for presentation at its
next annual meeting to be held in 2001 must be received by the Company at its
principal executive offices shown on the first page of this Proxy Statement no
later than January 31, 2001, in order to be included in the proxy materials for
the 2001 meeting.
1999 ANNUAL REPORT
On March 30, 2000, the Company filed with the Securities and Exchange
Commission its Annual Report on Form 10-K for the fiscal year ended December 31,
1999. Copies of the 1999 Form 10-K may be obtained without charge by writing to:
Herbalife International, Inc., 1800 Century Park East, Los Angeles, California
90067; Attention: Investor Relations.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROBERT A. SANDLER
Robert A. Sandler
Secretary
17
<PAGE> 20
HERBALIFE INTERNATIONAL, INC.
1800 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA 90067
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Christopher Pair and Robert A. Sandler, and
each of them, as Proxy, with the power to appoint his or their substitutes, and
hereby authorizes each of them to represent and to vote as designated below all
shares of Class A Common Stock of Herbalife International, Inc. held of record
by the undersigned on May 31, 2000 at the Annual Meeting of Shareholders to be
held on July 27, 2000, or at any adjournment or postponement thereof, with the
same authority as if the undersigned were personally present.
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed below
</TABLE>
Christopher Pair, Conrad Klein, Edward J. Hall, Christopher M. Miner, John
Reynolds, Francis Tirelli
(Instructions: To withhold authority to vote for any individual nominee, write
the name(s) of the nominee(s) on the line below)
--------------------------------------------------------------------------------
2. In his discretion, the Proxy is authorized to vote upon such other business
as may properly come before the meeting.
(Date and Sign on Reverse Side)
<PAGE> 21
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN ITEM 1.
Date:______________, 2000
-------------------------
Signature
-------------------------
Signature if held jointly
Please sign exactly as
name (or names) appear(s)
below. When shares are
held by joint tenants,
both must sign. When
signing as attorney,
executor, administrator,
parent or guardian,
please give full title as
such. If a corporation,
please sign in full
corporate name by the
president or other
authorized officer. If a
partnership, please sign
in partnership name by an
authorized person.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE.
