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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-15712
HERBALIFE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 22-2695420
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1800 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 410-9600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $.01 PAR VALUE
CLASS B COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X]
The Aggregate market value of the Registrant's Class A and Class B Common
Stock on February 29, 2000 held by nonaffiliates was approximately $143 Million.
(Determination of stock ownership by non-affiliates was made solely for the
purpose of responding to the requirements of this Form and the Registrant is not
bound by this determination for any other purpose.)
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
The number of shares outstanding of the registrant as of February 29, 2000
was:
10,002,549 Shares of Class A Common Stock
18,650,014 Shares of Class B Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
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Explanatory Note: This Form 10-K/A of Herbalife International, Inc. amends the
Annual Report on Form 10-K of the registrant for the registrant's fiscal year
ended December 31, 1999. Specifically, this Form 10-K/A amends and restates Item
13, "Certain Relationships and Related Transactions," and Item 14, Notes to
Consolidated Financial Statements, "6. Employee Compensation Plans" and "8.
Transactions with Related Parties."
ITEM 13. 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
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</TABLE>
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(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.
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We have no current intention to make an initial public offering of Herbalife
of Japan shares, based on, among other things, economic and financial market
conditions in Japan and the impact from the completion of the Tender Offer and
the Merger and the third party financing incurred in connection with those
transactions. Our settlement agreement with the representative plaintiffs'
counsel to settle the Lawsuits provides that, if we were to complete an initial
public offering of Herbalife of Japan within a specified period of time, then we
would be required to pay the settlement class members an amount equal to the
greater of $15 million and 20% of the net proceeds generated in the initial
public offering. See "Legal Proceedings."
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 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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EMPLOYEE COMPENSATION PLANS
In addition to the stock option plan discussed in Note 11, the Company has
two incentive compensation plans: the 1992 Executive Incentive Compensation Plan
(the "1992 Plan") and the 1994 Performance-Based Annual Incentive Compensation
Plan (the "1994 Plan"). Under the 1992 Plan, a target percentage of earnings
before bonuses and income taxes may be awarded to Officers, Directors and Key
Employees, as determined by the Chief Executive Officer and Compensation
Committee of the Board of Directors, based on the attainment of certain
corporate and business objectives. No bonuses were awarded under this plan for
1999, 1998 or 1997.
The 1994 Plan provides additional compensation as an incentive to key
executives and consultants to attain certain specified performance objectives of
the Company. The amount of the available awards to individual participants and
the aggregate amount to all participants is determined based upon objective
performance goals as determined by the Compensation Committee of the Board of
Directors. The amounts awarded under the 1994 Plan for 1999, 1998 and 1997 were
$16,165,000, $6,950,000 and $8,400,000, respectively.
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In accordance with the 1994 Plan, the Company made advances of targeted
performance bonus amounts to the participants. As of December 31, 1999 and 1998,
the remaining outstanding principal and accrued interest was $1,243,000 and
$6,000,000, respectively and is included in receivables on the accompanying
consolidated balance sheets. Each advance is a full recourse obligation of the
executive with a maturity date of two years following the date of the advance.
In addition, the advances bear interest at the applicable federal rate (AFR) for
two-year notes at the time of the advances. The rates for outstanding advances
at December 31, 1999 and 1998 range from 4.67% to 5.57% and 4.33% to 5.64%,
respectively.
The Company also maintains a profit sharing plan pursuant to Sections 401
(a) and (k) of the Internal Revenue Code. The plan is available to substantially
all employees who meet length of service requirements. Employees may elect to
contribute 2% to 17% of their compensation, and the Company will match 3% of the
earnings of each employee who elects to defer 2% or more of his or her earnings.
Participants are partially vested in the Company contributions after three years
and fully vested after seven years. The Company contributed $974,000, $675,000
and $470,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
In 1996, the Company implemented two non-qualified, deferred compensation
plans for select groups of management: the "Management Plan" and the "Senior
Executive Plan". The Deferred Compensation Plans allow eligible employees to
elect annually to defer up to 50% of their base annual salary and up to 100% of
their annual bonus for each calendar year (the "Annual Deferral Amount"). The
Company makes matching contributions on behalf of each participant in the Senior
Executive Plan of 100% of the amount deferred by each participant 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, the
Compensation Committee of the Board of Directors may designate any participant
to receive a matching contribution of 20% of the annual base salary if the
Annual Deferral Amount of such designated participant equals or exceeds 10% of
such designated participant's annual base salary.
Each participant in either of the deferred compensation plans has at all
times a fully vested and non-forfeitable interest in each year's contribution,
including interest credited thereto, and in any Company matching contributions,
if applicable. In connection with a participant's election to defer an Annual
Deferral Amount, the participant may also elect to receive a short-term payout,
equal to the Annual Deferral Amount plus interest. Such amount is payable in two
or more years from the first day of the year in which the Annual Deferral Amount
is actually deferred. The gross deferred compensation expense was $7,747,000,
$7,485,000 and $4,683,000 for 1999, 1998 and 1997, respectively. The deferred
compensation expense net of participant contributions was $2,488,000,
$2,371,000, and $1,078,000 for 1999, 1998 and 1997, respectively. The long term
deferred compensation liability under the deferred compensation plans was
$21,395,000 and $12,899,000 at December 31, 1999 and 1998, respectively.
Effective as of August 9, 1994, the Company entered into a Deferred
Compensation Agreement (the "Agreement") with a Senior Executive. The gross
deferred compensation expense under the Agreement was $400,000, $600,000 and
$600,000 in 1999, 1998 and 1997, respectively. The Company amended and restated
the 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. Under the Executive Officer Plan, deferred
amounts bear interest on January of each year. The executive may elect to
receive payments in the form of installments payable over five years or ten
years, but may receive 90% of the unpaid balance at any time, provided that the
payment would be deductible to the Company and provided that the remaining 10%
of the unpaid balance be forfeited. The long term deferred compensation
liability under the Executive Officer Plan was $1,348,000 and $2,025,000 at
December 31, 1999 and 1998, respectively.
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The three deferred compensation plans are unfunded and their benefits are
paid from the general assets of the Company, except that the Company has
contributed $19,693,000 and $13,670,000 as of December 31, 1999 and 1998,
respectively to a "rabbi trust" whose assets will be used to pay the benefits if
the Company remains solvent, but can be reached by the Company's creditors if
the Company becomes insolvent.
8. TRANSACTIONS WITH RELATED PARTIES
On April 23, 1998, Raven and D&F, two of the significant suppliers of the
Company's products, and Dynamic, another supplier to the Company, concluded a
bond offering. Part of the proceeds from the offering was used to repurchase
certain ownership interests in such entities, including the entire ownership
interest of Mr. Hughes, CEO and President of the Company in Raven and Dynamic
(representing 1/3 and 1/5 of the formerly outstanding ownership, respectively),
as well as the entire ownership interest of a former employee of the Company in
Dynamic (representing 5% of the formerly outstanding ownership). Total purchases
from Raven were $16,379,000 and $63,424,000 for the period January 1, 1998
through April 23, 1998 and for the year ended December 31, 1997. Total purchases
from Dynamic were $990,000 and $3,347,000 for the period January 1, 1998 through
April 23, 1998 and for the year ended December 31, 1997.
In addition to advances described in Note 6, the Company has made additional
advances to certain officers and a Director. The aggregate outstanding principal
and accrued interest was $3,123,000 and $877,000 at December 31, 1999 and 1998,
respectively (included in receivables on the accompanying consolidated balance
sheets). Each outstanding advance is a full recourse obligation of the officer.
The rates for outstanding advances at December 31, 1999 and 1998 range from
4.98% to 5.68% and from 5.06% to 5.75%, respectively.
In December 1996, the Company sold an approximate 7% interest in its
Japanese subsidiary to certain Company directors, executive officers and
resident managers of Herbalife Japan K.K. The aggregate sales price was
$4,620,000: $1,386,000 in cash and $3,234,000 in full recourse interest bearing
notes. The notes are payable in 16 equal quarterly principal and interest
installments, beginning in March 1998, as amended. The outstanding note
receivable balance was $1,828,000 and $2,665,000 at December 31, 1999 and 1998,
respectively and is included in receivables and other assets on the accompanying
consolidated balance sheet. The sales price of the shares was determined based
upon a valuation performed by an independent investment banking firm. The profit
recognized from the sale has been deferred until the interest ultimately is sold
to a third party.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 4, 2000
HERBALIFE INTERNATIONAL, INC.
(Registrant)
By: /s/TIMOTHY GERRITY
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Timothy Gerrity
Executive Vice President and
Chief Financial Officer
