-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EMe1L7LaGy1aafCyaFjdVe29udUYKFoKKgMeB4wcxOWvqTFzeDe4+BzQSw0MxaA6 W/ARA3T1bFQ7qzD0hM5vWQ== 0000950123-02-012124.txt : 20030213 0000950123-02-012124.hdr.sgml : 20021220 20021220165639 ACCESSION NUMBER: 0000950123-02-012124 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 43 FILED AS OF DATE: 20021220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WH LUXEMBOURG CM S A R L CENTRAL INDEX KEY: 0001205292 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-03 FILM NUMBER: 02865499 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL THAILAND INC CENTRAL INDEX KEY: 0001205291 IRS NUMBER: 954594371 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-04 FILM NUMBER: 02865500 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WH LUXEMBOURG HOLDINGS S A R L CENTRAL INDEX KEY: 0001205295 IRS NUMBER: 980379866 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-01 FILM NUMBER: 02865501 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WH LUXEMBOURG INTERMEDIATE HOLDINGS S A R L CENTRAL INDEX KEY: 0001205294 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-02 FILM NUMBER: 02865502 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WH INTERMEDIATE HOLDINGS LTD CENTRAL INDEX KEY: 0001205298 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188 FILM NUMBER: 02865504 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL OF AMERICA INC CENTRAL INDEX KEY: 0001205274 IRS NUMBER: 953954565 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-09 FILM NUMBER: 02865505 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE CHINA LLC CENTRAL INDEX KEY: 0001205270 IRS NUMBER: 954732025 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-10 FILM NUMBER: 02865506 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE SWEDEN AKTIEBOLAG CENTRAL INDEX KEY: 0001205267 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-11 FILM NUMBER: 02865507 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE PRODUCTS DE MEXICO SA DE CV CENTRAL INDEX KEY: 0001205263 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-12 FILM NUMBER: 02865508 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNACIONAL DE MEXICO SA DE CV CENTRAL INDEX KEY: 0001205261 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-13 FILM NUMBER: 02865509 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE OF JAPAN K K CENTRAL INDEX KEY: 0001205259 IRS NUMBER: 521959645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-14 FILM NUMBER: 02865510 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL OF ISRAEL 1990 LTD CENTRAL INDEX KEY: 0001205253 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-15 FILM NUMBER: 02865511 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL OF EUROPE INC CENTRAL INDEX KEY: 0001205285 IRS NUMBER: 954459069 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-06 FILM NUMBER: 02865512 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL DISTRIBUTION INC CENTRAL INDEX KEY: 0001205281 IRS NUMBER: 954475193 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-07 FILM NUMBER: 02865513 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL COMMUNICATIONS INC CENTRAL INDEX KEY: 0001205278 IRS NUMBER: 954250868 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-08 FILM NUMBER: 02865514 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE TAIWAN INC CENTRAL INDEX KEY: 0001205288 IRS NUMBER: 954534645 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-05 FILM NUMBER: 02865515 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL FINLAND OY CENTRAL INDEX KEY: 0001205251 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-16 FILM NUMBER: 02865516 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE EUROPE LTD CENTRAL INDEX KEY: 0001205248 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-17 FILM NUMBER: 02865517 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE UK LTD CENTRAL INDEX KEY: 0001205246 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-18 FILM NUMBER: 02865518 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL DO BRAZIL LTDA CENTRAL INDEX KEY: 0001205243 IRS NUMBER: 521951822 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-19 FILM NUMBER: 02865519 BUSINESS ADDRESS: STREET 1: C/O HERBALIFE INTERNATIONAL INC STREET 2: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERBALIFE INTERNATIONAL INC CENTRAL INDEX KEY: 0000791449 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 222695420 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101188-20 FILM NUMBER: 02865520 BUSINESS ADDRESS: STREET 1: 1800 CENTURY PK E CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3104109600 MAIL ADDRESS: STREET 1: 1800 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: SAGE COURT VENTURES INC DATE OF NAME CHANGE: 19861216 S-4/A 1 y65450a1sv4za.txt AMENDMENT NO.1 TO FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 2002 REGISTRATION NO. 333-101188 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- WH INTERMEDIATE HOLDINGS LTD. (Exact name of registrant as specified in its charter) CAYMAN ISLANDS 5122 (State or other jurisdiction of incorporation (Primary Standard Industrial or Classification Code Number) organization) CAYMAN ISLANDS 98-0379050 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization)
P.O. BOX 309GT UGLAND HOUSE, SOUTH CHURCH STREET GRAND CAYMAN, CAYMAN ISLANDS (310) 410-9600** (Address, including ZIP code and telephone number, including area code of registrant's principal executive offices) --------------------- VICKI TUCHMAN HERBALIFE INTERNATIONAL, INC. 1800 CENTURY PARK EAST LOS ANGELES, CALIFORNIA 90067 TEL: (310) 410-9600 (Name, address, including ZIP code, and telephone number, including area code, of agent for service) --------------------- HERBALIFE INTERNATIONAL, INC.* (Exact name of registrant as specified in its charter) NEVADA 5122 (State or other jurisdiction (Primary Standard Industrial of organization) Classification Code Number) NEVADA 22-2695420 (State or other jurisdiction (I.R.S. Employer of organization) Identification No.)
1800 CENTURY PARK EAST LOS ANGELES, CALIFORNIA 90067 TEL: (310) 410-9600 (Address, including ZIP code, and telephone number, including area code of registrant's principal executive offices) --------------------- VICKI TUCHMAN HERBALIFE INTERNATIONAL, INC. 1800 CENTURY PARK EAST LOS ANGELES, CALIFORNIA 90067 TEL: (310) 410-9600 (Name, address, including ZIP code, and telephone number, including area code, of agent for service) --------------------- COPIES OF CORRESPONDENCE TO: BRUCE J. RADER, ESQ. PHILIP L. COLBRAN, ESQ. CHADBOURNE & PARKE LLP CHADBOURNE & PARKE LLP 30 ROCKEFELLER PLAZA 30 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10112 NEW YORK, NEW YORK 10112 TEL.: (212) 408-5100 TEL.: (212) 408-5100
--------------------- *The co-registrants listed on the next page are also included in this Form S-4 Registration Statement as additional registrants. The co-registrants (including WH Intermediate Holdings Ltd.) are the direct and indirect subsidiaries or holding companies of the registrant and are guarantors of the Notes to be registered hereby. **c/o Principal Financial Officer of Herbalife International, Inc. APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: as soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED NOTE(1) PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- 11 3/4% Series B Senior Subordinated Notes due July 15, 2010.......................... $165,000,000 100% $165,000,000 $15,180 Guarantees of 11 3/4% Series B Senior Subordinated Notes due July 15, 2010(2).... N/A N/A N/A N/A(3) - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f) under the Securities Act of 1933, as amended. (2) All subsidiary guarantors are direct or indirect wholly-owned subsidiaries of Herbalife International, Inc. (3) Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable with respect to the guarantees of the notes. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF ADDITIONAL REGISTRANTS
- --------------------------------------------------------------------------------------------------- STATE OR OTHER JURISDICTION IRS EMPLOYER OF INCORPORATION OR IDENTIFICATION NAME ORGANIZATION NUMBER - --------------------------------------------------------------------------------------------------- Herbalife International Do Brasil Ltda. Brazil n/a (also incorporated in Delaware) (52-1951822) - --------------------------------------------------------------------------------------------------- Herbalife (UK) Limited England n/a - --------------------------------------------------------------------------------------------------- Herbalife Europe Limited England n/a - --------------------------------------------------------------------------------------------------- Herbalife International Finland OY Finland n/a - --------------------------------------------------------------------------------------------------- Herbalife International of Israel (1990) Israel n/a Ltd. - --------------------------------------------------------------------------------------------------- Herbalife of Japan K.K. Japan n/a - --------------------------------------------------------------------------------------------------- Herbalife Internacional de Mexico, S.A. de Mexico n/a C.V. - --------------------------------------------------------------------------------------------------- Herbalife Products de Mexico, S.A. de C.V. Mexico n/a - --------------------------------------------------------------------------------------------------- Herbalife Sweden Aktiebolag Sweden n/a - --------------------------------------------------------------------------------------------------- Herbalife China, LLC Delaware 95-4732025 - --------------------------------------------------------------------------------------------------- Herbalife International of America, Inc. California 95-3954565 - --------------------------------------------------------------------------------------------------- Herbalife International Communications, Inc. California 95-4520868 - --------------------------------------------------------------------------------------------------- Herbalife International Distribution, Inc. California 95-4475193 - --------------------------------------------------------------------------------------------------- Herbalife International of Europe, Inc. California 95-4459069 - --------------------------------------------------------------------------------------------------- Herbalife Taiwan, Inc. California 95-4534645 - --------------------------------------------------------------------------------------------------- Herbalife International (Thailand) Ltd. California 95-4594371 - --------------------------------------------------------------------------------------------------- WH Luxembourg CM S.a.R.L. Luxembourg n/a - --------------------------------------------------------------------------------------------------- WH Luxembourg Intermediate Holdings S.a.R.L. Luxembourg n/a - --------------------------------------------------------------------------------------------------- WH Luxembourg Holdings S.a.R.L. Luxembourg 98-0379866 - ---------------------------------------------------------------------------------------------------
The address of the agent for service for each of the additional registrants is c/o Herbalife International, Inc., 1800 Century Park East, Los Angeles, California 90067, telephone (310) 410-9600. The primary standard industrial classification number for each of the additional registrants is 5122. PROSPECTUS $165,000,000 HERBALIFE INTERNATIONAL, INC. Offer to Exchange All Outstanding Unregistered 11 3/4% Series A Senior Subordinated Notes due 2010 for 11 3/4% Series B Senior Subordinated Notes due 2010 which have been registered under the Securities Act of 1933 --------------------- We are offering to exchange all of our outstanding unregistered 11 3/4% Series A Senior Subordinated Notes due 2010 for our registered 11 3/4% Series B Senior Subordinated Notes due 2010. In this prospectus, we will call the original notes the Series A Notes and the registered notes the Series B Notes. The Series A Notes were issued on June 27, 2002. The terms of the Series B Notes are substantially identical to the terms of the Series A Notes, except that we have registered the Series B Notes with the Securities and Exchange Commission, which we will refer to as the SEC. Because we have registered the Series B Notes, the Series B Notes will not be subject to transfer restrictions and will not be entitled to registration rights. The Series A Notes and Series B Notes are collectively referred to in this prospectus as the Notes. THE SERIES B NOTES - The Series B Notes will mature on July 15, 2010. - We will pay interest on the Series B Notes in cash semiannually in arrears on January 15 and July 15 of each year starting on January 15, 2003. - We may redeem any or all of the Series B Notes at any time on or after July 15, 2006 at a redemption price equal to 105.875% of the principal amount of the Series B Notes declining ratably to par, plus accrued and unpaid interest. In addition, prior to July 15, 2005, we may redeem up to 35% of the Series B Notes with the net proceeds of any qualified equity offering at a redemption price equal to 111.75% of the principal amount plus accrued and unpaid interest, if any. - The Series B Notes are general unsecured senior subordinated obligations and will be subordinated to all of our senior debt. - The Series B Notes will not be listed on any national securities exchange. YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 22 OF THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. The date of this prospectus is December 20, 2002. TABLE OF CONTENTS Prospectus Summary.......................................... 1 Summary Unaudited Pro Forma and Historical Consolidated Financial Data............................................ 19 Risk Factors................................................ 22 The Acquisition............................................. 31 Use of Proceeds............................................. 33 Capitalization.............................................. 34 Selected Consolidated Historical Financial Data............. 35 Unaudited Pro Forma Condensed Consolidated Statements of Operations................................................ 38 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 46 Business.................................................... 56 Management.................................................. 73 Principal Shareholders...................................... 89 Certain Relationships and Related Transactions.............. 91 The Exchange Offer.......................................... 96 Description of Senior Credit Facilities..................... 104 Description of Notes........................................ 106 Form and Transfer of the Notes.............................. 150 United States Federal Income Tax Consequences............... 155 ERISA Considerations........................................ 158 Plan of Distribution........................................ 161 Validity of the Securities.................................. 162 Experts..................................................... 162 Where You Can Find More Information......................... 162 Index to Consolidated Financial Statements.................. F-1 Independent Auditors' Report................................ F-2
--------------------- You may not transfer or resell the Series B Notes except as permitted under the Securities Act and applicable state securities laws. You should rely only on the information contained in this document or any supplement. We have not authorized anyone to provide you with any information that is different. If you receive any unauthorized information, you must not rely on it. You should disregard anything we said in an earlier document that is inconsistent with what is in our prospectus. You should not assume that the information in this prospectus or any supplement or any of the information incorporated by reference in this prospectus or any supplement is current as of any date other than the date on the front page of this prospectus. This document is not an offer to sell nor is it seeking an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted. --------------------- ADDITIONAL INFORMATION For more information on Herbalife and the availability of other documents concerning Herbalife that have been filed with the SEC, see "Where You Can Find More Information" starting on page 162. i DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operation; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words "may," "will," "estimate," "intend," "continue," "believe," "expect" or "anticipate" and other similar words. Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed in this prospectus. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in forward-looking statements include, among others, the following: - our relationships with our distributors; - regulatory matters governing our products and network marketing system; - adverse publicity associated with our products or network marketing organization; - product liability claims; - our reliance on outside manufacturers; - risks associated with operating internationally, including foreign exchange risks; - product concentration; - dependence on increased penetration of existing markets; - the competitive nature of our business; - our substantial indebtedness; and - our ability to generate sufficient cash. Additional factors that could cause actual results to differ materially from the forward-looking statements are set forth in this prospectus, including under the headings, "Prospectus Summary," "The Acquisition," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and in our "Summary Unaudited Pro Forma and Historical Consolidated Financial Data" and the related notes. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We do not intend, and undertake no obligation, to update any forward-looking statement. MARKET DATA Market data and other statistical information used throughout this prospectus are based on independent industry publications, government publications, reports by market research firms or other published independent sources and on our good faith estimates, which are derived from our review of internal surveys and independent sources. Although we believe that these sources are reliable, we have not independently verified the information and cannot guarantee its accuracy or completeness. ii PROSPECTUS SUMMARY In this prospectus, unless otherwise noted, the words "Company," "Herbalife," "we," "our," "ours" and "us" refer to Herbalife International, Inc. ("Herbalife") and its subsidiaries for periods through July 31, 2002 and to WH Intermediate Holdings Ltd. ("WH Intermediate Holdings") and its subsidiaries for periods subsequent to July 31, 2002. In addition, "Predecessor" refers to Herbalife and its subsidiaries for periods through July 31, 2002 and "Successor" refers to WH Intermediate Holdings and its subsidiaries for periods subsequent to July 31, 2002. The following summary contains basic information about us and the exchange offer. It does not contain all of the information that is important to you. For a more complete understanding of our business and financial status and the Series B Notes that we are offering, you should read carefully this entire prospectus and other documents that we will refer you to. For a discussion of factors to be considered before participating in this exchange offer, see "Risk Factors." For the definitions of some of the terms used throughout this prospectus, see "Description of Notes." THE EXCHANGE OFFER In contemplation of the merger described below under "-- Recent Developments," on June 27, 2002, WH Acquisition Corp. ("WH Acquisition") completed a private offering of $165,000,000 of the Series A Notes. In connection with that offering, WH Acquisition entered into a registration rights agreement with the initial purchaser of the Series A Notes in which it agreed, among other things, to deliver this prospectus and to complete this exchange offer within 210 days of the consummation of the acquisition of the Company by WH Holdings (Cayman Islands) Ltd. ("WH Holdings"). The obligations of WH Acquisition under the Series A Notes and the registration rights agreement were assumed by Herbalife upon the consummation of the merger. You are entitled to exchange in this exchange offer Series A Notes that you hold for Series B Notes with substantially identical terms. You should read the discussion under the headings "Summary of the Terms of the Series B Notes" beginning on page 17 and "Description of Notes" beginning on page 106 for further information regarding the Series B Notes. - Subject to customary conditions, which we may waive, the exchange offer is not conditioned upon a minimum aggregate principal amount of Series A Notes being tendered. - Our offer to exchange Series A Notes for Series B Notes will be open until 5:00 p.m., New York City time, on January 24, 2003, unless we extend the expiration date. - You should also carefully review the procedures for tendering the Series A Notes beginning on page 99 of this prospectus. - You may withdraw your tenders of Series A Notes at any time prior to the expiration of the exchange offer. - If you fail to tender your Series A Notes, you will continue to hold unregistered securities and your ability to transfer them could be adversely affected. - The exchange of Series A Notes for Series B Notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. We believe that the Series B Notes that will be issued in this exchange offer may be resold by you without compliance with the registration and prospectus delivery provisions of the Securities Act, if you can make the representations in the fifth paragraph under "The Exchange Offer -- Exchange Terms" on page 96 below. We cannot guarantee that the SEC would make a similar decision about this exchange offer. If our belief is wrong, or if you cannot truthfully make the representations mentioned above, and you transfer any Series B Note issued to you in the exchange offer without meeting the registration and prospectus delivery requirements of the Securities Act, or without an exemption from such requirements, you could incur liability under the Securities Act. We are not indemnifying you for any such liability. You should read the discussion under the headings "Summary of the Terms of the Exchange Offer" beginning on page 14 and "The Exchange Offer" beginning on page 96 for further information regarding this exchange offer and resale of the Series B Notes. 1 RECENT DEVELOPMENTS On July 31, 2002, we were acquired by investment funds managed by Whitney & Co., LLC ("Whitney") and Golden Gate Private Equity, Inc. ("Golden Gate," together with Whitney, the "equity sponsors"), in conjunction with selected members of our distributor organization and senior management, in accordance with the terms of a merger agreement, entered into on April 10, 2002. Pursuant to the merger agreement, each stockholder of Herbalife International, Inc. received $19.50 in cash for each share of common stock owned by such stockholder. The merger was consummated on July 31, 2002. As a result of the merger, Herbalife International, Inc.'s common stock was delisted from the NASDAQ National Market and we are now privately owned. In connection with the merger, we and our affiliates consummated certain related financing transactions, including the issuance by WH Acquisition on June 27, 2002 of $165.0 million of the Series A Notes, the issuance by WH Holdings on July 31, 2002 of $38.0 million of senior notes and the entering into by Herbalife on July 31, 2002 of senior credit facilities in the amount of $205.0 million. See "-- The Acquisition and Related Financing Transactions." Selected members of our distributor organization and senior management have purchased shares of the 12% Series A Cumulative Convertible Preferred Shares of WH Holdings. As a result, selected members of our senior management own approximately 1.52% of WH Holdings and selected distributors of Herbalife own approximately 11.44% of the outstanding equity of WH Holdings. In connection with the issuance of the preferred shares, WH Holdings has entered into a shareholders' agreement, setting forth rights of shareholders under that agreement and limitations on their ability to dispose of their equity interests, and a registration rights agreement with participating distributors and senior management, Whitney V, L.P. and CCG Investments (BVI), L.P. and each of their respective affiliates. The shares of Herbalife are 99.9% owned by WH Luxembourg Intermediate Holdings S.a.R.L., an indirect wholly-owned subsidiary of WH Holdings and 0.1% owned by WH Intermediate Holdings, a direct wholly-owned subsidiary of WH Holdings. Subsequent to the merger, neither Frank Tirelli, former President and Chief Executive Officer, nor Doug Sages, former Executive Vice President, Chief Administrative Officer and Chief Financial Officer are employed by the Company, effective as of September 19, 2002. We have not entered into separation arrangements with Messrs. Tirelli and Sages as of this time. In connection with the management reorganization, Carol Hannah and Brian Kane were appointed Co-Presidents. THE COMPANY Herbalife, founded in 1980, is a worldwide marketer of weight management products, nutritional supplements, and personal care products that support our customers' wellness and healthy lifestyles. We market and sell these products through a global network marketing organization comprised of over one million independent distributors in 55 countries. Throughout our 22-year operating history, the high quality of our products and the effectiveness of our network marketing organization have been the primary drivers of our growth and geographic expansion and have made Herbalife a brand name recognized worldwide. For the twelve months ended September 30, 2002, our retail sales were $1.8 billion. For the twelve months ended September 30, 2002, our adjusted EBITDA was $139.4 million (historical) and $135.3 million (on a pro forma basis). We focus on delivering a complete wellness program and way of life to our customers through our diverse product portfolio. Our products are designed to appeal to the growing number of consumers who seek to live a healthy lifestyle. We group our products into two broad categories: inner nutrition, which consists of weight management products and nutritional supplements; and outer nutrition, which represents personal care products. We currently market approximately 570 products as well as literature and promotional materials designed to support our distributors' marketing efforts. Our products are often sold in programs, which are comprised of a series of related products designed to achieve a common wellness or health result, simplify weight management and nutrition for our consumers and maximize our distributors' cross-selling opportunities. 2 INNER NUTRITION - WEIGHT MANAGEMENT PRODUCTS. We believe that our products have helped millions of people manage their weight safely and effectively for 22 years. Among the products we offer are meal replacement products, herbal appetite suppressants and a variety of healthy snacks designed to provide nutritional support between meals. Our best-selling Formula 1 meal replacement product has been part of our basic weight management program for 22 years and has generated 22% of our retail sales over the past three years. For the year ended December 31, 2001, $707.9 million or 42.7% of our retail sales were derived from weight management products. - NUTRITIONAL SUPPLEMENTS. We market numerous dietary and nutritional supplements designed to meet our customers' specific nutritional needs. Our nutritional supplements are designed to focus on the specific lifestages and lifestyles of our customers. Each of these supplements contains high-quality herbs, vitamins, minerals and other natural ingredients. We offer a wide selection of dietary and nutritional supplements, including basic vitamins and minerals such as vitamin C (and related anti-oxidants) and calcium, as well as herbal supplements such as echinacea, ginseng, melatonin and ginkgo biloba. For the year ended December 31, 2001, $744.6 million or 45.0% of our retail sales were derived from nutritional supplements. OUTER NUTRITION - PERSONAL CARE PRODUCTS. Our personal care products complement our inner nutrition products to improve the appearance of our customers' body, skin and hair. These products include soaps and skin cleansers, moisturizers and lotions, shampoos and conditioners, hair styling products and a selection of colognes for men and women. Our personal care products, which provide outer nutrition for the skin and body and preservation of youthful appearance, are designed to make our customers look and feel their best. For the year ended December 31, 2001, $178.2 million or 10.8% of our retail sales were derived from personal care products. Our products are distributed through a global network marketing organization comprised of over one million independent distributors in 55 countries. We believe that the direct-selling distribution channel is ideally suited to selling our products, because sales of wellness and weight management products are strengthened by ongoing personal contact between retail consumers and distributors. We encourage our distributors to use our products and communicate their results to retail customers, which provides first-hand testimonial proof of product effectiveness. As a result, we believe our best distributors are consumers of our products. We seek to provide our distributors attractive and flexible career opportunities by selling our high-quality products. Our distributors have the opportunity to earn significant income and receive non-financial rewards designed to motivate and recognize individual achievement. As a result, we believe the business opportunity provided by our network marketing system appeals to a broad cross-section of people throughout the world, particularly those seeking to supplement family income, start a home business or pursue part-time employment opportunities. Our distributors, who are independent contractors, earn income on their own sales and can also earn royalties and bonuses on sales made by the distributors in their downline organizations. We believe our network marketing system also provides an attractive business opportunity relative to other network marketing companies, particularly because we maintain an industry leading payout ratio and offer high-quality products. COMPANY HISTORY Herbalife was founded in 1980 by entrepreneur Mark Hughes, as part of his search for safe and effective alternatives to weight management solutions then in the market. We began to use the direct selling channel in the early days of Herbalife. Our distributor base grew quickly, by increasing penetration in the United States and by expanding abroad. Throughout the 1980's, we began operations in other English-speaking countries such as Canada, the United Kingdom, Australia and New Zealand, and subsequently entered several of our larger international markets including Mexico (1989), Germany (1991), Italy (1992), Japan (1993) and 3 South Korea (1996). In conjunction with our entry into new markets, we expanded our product portfolio with new product introductions to our inner nutrition category and introduced our personal care product line in 1995. Brian L. Kane and Carol Hannah were appointed Co-Presidents as part of a management reorganization in September 2002. Ms. Hannah has been with Herbalife for almost 18 years and worked closely with Mr. Hughes for many years until his untimely death in May 2000. Ms. Hannah previously held the position of Executive Vice President, Sales, with responsibility for managing distributor relationships. Mr. Kane has been with Herbalife for almost 10 years, most recently serving as the Chief Operating Officer with responsibility for global operations. He will continue to perform those duties. William D. Lowe, Senior Vice President, Finance and Treasury, has been with Herbalife for almost 5 years. As part of the recent management reorganization, he will have responsibility for all financial operations, pricing and strategic planning. Mr. Kane and Ms. Hannah continue to operate under their existing contracts and are paid annual salaries of $660,000 and $712,500, respectively. For a detailed description of our employment arrangements with our senior management team see "Management -- Employment Contracts and Termination of Employment." THE INDUSTRY WELLNESS AND PERSONAL CARE MARKETS We compete primarily in the wellness industry with our inner nutrition products and in the personal care industry with our outer nutrition products. According to Euromonitor, these markets are substantial in size, representing an estimated $33.5 billion and $175.4 billion of worldwide sales in 2000, respectively. We believe these markets represent significant business opportunities for us given our focus on high-quality products and our distributors' personal interaction with consumers of our products. According to Euromonitor, these worldwide markets are expected to continue to grow: - The global nutrition and well-being market is expected to grow to $38.4 billion in 2004; and - The worldwide market for personal care and cosmetic products is expected to grow to $212.5 billion in 2005. We are capitalizing on demographic trends in our market driving demand for health-related products and increasing the emphasis on healthier lifestyles. The global markets for our products are expected to continue to experience strong growth due to a number of factors, including: - The aging "baby boom" generation worldwide, which is driving long-term demand for health maintenance products; - Increasing incidence of obesity and greater awareness of the associated health risks; and - The U.S. Surgeon General released a report in December 2001 stating that 61% of Americans were overweight or obese in 1999. - According to the U.S. Center for Disease Control and Prevention, obesity is the second largest preventable cause of death in the United States, behind smoking. - According to the World Health Organization, the number of obese adults worldwide has increased from 200 million in 1995 to over 300 million in 2000, an increase of approximately 50%. In addition, the World Health Organization estimates that approximately 1.2 billion people worldwide are overweight. - Increasing acceptance of herbal and dietary supplements influenced by increasing scientific evidence and media focus about the efficacy of nutritional supplements. - Newsday Magazine reported that from 1990-1997 there was a 380% increase in vitamin usage and a 130% increase in the use of herbal supplements. 4 - The U.S. Congress established the National Center for Complementary and Alternative Medicine (NCCAM) in 1998 to evaluate the safety and efficacy of complementary and alternative medicine, which includes herbal remedies and food supplements. - The Journal of the American Medical Association reported in 1998 that over 64% of U.S. medical schools offered elective courses in complimentary and alternative medicine or included complimentary and alternative medicine topics in required courses. DIRECT SELLING Direct selling as a distribution channel has proven to be extremely effective for sales of inner and outer wellness products and has exhibited strong historical growth. The World Federation of Direct Selling Associations estimates the following statistics about the direct selling channel: - Wellness and personal care products represented approximately 43% of total worldwide direct selling sales in 2000; - The worldwide direct-sales channel exceeded $82.2 billion of sales in 2000, up from just over $33.3 billion in 1988, representing a compound annual growth rate of 7.8%; and - The global direct-selling sales force grew to 38.7 million in 2000, up from 8.5 million in 1988, representing a compound annual growth rate of 13.5%. COMPETITIVE STRENGTHS RECOGNIZED BRAND NAME. Our success is largely due to the strength of the Herbalife brand name, which has been built through consistently offering high-quality products and an attractive business opportunity for our distributors. Our specially-designed formulations and high-quality products, combined with our reputation built over 22 years in the industry, set us apart from the competition and contribute significantly to the recognition of the Herbalife brand name. We believe that our recognized brand name has contributed significantly to our ability to expand our business into new markets and add distributors to our network marketing organization and will enhance our ability to further penetrate our existing markets. HIGH-QUALITY, ESTABLISHED PRODUCT PORTFOLIO. We sell high-quality products containing natural ingredients that appeal to consumer demand for products that contribute to a natural and healthy lifestyle. Our products have demonstrated long-term consumer appeal: of our $1.7 billion in 2001 retail sales, $1.4 billion, or 85%, were derived from products that have been in our product portfolio since 1996 or earlier. We derive new product ideas from a number of sources, including trade publications, scientific and health journals, our executives, staff, consultants and outside parties. In general, we maintain a second-mover strategy with respect to new product offerings, often introducing our own unique formulations of products similar to those successfully offered by others in the market. In addition to reducing research and development costs, this strategy dramatically reduces the risk of failed product introductions. EFFECTIVE DISTRIBUTION CHANNEL. We have used the direct selling method for selling our products since we began operations in February 1980. We believe the direct sales model is the most attractive way to sell wellness and weight management products because sales of such products are strengthened by ongoing personal contact between retail consumers and distributors. This personal contact enhances (i) the education of consumers in the weight management and nutrition markets and (ii) the motivation of consumers to begin and maintain weight management programs for healthy living. Many of our distributors are users of our products themselves, which we believe enhances sales of our weight management and wellness products by providing first-hand testimonial proof of product effectiveness. We believe we provide a highly attractive business opportunity to our distributors, particularly because we maintain an industry leading payout ratio and offer high-quality products. PRODUCT AND MARKET DIVERSIFICATION. We offer approximately 570 products across our three primary product segments. For the fiscal year ended December 31, 2001, 42.7% of our retail sales were in weight management products, 45.0% in nutritional supplements, 10.8% in personal care products and the remaining 5 1.5% in literature and promotional materials. Additionally, the geographic diversity of our markets mitigates our financial exposure to any particular market. For the fiscal year ended December 31, 2001, 37.5% of our retail sales were in the Americas, 27.7% in Europe and 34.8% in Asia/Pacific Rim. SCALABLE AND PROFITABLE BUSINESS MODEL. We believe our business model is attractive due to our significant and sustained profitability and our ability to scale to new markets and more distributors. We require no company-employed sales force to market and sell our products and our distributor compensation varies directly with sales. Additionally, our systems and infrastructure are capable of handling significant growth in our worldwide distributor base with relatively little incremental cost. Lastly, our distributors bear the majority of our consumer marketing expenses, and supervisors who are themselves independent distributors sponsor and coordinate a large share of distributor recruiting and training initiatives. Our global direct-selling model offers several advantages over traditional retailing methods, including (i) the absence of a high fixed-cost infrastructure, (ii) incentives for distributors to develop a downline organization of other individuals selling product and (iii) greater personalized care and follow-up for our consumers. STRONG CASH FLOW GENERATION. Our business model generates strong free cash flow, which is primarily a result of (i) positive working capital generated by distributors paying for products before or at the time of receiving them from us, (ii) low capital expenditure requirements, principally related to systems and infrastructure upgrades and maintenance of our distribution facilities and equipment and (iii) steady profitability due to our scalable business model. We believe the combination of our strong EBITDA, positive working capital and low capital expenditure requirements will continue to result in significant free cash flow generation. EXPERIENCED MANAGEMENT TEAM. Since 1992, our senior management team has grown annual retail sales from $405.1 million to $1.7 billion for the fiscal year ended 2001, achieved strong cash flow and effectively managed our global operations. Carol Hannah and Brian L. Kane were recently appointed Co-Presidents. Both of Ms. Hannah and Mr. Kane are long term members of the management team at Herbalife and have been integral to our recent successes. As part of the recent management reorganization, William D. Lowe, Senior Vice President, Finance and Treasury, will have responsibility for all financial operations, pricing and strategic planning. For a detailed description of our employment arrangements with our senior management team, see "Management -- Employment Contracts and Termination of Employment." EQUITY PARTICIPATION BY DISTRIBUTORS AND MANAGEMENT. Selected members of Herbalife's distributor organization and senior management have purchased equity interests in WH Holdings alongside the equity sponsors. In addition, selected members of management will have the opportunity to participate in our equity through option grants by WH Holdings under a newly established stock option plan. We believe this equity ownership will provide additional incentive to Herbalife's distributors and management. For further information regarding management and distributors' participation, see "-- Recent Developments." BUSINESS STRATEGY Our business strategy is comprised of the following principal elements: INCREASE MARKET PENETRATION. Historically, we focused on expanding our network marketing organization to new countries and focused less on internal growth within our existing markets. While this strategy achieved rapid initial sales growth, it did not always achieve sustainable sales levels. As a result, we have re-evaluated our country sales strategy and are refining sales and marketing initiatives to place a greater emphasis on increased penetration of these markets. In certain instances we may increase the availability of our existing products in those markets where we currently offer only a small percentage of our full product line. We believe this will drive sales growth through increased penetration in each of our country markets around the world. INCREASE DISTRIBUTOR PRODUCTIVITY AND RETENTION. We recognize that in addition to high-quality products and a rewarding distributor compensation plan, the success of our business depends on the support and training of our distributors. We are strengthening our distributor support services by enhancing customer service capabilities at our call centers, offering greater business-building opportunities through the Internet, 6 creating new business support initiatives and offering enriched reward recognition programs. To further enhance distributor productivity and improve retention, we are developing new educational training programs aimed at assisting distributors with their sales, marketing and recruiting techniques. Extensive training opportunities enable distributors to not only develop invaluable business-building and leadership skills, but also to become experts in our products and offer customers sound advice on weight management, nutrition and personal care. By placing a top priority on training, we build credibility among our distributors and further establish Herbalife as an industry leader. INCREASE BRAND RECOGNITION IN WEIGHT MANAGEMENT AND WELLNESS MARKETS. Our underlying initiative is to continue to expand our reputation as an industry leading company focused on weight management, complete wellness and a healthier way of life. We are well positioned to take advantage of current worldwide consumer trends indicating that individuals are turning more and more to nutritional supplements for weight management, fitness and age-related health concerns. The core of this strategy is accomplished through the rationalizing of our approximately 570 products around a central wellness platform -- with core product groups built around various life stages (for example, "Healthy Children," "Healthy Men," "Healthy Women," and "Healthy Aging"). IMPROVE SUPPLY CHAIN MANAGEMENT. Prior to 2001, we purchased primarily all of our weight management and nutritional supplement products from a single supplier. In 2000, we reevaluated our product supply strategy and began purchasing products from multiple suppliers. Our new supply chain management strategy is focused on several key objectives, including: (i) production of the highest quality products practicable, (ii) reduction in total inventory levels, and (iii) reduction in product manufacturing costs. We are accomplishing these objectives through the diversification of our supplier base to multiple companies around the world. Purchasing from multiple suppliers and increased supplier competition has enabled us to maintain product quality and lower product costs. The geographic diversification of supply amongst several manufacturers has also resulted in significantly lower inventory levels. In each of the last nine quarters, we have achieved a consistent decline in inventory levels from $115.8 million at June 30, 2000 to $56.7 million at September 30, 2002, and our gross profit as a percentage of retail sales has improved from 46.4% to 48.3% over this period. We expect to further reduce our inventory levels. IMPROVE MARGINS THROUGH EXPENSE MANAGEMENT. During the past year, we began to implement certain product manufacturing and other sustainable expense reduction initiatives that have already resulted in significant improvements in financial performance. Our management team remains committed to realizing additional savings through further reduction of corporate expenses and implementing of the above initiatives. Through these initiatives and our improvement in sales, we have improved our adjusted EBITDA from $30.4 million (7.2% of retail sales) in the third quarter of 2001 to $38.0 million (8.6% of retail sales) in the third quarter of 2002. We believe the combination of reduced production costs, reductions in corporate spending and lower inventory will continue to enhance profitability and cash flow. 7 THE ACQUISITION AND RELATED FINANCINGS THE MERGER On July 31, 2002, the merger and related financing transactions were consummated (including the release from escrow of the net proceeds from the June 27, 2002 sale of the Series A Notes). Since the consummation of the acquisition and related financing transactions, the equity sponsors and selected members of Herbalife's distributor organization and senior management have owned all of the equity of WH Holdings. In addition, warrants to purchase preferred shares of WH Holdings were issued in connection with the sale of the senior notes. See "Certain Agreements Relating to the Acquisition -- Securities Purchase Agreement." As a result of the acquisition and related financing transactions, WH Holdings indirectly owns 100% of the outstanding common stock of Herbalife. The aggregate acquisition consideration was $706.6 million (inclusive of change in control payments and Herbalife's advisory fees and expenses). Upon consummation of the merger, each public stockholder of Herbalife received $19.50 in cash for each share of common stock owned. The holder of each outstanding option to purchase Herbalife common stock received an amount in cash equal to the excess of $19.50 over the exercise price of such option. Net of aggregate proceeds received by Herbalife from the exercise of options, the merger consideration paid to the stockholders and option holders of Herbalife was approximately $682.3 million. In connection with the merger, we and our affiliates consummated certain related financing transactions, including the issuance by WH Acquisition on June 27, 2002 of $165.0 million of the Series A Notes (issued at 98.716% of par) due July 15, 2010 (which Notes were assumed by Herbalife upon the consummation of the merger) and the issuance by WH Holdings on July 31, 2002 of $38.0 million of 15.5% senior notes due July 15, 2011. The net proceeds from the sale of the Series A Notes were placed in escrow pending consummation of the merger. On July 31, 2002, the escrowed net proceeds were released to fund a portion of the acquisition. From the proceeds of the sale of the senior notes, approximately $12.5 million has been escrowed to pay cash interest on the senior notes for approximately 2 1/2 years. See "Certain Agreements Relating to the Acquisition -- Securities Purchase Agreement." In addition, on July 31, 2002, we entered into a credit agreement with various lenders, including Whitney Private Debt Fund, L.P., and UBS AG, Stamford Branch, as administrative agent, which provides for a term loan in the amount of $180.0 million and a revolving credit facility in the amount of $25.0 million. The Series A Notes and the senior credit facilities are guaranteed by the following entities which we will describe in this prospectus as "guarantors," which term will also include any future guarantors as described in this prospectus: - Herbalife International Do Brasil Ltda.; - Herbalife (UK) Limited; - Herbalife Europe Limited; - Herbalife International Finland OY; - Herbalife International of Israel (1990) Ltd.; - Herbalife of Japan K.K.; - Herbalife Internacional de Mexico, S.A. de C.V.; - Herbalife Products de Mexico, S.A. de C.V.; - Herbalife Sweden Aktiebolag; - Herbalife China, LLC; - Herbalife International of America, Inc.; - Herbalife International Communications, Inc.; - Herbalife International Distribution, Inc.; - Herbalife International of Europe, Inc.; - Herbalife Taiwan, Inc.; - Herbalife International (Thailand) Ltd.; - WH Luxembourg CM S.a.R.L.; - WH Luxembourg Intermediate Holdings S.a.R.L.; - WH Luxembourg Holdings S.a.R.L.; and - WH Intermediate Holdings Ltd. 8 The senior credit facilities are also guaranteed by WH Holdings. The obligations under the senior credit facilities are secured by (i) first priority pledges of (A) all of the stock of the guarantors and (B) 65% of the equity interests of the foreign subsidiaries of Herbalife that are not guarantors, other than the following subsidiaries: - HIIP Investment Co., LLC; - Herbalife Foreign Sales Corporation; - Importadora Y Distribuidora Herbalife International de Chile Limitada; - Herbalife International Greece S.A.; - Herbalife Hungary Trading, Limited; - PT Herbalife Indonesia; - Herbalife International SBN.BHD; - HBL International Maroc SARL; - Herbalife International Products N.V.; - Herbalife International Holdings, Inc.; - Herbalife International, S.A.; - Herbalife Domincana, S.A.; and - Herbalife Del Ecuador, S.A.; and (ii) security interests in and liens on all accounts receivable, inventory and other property and assets of WH Holdings and the guarantors (other than the escrow account for interest on the senior notes described above). SOURCES AND USES The acquisition was financed through: - gross proceeds of $162.9 million from the sale of the Series A Notes (face value of $165.0 million); - borrowings of $180.0 million under the $205.0 million senior credit facilities; - contribution of net proceeds of $24.0 million by WH Holdings from the sale of its senior notes (face value of $38.0 million); - contribution by the equity sponsors and selected members of Herbalife's distributor organization and senior management of $176.0 million from the sale of preferred shares by WH Holdings; and - use of available cash balances of Herbalife of approximately $228.4 million, of which $4.6 million was used to repurchase Herbalife's minority interest in its Japanese subsidiary, Herbalife of Japan K.K. ("Herbalife of Japan"), which payment was made in May 2002, $6.7 million was used to repay existing debt and $217.1 million was used to finance the acquisition and pay related fees and expenses. The following table summarizes the sources and uses of funds for the acquisition and related financing transactions. 9
AMOUNT --------------------- (DOLLARS IN MILLIONS) SOURCES OF FUNDS Cash on hand(1)........................................... $228.4 Senior credit facilities: Term loan facility..................................... 180.0 Series A Notes(2)......................................... 162.9 WH Holdings, equity investment through issuance of the senior notes(3)........................................ 24.0 Cash from sale of preferred shares of WH Holdings......... 176.0 ------ Total sources.......................................... $771.3 ======
AMOUNT --------------------- (DOLLARS IN MILLIONS) USES OF FUNDS Acquisition consideration(4).............................. $706.6 Acquisition of minority interest(5)....................... 4.6 Repayment of existing debt................................ 6.7 Fees and expenses......................................... 53.4 ------ Total uses............................................. $771.3 ======
- --------------- (1) Reflects cash that Herbalife had available on the acquisition closing date to consummate the acquisition. $228.4 million of Herbalife's available cash was used in the acquisition and related financing transactions. The use of $228.4 million of Herbalife's available cash included (i) $4.6 million required to repurchase Herbalife's minority interest in its Japanese subsidiary, Herbalife of Japan, which was completed in May 2002, (ii) $6.7 million to repay existing debt and (iii) $217.1 million to fund the acquisition consideration and pay related fees and expenses. (2) The aggregate principal amount of the Series A Notes is $165.0 million (which notes were issued at 98.716% of par, or gross proceeds of $162.9 million). (3) The principal amount of the senior notes was $38.0 million of which approximately $12.5 million was used to fund approximately 2 1/2 years of interest into escrow on the senior notes and approximately $1.5 million was used to pay the fees related to the issuance of the senior notes and the remainder (i.e., approximately $24.0 million) was contributed to equity by WH Holdings to consummate the acquisition. (4) Total aggregate acquisition consideration consists of: Merger consideration (net of aggregate proceeds received by Herbalife from the exercise of options)................... $682.3 Change of control payments.................................. 7.6 Herbalife's advisory fees and expenses...................... 16.7 ------ Total acquisition consideration............................. $706.6 ======
(5) As required in the merger agreement, Herbalife completed the acquisition of the minority interest in its Japanese subsidiary, Herbalife of Japan, in early May 2002 and the payment was made at that time. 10 THE EQUITY SPONSORS WHITNEY & CO., LLC Whitney & Co., LLC is an affiliate of Whitney & Co. which was established in 1946 by the industrialist and philanthropist, John Hay Whitney, as one of the first U.S. venture capital firms pioneering the development of the private equity industry. Today, the firm remains a private partnership owned by the investing professionals and its main activity is to provide private equity and debt capital for middle market growth buyouts. Whitney manages approximately $5 billion of assets for major endowments, foundations and pension plans, and the firm is currently investing its fifth outside equity fund, Whitney V, L.P., a $1.1 billion fund, and its third private mezzanine debt fund. Whitney investment activities are focused on market leading companies that are poised for growth in a number of industries including healthcare and consumer products. Whitney is located in Stamford, Connecticut with an office in San Francisco and other professionals or affiliates in London, Tokyo and Hong Kong. GOLDEN GATE PRIVATE EQUITY, INC. Golden Gate Private Equity, Inc. is a San Francisco-based private equity investment firm with approximately $700 million of capital under management. Golden Gate is dedicated to partnering with world class management teams to invest in change-intensive, growth businesses. They target investments of up to $100 million in situations where there is a demonstrable opportunity to significantly enhance a company's value. The principals of Golden Gate have a long and successful history of investing with management partners across a wide range of industries and transaction types, including leveraged buyouts, and recapitalizations, corporate divestitures and spin-offs, build-ups and venture stage investing. Additionally, the principals of Golden Gate draw on their strong consulting heritage at Bain & Company in their investment approach. 11 CORPORATE STRUCTURE The following chart summarizes the current organizational structure of WH Holdings and its subsidiaries, which represents the intermediate stage of the holding company restructuring, and their respective principal debt and other obligations. See "Capitalization," "Description of Notes," "Description of Senior Credit Facilities," "Certain Relationships and Related Transactions," and "The Acquisition." (FLOWCHART) 12 The following chart summarizes the final organizational structure of WH Holdings and its subsidiaries, after giving effect to the proposed holding company restructuring, which we expect to complete on or about December 31, 2002. [CORPORATE STRUCTURE CHART] - --------------- (1) Since the consummation of the acquisition and related financing transactions, investment funds managed by Whitney and Golden Gate, as well as selected members of our distributor organization and senior management have owned all of the outstanding capital stock of WH Holdings. In addition, warrants to purchase preferred shares of WH Holdings were issued in connection with the sale of senior notes. See "Certain Agreements Relating to the Acquisition -- Securities Purchase Agreement." (2) WH Luxembourg CM S.a.R.L. is expected to enter into contracts with third-party manufacturers for Herbalife's products and perform other operational functions. 13 SUMMARY OF THE TERMS OF THE EXCHANGE OFFER The Exchange Offer............ We are offering to exchange up to $165,000,000 principal amount of the Series A Notes for up to $165,000,000 principal amount of the Series B Notes. As of the date of this prospectus, Series A Notes representing $165,000,000 aggregate principal amount are outstanding. The Series B Notes will evidence the same debt as the Series A Notes, and the Series A Notes and the Series B Notes will be governed by the same indenture. The Series B Notes are described in detail under the heading "Description of Notes" beginning on page 106 of this prospectus. Resale........................ We believe that you can resell and transfer the Series B Notes without registering them under the Securities Act and delivering a prospectus, if you can make the representations that appear below under the heading "-- Procedures for Tendering the Series A Notes." But, our belief is based on interpretations of the SEC for other exchange offers that the SEC expressed in some of its no-action letters to other issuers in exchange offers like ours. We cannot guarantee that the SEC would make a similar decision about this exchange offer. If our belief is wrong, or if you cannot truthfully make the representations mentioned above, and you transfer any Series B Note issued to you in the exchange offer without meeting the registration and prospectus delivery requirements of the Securities Act, or without an exemption from such requirements, you could incur liability under the Securities Act. We are not indemnifying you for any such liability. A broker-dealer can only resell or transfer the Series B Notes if it will deliver a prospectus. Expiration Date............... The exchange offer will expire at 5:00 p.m., New York City time, January 24, 2003 or a later date and time if we extend it. Withdrawal.................... You may withdraw the tender of any Series A Notes pursuant to the exchange offer at any time prior to the expiration date. We will return, as promptly as practicable after the expiration or termination of the exchange offer, any Series A Notes not accepted for exchange for any reason without expense to you. Interest on the Notes......... Interest on the Series B Notes will accrue from the date of the original issuance of the Series A Notes or from the date of the last payment of interest on the Series A Notes, whichever is later. No additional interest will be paid on Series A Notes tendered and accepted for exchange. Conditions to the Exchange Offer......................... The exchange offer is not subject to any conditions other than that it does not violate applicable law or any applicable interpretation of the staff of the SEC. We reserve the right to waive any defects, irregularities or conditions to exchange as to particular Series A Notes. See "The Exchange Offer -- Conditions of the Exchange Offer" beginning on page 96 of this prospectus. Procedures for Tendering Series A Notes................ If you wish to accept the exchange offer, you must complete, sign and date the accompanying letter of transmittal in accordance with 14 the instructions in the letter of transmittal, and deliver the letter of transmittal, along with the Series A Notes and any other required documentation, to the exchange agent. By executing the letter of transmittal, you will represent to us that, among other things: - any Series B Notes that you receive will be acquired in the ordinary course of your business, - you are not participating, and you have no arrangement or understanding with any person to participate, in the distribution of the Series B Notes, - you are not our "affiliate", as defined in Rule 405 of the Securities Act or a broker-dealer tendering Series A Notes acquired directly from us, and - if you are not a broker-dealer, you will also be representing that you are not engaged in and do not intend to engage in a distribution of the Series B Notes. Each broker-dealer receiving Series B Notes for its own account in exchange for Series A Notes must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Series B Notes. The letter of transmittal states that, by making this acknowledgement and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer who acquired the Series A Notes for its own account as a result of market-making or other trading activities may use this prospectus for an offer to resell, resale or other transfer of the Series B Notes. We will accept for exchange any and all Series A Notes which are properly tendered (and not withdrawn) in the exchange offer prior to the expiration date. The Series B Notes issued pursuant to the exchange offer will be delivered promptly following the expiration date. See "The Exchange Offer -- Acceptance of Series A Notes for Exchange" beginning on page 98 of this prospectus. Special Procedures for Beneficial Owners............. If you are a beneficial owner whose Series A Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender such Series A Notes in the exchange offer, please contact the registered holder as soon as possible and instruct them to tender your Series A Notes on your behalf and comply with our instructions set forth elsewhere in this prospectus. Guaranteed Delivery Procedures.................... If you cannot meet the expiration date deadline, or you cannot deliver your Series A Notes, the letter of transmittal or any other documentation on time, then you must surrender your Series A Notes according to the guaranteed delivery procedures set forth under "The Exchange Offer -- Procedures for Tendering Series A Notes -- Guaranteed Delivery" beginning on page 99 of this prospectus. 15 Registration Rights Agreement..................... We sold the Series A Notes on June 27, 2002, to the initial purchaser in a transaction that was exempt from the registration requirements of the Securities Act. In connection with the sale, we entered into a registration rights agreement with the initial purchaser which grants the holders of the Series A Notes specified exchange and registration rights. This exchange offer satisfies those rights, which terminate upon consummation of the exchange offer. You will not be entitled to any exchange or registration rights with respect to the Series B Notes. Effect of Not Tendering....... Series A Notes that are not tendered or that are tendered but not accepted will, following the completion of the exchange offer, continue to be subject to the existing restrictions upon transfer thereof. We will have no further obligation to provide for the registration under the Securities Act of such Series A Notes. Neither the Nevada Revised Statutes nor the indenture relating to the Notes gives you any appraisal or dissenters' rights or any other right to seek monetary damages in court if you do not participate in the exchange offer. U.S. Federal Income Tax Considerations................ We believe the exchange of Series A Notes for Series B Notes pursuant to the exchange offer will not constitute a sale or an exchange for federal income tax purposes. See "United States Federal Income Tax Consequences" beginning on page 155 of this prospectus. Use of Proceeds............... We will not receive any proceeds from the exchange of Notes pursuant to the exchange offer. Exchange Agent................ We have appointed The Bank of New York as the exchange agent for the exchange offer. The Bank of New York also serves as the trustee under the indenture for the Notes. The mailing address and telephone number of the exchange agent are The Bank of New York, Reorganization Section, 101 Barclay Street-7E, New York, New York 10286, Attention: Bernard Arsenec, (212) 815-5098. See "The Exchange Offer -- Exchange Agent" beginning on page 103 of this prospectus. 16 SUMMARY OF THE TERMS OF THE SERIES B NOTES The form and terms of the Series B Notes are substantially the same as the form and terms of the Series A Notes, except that the Series B Notes are registered under the Securities Act. As a result, the Series B Notes will not bear legends restricting their transfer and will not contain the registration rights contained in the Series A Notes. Issuer........................ Herbalife International, Inc., a Nevada corporation. Notes Offered................. $165,000,000 aggregate principal amount of 11 3/4% Series B Senior Subordinated Notes due July 15, 2010. The Series B Notes are general unsecured senior subordinated obligations and subordinated to all our senior debt. Maturity Date................. July 15, 2010. Interest...................... The Notes will bear interest at the rate of 11 3/4% per year. Interest on the Series B Notes will accrue from the date of the original issuance of the Series A Notes or from the date of the last payment of interest on the Series A Notes, whichever is later. Interest on the Notes is payable semiannually in arrears, on the fifteenth calendar day of each January and July (or if that day is not a business day, then the next succeeding business day), commencing on January 15, 2003. A business day is a day on which banks are not required or authorized to close in the City of New York. The Series A Notes were issued on June 27, 2002 and interest on the Notes started accruing as of June 27, 2002. Ranking....................... The Notes and the guarantees are general unsecured senior subordinated obligations and will rank: - junior to all of the existing and future senior indebtedness of Herbalife International, Inc. and the guarantors, including our new senior credit facilities; - equally with any of the existing and future senior subordinated indebtedness of Herbalife International, Inc. and the guarantors; and - senior to all of the existing and future subordinated indebtedness of Herbalife International, Inc. and the guarantors. The Notes will be effectively subordinated to all existing and future indebtedness and other liabilities of the subsidiaries of WH Intermediate Holdings and Herbalife that are not guarantors of the Notes. As of October 31, 2002, the Notes and the guarantees rank junior to the approximately $178.5 million of senior indebtedness (including $2.6 million of capital leases). Guarantees.................... The guarantors jointly and severally, fully and unconditionally (subject to applicable fraudulent conveyance or local law) guarantee the Notes on a senior subordinated basis. All future subsidiaries of WH Intermediate Holdings that become a guarantor under our senior credit facilities will guarantee the Notes on a senior subordinated basis on the date such subsidiary becomes a guarantor under our senior credit facilities. 17 These guarantees will be general unsecured senior subordinated obligations of the guarantors and will be subordinated to all of the senior indebtedness of the guarantors and will be effectively subordinated to all existing and future indebtedness and other liabilities of the subsidiaries of WH Intermediate Holdings and Herbalife that are not guarantors of the Notes. Optional Redemption........... We may redeem the Notes, in whole or in part, on or after July 15, 2006 at the redemption prices set forth in this prospectus. In addition, prior to July 15, 2005, we may redeem up to 35% of the Notes with the net cash proceeds of one or more qualified equity offerings if at least 65% of the aggregate principal amount of the Notes remain outstanding. See "Description of Notes -- Optional Redemption" for more information. Change of Control............. Upon a change of control, you may require us to repurchase all or a portion of your Notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. Certain Covenants............. The indenture governing the Notes contains covenants that limit WH Intermediate Holdings' and its subsidiaries' ability to, among other things: - pay dividends, redeem capital stock and make other restricted payments and investments; - incur additional debt or issue preferred stock; - allow the imposition of dividend or other distribution restrictions on our subsidiaries; - create liens on assets; - engage in transactions with affiliates; and - merge, consolidate or sell all or substantially all of our assets and the assets of our subsidiaries. All of these limitations are subject to important exceptions and qualifications described under "Description of Notes -- Certain Covenants." FEDERAL INCOME TAX CONSEQUENCES See "United States Federal Income Tax Consequences" starting on page 155 of this prospectus. ADDITIONAL INFORMATION Herbalife's principal executive offices are located at 1800 Century Park East, Los Angeles, California 90067. Herbalife's telephone number is (310) 410-9600. 18 SUMMARY UNAUDITED PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA The following table sets forth certain of our historical financial data. We have derived the summary historical consolidated financial data as of December 31, 2000 and 2001 and for the years ended December 31, 1999, 2000 and 2001 from our audited financial statements and the related notes included elsewhere in this prospectus. The summary historical consolidated financial data as of December 31, 1997, 1998 and 1999 and for the years ended December 31, 1997 and 1998 have been derived from our audited financial statements for such years, which are not included in this prospectus. We have derived the summary historical consolidated financial data as of and for the nine months ended September 30, 2001, as of and for the seven months ended July 31, 2002 and as of and for the two months ended September 30, 2002 from our unaudited consolidated financial statements and the related notes included elsewhere in this prospectus. The table also contains summary unaudited pro forma financial information derived from the financial information set forth under "Unaudited Pro Forma Condensed Consolidated Financial Statements" included elsewhere in this prospectus. The unaudited pro forma condensed consolidated financial data do not purport to present our actual financial position or results of operations had the merger and related financing transactions actually occurred on the date specified. The summary unaudited pro forma and historical financial data set forth below are not necessarily indicative of the results of future operations and should be read in conjunction with our audited consolidated financial statements, the selected consolidated historical financial data and the unaudited pro forma condensed consolidated financial statements and, in each case, the related notes included elsewhere in this prospectus, the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical consolidated financial statements and accompanying notes included elsewhere in this prospectus. 19
HISTORICAL ---------------------------------------------------------------------------------------------- NINE MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------------------------------------- SEPTEMBER 30, JANUARY 1 TO 1997 1998 1999 2000 2001 2001 JULY 31, 2002 ---------- ---------- ---------- ---------- ---------- ------------- ------------- (PREDECESSOR) (SUCCESSOR) ---------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) OPERATIONS: Retail sales............. $1,490,693 $1,644,837 $1,793,508 $1,764,851 $1,656,168 $1,237,417 $1,047,690 Net sales................ 884,865 980,197 1,098,885 1,085,484 1,020,130 762,370 644,188 Gross profit............. 667,197 733,988 833,976 816,492 778,608 580,672 503,635 Operating Income(1)...... 85,985 78,330 92,573 60,941 68,775 52,157 14,304 Net Income(1)............ 54,667 48,498 56,923 36,919 42,588 32,631 9,212 OTHER FINANCIAL DATA: Retail sales change (as reported)............... 24.2% 10.3% 9.0% (1.6)% (6.2)% (7.8)% 9.9% Retail sales change (in local currency)......... 33.0% 16.3% 6.4% 0.1% (0.7)% (2.0)% 11.4% EBITDA(2)................ $ 96,951 $ 94,131 $ 106,574 $ 86,132 $ 86,831 $ 65,217 $ 80,734 Adjusted EBITDA(3)....... -- -- -- -- 103,117 74,505 84,771 Adjusted EBITDA margin(4)............... -- -- -- -- 6.2% 6.0% 8.1% Depreciation and amortization............ $ 10,966 $ 15,801 $ 14,001 $ 15,693 $ 18,056 13,060 11,722 Capital expenditures(5)......... 15,832 19,864 32,607 25,383 14,751 10,673 6,799 Ratio of earnings to fixed charges(6)........ 16.8 10.6 11.5 8.1 8.6 9.7 4.4 Net cash provided by (used in): operating activities.... 56,190 57,413 95,414 46,141 95,465 79,321 37,901 investing activities.... (17,989) 7,879 (43,517) (49,968) (16,366) (11,403) 18,995 financing activities.... (42,089) (46,131) (16,041) (14,079) (3,456) 407 (35,292) BALANCE SHEET DATA: Cash, cash equivalents and marketable securities.............. $ 122,707 $ 105,907 $ 139,443 $ 140,250 $ 201,181 $ 195,290 $ 203,087 Receivables, net......... 46,021 44,471 30,326 24,600 27,609 26,338 31,601 Inventories.............. 71,583 88,138 101,557 99,332 72,208 78,501 60,864 Total working capital(7).............. 125,986 120,623 133,137 145,211 177,813 174,271 199,394 Total assets............. 314,580 348,183 415,819 416,937 470,335 465,376 501,867 Total debt............... 4,115 4,996 8,380 8,417 10,612 11,571 8,991 Stockholders' equity..... 154,733 163,811 206,602 222,401 260,916 253,412 279,528 RATIOS AND PRO FORMA DATA(8) Cash interest expense(9).............. -- -- -- -- -- -- -- Ratio of total debt to adjusted EBITDA......... -- -- -- -- -- -- -- Ratio of adjusted EBITDA to cash interest expense................. -- -- -- -- -- -- -- HISTORICAL PRO FORMA ------------- ------------- TWELVE MONTHS AUGUST 1 TO ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2002 ------------- ------------- (SUCCESSOR) OPERATIONS: Retail sales............. $ 285,800 $1,752,241 Net sales................ 176,175 1,078,123 Gross profit............. 138,030 839,601 Operating Income(1)...... 22,311 100,117 Net Income(1)............ 5,814 37,677 OTHER FINANCIAL DATA: Retail sales change (as reported)............... 0.7% -- Retail sales change (in local currency)......... (0.5)% -- EBITDA(2)................ $ 26,063 124,244 Adjusted EBITDA(3)....... 26,063 135,279 Adjusted EBITDA margin(4)............... 9.1% 7.7% Depreciation and amortization............ 3,752 24,127 Capital expenditures(5)......... 1,886 12,763 Ratio of earnings to fixed charges(6)........ 1.7 Net cash provided by (used in): operating activities.... 16,716 investing activities.... (652,811) financing activities.... 511,533 BALANCE SHEET DATA: Cash, cash equivalents and marketable securities.............. $ 77,154 -- Receivables, net......... 30,106 -- Inventories.............. 56,651 -- Total working capital(7).............. 6,359 -- Total assets............. 872,790 -- Total debt............... 341,519 -- Stockholders' equity..... 197,470 -- RATIOS AND PRO FORMA DATA(8) Cash interest expense(9).............. 30,303 Ratio of total debt to adjusted EBITDA......... 2.5x Ratio of adjusted EBITDA to cash interest expense................. 4.5x
- --------------- (1) Operating income and net income for the fiscal year ended December 31, 2000 include a one-time pre-tax charge of $9.5 million relating to fees and expenses in connection with the termination of a proposed buy-out transaction by Mark Hughes, founder and Chief Executive Officer of Herbalife at that time. Operating income and net income for the seven months ended July 31, 2002 include a one time charge of $54.7 million relating to fees and expenses in connection with the merger. (2) EBITDA represents net income plus minority interest, income taxes, net interest expense, depreciation and amortization and transaction expenses. We present EBITDA because management believes it provides useful information regarding a company's ability to service and/or incur debt. You should not consider EBITDA in isolation from or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. EBITDA, as presented, may not be comparable to similarly titled measures reported by other companies. 20 (3) Adjusted EBITDA is calculated by adding to EBITDA certain items of expense that we believe are not indicative of our future operating performance. These items consist of:
HISTORICAL PRO FORMA ------------------------------------------------------------ ------------- NINE MONTHS ENDED TWELVE MONTHS YEAR ENDED SEPTEMBER 30 AUGUST 1, TO ENDED DECEMBER 31, ------------- JANUARY 1 TO SEPTEMBER 30, SEPTEMBER 30, 2001 2001 JULY 31, 2002 2002 2002 ------------ ------------- ------------- ------------- ------------- (PREDECESSOR) -------------------------------------------- (SUCCESSOR) (DOLLARS IN THOUSANDS) EBITDA....................... $ 86,831 $ 65,217 $80,734 $26,063 $124,244 Severance and other employee related expenses(a)........ 9,898 3,208 3,973 10,663 Product costs under previous supply agreements(b)....... 5,666 5,666 Other(c)..................... 722 414 64 372 -------- ------------- ------- ------- -------- Adjusted EBITDA.............. $103,117 $ 74,505 $84,771 $26,063 $135,279 ======== ============= ======= ======= ========
(a) In the year ended December 31, 2001, the nine months ended September 30, 2001 and the seven months ended July 31, 2002, we incurred approximately $9.9 million, $3.2 million and $4.0 million, respectively, of severance costs related to changes in senior management. Additionally, we replaced certain key executives at lower salary levels. (b) On December 31, 2000, Herbalife's long-term contract with its primary supplier expired. In 2001, Herbalife entered into new supply contracts which have resulted in product cost savings. Product costs under the new supply contracts would have resulted in savings of $5.7 million for the year ended December 31, 2001 and the nine months ended September 30, 2001, respectively. We anticipate that the costs savings will continue on a go forward basis. (c) During the year ended December 31, 2001 and the nine months ended September 30, 2001, we incurred costs of $466,000 and $222,000, respectively, related to specific legal and professional fees, not expected to recur. In addition, during the year ended December 31, 2001, the nine months ended September 30, 2001 and the seven months ended July 31, 2002, Herbalife contributed services to the Herbalife Family Foundation costing $256,000, $192,000 and $64,000, respectively. We do not plan to continue to contribute such services on a go forward basis. (4) Adjusted EBITDA margin represents adjusted EBITDA as a percentage of retail sales. (5) Includes acquisitions of property from capitalized leases of $2.7 million, $0.8 million, $1.9 million, $0.4 million and $3.8 million for 1997, 1998, 1999, 2000 and 2001, respectively, and $3.5 million, $2.1 million and zero for the nine months ended September 30, 2001, the seven months ended July 31, 2002 and the two months ended September 30, 2002, respectively, and $2.4 million for the twelve months ended September 30, 2002. (6) In calculating ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense (which includes amortization of deferred financing costs) and one-third of rental expense, representing that portion of rental expense deemed to be attributable to interest. (7) Includes cash, cash equivalents and marketable securities. (8) Adjusted to reflect the acquisition and the issuance of $165.0 million of the Notes, borrowings of $180.0 million under the senior credit facilities, the contribution of $24.0 million from the issuance of WH Holdings' senior notes and the use of $228.4 million of Herbalife's available cash. (9) Represents pro forma cash interest expense on the Notes, senior credit facilities and capital lease obligations. 21 RISK FACTORS You should carefully consider the following risk factors in addition to the other information contained in this prospectus before deciding to surrender your Series A Notes in exchange for Series B Notes pursuant to this exchange offer. These risks apply to both the Series A Notes and the Series B Notes. The risks described below are not the only ones we face. Other risks, including those that we do not currently consider material or may not currently anticipate, may impair our business. In preparing this document, we have made assumptions and projections. We generally use words like "expect," "believe" and "intend" to indicate these assumptions and projections, as we explain in "Disclosure Regarding Forward Looking Statements" on page (ii). Our assumptions and projections could be wrong for many reasons, including the reasons discussed in this section. We do not promise to notify you if we learn that our assumptions and projections in this prospectus are wrong. RISKS RELATED TO OUR BUSINESS OUR FAILURE TO MAINTAIN OUR DISTRIBUTOR RELATIONSHIPS COULD ADVERSELY AFFECT OUR BUSINESS. We distribute our products through independent distributors, and we depend upon them directly for substantially all of our sales. Accordingly, our success depends in significant part upon our ability to attract, retain and motivate a large base of distributors. As a result of our network marketing system and our international sponsorship program, the distributor organization headed by a relatively small number of key distributors is responsible for a significant percentage of total retail sales, including, in many cases, retail sales in several different countries. Prior to the merger, some of our distributors indicated that they disapproved of the terms of the merger. There can be no assurances that the merger and related financing transactions will not adversely impact our relationships with existing distributors or impair our ability to attract new distributors. The loss of a significant number of distributors, including any key distributors, could materially adversely affect sales of our products and could impair our ability to attract new distributors. Moreover, the replacement of distributors could be difficult because, in our efforts to attract and retain distributors, we compete with other network marketing organizations, including those in the weight management product, dietary and nutritional supplement, and personal care and cosmetic product industries. Our distributors may terminate their services to us at any time. In addition, adverse publicity and regulatory action relating to us, our products or our operations, including our network marketing system, has had, and could again have, a negative effect on our ability to attract, motivate and retain distributors. In the mid-1980s, our products and marketing system became the subject of regulatory scrutiny in the United States, resulting in large part from claims and representations made about our products by our distributors, including impermissible therapeutic claims. The resulting adverse publicity caused a rapid, substantial loss of distributors in the United States and a corresponding reduction in sales beginning in 1985. We expect that negative publicity or regulatory action will, from time to time, continue to adversely affect our business in particular markets and may adversely affect our business in general. REGULATORY MATTERS GOVERNING OUR INDUSTRY COULD HAVE A SIGNIFICANT NEGATIVE EFFECT ON OUR BUSINESS. In both our U.S. and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions. PRODUCT REGULATIONS. The formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products are subject to extensive regulation by various federal agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety Commission and the United States Department of Agriculture and by various agencies of the states, localities and foreign countries in which our products are manufactured, distributed and sold. Failure by us or our distributors to comply with those regulations could lead to the imposition of significant penalties or claims and could materially adversely affect our business. In addition, the adoption of new regulations or 22 changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may adversely affect the marketing of our products, resulting in significant loss of sales revenues. For example, while most of our products are classified as foods or dietary supplements and therefore not subject to pre-market regulatory approval in the United States, the FDA has in the past proposed a more restrictive pre-market regulatory system. Our business is therefore subject to the potential costs and other disadvantages of such enhanced regulation. EPHEDRINE-CONTAINING PRODUCTS. One of the ingredients in our Thermojetics(R) original green herbal tablet is a Chinese herb, Ma Huang, which contains naturally-occurring ephedrine in small quantities. Also, two other products that we offer, Thermojetics(R) green (Refresh) tablets and Thermojetics(R) gold tablets, contain sida cordifolia, another botanical source of naturally-occurring ephedrine. Ephedrine products have been the subject of adverse publicity and regulatory scrutiny in the United States and other countries relating to alleged harmful effects, including the deaths of several individuals. The FDA has on record a small number of reports of adverse reactions allegedly resulting from the ingestion of Ma Huang contained in our Thermojetics(R) original green herbal tablet. We have not received any communications from the FDA with regard to these reports but we are defendants in five legal actions, including three wrongful death suits, seeking to link the ingestion of Thermojetics(R) original green herbal tablets with subsequent medical problems. We cannot assure you that more claims will not be made which could adversely affect our business. In addition, we cannot assure you that the withdrawal of our products that currently contain ephedrine would not have a material adverse effect on sales of any other products within the Thermojetics(R) Weight Management Program in the United States, which includes a significant portion of our weight management products (9.4% of our retail sales in 2001), even though these products do not contain ephedrine. Currently, we offer the Thermojetics(R) original green and gold herbal tablets only in the United States, except in those states in which regulations may prohibit or restrict the sale of the product. The Thermojetics(R) original green tablets, the Thermojetics(R) green (Refresh) tablets and Thermojetics(R) gold tablets amounted to approximately $51.5 million, or 3.1% of our retail sales in 2001. PRODUCT CLAIMS, ADVERTISING AND DISTRIBUTOR ACTIVITIES. Our failure to comply with FTC or state regulations, or with regulations in foreign markets that cover our product claims and advertising, including direct claims and advertising by us, as well as claims and advertising by distributors for which we may be held responsible, may result in enforcement actions and imposition of penalties or otherwise materially and adversely affect the distribution and sale of our products. Distributor activities in our existing markets that violate applicable governmental laws or regulations could result in governmental or private actions against us in markets where we operate. For example, as a response to complaints from local regulators in some of our markets, we imposed a ban in March 2002 on our distributors' inappropriate use of outdoor signage. We cannot assure you as to the effect such ban will have. Given the size of our distributor force, we cannot assure that our distributors will comply with applicable legal requirements. NETWORK MARKETING SYSTEM. Our network marketing system is subject to a number of federal and state regulations administered by the FTC and various state agencies as well as regulations in foreign markets administered by foreign agencies. Regulations applicable to network marketing organizations generally are directed at ensuring that product sales ultimately are made to consumers and that advancement within the organizations is based on sales of the organizations' products rather than investments in the organizations or other non-retail sales related criteria. We are subject to the risk that, in one or more markets, our marketing system could be found not to be in compliance with applicable regulations. The failure of our network marketing system to comply with such regulations could have a material adverse effect on our business in a particular market or in general. We are also subject to the risk of private party challenges to the legality of our network marketing system. The multi-level marketing programs of other companies have been successfully challenged in the past, and in a recent lawsuit, an allegation was made challenging the legality of our network marketing system. The regulatory requirements concerning network marketing systems do not include "bright line" rules and are inherently fact-based. An adverse judicial determination with respect to our network marketing system, or in proceedings not involving us directly but which challenge the legality of multi-level marketing systems, could have a material adverse effect on our business. 23 TRANSFER PRICING AND SIMILAR REGULATIONS. In many countries, including the United States, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned by our U.S. or local entities and are taxed accordingly. In addition, our operations are subject to regulations designed to ensure that appropriate levels of customs duties are assessed on the importation of our products. We currently are subject to pending or proposed audits that are at various levels of review, assessment or appeal in a number of jurisdictions involving transfer pricing issues, income taxes, value added taxes, withholding taxes and related interest and penalties in material amounts. In some circumstances, additional taxes, interest and penalties have been assessed, and we will be required to litigate to reverse the assessments. Ultimate resolution of these matters may take several years, and the outcome is uncertain. TAXATION RELATING TO DISTRIBUTORS. Our distributors are subject to taxation, and in some instances legislation or governmental agencies impose an obligation on us to collect the taxes, such as value added taxes, and maintain appropriate records. In addition, we are subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to our distributors. OTHER REGULATIONS. We also are subject to a variety of other regulations in various foreign markets, including regulations pertaining to employment and severance pay requirements, import/export regulations and antitrust issues. Our failure to comply, or assertions that we fail to comply, with these regulations could have a material adverse effect on our business in a particular market or in general. To the extent we decide to commence or expand operations in additional countries, government regulations in those countries may prevent or delay entry into or expansion of operations in those markets. In addition, our ability to sustain satisfactory levels of sales in our markets is dependent in significant part on our ability to introduce additional products into the markets. However, government regulations in both our domestic and international markets can delay or prevent the introduction, or require the reformulation or withdrawal, of some of our products. See "Business -- Regulation -- Products." BECAUSE OF OUR DEPENDENCE UPON CONSUMER PERCEPTIONS, ADVERSE PUBLICITY ASSOCIATED WITH HARMFUL EFFECTS RESULTING FROM THE CONSUMPTION OF OUR PRODUCTS, OR ANY SIMILAR PRODUCTS DISTRIBUTED BY OTHER COMPANIES, COULD HAVE A MATERIAL ADVERSE EFFECT ON US. Because we are highly dependent upon consumers' perception of the safety and quality of our products as well as similar products distributed by other companies, we could be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to consumers. Also, because of our dependence upon consumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from consumers' use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on us. Adverse publicity could also negatively affect our ability to attract, motivate and retain distributors. See "Business -- Regulation -- Products." PRODUCT LIABILITY CLAIMS COULD HURT OUR BUSINESS. Our products consist of herbs, vitamins and minerals and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. We do not conduct or sponsor clinical studies of our products. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, we have been and may again be subjected to various product liability claims, including that: (i) our products contain contaminants; (ii) our products include inadequate instructions as to their uses; or (iii) our products include inadequate warnings concerning side effects and interactions with other substances. It is possible that widespread product liability claims and the resulting adverse publicity could negatively affect our business; that our product liability insurance may fail to cover future product liability claims so we could be required to pay substantial monetary damages which could harm our business; and that we may become required to pay higher premiums and accept higher deductibles in order to secure adequate insurance coverage in the future. 24 WE DO NOT MANUFACTURE OUR OWN PRODUCTS SO WE MUST RELY ON INDEPENDENT THIRD PARTIES FOR THE MANUFACTURE AND SUPPLY OF OUR PRODUCTS. All of our products are manufactured by outside companies, except for a small amount of products manufactured in our own manufacturing facility in China. There is no assurance that these outside manufacturers will continue to reliably supply products to us at the level of quality we require. In the event any of our third-party manufacturers were to become unable or unwilling to continue to provide the products in required volumes and quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources. There is no assurance that we will be able to obtain alternative manufacturing sources on a timely basis. An extended interruption in the supply of our products, like the Formula 1 meal replacement product, would result in loss of sales. In addition, any actual or perceived degradation of product quality as a result of our reliance on third party manufacturers may have an adverse effect on sales or result in increased product returns and buybacks. OUR FOREIGN OPERATIONS ARE EXPOSED TO RISKS ASSOCIATED WITH FOREIGN REGULATIONS, EXCHANGE RATE FLUCTUATIONS, TRADE RESTRICTIONS AND POLITICAL, ECONOMIC AND SOCIAL INSTABILITY. A foreign government may impose trade or foreign exchange restrictions or increased tariffs, which could adversely affect our operations. We also are exposed to risks associated with foreign currency fluctuations. For instance, our purchases from suppliers are generally made in U.S. Dollars while our sales to distributors are generally made in local currencies. Accordingly, strengthening of the U.S. Dollar versus a foreign currency could have a negative impact on us. Although we engage in transactions to protect against risks associated with foreign currency fluctuations, we cannot be certain any hedging activity will effectively reduce our exchange rate exposure. Our operations in some markets also may be adversely affected by political, economic and social instability in foreign countries. As we continue to focus on expanding our existing international operations, these and other risks associated with international operations may increase. A LARGE PORTION OF OUR RETAIL SALES IS CONCENTRATED IN A SMALL NUMBER OF COUNTRIES. Our earnings in future periods may be susceptible to various risks because of the concentration of our retail sales in a small number of countries. Of the 53 countries in which we operated as of December 31, 2001, the United States, Japan, South Korea, Italy, Mexico and Germany accounted for 26.7%, 18.4%, 6.9%, 6.4%, 5.9% and 4.7%, respectively, or 69.0% in the aggregate, of our total retail sales. As a result, our performance is dependent upon economic conditions and consumer demand for our products in these six countries. For the fiscal year ended December 31, 2001, retail sales in Japan declined to 18.4% of our total retail sales from 23.1% during the prior year due to weak consumer demand and competition. ONE OF OUR PRODUCTS CONSTITUTES A SIGNIFICANT PORTION OF OUR RETAIL SALES. Our Formula 1 meal replacement product constitutes a significant portion of our retail sales, accounting for 21.7% in 2001, 21.8% in 2000, 22.2% in 1999, 22.0% in 1998 and 19.8% in 1997. If consumer demand for this product decreases significantly or we cease offering this product without a suitable replacement, our operations could be materially adversely affected. OUR ABILITY TO GROW IN THE FUTURE WILL BE MORE DEPENDENT ON INCREASED PENETRATION OF EXISTING MARKETS THAN NEW MARKET OPENINGS, RELATIVE TO PAST YEARS; AS A RESULT, OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO SUCCESSFULLY INCREASE EXISTING MARKET PENETRATION. We have historically grown our company principally by entering into new markets. Because we have already succeeded in entering into the most attractive markets for our products and distribution system, an increasingly important part of our strategy for continued growth is to increase the number and range of our products available in our existing markets. In addition, our growth will depend upon improved training and other activities that enhance distributor retention in our markets. We cannot assure you that our efforts to increase our market penetration in our existing markets will be successful. 25 In addition, our success has been, and will continue to be, significantly dependent on our ability to manage rapid growth through expansions and enhancements of our worldwide personnel and management, order processing and fulfillment, inventory and shipping systems and other aspects of operations. From time to time, we have experienced out-of-stock situations with respect to some products. As we continue to expand our operations, the ability to manage this growth will represent an increasing challenge. THE HIGH LEVEL OF COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS. The business of marketing weight management products, dietary and nutritional supplements, and personal care and cosmetic products is highly competitive. This market segment includes numerous manufacturers, distributors, marketers, retailers and physicians that actively compete for the business of consumers both in the United States and abroad. The market is highly sensitive to the introduction of new products or weight management plans, including various prescription drugs, which may rapidly capture a significant share of the market. While we own the proprietary rights to substantially all of our weight management products and dietary and nutritional supplements, we cannot be sure that another company will not replicate one of our products. In addition, we anticipate that we will be subject to increasing competition in the future from sellers that utilize electronic commerce. We cannot be sure of the impact of electronic commerce or that it will not adversely affect our business. We are subject to significant competition for the recruitment of distributors from other network marketing organizations, including those that market weight management products, dietary and nutritional supplements, and personal care and cosmetic products as well as other types of products. Some of our competitors are substantially larger than we are, and have available considerably greater financial resources than we have. Our ability to remain competitive depends, in significant part, on our success in recruiting and retaining distributors through an attractive compensation plan and other incentives. We believe that our production bonus program, international sponsorship program and other compensation and incentive programs provide our distributors with significant earning potential. However, we cannot be sure that our programs for recruitment and retention of distributors will be successful. TERRORIST ATTACKS OR ACTS OF WAR MAY SERIOUSLY HARM OUR BUSINESS. Terrorist attacks or acts of war may cause damage or disruption to our company, our employees, our facilities and our customers, which could impact our revenues, costs and expenses, and financial condition. The terrorist attacks that took place in the United States on September 11, 2001 were unprecedented events that have created many economic and political uncertainties, some of which may materially adversely affect our business, results of operations, and financial condition. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties, which could materially adversely affect our business, results of operations, and financial condition in ways that we currently cannot predict. A GENERAL ECONOMIC DOWNTURN MAY REDUCE OUR REVENUES. Worldwide economic conditions may affect demand for our products. Consumer purchases of our products may decline during recessionary periods and also may decline at other times when disposable income is lower. 26 RISKS RELATED TO THE NOTES OUR SUBSTANTIAL AMOUNT OF DEBT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES. In connection with the consummation of the acquisition and related financing transactions, we have incurred a substantial amount of debt which may have important consequences for us. For example, it may: - increase our vulnerability to general adverse economic and industry conditions; - limit our ability to obtain additional financing to fund working capital, capital expenditures and other general corporate requirements; - require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for other purposes; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; - place us at a competitive disadvantage compared to our competitors that have less debt; - make it difficult for us to meet our debt service requirements if we experience a substantial decrease in our net operating cash flows or an increase in our expenses; and - restrict our ability to pay dividends to WH Holdings, so that WH Holdings can pay its debt service obligations on its senior notes, the failure of which may create an event of default under its senior notes, which if not cured or waived, would have a material adverse effect on us. YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES AND THE GUARANTEES IS JUNIOR TO ALL OF OUR AND THE GUARANTORS' SENIOR DEBT. The Notes are general unsecured obligations, junior in right of payment to all of the existing and future senior debt of Herbalife International, Inc. and the guarantors, including obligations under our senior credit facilities. The Notes are not secured by any of our or the guarantors' assets, and as such are effectively subordinated to any secured debt that we or the guarantors have now, including all of the borrowings under our senior credit facilities, or may incur in the future to the extent of the value of the assets securing that debt. In addition, the Notes will be effectively subordinated to all existing and future indebtedness of WH Intermediate Holdings and Herbalife that do not guarantee the Notes. In the event that we or a guarantor is declared bankrupt, becomes insolvent or is liquidated or reorganized, any debt that ranks ahead of the Notes and the guarantees will be entitled to be paid in full from our assets or the assets of the guarantors, as applicable, before any payment may be made with respect to the Notes or the affected guarantees. In any of the foregoing events, we cannot assure you that we would have sufficient assets to pay amounts due on the Notes. As a result, holders of the Notes may receive less, proportionally, than the holders of debt senior to the Notes and the guarantees. The subordination provisions of the indenture governing the Notes also provide that we can make no payment to you during the continuance of payment defaults on our senior debt, and payments to you may be suspended for a period of up to 179 days if a nonpayment default exists under our senior debt. As of October 31, 2002, the Notes and the guarantees rank junior to approximately $178.5 million of senior indebtedness (including $2.6 million of capital leases). In addition, the indenture governing the Notes and the credit agreement governing our senior credit facilities permit, subject to specified limitations, the incurrence of additional debt, some or all of which may be senior debt. 27 TO MAKE PAYMENTS ON OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH; OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. Our ability to make payments on our debt, including the Notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay interest and principal on our debt, including the Notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity. We cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms or at all. OUR ABILITY TO REPAY THE NOTES AND OUR OTHER DEBT DEPENDS ON CASH FLOW FROM OUR SUBSIDIARIES. We are a holding company. Our only material assets are our ownership interests in our subsidiaries. Consequently, we depend on distributions or other inter-company transfers of funds from our subsidiaries to meet our debt service and other obligations, including with respect to the Notes. Our non-guarantor subsidiaries are not obligated to make funds available to us for payment on the Notes. We cannot assure you that the operating results of our subsidiaries will be sufficient to enable us to make payments on the Notes. THE COVENANTS IN THE NOTES AND OUR SENIOR CREDIT FACILITIES LIMIT OUR DISCRETION WITH RESPECT TO CERTAIN BUSINESS MATTERS. The Notes and our senior credit facilities contain numerous financial and operating covenants that restrict our ability to, among other things: - pay dividends, redeem capital stock and make other restricted payments and investments; - incur additional debt or issue preferred stock; - allow the imposition of dividend or other distribution restrictions on our subsidiaries; - create liens on our assets; - engage in transactions with affiliates; and - merge, consolidate or sell all or substantially all of our assets and the assets of our subsidiaries. Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Failure to comply with these covenants could result in a default under the Notes and/or the senior credit facilities, causing all amounts thereunder to become due and payable. In addition, the terms of the senior credit facilities contain financial ratios that we are required to meet. THE ABILITY OF SOME OF OUR FOREIGN SUBSIDIARIES TO GUARANTEE THE NOTES MAY BE RESTRICTED BY LOCAL LAW AND CONSEQUENTLY, LIMIT YOUR POTENTIAL RECOVERY. Local laws governing some of our foreign subsidiaries may restrict the ability of those foreign subsidiaries from issuing a guarantee. In addition, to the extent that local law permits a foreign subsidiary to issue a guarantee, the foreign guarantor may be limited in its ability to pay interest, dividends, distributions, loans or advances to their holding company in some circumstances. For example, some foreign subsidiaries could be subject to restrictions on dividends or repatriations of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which these foreign subsidiaries operate. In addition, foreign subsidiaries may be subject to fraudulent transfer or conveyance laws in the jurisdictions in which they operate. In any of the foregoing events, we cannot assure you that we would have sufficient assets to pay amounts due on the Notes. As a result, you may receive less, proportionately, than holders of debt senior to the Notes. 28 ISSUANCE OF THE NOTES AND THE GUARANTEES BY OUR DOMESTIC SUBSIDIARIES MAY BE SUBJECT TO FRAUDULENT CONVEYANCE LAWS. Under applicable provisions of the U.S. Bankruptcy Code or comparable provisions of state fraudulent transfer or conveyance, if at the time the issuer of the Notes incurred the debt evidenced by the Notes, or a domestic subsidiary guarantor incurred the debt evidenced by its guarantee, as the case may be, it either: - incurred the debt with the intent to hinder, delay or defraud creditors; or - received less than reasonably equivalent value or fair consideration for incurring the debt; and - was insolvent at the time of the incurrence; - was rendered insolvent by reason of the incurrence (and the application of the proceeds thereof); - was engaged or was about to engage in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business; or - intended to incur, or believed that it would incur, debts beyond its ability to pay the debts as they matured; then, in each case, a court of competent jurisdiction could (i) avoid (i.e., cancel) in whole or in part, the Notes or the guarantee of such subsidiary guarantor, as the case may be, and direct the repayment of any amounts paid thereunder, (ii) subordinate the Notes or the guarantees of such subsidiary guarantor, as the case may be, to our obligations to other existing and future creditors or (iii) take other actions detrimental to the noteholders. A court would likely find that neither we nor any subsidiary guarantor received reasonably equivalent value or fair consideration for incurring our respective obligations under the Notes and guarantees unless we or the subsidiary benefited directly or indirectly from the Notes' issuance. In other instances, courts have found that an issuer did not receive reasonably equivalent value or fair consideration if the proceeds of the issuance were paid to the issuer's shareholders, although we cannot predict how a court would rule in this case. The test for determining solvency for purposes of the foregoing will vary depending on the law of the jurisdiction being applied. In general, a court would consider an entity insolvent either if the sum of its existing debts exceeds the fair value of all its property, or if its assets' present fair saleable value is less than the amount required to pay the probable liability on its existing debts as they become due. For this analysis, "debts" includes contingent and unliquidated debts. WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE A CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE GOVERNING THE NOTES. Upon the occurrence of specific change of control events, we will be required to offer to repurchase all outstanding Notes at 101% of their principal amount. It is possible that we will not have sufficient funds at the time of the change of control to repurchase the Notes or that restrictions in our other debt agreements will not allow the repurchases. If we are unable to repurchase the Notes upon a change of control, we would be in default under the indenture governing the Notes, which could cause acceleration of our other debt. In addition, some important corporate events, such as leveraged recapitalizations that would increase the level of our debt, would not necessarily constitute a "Change of Control" under the indenture governing the Notes. YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE SERIES B NOTES AND YOU MAY HAVE TO HOLD THE SERIES B NOTES INDEFINITELY. The Series B Notes are a new issue of securities for which there currently is no trading market. As a result, we cannot provide any assurances that a market will develop for the Series B Notes or that you will be able to sell your Series B Notes. Accordingly, you may be required to bear the financial risk of an investment in the Series B Notes for an indefinite period of time. If any of the Series B Notes are traded after their initial issuance, they may trade at a discount from their initial offering price. Future trading prices of the Series B Notes will depend on many factors, including prevailing interest rates, the market for similar securities, 29 general economic conditions and our financial condition, performance and prospects. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial fluctuations in the prices of non-investment grade securities. We do not intend to apply for listing or quotation of the Series B Notes. THE MARKET VALUE OF THE SERIES B NOTES COULD BE MATERIALLY ADVERSELY AFFECTED IF ONLY A LIMITED NUMBER OF SERIES B NOTES ARE AVAILABLE FOR TRADING. To the extent that a large amount of the Series A Notes are not tendered or are tendered and not accepted in the exchange offer, the trading market for the Series B Notes could be materially adversely affected. Generally, a limited amount, or "float," of a security could result in less demand to purchase such security and, as a result, could result in lower prices for such security. We cannot assure you that a sufficient number of Series A Notes will be exchanged for Series B Notes so that this does not occur. IF YOU DO NOT PROPERLY TENDER YOUR SERIES A NOTES, YOU WILL CONTINUE TO HOLD UNREGISTERED SERIES A NOTES AND YOUR ABILITY TO TRANSFER SERIES A NOTES WILL BE ADVERSELY AFFECTED. We will only issue Series B Notes in exchange for Series A Notes that are timely received by the exchange agent together with all required documents, including a properly completed and signed letter of transmittal, or are surrendered pursuant to the guaranteed delivery procedures set forth below. Therefore, you should allow sufficient time to ensure timely delivery of the Series A Notes and you should carefully follow the instructions on how to tender your Series A Notes. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your tender of the Series A Notes. If you do not tender your Series A Notes or if we do not accept your Series A Notes because you did not tender your Series A Notes properly, then, after we consummate the exchange offer, you may continue to hold Series A Notes that are subject to the existing transfer restrictions. After the exchange offer is consummated, if you continue to hold any Series A Notes, you may have difficulty selling them because there will be fewer Series A Notes outstanding. 30 THE ACQUISITION THE MERGER On July 31, 2002, the merger and related financing transactions were consummated (including the release from escrow of the net proceeds from the June 27, 2002 sale of the Series A Notes). Since the consummation of the acquisition and related financing transactions, the equity sponsors and selected members of Herbalife's distributor organization and senior management have owned all of the equity of WH Holdings. In addition, warrants to purchase preferred shares of WH Holdings were issued in connection with the sale of the senior notes. See "Certain Agreements Relating to the Acquisition -- Securities Purchase Agreement." As a result of the acquisition and related financing transactions, WH Holdings indirectly owns 100% of the outstanding common stock of Herbalife. The aggregate acquisition consideration was $706.6 million (inclusive of change in control payments and Herbalife's advisory fees and expenses). Upon consummation of the merger, each public stockholder of Herbalife received $19.50 in cash for each share of common stock owned. The holder of each outstanding option to purchase Herbalife common stock received an amount in cash equal to the excess of $19.50 over the exercise price of such option. Net of aggregate proceeds received by Herbalife from the exercise of options, the merger consideration paid to the stockholders and option holders of Herbalife was approximately $682.3 million. In connection with the closing of the merger, on July 31, 2002, Herbalife entered into a new credit agreement with various lenders, including Whitney Private Debt Fund, L.P., and UBS AG, Stamford Branch, as administrative agent, under which the lenders, subject to certain conditions, provided Herbalife with senior credit facilities in an amount equal to $205.0 million. The senior credit facilities consist of (i) a senior secured revolving credit facility in the aggregate principal amount of $25.0 million and (ii) a senior secured term loan in the aggregate principal amount of $180.0 million. The senior credit facilities are described in more detail in "Description of Senior Secured Facilities." Upon the consummation of the merger, the net proceeds of approximately $154.1 million from the issuance of Series A Notes were released from escrow to finance a portion of the acquisition. WH Holdings issued senior notes in an aggregate principal amount of $38.0 million on July 31, 2002. WH Holdings contributed $24.0 million of the net proceeds from the sale of the senior notes to finance a portion of the acquisition. Additionally, approximately $12.5 million was used to fund approximately 2 1/2 years of interest into escrow on the senior notes and approximately $1.5 million was used to pay the fees related to the issuance of the senior notes. The senior notes bear interest at 15.5%, of which 12.5% is payable in cash (payable quarterly in arrears) and 3.0% is payable quarterly in cash or in-kind through the issuance of additional senior notes. The senior notes are general unsecured obligations of WH Holdings (other than the escrow account for interest on the senior notes described above). In connection with the issuance of the senior notes, the purchasers of the senior notes received warrants to purchase approximately 2.0% of the preferred shares of WH Holdings. See "Certain Agreements Relating to the Acquisition -- Securities Purchase Agreement." SOURCES AND USES The acquisition was financed through: - gross proceeds of $162.9 million from the sale of the Series A Notes (face value of $165.0 million); - borrowings of $180.0 million under the $205.0 million senior credit facilities; - contribution of net proceeds of $24.0 million by WH Holdings from the sale of its senior notes (face value of $38.0 million); - contribution by the equity sponsors and selected members of Herbalife's distributor organization and senior management of $176.0 million from the sale of preferred shares by WH Holdings; and 31 - use of available cash balances of Herbalife of approximately $228.4 million, of which $4.6 million was used to repurchase Herbalife's minority interest in its Japanese subsidiary, Herbalife of Japan, which payment was made in May 2002, $6.7 million was used to repay existing debt and $217.1 million was used to finance the acquisition and pay related fees and expenses. The following table summarizes the sources and uses of funds for the acquisition and related financing transactions.
AMOUNT --------------------- (DOLLARS IN MILLIONS) SOURCES OF FUNDS Cash on hand(1)........................................... $228.4 Senior credit facilities: Term loan facility..................................... 180.0 Series A Notes(2)......................................... 162.9 WH Holdings, equity investment through issuance of the senior notes(3)........................................ 24.0 Cash from sale of preferred shares of WH Holdings......... 176.0 ------ Total sources.......................................... $771.3 ======
AMOUNT --------------------- (DOLLARS IN MILLIONS) USES OF FUNDS Acquisition consideration(4).............................. $706.6 Acquisition of minority interest(5)....................... 4.6 Repayment of existing debt................................ 6.7 Fees and expenses......................................... 53.4 ------ Total uses............................................. $771.3 ======
- --------------- (1) Reflects cash that Herbalife had available on the acquisition closing date to consummate the acquisition. $228.4 million of Herbalife's available cash was used in the acquisition and related financing transactions. The use of $228.4 million of Herbalife's available cash included (i) $4.6 million required to repurchase Herbalife's minority interest in its Japanese subsidiary, Herbalife of Japan, which was completed in May 2002, (ii) $6.7 million to repay existing debt and (iii) $217.1 million to fund the acquisition consideration and pay related fees and expenses. (2) The aggregate principal amount of the Series A Notes is $165.0 million (which notes were issued at 98.716% of par, or gross proceeds of $162.9 million). (3) The principal amount of the senior notes was $38.0 million of which approximately $12.5 million was used to fund approximately 2 1/2 years of interest into escrow on the senior notes and approximately $1.5 million was used to pay the fees related to the issuance of the senior notes and the remainder (i.e., approximately $24.0 million) was contributed to equity by WH Holdings to consummate the acquisition. (4) Total aggregate acquisition consideration consists of: Merger consideration (net of aggregate proceeds received by Herbalife from the exercise of options)................... $682.3 Change of control payments.................................. 7.6 Herbalife's advisory fees and expenses...................... 16.7 ------ Total acquisition consideration............................. $706.6 ======
(5) As required in the merger agreement, Herbalife completed the acquisition of the minority interest in its Japanese subsidiary, Herbalife of Japan, in early May 2002. 32 USE OF PROCEEDS This exchange offer is intended to satisfy certain obligations of Herbalife under our registration rights agreement. We will not receive any proceeds from the issuance of the Series B Notes. The proceeds from the offering of the Series A Notes, together with funds from the related financing transactions and Herbalife's available cash, were used to consummate the acquisition (including the repurchase of the minority interest in our Japanese subsidiary, refinancing of certain indebtedness of Herbalife and paying related fees and expenses). We have agreed to pay for the expenses of the exchange offer. In exchange for issuing the Series B Notes as contemplated in this prospectus, we will receive Series A Notes in the same principal amount. The form and terms of the Series B Notes are identical in all material respects to the form and terms of the Series A Notes, except as described below under the heading "The Exchange Offer -- Terms of the Exchange Offer." The Series A Notes surrendered in exchange for the Series B Notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the Series B Notes will not result in any increase in our outstanding debt. 33 CAPITALIZATION The following table sets forth the unaudited cash and cash equivalents of WH Intermediate Holdings and capitalization as of September 30, 2002. You should read this table in conjunction with the "Use of Proceeds," "Unaudited Pro Forma Condensed Consolidated Financial Statements," "Selected Consolidated Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and related notes included elsewhere in this prospectus.
ACTUAL(1) ----------- (UNAUDITED) (DOLLARS IN MILLIONS) Cash, cash equivalents and marketable securities............ $ 77.2 ====== Debt: Other debt................................................ $ 3.6 Senior credit facility: Revolving credit facility(2)........................... -- Term loan facility..................................... 175.0 Series A Notes............................................ 162.9 ------ Total debt................................................ 341.5 Total equity(3)............................................. 197.5 ------ Total capitalization...................................... $539.0 ======
- --------------- (1) Represents the historical capitalization of WH Intermediate Holdings as of September 30, 2002. (2) As of September 30, 2002, the revolving credit facility was undrawn and provided for borrowings of up to $25.0 million. (3) Represents $176.0 million contributed from the equity sponsors and selected members of Herbalife's distributor organization and senior management and $24.0 million of net proceeds contributed from WH Holdings from the issuance and sale of its senior notes plus $4.7 million of net income and other comprehensive loss of the Successor, net of $7.2 million of expenses relating to the merger and financing activities of WH Holdings, which were assumed as a liability by WH Intermediate Holdings. 34 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA The following table sets forth certain of our historical financial data. We have derived the selected historical consolidated financial data as of December 31, 2000 and 2001 and for the years ended December 31, 1999, 2000 and 2001 from our audited financial statements and the related notes included elsewhere in this prospectus. The selected historical consolidated financial data as of December 31, 1997, 1998 and 1999 and for the years ended December 31, 1997 and 1998 have been derived from our audited financial statements for such years, which are not included in this prospectus. We have derived the selected historical consolidated financial data as of and for the nine months ended September 30, 2001, as of and for the seven months ended July 31, 2002 and as of and for the two months ended September 30, 2002 from our unaudited consolidated financial statements and the related notes included elsewhere in this prospectus. In the opinion of our management, our unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position, the results of our operations and cash flows. The results of operations for the seven months ended July 31, 2002 and the two months ended September 30, 2002, are not necessarily indicative of the operating results to be expected for the full fiscal year. The selected consolidated historical financial data set forth below are not necessarily indicative of the results of future operations and should be read in conjunction with the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical consolidated financial statements and accompanying notes included elsewhere in this prospectus.
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED JANUARY 1 TO -------------------------------------------------------------- SEPTEMBER 30, JULY 31, 1997 1998 1999 2000 2001 2001 2002 ---------- ---------- ---------- ---------- ---------- ------------- ------------ (PREDECESSOR) --------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) OPERATIONS: Retail sales........... $1,490,693 $1,644,837 $1,793,508 $1,764,851 $1,656,168 $1,237,417 $1,047,690 Less -- distributor allowances on product purchases............ 708,241 778,195 837,283 820,723 774,513 578,570 492,997 Handling and freight income............... 102,413 113,555 142,660 141,356 138,475 103,523 89,495 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net sales.............. 884,865 980,197 1,098,885 1,085,484 1,020,130 762,370 644,188 Cost of sales.......... 217,668 246,209 264,909 268,992 241,522 181,698 140,553 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross profit........... 667,197 733,988 833,976 816,492 778,608 580,672 503,635 Royalty overrides...... 318,882 345,200 397,143 382,322 355,225 266,777 227,233 Marketing, distribution and administrative expenses............. 262,330 310,458 344,260 363,731 354,608 261,738 207,390 Buy-out transaction expenses(1).......... -- -- -- 9,498 -- -- 54,708 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating income....... 85,985 78,330 92,573 60,941 68,775 52,157 14,304 Interest income (expense), net....... 4,535 2,533 1,750 2,354 3,413 3,059 1,364 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes and minority interest............. 90,520 80,863 94,323 63,295 72,188 55,216 15,668 Income taxes........... 34,850 31,132 36,314 25,318 28,875 22,086 6,267 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before minority interest............. 55,670 49,731 58,009 37,977 43,313 33,130 9,401 Minority interest...... 1,003 1,233 1,086 1,058 725 499 189 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income............. $ 54,667 $ 48,498 $ 56,923 $ 36,919 $ 42,588 $ 32,631 $ 9,212 ========== ========== ========== ========== ========== ========== ========== AUGUST 1 TO SEPTEMBER 30, 2002 ------------- (SUCCESSOR) OPERATIONS: Retail sales........... $285,800 Less -- distributor allowances on product purchases............ 134,126 Handling and freight income............... 24,501 -------- Net sales.............. 176,175 Cost of sales.......... 38,145 -------- Gross profit........... 138,030 Royalty overrides...... 61,789 Marketing, distribution and administrative expenses............. 53,930 Buy-out transaction expenses(1).......... -- -------- Operating income....... 22,311 Interest income (expense), net....... (12,622) -------- Income before income taxes and minority interest............. 9,689 Income taxes........... 3,875 -------- Income before minority interest............. 5,814 Minority interest...... -- -------- Net income............. $ 5,814 ========
35
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED JANUARY 1 TO -------------------------------------------------------------- SEPTEMBER 30, JULY 31, 1997 1998 1999 2000 2001 2001 2002 ---------- ---------- ---------- ---------- ---------- ------------- ------------ (PREDECESSOR) --------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) OTHER FINANCIAL DATA: EBITDA(2).............. $ 96,951 $ 94,131 $ 106,574 $ 86,132 $ 86,831 $ 65,217 $ 80,734 Net cash provided by (used in): operating activities......... 56,190 57,413 95,414 46,141 95,465 79,321 37,901 investing activities......... (17,989) 7,879 (43,517) (49,968) (16,366) (11,403) 18,995 financing activities......... (42,089) (46,131) (16,041) (14,079) (3,456) 407 (35,292) Depreciation and amortization......... 10,966 15,801 14,001 15,693 18,056 13,060 11,722 Capital expenditures(3)...... 15,832 19,864 32,607 25,383 14,751 10,673 6,799 Ratio of earnings to fixed charges(4)..... 16.8 10.6 11.5 8.1 8.6 9.7 4.4 BALANCE SHEET DATA: Cash, cash equivalents and marketable securities........... $ 122,707 $ 105,907 $ 139,443 $ 140,250 $ 201,181 $ 195,290 $ 203,087 Receivables, net....... 46,021 44,471 30,326 24,600 27,609 26,338 31,601 Inventories............ 71,583 88,138 101,557 99,332 72,208 78,501 60,864 Total working capital(5)........... 125,986 120,623 133,137 145,211 177,813 174,271 199,394 Total assets........... 314,580 348,183 415,819 416,937 470,335 465,376 501,867 Total debt............. 4,115 4,996 8,380 8,417 10,612 11,571 8,991 Stockholders' equity... 154,733 163,811 206,602 222,401 260,916 253,412 279,528 AUGUST 1 TO SEPTEMBER 30, 2002 ------------- (SUCCESSOR) OTHER FINANCIAL DATA: EBITDA(2).............. $ 26,063 Net cash provided by (used in): operating activities......... 16,716 investing activities......... (652,811) financing activities......... 511,533 Depreciation and amortization......... 3,752 Capital expenditures(3)...... 1,886 Ratio of earnings to fixed charges(4)..... 1.7 BALANCE SHEET DATA: Cash, cash equivalents and marketable securities........... $ 77,154 Receivables, net....... 30,106 Inventories............ 56,651 Total working capital(5)........... 6,359 Total assets........... 872,790 Total debt............. 341,519 Stockholders' equity... 197,470
- --------------- (1) The 2000 expense represents a one-time charge relating to fees and expenses in connection with the termination of a proposed buy-out transaction by Mark Hughes, our founder and Chief Executive Officer at that time. The 2002 expense represents advisory fees and expenses in connection with the merger and related financing transactions. (2) EBITDA represents net income plus minority interest, income taxes, net interest expense, depreciation and amortization and transaction expenses. We present EBITDA because management believes it provides useful information regarding a company's ability to service and/or incur debt. You should not consider EBITDA in isolation from or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. EBITDA is calculated as follows:
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED JANUARY 1 TO -------------------------------------------------------------- SEPTEMBER 30, JULY 31, 1997 1998 1999 2000 2001 2001 2002 ---------- ---------- ---------- ---------- ---------- ------------- ------------ (PREDECESSOR) --------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Net income............. $ 54,667 $ 48,498 $ 56,923 $ 36,919 $ 42,588 $ 32,631 $ 9,212 Minority interest...... 1,003 1,233 1,086 1,058 725 499 189 Income taxes........... 34,850 31,132 36,314 25,318 28,875 22,086 6,267 Interest (income) expense, net......... (4,535) (2,533) (1,750) (2,354) (3,413) (3,059) (1,364) Depreciation and amortization......... 10,966 15,801 14,001 15,693 18,056 13,060 11,722 Transaction expenses... -- -- -- 9,498 -- -- 54,708 ---------- ---------- ---------- ---------- ---------- ---------- ---------- EBITDA................. $ 96,951 $ 94,131 $ 106,574 $ 86,132 $ 86,831 $ 65,217 $ 80,734 ========== ========== ========== ========== ========== ========== ========== AUGUST 1 TO SEPTEMBER 30, 2002 ------------- (SUCCESSOR) Net income............. $ 5,814 Minority interest...... Income taxes........... 3,875 Interest (income) expense, net......... 12,622 Depreciation and amortization......... 3,752 Transaction expenses... -- -------- EBITDA................. $ 26,063 ========
36 - --------------- (3) Includes acquisitions of property from capitalized leases of $2.7 million, $0.8 million, $1.9 million, $0.4 million and $3.8 million for 1997, 1998, 1999, 2000 and 2001, respectively, and $3.5 million, $2.1 million and zero for the nine months ended September 30, 2001, the seven months ended July 31, 2002 and the two months ended September 30, 2002, respectively, and $2.4 million for the twelve months ended September 30, 2002. (4) In calculating ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense (which includes amortization of deferred financing costs) and one-third of rental expense representing that portion of rental expense deemed to be attributable to interest. (5) Includes cash, cash equivalents and marketable securities. 37 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS The following unaudited pro forma condensed consolidated statements of operations (the "pro forma statements of operations") are based on the historical financial statements of Herbalife through July 31, 2002 and WH Intermediate Holdings from August 1, 2002 through September 30, 2002, included elsewhere herein, adjusted to give effect to the following: (i) the receipt of proceeds from the offering of the Notes and the borrowings under the senior credit facilities (including the term loan facility and the revolving credit facility); (ii) receipt of proceeds from the equity sponsors and selected members of our distributor organization and senior management and the receipt of net proceeds of the issuance and sale of senior notes of WH Holdings; (iii) the use of Herbalife's available cash to finance a portion of the acquisition; (iv) the acquisition of all issued and outstanding shares of Herbalife's common stock (the "acquisition"); (v) the settlement of outstanding stock options; (vi) the merger of WH Acquisition with and into Herbalife (the "merger") and (vii) the payment of fees and expenses related to the aforementioned. All of the aforementioned items (i) to (vii) are collectively referred to herein as the "Transactions." The pro forma statements of operations for the twelve months ended September 30, 2002 has been included to reflect the recent changes in our business. Within the twelve months ended September 30, 2002, Herbalife reorganized its management team, focused on increasing sales within existing markets, and instituted cost-cutting initiatives in corporate functions and international distribution centers. Additionally, on December 31, 2000 Herbalife's long-term contract with its primary supplier expired and Herbalife entered into contracts with multiple suppliers, resulting in our realization of product cost savings, the benefit of which did not fully impact earnings until the third quarter of 2001. The pro forma statements of operations were prepared to illustrate the estimated effects of the Transactions. The pro forma statements of operations for the fiscal year ended December 31, 2001 and the nine months ended September 30, 2001 and September 30, 2002 give effect to the Transactions as if the Transactions had occurred as of January 1, 2001. Information for the twelve months ended September 30, 2002, represents the sum of the amounts set forth in the pro forma statements of operations for the fiscal year ended December 31, 2001 and the amounts set forth in the pro forma statements of operations for the nine months ended September 30, 2002, less the amounts set forth in the unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2001. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The pro forma statements of operations do not purport to represent what our results of operations would actually have been had the Transactions in fact occurred as of such date or to project our results of operations. The pro forma statements of operations should be read in conjunction with the historical combined financial statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The acquisition was accounted for as a purchase in accordance with SFAS No. 141, "Business Combinations." Accordingly, the acquired assets and liabilities have been recorded at fair value. The total purchase price was allocated to the acquired assets and assumed liabilities based upon estimates of their respective fair values as of the closing date, using valuations and other studies that have substantially been finalized. The final allocation of the purchase cost and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein. 38 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
DECEMBER 31, PRO FORMA 2001 ADJUSTMENTS PRO FORMA ------------ ----------- ---------- (DOLLARS IN THOUSANDS) Retail sales.......................................... $1,656,168 $1,656,168 Less -- distributor allowances on product sales....... 774,513 774,513 Handling and freight income........................... 138,475 138,475 ---------- ---------- Net sales............................................. 1,020,130 1,020,130 Cost of sales......................................... 241,522 241,522 Royalty overrides..................................... 355,225 355,225 Marketing, distribution, and administrative expenses............................................ 354,608 $ 8,527 (2) 363,135 Interest (income) expense, net........................ (3,413) 40,142 (4) 36,729 ---------- -------- ---------- Income before income taxes and minority interest...... 72,188 (48,669) 23,519 Income taxes.......................................... 28,875 (19,467)(5) 9,408 ---------- -------- ---------- Income before minority interest....................... 43,313 (29,202) 14,111 Minority interest..................................... 725 (725)(6) -- ---------- -------- ---------- Net income............................................ $ 42,588 $(28,477) $ 14,111 ========== ======== ==========
39 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
SEPTEMBER 30, PRO FORMA 2001 ADJUSTMENTS PRO FORMA ------------- ----------- ---------- (DOLLARS IN THOUSANDS) Retail sales......................................... $1,237,417 $1,237,417 Less -- distributor allowances on product sales...... 578,570 578,570 Handling and freight income.......................... 103,523 103,523 ---------- ---------- Net sales............................................ 762,370 762,370 Cost of sales........................................ 181,698 181,698 Royalty overrides.................................... 266,777 266,777 Marketing, distribution, and administrative expenses........................................... 261,738 $ 6,395(2) 268,133 Interest (income) expense, net....................... (3,059) 29,375(4) 26,316 ---------- -------- ---------- Income before income taxes and minority interest..... 55,216 (35,770) 19,446 Income taxes......................................... 22,086 (14,308)(5) 7,778 ---------- -------- ---------- Income before minority interest...................... 33,130 (21,462) 11,668 Minority interest.................................... 499 (499)(6) -- ---------- -------- ---------- Net income........................................... $ 32,631 $(20,963) $ 11,668 ========== ======== ==========
40 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
AUGUST 1 TO JANUARY 1 TO SEPTEMBER 30, JANUARY 1 TO JULY 31, 2002 2002 SEPTEMBER 30, PRO FORMA (PREDECESSOR) (SUCCESSOR) 2002 ADJUSTMENTS PRO FORMA ------------- ------------- ------------- ----------- ---------- (DOLLARS IN THOUSANDS) Retail sales................ $1,047,690 $285,800 $1,333,490 $1,333,490 Less -- distributor allowances on product sales..................... 492,997 134,126 627,123 627,123 Handling and freight income.................... 89,495 24,501 113,996 113,996 ---------- -------- ---------- ---------- Net sales................... 644,188 176,175 820,363 820,363 Cost of sales............... 140,553 38,145 178,698 178,698 Royalty overrides........... 227,233 61,789 289,022 289,022 Marketing, distribution, and administrative expenses (including merger transaction expenses)..... 207,390 53,930 261,320 $ 5,692(2) 267,012 Merger transaction expenses.................. 54,708 54,708 (54,708)(3) -- Interest (income) expense, net....................... (1,364) 12,622 11,258 15,649(4) 26,907 ---------- -------- ---------- -------- ---------- Income before income taxes and minority interest..... 15,668 9,689 25,357 33,367 58,724 Income taxes................ 6,267 3,875 10,142 13,348(5) 23,490 ---------- -------- ---------- -------- ---------- Income before minority interest.................. 9,401 5,814 15,215 20,019 35,234 Minority interest........... 189 189 (189)(6) -- ---------- -------- ---------- -------- ---------- Net income.................. $ 9,212 $ 5,814 $ 15,026 $ 20,208 $ 35,234 ========== ======== ========== ======== ==========
41 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2002
SEPTEMBER 30, PRO FORMA 2002 ADJUSTMENTS PRO FORMA ------------- ----------- ---------- (DOLLARS IN THOUSANDS) Retail sales.......................................... $1,752,241 $1,752,241 Less -- distributor allowances on product sales....... 823,066 823,066 Handling and freight income........................... 148,948 148,948 ---------- ---------- Net sales............................................. 1,078,123 1,078,123 Cost of sales......................................... 238,522 238,522 Royalty overrides..................................... 377,470 377,470 Marketing, distribution, and administrative expenses............................................ 354,190 $ 7,824(2) 362,014 Merger transaction expenses........................... 54,708 (54,708)(3) -- Interest (income) expense, net........................ 10,904 26,416(4) 37,320 ---------- -------- ---------- Income before income taxes and minority interest...... 42,329 20,468 62,797 Income taxes.......................................... 16,931 8,189(5) 25,120 ---------- -------- ---------- Income before minority interest....................... 25,398 12,279 37,677 Minority interest..................................... 415 (415)(6) -- ---------- -------- ---------- Net income............................................ $ 24,983 $ 12,694 $ 37,677 ========== ======== ==========
42 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) Purchase Price Allocation: The Acquisition was accounted for as a purchase. The purchase price of approximately $651.5 million includes $643.3 million in cash, $7.6 million of change in control payments and a $650,000 settlement of minority shareholder litigation. The acquired assets and liabilities have been recorded at fair value. The total purchase price was allocated to the acquired assets and assumed liabilities based upon estimates of their respective fair values as of the closing date, using valuations and other studies that have substantially been finalized. The final allocation of the purchase cost and resulting effect on income from operations may differ from the preliminary amounts included herein. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition (dollars in thousands):
AT JULY 31, 2002 ----------- Current assets.............................................. $ 388,671 Property, plant and equipment............................... 51,752 Marketing Franchise......................................... 180,000 Trademark and Tradename..................................... 130,000 Product certifications and other intangible assets.......... 7,400 Goodwill.................................................... 208,350 Other long term assets...................................... 42,723 ---------- Total assets acquired....................................... $1,008,896 Current liabilities......................................... $ 192,750 Other non-current liabilities............................... 35,907 Long term debt.............................................. 1,157 Deferred income taxes....................................... 127,539 ---------- Total liabilities assumed................................... $ 357,353 ---------- Net assets acquired......................................... $ 651,543 ----------
(2) Marketing, Distribution and Administrative Expenses: Reflects the amortization of intangible assets over their useful lives and the payment of a monitoring fee to the equity sponsors. The trademark and marketing franchise intangible assets have indefinite lives and as such, will not be amortized but will be periodically tested for impairment. The product certifications intangible asset will be amortized over its estimated useful life of 2 years. The equity sponsors will charge Herbalife a monitoring fee for management and consulting services provided. The monitoring fee will be charged on an hourly basis for actual activities conducted and will not be less than $2.5 million but will not exceed $5.0 million on an annual basis. Herbalife will not be obligated to pay the management fee (i) if the payment would result in a default under the credit agreement, although the fee will accrue until the default is cured or waived, (ii) until such time that Herbalife achieve a trailing twelve month Adjusted EBITDA equal to or greater than $125.8 million. 43 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED) The pro forma adjustments to marketing, distribution and administrative expenses are:
TWELVE MONTHS YEAR ENDED NINE MONTHS ENDED DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30, ------------ -------------------- ------------- 2001 2001 2002 2002 ------------ -------- -------- ------------- (DOLLARS IN THOUSANDS) Pro forma amortization of intangible assets................................. $3,700 $2,775 $2,775 $3,700 Monitoring Fee........................... 5,000 3,750 3,750 5,000 Elimination of historical monitoring fee.................................... 833 833 Elimination of historical goodwill amortization........................... 173 130 -- 43 ------ ------ ------ ------ Pro forma adjustment to marketing, distribution and administrative expenses............................... $8,527 $6,395 $5,692 $7,824 ====== ====== ====== ======
(3) Merger Expenses: Represents the fees and expenses incurred in connection with the merger and related financing transactions. (4) Interest (Income) Expense, Net: The pro forma adjustments to interest (income) expense are based on the amounts borrowed and the rates in effect at the closing of the Transactions:
TWELVE MONTHS YEAR ENDED NINE MONTHS ENDED DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30, ------------ -------------------- ------------- 2001 2001 2002 2002 ------------ -------- --------- ------------- (DOLLARS IN THOUSANDS) Senior subordinated notes and term loan facility............................. $29,900 $22,425 $ 22,425 $ 29,900 Amortization of debt issuance costs, note discount and other.............. 7,964 6,030 5,568 7,502 ------- ------- -------- -------- Pro forma interest expense............. 37,864 28,455 27,993 37,402 Elimination of historical interest income (expense), net................ 2,278 920 (12,344) (10,986) ------- ------- -------- -------- Pro forma adjustment to interest expense, net......................... $40,142 $29,375 $ 15,649 $ 26,416 ======= ======= ======== ========
Estimated fees and expenses of $41.5 million were incurred related to the debt financings. Debt financing costs related to the senior subordinated notes will be amortized on a straight line basis, which approximates the interest method, over the term of the notes of 8 years. The debt financing costs related to the term loan facility will be amortized using the effective interest rate method. The senior subordinated notes were issued at a discount of $2.1 million. The discount will be amortized using the effective interest rate method. An increase or decrease of 0.125% in the interest rate of the term loan facility would change the annual pro forma interest expense by $225,000. (5) Income Taxes: We estimate that our effective tax rate resulting from the Transactions will be 40% (excluding the effects of future non-recurring transactions). (6) Minority Interest Buyback: Represents the elimination of the minority interest related to Herbalife's Japanese subsidiary which was acquired prior to the closing of the Transactions in accordance with the merger agreement. 44 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED) PRO FORMA EBITDA AND PRO FORMA ADJUSTED EBITDA Pro forma EBITDA is defined as net income before minority interest, net interest (income) expense, income tax expense, depreciation and amortization based on the pro forma statements of operations. The calculation of pro forma EBITDA is not based on accounting principles generally accepted in the United States of America ("U.S. GAAP"). Herbalife believes that pro forma EBITDA provides useful information regarding Herbalife's ability to service debt but should not be considered in isolation or as a substitute for the consolidated statement of income or cash flow data prepared in accordance with U.S. GAAP and included elsewhere herein or as a measure of Herbalife's operating performance, profitability or liquidity. Pro forma EBITDA, as presented, is not necessarily comparable to other similarly titled captions of other companies due to differences and methods of calculation. Pro forma adjusted EBITDA reflects the elimination of certain non-recurring items that affected 2001 and 2002 amounts. Pro forma EBITDA and adjusted pro forma EBITDA are set forth below:
TWELVE MONTHS YEAR ENDED NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, ------------ ------------------ ------------- 2001 2001 2002 2002 ------------ ------- -------- ------------- (DOLLARS IN THOUSANDS) Pro forma net income.................... $14,111 $11,668 $ 35,234 $ 37,677 EBITDA adjustments: Interest expense, net................... 36,729 26,316 26,907 37,320 Income taxes............................ 9,408 7,778 23,490 25,120 Depreciation and amortization........... 21,583 15,705 18,249 24,127 ------- ------- -------- -------- Pro forma EBITDA........................ $81,831 $61,467 $103,880 $124,244 Non-recurring items: Severance and other employee related expenses(a)........................... 9,898 3,208 3,973 10,663 Product costs under previous supply agreements(b)......................... 5,666 5,666 -- -- Other(c)................................ 722 414 64 372 ------- ------- -------- -------- Total non-recurring items............... 16,286 9,288 4,037 11,035 ------- ------- -------- -------- Pro forma Adjusted EBITDA............... $98,117 $70,755 $107,917 $135,279 ======= ======= ======== ========
- --------------- (a) In the year ended December 31, 2001 and the nine months ended September 30, 2001 and September 30, 2002, Herbalife incurred approximately $9.9 million, $3.2 million and $4.0 million, respectively, of severance costs related to changes in senior management. Additionally, Herbalife replaced certain key executives at lower salary levels. (b) On December 31, 2000, Herbalife's long-term contract with its primary supplier expired. In 2001, Herbalife entered into new supply contracts which have resulted in product cost savings. Product costs under the new supply contracts would have resulted in savings of $5.7 million and $5.7 million for the year ended December 31, 2001 and the nine months ended September 30, 2001. We anticipate that the costs savings will continue on a go forward basis. (c) During the year ended December 31, 2001 and the nine months ended September 30, 2001, Herbalife incurred costs of $466,000 and $222,000, respectively, related to specific legal and professional fees, not expected to recur. In addition, during the year ended December 31, 2001 and for the nine months ended September 30, 2001 and 2002, Herbalife contributed services to the Herbalife Family Foundation costing $256,000, $192,000 and $64,000 respectively. Herbalife does not plan to continue to contribute such services on a go forward basis. 45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with "Selected Consolidated Historical Financial Data," "Unaudited Consolidated Financial Statements" and the related notes and our consolidated financial statements and related notes, each included elsewhere in this prospectus. GENERAL We are a worldwide marketer of weight management products, nutritional supplements, and personal care products that support our customers' wellness and healthy lifestyles. We market and sell these products through a global network marketing organization comprised of over one million independent distributors in 55 countries. Retail sales represent the gross sales amounts reflected on our invoices to our distributors. We do not receive the amount reported as retail sales, and we do not monitor the actual retail prices charged for our products. Net sales represent the actual purchase prices paid to us by our distributors, after giving effect to distributor discounts referred to as distributor allowances, which total approximately 50% of suggested retail sales prices; and handling and freight income. Distributor allowances as a percentage of sales may vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances. We receive our net sales price in cash or through credit card payments upon receipt of orders from distributors. We utilize importers in a limited number of markets and, under some circumstances, we extend credit terms to these importers. Gross profit consists of net sales less cost of sales, consisting of the prices we pay to our manufacturers for products and costs related to product shipments, duties and tariffs, freight expenses relating to shipment of products to distributors and importers and similar expenses. Royalty overrides, currently consisting of (i) royalty overrides and bonuses, which total approximately 15% and 7%, respectively, of the suggested retail sales prices of products earned by qualifying distributors on sales within their distributor organizations, (ii) the President's Team Bonus payable to some of our most senior distributors in the aggregate amount of approximately an additional 1% of product retail sales and (iii) other one-time incentive cash bonuses to qualifying distributors. These payments generally represent compensation to distributions for the development and retention of the distributor sales organizations. Because of local country regulatory constraints, we may be required to modify our typical distributor incentive plans as described above. Consequently, the total distributor discount percentage may vary over time. We also offer reduced distributor allowances and pay reduced royalty overrides with respect to certain products worldwide. Our use of retail sales in reporting financial and operating data reflects the fundamental role of retail sales in our accounting systems, internal controls and operations, including the basis upon which distributor compensation is paid. The retail sales price of our products is reflected in distributor invoices as the price charged to distributors together with, in most cases, a deduction for the corresponding distributor allowance. The retail sales price is used by us to calculate, among other things, royalty overrides and volume points earned by distributors. Volume points are point values assigned to each of our products that are equal in all countries and are used as supervisor qualification criteria. In addition, we rely upon retail sales data reflected in daily sales reports to monitor results of operations in each of our markets. The significance of our net sales is to reflect, generally, the prices actually received by us after deducting the basic distributor allowance and adding the handling and freight income. Accordingly, factors that affect retail sales generally have a corresponding and proportionate effect on net sales. To the extent the ratio of net sales to retail sales varies from period to period, these variances have resulted principally from sales of our distributor kits and other literature and promotional materials, for which there are no distributor allowances and increased sales of product on which we offer reduced distributor allowances. Marketing, distribution and administrative expenses represent our operating expenses, components of which include labor and benefits, sales events, professional fees, travel and entertainment, advertising, occupancy costs, communication costs, bank fees, depreciation and amortization, foreign exchange fees and other miscellaneous operating expenses. 46 Most of our sales outside the United States are made in the respective local currencies. In preparing our financial statements, we translate revenues into U.S. Dollars using average exchange rates. Additionally, the majority of our purchases from our suppliers generally are made in U.S. Dollars, while sales to distributors generally are made in local currencies. Consequently, a strengthening of the U.S. Dollar versus a foreign currency can have a negative impact on our reported sales and operating margins and can generate transaction losses on intercompany transactions. Throughout the last five years, foreign currency exchange have fluctuated significantly. From time to time, we enter into foreign exchange forward contracts and option contracts to mitigate our foreign currency exchange risk. RESULTS OF OPERATIONS
2002 QUARTER 2002 QUARTER 2001 2002 ----------------------------- ------------- ------------- ------------------------------ JULY 1 AUGUST 1 TOTAL FOR THE QUARTER JANUARY 1 AUGUST 1 TO TO QUARTER ENDED ENDED TO TO JULY 31 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 JULY 31 SEPTEMBER 30 ------------- ------------- ------------- ------------- -------------- ------------- (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) Retail sales......... $156,220,000 $ 285,800,000 $ 442,020,000 $424,317,000 $1,047,690,000 $ 285,800,000 Distributor allowances on product purchases... (73,335,000) (134,126,000) (207,461,000) (198,557,000) (492,997,000) (134,126,000) Handling & freight income.............. 13,521,000 24,501,000 38,022,000 35,827,000 89,495,000 24,501,000 ------------ ------------- ------------- ------------- -------------- ------------- Net sales............ 96,406,000 176,175,000 272,581,000 261,587,000 644,188,000 176,175,000 Cost of sales........ 20,747,000 38,145,000 58,892,000 60,232,000 140,553,000 38,145,000 ------------ ------------- ------------- ------------- -------------- ------------- Gross Profit......... 75,659,000 138,030,000 213,689,000 201,355,000 503,635,000 138,030,000 Royalty overrides.... 33,862,000 61,789,000 95,651,000 90,251,000 227,233,000 61,789,000 Marketing, distribution & administrative expenses............ 31,642,000 53,930,000 85,572,000 88,161,000 207,390,000 53,930,000 Merger transaction expenses............ 50,673,000 -- 50,673,000 -- 54,708,000 -- Interest expenses (income) -- net..... (335,000) 12,622,000 12,287,000 (664,000) (1,364,000) 12,622,000 ------------ ------------- ------------- ------------- -------------- ------------- Income (loss) before income taxes and minority interest.......... (40,183,000) 9,689,000 (30,494,000) 23,607,000 15,668,000 9,689,000 Income taxes......... (16,074,000) 3,875,000 (12,199,000) 9,443,000 6,267,000 3,875,000 ------------ ------------- ------------- ------------- -------------- ------------- Income (loss) before minority interest.......... (24,109,000) 5,814,000 (18,295,000) 14,164,000 9,401,000 5,814,000 Minority interest.... -- -- -- 138,000 189,000 -- ------------ ------------- ------------- ------------- -------------- ------------- NET INCOME (LOSS).... (24,109,000) 5,814,000 (18,295,000) 14,026,000 9,212,000 5,814,000 ============ ============= ============= ============= ============== ============= NINE MONTHS NINE MONTHS 2002 2001 -------------- -------------- TOTAL FOR THE NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 -------------- -------------- (PREDECESSOR) Retail sales......... $1,333,490,000 $1,237,417,000 Distributor allowances on product purchases... (627,123,000) (578,570,000) Handling & freight income.............. 113,996,000 103,523,000 -------------- -------------- Net sales............ 820,363,000 762,370,000 Cost of sales........ 178,698,000 181,698,000 -------------- -------------- Gross Profit......... 641,665,000 580,672,000 Royalty overrides.... 289,022,000 266,777,000 Marketing, distribution & administrative expenses............ 261,320,000 261,738,000 Merger transaction expenses............ 54,708,000 (3,059,000) Interest expenses (income) -- net..... 11,258,000 (3,059,000) -------------- -------------- Income (loss) before income taxes and minority interest.......... 25,357,000 55,216,000 Income taxes......... 10,142,000 22,086,000 -------------- -------------- Income (loss) before minority interest.......... 15,215,000 33,130,000 Minority interest.... 189,000 499,000 -------------- -------------- NET INCOME (LOSS).... 15,026,000 32,631,000 ============== ==============
Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods, which depend upon numerous factors, including our ability to attract and retain new distributors, further penetrate existing markets and introduce additional and new products into our markets. As a result of the merger, the unaudited financial statements consist of financial information from the Predecessor and the Successor. For the purposes of management's discussion and analysis of financial condition and results of operations, (i) financial information for the Predecessor and Successor have been combined where applicable to compare quarter and year to date information and (ii) the terms "we", "us" or "our" refers to Herbalife International, Inc. and subsidiaries for periods through July 31, 2002 and to WH Intermediate Holdings and subsidiaries for periods subsequent to July 31, 2002. 47 THIRD QUARTER 2002 COMPARED TO THIRD QUARTER 2001 RETAIL SALES. Retail sales for the three months and nine months ended September 30, 2002 increased 4.2% and 7.8% to $442.0 million and $1,333.5 million, respectively, as compared to sales of $424.3 million and $1,237.4 million for the corresponding periods in 2001. RETAIL SALES BY REGION
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------- ------------------------------------------ % CHANGE IN % CHANGE IN % LOCAL % LOCAL 2002 2001 CHANGE CURRENCY 2002 2001 CHANGE CURRENCY ------ ------ ------ ----------- -------- -------- ------ ----------- (DOLLARS IN MILLIONS) Asia/Pacific Rim........... $134.9 $152.6 (11.6)% (14.8)% $ 403.9 $ 424.9 (4.9)% (0.8)% Europe..................... 140.4 112.8 24.5% 15.1% 408.0 340.1 20.0% 21.3% The Americas............... 166.7 158.9 4.9% 9.5% 521.6 472.4 10.4% 12.0% ------ ------ -------- -------- Total Retail Sales......... $442.0 $424.3 4.2% 2.3% $1,333.5 $1,237.4 7.8% 10.2% ====== ====== ======== ========
Retail sales in Asia/Pacific Rim decreased $17.7 million and $21.0 million, or 11.6% and 4.9%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. The decline was primarily due to a year-over-year decline in Japan, partially offset by increases in Australia, Taiwan and Thailand. In local currency, retail sales for Asia/Pacific Rim decreased by 14.8% and 0.8% for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. Japan and South Korea continued to be the two most significant countries in the region. They contributed 65% and 66%, respectively, of the region's retail sales for the three months and nine months ended September 30, 2002. Retail sales in Japan decreased $18.0 million and $45.9 million, or 23.3% and 20.2%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. Japan sales continued to be impacted by a sluggish economy and strong competition. Retail sales in South Korea decreased $6.3 million and increased $2.9 million, or 18.5% and 3.5%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. Retail sales in Europe increased $27.6 million and $67.9 million, or 24.5% and 20.0%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. The increase reflected strong product demand in the region. In local currency, retail sales in Europe increased 15.1% and 21.3% for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. Germany and Italy continued to be the two most significant countries in the region. They contributed 37% and 38%, respectively, of the region's retail sales for the three months and nine months ended September 30, 2002. Retail sales in Germany increased $6.4 million and $20.2 million, or 32.2% and 35.0%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. The sales increase in Germany was partly due to the strong local distributor leadership and positive sales momentum. Retail sales in Italy decreased $0.1 million and $5.9 million, or 0.4% and 7.3%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. Italy's lower than expected performance is in part due to a divided distributor leadership. Retail sales in The Americas increased $7.8 million and $49.2 million, or 4.9% and 10.4%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same period in 2001. In local currency, retail sales in The Americas increased 9.5% and 12.0% for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. The United States and Mexico continued to be the two most significant countries in the region. They contributed 87% and 88%, respectively, of the region's retail sales for the three and nine months ended September 30, 2002. Retail sales in the United States increased $4.3 million and $35.4 million, or 3.8% and 10.4%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. Well-organized distributor sales meetings and a broad distributor leadership contributed to the sales increase in the United States. Retail sales in Mexico also increased by $0.9 million and $8.5 million, or 3.4% and 11.6%, for the three months and nine months ended September 30, 2002, respectively, as compared to the same periods 48 in 2001. Mexico is benefiting from strategically located distribution centers around the country providing easy and quick access to our products in addition to strong local leadership and stable local economy. RETAIL SALES BY PRODUCT
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------- --------------------------------- 2002 2001 % CHANGE 2002 2001 % CHANGE ------ ------ -------- --------- --------- --------- (DOLLARS IN MILLIONS) Inner Nutrition: Dietary and Nutritional Supplements.................... $200.4 $193.3 3.7% $ 604.2 $ 551.7 9.5% Weight Management................. 196.0 182.7 7.3% 581.5 531.8 9.3% Outer Nutrition: Personal Care Products............ 42.2 41.3 2.2% 134.4 128.5 4.6% Literature, Promotional and Other... 16.2 16.6 (2.4)% 48.9 51.8 (5.6)% Returns and Refunds................. (12.8) (9.6) 33.3% (35.5) (26.4) 34.5% ------ ------ -------- -------- Total.......................... $442.0 $424.3 4.2% $1,333.5 $1,237.4 7.8% ====== ====== ======== ========
For the three months and nine months ended September 30, 2002, retail sales of the inner and outer nutrition segments increased as compared to the same periods in 2001. The increases were partially offset by a slight decrease in retail sales of the literature, promotional and other and an increase in returns and refunds. Returns and refunds increased $3.2 million and $9.1 million for the three months and nine months ended September 30, 2002, respectively. At the end of 2001 and at the beginning of 2002 we revised the buyback policies by instituting a restocking fee and stopping the refund of packaging and handling. The changes have resulted in a stabilization of the total number of new returns and refunds in the second and third quarter of 2002. South Korea, because of its unique consumer protection laws, continues to have the most returns and refunds. For the nine months ended September 30, 2002, South Korea accounted for approximately 34% of total returns and refunds while the US and Japan accounted for 29% and 13%, respectively. GROSS PROFIT. Gross profit was $213.7 million and $641.7 million for the three months and nine months ended September 30, 2002, respectively, compared to $201.4 million and $580.7 million in the same periods of 2001. As a percentage of retail sales, gross profit for the three months and nine months ended September 30, 2002 increased from 47.5% to 48.3% and 46.9% to 48.1%, respectively, as compared to the same period in 2001. The increase in gross profit reflected the realization of product cost savings attributed to new supply contracts initiated in 2001 and a reduction in inventory provision for slow moving and anticipated obsolescence when comparing 2002 periods to 2001 periods. Royalty overrides as a percentage of retail sales were 21.6% and 21.7% for the three months and nine months ended September 30, 2002, respectively, as compared to 21.3% and 21.6% for the same periods in 2001. The ratio varies slightly from period to period primarily due to a change in the mix of products and countries because full royalty overrides are not paid on certain products or in certain countries. MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES. Marketing, distribution and administrative expenses as a percentage of retail sales were 19.4% and 19.6% for the three months and nine months ended September 30, 2002, respectively, as compared to 20.8% and 21.2% in the same periods in 2001. For the three months and nine months ended September 30, 2002, these expenses decreased $2.6 million and $0.4 million to $85.6 million and $261.3 million from $88.2 million and $261.7 million, respectively, in the same periods in 2001. The higher third quarter expenses in 2001 were due to charges of $2.2 million for severance and $3.6 million for non-income tax contingencies for various tax audits. TRANSACTION EXPENSES. In the third quarter of 2002, we recorded $11.7 million relating to fees and $39.0 million of stock option expenses in connection with the merger transaction. INCOME TAXES. Income taxes were negative $12.2 million and $10.1 million for the three months and nine months ended September 30, 2002 as compared to $9.4 million and $22.1 million for the same periods of 49 2001. As a percentage of pre-tax income, the estimated annual effective income tax rate was 40% for both the 2002 and 2001 periods. FOREIGN CURRENCY FLUCTUATIONS. Currency fluctuations had a favorable effect of $1.7 million and an unfavorable effect of $0.8 million on net income for the three and nine months ended September 30, 2002 when recalculating current year net income using last year's foreign exchange rates. For the three months ended September 30, 2002, the regional effects were $1.2 million unfavorable in the Americas, $0.9 million favorable in the Pacific Rim, and $2.0 million favorable in Europe. For the nine months ended September 30, 2002, the regional effects were $1.3 million unfavorable in the Americas, $0.9 million unfavorable in the Pacific Rim, and $1.4 million favorable in Europe. NET INCOME. Net loss for the three months ended September 30, 2002 was $18.3 million and net income for the nine months ended September 30, 2002 was $15.0 million compared to net income of $14.0 million and $32.6 million for the same periods in 2001. Excluding the impact of merger transaction expenses, net income for the three months and nine months ended September 30, 2002 would have been $12.1 million and $47.9 million. Net income excluding the impact of merger transaction expenses for the nine months ended September 30, 2002 increased principally because of a 7.8% increase in retail sales and a 1.2% increase in gross profit as a percentage of retail sales. YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 RETAIL SALES. Retail sales for year ended December 31, 2001 decreased 6.2% to $1,656.2 million, as compared to retail sales of $1,764.9 million in the prior year. In local currency, retail sales decreased by 0.7% as compared to the prior year. RETAIL SALES BY REGION. Retail sales in The Americas increased $4.4 million, or 0.7%, in 2001 as compared to the prior year. In local currency, retail sales for the Americas increased by 2.3%. The increase in the region's retail sales was primarily due to increases in Mexico of $23.1 million, or 30.7%, as compared to the prior year. Partially offsetting the increase in Mexico were retail sales decreases in Brazil and the United States of $12.0 million and $11.4 million, or 27.5% and 2.5%, respectively, as compared to the prior year. Retail sales in Europe increased $38.3 million, or 9.1%, in 2001 as compared to the prior year. In local currency, retail sales for Europe increased 13.7%. The increase in the region's retail sales was primarily due to sales increases in Germany, Netherlands and Russia of $8.8 million, $10.8 million and $15.1 million, or 12.7%, 34.3% and 46.2%, respectively, as compared to the prior year. Retail sales in Asia/Pacific Rim decreased $151.4 million, or 20.8%, during 2001 as compared to the prior year. In local currency, retail sales for Asia/Pacific Rim decreased by 11.7%. The region's decrease in retail sales in 2001 was primarily due to sales decreases in Japan and India of $102.4 million and $37.5 million, or 25.2% and 80.7%, respectively, as compared to the prior year. In local currency, retail sales in Japan decreased 15.7%, primarily due to volume declines resulting from a decrease of consumer demand and increased competition. The decline in India reflects an initial period of rapid growth in its first year of operation followed by a decline to a more sustainable sales level. RETAIL SALES BY PRODUCT. Retail sales of weight management products, nutritional supplements and personal care products decreased 4.6%, 3.4% and 11.2% respectively, in 2001, as compared to the prior year. The decreases were primarily due to the unfavorable impact from a stronger U.S. Dollar, the volume decline in Japan, and other factors identified in the geographical segments previously discussed. The discontinuation of certain personal care products also contributed to the decrease in retail sales of personal care products. Product returns of all product segments are included in the literature, promotional and other category. Sales within the literature, promotional and other category decreased by 49.8% in 2001, as compared to the prior year, and the decrease was primarily due to an increase in product returns. GROSS PROFIT. Gross profit of $778.6 million for 2001 was $37.9 million, or 4.6%, lower than gross profit of $816.5 million in the prior year. As a percentage of retail sales, gross profit for 2001 as compared to the same period in the prior year increased from 46.3% to 47.0%. The increase in gross profit as a percentage of retail sales was primarily due to product cost savings attributed to new supply contracts initiated in 2001. 50 MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES. Marketing, distribution and administrative expenses, as a percentage of retail sales, were 21.4% for 2001 as compared to 20.6% for 2000. These expenses for the same periods decreased 2.5% to $354.6 million from $363.7 million in the prior year. The decrease was due to cost cutting initiatives in corporate functions and international distribution centers and favorable impact on expenses due to a stronger U.S. Dollar. Included in the 2001 expenses were $0.5 million in transaction losses related to foreign currency fluctuations, charges of $9.4 million in severance and related expenses and $9.3 million for sales tax and other non-income tax contingencies. Included in the 2000 expenses were $7.7 million in transaction losses related to foreign currency fluctuations, partially offset by a $5 million gain related to a key-man life insurance policy. BUY-OUT TRANSACTION EXPENSES. In 2000, we recorded a one-time charge of $9.5 million relating to fees and expenses in connection with the termination of a proposed buy-out transaction by Mark Hughes, our founder and Chief Executive Officer at that time. FOREIGN CURRENCY FLUCTUATIONS. The effect of unfavorable foreign currency fluctuations on Herbalife's net income was $9.5 million and was mainly due to the Japanese Yen and the Korean Won. The Japanese Yen and the Korean Won weakened against the U.S. Dollar in 2001, as compared to the exchange rates in effect during 2000. The effect of foreign currency changes of this nature in countries other than Japan and South Korea was not material to our operations. INCOME TAXES. Income taxes of $28.9 million for 2001 increased from $25.3 million in the prior year. As a percentage of pre-tax income, the estimated annual effective income tax rate was 40% for both 2000 and 2001. During 2001, we restructured certain of our operations resulting in the United States performing additional functions for some of the foreign affiliates. In addition, U.S. expenses associated with both foreign and domestic activities decreased from 2000 to 2001. As a result, the percentage of worldwide income reported as domestic increased to 69.2% in 2001 from 22.4% in 2000. NET INCOME. Net income for 2001 increased 15.4% to $42.6 million from $36.9 million reported in the prior year, despite the 6.2% decrease in retail sales. The increase was primarily due to the one-time charge relating to the terminated buyout transaction in 2000. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 RETAIL SALES. Retail sales for year ended December 31, 2000 decreased 1.6% to $1,764.9 million, as compared to retail sales of $1,793.5 million in the prior year. The decrease was primarily due to a volume decline in Japan and the unfavorable impact from a stronger U.S. Dollar as compared to the European currencies, partially offset by sales increases in the United States, Mexico and India, which opened in November 1999. In local currency, retail sales increased by 0.1% as compared to the prior year. RETAIL SALES BY REGION. Retail sales in the Americas increased $74.5 million, or 13.8%, in 2000 as compared to the prior year. There were no significant currency fluctuations in the region. The region's sales growth was primarily due to retail sales increases in the United States of $37.0 million, or 8.9%, and in Mexico of $30.4 million, or 67.8%. Retail sales in Europe decreased $48.2 million, or 10.3%, in 2000 as compared to the prior year. In local currency, retail sales for Europe increased 1.7%. The decrease in the region's retail sales was mainly due to the unfavorable effect of currency translation in the region. Partially offsetting the decrease was a retail sales increase in Germany of $5.3 million, or 8.3%. In local currency, retail sales in Italy decreased by 2.5% and retail sales in Germany increased by 25.8%. Retail sales in Asia/Pacific Rim decreased $55.0 million, or 7.0%, during 2000 as compared to the prior year. In local currency, retail sales for Asia/Pacific Rim decreased by 10.0%. The region's decrease in retail sales in 2000 was primarily due to decreases in Japan of $111.5 million, or 21.5%, compared to the prior year. In local currency, retail sales in Japan decreased 25.2%, primarily due to the result of weak consumer demand and competition. Partially offsetting the decrease were retail sales increases in India, Taiwan and Hong Kong of $41.5 million, $12.5 million and $7.1 million, respectively, as compared to the prior year. Within these markets, we began to initiate actions which we believe would have an impact on the declining sales trends. 51 RETAIL SALES BY PRODUCT. Retail sales of weight management products and personal care increased 0.2% and 1.3%, respectively, in 2000, as compared to the prior year. Retail sales of nutritional supplements decreased by 4.5%, as compared to the prior year. The increase in weight management product sales was primarily due to the introduction of the Thermojetics(R) HPLC program in the Americas. Personal care product sales increased primarily due to new product introductions in Asia/Pacific Rim region. Nutritional supplement sales declined primarily due to a sales decline in Japan and the unfavorable impact from the weakening European currency as described above. Prior year amounts for retail sales by product line have been reclassified to conform to current year presentation. GROSS PROFIT. Gross profit of $816.5 million for 2000 was $17.5 million, or 2.1%, lower than gross profit of $834.0 million in the prior year. As a percentage of retail sales, gross profit for 2000 as compared to the same period in the prior year decreased from 46.5% to 46.3%. MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES. Marketing, distribution and administrative expenses, as a percentage of retail sales, were 20.6% for 2000 as compared to 19.2% for the same period in 1999. These expenses for the same periods increased 5.6% to $363.7 million from $344.3 million in the prior year. The increase includes the effect of our continuing investment in corporate and operational support and enhanced product distribution capabilities. Partially offsetting the increases was a gain related to a key-man life insurance policy of $5 million and a decrease in total executive compensation. BUY-OUT TRANSACTION EXPENSES. In 2000, we recorded a one-time charge of $9.5 million relating to fees and expenses in connection with the termination of a proposed buy-out transaction by Mark Hughes, our founder and Chief Executive Officer at that time. FOREIGN CURRENCY FLUCTUATIONS. The Japanese Yen and the Korean Won strengthened against the U.S. Dollar during 2000, as compared to the exchange rates in effect during 1999. The favorable effect of the stronger Japanese Yen and Korean Won on our net income was approximately $4.7 million. Most of the European currencies weakened against the U.S. Dollar as compared to the exchange rates in effect during 1999. The effect of foreign currency changes of this nature in countries other than Japan, South Korea and Europe was not material to our operations. INCOME TAXES. Income taxes of $25.3 million for 2000 decreased from $36.3 million in 1999. As a percentage of pre-tax income, income taxes increased to 40% in 2000 from 38.5% in 1999. For the year ended December 31, 2000, a majority of our income before income taxes came from sources outside the United States and was subject to tax in the respective countries in which we operate. When that income is returned to the United States, it is generally subject to foreign withholding taxes, which increases our effective income tax rate. The foreign income is subject to U.S. income taxes. Foreign tax credits help reduce the United States tax on that income. NET INCOME. Net income for 2000 decreased 35.1% to $36.9 million from $56.9 million reported in 1999. The decrease was primarily due to: (i) decreases in retail sales, (ii) increase in marketing, distribution and administration expenses and (iii) the one time pre-tax charge of $9.5 million related to the terminated proposed buy-out transaction. Excluding the one-time charge, net income for 2000 would have been $42.6 million. LIQUIDITY AND CAPITAL RESOURCES We have historically met our working capital and capital expenditure requirements, including funding for expansion of operations, through net cash flows provided by operating activities. Our principal source of liquidity is its operating cash flows. A substantial decrease in sales of our products would reduce the availability of funds. For the nine months ended September 30, 2002, net cash provided by operating activities was $54.6 million comprised of net income of $15.0 million, non-cash adjustments to net income of $25.9 million, and changes in operating assets and liabilities of $13.7 million. The change in operating assets and liabilities was mainly due to a decrease in inventory of $14.6 million offset by a $18.8 million increase in prepaid expenses and other current assets. 52 Capital expenditures including capital leases for the nine months ended September 30, 2002 were $8.7 million compared to $10.7 million for the same period in 2001. The majority of the 2002 expenditures resulted from investment in management information systems, office facilities and equipment in the United States. The 2001 capital expenditures reflect higher spending primarily due to the development of a new distributor payment system, which was completed in September of 2001. As of September 30, 2002, we had $6.4 million in working capital. Cash and cash equivalents and marketable securities were $77.2 million at September 30, 2002, compared to $201.2 million at December 31, 2001. In connection with the merger, we used $217.1 million to finance the merger and pay related fees and expenses. Our remaining cash of approximately $76 million on September 30, 2002, in addition to liquidity provided from future operating cash flows and a revolving credit facility of $25 million, are expected to be sufficient to meet our working capital requirements for the foreseeable future. In connection with the merger, WH Intermediate Holdings and its affiliates consummated certain related financing transactions, including the issuance of the Notes in the amount of $165.0 million, and the entering into of the Senior Credit Facility, consisting of a term loan in the amount of $180 million and a revolving credit facility in the amount of $25 million. For further discussion of the related financings, see "Note 4, Long Term Debt" in the consolidated financial statements of WH Intermediate Holdings included herein. As of September 30, 2002, we had additional credit facilities of $6.8 million, which supported letters of credit and guarantees. Historically, we have not been subjected to material price increases by its suppliers. In 2001, our implementation of multiple source suppliers resulted in price decreases. We believe that in the event of price increases, it has the ability to respond to a portion of any price increases by raising the price of its products. The majority of our purchases from our suppliers generally are made in U.S. Dollars, while sales to its distributors generally are made in local currencies. Consequently, strengthening of the U.S. Dollar versus a foreign currency can have a negative impact on operating margins and can generate transaction losses on intercompany transactions. For a discussion of certain contingencies that may impact liquidity and capital resources, see Note 5 in the notes to consolidated financial statements of Herbalife International, Inc. included herein. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We are exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates. On a selected basis, we use derivative financial instruments to manage or hedge these risks. All hedging transactions are authorized and executed pursuant to written guidelines and procedures. A discussion of our primary market risk exposures and derivatives is presented below. Also, see "Note 8, Derivative Instruments and Hedging Activities" in the consolidated financial statements of WH Intermediate Holdings included herein. FOREIGN EXCHANGE RISK. We enter into foreign exchange derivatives in the ordinary course of business primarily to reduce exposure to currency fluctuations attributable to intercompany transactions and translation of local currency revenue. Most of these foreign exchange contracts are designated for forecasted transactions. We purchase average rate put options, which give us the right, but not the obligation, to sell foreign currency at a specified exchange rate ("strike rate"). These contracts provide protection in the event the foreign currency weakens beyond the option strike rate. In some instances, we sell (write) foreign currency call options to finance the purchase of put options, which gives the counterparty the right, but not the obligation, to buy foreign currency from us at a specified strike rate. These contracts serve to limit the benefit we would otherwise derive from strengthening of the foreign currency beyond the strike rate. Such written call options are only entered into contemporaneously with purchased put options. The fair value of option contracts is based on third-party bank quotes. 53
AVERAGE STRIKE FOREIGN CURRENCY COVERAGE PRICE FAIR VALUE MATURITY DATE - ---------------- ----------- -------------- ---------- ------------- Purchased Puts (Company may sell Yen/Buy USD)......................... $30,000,000 117.35-120.53 $ 818,000 Oct-Dec 2002 Written Puts (Company may sell Yen/Buy USD)................................. $15,000,000 120.21-120.53 $(271,000) Oct-Dec 2002 Written Calls (Counterparty may Buy Yen/Sell USD)........................ $15,000,000 114.50 $ (15,000) Oct-Dec 2002
Foreign exchange forward contracts are occasionally used to hedge advances between subsidiaries and bank loans denominated in currencies other than their local currency. The objective of these contracts is to neutralize the impact of foreign currency movements on the subsidiary's operating results. The fair value of forward contracts is based on third-party bank quotes. The table below describes the forward contracts that were outstanding at September 30, 2002.
CONTRACT FORWARD MATURITY FOREIGN CURRENCY DATE POSITION DATE CONTRACT RATE FAIR VALUE - ---------------- -------- ----------- -------- ------------- ----------- Buy USD/Sell BRL.................. 9/5/02 $ 1,000,000 10/7/02 3.1375 $ 1,161,000 Buy USD/Sell MXP.................. 9/17/02 $10,600,000 10/3/02 10.0025 $10,824,000
We periodically utilize bank debt at certain foreign subsidiaries to reduce the impact of foreign currency movements on the subsidiary's operating results. All foreign subsidiaries, excluding those operating in hyper-inflationary environments, designate their local currencies as their functional currency. At September 30, 2002, the total amount of foreign subsidiary cash was $48.7 million, of which $6.1 million was invested in U.S. Dollars. At September 30, 2002 the cash balances in Japan and South Korea were $10.6 million and $7.3 million, respectively. INTEREST RATE RISK. We currently maintain an investment portfolio of high-quality marketable securities. According to our investment policy, we may invest in taxable and tax exempt instruments including asset-backed securities. In addition, the policy establishes limits on credit quality, maturity, issuer and type of instrument. We do not use derivative instruments to hedge its investment portfolio. Our cash equivalents and short-term investments at September 30, 2002 are $1.2 million, invested in high-quality marketable securities. The table below presents principal cash flows and interest rates by maturity dates and the fair values of our borrowings as of September 30, 2002. Fair values for fixed rate borrowings have been determined based on recent market trade values. The fair values for variable rate borrowings approximate their carrying value. Variable interest rates disclosed represent the rates on the borrowings at September 30, 2002. Interest rate risk related to our capital leases is not significant.
EXPECTED MATURITY DATE ------------------------------------ 2002 2003 2004 2005 2006 THEREAFTER TOTAL FAIR VALUE --------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- Long-term Debt Fixed Rate.................. -- -- -- -- -- 162,949,000 162,949,000 146,654,000 Average Interest Rate... 12.00% Variable Rate........... 7,500,000 30,000,000 30,000,000 30,000,000 30,000,000 47,500,000 175,000,000 175,000,000 Average Interest Rate... 5.8% 5.8% 5.8% 5.8% 5.8% 5.8%
CRITICAL ACCOUNTING ESTIMATES Our accounting policies are described in "Note 2, Summary of Significant Accounting Policies" in the consolidated financial statements of Herbalife International, Inc. included herein. We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the U.S., which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. We consider the 54 following policies to be most critical in understanding the judgments that are involved in preparing our financial statements and the uncertainties that could impact its results of operations, financial condition and cash flows. Allowances for product returns are provided at the time the product is shipped. This accrual is based upon historic trends and experience. If the actual product returns differ from past experience, changes in the allowances are made. We write down our inventory to provide for estimated obsolete or unsalable inventory based on assumptions about future demand for our products and market conditions. If future demand and market conditions are less favorable than our assumptions, additional inventory write-downs could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if written-off inventory is sold. Contingencies are accounted for in accordance with SFAS No. 5, "Accounting for Contingencies." SFAS No. 5 requires that we record an estimated loss from a loss contingency when information available prior to issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal and income tax matters requires us to use judgment. Many of these legal and tax contingencies can take years to be resolved. Generally, as the time period increases over which the uncertainties are resolved, the likelihood of changes to the estimate of the ultimate outcome increases. However, an adverse outcome in these matters could have a material impact on our financial condition and operating results. Deferred income tax assets have been established for net operating loss carryforwards of certain foreign subsidiaries and reduced by a valuation allowance. The net operating loss carryforwards expire in varying amounts over a future period of time. Realization of the income tax carryforwards are dependent on generating sufficient taxable income prior to expiration of the carryforwards. Although realization is not assured, we believe it is more likely than not that the net carrying value of the income tax carryforwards will be realized. The amount of the income tax carryforwards that is considered realizable, however, could change if estimates of future taxable income during the carryforward period are adjusted. 55 BUSINESS GENERAL We are a worldwide marketer of weight management products, nutritional supplements, and personal care products that support our customers' wellness and healthy lifestyles. We market and sell these products through a global network marketing organization comprised of over one million independent distributors in 55 countries. Throughout our 22-year operating history, the high quality of our products and the effectiveness of our network marketing organization have been the primary drivers of our growth and geographic expansion. For the twelve months ended September 30, 2002, our retail sales and adjusted EBITDA were $1.8 billion and $139.4 million, respectively. COMPANY HISTORY Herbalife was founded in 1980 by entrepreneur Mark Hughes, as part of his search for safe and effective alternatives to weight management solutions then in the market. We began to use the direct selling channel in the early days of Herbalife. Our distributor base grew quickly, by increasing penetration in the United States and by expanding abroad. Throughout the 1980's, we began operations in other English-speaking countries such as Canada, the United Kingdom, Australia and New Zealand, and subsequently entered several of our larger international markets including Mexico (1989), Germany (1991), Italy (1992), Japan (1993) and South Korea (1996). In conjunction with our entry into new markets, we expanded our product portfolio with new product introductions to our inner nutrition category and introduced our personal care product line in 1995. Brian L. Kane and Carol Hannah were appointed Co-Presidents as part of a management reorganization in September 2002. Ms. Hannah has been an officer of Herbalife for almost 18 years and worked closely with Mr. Hughes for many years until his untimely death in May 2000. Ms. Hannah previously held the position of Executive Vice President, Sales, with responsibility for managing distributor relationships. Mr. Kane has been with Herbalife for almost 10 years, most recently serving as the Chief Operating Officer with responsibility for global operations. He will continue to perform those duties. As part of the recent management reorganization, William D. Lowe, Senior Vice President, Finance and Treasury, will have responsibility for all financial operations, pricing and strategic planning. BUSINESS STRATEGY Our business strategy is comprised of the following principal elements: INCREASE MARKET PENETRATION. Historically, we focused on expanding our network marketing organization to new countries and focused less on internal growth within our existing markets. While this strategy achieved rapid initial sales growth, it did not always achieve sustainable sales levels. As a result, we have re-evaluated our country sales strategy and are refining sales and marketing initiatives to place a greater emphasis on increased penetration of these markets. In certain instances we may increase the availability of our existing products in those markets where we currently offer only a small percentage of our full product line. We believe this will drive sales growth through increased penetration in each of our country markets around the world. INCREASE DISTRIBUTOR PRODUCTIVITY AND RETENTION. We recognize that in addition to high-quality products and a rewarding distributor compensation plan, the success of our business depends on the support and training of our distributors. We are strengthening our distributor support services by enhancing customer service capabilities at our call centers, offering greater business-building opportunities through the Internet, creating new business support initiatives and offering enriched reward recognition programs. To further enhance distributor productivity and improve retention, we are developing new educational training programs aimed at assisting distributors with their sales, marketing and recruiting techniques. Extensive training opportunities enable distributors to not only develop invaluable business-building and leadership skills, but also to become experts in our products and offer customers sound advice on weight management, nutrition and personal care. By placing a top priority on training, we build credibility among our distributors and further establish Herbalife as an industry leader. 56 INCREASE BRAND RECOGNITION IN WEIGHT MANAGEMENT AND WELLNESS MARKETS. Our underlying initiative is to continue to expand our reputation as an industry leading company focused on weight management, complete wellness and a healthier way of life. We are well positioned to take advantage of current worldwide consumer trends indicating that individuals are turning more and more to nutritional supplements for weight management, fitness and age-related health concerns. The core of this strategy is accomplished through the rationalizing of our approximately 570 products around a central wellness platform -- with core product groups built around various life stages (for example, "Healthy Children," "Healthy Men," "Healthy Women," and "Healthy Aging"). IMPROVE SUPPLY CHAIN MANAGEMENT. Prior to 2001, we purchased primarily all of our weight management and nutritional supplement products from a single supplier. In 2000, we reevaluated our product supply strategy and began purchasing products from multiple suppliers. Our new supply chain management strategy is focused on several key objectives, including: (i) production of the highest quality products practicable, (ii) reduction in total inventory levels, and (iii) reduction in product manufacturing costs. We are accomplishing these objectives through the diversification of our supplier base to multiple companies around the world. Purchasing from multiple suppliers and increased supplier competition has enabled us to maintain product quality and lower product costs. The geographic diversification of supply amongst several manufacturers has also resulted in significantly lower inventory levels. In each of the last nine quarters, we have achieved a consistent decline in inventory levels from $115.8 million at June 30, 2000 to $56.7 million at September 30, 2002, and our gross profit as a percentage of retail sales has improved from 46.4% to 48.3% over this period. We expect to further reduce our inventory levels. IMPROVE MARGINS THROUGH EXPENSE MANAGEMENT. During the past year, we began to implement certain product manufacturing and other sustainable expense reduction initiatives that have already resulted in significant improvements in financial performance. Our new management team is focused on realizing additional savings through further reduction of corporate expenses and continued focus on the implementation of the above initiatives. Through these initiatives and our improvement in sales, we have improved our adjusted EBITDA from $30.4 million (7.2% of retail sales) in the third quarter of 2001 to $38.0 million (8.6% of retail sales) in the third quarter of 2002. We believe the combination of reduced production costs, reductions in corporate spending and lower inventory will continue to enhance profitability and cash flow. PRODUCT OVERVIEW We focus on delivering a complete wellness program and way of life to our customers through our diverse product portfolio. Our products are designed to appeal to the growing number of consumers who seek to live a healthy lifestyle. We group our products into two broad categories: inner nutrition, which consists of weight management and nutritional supplements and outer nutrition, which represents personal care products. We currently market approximately 570 products as well as literature and promotional materials designed to support our distributors. Our products are often sold in programs, which are comprised of a series of related products designed to achieve a common wellness or health result, simplify weight management and nutrition for our consumers and maximize our distributors' cross-selling opportunities. While our growth strategy includes the introduction of new products, we have not been dependent on new product introductions for sales growth. 57 The following chart summarizes our retail sales information by product category during the indicated periods.
PRODUCT SALES BY CATEGORY YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1999 2000 2001 ------------------- ------------------- ------------------- RETAIL PERCENT RETAIL PERCENT RETAIL PERCENT SALES OF SALES SALES OF SALES SALES OF SALES -------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) PRODUCT CATEGORY INNER NUTRITION: Weight Management.................. $ 741.0 41.3% $ 742.3 42.1% $ 707.9 42.7% Nutritional Supplements............ 807.8 45.0 771.2 43.7 744.6 45.0 OUTER NUTRITION: Personal Care Products............. 198.1 11.1 200.6 11.4 178.2 10.8 OTHER PRODUCTS: Literature, Promotional and Other(1)........................ 46.6 2.6 50.8 2.8 25.5 1.5 -------- ----- -------- ----- -------- ----- Total........................... $1,793.5 100.0% $1,764.9 100.0% $1,656.2 100.0% ======== ===== ======== ===== ======== =====
- --------------- (1) All product returns are netted against the literature, promotional and other category. See "-- Product Return and Buy-Back Policies." INNER NUTRITION WEIGHT MANAGEMENT PRODUCTS. We believe that our products have helped millions of people manage their weight safely and effectively for 22 years by providing our customers with numerous weight management products. Among the products we offer are meal replacement products, herbal appetite suppressants and a variety of healthy snacks designed to provide nutritional support between meals. These products include the following: (i) Formula 1 meal replacement product, a protein powder in four different flavors designed as a meal replacement; (ii) the four Thermojetics(R) weight management tablets (green ephedra-free, beige, yellow and total control) used as part of the weight management program; and (iii) Thermojetics(R) Herbal Concentrate, an herbal beverage blended from five natural botanicals, now offered in three different flavors. In December 1999, we introduced a new alternative Thermojetics(R) program, named the Thermojetics(R) HPLC Program, which is comprised of snack bars, the Thermojetics(R) Gold Herbal Supplement Tablets and shakes, soup and drink mixes. Recently, we introduced a low carb bread mix, low carb dessert mix and low carb soy nuts. Most recently, in October 2002, we introduced Total Control(R) weight management tablets, an ephedra-free product in the U.S. For the year ended December 31, 2001, $707.9 million or 42.7% of our retail sales were derived from weight management products. NUTRITIONAL SUPPLEMENTS. We market numerous dietary and nutritional supplements designed to meet our customers' specific nutritional needs. Each of these supplements contains high-quality herbs, vitamins, minerals and other natural ingredients and focuses on the specific lifestages and lifestyles of our customers, including females, males, children, the elderly, athletes and others. For example, we offer Tang Kuei, Woman's Choice and Women's Advantage specifically for women; Male Factor 1000(R), Male Performance Complex and Ultimate Prostate Formula for men; Kindermins(R), Dinomins and DinoShakes(R), which are designed to meet the nutritional needs of children; and the Longetics(R) Program for mature adults. We also offer several antioxidants, such as Extreme C tablets, Mega Garlic, Schizandra Plus, RoseOx, and Echinacea Plus. Other signature products include Herbal-Aloe, multivitamin, Cell Activator(R), Cell-U-Loss(R), N.R.G., Thermo-Bond(R), Aminogen, Florafiber, Xtra-Cal, Herbalifeline(R), Sleep Now, Herbal Calmative and A.M. Replenishing and P.M. Cleansing formulas. For the year ended December 31, 2001, $744.6 million or 45.0% of our retail sales were derived from nutritional supplements. 58 OUTER NUTRITION PERSONAL CARE PRODUCTS. Rich in botanical compounds, these products are marketed to protect, nourish, smooth, camouflage, improve and soothe the body, skin and hair of our customers. They provide both cosmetic enhancement and outer nutrition for the skin and body and preservation of youthful appearance and are designed to make customers look and feel their best. We market most of our personal care product line under the name Dermajetics(R). This line consists of skin care products such as: Radiant CTM Daily Skin Booster; The Skin Survival Kit, consisting of a day and night moisturizer, a deep cleaning facial mask and a hydrating eye gel; Nature's Mirror(R)consisting of a cleanser, toner and moisturizer for each of three different skin types; and several specialty care products, including Skin Activator(TM); Ocean Currents(R), consisting of five bath products; the Acne Treatment System, consisting of four products; and AromaVie(R), consisting of three aromatic soaps and oils. Other specialty personal care products include Herbal Aloe Gel and Lotion, Soothing Spray, Cleansing Bars, Body Wash, Super APR (Arthritis Pain Relief) and Body Buffing and Toning Cream. For the year ended December 31, 2001, $178.2 million or 10.8% of our retail sales were derived from personal care products. OTHER PRODUCTS LITERATURE, PROMOTIONAL AND OTHER. We also sell literature and promotional materials, including sales aids, informational videotapes and cassette recordings. In addition, we sell distributor kits (called "International Business Packs") at a worldwide average cost of approximately $60 per kit, which an individual must purchase in order to become a distributor (except in South Korea, where there is no charge for a distributor kit). Sales of distributor kits are not subject to distributor allowances and royalty overrides. For the year ended December 31, 2001, $25.5 million or 1.5% of the our retail sales were derived from literature and promotional materials. PRODUCT MANUFACTURING AND DEVELOPMENT As part of our focus on delivering a complete wellness program and way of life to our customers, we will continue to explore and develop new products. New product ideas are derived from a number of sources, including trade publications, scientific and health journals, our executives, staff and consultants and outside parties. We will continue to be assisted in this review process by our Medical Advisory Board. In general, we maintain a second-mover strategy with respect to new product offerings, often introducing our own unique formulations of products successfully offered by others in the market. Since our products consist of herbs, vitamins, minerals and other ingredients that we regard as safe when taken as suggested by us, we do not conduct clinical studies of our products. However, in advance of introducing products into our markets, local counsel and other representatives, retained by us, investigate product formulation matters as they relate to regulatory compliance and other issues. Our products are then reformulated to suit both the regulatory and marketing requirements of the particular market. All of our products are manufactured by outside companies, with the exception of products distributed in and sourced from China where we have our own manufacturing facility. For a number of years, a substantial majority of weight management products and nutritional supplements were manufactured and sold to us by a single supplier. However, beginning in 2001, we have diversified our weight management products and nutritional supplements sourcing to multiple manufacturers. We have established excellent relationships with these manufacturers and obtained improvements in supply services, product quality and product delivery. We own the proprietary rights to substantially all of our weight management products and dietary and nutritional supplements. PRODUCT RETURN AND BUY-BACK POLICIES In most markets, our products include a customer satisfaction guarantee. Under this guarantee, within 30 days of purchase, any customer who is not satisfied with an Herbalife product for any reason may return it or any unused portion of it to the distributor from whom it was purchased for a full refund from the distributor or credit toward the purchase of another Herbalife product. If they return the products to us on a timely basis, 59 distributors may obtain replacements from us for such returned products. In addition, in most jurisdictions, we maintain a buy-back program, pursuant to which we will repurchase products sold to a distributor provided that the distributor resigns as an Herbalife distributor, returns the product in marketable condition within twelve months of original purchase and meets certain documentation and other requirements. We believe this buy-back policy addresses a number of the regulatory compliance issues pertaining to network marketing systems. Historically, product returns and buy-backs have not been significant. Product returns and buy-backs approximated 1.2%, 1.7% and 2.0% in 1999, 2000 and 2001, respectively. At the end of 2001 and at the beginning of 2002, we revised buy-back policies by instituting a restocking fee and stopping the refund of packaging and handling. The changes have resulted in a stabilization of the total number of new returns and refunds in the second and third quarter of 2002. South Korea, because of its unique consumer protection laws, continues to have the most returns and refunds. For the nine months ended September 30, 2002, South Korea accounted for approximately 34% of total returns and refunds while the U.S. and Japan accounted for 29% and 13%, respectively. NETWORK MARKETING SYSTEM GENERAL. Our products are distributed through a global network marketing organization comprised of over one million independent distributors in 55 countries as of September 30, 2002, except in China where our sales are regulated to be conducted on a wholesale basis to local retailers. Included in the number of active distributors as of February 2002 are distributors and supervisors whose distributorships were terminated subsequent to January 31, 2002 but who may have renewed, or in the future may renew, their distributorships. This is consistent with our established internal policies and past practices. We believe that the direct-selling distribution channel is ideally suited to selling our products, because sales of wellness and weight management products are strengthened by ongoing personal contact between retail consumers and distributors. This personal contact enhances (i) the education of consumers in the weight management and nutrition markets and (ii) the motivation of consumers to begin and maintain weight management programs for healthy living. In addition, many distributors use Herbalife's products themselves providing first-hand testimonial proof of product effectiveness, which serves as a powerful sales tool. We encourage our distributors to use our products and to communicate their results to their retail customers. We seek to provide our distributors attractive and flexible career opportunities by selling our high-quality products. Our distributors have the opportunity to earn significant income and receive non-financial rewards designed to motivate and recognize individual achievement. As a result, we believe the business opportunity provided by our network marketing system appeals to a broad cross-section of people throughout the world, particularly those seeking to supplement family income, start a home business or pursue non-conventional, part-time employment opportunities. Our distributors, who are independent contractors, earn income on their own sales and can also earn royalties and bonuses on sales made by the distributors in their downline organizations. We believe our network marketing system also provides an attractive business opportunity relative to other network marketing companies, particularly because we maintain an industry leading payout ratio and offer high-quality products. STRUCTURE OF THE NETWORK MARKETING SYSTEM. To become a distributor, a person must be sponsored by an existing distributor, except in China where no sponsorship is allowed, and must purchase a distributor kit from us, except in South Korea, where there is no charge for a distributor kit. To become a supervisor or qualify for a higher level, distributors must achieve specified volumes of product purchases or earn certain amounts of royalty overrides during specified time periods and must re-qualify for the levels once each year. To attain supervisor status, a distributor generally must purchase, either from us or other distributors, products representing at least 4,000 volume points in one month or 2,500 volume points in two consecutive months. China has its own unique qualifying program. Volume points are point values assigned to each of our products that are equal in all countries and are based on the suggested retail price of U.S. products. Supervisors may then attain higher levels, which consist of the Global Expansion Team, the Millionaire Team and the President's Team, by earning increasing amounts of royalty overrides based on purchases by distributors within 60 their organizations. Supervisors contribute significantly to our sales and some key supervisors who have attained the highest levels within our distributor network are responsible for generating a substantial portion of our sales and for recruiting a substantial number of our distributors. The following table sets forth the approximate number of our supervisors at the dates indicated:
FEBRUARY 28,* ----------------------------------------------- 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Approximate number of supervisors.... 139,000 147,000 160,000 165,000 172,000
- --------------- * In February of each year, we delete from the rank of supervisor those supervisors who did not satisfy the supervisor qualification requirements during the preceding twelve months. Distributors who meet the supervisor requirements at any time during the year are promoted to supervisor status at that time, including any supervisors who were deleted, but who subsequently requalified. We rely on distributors' certifications as to the amount and source of their product purchases from other distributors. Although we apply review procedures with respect to the certifications, they are not directly verifiable by us. DISTRIBUTOR EARNINGS. Distributor earnings are derived from several sources. First, distributors may earn profits by purchasing our products at wholesale prices, which are discounted 25% to 50% from suggested retail prices, depending on the distributors' level within our distributor network, and selling our products to retail customers or to other distributors. Second, distributors who sponsor other distributors and establish their own downline organizations may earn (i) royalty overrides, 15% of product retail sales in the aggregate, (ii) production bonuses, 7% of product retail sales in the aggregate and (iii) President's Team bonus, 1% of product retail sales. Our total pay-out on products subject to distributor royalty overrides ("payout ratio") is currently approximately 73% of our suggested retail sale price, i.e., 50% distributor allowance plus up to 23% of suggested retail sales prices in royalty overrides and other bonuses. In China, distributors are limited to earn profits from retailing our products by purchasing our products with discounts and rebates up to 50% of suggested retail price. Distributors earn the right to receive royalty overrides upon attaining the level of supervisor and above, and production bonuses upon attaining the level of Global Expansion Team and above. Once a distributor becomes a supervisor, he or she has an incentive to qualify, by earning specified amounts of royalty overrides, as a member of the Global Expansion Team, the Millionaire Team or the President's Team, and thereby receive production bonuses of up to 7%. We believe that the right of distributors to earn royalty overrides and production bonuses contributes significantly to our ability to retain our most productive distributors. We also have two compensation and incentive programs designed to motivate distributors at both the most senior and junior levels within our distributor network. Members of the President's Team work closely with us to develop and implement new initiatives and strategies for increasing sales and distributor productivity throughout our entire distributor organization. The President's Team members have, under certain conditions, the opportunity to participate in the President's Team Bonus, which for 2001 consisted of a total available awards package of approximately one percent of our 2001 total product retail sales, or approximately $16.0 million. The distribution of the President's Team Bonus is based in part upon each President's Team member's participation in corporate-sponsored training and motivational events. In this manner, we attempt to involve our most senior distributors in our sales, training, motivation and strategic planning efforts. In addition to these programs, we periodically offer a variety of special promotions related to particular products or sales periods, involving special cash bonuses, vacations and other awards. For our most junior distributors, those who have not yet attained supervisor status, we offer a Success Builder program. This program permits a distributor who purchases products representing 1,000 volume points in one month to obtain a 42% distributor allowance from suggested retail prices on our products, rather than the standard 25%. In addition, in 1996, we introduced the Herbalife Advantage Program ("HAP"), which is an automatic monthly shipment program that enables our junior distributors to obtain an extra 10% distributor allowance over the standard 25%. The Success Builder and HAP programs are designed to provide incentives to distributors who are in the initial stages of building distributor organizations and to encourage them to reach supervisor status at which point the distributor allowance increases to 50%. 61 We seek to expand our distributor base in each market by offering distributors attractive compensation opportunities. We believe our international sponsorship program provides a significant advantage to our distributors as compared with distributors in some other network marketing organizations. This program permits distributors in any country to sponsor distributors in other countries where we are licensed to do business and where we have obtained required product approvals. Sponsor distributors in this program earn the same level of royalty overrides and bonuses on sales that they would receive if both distributors resided in the same country. DISTRIBUTOR TRAINING. We conduct over 25,000 training sessions annually on local, regional and global levels to educate and motivate our distributors. In addition to these training sessions, we have our own "Herbalife Broadcast Network" that we presently use to provide distributors continual training and information. The Herbalife Broadcast Network can be seen on the DISH Network satellite television service. We use the Herbalife Broadcast Network to provide our distributors with the most current product and marketing information. GEOGRAPHIC PRESENCE The following chart sets forth the markets in which we currently operate, the number of countries open in such markets as of September 30, 2002 and retail sales information by region during the past three fiscal years.
PERCENT OF NUMBER OF TOTAL COUNTRIES RETAIL OPEN AS OF YEAR ENDED DECEMBER 31, SALES SEPTEMBER 30, ------------------------------ ---------- ------------- 1999 2000 2001 2001 2002 -------- -------- -------- ---------- ------------- (DOLLARS IN MILLIONS) GEOGRAPHIC REGION Americas........................ $ 541.3 $ 615.8 $ 620.2 37.5% 11 Europe.......................... 469.4 421.2 459.5 27.7 33 Asia/Pacific Rim................ 782.8 727.9 576.5 34.8 11 -------- -------- -------- ----- -- Total........................... $1,793.5 $1,764.9 $1,656.2 100.0% 55 ======== ======== ======== ===== ==
We conduct business in 55 countries located in The Americas, Europe and Asia/Pacific Rim. Retail sales in those regions represented 37.5%, 27.7% and 34.8%, respectively, of our total retail sales in 2001. The countries in which we currently operate represent approximately 71% of the world's total population. Historically a significant portion of our sales have been from a few large countries. In 2001 our top six countries, consisting of the United States, Japan, South Korea, Mexico, Italy and Germany, accounted for approximately 69% of total retail sales. Over the most recent five years, the top six countries of each year have gone from representing approximately 77% of retail sales in 1997 to 69% of retail sales in 2001, primarily as a result of opening new countries. After entering a new country, we have in many instances experienced an initial period of rapid growth in sales as new distributors were recruited, followed by a decline in sales. We believe that a significant factor affecting these markets has been the opening of other new markets within the same geographic region or with the same or similar language or cultural bases and the corresponding tendency of some distributors to focus their attention on the business opportunities provided by new markets instead of developing their established downline organizations in existing markets. Additionally, in some instances, we have become aware that certain sales in certain existing markets were attributable to purchasers who distributed our products in countries that had not yet been opened. When these countries were opened, the sales in existing markets shifted to the newly opened markets, resulting in a decline in sales in the existing markets. To the extent we determine to open new markets in the future, we will continue to seek to minimize the impact on distributor focus in existing markets and to ensure that adequate distributor support services and other Herbalife systems are in place to support growth. 62 Another significant factor contributing to these sales declines is the adverse publicity that sometimes arises when we experience rapid growth within a market, thus drawing the attention of the media and our competitors. We believe that these unfavorable press reports are generally based upon a lack of familiarity with us and our network marketing system and often originate from competitive forces in the local market. The effect of occasional adverse publicity has at times also led to increased regulatory scrutiny in some countries, which may also have an adverse effect on sales. Our business strategy will include placing greater emphasis on sustaining and increasing sales levels in our existing markets, particularly where we have experienced declines in sales after an initial period of growth. We will seek greater market penetration in our markets by refining sales, marketing and recruiting initiatives and by increasing the availability of our existing products in those markets where we currently offer only a small percentage of our full product line. See "Business -- Business Strategy." OPERATIONS Our global distribution system features centralized distribution and telephone ordering systems coupled with convenient storefront distributor service centers. Distribution and service centers are conveniently located and attractively designed in order to encourage local distributors to meet and network with each other and learn more about our products, marketing system and upcoming events. Our major distribution warehouses have been automated with "pick-to-light" picking systems which consistently deliver over 99.5% order accuracy and handling systems that provide for inspection of every shipment before it is sent to delivery. We have central sales ordering facilities for answering and processing telephone orders. Operators at such centers are capable of conversing in multiple languages. Our weight management products, nutritional supplements, and some personal care products are distributed to foreign markets either from the facilities of our manufacturers or from our Los Angeles and Venray, Netherlands distribution centers. Products are distributed in the United States market from our Los Angeles distribution center or from our Memphis distribution center. Products are generally transported by truck, cargo ship or plane to our international markets and are warehoused in either one of our foreign distribution centers or a contracted third party warehouse and distribution center. After arrival of the products in a foreign market, distributors purchase the products from the local distribution center or the associated sales center. Our personal care products and color cosmetics are predominantly manufactured in Europe and the United States. The products manufactured in Europe are shipped to a centralized warehouse facility, from which delivery by truck, ship or plane to other international markets occurs. MANAGEMENT INFORMATION, INTERNET AND TELECOMMUNICATION SYSTEMS In order to facilitate our continued growth and support distributor activities, we continually upgrade our management information, internet and telecommunication systems. These systems include: (i) a centralized host computer located in Southern California, which is linked to our international markets through a dedicated wide area network that provides on-line, real-time computer connectivity and access; (ii) local area networks of personal computers within our markets, serving our regional administrative staffs; (iii) an international e-mail system through which our employees communicate; (iv) a standardized Northern Telecom Meridian telecommunication system in most of our markets; (v) fully integrated Oracle supply chain management system that has been installed in our distribution centers; and (vi) internet websites to provide a variety of online services for distributors (status of qualifications, meeting announcements, product information, application forms, educational materials and, in the United States, sales ordering capabilities). These systems are designed to provide financial and operating data for management, timely and accurate product ordering, royalty override payment processing, inventory management and detailed distributor records. We intend to continue to invest in our systems in order to strengthen our operating platform. REGULATION GENERAL. In both our United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations 63 and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions, including regulations pertaining to: (i) the formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products; (ii) product claims and advertising, including direct claims and advertising by us, as well as claims and advertising by distributors, for which we may be held responsible; (iii) our network marketing system; (iv) transfer pricing and similar regulations that affect the level of U.S. and foreign taxable income and customs duties; and (v) taxation of distributors (which in some instances may impose an obligation on us to collect the taxes and maintain appropriate records). PRODUCTS. The formulation, manufacturing, packaging, storing, labeling, promotion, advertising, distribution and sale of our products are subject to regulation by various governmental agencies, including (i) the FDA, (ii) the FTC, (iii) the Consumer Product Safety Commission ("CPSC"), (iv) the United States Department of Agriculture ("USDA"), (v) the Environmental Protection Agency ("EPA"), and (vi) the United States Postal Service. Our activities also are regulated by various agencies of the states, localities and foreign countries in which our products are manufactured, distributed and sold. The FDA, in particular, regulates the formulation, manufacture and labeling of foods, dietary supplements and over-the-counter ("OTC") drugs, such as those distributed by us. FDA regulations require us and our suppliers to meet relevant good manufacturing practice ("GMP") regulations for the preparation, packing and storage of foods and OTC drugs. GMPs for dietary supplements have yet to be promulgated but are expected to be proposed. The 1994 Dietary Supplement Health and Education Act ("DSHEA") revised the provisions of the Federal Food, Drug and Cosmetic Act ("FFDCA") concerning the composition and labeling of dietary supplements and, we believe, is generally favorable to the dietary supplement industry. The legislation creates a new statutory class of dietary supplements. This new class includes vitamins, minerals, herbs, amino acids and other dietary substances for human use to supplement the diet, and the legislation grandfathers, with some limitations, dietary ingredients that were on the market before October 15, 1994. A dietary supplement that contains a dietary ingredient that was not on the market before October 15, 1994 will require evidence of a history of use or other evidence of safety establishing that it is reasonably expected to be safe. Manufacturers of dietary supplements that make specified types of statements on dietary supplements, including some structure/function claims, must have substantiation that the statements are truthful and not misleading. The majority of the products marketed by us are classified as dietary supplements or conventional foods under the FFDCA. The adoption of new regulations in the United States or in any of our international markets, or changes in the interpretation of existing regulations, could have a material adverse effect on us. In September 1997, the FDA issued regulations governing the labeling and marketing of dietary supplement products. The regulations cover: (i) the identification of dietary supplements and their nutrition and ingredient labeling; (ii) the terminology to be used for nutrient content claims, health content claims, and statements of nutritional support; (iii) labeling requirements for dietary supplements for which high potency and antioxidant claims are made; (iv) notification procedures for statements on dietary supplements; and (v) premarket notification requirements for new dietary ingredients in dietary supplements. The notification procedures became effective in November 1997, and the new labeling requirements became effective in March 1999. We were required to revise a substantial number of our product labels by the effective date, which we did. In addition, we are required to continue our ongoing program of securing substantiation of our structure/function claims and of notifying the FDA of some types of performance claims made for our products. Our substantiation program involves compiling and reviewing the scientific literature pertinent to the ingredients contained in our products. On various occasions, the FDA has sent us courtesy letters, objecting to some structure/function claims that we had proposed. Generally, in those instances, we revised our product claims to reflect the FDA's comments. In January 2000, the FDA published a final rule that defines the types of statements that can be made concerning the effect of a dietary supplement on the structure or function of the body pursuant to the DSHEA. Under the DSHEA, dietary supplement labeling may bear structure/function claims, which are claims that the products affect the structure or function of the body, without prior FDA review. They may not, without prior FDA review, bear a claim that they can prevent, treat, cure, mitigate or diagnose disease (a 64 disease claim). The new final rule describes how the FDA will distinguish disease claims from structure/ function claims. In February 2001, the FDA issued a notice requesting comments on the types of information that should be included in a guidance on applying the regulations on statements made for dietary supplements concerning the effect of a dietary supplement on the structure or function of the body. No guidance document has been issued to date, and we have continued our ongoing efforts to ensure that our dietary supplement product labeling complies with the requirements of the Structure/Function final rule, which became effective in February of 2000. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers, we are subject to the risk that one or more of the ingredients in our products may become the subject of adverse regulatory action. For example, one of the ingredients in the Thermojetics(R) original green herbal tablets is a Chinese herb, Ma Huang, which contains naturally occurring ephedrine alkaloids in small quantities. Ephedrine products have been the subject of adverse publicity in the United States and other countries relating to alleged harmful effects, including the deaths of several individuals. Currently, we offer the Thermojetics(R) original green herbal tablets only in the United States, except in those states in which regulations may prohibit or restrict the sale of the product. In response to potential federal regulatory proposals that may have affected the sale of the Thermojetics(R) original green tablets in the United States, we suspended sales of the product for approximately three months commencing in July 1995 and introduced a reformulated herbal green tablet that did not contain Ma Huang. When no regulations were proposed or issued at that time, we renewed sales of Thermojetics(R) original green herbal tablets in the United States in October 1995, except in those states in which regulations may prohibit or restrict the sale of the product. During the three-month suspension period, we did not experience a material change in the level of sales of the reformulated Thermojetics(R) green tablets versus sales of the Thermojetics(R) original green tablets in the recently preceding months. However, it is possible that a longer suspension period could have resulted in a decrease in sales of the reformulated Thermojetics(R) green tablets or other products within the Thermojetics(R) Weight Management System, even though the products do not contain Ma Huang. The FDA has on record a small number of reports of anecdotal adverse reactions allegedly resulting from the ingestion of Ma Huang contained in our Thermojetics(R) original green tablet. We have received two redacted anecdotal adverse reports from the FDA, which have been investigated to the fullest extent possible. However, many other companies manufacture products containing various amounts of Ma Huang, and the FDA has on record hundreds of reports of adverse reactions to these products. We are a defendant in five legal actions (including three wrongful death cases) seeking to link the ingestion of Thermojetics(R) original green tablets with subsequent medical problems. We believe that we have substantial defenses to these actions and that the matters will not have a material financial impact on us. On April 10, 1996, the FDA issued a statement warning consumers not to purchase or ingest dietary supplements containing ephedrine that are claimed to produce effects such as euphoria, heightened awareness, increased sexual sensations or increased energy, because these products pose significant adverse health risks, including dizziness, headache, gastrointestinal distress, irregular heartbeat, heart palpitations, heart attacks, strokes, seizures, psychosis and death. We do not market our Ma Huang product with any claims referred to in the FDA statement. On June 4, 1997, the FDA issued a proposed regulation for dietary supplements containing ephedrine alkaloids. The proposed regulation would prohibit dietary supplements containing eight milligrams or more of ephedrine alkaloids per serving, and would not permit the products to contain any other stimulant, diuretic or laxative ingredients. In addition, labeling of supplements would be prohibited from suggesting or recommending conditions of use that would result in an intake of eight milligrams or more of ephedrine alkaloids within a six-hour period, or a total daily intake of 24 milligrams or more. The FDA proposal would also require a warning not to take the product for more than seven days, and would prohibit the supplements from being represented, either expressly or implicitly, as being suitable for long-term uses, such as for weight loss or body building. Similarly, claims for increased energy, increased mental concentration, or enhanced well-being that encourage the consumer to take more of the product to achieve more of the purported effect would be required to be accompanied by a warning stating that taking more than the recommended serving may cause a heart attack, stroke, seizure, or death. In April 2000, the FDA issued a partial withdrawal of the June 1997 proposal, because of concerns about the factual basis for the proposal. No new proposals on ephedrine alkaloids have 65 been issued by the agency, nor have the portions of the 1997 proposal which were not withdrawn been the subject of a final rule. Although tests performed by an independent laboratory indicate that our original green Thermojetics(R) product contains less than the eight milligrams of ephedrine alkaloids per serving permitted under the FDA proposal, due to decreasing consumer demand and increased regulatory scrutiny, we made the decision to discontinue sale of all ephedra containing products by December 31, 2002. In addition to Thermojetics(R) original green tablets, we currently distribute two other products containing ephedrine alkaloids: Thermojetics(R) green (Refresh) tablets and Thermojetics(R) gold tablets. These products both contain sida cordifolia, which, like Ma Huang, is a botanical source of ephedrine alkaloids. Independent laboratory tests indicate that Thermojetics(R) green tablets contain less than the eight milligrams of ephedrine alkaloids per serving permitted under the 1997 FDA proposal, while Thermojetics(R) gold tablets contain slightly in excess of that amount. Both products are currently offered in the United States except in those states in which regulations may prohibit or restrict the sale of the products, and Thermojetics(R) green (Refresh) tablets are also offered in Japan and Russia. As with the Thermojetics(R) original green tablets, we have reviewed our options with respect to these products if the 1997 FDA proposal on dietary supplements containing ephedrine alkaloids is finalized in its current form, or in a form substantially similar to the 1997 proposal. The available options for these products are the same as those outlined earlier with respect to Thermojetics(R) original green tablets. With respect to state regulation of dietary supplements containing ephedrine alkaloids, in addition to the seven states that currently prohibit or restrict the sale of such products, our sales of our three ephedrine-containing products in Texas are affected by a Texas regulation that became effective on November 1, 1999. This regulation permits the sale of ephedrine-containing dietary supplements in Texas, but requires that additional information be included on the labels of all products sold in Texas. We have developed specific labels for Texas, and believe that we are in compliance with the new Texas requirements. The withdrawal of our products that currently contain ephedrine could have a material adverse effect on sales of any other products within the Thermojetics(R) Weight Management Program, which constitutes a significant portion of our weight management products, even though these products do not contain ephedrine. During 1999, 2000 and 2001, retail sales of our weight management products in the United States constituted 9.8%, 11.2% and 12.2%, respectively, of our retail sales. The Thermojetics(R) original green tablets, Thermojetics(R) green (Refresh) tablets and Thermojetics(R) gold tablets amounted to approximately $51.5 million, or 3.1% of our retail sales in 2001. As a result of increased regulatory scrutiny of products that contain ephedrine alkaloids, as well as publicity of private litigation involving alleged adverse health effects resulting from the use of such products, product liability insurance covering such products has become very difficult to obtain. Premiums for our product liability insurance were $2.5 million in 2002 for coverage of $37.5 million with a self insured risk of $7.5 million. The current coverage expires on March 31, 2003. In December 1999, we introduced a new line of weight management products that are high in protein and low in carbohydrates. The new line, which consists of eight nutritionally balanced high-protein products that are also low in carbohydrates, is called the Thermojetics(R) HPLC Program. The FDA has not authorized the use of a low carbohydrate claim on the label of individual food products, and therefore we have not made such a claim on the label of any of the eight products that together comprise our Thermojetics(R) HPLC Program. We believe, however, that it is permissible to accurately describe the entire program as one that is high in protein and low in carbohydrates, and we have elected to do so by virtue of the name that we have selected for this weight management program. In addition, we are exploring other alternatives which do not involve specifically describing the program as low in carbohydrates. Some of the products marketed by us are considered conventional foods and are currently labeled as such. Both this category of products and dietary supplements are subject to the Nutrition, Labeling and Education Act ("NLEA"), and regulations promulgated under the NLEA. The NLEA regulates health claims, ingredient labeling and nutrient content claims characterizing the level of a nutrient in the product. 66 In foreign markets, prior to commencing operations and prior to making or permitting sales of our products in the market, we may be required to obtain an approval, license or certification from the country's ministry of health or comparable agency. Where a formal approval, license or certification is not required, we nonetheless seek a favorable opinion of counsel regarding our compliance with applicable laws. Prior to entering a new market in which a formal approval, license or certificate is required, we work extensively with local authorities in order to obtain the requisite approvals. The approval process generally requires us to present each product and product ingredient to appropriate regulators and, in some instances, arrange for testing of products by local technicians for ingredient or nutritional analysis. The approvals may be conditioned on reformulation of our products or may be unavailable with respect to some products or some ingredients. Product reformulation or the inability to introduce some products or ingredients into a particular market may have an adverse effect on sales. We must also comply with product labeling and packaging regulations that vary from country to country. Our failure to comply with these regulations can result in a product being removed from sale in a particular market, either temporarily or permanently. The FTC, which exercises jurisdiction over the advertising of all of our products, has in the past several years instituted enforcement actions against several dietary supplement companies for false and misleading advertising of some of their products. These enforcement actions have resulted in consent decrees and monetary payments by the companies involved. In addition, the FTC has increased its scrutiny of the use of testimonials, which we also utilize. Although we have not been the target of FTC enforcement action for the advertising of our products, we cannot be sure that the FTC, or comparable foreign agencies, will not question our advertising or other operations in the future. In November 1998, the FTC issued a guide for the dietary supplement industry, describing how the FTC applies the law that it administers to advertisements for dietary supplements. It is unclear whether the FTC will subject advertisements of this kind, including our advertisements, to increased surveillance to ensure compliance with the principles set forth in the guide. In some countries, regulations applicable to the activities of our distributors also may affect our business because in some countries we are, or regulators may assert that we are, responsible for our distributors' conduct. In these countries, regulators may request or require that we take steps to ensure that our distributors comply with local regulations. The types of regulated conduct include: (i) representations concerning our products; (ii) income representations made by us and/or distributors; (iii) public media advertisements, which in foreign markets may require prior approval by regulators; and (iv) sales of products in markets in which the products have not been approved, licensed or certified for sale. In some markets, it is possible that improper product claims by distributors could result in our products being reviewed or re-reviewed by regulatory authorities and, as a result, being classified or placed into another category as to which stricter regulations are applicable. In addition, we might be required to make labeling changes. Through our manuals, seminars and other training materials and programs, we attempt to educate our distributors as to the scope of permissible and impermissible activities in each market. We also investigate allegations of distributor misconduct. As a response to complaints from local regulators in some of our markets, we imposed a ban in March 2002 on our distributors' inappropriate use of outdoor signage. We cannot assure you as to the effect such ban will have. However, our distributors generally are independent contractors, and we are unable to monitor directly all of their activities. As a consequence, we cannot be sure that our distributors comply with applicable regulations. Misconduct by distributors in the past has had, and could again have, a material adverse effect on us in a particular market or in general. We are unable to predict the nature of any future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. They could, however, require: (i) the reformulation of some products not able to be reformulated; (ii) imposition of additional record keeping requirements; (iii) expanded documentation of the properties of some products; (iv) expanded or different labeling; and (v) additional scientific substantiation regarding product ingredients, safety or usefulness. Any or all of these requirements could have a material adverse effect on our results of operations and financial condition. All of our officers and directors are subject to a permanent injunction entered in October 67 1986 pursuant to the settlement of an action instituted by the California Attorney General, the State Health Director and the Santa Cruz County District Attorney. We consented to the entry of this injunction without in any way admitting the allegations of the complaint. The injunction prevents us and our officers and directors from making specified claims in future advertising of our products and requires us to implement some documentation systems with respect to payments to our distributors. At the same time, the injunction does not prevent us from continuing to make specified claims concerning our products that have been made and are being made, provided that we have a reasonable basis for making the claims. We are aware that, in some of our international markets, there has been recent adverse publicity concerning products that contain ingredients that have been genetically modified ("GM"). In some markets, the possibility of health risks thought to be associated with GM ingredients has prompted proposed or actual governmental regulation. Some of our products contain ingredients that would be or might be classified as having been genetically modified. We cannot anticipate the extent to which regulations in our markets will restrict the use of GM ingredients in our products or the impact of any regulations on our business in those markets. In response to any applicable regulations, we would, where practicable, attempt to reformulate our products to satisfy the regulations. We believe, based upon currently available information, that compliance with regulatory requirements in this area should not have a material adverse effect on us or our business. However, because publicity and governmental scrutiny of GM ingredients is a relatively new and evolving area, there can be no assurance in this regard. If a significant number of our products were found to be genetically modified and regulations in our markets significantly restricted the use of GM ingredients in our products, our business could be materially adversely affected. In addition, in certain of our markets there has been recent adverse publicity concerning infection of bovine products and by-products by Bovine Spongiform Encephalopathy ("BSE"), which may cause what is commonly referred to as mad cow disease. Certain of our products contain bovine products and/or by- products. We are not aware of any infection or contamination of any of our products by BSE. Should any such infection or contamination be detected, it could have a material adverse effect on our business. Further, even if no such infection or contamination is detected, adverse publicity concerning the BSE risk, or governmental or regulatory developments aimed at combating the risk of BSE contamination by regulating bovine products and/or by-products, could have a material adverse effect on our business. NETWORK MARKETING SYSTEM. Our network marketing system is subject to a number of federal and state regulations administered by the FTC and various state agencies as well as regulations in foreign markets administered by foreign agencies. Regulations applicable to network marketing organizations generally are directed at ensuring that product sales ultimately are made to consumers and that advancement within the organizations is based on sales of the organization's products rather than investments in the organizations or other non-retail sales related criteria. For instance, in some markets, there are limits on the extent to which distributors may earn royalty overrides on sales generated by distributors that were not directly sponsored by the distributor. When required by law, we obtain regulatory approval of our network marketing system or, when this approval is not required, the favorable opinion of local counsel as to regulatory compliance. Nevertheless, we remain subject to the risk that, in one or more markets, our marketing system could be found not to be in compliance with applicable regulations. Failure by us to comply with these regulations could have a material adverse effect on our business in a particular market or in general. We also are subject to the risk of private party challenges to the legality of our network marketing system. For example, in Webster v. Omnitrition International, Inc., 79 F.3d 776 (9th Cir. 1996), the multi-level marketing program of Omnitrition International, Inc. ("Omnitrition") was successfully challenged in a class action by Omnitrition distributors who alleged that Omnitrition was operating an illegal "pyramid scheme" in violation of federal and state laws. We recently were named as a defendant in a case that attempted to challenge the legality of our marketing system on similar grounds. The court in that case subsequently dismissed the challenge without addressing the merits of the allegations. We believe that our network marketing system satisfies the standards set forth in the Omnitrition case and other applicable statutes and case law defining a legal marketing system, in part based upon significant differences between our marketing system and that described in the Omnitrition case. 68 We and certain of our distributors have been named as defendants in a purported class action lawsuit filed in the U.S. District Court for the Central District of California (Jacobs v. Herbalife International, Inc., et al.). The lawsuit was filed on February 19, 2002. The complaint alleges that specified marketing plans employed by the distributor defendants are illegal, and that we have permitted the use of these marketing plans and/or failed to supervise the distributors' conduct to prevent violations of law by them. The complaint does not challenge the legality of Herbalife's marketing system. The complaint seeks to state causes of action under RICO and various state and other federal laws. The complaint was dismissed with leave to amend, the deadline for which is set as January 2, 2003. We believe that we have meritorious defenses to the allegations contained in the lawsuit. However, an adverse result in this litigation could have a material adverse effect on our financial condition and operating results. It is an ongoing part of our business to monitor and respond to regulatory and legal developments, including those that may affect our network marketing system. However, the regulatory requirements concerning network marketing systems do not include bright line rules and are inherently fact-based. An adverse judicial determination with respect to our network marketing system could have a material adverse effect on our business. An adverse determination could: (i) require us to make modifications to our network marketing system, (ii) result in negative publicity or (iii) have a negative impact on distributor morale. In addition, adverse rulings by courts in any proceedings challenging the legality of multi-level marketing systems, even in those not involving us directly, could have a material adverse effect on our operations. TRANSFER PRICING AND SIMILAR REGULATIONS. In many countries, including the United States, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned by our U.S. or local entities and are taxed accordingly. In addition, our operations are subject to regulations designed to ensure that appropriate levels of customs duties are assessed on the importation of our products. Although we believe that we are in substantial compliance with all applicable regulations and restrictions, we are subject to the risk that governmental authorities could audit our transfer pricing and related practices and assert that additional taxes are owed. For example, we are currently subject to pending or proposed audits that are at various levels of review, assessment or appeal in a number of jurisdictions involving transfer pricing issues, income taxes, duties, value added taxes, withholding taxes and related interest and penalties in material amounts. In some circumstances, additional taxes, interest and penalties have been assessed, and we will be required to litigate to reverse the assessments. We and our tax advisors believe that there are substantial defenses to the allegations that additional taxes are owing, and we are vigorously defending the additional proposed taxes. The ultimate resolution of these matters may take several years, and the outcome is uncertain. In the event that the audits or assessments are concluded adversely to us, we may or may not be able to offset or mitigate the consolidated effect of foreign income tax assessments through the use of U.S. foreign tax credits. In the past we have utilized the majority of our foreign tax credits in the year in which they arise with the unused amount carried forward. Because the laws and regulations governing U.S. foreign tax credits are complex and subject to periodic legislative amendment, we cannot be sure that we would in fact be able to take advantage of any foreign tax credits in the future. As a result, adverse outcomes in these matters could have a material impact on our financial condition and operating results. OTHER REGULATIONS. We also are subject to a variety of other regulations in various foreign markets, including regulations pertaining to social security assessments, employment and severance pay requirements, import/export regulations and antitrust issues. As an example, in many markets, we are substantially restricted in the amount and types of rules and termination criteria that we can impose on distributors without having to pay social security assessments on behalf of the distributors and without incurring severance obligations to terminated distributors. In some countries, we may be subject to these obligations in any event. Our failure to comply with these regulations could have a material adverse effect on our business in a particular market or in general. Assertions that we failed to comply with regulations or the effect of adverse regulations in one market could adversely affect us in other markets as well by causing increased regulatory scrutiny in those other markets or as a result of the negative publicity generated in those other markets. 69 COMPLIANCE PROCEDURES. As indicated above, Herbalife, our products and our network marketing system are subject, both directly and indirectly through distributors' conduct, to numerous federal, state and local regulations, both in the United States and foreign markets. Beginning in 1985, we began to institute formal regulatory compliance measures by developing a system to identify specific complaints against distributors and to remedy any violations by distributors through appropriate sanctions, including warnings, suspensions and, when necessary, terminations. In our manuals, seminars and other training programs and materials, we emphasize that distributors are prohibited from making therapeutic claims for our products. Our general policy regarding acceptance of distributor applications from individuals who do not reside in one of our markets is to refuse to accept the individual's distributor application. From time to time, exceptions to the policy are made on a country-by-country basis. In order to comply with regulations that apply to both us and our distributors, we conduct considerable research into the applicable regulatory framework prior to entering any new market to identify all necessary licenses and approvals and applicable limitations on our operations in that market. Typically, we conduct this research with the assistance of local legal counsel and other representatives. We devote substantial resources to obtaining the necessary licenses and approvals and bringing our operations into compliance with the applicable limitations. We also research laws applicable to distributor operations and revise or alter our distributor manuals and other training materials and programs to provide distributors with guidelines for operating a business, marketing and distributing our products and similar matters, as required by applicable regulations in each market. We, however, are unable to monitor our supervisors and distributors effectively to ensure that they refrain from distributing our products in countries where we have not commenced operations, and we do not devote significant resources to this type of monitoring. In addition, regulations in existing and new markets often are ambiguous and subject to considerable interpretive and enforcement discretion by the responsible regulators. Moreover, even when we believe that we and our distributors are initially in compliance with all applicable regulations, new regulations regularly are being added and the interpretation of existing regulations is subject to change. Further, the content and impact of regulations to which we are subject may be influenced by public attention directed at us, our products or our network marketing system, so that extensive adverse publicity about us, our products or our network marketing system may result in increased regulatory scrutiny. It is an ongoing part of our business to anticipate and respond to new and changing regulations and to make corresponding changes in our operations to the extent practicable. Although we devote considerable resources to maintaining our compliance with regulatory constraints in each of our markets, we cannot be sure that (i) we would be found to be in full compliance with applicable regulations in all of our markets at any given time or (ii) the regulatory authorities in one or more markets will not assert, either retroactively or prospectively or both, that our operations are not in full compliance. These assertions or the effect of adverse regulations in one market could negatively affect us in other markets as well by causing increased regulatory scrutiny in those other markets or as a result of the negative publicity generated in those other markets. These assertions could have a material adverse effect on us in a particular market or in general. Furthermore, depending upon the severity of regulatory changes in a particular market and the changes in our operations that would be necessitated to maintain compliance, these changes could result in our experiencing a material reduction in sales in the market or determining to exit the market altogether. In this event, we would attempt to devote the sources previously devoted to the market to a new market or markets or other existing markets. However, we cannot be sure that this transition would not have an adverse effect on our business and results of operations either in the short or long term. TRADEMARKS We use the umbrella trademarks Herbalife, Thermojetics, Dermajetics, and have several other trademarks and tradenames registered in connection with our products and operations. Our trademark registrations are issued through the United States Patent and Trademark Office and in comparable agencies in the foreign countries. We consider our trademarks and tradenames to be an important factor in our business. We also take care in protecting the intellectual property rights of our proprietary formulas. 70 COMPETITION The business of marketing weight management products, nutritional supplements, and personal care products is highly competitive. This market segment includes numerous manufacturers, distributors, marketers, retailers and physicians that actively compete for the business of consumers both in the United States and abroad. The market is highly sensitive to the introduction of new products or weight management plans, including various prescription drugs that may rapidly capture a significant share of the market. As a result, our ability to remain competitive depends in part upon the successful introduction of new products. In addition, we anticipate that we will be subject to increasing competition in the future from sellers that utilize electronic commerce. We cannot be sure of the impact of electronic commerce or that it will not adversely affect our business. We are subject to significant competition for the recruitment of distributors from other network marketing organizations, including those that market weight management products, nutritional supplements, and personal care products, as well as other types of products. Some of our competitors are substantially larger than we are, and have available considerably greater financial resources than we have. Our ability to remain competitive depends, in significant part, on our success in recruiting and retaining distributors through an attractive compensation plan and other incentives. We believe that our production bonus program, international sponsorship program and other compensation and incentive programs provide our distributors with significant earning potential. However, we cannot be sure that our programs for recruitment and retention of distributors will be successful. EMPLOYEES As of September 30, 2002, we had 2,336 full-time employees. These numbers do not include our distributors, who generally are independent contractors rather than our employees. Except for some employees in Mexico and in some European countries, none of our employees are members of any labor union, and we have never experienced any business interruption as a result of any labor disputes. PROPERTIES We lease all of our physical properties located in the United States. Our executive offices, located in Century City, California, include approximately 120,000 square feet of general office space under lease arrangements expiring in February 2006. We lease an aggregate of approximately 160,000 square feet of office space, computer facilities and conference rooms at the Operations Center in Inglewood, California, under a lease that expires in October 2006, and approximately 150,000 square feet of warehouse space in two separate facilities located in Los Angeles and Memphis. The Los Angeles and Memphis agreements have terms through June 2006 and August 2006, respectively. In Venray, Netherlands, we lease our European centralized warehouse of approximately 175,000 square feet. The lease expires in June 2004. We also lease warehouse, manufacturing plant and office space in a majority of our other geographic areas of operation. We believe that our existing facilities are adequate to meet our current requirements and that comparable space is readily available at each of these locations. LEGAL PROCEEDINGS We are from time to time engaged in routine litigation. We regularly review all pending litigation matters in which we are involved and establish reserves deemed appropriate by management for these litigation matters. However, some of these matters are material and an adverse outcome in these matters could have a material impact on our financial condition and operating results. In September 2000, a putative class action lawsuit was filed in the District Court, Clark County, Nevada (Tharp v. Herbalife International, Inc., et al.). A second putative class action lawsuit was filed in the same court in August 2001 (Brown v. Herbalife International Inc., et al.). The Tharp lawsuit alleges breaches of fiduciary obligations by our directors and its majority stockholder in connection with the adoption by us of the Preferred Share Purchase Rights Plan and the rejection of a purported offer by a third party to acquire a controlling interest in us. The Brown lawsuit similarly alleges breaches of fiduciary obligations in connection 71 with an alleged rejection of an offer from a third party to purchase us. The plaintiffs in the lawsuits request (1) an order compelling the defendants to take steps to seek a sale of us, (2) an order enjoining the defendants in office, (3) unspecified damages, and (4) other relief. We have reached an oral settlement to pay plaintiff's legal fees of $190,000 and our insurance company has agreed to pay 50% of the settlement amount. The settlement remains subject to documentation and court approval for which a hearing date has not yet been set. In addition, on or about April 12, 2002, Harbor Finance Partners, allegedly an Herbalife stockholder, filed a purported class action against us in the District Court of Clark County in the State of Nevada, naming Herbalife, our board of directors and one former director as defendants and alleging a claim of breach of fiduciary duty arising out of the announced merger transaction between Herbalife and WH Holdings. The District Court gave final approval to a settlement on November 1, 2002 providing for the payment of Plaintiff's legal fees of $650,000, which is included in our financial statements. Payments pursuant to the settlement were made in early November 2002. We and certain of our distributors have been named as defendants in a purported class action lawsuit filed in the U.S. District Court for the Central District of California (Jacobs v. Herbalife International, Inc., et al.). The lawsuit was filed on February 19, 2002. The complaint alleges that specified marketing plans employed by the distributor defendants are illegal, and that we have permitted the use of these marketing plans and/or failed to supervise our distributors' conduct to prevent violations of law by them. The complaint does not challenge the legality of our marketing system. The complaint seeks to state causes of action under RICO and various state and other federal laws. The complaint was dismissed with leave to amend, the deadline for which is set as January 2, 2003. We believe that we have meritorious defenses to the allegations contained in the lawsuit. However, an adverse result in this litigation could have a material adverse effect on our financial condition and operating results. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, we have been and are currently subjected to various product liability claims. Although the effects of these claims to date have not been material to us, it is possible that current and future product liability claims could have a material adverse impact on our financial condition and operating results given the higher level of self insurance we have accepted. We currently maintain product liability insurance with a deductible of $7.5 million. Certain of our subsidiaries have been subject to tax audits by governmental authorities in their respective countries. In certain of these tax audits, governmental authorities are proposing that significant amounts of additional taxes and related interest and penalties are due. We and our tax advisors believe that there are substantial defenses to the allegations that additional taxes are owing, and we are vigorously contesting the additional proposed taxes and related charges. These matters may take several years to resolve, and we cannot be sure of their ultimate resolution. However, an adverse outcome in these matters could have a material adverse impact on our financial condition and operating results. 72 MANAGEMENT Biographical information follows for each person who presently serves as a director and/or an executive officer of Herbalife (ages are as of September 30, 2002).
NAME AGE POSITION WITH HERBALIFE - ---- --- ----------------------- Peter M. Castleman(4)(5).................. 46 Director, Chairman of the board, Co-Chairman of executive committee Jesse Rogers(1)(4)(5)..................... 45 Director, Chairman of compensation committee, Co-Chairman of executive committee Prescott Ashe(2).......................... 35 Director Henry S. Burdick(1)(4).................... 60 Director, Chairman of product committee Ken Diekroeger(1)......................... 39 Director James H. Fordyce(1)(2)(5)................. 43 Director, Chairman of finance/audit committee John C. Hockin(2)(3)(4)................... 32 Director Stefan L. Kaluzny(2)(3)(5)................ 35 Director, Chairman of information technology committee Charles L. Orr(2)(3)...................... 59 Director Steven E. Rodgers(1)...................... 31 Director Brian L. Kane............................. 56 Co-President Carol Hannah.............................. 53 Co-President William D. Lowe........................... 53 Senior Vice President, Finance and Treasury
- --------------- (1) Member of our compensation committee. (2) Member of our finance/audit committee. (3) Member of our information technology committee. (4) Member of our product committee. (5) Member of our executive committee. Peter M. Castleman is the Chairman and Managing Partner of Whitney & Co., LLC, a position that he has held for more than a decade. Prior to joining Whitney over fifteen years ago, Mr. Castleman was with Morgan Stanley & Co. and prior to that with J.P. Morgan & Co., Inc. Mr. Castleman received his MBA from Harvard Business School and his undergraduate degree from Duke University. Mr. Castleman is currently a director of several companies, including Aramiska, B.V., Aqua-Chem, Inc., and EMC Holdings, LLC. He was previously a director of numerous other companies including, The North Face, Inc., Advance Paradigm, Eon Labs Inc., and Pharamex, Inc. Jesse Rogers is a Managing Director of Golden Gate Capital, a San Francisco-based private equity investment firm with approximately $700 million of capital under management. Prior to joining Golden Gate Capital, Mr. Rogers was a partner at Bain & Company for over ten years, where he served as the West Coast head of the consumer products practice and founded Bain & Company's worldwide Private Equity Group. Mr. Rogers received his MBA from Harvard Business School and his Bachelor of Arts from Stanford University. He is currently a director of several private companies and previously served as a director of Beringer Wine Estates and Bain & Company. Prescott Ashe is a Managing Director of Golden Gate Capital. Prior to joining Golden Gate Capital, Mr. Ashe was an investment professional at Bain Capital, which he initially joined in 1991. Prior to Bain Capital, Mr. Ashe was a consultant at Bain & Company. Mr. Ashe received his JD from Stanford Law School and his Bachelor of Science in Business Administration from the University of California at Berkeley. He is currently a director of Dynamic Details Incorporated and Integrated Circuit Systems, Inc., as well as several private companies. 73 Henry S. Burdick was the co-founder of Pharmavite Corporation, makers of nature-made vitamins and the number one branded line of vitamins in the U.S. Mr. Burdick served in various positions at Pharmavite Corporation from 1971 to 1996, including as Chairman, CEO and President. In June 1996, Mr. Burdick became Chairman and CEO of Pharmanex Inc., a nutraceutical company that was funded by Whitney, the Pritzker family, Chase, Chemical and Fidelity, and was later sold to Nu Skin Enterprises in October 1998. Mr. Burdick was on the board of Crystal Geyser Water Company until January 2002 and is currently an investor in Crystal Geyser Water Company. Ken Diekroeger is a Managing Director of Golden Gate Capital. From 1996 to 2000, Mr. Diekroeger was a managing director and partner with American Industrial Partners. Earlier in his career, Mr. Diekroeger was a consultant at Bain & Company. Mr. Diekroeger received his MBA from Stanford University and his Bachelor of Science in Industrial Engineering from Stanford University. He is currently a director of Stanadyne Automotive Corporation and several private companies. James H. Fordyce is a partner with Whitney & Co., LLC. Prior to joining Whitney, Mr. Fordyce was with Heller Financial and prior to that with Chemical Bank. Mr. Fordyce received his MBA from Fordham University and his undergraduate degree from Lake Forest College. Mr. Fordyce currently is a director of several private companies. John C. Hockin is a partner with Whitney & Co., LLC and a founding member of Whitney's San Francisco office. Prior to joining Whitney, Mr. Hockin was with Morgan Stanley & Co., Release Software and J&J Lids, a company he co-founded and successfully sold. Mr. Hockin received his MBA from Stanford Business School, and his undergraduate degree from Yale University. Mr. Hockin is currently a director of numerous companies, including ClearSource, Inc., Medem, Inc., Global Sight, Inc. and Wavelink Corporation. Stefan L. Kaluzny is a Principal of Golden Gate Capital. Prior to joining Golden Gate Capital, Mr. Kaluzny was the founder and Chief Executive Officer of Delray Farms, a $100 million specialty foods retailer. Prior to Delray Farms, Mr. Kaluzny was a consultant at Bain & Company. Mr. Kaluzny received his MBA from Harvard Business School and his Bachelor of Arts from Yale University. Charles L. Orr is a corporate board member and advisor to companies operating in the e-commerce, financial services and direct selling industries. From 1993 through 2000, Mr. Orr was President and CEO of Shaklee Corporation which included the brand names of Harry and David, Jackson and Perkins, and Shaklee. His prior business affiliations include CIGNA, Continental Insurance, Federated Investors, RCA Computer Systems, Southwestern Life and Xerox. Mr. Orr received his MBA from the University of Connecticut and Bachelor of Arts from Wesleyan University. He is currently a Director of the Direct Selling Education Foundation and serves as an advisor to several private companies. Steven E. Rodgers is a partner with Whitney & Co., LLC where he leads Whitney's investments in the healthcare industry. Prior to joining Whitney, Mr. Rodgers was with Tiger Management, and prior to that, Alex. Brown & Sons Incorporated. Mr. Rodgers received his MBA from Stanford University and his undergraduate degree from Dartmouth College. Mr. Rodgers is currently a director of numerous companies including, HealthMarket, Inc., Symbion, Inc., and SCIREX Corporation. Brian L. Kane joined Herbalife in May 1993 as Vice President of European Operations. In 1995, Dr. Kane became a Senior Vice President -- Worldwide Distribution and in June 2000 he was appointed as Executive Vice President and Chief Operating Officer. Dr. Kane was appointed Co-President in September 2002. Dr. Kane received his Bachelor of Science and Ph.D. in Chemistry from Birmingham University in England, and is a Fellow of the Institute of Marketing (UK). Dr. 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. Carol Hannah joined Herbalife in November 1984 and currently is Co-President. Previously she held the position of Executive Vice President, Sales. Ms. Hannah has served in various positions, with primary responsibilities in providing sales and training support for Herbalife's independent distributors. In May 1996, she was promoted to Executive Vice President, Sales Operations and Distributor Services, and in July 2000 to 74 Executive Vice President, Sales, holding that position until September 2002, when she was appointed to her current position. Prior to joining Herbalife, Ms. Hannah held management positions in the retail apparel and catalog industry. William D. Lowe joined Herbalife in March 1998 as Treasurer and Vice President and was appointed Senior Vice President, Finance and Treasury, in January 2000. In May 2001, Mr. Lowe became the head of Treasury, International Expansion and the Controller's Office. In September 2002, Mr. Lowe's responsibilities were expanded to include financial planning, product pricing and travel. Mr. Lowe started his career with Mobil Corporation and for 23 years held senior management positions responsible for foreign exchange risk management, cash and banking, project financings, mergers and acquisitions, asset sales and employee benefits in New York, Tokyo, London, and Fairfax, Virginia. Mr. Lowe received his Bachelor of Arts in Economics from Georgetown University and his MBA in Finance and International Business from Columbia University. DIRECTOR COMPENSATION Herbalife will reimburse members of the board of directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. In addition, Herbalife will compensate independent members of the board of directors for services provided in such capacity, including by way of an option plan. Each independent director will receive $25,000 per year for his services, plus $5,000 per board meeting attended and $2,500 for each committee meeting attended. In addition, directors performing special functions for the board may be separately compensated. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table sets forth the annual and long-term compensation of Herbalife's Chief Executive Officer and each of the four other most highly compensated executive officers of Herbalife (collectively, the "Named Executive Officers") for the fiscal years ended December 31, 1999, 2000 and 2001.
LONG-TERM COMPENSATION ------------------------------------- AWARDS ANNUAL COMPENSATION ------------------------ -------------------------------------- SECURITIES OTHER ANNUAL RESTRICTED UNDERLYING PAYOUTS ALL OTHER BONUS COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) AWARD(S)($) SARS(#) PAYOUTS($) ($)(3) - --------------------------- ---- ---------- ---------- ------------ ----------- ---------- ---------- ------------ Francis X. Tirelli(5) (joined November 2001)... 2001 $ 151,384 $ 150,000 $ 10,000 -- 500,000 $ 1,477(4) President and Chief Executive Officer Christopher Pair(6) (resigned October 2001).................... 2001 $ 825,253 $ 300,000 $150,000 -- -- -- $4,831,226(7) Former President and 2000 1,000,000 1,588,600 180,000 -- -- -- 517,859 Chief Executive Officer 1999 1,000,000 1,838,000 115,000 -- 129,439 -- 406,295 Robert A. Sandler(8)....... 2001 $ 860,000 $ 792,000 $ 60,000 -- -- -- $ 259,654(9) Executive Vice President 2000 860,000 531,000 60,000 -- -- -- 192,440 And General Counsel 1999 800,000 643,998 60,000 -- -- -- 140,875 Timothy Gerrity(10) (resigned December 2001).................... 2001 $ 752,500 -- $ 60,000 -- -- $3,341,102(11) Former Executive Vice 2000 752,500 531,000 60,000 -- -- 152,856 President And Chief Financial Officer 1999 700,000 966,000 60,000 -- -- 148,210 Brian Kane(12)............. 2001 $ 700,000 $ 792,000 $ 60,000 -- -- -- $ 393,155(13) Executive Vice President, 2000 546,875 289,686 60,000 -- -- -- 148,092 Chief Operating Officer 1999 450,000 100,000 60,000 -- -- -- 74,290 Carol Hannah(12)........... 2001 $ 752,500 $ 792,000 $ 60,000 -- -- -- $ 476,305(14) Executive Vice President -- Sales 2000 752,500 568,625 60,000 -- -- -- 135,294 1999 700,000 450,000 60,000 -- -- -- 117,567
- --------------- (1) Except for the 2001 sign-on bonus for Mr. Tirelli, the 2001, 2000 and 1999 amounts reflect bonuses earned under the 1994 Performance-Based Annual Incentive Compensation Plan. 75 (2) Amounts shown represent payments for non-accountable expense reimbursement allowances and the aggregate of other payments or benefits that do not individually exceed 25% of the total perquisite or personal benefits for Messrs. Tirelli, Pair, Sandler, Gerrity, Kane and Ms. Hannah. For 2001, the amounts with respect to the non-accountable expense reimbursement allowances were $10,000, $150,000, $60,000, $60,000, $60,000 and $60,000 for Messrs. Tirelli, Pair, Sandler, Gerrity and Kane and Ms. Hannah, respectively. (3) For 2001, these amounts represent payments under the Executive Long Term Disability Plan, Executive Life Insurance Plan, the Supplemental Executive Retirement Plan, the Herbalife International Employees 401(k) Profit Sharing Plan and Trust, the Executive Medical Plan, the Deferred Compensation Plan, interest earned on the Deferred Compensation Plan in excess of 120% of the Federal long term rate, private use of a Company-owned car, housing allowance, vacation pay-out and separation payments. (4) Mr. Tirelli's amount represents $247 from the Executive Long Term Disability Plan and $1,230 from the Executive Medical Plan. (5) Effective September 19, 2002, Mr. Tirelli is no longer President and Chief Executive Officer. (6) For additional information regarding amounts paid to Mr. Pair under a separation and general release agreement between the Company and Mr. Pair, see "-- Employment Contracts and Termination of Employment." (7) Mr. Pair's amount includes $2,960 from the Executive Long Term Disability Plan, $205,318 from the Executive Life Insurance Plan, $1,152,957 from the Supplemental Executive Retirement Plan, $5,100 from the 401(k) Tax-Sheltered Savings Plan, $42,468 from the Executive Medical Plan, $169,231 from the Deferred Compensation Plan, $30,964 from interest earned on the Deferred Compensation Plan in excess of 120% of the federal long term rate, $543,945 from vacation pay-out, and $2,678,283 from a separation payment. (8) Effective May 17, 2002, Mr. Sandler is no longer Executive Vice President and General Counsel. (9) Mr. Sandler's amount includes $2,960 from the Executive Long Term Disability Plan, $5,783 from the Executive Life Insurance Plan, $5,100 from the 401(k) Tax-Sheltered Savings Plan, $10,551 from the Executive Medical Plan, $129,000 from the Deferred Compensation Plan, $61,110 from interest earned on the Deferred Compensation Plan in excess of 120% of the federal long term rate, and $45,150 from vacation pay-out. (10) For additional information regarding amounts paid to Mr. Gerrity under a separation and general release agreement between the Company and Mr. Gerrity, see "-- Employment Contracts and Termination of Employment." (11) Mr. Gerrity's amount includes $2,960 from the Executive Long Term Disability Plan, $7,314 from the Executive Life Insurance Plan, $1,010,219 from the Supplemental Executive Retirement Plan, $5,100 from the 401(k) Tax-Sheltered Savings Plan, $16,907 from the Executive Medical Plan, $112,875 from the Deferred Compensation Plan, $124,453 from interest earned on the Deferred Compensation Plan in excess of 120% of the federal long term rate, $444,221 from vacation pay-out, and $1,617,053 from a separation payment. (12) Effective September 19, 2002, Mr. Kane and Ms. Hannah have been serving as Co-Presidents. (13) Mr. Kane's amount includes $2,960 from the Executive Long Term Disability Plan, $5,100 from the 401(k) Tax-Sheltered Savings Plan, $10,551 from the Executive Medical Plan, $109,038 from the Deferred Compensation Plan, $58,431 from interest earned on the Deferred Compensation Plan in excess of 120% of the federal long term rate, and $60,109 from vacation pay-out. Mr. Kane's private use of a Company owned car and housing allowance in the amounts of $26,966 and $120,000, respectively, are also included in this figure. (14) Ms. Hannah's amount includes $2,960 from the Executive Long Term Disability Plan, $4,930 from the Executive Life Insurance Plan, $5,100 from the 401(k) Tax-Sheltered Savings Plan, $10,551 from the Executive Medical Plan, $112,875 from the Deferred Compensation Plan, $102,229 from interest 76 earned on the Deferred Compensation Plan in excess of 120% of the federal long term rate, and $237,660 from vacation pay-out. OPTION GRANTS IN LAST FISCAL YEAR. No stock appreciation rights ("SARs") or options to purchase shares of Class A Common Stock ("Class A Stock Options") were granted during the fiscal year ended December 31, 2001 to the Named Executive Officers. The following table contains information concerning options to purchase shares of Class B Common Stock ("Class B Stock Options") granted in 2001 to each of the Named Executive Officers. The per share exercise price of all options described below represents the fair market value of the Company's Common Stock on the grant date.
INDIVIDUAL GRANTS --------------------------------------------------- NUMBER OF PERCENT OF SECURITIES TOTAL OPTIONS UNDERLYING GRANTED TO EXERCISE GRANT DATE OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRESENT NAME GRANTED FISCAL YEAR SHARE(1) DATE VALUE($)(2) - ---- ---------- ------------- --------- ---------- ----------- Francis X. Tirelli Class A.......................... -- -- -- -- -- Class B.......................... 500,000 100% $11.30 11/1/2011 $1,570,041 Christopher Pair Class A.......................... -- -- -- -- -- Class B.......................... -- -- -- -- -- Robert A. Sandler Class A.......................... -- -- -- -- -- Class B.......................... -- -- -- -- -- Timothy Gerrity Class A.......................... -- -- -- -- -- Class B.......................... -- -- -- -- -- Brian L. Kane Class A.......................... -- -- -- -- -- Class B.......................... -- -- -- -- -- Carol Hannah Class A.......................... -- -- -- -- -- Class B.......................... -- -- -- -- --
- --------------- (1) Represents the closing price of the Common Stock of Herbalife International, Inc. on the Nasdaq National Market on the date of grant. (2) In accordance with the rules of the SEC, 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: 56.67% price volatility; 2.92% risk free rate of return; 6.5% dividend yield and options exercise averaging 3.0 year term. We did not make any adjustment for non-transferability or risk of forfeiture. 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 of Herbalife International, Inc. acquired upon exercise of Class A Stock Options and Class B Stock Options in 2001 and (2) unexercised options to purchase shares of Class A Common Stock or Class B Common Stock that were granted in prior years. 77
SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)(1) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ----------- ----------- ------------- ----------- ------------- Francis X. Tirelli Class A............. -- -- -- -- -- -- Class B............. -- -- 13,889 486,111 $ 26,250 $918,750 Christopher Pair Class A............. 84,857 $468,835 -- -- -- -- Class B............. 25,000 $150,000 365,492 79,624 $2,140,577 $522,732 Robert A. Sandler Class A............. -- -- 57,771 5,875 $ 359,336 $ 36,543 Class B............. -- -- 133,166 23,501 $ 874,235 $154,284 Timothy Gerrity Class A............. -- -- 81,666 3,334 $ 516,556 $ 20,737 Class B............. -- -- 223,333 46,667 $1,466,181 $306,369 Brian Kane Class A............. -- -- 31,250 1,667 $ 202,709 $ 10,369 Class B............. -- -- 68,000 3,334 $ 446,420 $ 21,888 Carol Hannah Class A............. 11,667 $116,087 82,300 3,334 $ 516,729 $ 20,737 Class B............. 23,333 $216,764 216,999 46,667 $1,424,598 $306,369
- --------------- (1) Represents the difference between the market price of Common Stock on December 31, 2001 and the exercise price of the options. COMPENSATION COMMITTEE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 2001, our compensation committee consisted of Messrs. Hall, Miner and Glassman, who resigned as directors upon the consummation of the merger. 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, - Encouraging executive stock ownership to align the interests of management with those of shareholders. BASE SALARY AND ANNUAL INCENTIVE COMPENSATION. Mr. Tirelli's base salary was established through negotiations between him and the Compensation Committee. See the Summary Compensation Table under "Compensation of Directors and Executive Officers -- Executive Compensation." Base salaries for each of the other Named Executive Officers were established through negotiations between Mr. Tirelli's predecessor and each such Named Executive Officer. See "-- Employment Contracts, Termination of Employment and Change in Control Arrangements." Mr. Pair's annual salary and target incentive compensation for 2001 was established under a new employment agreement entered into in 2000, including an incentive compensation arrangement consistent with prior years. In setting Mr. Tirelli's annual salary for 2001, and awarding him a sign-on bonus of $150,000, 78 which bonus was paid to him on January 2, 2002, the Compensation Committee considered Mr. Tirelli's many years of expertise as a senior financial executive and his knowledge of and experience with respect to the Company's business. Because Mr. Tirelli's employment with the Company did not begin until November 1, 2001, the Compensation Committee did not award him target incentive compensation for 2001. During 2001, the Compensation Committee utilized an earnings per share formula to establish target awards under the 1994 Plan for all participants. With respect to Mr. Pair, in addition to the earnings per share formula, the Compensation Committee utilized sales-based formulas. All awards under the 1994 Plan were subject to maximum award amounts in the case of each participant and the discretionary authority of the Compensation Committee to reduce awards in the case of certain Named Executive Officers. See "-- Description of Benefit Plans -- 1994 Performance-Based Annual Incentive Compensation Plan." The Company met the earnings per share and sales thresholds for 2001 and, as a result, bonuses were earned by all Named Executive Officers who were participants in the 1994 Plan for the past fiscal year, with the exception of Messrs. Pair and Gerrity, whose employment relationships with the Company terminated during 2001. 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 Compensation Committee. In particular, under his Employment Agreement, Mr. Tirelli was awarded options to acquire 500,000 shares of Herbalife Class B Common Stock. Mr. Tirelli's options vest in equal monthly installments over a period of three years. All options granted to executive officers have had an exercise price equal to 100% of fair market value on the date of grant. TAX ISSUES. For 2002 and later years, the Compensation Committee intends to continue to seek to structure executive compensation arrangements to maximize the deductibility of Named Executive 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, or will seek to preserve, the deductibility of all executive compensation. COMPENSATION COMMITTEE Edward J. Hall Christopher M. Miner Jeffrey Glassman April 30, 2002 DESCRIPTION OF BENEFIT PLANS BENEFIT PLANS FOLLOWING THE MERGER WH HOLDINGS EXECUTIVE OPTION PLAN. WH Holdings has established a stock option plan that provides for the grant of options to purchase common shares of WH Holdings to any executive officer of Herbalife following the merger. Approximately 15.5% of the share capital of WH Holdings as of the closing of the merger is available for grant under the option plan. The option plan is administered by the compensation committee. Options granted under the option plan would, unless otherwise provided in the option grant, become exercisable in equal quarterly installments over a period of five years from the date of the applicable grant. The options would expire 10 years after the date of grant. Upon termination of employment for any reason, the unvested options would expire. 79 Following termination of employment, under certain circumstances, the equity sponsors, or, if the equity sponsors decline to so purchase, WH Holdings may repurchase common shares acquired upon exercise of options. WH HOLDINGS INDEPENDENT DIRECTORS STOCK OPTION PLAN. WH Holdings has established an independent directors stock option plan that provides for the grant of options to purchase common shares of WH Holdings to independent directors of WH Holdings. Independent directors are individuals who are neither employees of WH Holdings or any of its affiliates nor designated as directors by the affiliates of WH Holdings or its distributors. BENEFIT PLANS PRIOR TO THE MERGER 1994 PERFORMANCE-BASED ANNUAL INCENTIVE COMPENSATION PLAN. The purpose of the 1994 Performance-Based Annual Incentive Compensation Plan (the "1994 Plan") is to provide additional compensation as an incentive to certain key executives and consultants to attain specified performance objectives of Herbalife and its subsidiary and affiliated corporations and to ensure the continued availability of their full-time or part-time services to Herbalife. Specifically, the individuals entitled to participate in the 1994 Plan are those executive officers and consultants of Herbalife determined by the committee administering the 1994 Plan. The 1994 Plan was adopted in 1994 and amended and restated in 1996 and 1997; each such amendment was approved by our stockholders. The 1994 Plan was further amended by the board in 1999. The 1994 Plan was amended, restated and approved in 2001. The 1994 Plan is administered by the compensation committee of the board of directors, which consists of two or more board members who are "outside directors" under Section 162(m) of the Code and "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act. 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 based upon an objective computation formula of the actual performance of Herbalife relative to pre-established performance goals. The performance goal or goals included in the formula for each award period are selected by the compensation committee from among the following performance measures: level of retail sales (in the aggregate or for a particular category or categories of retail sales); net cash flow; net income; operating income; earnings per share; return on sales; reduction in expenditure levels for a particular category or categories of expenses versus a prior period; return on total capital; return on equity; and increase in the Common Stock price over a specified time period. The compensation committee determines the performance measure or measures, the performance goal or goals and all computations included within each formula, each of which may be different for different award periods or for different participants within a single award period. The compensation committee does not have the discretion to increase any award to an amount in excess of that determined in accordance with the 1994 Plan and the formula applicable to a particular award period. However, the compensation committee, may, in its discretion, (i) designate in advance a maximum dollar award for any award period with respect to any participant, and/or (ii) designate in advance that certain other incentive award payments (under the 1994 Plan or otherwise) made to a participant will be deducted from award amounts otherwise earned under the 1994 Plan and/or (iii) decrease any award under the 1994 Plan. Notwithstanding anything in the 1994 Plan to the contrary, no participant is entitled to earn in excess of $10 million under the 1994 Plan with respect to any single calendar year. Award periods under the 1994 Plan may be quarters, calendar years or such other periods as the compensation committee may designate. The compensation committee designates all award periods, performance measures, performance goals and other aspects of each formula. The compensation committee must designate all performance measures, performance goals and other aspects of each formula not later than the date on which 25% of the award period has elapsed. In no case, however, can the compensation committee make such a designation later than 90 days after the beginning of an award period. To be entitled to receive a full award with respect to an award period, a participant must generally continue to be employed by Herbalife or rendering services to Herbalife on the last day of the award period. If 80 a participant's employment with Herbalife terminates during an award period, he will generally receive a prorated award 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 when it sets the performance goals for the performance period. The proration formula may provide, however, that if a participant dies or becomes disabled during an award period, he or his designated beneficiaries will receive the entire amount of the award he would have received if he had continued in employment until the end of the award period and the performance goals had been satisfied. No award can be paid (except in the case of a participant's death or disability) unless the compensation committee certifies that the objective performance goal or goals for the award have been satisfied and that the amount of the award is no greater than that dictated by the formula for the applicable award period. The compensation committee makes such determinations by means of written resolutions of the compensation committee that are maintained in the records of Herbalife. Awards pursuant to the 1994 Plan may be made, at the discretion of the compensation committee, in cash, through the issuance of shares of Class A Common Stock or Class B Common Stock, or through a combination of any of the foregoing methods. The total number of shares of Common Stock that may be issued under the 1994 Plan in any fiscal year of Herbalife, and the total number of shares of Common Stock that may be issued under the 1994 Plan in any fiscal year of Herbalife to any single participant, may not exceed 5% of the number of issued and outstanding shares of Common Stock at the beginning of the prior fiscal year. Awards under the 1994 Plan are subject to withholding for applicable employment and income taxes. The 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 such 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 comparable term. Each such advance is evidenced by a promissory note executed by the participant and delivered to the Company. The 1994 Plan was terminated on July 31, 2002. 1991 OPTION PLAN. The purpose of the Amended and Restated 1991 Stock Option Plan (the "Option Plan") is to secure for Herbalife and its stockholders the benefits arising from stock ownership by key employees, directors, consultants and other persons selected by the compensation committee, which administers the Option Plan. As of December 31, 2001, approximately 150 persons were eligible to participate in the Option Plan. The Option Plan was amended and restated in 1996. The amendment and restatement of the Option Plan was approved by Herbalife's shareholders at Herbalife's 1996 Annual Meeting. 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 compensation 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 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 Herbalife's 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 capital stock must equal 110% of the fair market value of Herbalife's Common Stock. The exercise price of a non-qualified option need not be equal to the fair market value of Herbalife's Common Stock at the date of grant, but may be granted with any 81 exercise price that is not less than 85% of fair market value at the time the option is granted, as the compensation committee may determine. The Option Plan was terminated by our board of directors upon the consummation of the merger. DEFERRED COMPENSATION PLANS. We maintain two 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; and (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. The Management Plan and the Senior Executive Plan are referred to as the "Deferred Compensation Plans." The Deferred Compensation Plans were amended and restated effective January 1, 2001. The Deferred Compensation Plans are unfunded and their benefits are paid from general assets of Herbalife, except that Herbalife has contributed amounts to a "rabbi trust" whose assets will be used to pay benefits if Herbalife remains solvent, but can be reached by creditors of Herbalife if Herbalife becomes 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"). Herbalife makes matching contributions on behalf of each participant in the Senior Executive Plan ("Herbalife Matching Contributions"). Before January 1, 2002, the Herbalife Matching Contributions were 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 was an Executive Vice President, (2) 12.5% of the participant's annual base salary in the case of a participant who was a Senior Vice President, and (3) 10% (or such greater percentage, not to exceed 15%, that the Deferred compensation committee may have determined 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 could 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 equaled or exceeded 10% of such designated participant's annual base salary. The compensation committee designated Mr. Pair to receive the enhanced Herbalife Matching Contributions. In connection with a separation and general release agreement between Mr. Pair and Herbalife, Mr. Pair received a payment under the Deferred Compensation Plan and, as a result, is not entitled to any further payments under this plan. For more information regarding payments made to Mr. Pair under this separation and general release agreement, see "-- Employment Contracts and Termination of Employment." Effective January 1, 2002, the Senior Executive Plan was amended to provide that the amount of the Herbalife Matching Contributions is to be determined by the Company in its discretion. 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 the Company to actually 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 and the Herbalife Matching Contributions attributable thereto plus earnings 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 Herbalife. 82 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 was amended in October 2000. The Retirement Plan is unfunded and its benefits are paid from general assets of Herbalife, except that Herbalife has contributed amounts to a "rabbi trust" whose assets will be used to pay benefits if Herbalife remains solvent, but can be reached by creditors of Herbalife if Herbalife becomes 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 2.00% 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. Under the Retirement Plan, Herbalife may, in its discretion, credit a participant with additional years of service as of a participant's date of hire or date of participation in the Retirement Plan. An employee whose employment with the Company terminates before he or she reaches his or her 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. 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. If a participant's employment is terminated for cause, the administrator of the Retirement Plan has the discretion to reduce his or her vested benefit to zero. In all other cases, a participant's interest will vest as follows:
VESTED YEARS OF PARTICIPATION IN PLAN PERCENTAGE - ------------------------------ ---------- less than 5................................................. 0% 5......................................................... 20 6......................................................... 40 7......................................................... 60 8......................................................... 80 9......................................................... 100
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. 83 For illustration purposes only, the following table provides examples of the annual benefit payable under the Retirement Plan beginning at age 65.
YEARS OF SERVICE ---------------------------------------------------- COMPENSATION 15 20 25 30 35 - ------------ -------- -------- -------- -------- -------- $ 125,000 ....................... $ 37,500 $ 50,000 $ 50,000 $ 50,000 $ 50,000 150,000 ....................... 45,000 60,000 60,000 60,000 60,000 175,000 ....................... 52,500 70,000 70,000 70,000 70,000 200,000 ....................... 60,000 80,000 80,000 80,000 80,000 225,000 ....................... 67,500 90,000 90,000 90,000 90,000 250,000 ....................... 75,000 100,000 100,000 100,000 100,000 275,000 ....................... 82,500 110,000 110,000 110,000 110,000 300,000 ....................... 90,000 120,000 120,000 120,000 120,000 400,000 ....................... 120,000 160,000 160,000 160,000 160,000 500,000 ....................... 150,000 200,000 200,000 200,000 200,000 600,000 ....................... 180,000 240,000 240,000 240,000 240,000 700,000 ....................... 210,000 280,000 280,000 280,000 280,000 800,000 ....................... 240,000 320,000 320,000 320,000 320,000 900,000 ....................... 270,000 360,000 360,000 360,000 360,000 1,000,000 ....................... 300,000 400,000 400,000 400,000 400,000 1,100,000 ....................... 330,000 440,000 440,000 440,000 440,000 1,200,000 ....................... 360,000 480,000 480,000 480,000 480,000
Messrs. Tirelli, Sandler, Kane and Ms. Hannah have 0, 5, 8, and 17 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." In connection with separation and general release agreements between the Company and Messrs. Pair and Gerrity, Messrs. Pair and Gerrity each received a payment under the Retirement Plan and, as a result, are not entitled to any further payments under this plan. For more information regarding payments made to Messrs. Pair and Gerrity under these separation and general release agreements, see "-- Employment Contracts and Termination of Employment." The Retirement Plan will be terminated as of December 31, 2002. 401(K) PROFIT SHARING PLAN. Herbalife maintains 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 $11,000 per year, as adjusted after 2002) or $12,000 in the case of those participants over 50 years of age for investment in mutual funds held by the 401(k) Plan's trust. Herbalife makes 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 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 Herbalife's contributions and earnings of the trust fund attributable to the Company's contributions until he or she completes three years of service with Herbalife, and the employee is not fully vested in Herbalife's contributions and earnings of the trust fund attributable to Herbalife's contributions until he or she has completed five years of service with Herbalife. To comply with changes in the law, the Plan will be amended, effective January 1, 2002, to provide that an employee is 20% vested after two years of service, and 40% vested after three years of service. However, an employee becomes fully vested in Herbalife's contributions and earnings of the trust fund attributable to Herbalife's 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 Herbalife. An employee may not 84 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 Herbalife. 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 or employee's employment by Herbalife. The Executive Medical Plan provides coverage of medical expenses incurred beyond Herbalife's basic plan. For the fiscal year ended December 31, 2001, the Executive Medical Plan's cost to Herbalife was approximately $92,258. The Executive Medical Plan will be terminated as of December 31, 2002. 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 Herbalife. For the fiscal year ended December 31, 2001, the Executive Long-Term Disability Plan's cost to Herbalife was approximately $15,047. 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 the Company's basic plan. Premiums are paid by Herbalife. For the fiscal year ended December 31, 2001, the Executive Life Insurance Plan's cost to Herbalife was approximately $223,346. The Executive Life Insurance Plan will be terminated as of December 31, 2002. EXECUTIVE RETENTION PLAN. Effective as of March 15, 2001, Herbalife adopted the Herbalife 2001 Executive Retention Plan (the "Executive Retention Plan"). The purpose of the Executive Retention Plan is to provide financial incentives for a select group of management and highly compensated employees of Herbalife and its subsidiaries to continue to provide services to Herbalife and its subsidiaries during the critical period immediately before and immediately after certain Change in Control events. The participants in the Executive Retention Plan are a select group of management and highly compensated employees who are designated by the administrative committee of the Executive Retention Plan (the "Administrative Committee"). The Administrative Committee is appointed by Herbalife's Board. At present, the Administrative Committee has designated Mr. Kane, Ms. Hannah and five other senior executives to participate in the Executive Retention Plan. A participant becomes eligible to receive a benefit under the Executive Retention Plan if he or she is employed by Herbalife or its subsidiaries 90 days before a "Change in Control" occurs, and either (a) stays employed by Herbalife or its subsidiaries during the period beginning 90 days before the Change in Control occurs and ending six months after the Change in Control occurs, or (b) dies, retires, becomes disabled or has his or her employment involuntarily terminated, during the period beginning 90 days before the Change in Control occurs and ending six months after the Change in Control occurs. For purposes of the Executive Retention Plan, a "Change in Control" includes (i) the acquisition by any person or group (excluding the Estate of Mark Hughes, the Mark Hughes Family Trust, or any persons or entities who receive distributions of securities of Herbalife from such estate or trust) of more than 50% of the combined voting power of Herbalife, (ii) the ceasing of the existing directors as of Herbalife's 2000 annual shareholders meeting to constitute more than 50% of the number of authorized directors of Herbalife, except to the extent that new directors were approved by a vote of at least 50% of the existing directors, (iii) a merger, consolidation, or reorganization of Herbalife, or a sale or other disposition of all or substantially all of Herbalife's assets, if, as a result of such a transaction, the persons who were shareholders of Herbalife immediately before the transaction do not own at least 50% of the combined voting power of the entities surviving or resulting from such transaction, or of the purchaser of such assets, (iv) the filing of a bankruptcy petition by or against Herbalife, the making by Herbalife of a general assignment for the benefit of creditors, or the appointment on behalf of Herbalife of a receiver, liquidator, trustee, or similar person. A transaction described in clauses (i), (ii), or (iii) of the preceding sentence, however, shall not constitute a "Change in Control" if, in connection with the transaction, Herbalife's board of directors terminates Herbalife's Share Purchase Rights Plan, amends the Share Purchase Rights Plan to exempt the transaction from the application of the Share Purchase Rights Plan, or redeems the rights issued under the Share Purchase Rights Plan. As a result, any Change in Control transaction described 85 in clauses (i)--(iii) above that is negotiated with or approved by the board will generally not result in the payment of any benefits pursuant to the Executive Retention Plan. On April 10, 2002, Herbalife's Board of Directors amended the Share Purchase Rights Plan so that the proposed merger transaction by and among Herbalife, WH Holdings and WH Acquisition Corp. shall not be deemed to be a Change in Control under the Executive Retention Plan. Thus, the consummation of the merger will not result in the payment of any benefits pursuant to the Executive Retention Plan. Herbalife has established the Herbalife 2001 Executive Retention Trust to provide benefits under the Executive Retention Plan. The Executive Retention Trust is an irrevocable trust established with an institutional trustee. The Administrative Committee of the Executive Retention Plan will establish an individual account in the Executive Retention Trust for each participant in the Executive Retention Plan. Until the occurrence of a Change in Control, the Administrative Committee will control the investment of the assets in the Executive Retention Trust, and will determine the allocation of the assets of the Executive Retention Trust to the individual accounts of participants. Each participant who qualifies for a benefit under the Executive Retention Plan will receive a lump sum benefit equal to the dollar amount in his or her individual account in the Executive Retention Trust. The benefit shall be paid within 90 days after the participant qualifies for the benefit. If a participant's employment with Herbalife or its subsidiaries terminates before the participant qualifies for a benefit under the Executive Retention Plan, the participant's account in the Executive Retention Trust will revert to Herbalife. A participant's benefit under the Executive Retention Plan will be reduced, however, if the reduction is necessary to maximize the amount that the participant would retain after payment of federal and state income taxes and excise taxes under Section 4999 of the Code. As of September 30, 2002, the value of the assets in the Executive Retention Trust was $7,481,000. The Executive Retention Plan was frozen upon the consummation of the merger. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT Herbalife has entered into executive employment agreements (each, an "employment agreement") with each of Brian L. Kane and Carol Hannah (the "executives"). The employment agreements with Mr. Kane and Ms. Hannah became effective as of August 20, 2000. The employment agreements for each of Mr. Kane and Ms. Hannah are for a three year term expiring in August 2003. Under the terms of each employment agreement, in addition to his or her annual salary, each executive officer is entitled to participate in incentive compensation plans on the same basis as other comparable level executives. Each executive officer is also entitled to certain other benefits paid for by Herbalife, including, among other things, an automobile allowance and participation in various benefit plans. Under the terms of each employment agreement, if, at any time during the term of the employment agreement, (i) Herbalife terminates the executive's employment without cause (as defined in such agreement) or (ii) the executive terminates his or her employment for good reason (as defined in such agreement), Herbalife must pay the executive (in addition to all accrued base salary, bonus, benefits and other amounts the executive is entitled to) base salary and target bonus for the balance of the term (as defined in such agreement) plus one additional year of base salary and target bonus. The executive is also entitled to receive all other benefits for a period of two years following the termination. If the executive (i) dies or (ii) becomes disabled at any time during the term of the employment agreement, upon the death or disability of the executive (as defined in such agreement), Herbalife must pay the executive or his or her beneficiaries or estate (in addition to all accrued base salary, bonus, benefits and other amounts the executive is entitled to) executive's base salary and target bonus for the balance of the year plus one additional year of base salary and target bonus. In the event the executive's employment is terminated by Herbalife without cause, all stock option entitlements and agreements shall continue in full force and effect and stock options shall vest pursuant to the executive's vesting schedules as if the executive's employment had not been terminated. In the event of the executive's termination for any other reason, all unvested options will terminate upon the effective date of such termination. 86 Mr. Kane is engaged as Co-President of Herbalife. For his services, Mr. Kane is entitled to receive an annual salary of $660,000. Ms. Hannah is engaged as Co-President of Herbalife. For her services, Ms. Hannah is entitled to receive an annual salary of $712,500. Subsequent to the merger, Mr. Tirelli, former President and Chief Executive Officer is no longer employed by the Company, effective as of September 19, 2002. We have not entered into a separation arrangement with Mr. Tirelli as of this time. We have entered into separation and general release agreements with each of Christopher Pair, Timothy Gerrity and Robert A. Sandler. The separation and general release agreement with Mr. Pair (the "Pair Separation Agreement") became effective on October 19, 2001, the separation and general release agreement with Mr. Gerrity (the "Gerrity Separation Agreement") became effective on December 31, 2001, and the separation and general release agreement with Mr. Sandler (the "Sandler Separation Agreement") became effective on May 17, 2002. Under the Pair Separation Agreement, Mr. Pair was entitled to receive the following payments: (i) $547,975, which was paid to him on October 22, 2001, (ii) $1,140,000, which was paid to him on October 22, 2001, (iii) eight separate quarterly payments, each in the amount of $201,500, which commenced on November 1, 2001 and (iv) a final payment of $248,000, to be paid simultaneously with the last quarterly payment of $201,500. In addition, under this agreement, Herbalife paid Mr. Pair the $1,152,957 he was entitled to under Herbalife's Senior Executive Retirement Plan, as well as the $1,639,645 he was entitled to under the Company's Senior Executive Deferred Compensation Plan. All payments made to Mr. Pair under this agreement are to be made less applicable withholding requirements. The Pair Separation Agreement further provides that Mr. Pair is entitled to exercise his vested stock options for 90 days following the date of such agreement and that his unvested options will continue to be outstanding until September 1, 2002 and will accelerate under certain circumstances. Under this agreement, Mr. Pair transferred all of his interests in Herbalife of Japan to Herbalife. Under the Gerrity Separation Agreement, Mr. Gerrity was entitled to receive the following payments: (i) $381,443, which was paid to him on January 2, 2002 and (ii) four separate quarterly payments, each in the amount of $400,000, commencing on June 30, 2002. In addition, under this agreement, Herbalife paid Mr. Gerrity the $1,010,219 he was entitled to under Herbalife's Senior Executive Retirement Plan, as well as the $3,052,169 he was entitled to under Herbalife's Senior Executive Deferred Compensation Plan. All payments made to Mr. Gerrity under this agreement are to be made less applicable withholding requirements. The Gerrity Separation Agreement further provides that Mr. Gerrity is entitled to exercise his vested stock options for 90 days following the date of such agreement and that his unvested options will continue to be outstanding until December 31, 2002 and will accelerate under certain circumstances. Under this agreement, Mr. Gerrity transferred all of his interests in Herbalife of Japan to Herbalife. Under the Sandler Separation Agreement, Mr. Sandler was entitled to receive the following payments: (i) $2.6 million for severance less applicable tax withholdings, (ii) $113,174 under the Supplemental Executive Retirement Plan, less applicable tax withholdings, (iii) $1.9 million under the Deferred Compensation Plan, less applicable tax withholdings and (iv) $176,924 payout of accrued, unused vacation, less applicable tax withholdings. On May 20, 2002, Herbalife and Mr. Sandler entered into an agreement for retention of legal services whereby Mr. Sandler will be retained as an independent contractor for a 36-month period beginning May 20, 2002. Under this agreement, Mr. Sandler will provide Herbalife with legal advice and perform such legal services as Herbalife may request from time to time. In consideration for the legal services to be provided by Mr. Sandler, Herbalife will pay Mr. Sandler a total consulting fee of $1.0 million. CHANGE IN CONTROL PLAN Pursuant to the agreements in place prior to the signing of the merger agreement, and subject to reduction in the event of payment by Herbalife of severance payments, if any, made to such persons before consummation of the merger, upon consummation of the merger, Messrs. Kane and Klein and Ms. Hannah each received change in control payments (after making necessary adjustments for purposes of Section 280G 87 and 4999 of the Internal Revenue Code of 1986, as amended (the "Code")) in the amounts of $2.2 million, $2.2 million and $3.2 million, respectively. INDEMNIFICATION OF DIRECTORS AND OFFICERS Herbalife International, Inc.'s bylaws provide that, except to the extent expressly prohibited by the Nevada Revised Statutes, we must indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of Herbalife International, Inc., by reason of the fact that he is or was a director, officer, employee or agent of Herbalife International, Inc., or is or was serving at the request of Herbalife International, Inc. as a director, officer, employee or agent of another corporation, against expenses, including attorneys' fees, judgment, fines and amount paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of Herbalife International, Inc., and, with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of Herbalife International, Inc., and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to managers, officers or persons controlling us pursuant to the foregoing, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 88 PRINCIPAL SHAREHOLDERS All of the shares of Herbalife are 99.9% owned by WH Luxembourg Intermediate Holdings S.a.R.L., an indirect wholly-owned subsidiary of WH Holdings and 0.1% owned by WH Intermediate Holdings, a direct wholly-owned subsidiary of WH Holdings. The following table shows the beneficial ownership of preferred shares of WH Holdings, and thus the indirect beneficial ownership of the equity interest of Herbalife, held by (i) each of WH Holdings' and Herbalife's directors and director nominees, (ii) each of the Named Executive Officers of Herbalife, (iii) all directors and executive officers as a group and (iv) each person or entity known to us to beneficially own more than five percent (5%) of the preferred shares of WH Holdings outstanding.
PERCENTAGE OWNERSHIP ON A NUMBER OF FULLY DILUTED NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BASIS(1) - ------------------------------------ ---------- -------------- Whitney V, L.P. ............................................ 47,741,351 46.8 % Whitney Strategic Partners V, L.P. ......................... 418,534 0.4 % Whitney Private Debt Fund, L.P.(2)*......................... 805,585 0.8 % WH Investments Ltd.(3)*..................................... 6,312,843 6.2 % Green River Offshore Fund Ltd.(4)*.......................... 85,929 0.1 % Total.................................................. 55,364,242 53.4 % CCG Investments (BVI), L.P. ................................ 27,827,358 27.3 % CCG Associates -- QP, LLC................................... 1,398,853 1.4 % CCG Associates -- AI, LLC................................... 130,067 0.1 % CCG Investment Fund -- AI, LP............................... 372,797 0.4 % CCG AV, LLC -- Series C..................................... 918,003 0.9 % CCG AV, LLC -- Series E..................................... 715,922 0.7 % CCG CI, LLC................................................. 54,867 0.1 % Total.................................................. 31,417,867 30.8 % Peter M. Castleman(5)*...................................... 55,364,242 55.2 % James H. Fordyce*........................................... -- -- John C. Hockin(5)*.......................................... 55,364,242 55.2 % Steven E. Rodgers(5)*....................................... 55,364,242 55.2 % Jesse Rogers(6)**........................................... 31,417,867 30.7 % Prescott Ashe(6)**.......................................... 31,417,867 30.7 % Ken Diekroeger**............................................ -- -- Stefan L. Kaluzny**......................................... -- -- Brian L. Kane***............................................ 284,091 0.3 % Carol Hannah***............................................. 568,182 0.6 % Charles L. Orr***........................................... 14,205 0.01% Henry S. Burdick............................................ -- -- Leslie Stanford(7)***....................................... 2,272,728 2.2 % All Directors and Executive Officers as a Group (14 persons)(8)............................................... 90,091,769 88.3 % ========== =====
- --------------- * c/o Whitney & Co., LLC, 177 Broad Street, Stamford, Connecticut 06901. ** c/o Golden Gate Private Equity, Inc., One Embarcadero Center, 33rd Floor, San Francisco, California 94111. *** c/o Herbalife International, Inc., 1800 Century Park East, Los Angeles, California 90067. (1) Applicable percentage of ownership as of October 31, 2002 is based upon 100,000,000 preferred shares outstanding and warrants for 2,040,816 preferred shares. Beneficial ownership is determined in accor- 89 dance with the rules of the SEC, and includes voting and investment power with respect to shares. Unless otherwise indicated below, to the knowledge of Herbalife, all persons listed below have sole voting and investment power with respect to their preferred shares, except to the extent authority is shared by spouses under applicable law and to the extent provided in the shareholders' agreement. See "Certain Relationships and Related Transactions -- Certain Agreements Relating to the Acquisition -- Shareholders' Agreement." Pursuant to the rules of the SEC, the number of preferred shares deemed outstanding includes shares issuable pursuant to options or warrants held by the respective person or group which may be exercised within 60 days of December 31, 2002. This calculation assumes the conversion of preferred shares into common shares. (2) Includes warrants to purchase preferred shares at an exercise price of $0.01 per share, which are exercisable within 60 days of December 31, 2002. (3) WH Investments Ltd. is a Cayman company beneficially owned by Whitney V, L.P. and Whitney Strategic Partners V, L.P.(the "Whitney Entities"). WH Investments Ltd. holds preferred shares which will be available for sale either to certain distributors, directors or members of management, or to WH Holdings for subsequent sale to certain distributors, directors or members of management, at subsequent closings. To the extent that such shares are not sold, they will be distributed pro rata to the beneficial owners of WH Investments Ltd. (4) Includes warrants to purchase shares at an exercise price of $0.01 per share, which are exercisable within 60 days of December 31, 2002. (5) Represents shares beneficially owned by the Whitney Entities and Whitney Private Debt Fund, L.P. Messrs. Castleman, Rodgers and Hockin are managing members of the entities that are the general partners of the Whitney Entities and Whitney Private Debt Fund, L.P. Accordingly, they may be deemed to share beneficial ownership of such shares. Each of Messrs. Castleman, Rodgers and Hockin disclaims beneficial ownership of all shares owned by the Whitney Entities and Whitney Private Debt Fund, L.P., except to the extent of his pecuniary interest in the Whitney Entities and Whitney Private Debt Fund, L.P. (6) Represents shares beneficially owned by CCG Investments (BVI), L.P., CCG Associates -- QP, LLC, CCG Associates -- AI, LLC, CCG Investment Fund -- AI, LP, CCG AV, LLC -- Series C, CCG AV, LLC -- Series E and CCG CI, LLC (the "Golden Gate Entities"). Messrs. Rogers and Ashe are managing members of the entities that are general partners of the Golden Gate Entities. Accordingly, they may be deemed to share beneficial ownership of such shares. Each of Messrs. Rogers and Ashe disclaim beneficial ownership of all shares owned by the Golden Gate Entities, except to the extent of his pecuniary interest in the Golden Gate Entities. (7) Represents shares beneficially owned by Leslie Stanford through Blueline Capital, LLC. Leslie Stanford was nominated by the distributors to the WH Holdings' board of directors and her appointment is effective as of December 20, 2002. (8) Includes the preferred shares described above relating to current executive officers and directors plus an additional 170,454 preferred shares held by one other executive officer. 90 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS BUYOUT OF MINORITY INTEREST IN HERBALIFE OF JAPAN In 1996, Herbalife began to seek regulatory approvals to make an initial public offering of shares of Herbalife of Japan. On December 30, 1996, in preparation for the possible offering, Herbalife sold shares representing approximately 7.0% of Herbalife of Japan to some of its directors and executive officers, as well as to resident managers of Herbalife of Japan for an aggregate of approximately $4.6 million, as an incentive for increased efforts to facilitate the operation of the Herbalife of Japan business and the success of the offering (the "Japan minority shares"). In early May 2002, Herbalife repurchased the Japan minority shares for an aggregate of approximately $4.0 million and a cash dividend of approximately $0.6 million. CERTAIN AGREEMENTS RELATING TO THE ACQUISITION SUBSCRIPTION AGREEMENTS In connection with the preferred shares financing, selected members of our distributor organization and senior management were offered the opportunity to purchase the 12% Series A Cumulative Convertible Preferred Shares of WH Holdings. The price paid by participating members of our distributor organization was the same as that paid by the equity sponsors. The subscription agreements contained customary representations, warranties and covenants. SHAREHOLDERS' AGREEMENT In connection with the subscription for the purchase of preferred shares, participating members of our distributor organization and senior management are required to become party to a shareholders' agreement entered into by the equity sponsors and WH Holdings (the "shareholders' agreement"). This agreement restricts the ability of the shareholders to freely transfer preferred shares and common shares held by them following the merger (other than to the transferor's family members, other shareholders and the equity sponsors). The equity sponsors and their transferees have also entered into an institutional shareholders' agreement which contains substantially similar restrictions to the shareholders' agreement relating to transfers by the equity sponsors and their transferees. The equity sponsors also have preemptive rights, and co-sale and bring-along rights on shares owned by other shareholders. The other shareholders have preemptive rights, and pro rata tag-along rights on certain sales of shares by the equity sponsors which will reduce the equity sponsors' holdings below a threshold. If a distributor shareholder is terminated, unless such distributor sells its shares to another distributor, WH Holdings shall have the right to repurchase such shares. If a shareholder that is a member of senior management is terminated, first the equity sponsors, then WH Holdings shall have the right to repurchase such shares before such terminated shareholder can sell its shares to third parties. Also, under the shareholders' agreement, the shareholders will agree to vote in favor of the election of the following designees to WH Holdings' board of directors: - Four (4) nominees designated by Whitney V, L.P.; - Four (4) nominees designated by CCG Investments (BVI), L.P.; - Herbalife's Chief Executive Officer; - Two (2) independent nominees acceptable to Whitney V, L.P. and CCG Investments (BVI), L.P.; and - Up to two (2) nominees designated by distributor shareholders. If the distributors own at least 11,000,000 preferred shares, they may designate one nominee to the board of directors of WH Holdings. If the distributors own more than 11,000,000 but less than 16,500,000 preferred shares, they may also select one non-voting observer to attend all meetings of the board of directors of 91 WH Holdings. If the distributors own 16,500,000 or more preferred shares, they may designate two nominees. The nominees of the distributors shall be elected by a plurality of votes cast by the distributor shareholders. In the event an equity sponsor does not have a designee serving on the board of directors for any reason, one person designated by such equity sponsor will be permitted to attend as an observer at all meetings of the board of directors. As of October 31, 2002, the distributors owned 11.44% of our equity, and have the right to designate one nominee and one non-voting observer to the board of directors of WH Holdings. At a shareholders meeting held on December 4, 2002, the distributors nominated Leslie Stanford for election to the board of directors of WH Holdings and Markus Lehman was nominated as a non-voting observer to the board of directors of WH Holdings. The appointments are effective as of December 20, 2002. REGISTRATION RIGHTS AGREEMENT Members of our distributor organization and senior management holding preferred shares will also be party to a registration rights agreement between the equity sponsors and WH Holdings (the "WH Holdings registration rights agreement"). Under the WH Holdings registration rights agreement, the equity sponsors have the ability, in certain circumstances, to cause WH Holdings to register equity securities and to participate in registrations by WH Holdings of its equity securities. Upon an initial public offering, if the equity sponsors shall include their shares for registration, the other shareholders may also participate pro rata. In addition to an initial public offering, if WH Holdings at any time proposes to register any of its securities under the Securities Act for sale to the public, in certain circumstances shareholders may require WH Holdings to include their shares in the securities to be covered by the registration statement. Such registration rights will be subject to customary limitations specified in the WH Holdings registration rights agreement. AMENDED AND RESTATED SHARE REPURCHASE AGREEMENT WH Holdings and WH Investments Ltd. entered into an amended and restated share repurchase agreement dated as of October 31, 2002, which enables WH Holdings to purchase shares from WH Investments Ltd. to sell to distributors, directors and members of management at subsequent closings. AGREEMENT OF ASSIGNMENT In connection with a share purchase agreement, WH Investments Ltd. transferred preferred shares to the Golden Gate Entities. The Golden Gate Entities, WH Investments Ltd. and WH Holdings entered into an agreement of assignment under which the Golden Gate entities agreed to assume certain obligations under the amended and restated share repurchase agreement with respect to the sale of preferred shares at subsequent closings. INDEMNITY AGREEMENT In connection with the purchase of preferred shares, WH Holdings and WH Acquisition entered into an indemnity agreement with the equity sponsors pursuant to which WH Holdings and Herbalife (as successor-in-interest to WH Acquisition) agreed to indemnify the equity sponsors for losses and claims resulting from, arising out of or any way related to the merger, including existing litigation. Whitney has been sued in San Francisco by Rosemont Associates and Joseph Urso for $20 million in a suit alleging breach of contract, breach of covenants of good faith and fair dealing, quantum meruit and other causes of action arising out of the sale of Herbalife to Whitney and others. Whitney believes it has meritorious defenses to the suit and is vigorously contesting it. 92 SECURITIES PURCHASE AGREEMENT WH Holdings, GarMark Partners, L.P. ("GarMark") and Whitney Private Debt Fund, L.P. ("Whitney Private Debt") entered into a securities purchase agreement pursuant to which GarMark and Whitney Private Debt purchased the senior notes and warrants. Whitney Private Debt is an affiliate of certain of the equity sponsors. Whitney Private Debt purchased $15.0 million in principal amount of the senior notes and received warrants for 805,585 preferred shares of WH Holdings. In addition, Whitney Private Debt was paid a transaction fee of 3.5% of the principal amount of the senior notes it purchased and a drawdown fee of $225,000. On November 27, 2002, Green River Offshore Fund Ltd., an affiliate of Whitney, purchased $1.6 million in principal amount of the senior notes from GarMark and received warrants for 85,929 preferred shares of WH Holdings from GarMark. Each holder of $10 million or more of senior notes (subject to certain exceptions) may designate one observer to the board of directors of WH Holdings to attend each meeting of the board and committees of the board. The securities purchase agreement also contains customary representations, warranties, covenants and provisions relating to prepayment and default. AGREEMENTS WITH THE EQUITY SPONSORS In connection with the acquisition, we have entered into various agreements with the equity sponsors. Pursuant to the monitoring fee agreement entered into in connection with the acquisition, Whitney & Co., LLC and GGC Administration, LLC, an affiliate of CCG Investments (BVI), L.P., will conduct certain activities related to such parties' and its affiliates' investments in WH Holdings. In consideration of those services, Herbalife will pay to Whitney & Co., LLC and GGC Administration, LLC, quarterly, fees for monitoring services rendered (determined on an hourly basis), and such obligations shall be guaranteed by WH Holdings. Such monitoring fees will be at least $2.5 million per annum, but will not exceed an aggregate of $5.0 million per annum, divided between Whitney & Co., LLC and GGC Administration, LLC at a ratio of 65% to 35%, respectively. In no event will any such monitoring fees be earned or paid until Herbalife's adjusted EBITDA (as defined in the monitoring fee agreement), for the first trailing twelve month period ending on any calendar quarter following the date of the consummation of the merger, exceeds $125.8 million (and such payment shall continue annually thereafter once such initial threshold is met). Herbalife will also agree to reimburse Whitney & Co., LLC and GGC Administration, LLC for their reasonable out-of-pocket expenses and pay additional transaction fees to them in the event WH Holdings and/or any of its subsidiaries completes add-on acquisitions, divestitures, a transaction resulting in a change of control (as defined therein) or financing involving WH Holdings and/or any of its subsidiaries, and such obligations shall be guaranteed by WH Holdings. WH Holdings and its subsidiaries will also provide customary joint and several indemnification to Whitney & Co., LLC and GGC Administration, LLC. In connection with the structuring and implementation of the acquisition of Herbalife and related financing transactions, we paid the equity sponsors fees in the aggregate of $17.5 million. The equity sponsors were also reimbursed $5.0 million for their out-of-pocket expenses in connection with the merger and related financing transactions. In addition, Whitney & Co., LLC was paid fees of $645,000 in connection with providing a bridge commitment to WH Acquisition to finance a portion of the acquisition, which bridge facility was not utilized and has been terminated. Also, in connection with the Senior Credit Facility, Whitney Private Debt Fund, L.P. lent $5.0 million of the $180 million term loan to Herbalife. WH HOLDINGS EXECUTIVE OPTION PLAN WH Holdings has established a stock option plan that provides for the grant of options to purchase common shares of WH Holdings to any executive officer of Herbalife following the merger. The option plan is administered by a committee appointed by the board of directors of WH Holdings. Upon conversion of the options into common shares of WH Holdings, the executive officers of Herbalife will be required to enter into a shareholders' agreement and a registration rights agreement with WH Holdings. See "Management -- Description of Benefit Plans." 93 WH HOLDINGS INDEPENDENT DIRECTORS STOCK OPTION PLAN WH Holdings has established an independent directors stock option plan that provides for the grant of options to purchase common shares of WH Holdings to independent directors of WH Holdings. Independent directors are individuals who are neither employees of WH Holdings or any of its affiliates nor designated as directors by the affiliates of WH Holdings or its distributors. DESCRIPTION OF PREFERRED SHARES Members of our distributor organization became equity investors in WH Holdings. This investment was made through the purchase of shares of 12% Series A Cumulative Convertible Preferred Shares, having an aggregate liquidation preference equal to the aggregate original price of the preferred shares, plus accrued and unpaid dividends thereon. The preferred shares were issued in a private transaction not subject to the registration requirements of the Securities Act or the securities regulations under any other jurisdiction. LIQUIDATION PREFERENCE. Holders of the preferred shares have a preference equal to the purchase price per preferred share plus accrued and unpaid dividends thereon and will also participate with the common shares in available assets. MATURITY. The preferred shares will not have a maturity date. DIVIDENDS. Each of WH Holdings preferred shares is entitled to receive cash dividends at a rate per annum equal to 12% of the original issue price. Unpaid dividends will compound on a quarterly basis. All dividends are cumulative from the date of issuance, whether or not earned or declared. Upon automatic conversion of the preferred shares, accrued and unpaid dividends shall be paid by WH Holdings, at the election of WH Holdings, in cash or in common shares. The Notes and the senior credit facilities restrict the payment of cash dividends by WH Intermediate Holdings and its subsidiaries to WH Holdings. VOTING. The holders of preferred shares shall be entitled to vote on all matters submitted to WH Holding's shareholders for a vote, together with the holders of common shares, all voting together as a single class. RANKING. The preferred shares will rank senior to all other capital stock. CONVERSION. The preferred shares shall automatically convert on the earlier of (x) an IPO and (y) a merger or sale or other change of control of WH Holdings. Each preferred share will convert into a unit consisting of (i) the right to receive cash equal to the original issue price per preferred share and (ii) one common share subject to anti-dilution adjustment. ANTI-DILUTION. The preferred shares will have customary anti-dilution adjustments for structural changes and certain preemptive rights with respect to dilutive equity issuances. OTHER RIGHTS OR RESTRICTIONS. Preferred shares issued to distributors will be subject to repurchase rights, restrictions on transfer, bring-along rights and will benefit from the registration rights and tag-along rights described elsewhere herein. 94 OTHERS Frank P. Morse and Robert A. Sandler, two former senior executives of Herbalife, are minority shareholders in B.L.I. Holdings, In., a holding company for two of our suppliers of personal care products. Total purchases from B.L.I. Holdings, Inc. and its subsidiaries were $919,000 for the seven months ended July 31, 2002, $199,000 for the two months ended September 30, 2002, and $241,000 for the nine months ended September 30, 2001. Subsequent to the merger, Douglas G. Sages, former Executive Vice President, Chief Administrative Officer and Chief Financial Officer is no longer employed by the Company, effective as of September 19, 2002. We have not entered into a separation arrangement with Mr. Sages as of this time. 95 THE EXCHANGE OFFER EXCHANGE TERMS We sold the Series A Notes on June 27, 2002, to the initial purchaser pursuant to a purchase agreement. The initial purchaser subsequently sold the private notes to - "qualified institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities Act, in reliance on Rule 144A; and to - persons in offshore transactions in reliance on Regulation S under the Securities Act. As a condition to the initial sale of the Series A Notes, Herbalife and the initial purchaser entered into a registration rights agreement. Pursuant to the registration rights agreement, we agreed to: - file with the SEC by November 13, 2002, a registration statement under the Securities Act with respect to the Series B Notes, and - use our reasonable best efforts to cause the registration statement to become effective under the Securities Act on or before January 27, 2003. We agreed to issue and exchange the Series B Notes for all Series A Notes properly surrendered and not withdrawn before the expiration of the exchange offer. A copy of the registration rights agreement has been filed as an exhibit to the registration statement which includes this prospectus. The registration statement is intended to satisfy some of our obligations under the registration rights agreement and the purchase agreement. Series A Notes in an aggregate principal amount of $165,000,000 are currently issued and outstanding. The maximum aggregate principal amount of Series B Notes that will be issued in exchange for Series A Notes is $165,000,000. The terms of the Series B Notes and the Series A Notes are substantially the same in all material respects, except that the Series B Notes will be freely transferable by the holders except as provided in this prospectus. See "Description of Notes." The Series B Notes will bear interest at a rate of 11 3/4% per year, payable semiannually on January 15 and July 15 of each year, beginning on January 15, 2003. Holders of Series B Notes will receive interest from the date of the original issuance of the Series A Notes or from the date of the last payment of interest on the Series A Notes, whichever is later. Holders of Series B Notes will not receive any interest on Series A Notes tendered and accepted for exchange. In order to exchange your Series A Notes for transferable Series B Notes in the exchange offer, you will be required to make the following representations, which are included in the letter of transmittal: - any Series B Notes that you receive will be acquired in the ordinary course of your business; - you are not participating, and have no arrangement or understanding with any person to participate, in the distribution of the Series B Notes; - you are not our "affiliate," as defined in Rule 405 of the Securities Act, or a broker-dealer tendering Series A Notes acquired directly from us; and - if you are not a broker-dealer, that you are not engaged in and do not intend to engage in the distribution of the Series B Notes. Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange any Series A Notes properly tendered in the exchange offer, and the exchange agent will deliver the Series B Notes promptly after the expiration date of the exchange offer. If you tender your Series A Notes, you will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of the Series A Notes in connection with the exchange offer. We will pay all charges, expenses and transfer taxes in connection with the exchange offer, other than the taxes described below under "Transfer Taxes." 96 WE MAKE NO RECOMMENDATION TO YOU AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF YOUR EXISTING SERIES A NOTES INTO THIS EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE THIS RECOMMENDATION. YOU MUST MAKE YOUR OWN DECISION WHETHER TO TENDER INTO THIS EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF SERIES A NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH YOUR ADVISORS, IF ANY, BASED ON YOUR FINANCIAL POSITION AND REQUIREMENTS. EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The exchange offer expires at 5:00 p.m., New York City time, on January 24, 2003 (the "expiration date"), unless we extend the exchange offer, in which case the expiration date will be the latest date and time to which we extend the exchange offer. In order to extend the exchange offer, we will: - notify the exchange agent of any extension by oral or written notice; and - issue a press release or other public announcement which will include disclosure of the approximate number of private notes deposited; such press release or announcement would be issued prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We expressly reserve the right, so long as applicable law allows: - to delay our acceptance of Series A Notes for exchange; - to terminate the exchange offer if any of the conditions set forth under "-- Conditions of the Exchange Offer" beginning on page 102 exist; - to waive any condition to the exchange offer; - to amend any of the terms of the exchange offer; and - to extend the expiration date and retain all Series A Notes tendered in the exchange offer, subject to your right to withdraw your tendered Series A Notes as described under "-- Withdrawal of Tenders." Any waiver or amendment to the exchange offer will apply to all Series A Notes tendered, regardless of when or in what order the Series A Notes were tendered. If the exchange offer is amended in a manner that we think constitutes a material change, or if we waive a material condition of the exchange offer, we will promptly disclose the amendment or waiver by means of a prospectus supplement that will be distributed to the registered holders of the Series A Notes, and we will extend the exchange offer to the extent required by Rule 14e-1 under the Exchange Act. We will promptly follow any delay in acceptance, termination, extension or amendment by oral or written notice of the event to the exchange agent, followed promptly by oral or written notice to the registered holders. Should we choose to delay, extend, amend or terminate the exchange offer, we will have no obligation to publish, advertise or otherwise communicate this announcement, other than by making a timely release to an appropriate news agency. In the event we terminate the exchange offer, all Series A Notes previously tendered and not accepted for payment will be returned promptly to the tendering holders. In the event that the exchange offer is withdrawn or otherwise not completed, Series B Notes will not be given to holders of Series A Notes who have validly tendered their Series A Notes. RESALE OF SERIES B NOTES Based on interpretations of the SEC staff set forth in no action letters issued to third parties, we believe that Series B Notes issued under the exchange offer in exchange for Series A Notes may be offered for resale, 97 resold and otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, if: - you are acquiring Series B Notes in the ordinary course of your business; - you are not participating, and have no arrangement or understanding with any person to participate, in the distribution of the Series B Notes; - you are not a broker-dealer who purchased Series A Notes directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act; and - you are not our "affiliate" within the meaning of Rule 405 under the Securities Act. However, we have not asked the SEC to consider this particular exchange offer in the context of a no-action letter. Therefore, you cannot be sure that the SEC will treat it in the same way it has treated other exchange offers in the past. If you tender Series A Notes in the exchange offer with the intention of participating in any manner in a distribution of the Series B Notes: - you cannot rely on those interpretations by the SEC staff, and - you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. Only broker-dealers that acquired the Series A Notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives Series B Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the Series B Notes. Please read the section captioned "Plan of Distribution" beginning on page 161 for more details regarding the transfer of Series B Notes. ACCEPTANCE OF SERIES A NOTES FOR EXCHANGE We will accept for exchange Series A Notes validly tendered pursuant to the exchange offer, or defectively tendered, if such defect has been waived by us, after the later of: (1) the expiration date of the exchange offer and (2) the satisfaction or waiver of the conditions specified below under "Conditions of the Exchange Offer." We will not accept Series A Notes for exchange subsequent to the expiration date of the exchange offer. Tenders of Series A Notes will be accepted only in minimum denominations equal to $100,000 or integral multiples of $1,000 in excess thereof. We expressly reserve the right, in our sole discretion, to: - delay acceptance for exchange of Series A Notes tendered under the exchange offer, subject to Rule 14e-1 under the Exchange Act, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders promptly after the termination or withdrawal of a tender offer, or - terminate the exchange offer and not accept for exchange any Series A Notes not theretofore accepted for exchange, if any of the conditions set forth below under "-- Conditions of the Exchange Offer" have not been satisfied or waived by us or in order to comply in whole or in part with any applicable law. In all cases, Series B Notes will be issued only after timely receipt by the exchange agent of certificates representing Series A Notes, or confirmation of book-entry transfer, a properly completed and duly executed letter of transmittal, or a manually signed facsimile thereof, and any other required documents. For purposes of the exchange offer, we will be deemed to have accepted for exchange validly tendered Series A Notes, or defectively tendered Series A Notes with respect to which we have waived such defect, if, as and when we give oral, confirmed in writing, or written notice to the exchange 98 agent. Promptly after the expiration date, we will deposit the Series B Notes with the exchange agent, who will act as agent for the tendering holders for the purpose of receiving the Series B Notes and transmitting them to the holders. The exchange agent will deliver the Series B Notes to holders of Series A Notes accepted for exchange after the exchange agent receives the Series B Notes. If, for any reason, we delay acceptance for exchange of validly tendered Series A Notes or we are unable to accept for exchange validly tendered Series A Notes, then the exchange agent may, nevertheless, on our behalf, retain tendered Series A Notes, without prejudice to our rights described under "-- Expiration Date; Extensions; Termination; Amendments" beginning on page 97, "-- Conditions of the Exchange Offer" beginning on page 102 and "-- Withdrawal of Tenders" beginning on page 102, subject to Rule 14e-1 under the Exchange Act, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders thereof promptly after the termination or withdrawal of a tender offer. If any tendered Series A Notes are not accepted for exchange for any reason, or if certificates are submitted evidencing more Series A Notes than those that are tendered, certificates evidencing Series A Notes that are not exchanged will be returned, without expense, to the tendering holder, or, in the case of Series A Notes tendered by book-entry transfer into the exchange agent's account at a book-entry transfer facility under the procedure set forth under "-- Procedures for Tendering Series A Notes -- Book-Entry Transfer" beginning on page 100, such Series A Notes will be credited to the account maintained at such book-entry transfer facility from which such Series A Notes were delivered, unless otherwise requested by such holder under "Special Delivery Instructions" in the letter of transmittal, promptly following the exchange date or the termination of the exchange offer. Tendering holders of Series A Notes exchanged in the exchange offer will not be obligated to pay brokerage commissions or transfer taxes with respect to the exchange of their Series A Notes other than as described in "Transfer Taxes" beginning on page 102 or in Instruction 7 to the letter of transmittal. We will pay all other charges and expenses in connection with the exchange offer. PROCEDURES FOR TENDERING SERIES A NOTES Any beneficial owner whose Series A Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee or held through a book-entry transfer facility and who wishes to tender Series A Notes should contact such registered holder promptly and instruct such registered holder to tender Series A Notes on such beneficial owner's behalf. Tender of Series A Notes Held Through Depository Trust. The exchange agent and Depository Trust have confirmed that the exchange offer is eligible for the Depository Trust automated tender offer program. Accordingly, Depository Trust participants may electronically transmit their acceptance of the exchange offer by causing Depository Trust to transfer Series A Notes to the exchange agent in accordance with Depository Trust's automated tender offer program procedures for transfer. Depository Trust will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by Depository Trust, received by the exchange agent and forming part of the book-entry confirmation, which states that Depository Trust has received an express acknowledgment from the participant in Depository Trust tendering Series A Notes that are the subject of that book-entry confirmation that the participant has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against such participant. In the case of an agent's message relating to guaranteed delivery, the term means a message transmitted by Depository Trust and received by the exchange agent which states that Depository Trust has received an express acknowledgment from the participant in Depository Trust tendering Series A Notes that they have received and agree to be bound by the notice of guaranteed delivery. Tender of Series A Notes Held in Certificated Form. For a holder to validly tender Series A Notes held in certificated form: - the exchange agent must receive at its address set forth in this prospectus a properly completed and validly executed letter of transmittal, or a manually signed facsimile thereof, together with any 99 signature guarantees and any other documents required by the instructions to the letter of transmittal, and - the exchange agent must receive certificates for tendered Series A Notes at such address, or such Series A Notes must be transferred pursuant to the procedures for book-entry transfer described above. A confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date of the exchange offer. A holder who desires to tender Series A Notes and who cannot comply with the procedures set forth herein for tender on a timely basis or whose Series A Notes are not immediately available must comply with the procedures for guaranteed delivery set forth below. LETTERS OF TRANSMITTAL AND SERIES A NOTES SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, AND NOT TO US OR TO ANY BOOK-ENTRY TRANSFER FACILITY. THE METHOD OF DELIVERY OF SERIES A NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER TENDERING SERIES A NOTES. DELIVERY OF SUCH DOCUMENTS WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, WE SUGGEST THAT THE HOLDER USE PROPERTY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE OF THE EXCHANGE OFFER TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO SUCH DATE. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF SERIES A NOTES WILL BE ACCEPTED. Signature Guarantee. Signatures on the letter of transmittal must be guaranteed by an eligible institution unless: - the letter of transmittal is signed by the registered holder of the Series A Notes tendered therewith, or by a participant in one of the book-entry transfer facilities whose name appears on a security position listing it as the owner of those Series A Notes, or if any Series A Notes for principal amounts not tendered are to be issued directly to the holder, or, if tendered by a participant in one of the book-entry transfer facilities, any Series A Notes for principal amounts not tendered or not accepted for exchange are to be credited to the participant's account at the book-entry transfer facility, and neither the "Special Issuance Instructions" nor the "Special Delivery Instructions" box on the letter of transmittal has been completed, or - the Series A Notes are tendered for the account of an eligible institution. An eligible institution is a firm that is a participant in the Security Transfer Agents Medallion program or the Stock Exchange Medallion program, which is generally a member of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office in the United States. Book-Entry Transfer. The exchange agent will seek to establish a new account or utilize an existing account with respect to the Series A Notes at Depository Trust promptly after the date of this prospectus. Any financial institution that is a participant in the book-entry transfer facility system and whose name appears on a security position listing it as the owner of the Series A Notes may make book-entry delivery of Series A Notes by causing the book-entry transfer facility to transfer such Series A Notes into the exchange agent's account. HOWEVER, ALTHOUGH DELIVERY OF SERIES A NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY, A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL, OR A MANUALLY SIGNED FACSIMILE THEREOF, MUST BE RECEIVED BY THE EXCHANGE AGENT AT ONE OF ITS ADDRESSES SET FORTH IN THIS PROSPECTUS ON OR PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER, OR ELSE THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH. The confirmation of a book-entry transfer of Series A Notes into the exchange agent's account at a book-entry transfer facility is referred to in this prospectus as a "book-entry confirmation." Delivery of documents to the book-entry transfer facility in accordance with that book-entry transfer facility's procedures does not constitute delivery to the exchange agent. 100 Guaranteed Delivery. If you wish to tender your Series A Notes and: (1) certificates representing your Series A Notes are not lost but are not immediately available, (2) time will not permit your letter of transmittal, certificates representing your Series A Notes and all other required documents to reach the exchange agent on or prior to the expiration date of the exchange offer, or (3) the procedures for book-entry transfer cannot be completed on or prior to the expiration date of the exchange offer, you may nevertheless tender if all of the following are complied with: - your tender is made by or through an eligible institution; - on or prior to the expiration date of the exchange offer, the exchange agent has received from the eligible institution a properly completed and validly executed notice of guaranteed delivery, by manually signed facsimile transmission, mail or hand delivery, in substantially the form provided with this prospectus. The notice of guaranteed delivery must: (a) set forth your name and address, the registered number(s) of your Series A Notes and the principal amount of Series A Notes tendered; (b) state that the tender is being made thereby; (c) guarantee that, within three New York Stock Exchange trading days after the date of the notice of guaranteed delivery, the letter of transmittal or facsimile thereof properly completed and validly executed, together with certificates representing the Series A Notes, or a book-entry confirmation, and any other documents required by the letter of transmittal and the instructions thereto, will be deposited by the eligible institution with the exchange agent; and (d) the exchange agent receives the properly completed and validly executed letter of transmittal or facsimile thereof with any required signature guarantees, together with certificates for all Series A Notes in proper form for transfer, or a book-entry confirmation, and any other required documents, within three New York Stock Exchange trading days after the date of the notice of guaranteed delivery. Other Matters. Series B Notes will be issued in exchange for Series A Notes accepted for exchange only after timely receipt by the exchange agent of: - certificates for (or a timely book-entry confirmation with respect to) your Series A Notes, - a properly completed and duly executed letter of transmittal or facsimile thereof with any required signature guarantees, or, in the case of a book-entry transfer, an agent's message, and - any other documents required by the letter of transmittal. We will determine, in our sole discretion, all questions as to the form of all documents, validity, eligibility, including time of receipt, and acceptance of all tenders of Series A Notes. Our determination will be final and binding on all parties. ALTERNATIVELY, CONDITIONAL OR CONTINGENT TENDERS OF SERIES A NOTES WILL NOT BE CONSIDERED VALID. We reserve the absolute right to reject any or all tenders of Series A Notes that are not in proper form or the acceptance of which, in our opinion, would be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular Series A Notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding. Any defect or irregularity in connection with tenders of Series A Notes must be cured within the time we determine, unless waived by us. We will not consider the tender of Series A Notes to have been validly made until all defects and irregularities have been waived by us or cured. Neither we, the exchange agent, or any other person will be under any duty to give notice of any defects or irregularities in tenders of Series A Notes, or will incur any liability to holders for failure to give any such notice. 101 WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, you may withdraw your tender of Series A Notes at any time prior to the expiration date. For a withdrawal to be effective: - the exchange agent must receive a written notice of withdrawal at one of the addresses set forth below under "-- Exchange Agent" on page 103, or - you must comply with the appropriate procedures of Depository Trust's automated tender offer program system. Any notice of withdrawal must: - specify the name of the person who tendered the Series A Notes to be withdrawn, and - identify the Series A Notes to be withdrawn, including the principal amount of the Series A Notes. If Series A Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at Depository Trust to be credited with the withdrawn Series A Notes and otherwise comply with the procedures of Depository Trust. We will determine all questions as to validity, form, eligibility and time of receipt of any withdrawal notices. Our determination will be final and binding on all parties. We will deem any Series A Notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. Any Series A Notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder or, in the case of Series A Notes tendered by book-entry transfer into the exchange agent's account at Depository Trust according to the procedures described above, such Series A Notes will be credited to an account maintained with Depository Trust for the Series A Notes. This return or crediting will take place as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn Series A Notes by following one of the procedures described under "-- Procedures for Tendering Series A Notes" beginning on page 99 at any time on or prior to the expiration date. CONDITIONS OF THE EXCHANGE OFFER We may terminate, waive any conditions to or amend the exchange offer or, subject to Rule 14e-1 under the Exchange Act which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders thereof promptly after the termination or withdrawal of the exchange offer, postpone the acceptance for exchange of Series A Notes so tendered if, on or prior to the expiration date of the exchange offer, we determine that the exchange offer would violate applicable law or any applicable interpretation of the staff of the SEC. We reserve the right to waive any defects, irregularities or conditions of surrender as to particular Series A Notes. TRANSFER TAXES We will pay all transfer taxes applicable to the transfer and exchange of Series A Notes pursuant to the exchange offer. If, however: - delivery of the Series B Notes and/or certificates for Series A Notes for principal amounts not exchanged, are to be made to any person other than the record holder of the Series A Notes tendered; - tendered certificates for Series A Notes are recorded in the name of any person other than the person signing any letter of transmittal; or - a transfer tax is imposed for any reason other than the transfer and exchange of Series A Notes to us or our order, 102 the amount of any such transfer taxes, whether imposed on the record holder or any other person, will be payable by the tendering holder prior to the issuance of the Series B Notes. CONSEQUENCES OF FAILING TO EXCHANGE If you do not exchange your Series A Notes for Series B Notes in the exchange offer, you will remain subject to the restrictions on transfer of the Series A Notes: - as set forth in the legend printed on the bonds as a consequence of the issuance of the Series A Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and - otherwise set forth in the memorandum distributed in connection with the private offering of the Series A Notes. In general, you may not offer or sell the Series A Notes unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the Series A Notes under the Securities Act. ACCOUNTING TREATMENT The Series B Notes will be recorded at the same carrying value as the Series A Notes, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes upon the consummation of the exchange offer. We will amortize the expenses of the exchange offer over the term of the Series B Notes. EXCHANGE AGENT The Bank of New York has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus, the letter of transmittal or any other documents to the exchange agent. You should send certificates for Series A Notes, letters of transmittal and any other required documents to the exchange agent addressed as follows: The Bank of New York By Overnight, By Mail: By Hand in New York: Registered or Certified Mail The Bank of New York The Bank of New York or Overnight Courier: 101 Barclay Street 101 Barclay Street The Bank of New York Floor 21 West Floor 21 West Reorganization Section New York, New York 10286 Corporate Trust Services 101 Barclay Street-7E Reorganization Section Window New York, New York 10286 Attn: Bernard Arsenec Ground Level Attn: Bernard Arsenec Attn: Bernard Arsenec By Facsimile: Reorganization Section (for eligible institutions only) (212) 298-1915 Confirm by telephone: (212) 815-5098
103 DESCRIPTION OF SENIOR CREDIT FACILITIES At the closing of the acquisition, we entered into senior credit facilities with various lenders, including Whitney Private Debt Fund, L.P., and UBS AG, Stamford Branch as administrative agent. Set forth below is a summary of the terms of the senior credit facilities. The senior credit facilities consist of (i) a senior term loan in the aggregate principal amount of $180.0 million and (ii) a senior revolving credit facility in the aggregate principal amount of $25.0 million. We borrowed $180.0 million under the senior credit facilities to provide a portion of the proceeds required to consummate the merger and will borrow amounts to provide for working capital and general corporate needs after the consummation of the merger. The term loan will mature on June 30, 2008. The revolving credit facility is available until July 31, 2007. The Series A Notes and the senior credit facilities are guaranteed by the guarantors. The senior credit facilities are also guaranteed by WH Holdings. The obligations under the senior credit facilities are secured by (i) first priority pledges of (A) all of the stock of the guarantors, and (B) 65% of the equity interests of the foreign subsidiaries of Herbalife that are not guarantors other than the following subsidiaries: - HIIP Investment Co., LLC; - Herbalife Foreign Sales Corporation; - Importadora Y Distribuidora Herbalife International de Chile Limitada; - Herbalife International Greece S.A.; - Herbalife Hungary Trading, Limited; - PT Herbalife Indonesia; - Herbalife International SBN.BHD; - HBL International Maroc SARL; - Herbalife International Products N.V.; - Herbalife International Holdings, Inc.; - Herbalife International, S.A.; - Herbalife Domincana, S.A.; and - Herbalife Del Ecuador, S.A.; and (ii) security interests in and liens on all accounts receivable, inventory and other property and assets of WH Holdings and the guarantors (other than the escrow account for interest on the senior notes described above). All amounts outstanding under our senior credit facilities bear interest, at our option, subject to certain limitations, as follows: (i) with respect to our senior secured revolving credit facility: at the base rate plus 2.75% per annum or at the reserve adjusted LIBOR Rate plus 3.75% per annum; and (ii) with respect to amounts outstanding under our senior secured term loan facility: at the base rate plus 3.00% per annum or at the reserve adjusted LIBOR Rate plus 4.00% per annum. The applicable margin for the revolving loans under the senior credit facilities is subject to adjustment based upon our consolidated total leverage ratio. The base rate is a fluctuating interest rate equal to the higher of (a) UBS' prime rate or (b) the Federal Funds Effective Rate plus 0.5%. We also pay customary administration fees and expenses and commitment fees of 0.50% per annum on the unused portion of the revolving credit facility. Prior to the maturity date, we expect that funds borrowed under the revolving credit facility may be borrowed, repaid and reborrowed. 104 We may prepay borrowings under the senior credit facilities in whole or in part, in minimum amounts and subject to certain other conditions set forth in the credit agreement. Subject to specified exceptions, we are required to make mandatory prepayments to the lenders from: - 100% of the net cash proceeds from certain asset sales; - 100% of the net cash proceeds from certain new debt issuances; - 50% of the net cash proceeds from certain equity issuances; - 100% of insurance recoveries in excess of amounts applied within an agreed period of time; and - 50% of our excess cash flow. In addition, the senior credit facilities contain various covenants, including, without limitation, financial covenants as well as restrictions on our ability to: - make investments; - engage in transactions with affiliates; - repurchase or prepay debt; - terminate or materially amend material contracts; - incur other indebtedness or issue certain types of equity; - create liens on our assets; - sell our assets; and - pay dividends on our capital stock. The senior credit facilities also include customary indemnities and events of default, including a change of control, as defined in the senior credit facilities. We have entered into an amendment and waiver to the senior credit facilities which provides that we will optionally prepay $40 million of the term loans on December 30, 2002 (following which payment, $135 million of term loans will remain outstanding). As a result of making such prepayments (and thereby eliminating the next two quarterly payments and reducing quarterly payments thereafter), the next scheduled amortization payment will be made on June 30, 2003, in the amount of approximately $2.2 million and all payments thereafter will be made in the amount of approximately $6.5 million on a quarterly basis, except for the final payment due on June 30, 2008 in the amount of $8.7 million. These prepayments will also satisfy our obligation to make an excess cash flow prepayment in April 2003 (with respect to the fiscal year 2002). Additionally, the credit agreement amendment will allow us to repurchase up to $25.0 million in principal amount of the Notes provided we meet an agreed upon leverage ratio. 105 DESCRIPTION OF NOTES On June 27, 2002, WH Acquisition, a Nevada corporation, issued the Series A Notes. The Series A Notes were issued pursuant to an indenture (the "Indenture") dated as of June 27, 2002 by and among WH Acquisition, as issuer, WH Intermediate Holdings, a Cayman Islands company, Luxembourg Holdings, a Luxembourg company, Luxembourg Intermediate Holdings, a Luxembourg company, Luxembourg CM, a Luxembourg company, as Guarantors, and The Bank of New York, as trustee (the "Trustee"). The Indenture will also govern the terms and conditions relating to the Series B Notes. Pursuant to the Agreement and Plan of Merger, dated as of April 10, 2002, by and among Holdings, WH Acquisition, and Herbalife International, Inc., WH Acquisition merged with and into Herbalife International, Inc., with Herbalife International, Inc. as the surviving corporation (the "Merger"). Upon consummation of the Merger, Herbalife International, Inc. assumed WH Acquisition's obligations under the Indenture and caused its subsidiaries to become Guarantors and to execute supplemental indentures to the extent required by the Indenture. See "The Acquisition." The following descriptions of certain provisions of the Indenture and the Registration Rights Agreement dated as of June 27, 2002 by and among WH Acquisition, Parent, Luxembourg Holdings, Luxembourg Intermediate Holdings, Luxembourg CM and the Initial Purchaser (the "Registration Rights Agreement") are summaries only, do not purport to be complete and are qualified in their entirety by reference to all of the provisions of the Indenture and the Registration Rights Agreement. Upon consummation of the Merger, Herbalife International, Inc. assumed WH Acquisition's obligations under the Registration Rights Agreement and caused its subsidiaries that are required to become Guarantors under the Indenture to become party to the Registration Rights Agreement. You can find the definitions of certain capitalized terms in this section under the subheading "-- Certain Definitions." For purposes of this section, references to "Company" or "we," "our," or "us" include only Herbalife International, Inc. and its successors in accordance with the terms of the Indenture and, except pursuant to the terms of the Guarantees, not our Subsidiaries or the Subsidiaries of Herbalife International, Inc. For purposes of this section, references to "Parent" means only WH Intermediate Holdings and its successors in accordance with the terms of the Indenture and, except pursuant to the terms of the Guarantees, not Parent's Subsidiaries. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). The Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the TIA for a statement thereof. A copy of the form of the Indenture is available from the Trustee upon request. The following description is a summary of the material provisions of the Indenture. It does not restate the Indenture in its entirety. We urge you to read the Indenture because the Indenture, and not this description, defines your rights as a holder of the Notes. BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES THE NOTES The Notes are: - our unsecured, senior subordinated obligations; - ranked junior in right of payment to all of our existing and future Senior Debt; - ranked senior in right of payment to all of our existing and future Subordinated Indebtedness; and - unconditionally guaranteed by the Guarantors on a senior subordinated basis. The Notes are issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. 106 The term "Subsidiaries" as used in this Description of Notes does not include Unrestricted Subsidiaries. As of the Issue Date, none of our subsidiaries or any subsidiaries of our Parent were Unrestricted Subsidiaries. On a pro forma basis, after giving effect to the Merger, the Parent does not have any Unrestricted Subsidiaries. However, under certain circumstances, the Parent will be able to designate current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to the restrictive covenants set forth in the Indenture. THE GUARANTEES The Notes are jointly and severally, irrevocably, fully and unconditionally, guaranteed (the "Guarantees") on a senior subordinated basis by Parent, Luxembourg Holdings, Luxembourg Intermediate Holdings, Luxembourg CM and each of Parent's present and future Subsidiaries and each of our present and future Subsidiaries (the "Guarantors") that guarantee any Indebtedness under the Credit Agreement. The obligations of each Guarantor under its Guarantee, however, are limited in a manner intended to avoid it being deemed a fraudulent conveyance under applicable law. The term "Subsidiaries" as used in this Description of Notes, however, does not include Unrestricted Subsidiaries. See "Certain Bankruptcy Limitations; Non-Guarantor Subsidiaries" below. PRINCIPAL, MATURITY AND INTEREST; ADDITIONAL NOTES On the Issue Date, we initially issued Notes with a maximum aggregate principal amount of $165.0 million. The Indenture provides, in addition to the Notes being issued on the Issue Date, for the issuance of additional Notes having identical terms and conditions to the Notes offered hereby (the "Additional Notes"), subject to compliance with the terms of the Indenture, including the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock." Any such Additional Notes would be issued on the same terms as the Notes offered hereby and would constitute part of the same series of securities as the Notes and would vote together as one series on all matters. All references to Notes herein includes the Additional Notes, except as stated otherwise. The Notes will mature on July 15, 2010. The Notes bear interest at 11 3/4% per annum from June 27, 2002 or from the most recent date to which interest has been paid or provided for (the "Interest Payment Date"), payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2003, to the Persons in whose names such Notes are registered at the close of business on the January 1 or July 1 immediately preceding such Interest Payment Date. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months. METHODS OF RECEIVING PAYMENTS ON THE NOTES Principal of, premium, if any, and interest (and Liquidated Damages, if any) on the Notes is payable, and the Notes may be presented for registration of transfer or exchange, at our office or agency maintained for such purpose, which office or agency shall be maintained in the Borough of Manhattan, The City of New York. Except as set forth below, at our option, payment of interest may be made by check mailed to the holders of the Notes (the "Holders") at the addresses set forth upon our registry books. (See "Form and Transfer of the Notes -- Book-Entry Procedures -- Same Day Settlement and Payment"). No service charge will be made for any registration of transfer or exchange of Notes, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Until otherwise designated by us, our office or agency will be the corporate trust office of the Trustee presently located at the office of the Trustee in the Borough of Manhattan, The City of New York. SUBORDINATION The Notes and the Guarantees are our and the Guarantors' general, unsecured obligations, respectively, contractually subordinated in right of payment to all of our Senior Debt and the Senior Debt of the Guarantors, as applicable. This effectively means that holders of Senior Debt must be paid in full before any amounts are paid to the Holders of the Notes in the event a bankruptcy or insolvency proceeding is 107 commenced by or against us and that holders of Senior Debt can block payments to the Holders of the Notes in the event of a default by us on such Senior Debt, all as more fully described below. As of September 30, 2002, we had outstanding an aggregate of approximately $178.6 million of Senior Debt (all of which Indebtedness is secured), no Indebtedness that ranks equal to the Notes and no Indebtedness subordinate to the Notes in right of payment. The rights of Holders are effectively subordinated to all existing and future indebtedness and preferred stock of our subsidiaries and, with respect to the Parent's Guarantee, the Parent's subsidiaries (other than the Company) that are not Guarantors. We may not and the Guarantors may not, make payment (by setoff or otherwise), as applicable, on account of any Obligation in respect of the Notes, including the principal of, premium, if any, or interest on the Notes or Liquidated Damages, or on account of the redemption provisions of the Notes (including any repurchases of Notes), for cash or property (other than Junior Securities): (1) upon the maturity of any of our Senior Debt or any Senior Debt of such Guarantor by lapse of time, acceleration (unless waived) or otherwise, unless and until all principal of, premium, if any, and the interest on such Senior Debt are first paid in full in cash or Cash Equivalents (or such payment is duly provided for), or (2) in the event of default in the payment of any principal of, premium, if any, or interest on our Senior Debt or Senior Debt of such Guarantor, as applicable, when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise (a "Payment Default"), unless and until such Payment Default has been cured or waived or otherwise has ceased to exist. Upon (1) the happening of an event of default other than a Payment Default that permits the holders of Senior Debt to declare such Senior Debt to be due and payable and (2) written notice of such event of default given to us by the representative under the Credit Agreement or, if no Indebtedness under the Credit Agreement is then outstanding, the holders of an aggregate of at least $25.0 million principal amount outstanding of any other Senior Debt or their representative (a "Payment Notice"), then, unless and until such event of default has been cured or waived or otherwise has ceased to exist, no payment (by setoff or otherwise) may be made by us or on our behalf or by or on the behalf of any Guarantor which is an obligor under such Senior Debt on account of any Obligation in respect of the Notes, including the principal of, premium, if any, or interest on the Notes, (including any repurchases of any of the Notes), or on account of the redemption provisions of the Notes (or Liquidated Damages), in any such case, other than payments made with Junior Securities. Notwithstanding the foregoing, unless the Senior Debt in respect of which such event of default exists has been declared due and payable in its entirety within 179 days after the Payment Notice is delivered as set forth above (the "Payment Blockage Period") (and such declaration has not been rescinded or waived), at the end of the Payment Blockage Period, we shall and the Guarantors shall be required to pay all sums not previously paid to the Holders of the Notes during the Payment Blockage Period due to the foregoing prohibitions and to resume all other payments as and when due on the Notes. Any number of Payment Notices may be given; provided, however, that: (1) not more than one Payment Notice shall be given within a period of any 360 consecutive days, and (2) no non-payment default that existed upon the date of such Payment Notice or the commencement of such Payment Blockage Period shall be made the basis for the commencement of any other Payment Blockage Period (for purposes of this provision, any subsequent action, or any subsequent breach of any financial covenant for a period commencing after the expiration of such Payment Blockage Period that, in either case, would give rise to a new event of default, even though it is an event that would also have been a separate breach pursuant to any provision under which a prior event of default previously existed, shall constitute a new event of default for this purpose). Upon any distribution of our assets or any Guarantor's assets upon any dissolution, winding up, total or partial liquidation or reorganization of us or a Guarantor, whether voluntary or involuntary, in bankruptcy, 108 insolvency, receivership or a similar proceeding or upon assignment for the benefit of creditors or any marshaling of assets or liabilities: (1) the holders of all of our or such Guarantor's Senior Debt, as applicable, will first be entitled to receive payment in full in cash or Cash Equivalents (or have such payment duly provided for) before the Holders are entitled to receive any payment on account of any Obligation in respect of the Notes, including the principal of, premium, if any, and interest on the Notes (or Liquidated Damages) (other than Junior Securities); and (2) any payment or distribution of our or such Guarantor's assets of any kind or character from any source, whether in cash, property or securities (other than Junior Securities) to which the Holders or the Trustee on behalf of the Holders would be entitled (by setoff or otherwise), except for the subordination provisions contained in the Indenture, will be paid by the liquidating trustee or agent or other Person making such a payment or distribution directly to the holders of such Senior Debt or their representative to the extent necessary to make payment in full (or have such payment duly provided for) on all such Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Debt. In the event that, notwithstanding the foregoing, any payment or distribution of our or any Guarantor's assets (other than Junior Securities) shall be received by the Trustee or the Holders at a time when such payment or distribution is prohibited by the foregoing provisions, such payment or distribution shall be held in trust for the benefit of the holders of such Senior Debt, and shall be paid or delivered by the Trustee or such Holders, as the case may be, to the holders of such Senior Debt remaining unpaid or unprovided for or to their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Debt may have been issued, ratably according to the aggregate principal amounts remaining unpaid on account of such Senior Debt held or represented by each, for application to the payment of all such Senior Debt remaining unpaid, to the extent necessary to pay or to provide for the payment of all such Senior Debt in full in cash or Cash Equivalents after giving effect to any concurrent payment or distribution to the holders of such Senior Debt. No provision contained in the Indenture or the Notes affects our obligation or the obligation of the Guarantors, which is absolute and unconditional, to pay, when due, principal of, premium, if any, and interest or if applicable, Liquidated Damages on the Notes. The subordination provisions of the Indenture and the Notes do not prevent the occurrence of any Default or Event of Default under the Indenture or limit the rights of the Trustee or any Holder to pursue any other rights or remedies with respect to the Notes. As a result of these subordination provisions, in the event of the liquidation, bankruptcy, reorganization, insolvency, receivership or similar proceeding or an assignment for the benefit of our creditors or a marshaling of our assets and liabilities, Holders of the Notes may receive ratably less than other creditors. Certain Bankruptcy Limitations; Non-Guarantor Subsidiaries. We are a holding company, conducting substantially all of our business through Subsidiaries. Our Obligations with respect to the Notes are guaranteed by all of the Parent's Subsidiaries and our Subsidiaries, other than the Non-Guarantor Subsidiaries, and are not guaranteed by any Unrestricted Subsidiaries, which subsidiaries are not guarantors of the Notes. See "Risk Factors." Holders of the Notes are direct creditors of each Guarantor by virtue of its Guarantee. Nonetheless, in the event of the bankruptcy or financial difficulty of a Guarantor, such Guarantor's obligations under its Guarantee may be subject to review and avoidance under state, federal fraudulent transfer laws or other applicable foreign laws. Among other things, such obligations may be avoided if a court concludes that such obligations were incurred for less than reasonably equivalent value or fair consideration at a time when the Guarantor was insolvent, was rendered insolvent, or was left with inadequate capital to conduct its business. A court would likely conclude that a Guarantor did not receive reasonably equivalent value or fair consideration to the extent that the aggregate amount of its liability on its Guarantee exceeds the economic benefits it receives in the offering of the Notes. The obligations of each Guarantor under its Guarantee is limited in a manner intended to cause it not to be a fraudulent conveyance under applicable law, although no assurance 109 can be given that a court would give the Holder the benefit of such provision. See "Risk Factors -- The ability of some of our foreign subsidiaries to guarantee the Notes may be restricted by local law and consequently, limit your potential recovery" and "Risk Factors -- Issuance of the Notes and the guarantees by the domestic subsidiaries may be subject to fraudulent conveyance laws." If the obligations of a Guarantor under its Guarantee were avoided, Holders of Notes would have to look to any remaining Guarantors for payment. There can be no assurance in that event that such assets would suffice to pay the outstanding principal and interest on the Notes. We conduct certain of our operations through Non-Guarantor Subsidiaries. Accordingly, our ability to meet our cash obligations may in part depend upon the ability of such Non-Guarantor Subsidiaries and any future Non-Guarantor Subsidiaries to make cash distributions to us and the Guarantors. Furthermore, any right we have or the Guarantors have to receive the assets of any such Non-Guarantor Subsidiary upon such Non-Guarantor Subsidiary's liquidation or reorganization (and the consequent right of the Holders of the Notes to participate in the distribution of the proceeds of those assets) effectively will be subordinated to the claims of such Non-Guarantor Subsidiary's creditors (including trade creditors) and holders of its preferred stock, except to the extent that we or the Guarantors are recognized as creditors or preferred stockholders of such Non-Guarantor Subsidiary, in which case our claims or the claims of the Guarantors would still be subordinate to any indebtedness or preferred stock of such Non-Guarantor Subsidiaries. NO SINKING FUND OR MANDATORY REDEMPTIONS As the merger occurred on July 31, 2002, the Notes will not have the benefit of any sinking fund and we will not be required to make any mandatory redemption payments with respect to the Notes. OPTIONAL REDEMPTION We do not have the right to redeem any Notes prior to July 15, 2006 (other than out of the Net Cash Proceeds of any Qualified Equity Offering, as described in the next following paragraph). At any time on or after July 15, 2006 we may redeem the Notes for cash at our option, in whole or in part, upon not less than 30 days nor more than 60 days notice to each Holder of Notes, at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the 12-month period commencing July 15 of the years indicated below, in each case together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of redemption of the Notes ("Redemption Date"):
YEAR PERCENTAGE - ---- ---------- 2006........................................................ 105.875% 2007........................................................ 102.938% 2008 and thereafter......................................... 100.000%
At any time or from time to time on or prior to July 15, 2005, upon one or more Qualified Equity Offerings, up to 35% of the aggregate principal amount of the Notes issued pursuant to the Indenture may be redeemed at our option within 90 days of such Qualified Equity Offering, on not less than 30 days, but not more than 60 days, notice to each Holder of the Notes to be redeemed, with cash received by us from the Net Cash Proceeds of such Qualified Equity Offering, at a redemption price equal to 111.75% of principal, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date; provided, however, that immediately following such redemption not less than 65% of the aggregate principal amount of the Notes originally issued pursuant to the Indenture on the Issue Date remain outstanding. If the Redemption Date hereunder is on or after an interest record date ("Record Date") on which the Holders of record have a right to receive the corresponding Interest due and Liquidated Damages, if any, and on or before the associated Interest Payment Date, any accrued and unpaid interest and Liquidated Damages, if any, due on such Interest Payment Date will be paid to the Person in whose name a Note is registered at the close of business on such Record Date. 110 SELECTION AND NOTICE In the case of a partial redemption, the Trustee shall select the Notes or portions thereof for redemption on a pro rata basis, by lot or in such other manner it deems appropriate and fair. The Notes may be redeemed in part in multiples of $1,000 only. Notice of any redemption will be sent, by first class mail, at least 30 days and not more than 60 days prior to the date fixed for redemption to the Holder of each Note to be redeemed to such Holder's last address as then shown upon the registry books of our registrar. Any notice which relates to a Note to be redeemed in part only must state the portion of the principal amount equal to the unredeemed portion thereof and must state that on and after the date of redemption, upon surrender of such Note, a new Note or Notes in a principal amount equal to the unredeemed portion thereof will be issued. On and after the date of redemption, interest will cease to accrue on the Notes or portions thereof called for redemption, unless we default in the payment thereof. REPURCHASE AT THE OPTION OF HOLDERS REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL The Indenture provides that in the event that a Change of Control has occurred, each Holder of Notes will have the right, at such Holder's option, pursuant to an offer (subject only to conditions required by applicable law, if any) by us (the "Change of Control Offer"), to require us to repurchase all or any part of such Holder's Notes (provided, that the principal amount of such Notes must be $1,000 or an integral multiple thereof) on a date (the "Change of Control Purchase Date") that is no later than 45 Business Days after the occurrence of such Change of Control, at a cash price equal to 101% of the principal amount thereof (the "Change of Control Purchase Price"), together with accrued and unpaid interest and Liquidated Damages, if any, to the Change of Control Purchase Date. The Change of Control Offer shall be made within 20 Business Days following a Change of Control and shall remain open for 20 Business Days following its commencement or such other period as may be required by applicable law (the "Change of Control Offer Period"). Upon expiration of the Change of Control Offer Period, we shall promptly purchase all Notes properly tendered in response to the Change of Control Offer. As used herein, a "Change of Control" means: (1) prior to consummation of an Initial Public Offering, the Principals and their Related Parties shall cease to beneficially own at least 51% of the voting power of the Voting Equity Interests of the Parent; (2) the Parent shall cease to beneficially own at least 80% of the voting power of the Voting Equity Interests of the Company; (3) following the consummation of an Initial Public Offering, (A) any merger or consolidation of the Parent or the Company with or into any Person or any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the assets of the Parent or the Company, respectively, on a consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction(s), any "person" (including any group that is deemed to be a "person") (other than the Principals and their Related Parties, or, in the case of the Company, the Parent or any Wholly-Owned Subsidiary of the Parent) is or becomes the "beneficial owner," directly or indirectly, of more than 35% of voting power of the aggregate Voting Equity Interests of the transferee(s) or surviving entity or entities, (B) any "person" (including any group that is deemed to be a "person") (other than the Principals and their Related Parties, or, in the case of the Company, the Parent or any Wholly-Owned Subsidiary of the Parent) is or becomes the "beneficial owner," directly or indirectly, of more than 35% of the voting power of the aggregate Voting Equity Interests of the Company or the Parent, or (C) the Continuing Directors cease for any reason to constitute a majority of the Parent's Board of Directors then in office. As used in this covenant, "person" (including any group that is deemed to be a "person") has the meaning given by Sections 13(d) of the Exchange Act, whether or not applicable. 111 Notwithstanding the foregoing, we are not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by us, including any requirements to repay in full all Indebtedness under the Credit Agreement, any Senior Debt or Senior Debt of any Guarantor or obtains the consents of such lenders to such Change of Control Offer as set forth in the following paragraph of this Section, and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Indenture provides that, prior to the commencement of a Change of Control Offer, but in any event within 30 days following any Change of Control, we will: (1)(a) repay in full and terminate all commitments under Indebtedness under the Credit Agreement and all other Senior Debt the terms of which require repayment upon a Change of Control or (b) offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all such other Senior Debt and repay the Indebtedness owed to each lender which has accepted such offer in full, or (2) obtain the requisite consents under the Credit Agreement and all such other Senior Debt to permit the repurchase of the Notes as provided herein. Our failure to comply with the preceding sentence shall constitute an Event of Default described in clause (3) under "Events of Default" below. On or before the Change of Control Purchase Date, we will: (1) accept for payment Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the paying agent for us (the "Paying Agent") cash sufficient to pay the Change of Control Purchase Price (together with accrued and unpaid interest and Liquidated Damages, if any) of all Notes so tendered, and (3) deliver to the Trustee the Notes so accepted together with an Officers' Certificate listing the Notes or portions thereof being purchased by us. The Paying Agent promptly will pay the Holders of Notes so accepted an amount equal to the Change of Control Purchase Price (together with accrued and unpaid interest and Liquidated Damages, if any) and the Trustee promptly will authenticate and deliver to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered. Any Notes not so accepted will be delivered promptly by us to the Holder thereof. We publicly will announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. The Change of Control purchase feature of the Notes may make more difficult or discourage a takeover of us, and, thus, the removal of incumbent management. The phrase "all or substantially all" of a Person's assets will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer of "all or substantially all" of our assets has occurred. In addition, no assurances can be given that we will be able to acquire Notes tendered upon the occurrence of a Change of Control. Any Change of Control Offer will be made in compliance with all applicable laws, rules and regulations, including, if applicable, Regulation 14E under the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, our compliance or compliance by any of the Guarantors with such laws and regulations shall not in and of itself cause a breach of their obligations under such covenant. 112 If the Change of Control Purchase Date hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any) due on such Interest Payment Date will be paid to the Person in whose name a Note is registered at the close of business on such Record Date. REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER FROM EXCESS CASH FLOW The Indenture provides that if the Parent has Excess Cash Flow for any fiscal year, then no later than the 140th day following the end of each fiscal year, the Parent shall apply an amount equal to 50% of the Excess Cash Flow for such fiscal year: (1) first, to the extent the Parent elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase (and permanently reduce the commitments thereunder) Senior Debt of the Company or the Guarantors with such percentage of Excess Cash Flow; and (2) second, to the extent of the balance of such percentage of Excess Cash Flow after application in accordance with clause (1) (the amount of such unapplied percentage, the "Excess Cash Flow Amount"), to make an offer (the "Excess Cash Flow Offer") to the holders of the Notes and such other Indebtedness ranking on a parity with the Notes and with similar provisions requiring us to purchase such Indebtedness from our Excess Cash Flow to purchase, on a pro rata basis in proportion to the respective principal amounts (or accreted values, in the case of Indebtedness issued with original issue discount) of the Notes and such other Indebtedness then outstanding, Notes at a purchase price in cash equal to 100% of the principal amount (or accreted value in the case of Indebtedness issued with original issue discount) of the Notes or such other Indebtedness to be purchased (the "Excess Cash Flow Purchase Price"), together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the date fixed for the purchase of the Notes pursuant to such Excess Cash Flow Offer, in accordance with the terms of the Indenture; provided, however, that in connection with any prepayment, repayment or purchase of Debt pursuant to clause (1) above, the Company or such Guarantor shall permanently retire such Debt and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased; and provided, further, that no Excess Cash Flow Offer shall be required to be made if the Parent's Leverage Ratio is less than 2.50 to 1.0 on the last day of such fiscal year. The Excess Cash Flow Offer will be required to remain open for 20 Business Days following its commencement. Upon the expiration of that period, the Parent promptly (and in any case, within 3 Business Days following such expiration) will apply the Excess Cash Flow Offer Amount plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the purchase of all Indebtedness validly tendered pursuant to an Excess Cash Flow Offer for the Excess Cash Purchase Price. If the aggregate principal amount of Indebtedness tendered pursuant to an Excess Cash Flow Offer exceeds the Excess Cash Flow Offer Amount with respect thereto, the Parent will purchase such Indebtedness, or portions thereof tendered, pro rata or by such other method as may be required by law. If the aggregate amount of Notes and such other pari passu Indebtedness tendered pursuant to any Excess Cash Flow Offer is less than the Excess Cash Flow Offer Amount, the Company and the Guarantors may use any remaining Excess Cash Flow Amount for any purposes not prohibited by the Indentures. The Parent will not be required to make an Excess Cash Flow Offer to purchase Notes pursuant to this covenant if the available cumulative Excess Cash Flow after the application of Excess Cash Flow in accordance with clause (1) of the previous paragraph is less than $5.0 million; provided, that any such lesser amount of Excess Cash Flow (if positive) will be added to the Excess Cash Flow for each subsequent fiscal year until an Excess Cash Flow Offer is made. Any Excess Cash Flow Offer will be made in compliance with all applicable laws, rules and regulations, including, if applicable, Regulation 14E under the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, our compliance with such laws and regulations shall not in and of itself cause a breach of our obligations under such covenant. SALE OF ASSETS AND SUBSIDIARY STOCK The Indenture provides that we will not and the Parent will not, and neither we nor Parent will permit any of our Subsidiaries nor will Parent permit any of its Subsidiaries to, in one or a series of related transactions, 113 convey, sell, transfer, assign or otherwise dispose of, directly or indirectly, any of their property, business or assets, including by merger or consolidation (in the case of a Subsidiary of the Company or the Parent), and including any sale or other transfer or issuance of any Equity Interests of any Subsidiary of the Company or, of the Parent, whether by the Company, the Guarantor or the Parent or through the issuance, sale or transfer of Equity Interests by a Subsidiary of the Company or Parent and including any sale and leaseback transaction (any of the foregoing, an "Asset Sale"), unless: (1) with respect to any Asset Sale or related series of Asset Sales involving securities, property or assets with an aggregate fair market value in excess of $1.0 million, at least 75% of the total consideration for such Asset Sale or series of related Asset Sales consists of cash or Cash Equivalents; (2) the Parent determines in good faith that the Company, the Parent or such Subsidiary, as applicable, receives, as applicable, fair market value for such Asset Sale; and (3) if the value of the assets being disposed of in such Asset Sale or series of Asset Sales with an aggregate fair market value (as determined in good faith by the Board of Directors) is at least $10.0 million, the Board of Directors shall have received a written opinion of a nationally recognized investment banking firm (or, if pertaining to a matter for which such investment banking firms do not customarily render such opinions, an appraisal or valuation firm of national reputation in the United States) to the effect that such Asset Sale or series of Asset Sales is fair, from a financial point of view, to the Parent or Such Subsidiary and the Company shall have deliver a copy of such opinion to the Trustee promptly following the consummation of such Asset Sale or series of Asset Sales. For purposes of (1) above, total consideration received means the total consideration received for such Asset Sales minus the amount of (a) Senior Debt assumed by a transferee in an Asset Sale; provided, that the Company and all of the Guarantors and all of the Subsidiaries of the Company and the Parent are fully released from obligations in connection therewith, and (b) property that within 30 days of such Asset Sale is converted into cash or Cash Equivalents; provided, that such cash and Cash Equivalents shall be treated as Net Cash Proceeds attributable to the original Asset Sale for which such property was received. The Indenture provides that within 360 days following such Asset Sale, the Net Cash Proceeds therefrom (the "Asset Sale Amount") are: (a) invested in Related Business Assets and property (except in connection with the acquisition of a Person that becomes a Subsidiary of the Company or the Parent and which immediately becomes a Guarantor in a Related Business) other than notes, bonds, obligation and securities, or make Permitted Investments pursuant to and in accordance with clauses (f) and (g) of the definition thereof which in the good faith reasonable judgment of our Board of Directors will immediately constitute or be a part of a Related Business of the Parent, the Company or such Subsidiary (if it continues to be a Subsidiary) immediately following such transaction, or (b) used to retire Senior Debt and, to permanently reduce (in the case of Senior Debt that is not such Purchase Money Indebtedness) the amount of such Indebtedness outstanding on the date the Merger is consummated or permitted pursuant to paragraph (b) or (c), as applicable, of the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock" (including, in the case of a revolver or similar arrangement that makes credit available, permanently reducing the commitment by such amount), or (c) applied to the optional redemption of the Notes in accordance with the terms of the Indenture and our other Indebtedness ranking on a parity with the Notes and with similar provisions requiring us to redeem such Indebtedness with the proceeds from such Asset Sale, pro rata in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with an original issue discount) of the Notes and such other Indebtedness then outstanding, except that, in the case of each of the provisions of clauses (a) and (b), only proceeds from an Asset Sale of assets or capital stock of a Non-Guarantor Foreign Subsidiary may be invested in or used to retire Indebtedness of a Non-Guarantor Subsidiary. Pending the final application of any Net Cash Proceeds, the 114 Company may temporarily reduce revolving credit borrowings or otherwise invest the Net Cash Proceeds in any manner that is not prohibited by the Indenture. The accumulated Net Cash Proceeds from Asset Sales not applied as set forth in (a), (b) or (c) of the preceding paragraph shall constitute Excess Proceeds. Within 30 days after the date that the amount of Excess Proceeds exceeds $15.0 million, the Company shall apply the Excess Proceeds (the "Asset Sale Offer Amount") to the repurchase of the Notes and such other Indebtedness ranking on a parity with the Notes and with similar provisions requiring us to make an offer to purchase such Indebtedness with the proceeds from such Asset Sale pursuant to a cash offer (subject only to conditions required by applicable law, if any) (pro rata in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with an original issue discount) of the Notes and such other Indebtedness then outstanding) (the "Asset Sale Offer") at a purchase price of 100% of the principal amount (or accreted value in the case of Indebtedness issued with an original issue discount) (the "Asset Sale Offer Price") together with accrued and unpaid interest and Liquidated Damages, if any, to the date of payment. Each Asset Sale Offer shall remain open for 20 Business Days following its commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, we shall apply the Asset Sale Offer Amount plus an amount equal to accrued and unpaid interest and Liquidated Damages, if any, to the purchase of all Indebtedness properly tendered in accordance with the provisions hereof (on a pro rata basis if the Asset Sale Offer Amount is insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued interest and Liquidated Damages, if any). To the extent that the aggregate amount of Notes and such other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, we may use any remaining Net Cash Proceeds in any manner not otherwise prohibited by the Indenture and following the consummation of each Asset Sale Offer the Excess Proceeds amount shall be reset to zero. Notwithstanding, and without complying with, the provisions of this covenant: (1) the Company, the Parent and the Subsidiaries of the Company and the Parent may, in the ordinary course of business, (a) convey, sell, transfer, assign or otherwise dispose of inventory and other assets acquired and held for resale in the ordinary course of business and (b) liquidate Cash Equivalents; (2) the Company, the Parent and the Subsidiaries of the Company and the Parent may convey, sell, transfer, assign or otherwise dispose of all or substantially all of its assets pursuant to and in accordance with the covenant "Limitation on Merger, Sale or Consolidation;" (3) the Company, the Parent and the Subsidiaries of the Company and the Parent may convey, sell, transfer, assign or otherwise dispose of assets to the Company or any Guarantor; (4) the Company, the Parent and the Subsidiaries of the Company and the Parent may settle, release or surrender tort or other litigation claims in the ordinary course of business or grant Liens (and permit foreclosure thereon) not prohibited by the Indenture; (5) Non-Guarantor Subsidiaries may convey, sell, transfer, assign or otherwise dispose of assets to us, any of the Guarantors, or any other Non-Guarantor Subsidiary; (6) the Company, the Parent and the Subsidiaries of the Company and the Parent may make Permitted Investments pursuant to and in accordance with clauses (f), (g), and (h) and Restricted Investments under "Limitation on Restricted Payments;" (7) the Company, the Parent and the Subsidiaries of the Company and the Parent may incur Liens (and the disposition of assets related to such Liens by the secured party pursuant to a foreclosure) that are not prohibited by the Indenture; and (8) Subsidiaries of the Company and the Parent may issue Equity Interests of such Subsidiary upon conversion of, or in exchange for, other outstanding securities of such Subsidiary the issuance of which was not prohibited by the Indenture. 115 All Net Cash Proceeds from an Event of Loss (other than the proceeds of any business interruption insurance) shall be reinvested or used as otherwise provided above in clauses 1(a) or 1(b) of the first paragraph of this covenant. Any Asset Sale Offer shall be made in compliance with all applicable laws, rules, and regulations, including, if applicable, Regulation 14E of the Exchange Act and the rules and regulations thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this paragraph, our compliance or the compliance of any of our subsidiaries with such laws and regulations shall not in and of itself cause a breach of our obligations under such covenant. If the payment date in connection with an Asset Sale Offer hereunder is on or after an interest payment Record Date and on or before the associated Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any) due on such Interest Payment Date will be paid to the Person in whose name a Note is registered at the close of business on such Record Date. CERTAIN COVENANTS The Indenture contains certain covenants that, among other things, restrict our ability and the ability of the Guarantors and their Subsidiaries to borrow money, grant liens, pay dividends on or repurchase capital stock, make investments and sell assets or enter into mergers or consolidations. The following summary of certain covenants of the Indenture are summaries only, do not purport to be complete and are qualified in their entirety by reference to all of the provisions of the Indenture. We urge you to read the Indenture because the Indenture, and not this description, details your rights as a holder of the Notes. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK The Indenture provides that, except as set forth in this covenant, we will not and the Parent will not, and neither we nor the Parent will permit any Subsidiary of the Company or the Parent to, directly or indirectly, issue, assume, guaranty, incur, become directly or indirectly liable with respect to (including as a result of an Acquisition), or otherwise become responsible for, contingently or otherwise (individually and collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness (including Disqualified Capital Stock and Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding the foregoing if: (1) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect on a pro forma basis to, such incurrence of Indebtedness, and (2) on the date of such incurrence (the "Incurrence Date"), (x) the Parent's Consolidated Coverage Ratio for the Reference Period immediately preceding the Incurrence Date, after giving effect on a pro forma basis to such incurrence of such Indebtedness and, to the extent set forth in the definition of Consolidated Coverage Ratio the use of proceeds thereof, would be at least 2.25 to 1.0, if the Indebtedness is incurred on or prior to July 1, 2004, or would be at least 2.50 to 1.0 if the Indebtedness is incurred thereafter (in each case, the "Debt Incurrence Ratio") and (y) the Parent's Leverage Ratio does not exceed the Applicable Leverage Ratio, then we and the Guarantors may incur such Indebtedness (including Disqualified Capital Stock). In addition, the foregoing limitations of the first paragraph of this covenant will not prohibit: (a) our incurrence or the incurrence by any Guarantor of Purchase Money Indebtedness; provided, that (1) the aggregate amount of such Indebtedness incurred and outstanding at any time pursuant to this paragraph (a) (plus any Refinancing Indebtedness issued to retire, defease, refinance, replace or refund such Indebtedness) shall not exceed $15.0 million (or the equivalent thereof, at the time of incurrence, in the applicable foreign currency), and 116 (2) in each case, such Indebtedness shall not constitute more than 100% of our cost or the cost to such Guarantor (determined in accordance with GAAP in good faith by our Board of Directors), as applicable, of the property so purchased, constructed, improved or leased; (b) if no Event of Default shall have occurred and be continuing, our incurrence or the incurrence by any Subsidiary of the Parent or the Company of Indebtedness in an aggregate amount incurred and outstanding at any time pursuant to this paragraph (b) (plus any Refinancing Indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to $25.0 million (or the equivalent thereof, at the time of incurrence, in the applicable foreign currencies), minus the amount of any Indebtedness (other than Permitted Indebtedness) of any Non-Guarantor Subsidiaries then outstanding, and (c) our incurrence or the incurrence by any Guarantor of Indebtedness pursuant to the Credit Agreement in an aggregate amount incurred and outstanding at any time pursuant to this paragraph I, without regard to the notional amount of any Interest Swap or Hedging Obligations relating thereto that constitute Permitted Indebtedness pursuant to clause (f) of the definition thereof, (plus any Refinancing Indebtedness incurred to retire, defease, refinance, replace or refund such Indebtedness) of up to $205.0 million (or the equivalent thereof at the time of incurrence in the applicable foreign currency), minus the amount of any such Indebtedness (1) retired with the Net Cash Proceeds from any Asset Sale applied to permanently reduce the outstanding amounts or the commitments with respect to such Indebtedness pursuant to clause (b) of the second paragraph of the covenant "Sale of Assets and Subsidiary Stock," (2) assumed by a transferee in an Asset Sale and (3) the aggregate amount of all mandatory principal payments and prepayments in respect of term loans thereunder (excluding any such payments to the extent refinanced at the time of payment under a replacement or refinancing thereof) actually made; provided, that, this clause (3) shall not reduce the aggregate amount of Indebtedness available to be incurred and outstanding by the Company and the Guarantors pursuant to this clause (c) below $35.0 million. Indebtedness (including Disqualified Capital Stock) of any Person which is outstanding at the time such Person becomes a Subsidiary of the Company or the Parent (including upon designation of any subsidiary or other Person as a Subsidiary of the Company or the Parent) or is merged with or into or consolidated with the Company or the Parent or a Subsidiary of the Company or the Parent shall be deemed to have been incurred at the time such Person becomes or is designated a Subsidiary of the Company or the Parent or is merged with or into or consolidated with the Company or the Parent or a Subsidiary of the Company or the Parent. Notwithstanding any other provision of this covenant, but only to avoid duplication, a guarantee of our Indebtedness or of the Indebtedness of another Guarantor incurred in accordance with the terms of the Indenture (other than Indebtedness incurred pursuant to clause (a) hereof) issued at the time such Indebtedness was incurred or if later at the time the guarantor thereof became a Subsidiary of the Company or the Parent will not constitute a separate incurrence, or amount outstanding, of Indebtedness. Upon each incurrence we may designate pursuant to which provision of this covenant such Indebtedness is being incurred and we may subdivide an amount of Indebtedness and designate more than one provision pursuant to which such amount of Indebtedness is being incurred and such Indebtedness shall not be deemed to have been incurred or outstanding under any other provision of this covenant, except as stated otherwise in the foregoing provisions. 117 LIMITATION ON RESTRICTED PAYMENTS The Indenture provides that we will not and the Parent will not, and the Parent will not permit any Subsidiary of the Company or the Parent to, directly or indirectly, make any Restricted Payment if, after giving effect to such Restricted Payment on a pro forma basis: (1) a Default or an Event of Default shall have occurred and be continuing, (2) the Parent is not permitted to incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio in the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock," or (3) the aggregate amount of all Restricted Payments made by Herbalife International, Inc. and its Subsidiaries, the Company, the Parent and the Subsidiaries of the Company and the Parent, as applicable, including after giving effect to such proposed Restricted Payment, on and after the Issue Date, would exceed, without duplication, the sum of: (a) 50% of the Parent's aggregate Consolidated Net Income for the period (taken as one accounting period), commencing on the first day of the first full fiscal quarter commencing after the Issue Date, to and including the last day of the fiscal quarter ended immediately prior to the date of each such calculation for which the Parent's consolidated financial statements are required to be delivered to the Trustee or, if sooner, filed with the SEC (the "Commission") (or, in the event Consolidated Net Income for such period is a deficit, then minus 100% of such deficit); provided, that, solely for purposes of determining the Parent's aggregate Consolidated Net Income for purposes of this clause (a) after the consummation of the Merger, the aggregate Parent's Consolidated Net Income shall be determined from the first day of the first full fiscal quarter commencing after the Issue Date after giving pro forma effect to the Merger and the Related Financing Transactions as if the Merger and the Related Financing Transactions had occurred on the first day of such full fiscal quarter, plus (b) the aggregate Net Cash Proceeds received by us from a Capital Contribution or from the sale of our Qualified Capital Stock (other than (i) to the Parent or to a Subsidiary of the Company or the Parent, (ii) to the extent applied in connection with a Qualified Exchange or a Permitted Investment pursuant to clause (e) of the definition thereof, and (iii) Net Cash proceeds received by us from a Capital Contribution or from the sale of our Qualified Capital Stock or from a Capital Contribution in connection with the Merger and Related Financing Transactions, or, (iv) to avoid duplication, otherwise given credit for in any provision of the following paragraph), after the Issue Date, plus (c) except in each case, in order to avoid duplication, to the extent any such payment or proceeds have been included in the calculation of Consolidated Net Income, an amount equal to the net reduction in Investments (other than returns of or from Permitted Investments) in any Person resulting from cash distributions on or cash repayments of any Investments, including payments of interest on Indebtedness, dividends, repayments of loans or advances, or other distributions or other transfers of assets, in each case to the Company or any Guarantor or from the Net Cash Proceeds from the sale of any such Investment or from redesignations of Unrestricted Subsidiaries as Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in each case, the amount of Investments previously made by the Company or any Guarantor in such Person, including, if applicable, such Unrestricted Subsidiary, less the cost of disposition, plus (d) $7.5 million. The foregoing clause (3) of the immediately preceding paragraph, however, will not prohibit; (A) payments of up to an aggregate of $2.5 million in Monitoring Fees to the Principals and their Related Parties in any twelve month period pursuant to the Monitoring Services Agreements plus reasonable out-of-pocket expenses. 118 The foregoing clauses (2) and (3) of the immediately preceding paragraph, however, will not prohibit: (B) payments of cash dividends to Holdings for repurchases of Capital Stock from our employees, distributors or directors (or their heirs or estates) or employees or directors (or their heirs or estates) of, Parent or any Subsidiary of the Company or the Parent upon the death, disability or termination of employment (or termination of distribution, in the case of a distributor) in an aggregate amount to all employees or directors (or their heirs or estates) not to exceed $5.0 million in the aggregate on and after the Issue Date, provided such repurchases are made with the proceeds of such dividends within three Business Days of the payment of such dividends, or (C) provided that (x) prior to declaration and disbursement of a Tax Amounts Payment, Parent delivers to the Trustee an Officer's Certificate (i) certifying that the Tax Amounts CPA has made the determinations required to be made by the Tax Amounts CPA pursuant to the Indenture and (y) setting forth in reasonable detail the basis for the determination of the Tax Amounts Payment, then, with respect to each Tax Determination Year, the disbursement of a Tax Amounts Payment following the close of such Tax Determination Year. The foregoing clauses (1), (2) and (3) of the immediately preceding paragraph will not prohibit: (D) any dividend, distribution or other payments by any Subsidiary of the Company or the Parent on its Equity Interests that is paid pro rata to all holders of such Equity Interests, (E) a Qualified Exchange, (F) the payment of any dividend on Qualified Capital Stock within 60 days after the date of its declaration if such dividend could have been made on the date of such declaration in compliance with the foregoing provisions, and (G) Investments made as a result of a Subsidiary of the Parent or the Company becoming a Non-Guarantor Subsidiary as a result of the release of the Guarantee of such Subsidiary in accordance with the provisions described below under the caption "Release of Guarantors," and (H) Restricted Investments by the Company or any Guarantor, without duplication, in Herbalife Korea Co. Ltd. for the purposes of cash collateralizing or otherwise securing Herbalife Korea Co. Ltd.'s obligations in respect of the Korean Consumer Refund Guarantee; provided that (i) the proceeds of any such Restricted Investment are immediately deposited into a bank account and used solely for the purposes of cash collateralizing or otherwise securing Herbalife Korea Co. Ltd.'s obligations in respect of the Korean Consumer Refund Guarantee and (ii) to the extent cash deposits securing the Korean Consumer Refund Guarantee are no longer required, the Parent shall cause Herbalife Korea Co. Ltd. to immediately repay the Company or the Guarantor that made such Restricted Investment such amount. The full amount of any Restricted Payment made pursuant to the foregoing clauses (A), (B), (D), and (F), (G) and (H) (but not pursuant to clauses (C) or (E)) of the immediately preceding sentence, however, will be counted as Restricted Payments made for purposes of the calculation of the aggregate amount of Restricted Payments available to be made referred to in clause (3) of the first paragraph under the heading "-- Limitation on Restricted Payments;" provided, however, that if there is a Final Determination in respect of any particular Tax Determination Year for which a Tax Amounts Payment has been disbursed pursuant to the foregoing clause (C), the Final Determination Amount related thereto (other than interest and penalties) will be counted as a Restricted Payment made for purposes of the calculation of such aggregate Restricted Payments from and after the date such Final Determination is made. For purposes of this covenant, the amount of any Restricted Payment made or returned, if other than in cash, shall be the fair market value thereof, as determined in the good faith reasonable judgment of our Board of Directors, at the time made or returned, as applicable. Additionally, within 5 days of each Restricted Payment in excess of $250,000 that is not a Restricted Investment, we shall deliver an Officers' Certificate to the Trustee describing in reasonable detail the nature of such Restricted Payment, stating the amount of such Restricted Payment, stating in reasonable detail the provisions of the Indenture pursuant to which such 119 Restricted Payment was made and certifying that such Restricted Payment was made in compliance with the terms of the Indenture. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture provides that we will not and the Parent will not, and neither we nor the Parent will permit any Subsidiary of the Company or the Parent to, directly or indirectly, create, assume or suffer to exist any consensual restriction on the ability of any Subsidiary of the Company or the Guarantors to pay dividends or make other distributions to or on behalf of, or to pay any obligation to or on behalf of, or otherwise to transfer assets or property to or on behalf of, or make or pay loans or advances to or on behalf of, the Company, the Parent or any Subsidiary of the Company or the Parent, except: (1) restrictions imposed by the Notes or the Indenture or by our other Indebtedness (which may also be guaranteed by the Guarantors) ranking pari passu in right of payment with the Notes or the Guarantees, as applicable; provided, that such restrictions are no more restrictive taken as a whole than those imposed by the Indenture and the Notes, (2) restrictions imposed by applicable law, (3) existing restrictions under Existing Indebtedness (as in effect on the Issue Date), (4) restrictions under any Acquired Indebtedness not incurred in violation of the Indenture or any agreement (including any Equity Interest) relating to any property, asset, or business acquired by the Company, the Parent or any Subsidiary of the Company or the Parent, which restrictions in each case existed at the time of acquisition, were not put in place in connection with or in anticipation of such acquisition and are not applicable to any Person, other than the Person acquired, or to any property, asset or business, other than the property, assets and business so acquired, (5) any restriction imposed by Indebtedness incurred under the Credit Agreement or other Senior Debt incurred pursuant to the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock;" provided, that such restriction or requirement is no more restrictive taken as a whole than that imposed by the Credit Agreement as of the consummation of the Merger, (6) any restriction imposed by Indebtedness incurred by Non-Guarantor Subsidiaries incurred pursuant to the covenant "Limitation on Incurrence of Additional Indebtedness," (7) restrictions with respect solely to any Subsidiary of the Company or the Parent imposed pursuant to a binding agreement which has been entered into for the sale or disposition of all of the Equity Interests or assets of such Subsidiary; provided, that such restrictions apply solely to the Equity Interests or assets of such Subsidiary which are being sold, (8) in connection with and pursuant to permitted Refinancings, replacements of restrictions imposed pursuant to clauses (1), (3) or (4) or this clause (8) of this paragraph that are not more restrictive taken as a whole than those being replaced and do not apply to any other Person or assets than those that would have been covered by the restrictions in the Indebtedness so refinanced or replaced, and (9) customary provisions with respect to the disposition or distribution of assets in joint venture agreements and other similar agreements relating solely to the assets subject to such agreement. Notwithstanding the foregoing, (a) customary provisions restricting subletting or assignment of any lease entered into in the ordinary course of business, consistent with industry practice shall not be prohibited by this covenant and (b) any asset subject to a Lien which is not prohibited to exist with respect to such asset pursuant to the terms of the Indenture may be subject to customary restrictions on the transfer or disposition thereof pursuant to such Lien. LIMITATIONS ON LAYERING INDEBTEDNESS The Indenture provides that we will not and the Parent will not, and neither we nor the Parent will permit any Subsidiary of the Company or the Parent to, directly or indirectly, incur, or suffer to exist any 120 Indebtedness that is contractually subordinate in right of payment to any of our other Indebtedness or any other Indebtedness of a Guarantor unless, by its terms, such Indebtedness is contractually subordinate in right of payment to, or ranks pari passu with, the Notes or the Guarantee, as applicable. LIMITATION ON LIENS SECURING INDEBTEDNESS We will not and the Parent will not, and neither we nor the Parent will permit any Subsidiary of the Company or the Parent to, create, incur, assume or suffer to exist any Lien of any kind, other than Permitted Liens, upon any of their respective assets now owned or acquired on or after the date of the Indenture or upon any income or profits therefrom securing any of our Indebtedness or any Indebtedness of any Guarantor other than Indebtedness pursuant to Senior Debt, unless we and the Parent provide, and cause the Subsidiaries of the Company and the Parent to provide, concurrently therewith, that the Notes and the applicable Guarantees are equally and ratably so secured; provided that if such Indebtedness is Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness shall be contractually subordinate and junior to the Lien securing the Notes (and any related applicable Guarantees) with the same relative priority as such Subordinated Indebtedness shall have with respect to the Notes (and any related applicable Guarantees). LIMITATION ON TRANSACTIONS WITH AFFILIATES The Indenture provides that we and the Parent will not and will not let any Subsidiary of the Company or the Parent, on or after the Issue Date, enter into or suffer to exist any contract, agreement, arrangement or transaction with any Affiliate (an "Affiliate Transaction"), or any series of related Affiliate Transactions, (other than Exempted Affiliate Transactions), (1) unless it is determined that the terms of such Affiliate Transaction are fair and reasonable to us, and no less favorable to us than could have been obtained in an arm's length transaction with a non-Affiliate, and (2) if involving consideration to either party in excess of $5.0 million, unless such Affiliate Transaction(s) has been approved by a majority of the members of our Board of Directors that are disinterested in such transaction, if there are any directors who are so disinterested, and (3) if involving consideration to either party in excess of $10.0 million, or $7.5 million if there are no disinterested directors for such transaction, unless, in addition we, prior to the consummation thereof, obtain a written favorable opinion as to the fairness of such transaction to us and the Parent from a financial point of view from an independent investment banking firm of national reputation in the United States or, if pertaining to a matter for which such investment banking firms do not customarily render such opinions, an appraisal or valuation firm of national reputation in the United States. Within 5 days of any Affiliate Transaction(s) involving consideration to either party of $5.0 million or more (other than Exempted Affiliate Transactions), the Company shall deliver to the Trustee an Officers' Certificate addressed to the Trustee certifying that such Affiliate Transaction (or Transactions) complied with clause (1), (2), and (3), as applicable. LIMITATION ON MERGER, SALE OR CONSOLIDATION The Indenture provides that we will not consolidate with or merge with or into another Person or, directly or indirectly, sell, lease, convey or transfer all or substantially all of our assets (such amounts to be computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another Person or group of affiliated Persons or adopt a plan of liquidation, unless: (1) either (a) we are the continuing entity or (b) the resulting, surviving or transferee entity is a corporation organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by supplemental indenture all of our obligations in connection with the Notes and the Indenture; (2) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (3) unless such transaction is solely the merger of us and one of our previously existing Wholly-Owned Subsidiaries which is also a Guarantor for the purpose of reincorporation into another jurisdiction and which transaction is not for the purpose of evading this provision and not in connection with any other transaction, immediately after giving effect to such transaction on a pro forma basis, the consolidated 121 resulting, surviving or transferee entity would immediately thereafter be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock;" and (4) each Guarantor shall have by amendment to its Guarantee, if necessary, confirmed in writing that its Guarantee shall apply to the obligations of the Company or the surviving entity in accordance with the Notes and the Indenture. Upon any consolidation or merger in accordance with the foregoing, the successor corporation formed by such consolidation or into which we are merged shall succeed to and (except in the case of a lease or a sale of less than all of our assets) be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor corporation had been named therein as the Company, and (except in the case of a lease or a sale of less than all of our assets) we shall be released from the obligations under the Notes and the Indenture except with respect to any obligations that arise from, or are related to, such transaction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, our interest in which constitutes all or substantially all of our properties and assets, shall be deemed to be the transfer of all or substantially all of our properties and assets. LIMITATION ON MERGER, SALE OR CONSOLIDATION OF PARENT The Indenture provides that the Parent will not consolidate with or merge with or into another Person, other than the Company or, directly or indirectly, sell, lease, convey or transfer all or substantially all of the Parent's assets (such amounts to be computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another Person (other than the Company) or group of affiliated Persons or adopt a plan of liquidation, unless: (1) either (a) the Parent is the continuing entity or (b) the resulting, surviving or transferee entity is a corporation organized under the laws of the United States, any state thereof or the District of Columbia or any member country of the European Union and expressly assumes by supplemental indenture all of the Parent's obligations in connection with the Notes and the Indenture; (2) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (3) unless such transaction is solely the merger of the Parent and one of the Parent's previously existing Wholly-Owned Subsidiaries which is also a Guarantor for the purpose of reincorporation into another jurisdiction and which transaction is not for the purpose of evading this provision and not in connection with any other transaction, immediately after giving effect to such transaction on a pro forma basis, the consolidated resulting, surviving or transferee entity would immediately thereafter be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock;" and (4) each Guarantor shall have by amendment to its Guarantee, if necessary, confirmed in writing that its Guarantee shall apply to the obligations of the Company or the surviving entity in accordance with the Notes and the Indenture. Upon any consolidation or merger in accordance with the foregoing, the successor corporation formed by such consolidation or into which the Parent is merged shall succeed to and (except in the case of a lease or a sale of less than all of the Parent's assets) be substituted for, and may exercise every right and power of, the Parent under the Indenture with the same effect as if such successor corporation had been named therein as the Parent, and (except in the case of a lease or a sale of less than all of the Parent's assets) the Parent shall be released from the obligations under the Notes and the Indenture except with respect to any obligations that arise from, or are related to, such transaction. 122 For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries, the Parent's interest in which constitutes all or substantially all of the Parent's properties and assets, shall be deemed to be the transfer of all or substantially all of the Parent's properties and assets. LIMITATION ON LINES OF BUSINESS The Indenture provides that neither the Company, the Parent nor any Subsidiary of the Company or the Parent will directly or indirectly engage to any substantial extent in any line or lines of business activity other than that which, in the reasonable good faith judgment of our Board of Directors, is a Related Business. FUTURE GUARANTORS The Indenture permits the Parent to cause any Subsidiary of the Parent or the Company to become a Guarantor by guaranteeing all principal, premium, if any, and interest on the Notes on a senior subordinated basis in accordance with the terms of the Indenture. The Indenture provides that the Parent and the Company will cause all present and future Subsidiaries of the Parent and the Company that guarantee any Indebtedness under the Credit Agreement to jointly and severally, irrevocably and unconditionally, guarantee all principal, premium, if any, and interest on the Notes on a senior subordinated basis on or prior to the time such Subsidiaries guarantee any Indebtedness under the Credit Agreement. The term Subsidiary does not include Unrestricted Subsidiaries. Notwithstanding anything herein or in the Indenture to the contrary, if any Subsidiary of the Company or the Parent (including Non-Guarantor Subsidiaries) that is not a Guarantor guarantees any of the Company's Indebtedness or any Indebtedness of any Guarantor, or the Company or the Parent or any Subsidiary of the Company or the Parent, individually or collectively, pledges more than 66% of the Voting Equity Interests of a Subsidiary that is not a Guarantor (including Non-Guarantor Subsidiaries) of the Company or any Guarantor to a lender to secure our Indebtedness (other than Indebtedness under the Credit Agreement) or any Indebtedness of any Guarantor (other than Indebtedness under the Credit Agreement), then such Subsidiary must become a Guarantor. RELEASE OF GUARANTORS The Indenture provides that no Guarantor will consolidate or merge with or into (whether or not such Guarantor is the surviving Person) another Person unless: (1) subject to the provisions of the following paragraph and the other provisions of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form reasonably satisfactory to the Trustee, pursuant to which such Person shall guarantee, on a senior subordinated basis, all of such Guarantor's obligations under such Guarantor's Guarantee on the terms set forth in the Indenture; and (2) immediately before and immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default shall have occurred or be continuing. The provisions of the covenant shall not apply to the merger of any Guarantors with and into each other or with or into us. Upon the sale or disposition (including by merger or stock purchase) of a Guarantor (other than a sale or disposition of Parent, which shall be governed by the covenant described above under the caption "Limitation on Merger, Sale or Consolidation of Parent") (as an entirety) to an entity which is not and is not required to become a Guarantor, or the designation of a Subsidiary to become an Unrestricted Subsidiary, which transaction is otherwise in compliance with the Indenture (including, without limitation, the provisions of the covenant "Limitations on Sale of Assets, and Subsidiary Stock"), such Guarantor will be deemed released from its obligations under its Guarantee of the Notes; provided, however, that any such termination shall occur only to the extent that all obligations of such Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any Indebtedness of the Company or the Parent or any Indebtedness of any other Subsidiary of the Company and the Parent shall also terminate upon such release, sale or transfer and none of its Equity Interests are pledged for the benefit of any holder of any Indebtedness of the Company or the Parent or any Indebtedness of any Subsidiary of the Company or the Parent. 123 The Indenture provides that, if, at any time when there is Indebtedness outstanding under the Original Credit Agreement, the guarantee of all of the Indebtedness under the Original Credit Agreement of any of the Guarantors, other than the Parent, is released pursuant to the terms of the Original Credit Agreement, the Parent may cause such Guarantor to be released from its obligations under its Guarantee of the Notes; provided, however, that any such termination shall occur only to the extent that all obligations of such Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any of Indebtedness of the Company or the Parent or any Indebtedness of any other Guarantor shall also terminate upon such release, sale or transfer and none of its Equity Interests are pledged for the benefit of any holder of any Indebtedness (other than Indebtedness under the Original Credit Agreement) of the Company or the Parent or any Indebtedness (other than Indebtedness under the Original Credit Agreement) of any Guarantor; provided, further, that, the Parent may not cause a release of any Guarantor from its obligations under its Guarantee of the Notes pursuant to the provisions of this paragraph as a result of a release of such Guarantor's guarantee of Indebtedness under the Original Credit Agreement in connection with the payment of all or substantially all of the Indebtedness outstanding under the Original Credit Agreement at such time. The Indenture provides that if at any time there is no Indebtedness outstanding under the Original Credit Agreement and (A) any Foreign Subsidiary of the Company that has not become domesticated into the United States (i) has guaranteed the Notes and (ii) the Parent Group would incur a tax liability, as determined on a consolidated basis, materially greater than the tax liability that would be incurred by the Parent Group, determined on a consolidated basis, had no such Guarantee been incurred, or (B) the Guarantee of any Foreign Subsidiary of the Parent becomes illegal under applicable law and such Foreign Subsidiary delivers an Opinion of Counsel to the Trustee to such effect, then, in each case, the Parent may cause such Foreign Subsidiary to be released from its Guarantee in accordance with the provisions of the Indenture; provided, however, that any such release shall occur only to the extent that all obligations of such Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any of Indebtedness of the Company or the Parent or any Indebtedness of any other Subsidiary of the Company and the Parent shall also terminate upon such release, sale or transfer and none of its Equity Interests are pledged for the benefit of any holder of any Indebtedness of the Company or the Parent or any Indebtedness of any Subsidiary of the Company or the Parent. LIMITATION ON STATUS AS INVESTMENT COMPANY The Indenture prohibits the Company, the Parent and each of the Subsidiaries of the Company and the Parent from being required to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or from otherwise becoming subject to regulation under the Investment Company Act. REPORTS The Indenture provides that, after consummation of the Merger, whether or not the Company or Parent are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company and Parent will deliver to the Trustee and, to each Holder, within 5 days after the Company and Parent are or would have been (if the Company or Parent were subject to such reporting obligations) required to file such with the Commission, annual and quarterly financial statements substantially equivalent to financial statements that would have been included in reports filed with the Commission, if the Company and Parent were subject to the requirements of Section 13 or 15(d) of the Exchange Act, including, with respect to annual information only, a report thereon by our certified independent public accountants as such would be required in such reports to the Commission, and, in each case, together with a management's discussion and analysis of financial condition and results of operations which would be so required and, unless the Commission will not accept such reports, file with the Commission the annual, quarterly and other reports which it is or would have been required to file with the Commission. 124 EVENTS OF DEFAULT AND REMEDIES The Indenture defines an "Event of Default" as: (1) our failure to pay any installment of interest (or Liquidated Damages, if any) on the Notes as and when the same becomes due and payable and the continuance of any such failure for 30 days, (2) our failure to pay all or any part of the principal, or premium, if any, on the Notes when and as the same becomes due and payable at maturity, redemption, by acceleration or otherwise, including, without limitation, payment of the Change of Control Purchase Price, the Asset Sale Offer Price or the Excess Cash Flow Purchase Price, on Notes validly tendered and not properly withdrawn pursuant to a Change of Control Offer, Asset Sale Offer or Excess Cash Flow Offer, as applicable, (3) our failure or the failure by the Parent or any Subsidiary of the Company or the Parent to observe or perform any other covenant or agreement contained in the Notes or the Indenture and, except for the provisions under "Repurchase of Notes at the Option of the Holder Upon a Change of Control," "Repurchase of Notes at the Option of the Holder From Excess Cash Flow," and "Limitation on Merger, Sale or Consolidation," the continuance of such failure for a period of 30 days after written notice is given to us by the Trustee or to us and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes outstanding, (4) our failure to report the occurrence of a Default under any covenant contained in the Notes or the Indenture and the continuance of such failure for a period of 30 days after management of the Company or the Parent, exercising reasonable diligence, becomes aware thereof, (5) certain events of bankruptcy, insolvency or reorganization in respect of the Company, the Parent or any Significant Subsidiary of the Company or the Parent, (6) a default in our Indebtedness or Indebtedness of the Parent or any Subsidiary of the Company or the Parent with an aggregate amount outstanding in excess of $5.0 million (a) resulting from the failure to pay principal at maturity or (b) as a result of which the maturity of such Indebtedness has been accelerated prior to its stated maturity, (7) final unsatisfied judgments not covered by insurance aggregating in excess of $15.0 million, at any one time rendered against us, the Parent or any Subsidiary of the Company or the Parent and not stayed, bonded or discharged within 60 days, (8) the Guarantee of Parent ceases to be in full force and effect or becomes unenforceable or invalid or is declared null and void (other than in accordance with the terms of the Guarantee and the Indenture) or Parent denies or disaffirms its Obligations under its Guarantee; and (9) any Guarantee of a Guarantor that is a Significant Subsidiary ceases to be in full force and effect or becomes unenforceable or invalid or is declared null and void (other than in accordance with the terms of the Guarantee and the Indenture) or any Guarantor (other than Parent) denies or disaffirms its Obligations under its Guarantee. The Indenture provides that if a Default occurs and is continuing, the Trustee must, within 90 days after receipt of notice of such Default, give to the Holders notice of such Default. If an Event of Default occurs and is continuing (other than an Event of Default specified in clause (5) above relating to us or any of our Significant Subsidiaries,) then in every such case, unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice in writing to us (and to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all principal, determined as set forth below, and accrued interest (and Liquidated Damages, if any) thereon to be due and payable immediately; provided, however, that if any Senior Debt is outstanding pursuant to the Credit Agreement, upon a declaration of such acceleration, such principal and interest shall be due and payable upon the earlier of (x) the fifth Business Day after sending us and the representative such written notice, unless such Event of Default is cured or waived prior to such date and (y) the date of acceleration of any Senior Debt under the Credit Agreement. In the 125 event a declaration of acceleration resulting from an Event of Default described in clause (6) above with respect to any Senior Debt has occurred and is continuing, such declaration of acceleration shall be automatically annulled if such default is cured or waived or the holders of the Indebtedness which is the subject of such default have rescinded their declaration of acceleration in respect of such Indebtedness within 30 days thereof and the Trustee has received written notice of such cure, waiver or rescission and no other Event of Default described in clause (6) above has occurred that has not been cured or waived within 30 days of the declaration of such acceleration in respect of such Indebtedness. If an Event of Default specified in clause (5), above, relating to the Company, the Parent or any Significant Subsidiaries occurs, all principal and accrued interest (and Liquidated Damages, if any) thereon will be immediately due and payable on all outstanding Notes without any declaration or other act on the part of the Trustee or the Holders. The Holders of a majority in aggregate principal amount of Notes generally are authorized to rescind such acceleration if all existing Events of Default, other than the non-payment of the principal of, premium, if any, and interest on the Notes which have become due solely by such acceleration have been cured or waived. Prior to the declaration of acceleration of the maturity of the Notes, the Holders of a majority in aggregate principal amount of the Notes at the time outstanding may waive on behalf of all the Holders any Default, except a Default in the payment of principal of or interest on any Note not yet cured or a Default with respect to any covenant or provision which cannot be modified or amended without the consent of the Holder of each outstanding Note affected. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable security or indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the Notes at the time outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Indenture provides that we may, at our option, elect to discharge our obligations and the Guarantors' obligations with respect to the outstanding Notes ("Legal Defeasance"). If Legal Defeasance occurs, we shall be deemed to have paid and discharged all amounts owed under the Notes, and the Indenture shall cease to be of further effect as to the Notes and Guarantees, except that: (1) holders will be entitled to receive timely payments for the principal of, premium, if any, and interest (and Liquidated Damages, if any) on the Notes, solely from the funds deposited for that purpose (as explained below); (2) our obligations will continue with respect to the issuance of temporary Notes, the registration of Notes, and the replacement of mutilated, destroyed, lost or stolen Notes; (3) the Trustee will retain its rights, powers, duties, and immunities, and we will retain our obligations in connection therewith; and (4) other Legal Defeasance provisions of the Indenture will remain in effect. In addition, we may, at our option and at any time, elect to cause the release of our obligations and the Guarantors' with respect to most of the covenants in the Indenture (except as described otherwise therein) ("Covenant Defeasance"). If Covenant Defeasance occurs, certain events (not including non-payment and bankruptcy, receivership, rehabilitation and insolvency events) relating to the Company, the Parent or any Significant Subsidiary of the Company or the Parent described under "Events of Default" will no longer constitute Events of Default with respect to the Notes. We may exercise Legal Defeasance regardless of whether we previously exercised Covenant Defeasance. 126 In order to exercise either Legal Defeasance or Covenant Defeasance (each, a "Defeasance"): (1) we must irrevocably deposit with the Trustee, in trust, for the benefit of Holders of the Notes, U.S. legal tender, U.S. Government Obligations or a combination thereof, in amounts that will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment or any redemption date thereof, and the Trustee must have, for the benefit of Holders of the Notes, a valid, perfected, exclusive security interest in the trust; (2) in the case of Legal Defeasance, we must deliver to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that: (A) we have received from, or there has been published by the Internal Revenue Service, a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that Holders of Notes will not recognize income, gain or loss for federal income tax purposes as a result of the Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Defeasance had not occurred; (3) in the case of Covenant Defeasance, we must deliver to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that Holders of Notes will not recognize income, gain or loss for federal income tax purposes as a result of the Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Defeasance had not occurred; (4) no Default or Event of Default may have occurred and be continuing on the date of the deposit. In addition, no Event of Default relating to bankruptcy or insolvency may occur at any time from the date of the deposit to the 91st calendar day thereafter; (5) the Defeasance may not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which we or any of the Guarantors are a party or by which we or any of the Guarantors are bound; (6) we must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by us with the intent to hinder, delay or defraud any other of our creditors; and (7) we must deliver to the Trustee an Officers' Certificate confirming the satisfaction of conditions in clauses (1) through (6) above, and an opinion of counsel confirming the satisfaction of the conditions in clauses (1) (with respect to the validity and perfection of the security interest), (2), (3) and (5) above. The Defeasance will be effective on the earlier of (i) the 91st day after the deposit, and (ii) the day on which all the conditions above have been satisfied. If the amount deposited with the Trustee to effect a Covenant Defeasance is insufficient to pay the principal of, premium, if any, and interest on the Notes when due, or if any court enters an order directing the repayment of the deposit to us or otherwise making the deposit unavailable to make payments under the Notes when due, then (so long as the insufficiency exists or the order remains in effect) our and the Guarantors' obligations under the Indenture and the Notes will be revived, and the Defeasance will be deemed not to have occurred. AMENDMENTS AND SUPPLEMENTS The Indenture contains provisions permitting us, the Guarantors and the Trustee to enter into a supplemental indenture for certain limited purposes without the consent of the Holders. With the consent of 127 the Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, we, the Guarantors and the Trustee are permitted to amend or supplement the Indenture or any supplemental indenture or modify the rights of the Holders; provided, that no such modification may, without the consent of each Holder affected thereby: (1) change the Stated Maturity on any Note, or reduce the principal amount thereof or the rate (or extend the time for payment) of interest thereon or any premium payable upon the redemption thereof at our option, or change the city of payment where, or the coin or currency in which, any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption at our option, on or after the Redemption Date), or after an Asset Sale or Change of Control has occurred reduce the Change of Control Purchase Price or the Asset Sale Offer Price with respect to the corresponding Asset Sale or Change of Control or alter the provisions (including the defined terms used therein) regarding our right to redeem the Notes as a right, or at our option in a manner adverse to the Holders, or (2) reduce the percentage in principal amount of the outstanding Notes, the consent of whose Holders is required for any such amendment, supplemental indenture or waiver provided for in the Indenture, (3) modify any of the waiver provisions, except to increase any required percentage or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby, or (4) release the Guarantee of Parent. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York including, without limitation, Sections 5-1401 and 5-1402 of the New York General Obligations Law and New York Civil Practice Laws and Rules 327(b). NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS The Indenture provides that no direct or indirect stockholder, employee, officer or director, as such, past, present or future of the Company, the Guarantors or any successor entity shall have any liability in respect of our obligations or the obligations of the Guarantors under the Indenture or the Notes solely by reason of his or its status as such stockholder, employee, officer or director, except that this provision shall in no way limit the obligation of any Guarantor pursuant to any guarantee of the Notes. CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness (including Disqualified Capital Stock) of any Person existing at the time such Person becomes a Subsidiary of the Company or the Parent, including by designation, or is merged or consolidated into or with the Company or the Parent or a Subsidiary of the Company or the Parent. "Acquisition" means the purchase or other acquisition of any Person or all or substantially all the assets of any Person by any other Person, whether by purchase, merger, consolidation, or other transfer, and whether or not for consideration. "Affiliate" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For purposes of this definition, the term "control" means the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise; provided, that with respect to ownership interest in the Company and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting power normally entitled to vote in the election of directors, managers or trustees, as applicable, shall for such purposes be deemed to possess control. 128 "Applicable Leverage Ratio" means, (1) with respect to any Incurrence Date on or prior to December 31, 2002, 4.00 to 1.0, (2) with respect to any Incurrence Date after December 31, 2002 and on or prior to December 31, 2003, 3.50 to 1.0, (3) with respect to any Incurrence Date after December 31, 2003 and on or prior to December 31, 2004, 3.00 to 1.0, and (4) with respect to any Incurrence Date after December 31, 2004, 2.50 to 1.0. "Applicable Tax Rate" means, in respect of any particular Tax Determination Year, a percentage equal to the highest marginal United States federal income tax rate applicable to an individual in respect of such Tax Determination Year as determined by the Tax Amounts CPA. "Asset Disposition" means (a) any conveyance, sale, lease, sublease, assignment, transfer or other disposition (including by way of merger or consolidation and including any sale and leaseback transaction) of any property (including stock of any of Parent's Subsidiaries by the holder thereof) by Parent or any of its Subsidiaries to any person other than Holdings and its Subsidiaries party to the Credit Agreement (other than sales and other dispositions of inventory in the ordinary course of business) and (b) any issuance or sale by any Subsidiary of Parent of its Equity Interests to any person other than Holdings and its Subsidiaries party to the Credit Agreement. "Attributable Indebtedness" means, when used with respect to any sale and leaseback transaction, as at the time of determination, the present value (discounted at a rate equivalent to the Company's then-current weighted-average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such sale and leaseback transaction. "Average Life" means, as of the date of determination, with respect to any security or instrument, the quotient obtained by dividing (1) the sum of the products (a) of the number of years from the date of determination to the date or dates of each successive scheduled principal (or redemption) payment of such security or instrument and (b) the amount of each such respective principal (or redemption) payment by (2) the sum of all such principal (or redemption) payments. "Beneficial Owner" or "beneficial owner" for purposes of the definition of Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not applicable. "Board of Directors" means, with respect to any Person, the board of directors (or if such Person is not a corporation, the equivalent board of managers or members or body performing similar functions for such Person) of such Person or any committee of the Board of Directors of such Person authorized, with respect to any particular matter, to exercise the power of the board of directors of such Person. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close. "Capital Contribution" means any contribution to the equity of the Company from the Parent or Holdings for which no consideration other than the issuance of Qualified Capital Stock is given. "Capital Expenditures" means, with respect to any person, for any period, the aggregate of all expenditures of such person and its Consolidated Subsidiaries for the acquisition of fixed or capital assets which should be capitalized under GAAP on a consolidated balance sheet of such person and its Consolidated Subsidiaries. Notwithstanding the foregoing, Capital Expenditures shall not include (i) expenditures with Proceeds from Asset Dispositions (other than through leases), to the extent such expenditures do not exceed the book value of such assets, and (ii) expenditures of Proceeds from a Casualty Event. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. 129 "Capital Stock" means, with respect to any corporation, any and all shares, interests, rights to purchase (other than convertible or exchangeable Indebtedness that is not itself otherwise capital stock), warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that corporation. "Cash Equivalent" means: (1) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided, that the full faith and credit of the United States of America is pledged in support thereof), (2) demand deposits, time deposits and certificates of deposit and commercial paper issued by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $500 million, (3) commercial paper issued by others rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc., (4) repurchase obligations having terms not more than seven days, with institutions meeting the criteria set forth in clause (2) above, for direct obligations issued by or fully guaranteed by the United States of America (provided, that the full faith and credit of the United States of America is pledged in support thereof), having, on the date of purchase thereof, a fair market value of at least 100% of the amount of repurchase obligations, (5) interests in money market or mutual funds all of whose assets are invested in assets or securities of the type described in clauses (1) through (4) above, (6) with respect to Investments by any Foreign Subsidiary, any demand deposit account, (7) direct investments in tax exempt obligations of any state of the United States of America, or any municipality of any such state, in each case rated "AA" or better by Standard & Poor's Rating Service, "Aa2" or better by Moody's Investor Service, Inc. or an equivalent rating by any other credit rating agency of recognized national standing, provided that such obligations mature within six months from the date of acquisition thereof, and (8) investments in mutual funds or variable rate notes that invest in tax exempt obligations of the types described in clause (7) above, and in the case of each of (1) and (2) maturing within one year after the date of acquisition. "Casualty Event" means, with respect to any property (including Real Property) of any person, any loss of title with respect to such property or any loss of or damage to or destruction of, or any condemnation or other taking (including by any Governmental Authority) of, such property for which such person or any of its subsidiaries receives insurance proceeds or proceeds of a condemnation award or other compensation. "Casualty Event" includes any taking of all or any part of any Real Property of any person or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, or by reason of the temporary requisition of the use or occupancy of all or any part of any Real Property of any person or any part thereof by any Governmental Authority, civil or military. "CL Obligations" of any person means the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "CNI" means, with respect to any person for any period, the consolidated net after tax income of such person and its Consolidated Subsidiaries determined in accordance with GAAP, reduced by the amount of any Tax Amounts Payment made during such period, but excluding in any event (a) net earnings or loss of any other person (other than a Subsidiary of Holdings) in which such person or any of its Consolidated 130 Subsidiaries has an ownership interest, except (in the case of any such net earnings) to the extent such net earnings shall have actually been received by such person or any of its Consolidated Subsidiaries (subject to the limitation in clause (b) below) in the form of cash distributions, (b) any portion of the net earnings of any of such person's Consolidated Subsidiaries that is unavailable for payment of dividends to such person or any other of its Consolidated Subsidiaries by reason of the provisions of any agreement or applicable law or regulation, and (c) the income (or loss) of any other person accrued prior to the date it becomes a Subsidiary of such person or any of its Consolidated Subsidiaries or is merged into or consolidated with such person or any of its Consolidated Subsidiaries or that other person's assets are acquired by such person or its Consolidated Subsidiaries (other than pursuant to the Merger). "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Cash Flow" means, with respect to any person for any period, CNI for such period, adjusted, in each case only to the extent (and in the same proportion) deducted in determining CNI (and with respect to the portion of CNI attributable to any Subsidiary of Parent only to the extent a corresponding amount would be permitted at the date of determination to be distributed to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Subsidiary or its stockholders), by (x) adding thereto (i) the amount of Consolidated Interest Expense, (ii) provision for taxes based on income, (iii) any Tax Amounts Payment made during such period, (iv) amortization, (v) depreciation, (vi) all other noncash items subtracted in determining CNI (including, without limitation, any noncash compensation charge arising from any grant of stock, stock options or other equity-based awards of such Person or any of its Subsidiaries and noncash losses or charges related to impairment of goodwill and other intangible assets and excluding any noncash charge that results in an accrual of a reserve for cash charges in any future period) for such period, (vii) nonrecurring expenses and charges of the Company and Herbalife International, Inc., related to the Merger and Merger Financing Transactions; and (y) subtracting therefrom (i) dividends paid to Holdings for the purpose of paying its operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including legal and accounting expenses and similar expenses) and (ii) the aggregate amount of all noncash items, determined on a consolidated basis, to the extent such items were added in determining CNI for such period. "Consolidation" means, with respect to the Company or the Parent, the consolidation of the accounts of the Subsidiaries with those of the Company or the Parent, as applicable, all in accordance with GAAP; provided, that "consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary with the accounts of the Company or the Parent. The term "consolidated" has a correlative meaning to the foregoing. "Consolidated Coverage Ratio" of any Person on any date of determination (the "Transaction Date") means the ratio, on a pro forma basis, of (a) the aggregate amount of Consolidated EBITDA of such Person attributable to continuing operations and businesses (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of) for the Reference Period to (b) the aggregate Consolidated Fixed Charges of such Person (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of, but only to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to such Person's Consolidated Fixed Charges subsequent to the Transaction Date) during the Reference Period; provided, that for purposes of such calculation: (1) Acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction Date shall be assumed to have occurred on the first day of the Reference Period, (2) transactions giving rise to the need to calculate the Consolidated Coverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (3) the incurrence of any Indebtedness (including issuance of any Disqualified Capital Stock) during the Reference Period or subsequent to the Reference Period and on or prior to the Transaction 131 Date (and the application of the proceeds therefrom to the extent used to refinance or retire other Indebtedness) (other than Indebtedness incurred under any revolving credit facility) shall be assumed to have occurred on the first day of the Reference Period, and (4) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such Person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12-month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used. "Consolidated Current Assets" means, with respect to any person as at any date of determination, the total assets of such person and its Consolidated Subsidiaries that may properly be classified as current assets on a consolidated balance sheet of such person and its Consolidated Subsidiaries in accordance with GAAP. "Consolidated Current Liabilities" means, with respect to any person as at any date of determination, the total liabilities of such person and its Consolidated Subsidiaries that may properly be classified as current liabilities (other than the current portion of any loans outstanding under the Credit Agreement or CL Obligations) on a consolidated balance sheet of such person and its Consolidated Subsidiaries in accordance with GAAP. "Consolidated EBITDA" means, with respect to any Person, for any period, the Consolidated Net Income of such Person for such period adjusted to add thereto (to the extent deducted from net revenues in determining Consolidated Net Income), without duplication, the sum of (1) Consolidated income tax expense, (2) any Tax Amounts Payments made by such Person during such period, (3) Consolidated depreciation and amortization expense, (4) Consolidated Fixed Charges, (5) non-cash charges relating to employee benefit or other management compensation plans of such Person or any of its Consolidated Subsidiaries or any non-cash compensation charge arising from any grant of stock, stock options or other equity-based awards of such Person or any of its Subsidiaries (excluding in each case any non-cash charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense incurred in a prior period), (6) non-cash losses or charges related to impairment of goodwill and other intangible assets, and (7) for purposes of determining the Parent's Consolidated Coverage Ratio and the Parent's Leverage Ratio for any Reference Period that includes the date upon which the Merger was consummated, nonrecurring expenses and charges of the Company and Herbalife International, Inc., related to the Merger and Related Financing Transactions. Less the amount of all cash payments made by such Person or any of its Subsidiaries during such period to the extent such payments relate to non-cash charges that were added back in determining Consolidated EBITDA for such period or any prior period; provided, that consolidated income tax expense and depreciation and amortization of a Subsidiary that is a less than Wholly-Owned Subsidiary shall only be added to the extent of the equity interest of the Company in such Subsidiary. "Consolidated Fixed Charges" of any Person means, for any period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of: (a) interest expensed or capitalized, paid, accrued, or scheduled to be paid or accrued (including, in accordance with the following sentence, interest attributable to Capitalized Lease Obligations) of such Person and its Consolidated Subsidiaries during such period, including (1) original issue discount and non-cash interest payments or accruals on any Indebtedness, (2) the interest portion of all deferred 132 payment obligations, and (3) all commissions, discounts and other fees and charges owed with respect to bankers' acceptances and letters of credit financings and currency and Interest Swap and Hedging Obligations, in each case to the extent attributable to such period, and (b) the amount of dividends accrued or payable (or guaranteed) by such Person or any of its Consolidated Subsidiaries in respect of Preferred Stock (other than by Subsidiaries of such Person to such Person or such Person's Wholly-Owned Subsidiaries). For purposes of this definition, (x) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined in good faith by the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP and (y) interest expense attributable to any Indebtedness represented by the guaranty by such Person or a Subsidiary of such Person of an obligation of another Person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. "Consolidated Interest Expense" means, with respect to any person for any period, the total consolidated interest expense of such person and its Consolidated Subsidiaries for such period (calculated without regard to any limitations on the payment thereof and including commitment fees, letter-of-credit fees and net amounts payable under Interest Rate Protection Agreements) determined in accordance with GAAP plus, without duplication, (a) the portion of CL Obligations of such person and its Consolidated Subsidiaries representing the interest factor for such period, (b) imputed interest on Attributable Indebtedness, (c) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any person (other than the Company or a Wholly Owned Subsidiary of the Company) in connection with Indebtedness incurred by such plan or trust, (d) all interest payable with respect to discontinued operations, and (e) imputed interest on SL Obligations. "Consolidated Net Income" means, with respect to any Person for any period, the net income (or loss) of such Person and its Consolidated Subsidiaries (determined on a consolidated basis in accordance with GAAP) for such period, reduced by the amount of any Tax Amounts Payments made during such period and adjusted to exclude (only to the extent included in computing such net income (or loss) and without duplication): (a) all gains (but not losses) which are either extraordinary (as determined in accordance with GAAP) or are nonrecurring (including any gain from the sale or other disposition of assets outside the ordinary course of business or from the issuance or sale of any capital stock), (b) the net income, if positive, of any Person, other than a Consolidated Subsidiary, in which such Person or any of its Consolidated Subsidiaries has an interest, except to the extent of the amount of any dividends or distributions actually paid in cash to such Person or a Consolidated Subsidiary of such Person during such period, but in any case not in excess of such Person's pro rata share of such Person's net income for such period, (c) the net income, if positive, of any of such Person's Consolidated Subsidiaries to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or bylaws or any other agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Consolidated Subsidiary, and (d) solely for purposes of the covenant described above under the caption "Limitation or Restricted Payments" and to avoid duplication, any Monitoring Fees (or any comparable fees, reimbursements or payments of out-of-pocket expenses) paid by the Company or the Parent. "Consolidated Subsidiary" means, for any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which are consolidated for financial statement reporting purposes with the financial statements of such Person in accordance with GAAP. "Contingent Obligation" means, as to any person, any obligation of such person guaranteeing or intended to guarantee any Debt, leases, dividends or other obligations ("primary obligations") of any other person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of such person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or 133 indirect security therefor; (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (d) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term "Contingent Obligation" shall not include (w) endorsements of instruments for deposit or collection in the ordinary course of business, (x) any product warranties issued on products by Parent or any of its Subsidiaries in the ordinary course of business, (y) any obligation to buy back products in the ordinary course of business made pursuant to the buyback policy of Parent and its Subsidiaries or pursuant to applicable Requirements of Law, and (z) any operating lease guarantees (other than in respect of SL Obligations) executed by Parent, Luxembourg Holdings, Luxembourg Intermediate Holdings, Luxembourg CM or the Company in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder) as determined by such person in good faith. "Continuing Director" means during any period of 12 consecutive months after the Issue Date, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, including new directors designated in or provided for in an agreement regarding the merger, consolidation or sale, transfer or other conveyance, of all or substantially all of the assets of the Company or the Parent, if such agreement was approved by a vote of such majority of directors). "Credit Agreement" means the credit agreement dated on or prior to the date the Merger is consummated as part of the Related Financing Transactions, by and among the Parent, Herbalife International, Inc. (or WH Acquisition), Holdings, certain Subsidiaries of Holdings, certain financial institutions and UBS AG Stamford Branch, as agent, providing for a term loan facility and a revolving credit facility, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith (such credit agreement, the "Original Credit Agreement,") as such credit agreement and/or related documents may be amended, restated, supplemented, renewed, replaced or otherwise modified from time to time whether or not with the same agent, trustee, representative lenders or holders, and, subject to the proviso to the next succeeding sentence, irrespective of any changes in the terms and conditions thereof. Without limiting the generality of the foregoing, the term "Credit Agreement" shall include agreements in respect of Interest Swap and Hedging Obligations with lenders (or Affiliates thereof) party to the Credit Agreement and shall also include any amendment, amendment and restatement, renewal, extension, restructuring, supplement or modification to any Credit Agreement and all refundings, refinancings and replacements of any Credit Agreement, including any credit agreement: (1) extending the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding or deleting borrowers or guarantors thereunder, so long as borrowers and issuers include one or more of the Company and its Subsidiaries and their respective successors and assigns, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder; provided, that on the date such Indebtedness is incurred it would not be prohibited by the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock," or (4) otherwise altering the terms and conditions thereof in a manner not expressly prohibited by the terms of the Indenture. 134 "Debt" of any person means, without duplication, (a) all obligations of such person for borrowed money; (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments; (c) all obligations of such person upon which interest charges are customarily paid or accrued; (d) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person; (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable incurred in the ordinary course of business on normal trade terms and not overdue by more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established); (f) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Encumberance on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed; (g) all CL Obligations, PM Obligations and SL Obligations of such person; (h) all obligations of such person in respect of Hedging Agreements; provided that, the amount of Debt of the type referred to in this clause (h) of any person shall be zero unless and until such Debt shall be terminated, in which case the amount of such Debt shall be the then termination payment due thereunder by such person; (i) all obligations of such person as an account party in respect of letters of credit, letters of guaranty and bankers' acceptances; (j) all Attributable Debt of such person; and (k) all Contingent Obligations of such person in respect of Debt or obligations of others of the kinds referred to in clauses (a) through (j) above. The Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Debt provide that such Person is not liable therefor. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Disqualified Capital Stock" means with respect to the Parent, (a) Equity Interests of the Parent that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time or both would be, required to be redeemed or repurchased including at the option of the holder thereof by the Parent or any of its Subsidiaries or the Company, in whole or in part, on or prior to 91 days following the Stated Maturity of the Notes and (b) any Equity Interests of the Company or of any Subsidiary of the Parent other than any common equity with no preferences, privileges, and no redemption or repayment provisions. Notwithstanding the foregoing, any Equity Interests that would constitute Disqualified Capital Stock solely because the holders thereof have the right to require the Parent or Company to repurchase such Equity Interests upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Capital Stock if the terms of such Equity Interests provide that the Parent or Company may not repurchase or redeem any such Equity Interests pursuant to such provisions prior to the Company's purchase of the Notes as are required to be purchased pursuant to the provisions of the Indenture as described under "Repurchase at the Option of Holders." "Encumberance" means, with respect to any property, (a) any mortgage, deed of trust, lien, pledge, encumbrance, claim, charge, assignment, hypothecation, security interest or encumbrance of any kind, any other type of preferential arrangement in respect of such property or any filing of any financing statement under the UCC or any other similar notice of lien under any similar notice or recording statute of any Governmental Authority, including any easement, right-of-way or other encumbrance on title to Real Property, in each of the foregoing cases whether voluntary or imposed by law, and any agreement to give any of the foregoing; (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such property; and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Equity Financing" means the initial cash equity investment in Holdings by the Principals and their Affiliates and selected co-investors on or prior to the date the Merger is consummated, in an amount not less than $176.0 million, and the concurrent or subsequent cash equity investment in Holdings by certain distributors and management on or after the date the Merger is consummated. 135 "Equity Interests" means Capital Stock or partnership, participation or membership interests and all warrants, options or other rights to acquire Capital Stock or partnership, participation or membership interests (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock or partnership, participation or membership interests). "Event of Loss" means, with respect to any property or asset, any (1) loss, destruction or damage of such property or asset or (2) any condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such property or asset, or confiscation or requisition of the use of such property or asset. "Excess Cash Flow" means, for any fiscal year of Parent, the sum, without duplication, of (a) Consolidated Cash Flow of Parent for such fiscal year; plus (b) extraordinary net cash gains or net cash gains from sales of assets, if any, during such fiscal year not included in CNI; plus (c) reductions to noncash working capital of Parent and its Consolidated Subsidiaries for such fiscal year (i.e., the decrease, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such fiscal year); minus (d) the amount of any cash income taxes payable by Parent and its Consolidated Subsidiaries with respect to such fiscal year and any Tax Amounts Payments made by the Parent and its Consolidated Subsidiaries during such fiscal year; minus (e) Consolidated Interest Expense of Parent, to the extent paid in cash during such fiscal year; minus (f) Capital Expenditures of Parent during such fiscal year, to the extent funded from internally generated funds; minus (g) permanent repayments of Debt made by Parent and its Consolidated Subsidiaries during such fiscal year (including payments of principal in respect of revolving loans to the extent there is an equivalent reduction in the revolving commitments under the Credit Agreement); but only to the extent such repayments do not occur in connection with a refinancing of all or any portion of the loans under the Credit Facility, if any; minus (h) extraordinary cash losses from the sale of assets during such fiscal year and not included in Parent's CNI; minus (i) additions to noncash working capital of Parent and its Consolidated Subsidiaries for such fiscal year (i.e., the increase, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such fiscal year); provided that, with respect to Parent's fiscal year 2002 only, for the purposes of this definition of "Excess Cash Flow", each of the foregoing shall be calculated for the period from and including the date the Merger is consummated through and including the last day of Parent's fiscal year 2002. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exempted Affiliate Transaction" means (a) customary employee compensation arrangements approved by a majority of independent (as to such transactions) members of the Board of Directors of the Company, (b) dividends permitted under the terms of the covenant discussed above under "Limitation on Restricted Payments" above and payable, in form and amount, on a pro rata basis to all holders of common stock of the Company, (c) transactions solely between or among the Company and the Guarantors and any Consolidated Subsidiaries of the Company or the Guarantors or solely among Consolidated Subsidiaries of the Company or the Guarantors, (d) payment of Monitoring Fees pursuant to the Monitoring Services Agreements, (e) payment of any Tax Amounts Payments that are not prohibited by the covenant described above under the caption "Limitation on Restricted Payments," (f) the Monitoring Services Agreements, substantially in the form attached as an exhibit to the Indenture, (g) Capital Contributions to the Company or any sale of Capital Stock (other than Disqualified Capital Stock) of the Company to an Affiliate, (h) payment of 136 reasonable directors' fees to Persons who are not otherwise Affiliates of the Company or the Parent and customary indemnification and insurance agreements in favor of directors, regardless of affiliation with the Company or the Parent, and (i) payments to Affiliates as part of the Merger Consideration and Related Costs that were disclosed in the Offering Memorandum. "Existing Indebtedness" means Indebtedness of Herbalife International, Inc. and its Subsidiaries (other than Indebtedness under the Credit Facility) in existence on the Issue Date, reduced to the extent such amounts are repaid, refinanced or retired. "Final Determination" means a final "determination" as defined under section 1313 of the Code or a similar determination under state, local, or foreign law. "Final Determination Amount" means, in respect of any particular Tax Determination Year, any additional taxes, interest, and penalties resulting from a Final Determination and arising from or attributable to amounts paid or accrued pursuant to the Intercompany Service Agreement. "Foreign Subsidiary" means any Subsidiary of the Company which (i) is not organized under the laws of the United States, any state thereof or the District of Columbia and (ii) conducts substantially all of its business operations outside the United States of America. "GAAP" means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the FASB or in such other statements by such other entity as approved by a significant segment of the accounting profession in the United States as in effect at the time. "Governmental Authority" means any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantor" means the Parent and each present and future Subsidiary of Parent or the Company that at the time are guarantors of the Notes in accordance with the Indenture. "Hedging Agreement" means any Interest Rate Protection Agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Holdings" means WH Holdings (Cayman Islands) Ltd., a company incorporated under the laws of the Cayman Islands. "Holdings CFC Group" means Holdings and the members of the Parent CFC Group. "Indebtedness" of any Person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such Person, to the extent such liabilities and obligations would appear as a liability upon the consolidated balance sheet of such Person in accordance with GAAP, (1) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (2) evidenced by bonds, notes, debentures or similar instruments, (3) representing the balance deferred and unpaid of the purchase price of any property or services, except those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors; (b) all liabilities and obligations, contingent or otherwise, of such Person (1) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (2) relating to any Capitalized Lease Obligation, or (3) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit; (c) all net obligations of such Person under Interest Swap and Hedging Obligations; (d) all liabilities and obligations of others of the kind described in the preceding clause (a), (b) or (c) that such Person has guaranteed or provided credit support or that is otherwise its legal liability or which are secured by any assets or property of such Person; 137 (e) any and all deferrals, renewals, extensions, refinancing and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b), (c) or (d), or this clause (e), whether or not between or among the same parties; and (f) all Disqualified Capital Stock of such Person (measured at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends). For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified Capital Stock, such Fair Market Value to be determined in good faith by the board of directors of the issuer (or managing general partner of the issuer) of such Disqualified Capital Stock. The amount of any Indebtedness outstanding as of any date shall be (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, but the accretion of original issue discount in accordance with the original terms of Indebtedness issued with an original issue discount will not be deemed to be an incurrence and (2) the principal amount thereof, in the case of any other Indebtedness. "Initial Public Offering" means an underwritten public offering of common stock of the Parent in which gross proceeds to the Parent are at least $50.0 million. "Intercompany Service Agreement" means a service agreement (or, if more than one service agreement is entered into, the aggregate of all such service agreements) entered into by and among an Intercompany Service Provider and one or more members of the Parent Group, the pricing of which is determined on an arm's-length basis and in compliance with the "best method rule" and the "documentation requirements" under sections 482 and 6662 of the Code and the Treasury regulations promulgated thereunder. "Intercompany Service Provider" means any member of the Parent CFC Group that is obligated to render services pursuant to the Intercompany Service Agreement. "Intercompany Service Receipts" means, in respect of any Tax Determination Year, amounts received or receivable by the Intercompany Service Provider from members of the Parent Group in respect of services provided by the Intercompany Service Provider to such members pursuant to an Intercompany Service Agreement. "Intercompany Service Subpart F Income" means, in respect of any Tax Determination Year, (i) the subpart F income of any member of the Holdings CFC Group for such year as determined under section 951(a)(1)(A) of the Code and (ii) the amount of earnings of any member of the Holdings CFC Group for such year as determined under section 951(a)(1)(B) of the Code in respect of any section 956 amount that, in the case of each of the immediately preceding clauses (i) and (ii) and without duplication, arises from or is attributable to Intercompany Service Receipts (or the distribution, payment, or transfer of receipts by such member to another member of the Holdings CFC Group). "Interest Rate Protection Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or similar agreement or arrangement designed to protect Holdings or its Subsidiaries against fluctuations in interest rates and not entered into for speculation. "Interest Swap and Hedging Obligation" means any obligation of any Person pursuant to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate exchange agreement, currency exchange agreement or any other agreement or arrangement designed to protect against fluctuations in interest rates or currency values, including, without limitation, any arrangement whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or floating rate of interest on the same notional amount. 138 "Investment" by any Person in any other Person means (without duplication): (a) the acquisition (whether by purchase, merger, consolidation or otherwise) by such Person (whether for cash, property, services, securities or otherwise) of Equity Interests, capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities, including any options or warrants, of such other Person or any agreement to make any such acquisition; (b) the making by such Person of any deposit with, or advance, loan or other extension of credit to, such other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such other Person) or any commitment to make any such advance, loan or extension (but excluding accounts receivable, endorsements for collection or deposits arising in the ordinary course of business); (c) other than guarantees of Indebtedness of the Company or any Guarantor to the extent permitted by the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock," the entering into by such Person of any guarantee of, or other credit support or contingent obligation with respect to, Indebtedness or other liability of such other Person; (d) the making of any capital contribution by such Person to such other Person; (e) the designation by the Board of Directors of the Company of any Person to be an Unrestricted Subsidiary; and (f) a Subsidiary of the Parent or the Company that is a Guarantor becoming a Non-Guarantor Subsidiary as a result of the release of the Guarantee of such Subsidiary in accordance with the provisions described above under the caption "Release of Guarantors." The Company and the Parent, without duplication, shall be deemed to make an Investment in an amount equal to the fair market value of the net assets of any subsidiary of the Company or the Parent (or, if neither the Company nor any of its Subsidiaries has theretofore made an Investment in such subsidiary, in an amount equal to the Investments being made), at the time that such subsidiary is designated an Unrestricted Subsidiary, and any property transferred to an Unrestricted Subsidiary from the Company, the Parent or a Subsidiary of the Company or the Parent shall be deemed an Investment valued at its fair market value at the time of such transfer. The Company and the Parent, without duplication, shall be deemed to make an Investment in an amount equal to the fair market value of the net assets of any Subsidiary of the Company or the Parent that is a Guarantor (or, if neither the Company nor any of its Subsidiaries has theretofore made an Investment in such subsidiary, in an amount equal to the Investments being made) at the time that such Subsidiary becomes a Non-Guarantor Subsidiary as a result of the release of the Guarantee of such Subsidiary in accordance with the provisions described above under the caption "Release of Guarantors." The Company and the Parent shall be deemed to have made an Investment in a Person that is or was required to be a Guarantor if, upon the issuance, sale or other disposition of any portion of the Company's or the Guarantor's ownership in the Capital Stock of such Person, such Person ceases to be a Guarantor. The fair market value of each Investment shall be measured at the time made or returned, as applicable. "Issue Date" means the date of first issuance of the Notes under the Indenture. "Junior Security" means any Qualified Capital Stock and any Indebtedness of the Company or a Guarantor, as applicable, that is contractually subordinated in right of payment to Senior Debt (or any securities issued in exchange for Senior Debt) at least to the same extent as the Notes or the Guarantee, as applicable, and has no scheduled installment of principal due, by redemption, sinking fund payment or otherwise, on or prior to the Stated Maturity of the Notes; provided, that in the case of subordination in respect of Senior Debt under the Credit Agreement, "Junior Security" shall mean any Qualified Capital Stock and any Indebtedness of the Company or the Guarantor, as applicable, that: (1) has a final maturity date occurring after the final maturity date of, all Senior Debt outstanding under the Credit Agreement on the date of issuance of such Qualified Capital Stock or Indebtedness, (2) is unsecured, 139 (3) has an Average Life longer than the security for which such Qualified Capital Stock or Indebtedness is being exchanged, and (4) by their terms or by law are subordinated to Senior Debt outstanding under the Credit Agreement (and any securities issued in exchange for such Senior Debt outstanding under the Credit Agreement) on the date of issuance of such Qualified Capital Stock or Indebtedness at least to the same extent as the Notes. "Korean Consumer Refund Guarantee" means the guarantee or letter of credit issued to any applicable Korean Governmental Authority as required to comply with the consumer refund laws of Korea, together with any supporting obligations in respect thereof. "Leverage Ratio" on any date of determination (the "Determination Date") means the ratio, on a pro forma basis, of (a) the aggregate amount of Indebtedness of the Parent and its Subsidiaries on a consolidated basis determined in accordance with GAAP to (b) the aggregate amount of Consolidated EBITDA of the Parent attributable to continuing operations and business (exclusive of amounts attributable to operations and businesses permanently discontinued or disposed of) for the Reference Period; provided, that for purposes of calculating Consolidated EBITDA for this definition: (1) Acquisitions which occurred during the Reference Period or subsequent to the Reference Period and on or prior to the Determination Date shall be assumed to have occurred on the first day of the Reference Period, (2) transactions giving rise to the need to calculate the Leverage Ratio shall be assumed to have occurred on the first day of the Reference Period, (3) the incurrence of any Indebtedness (including issuance of any Disqualified Capital Stock) during the Reference Period or subsequent to the Reference Period and on or prior to the Determination Date (and the application of the proceeds therefrom to the extent used to refinance or retire other Indebtedness) (other than Indebtedness incurred under any revolving credit facility) shall be assumed to have occurred on the first day of the Reference Period, (4) the Consolidated Fixed Charges of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Capital Stock bearing a floating interest (or dividend) rate shall be computed on a pro forma basis as if the average rate in effect from the beginning of the Reference Period to the Transaction Date had been the applicable rate for the entire period, unless such Person or any of its Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall remain in effect for the 12-month period immediately following the Transaction Date) that has the effect of fixing the interest rate on the date of computation, in which case such rate (whether higher or lower) shall be used, and (5) for any Reference Period that includes any date on or prior to December 31, 2002, one-time charges or expenses of the Parent and its Subsidiaries related to severance or to the termination of employment of employees of the Parent and its Subsidiaries, to the extent such charges relate to cash paid to such terminated employee, in each case, to the extent such charges or expenses reduced the Consolidated EBITDA of the Parent. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. "Liquidated Damages" means all liquidated damages then owing pursuant to the Registration Rights Agreement. "Luxembourg Holdings" means WH Luxembourg Holdings S.a.R.L., a Luxembourg company. "Luxembourg Intermediate Holdings" means WH Luxembourg Intermediate Holdings S.a.R.L., a Luxembourg company. "Luxembourg CM" means WH Luxembourg CM S.a.R.L., a Luxembourg company. "Merger" the merger of WH Acquisition Corp., a Nevada corporation, with and into Herbalife International, Inc., a Nevada corporation, pursuant to the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger, dated as of April 10, 2002, by and among Holdings, a Cayman Islands company, WH Acquisition Corp., a Nevada corporation and Herbalife International, Inc., a Nevada corporation, as in effect on the Issue Date, without giving effect to any amendment thereto or waiver thereof after the Issue Date. 140 "Merger Consideration and Related Costs" means: (1) the cash consideration for the Merger payable by us to holders of Herbalife International, Inc.'s common stock and options to purchase common stock pursuant to the Merger Agreement as described in the Offering Memorandum; (2) payment of obligations of Subsidiaries of Herbalife International, Inc. that are guaranteed by Herbalife International, Inc. and payable in connection with the Merger, as described in the Offering Memorandum; and (3) all fees and expenses related to the foregoing and payable in connection with the Merger, as described in the Offering Memorandum. "Merger Financing Transactions" means the issuance of the Notes and the Equity Financing in connection with the consummation of the Merger. "Monitoring Fees" means payments to Whitney & Co., LLC or GGC Administration, LLC pursuant to the Monitoring Services Agreements. "Monitoring Services Agreements" means those certain separate monitoring fee agreements among (i) Holdings, the Company and Whitney & Co., LLC and (ii) Holdings, the Company and GGC Administration, LLC, substantially in the form attached as an exhibit to the Indenture, without giving effect to any amendment thereto or waiver thereof. "Ownership Interest" means, with respect to any person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or non-voting), of capital of such person, including, if such person is a partnership, partnership interests (whether general or limited) and any other interest (other than an interest constituting Indebtedness) or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership, whether outstanding on the date hereof or issued after the Issue Date. "Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents received by the Company in the case of a sale, or Capital Contribution in respect of Qualified Capital Stock and by the Company, the Parent and the Subsidiaries of the Company or the Parent in respect of an Asset Sale plus, in the case of an issuance of Qualified Capital Stock upon any exercise, exchange or conversion of securities (including options, warrants, rights and convertible or exchangeable debt) of the Company that were issued for cash on or after the Issue Date, the amount of cash originally received by the Company upon the issuance of such securities (including options, warrants, rights and convertible or exchangeable debt) less, in each case, the sum of all payments, fees, commissions and (in the case of Asset Sales, reasonable and customary), expenses (including, without limitation, the fees and expenses of legal counsel and investment banking fees and expenses) incurred in connection with such Asset Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only, less the amount (estimated reasonably and in good faith by the Company) of income, franchise, sales and other applicable taxes required to be paid by the Company, the Parent or any Subsidiary of the Company or the Parent in connection with such Asset Sale in the taxable year that such sale is consummated or in the immediately succeeding taxable year, the computation of which shall take into account the reduction in tax liability resulting from any available operating losses and net operating loss carryovers, tax credits and tax credit carryforwards, and similar tax attributes. "Non-Guarantor Subsidiary" means any Subsidiary of the Parent, including any Subsidiary of the Company, that has not guaranteed the Obligations under the Notes and the Indenture or that has been released from its obligations under its Guarantee of the Notes in accordance with the terms of the Indenture. "Notice of Deficiency" means a notice of deficiency as described under section 6212 of the Code or a similar notice under state, local, or foreign law. "Obligation" means any principal, premium or interest payment, or monetary penalty, or damages, due by the Company or any Guarantor under the terms of the Notes or the Indenture, including any Liquidated Damages due pursuant to the terms of the Registration Rights Agreement. 141 "Offering Memorandum" means the Offering Memorandum, dated June 21, 2002, relating to the offer and sale of the Notes on the Issue Date. "Officers' Certificate" means the officers' certificate to be delivered upon the occurrence of certain events as set forth in the Indenture. "Parent" means WH Intermediate Holdings, Ltd. "Parent CFC Group" means Parent and any direct or indirect Subsidiary of Parent other than the Company and any direct or indirect Subsidiary of the Company. "Parent Group" means Parent and its Subsidiaries. "Parent Group Tax Savings Amount" means, in respect of any Tax Determination Year, the excess of (x) the tax liability incurred by the Parent Group for such Tax Determination Year as determined as if no Intercompany Service Agreement had been entered into by and among Intercompany Service Provider and any Subsidiary of the Parent Group over (y) the actual tax liability incurred by the Parent Group for such Tax Determination Year (as determined on a basis consistent with any Final Determination in respect of any previous Tax Determination Year), which liability shall take into account any taxes that have been, or will be, incurred by the Parent Group in connection with the making of a Tax Amounts Payment in respect of such Tax Determination Year. If, in respect of any Tax Determination Year, Parent or any Subsidiary of the Parent Group has received a Notice of Deficiency, in respect of which there has been no Final Determination, related to any item arising from or attributable to amounts paid or accrued pursuant to the Intercompany Service Agreement, the Parent Group Tax Savings Amount shall be determined on a basis consistent with such Notice of Deficiency except to the extent that, based on the advice of the Tax Amounts CPA, the Company reasonably determines that, more likely than not, the Parent or such Subsidiary will prevail on the merits in connection with contesting such Notice of Deficiency. "Permitted Indebtedness" means that: (a) the Company and the Guarantors may incur Indebtedness evidenced by the Notes and the Guarantees (including the Series B Notes and the Guarantees in respect thereof) issued pursuant to the Indenture up to the amounts being issued on the Issue Date less any amounts repaid or retired (and not including any Additional Notes); (b) the Company and its Subsidiaries may incur Refinancing Indebtedness with respect to any Existing Indebtedness or, the Company and the Guarantors, as applicable, may incur Refinancing Indebtedness with respect to any Indebtedness (including Disqualified Capital Stock), described in clause (a) or incurred pursuant to the Debt Incurrence Ratio test of the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock," or which was refinanced pursuant to this clause (b); (c) the Company, the Guarantors and the Subsidiaries of the Company and the Parent may incur Indebtedness solely in respect of bankers acceptances, letters of credit and performance bonds (to the extent that such incurrence does not result in the incurrence of any obligation to repay any obligation relating to borrowed money or other Indebtedness), all in the ordinary course of business in accordance with customary industry practices, in amounts and for the purposes customary in the Company's industry; provided, that the aggregate principal amount outstanding of such Indebtedness (including any Refinancing Indebtedness and any other Indebtedness issued to retire, refinance, refund, defease or replace such Indebtedness) shall at no time exceed $1.0 million; (d) the Company may incur Indebtedness owed to (borrowed from) any Guarantor, and any Guarantor may incur Indebtedness owed to (borrowed from) any other Guarantor or the Company; provided, that in the case of Indebtedness of the Company, such obligations shall be unsecured and contractually subordinated in all respects to the Company's obligations pursuant to the Notes and any event that causes such Guarantor no longer to be a Guarantor (including by designation to be an Unrestricted Subsidiary) shall be deemed to be a new incurrence by such issuer of such Indebtedness and 142 any guarantor thereof respectively subject to the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Stock;" (e) the Company and the Guarantors may incur Indebtedness owed to (borrowed from) any Non-Guarantor Subsidiary and any Non-Guarantor Subsidiary may incur Indebtedness owed to (borrowed from) any other Non-Guarantor Subsidiary; provided, that in the case of Indebtedness of the Company or the Guarantors, such obligations shall be unsecured and contractually subordinated in all respects to the Company's obligations pursuant to the Notes or the Guarantor's obligations pursuant to its Guarantee and any event that causes such Non-Guarantor Subsidiary to no longer be a Non-Guarantor Subsidiary (other than by becoming a Guarantor) shall be deemed to be a new incurrence by such issuer of such Indebtedness and any guarantor thereof subject to the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Stock;" (f) the Company and the Guarantors may incur Interest Swap and Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the Indenture to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; provided, that the notional amount of any such Interest Swap and Hedging Obligation does not exceed the principal amount of Indebtedness to which such Interest Swap and Hedging Obligation relates; (g) the Company and its Subsidiaries may incur the Existing Indebtedness; (h) any Non-Guarantor Subsidiary may incur Indebtedness owed to (borrowed from) the Parent, the Company or any Guarantor; provided, that the Investment in the form of the loan is not prohibited at the time of incurrence by the covenant described above under the caption "Limitation on Restricted Payments;" and (i) Indebtedness in respect of the Korean Consumer Refund Guarantee. "Permitted Investment" means: (a) any Investment in any of the Notes; (b) any Investment in Cash Equivalents; (c) intercompany notes to the extent permitted under clause (d) or (e) of the definition of "Permitted Indebtedness;" (d) any Investment by the Company, the Parent or any Subsidiary of the Company or the Parent in a Person in a Related Business if as a result of such Investment such Person immediately becomes a Subsidiary of the Company or the Parent and becomes a Guarantor or such Person is immediately merged with or into the Company or a Guarantor; (e) any Investment in any Person in exchange for the Company's Qualified Capital Stock or the Net Cash Proceeds of any substantially concurrent sale of the Company's Qualified Capital Stock; (f) Investment in other Persons, including Non-Guarantor Subsidiaries, provided, that after giving pro forma effect to each such Investment, the aggregate amount of all such Investments made on and after the Issue Date pursuant to this clause (f) that are outstanding (after giving effect to any such Investments that are returned to the Company or the Guarantor that made such prior Investment, without restriction, in cash on or prior to the date of any such calculation), but only up to the amount of the Investment made under this clause (f) in such Person at any time does not in the aggregate exceed $15.0 million (measured by the value attributed to the Investment at the time made or returned, as applicable); (g) Investments by Non-Guarantor Subsidiaries in other Non-Guarantor Subsidiaries; (h) any Investment by any Non-Guarantor Subsidiary in a Person in a Related Business if as a result of such Investment such Person immediately becomes a Non-Guarantor Subsidiary or a Guarantor or such Person becomes a Non-Guarantor Subsidiary or a Guarantor; 143 (i) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "Repurchase at the Option of Holders -- Asset Sales and Sales of Subsidiary Stock;" (j) Investments in customers and suppliers in the ordinary course of business and consistent with the Company's past practices that either (A) generates accounts receivables, or (B) are accepted in settlement of bonafide disputes; (k) Investments in the form of advances to employees for travel, relocation and like expenses, in each case, consistent with the Company's past practices; (l) Investments in the form of loans and advances not to exceed $2.5 million at any one time outstanding pursuant to this clause (l) to employees, directors and distributors, of the Parent, the Company and the Subsidiaries of the Parent for the purpose of funding the purchase of Capital Stock of the Parent or Holdings by such employees, directors and distributors. "Permitted Lien" means: (a) Liens existing on the Issue Date; (b) statutory liens of carriers, warehousemen, mechanics, material men, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business provided that (1) the underlying obligations are not overdue for a period of more than 30 days, or (2) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company or the Parent in accordance with GAAP; (c) Liens securing the performance of bids, trade contracts (other than borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (d) Liens securing the Notes; (e) Liens securing Indebtedness of a Person existing at the time such Person becomes a Subsidiary or is merged with or into the Company, the Parent or a Subsidiary of the Company or the Parent or Liens securing Indebtedness incurred in connection with an Acquisition, provided, that such Liens were in existence prior to the date of such acquisition, merger or consolidation, were not incurred in anticipation thereof, and do not extend to any other assets; (f) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company, the Parent or any Subsidiary of the Company or the Parent in the ordinary course of business; (g) Liens securing Refinancing Indebtedness incurred to refinance any Indebtedness that was previously so secured in a manner no more adverse to the Holders of the Notes than the terms of the Liens securing such refinanced Indebtedness, and provided that the Indebtedness secured is not increased and the Lien is not extended to any additional assets or property that would not have been security for the Indebtedness refinanced; (h) Liens securing Indebtedness incurred under Senior Debt in accordance with the terms of the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock"; and (i) Liens securing Indebtedness of any Non-Guarantor Subsidiary incurred in accordance with the provisions of the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock"). "Person" or "person" means any corporation, individual, limited liability company, joint stock company, joint venture, partnership, limited liability company, unincorporated association, governmental regulatory entity, country, state or political subdivision thereof, trust, municipality or other entity. 144 "PM Obligation" means, for any person, the obligations of such person in respect of Debt incurred for the purpose of financing all or any part of the purchase price of any property (including Ownership Interests of any person) or the cost of installation, construction or improvement of any property or assets and any refinancing thereof; provided, however, that such Indebtedness is incurred within 90 days after such acquisition of such property by such person. "Preferred Stock" means any Equity Interest of any class or classes of a Person (however designated) which is preferred as to payments of dividends, or as to distributions upon any liquidation or dissolution, over Equity Interests of any other class of such Person. "Proceeds" means: (a) with respect to any Asset Disposition, the cash proceeds received by Holdings or any of its Subsidiaries party to the Credit Agreement (including cash proceeds subsequently received (as and when received by Holdings or any of its Subsidiaries party to the Credit Agreement) in respect of noncash consideration initially received) net of (i) selling expenses (including reasonable brokers' fees or commissions, legal fees, transfer and similar taxes and the Company's reasonable and good faith estimate of income, franchise, sales, and other applicable taxes required to be paid by the Company or any of its respective Subsidiaries in connection with such Asset Disposition in the taxable year that such sale is consummated or in the immediately succeeding taxable year, the computation of which shall take into account the reduction in tax liability resulting from any available operating losses and net operating loss carryovers, tax credits, and tax credit carry forwards, and similar tax attributes; (ii) amounts escrowed or provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset Disposition (provided that, to the extent and at the time any such amounts are released from such escrow or reserve, such amounts shall constitute Proceeds); (iii) the Company's good faith estimate of payments required to be made with respect to unassumed liabilities relating to the assets sold within 90 days of such Asset Disposition (provided that, to the extent such cash proceeds are not used to make payments in respect of such unassumed liabilities within 90 days of such Asset Disposition, such cash proceeds shall constitute Proceeds); and (iv) the principal amount, premium or penalty, if any, interest and other amounts on any Debt for borrowed money that is secured by a senior Encumbrance on the asset sold in such Asset Disposition and that is repaid with such proceeds (other than any such Debt assumed by the purchaser of such asset); (b) with respect to any Casualty Event, the cash insurance proceeds, condemnation awards and other compensation received in respect thereof, net of all reasonable costs and expenses incurred in connection with the collection of such proceeds, awards or other compensation in respect of such Casualty Event. "Pro Forma" or "pro forma" shall have the meaning set forth in Regulation S-X of the Securities Act, unless otherwise specifically stated herein. "Principals" means each of (1) Whitney V, L.P. and (2) CCG Investments (BVI), L.P. "Purchase Money Indebtedness" of any Person means any Indebtedness of such Person to any seller or other Person incurred solely to finance the acquisition (including in the case of a Capitalized Lease Obligation, the lease), construction, installation or improvement of any after acquired real or personal tangible property which, in the reasonable good faith judgment of the Board of Directors of the Company, is directly related to a Related Business of the Company and which is incurred substantially concurrent with such acquisition, construction, installation or improvement and is secured only by the assets so financed. "Qualified Capital Stock" means any Capital Stock of the Parent that is not Disqualified Capital Stock. "Qualified Equity Offering" means, except in connection with the Merger and Related Financing Transactions, (i) an underwritten public offering pursuant to a registration statement filed with the Commission in accordance with the Securities Act, of Qualified Capital Stock of the Parent, or (ii) an unregistered offering of Qualified Capital Stock of Parent for cash resulting in net proceeds to the Parent in excess of $50.0 million, or (iii) a Capital Contribution to the Parent resulting in net cash proceeds in excess of $50.0 million. 145 "Qualified Exchange" means: (1) any legal defeasance, redemption, retirement, repurchase or other acquisition of Capital Stock, or Indebtedness of the Parent or Company issued on or after the Issue Date with the Net Cash Proceeds received by the Parent or Company from the substantially concurrent sale of its Qualified Capital Stock (other than to the Parent, the Company, or a Subsidiary of the Company or the Parent) or, to the extent used to retire Indebtedness (other than Disqualified Capital Stock) of the Parent or the Company issued on or after the Issue Date, Refinancing Indebtedness of the Parent or the Company, or (2) any issuance of Qualified Capital Stock of the Parent or the Company in exchange for any Capital Stock or Indebtedness of the Parent or the Company issued on or after the Issue Date. "Real Property" means, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned, leased or operated by any person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof. "Recourse Indebtedness" means Indebtedness (a) as to which either the Company, the Parent or any Subsidiary of the Company or the Parent (1) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (2) is directly or indirectly liable (as a guarantor or otherwise), or (3) constitutes the lender, and (b) a default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company, the Parent or any Subsidiary of the Company or the Parent to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Reference Period" with regard to any Person means the four full fiscal quarters ended immediately preceding any date upon which any determination is to be made pursuant to the terms of the Notes or the Indenture. "Refinancing Indebtedness" means Indebtedness (including Disqualified Capital Stock) (a) issued in exchange for, or the proceeds from the issuance and sale of which are used substantially concurrently to repay, redeem, defease, refund, refinance, discharge or otherwise retire for value, in whole or in part, or (b) constituting an amendment, modification or supplement to, or a deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any Indebtedness (including Disqualified Capital Stock) in a principal amount or, in the case of Disqualified Capital Stock, liquidation preference, not to exceed (after deduction of reasonable and customary fees and expenses incurred in connection with the Refinancing plus the amount of any premium paid in connection with such Refinancing) the lesser of (1) the principal amount or, in the case of Disqualified Capital Stock, liquidation preference, of the Indebtedness (including Disqualified Capital Stock) so Refinanced and (2) if such Indebtedness being Refinanced was issued with an original issue discount, the accreted value thereof (as determined in accordance with GAAP) at the time of such Refinancing; provided, that (A) such Refinancing Indebtedness shall only be used to refinance outstanding Indebtedness (including Disqualified Capital Stock) of such Person issuing such Refinancing Indebtedness, (B) such Refinancing Indebtedness shall (x) not have an Average Life shorter than the Indebtedness (including Disqualified Capital Stock) to be so refinanced at the time of such Refinancing and (y) in all respects, be no less contractually subordinated or junior, if applicable, to the rights of Holders of the Notes than was the Indebtedness (including Disqualified Capital Stock) to be refinanced, (C) such Refinancing Indebtedness shall have a final stated maturity or redemption date, as applicable, no earlier than the final stated maturity or redemption date, as applicable, of the Indebtedness (including Disqualified Capital Stock) to be so refinanced or, if sooner, 91 days after the Stated Maturity of the Notes, and (D) such Refinancing Indebtedness shall be secured (if secured) in a manner no more adverse to the Holders of the Notes than the terms of the Liens (if any) securing such refinanced Indebtedness, including, without limitation, the amount of Indebtedness secured shall not be increased. 146 "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Issue Date, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Related Business" means the business conducted (or proposed to be conducted) by Herbalife International, Inc. and its Subsidiaries as of the Issue Date and any and all businesses that in the good faith judgment of the Board of Directors of the Company are materially related, ancillary or complementary businesses. "Related Business Asset" means assets that the Company determines will be used in a Related Business. "Related Financing Transactions" means the financing transactions in connection with the consummation of the Merger as described in the Offering Memorandum. "Related Party" means, with respect to any of the Principals, any Person who controls, is controlled by or is under common control with such Principal; provided, that for purposes of this definition "control" means the beneficial ownership of more than 80% of the total voting power of a Person normally entitled to vote in the election of directors, managers or trustees, as applicable of a Person. "Requirements of Law" means, collectively, any and all requirements of any Governmental Authority including any and all laws, ordinances, rules, regulations or similar statutes or case law. "Restricted Investment" means, in one or a series of related transactions, any Investment, other than other Permitted Investments. "Restricted Payment" means, with respect to any Person: (a) the declaration or payment of any dividend or other distribution in respect of Equity Interests of such Person or any parent of such Person, which, for purposes hereof expressly includes the payment of any Monitoring Fees (or any comparable fees, reimbursements or payments of out-of-pocket expenses) by such Person to any Person, (b) any payment (except to the extent with Qualified Capital Stock) on account of the purchase, redemption or other acquisition or retirement for value of Equity Interests of such Person or any parent of such Person, (c) other than with the proceeds from the substantially concurrent sale of, or in exchange for, Refinancing Indebtedness any purchase, redemption, or other acquisition or retirement for value of, any payment in respect of any amendment of the terms of or any defeasance of, any Subordinated Indebtedness, directly or indirectly, prior to the scheduled maturity, any scheduled repayment of principal, or scheduled sinking fund payment, as the case may be, of such Indebtedness, and (d) any Restricted Investment by such Person; provided, however, that the term "Restricted Payment" does not include (1) any dividend, distribution or other payment on or with respect to Equity Interests of an issuer to the extent payable solely in shares of Qualified Capital Stock of such issuer, or (2) any dividend, distribution or other payment to the Company, or to any Guarantor, by the Company, any Subsidiary of the Company or the Parent, or (3) any Investment in the Company or any Guarantor by the Company, any Guarantor or any Subsidiary of the Company or the Parent; provided, that the consideration for such Investment will be received by the Company or any Guarantor, or (4) the repurchase of Equity Interests deemed to occur upon the exercise of stock options if such Equity Interests represent a portion of the exercise price thereof, or (5) the payment of the Merger Consideration and Related Costs as described in the Offering Memorandum. "Senior Debt" of the Company or any Guarantor means Indebtedness (including any obligation in respect of the Credit Agreement, and interest, whether or not allowable, accruing on Indebtedness incurred pursuant to the Credit Agreement after the filing of a petition initiating any proceeding under any bankruptcy, insolvency or similar law) of the Company or such Guarantor arising under the Credit Agreement or that, by the terms of the instrument creating or evidencing such Indebtedness, is expressly designated Senior Debt and 147 made senior in right of payment to the Notes or the applicable Guarantee; provided, that in no event shall Senior Debt include (a) Indebtedness to any Subsidiary of the Company or the Parent or any officer, director or employee of the Company or the Parent or any Subsidiary of the Company or the Parent, (b) Indebtedness incurred in violation of the terms of the Indenture; provided, that Indebtedness under the Credit Agreement will not cease to be Senior Debt as a result of this clause (b) if the lenders thereunder obtained a certificate from an executive officer of the Company on the date such Indebtedness was incurred certifying that the incurrence of such Indebtedness was not prohibited by the Indenture, (c) Indebtedness to trade creditors, (d) Disqualified Capital Stock, (e) Capitalized Lease Obligations, and (f) any liability for taxes owed or owing by the Company or such Guarantor. "Significant Subsidiary" shall have the meaning provided under Regulation S-X of the Securities Act, as in effect on the Issue Date. "SL Obligation" means the monetary obligation of a person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such person but which, upon the insolvency or bankruptcy of such person, would be characterized as the indebtedness of such person (without regard to accounting treatment). "Stated Maturity," when used with respect to any Note, means July 15, 2010. "Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor that is subordinated in right of payment by its terms or the terms of any document or instrument or instrument relating thereto ("contractually") to the Notes or such Guarantee, as applicable, in any respect. "Subsidiary," with respect to any Person, means (1) a corporation a majority of whose Equity Interests with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person, and (2) any other Person (other than a corporation) in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof has a majority ownership interest, or (3) a partnership in which such Person or a Subsidiary of such Person is, at the time, a general partner and in which such Person, directly or indirectly, at the date of determination thereof has a majority ownership interest. Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of the Company, the Parent or of any Subsidiary of the Company or the Parent. Unless the context requires otherwise, Subsidiary means each direct and indirect Subsidiary of the Company and the Parent. "Tax Amounts CPA" means PricewaterhouseCoopers L.L.P. or any other certified public accounting firm of national reputation. The Tax Amounts CPA shall reasonably determine for each Tax Determination Year, the Applicable Tax Rate, the Final Determination Amount, Intercompany Service Receipts, Intercompany Service Subpart F Income, Tax Amounts Payment and Parent Group Tax Savings Amount. "Tax Amounts Payment" means, in respect of any Tax Determination Year, an amount payable to Tax Amounts Recipients equal to the lesser of (hereinafter referred to as the "Initial Limitation") (A) the product of (x) the Applicable Tax Rate and (y) the Intercompany Service Subpart F Income that is (or would be) includible in the gross income of the Tax Amounts Recipients (assuming, for this purpose, that each such Tax Amount Recipient is a "United States shareholder" as defined in section 951(b) of the Code) for such year under section 951(a) of the Code, (B) the Parent Group Tax Savings Amount for such year, (C) the product of (x) 6% and (y) the sum of (i) Consolidated Net Income of the Parent Group for such year, (ii) Consolidated income tax expense for the Parent Group for such year, and (iii) Tax Amount Payments made to Tax Amounts Recipients during such year, and (iv) in the case of the fiscal year ending December 31, 2002, the non-recurring expenses and charges of the Company and Herbalife International, Inc. related to the Merger and Related Financing Transactions, to the extent such non-recurring expenses and charges of the Company and Herbalife International, Inc. related to the merger and Related Financing Transactions were treated as deductions for purposes of computing Consolidated Net Income for such year or (D) $10 million. The Initial Limitation shall be reduced (but not below zero) by any Final Determination Amount in respect of a previous Tax Determination Year. A Final Determination Amount shall be applied to 148 reduce an Initial Limitation for the Tax Determination Year during which the Final Determination in respect of such Final Determination Amount occurs. A Final Determination Amount shall be deemed to be reduced to the extent that such Final Determination Amount has been applied to reduce an Initial Limitation. Thereafter, the remaining Final Determination Amount, if any, shall be applied to reduce the Initial Limitation for each successive Tax Determination Year in like fashion until such Final Determination Amount has been reduced to zero. "Tax Amounts Recipient" means, in respect of any Tax Determination Year, persons who hold capital stock of Holdings on December 31 of such year or, if earlier, on the last day of such year that Holdings continues to be a "controlled foreign corporation" as defined under section 957 of the Code. "Tax Determination Year" means the calendar year (and, in the case of the 2002 calendar year, the relevant portion thereof) in respect of which a Tax Amounts Recipient is (or would be) required to include in gross income under section 951(a) of the Code his pro rata share of Intercompany Service Subpart F Income (assuming for this purpose, that such Tax Amounts Recipient is a "United States shareholder" as defined in Section 951(b) of the Code). "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York. "Unrestricted Subsidiary" means any subsidiary of the Company or Parent that does not directly, indirectly or beneficially own any Capital Stock of, and Subordinated Indebtedness of, or own or hold any Lien on any property of, the Company or the Parent or any other Subsidiary of the Company or Parent and that, at the time of determination, shall be an Unrestricted Subsidiary (as designated by the Board of Directors of the Company); provided, that such Subsidiary at the time of such designation (a) has no Recourse Indebtedness; (b) is not party to any agreement, contract, arrangement or understanding with the Company, Parent or any Subsidiary of the Company or Parent unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company, Parent or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company, Parent nor any of Subsidiary of the Company or Parent has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company, Parent or any Subsidiary of the Company or Parent. The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Subsidiary, provided, that (1) no Default or Event of Default is existing or will occur as a consequence thereof and (2) immediately after giving effect to such designation, on a pro forma basis, the Parent could incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio of the covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified Capital Stock." Each such designation shall be evidenced by filing with the Trustee a certified copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "U.S. Government Obligations" means direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. "Voting Equity Interests" means Equity Interests which at the time are entitled to vote in the election of, as applicable, directors, members or partners generally. "Wholly-Owned Subsidiary" means a Subsidiary all the Equity Interests of which (other than directors' qualifying shares) are owned by the Parent or one or more Wholly-Owned Subsidiaries of the Parent. 149 FORM AND TRANSFER OF THE NOTES The Notes sold to qualified institutional buyers initially will be in the form of one or more registered global notes without interest coupons (collectively, the "U.S. Global Notes"). Upon issuance, the U.S. Global Notes will be deposited with the Trustee, as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee for credit to the accounts of DTC's Direct and Indirect Participants (as defined below). The Notes being offered and sold in offshore transactions in reliance on Regulation S, if any, initially will be in the form of one or more registered, global book-entry notes without interest coupons (the "Reg S Global Notes"). The Reg S Global Notes will be deposited with the Trustee, as custodian for DTC, in New York, New York and registered in the name of a nominee of DTC for credit to the accounts of Direct Participants and Indirect Participants (including the Euroclear System ("Euroclear") and Clearstream, Luxembourg (formerly Cedelbank, "Clearstream, Luxembourg"). During the 40-day period commencing on the day after the later of the offering and the Issue Date of the Notes (the "40-Day Restricted Period"), Direct Participants and Indirect Participants that hold a beneficial interest in the Reg S Global Notes will not be able to transfer such interest to a person that takes delivery thereof in the form of an interest in the U.S. Global Notes. After the 40-Day Restricted Period, (i) beneficial interests in the Reg S Global Notes may be transferred to a person that takes delivery in the form of an interest in the U.S. Global Notes and (ii) beneficial interests in the U.S. Global Notes may be transferred to a person that takes delivery in the form of an interest in the Reg S Global Notes, provided, in each case, that the certification requirements described below are complied with. See "-- Transfers of Interests in One Global Note for Interests in Another Global Note." All registered global notes are referred to herein collectively as "Global Notes." Beneficial interests in all Global Notes and all Certificated Notes (as defined below), if any, will be subject to certain restrictions on transfer and will bear a restrictive legend as described under "Transfer Restrictions." In addition, transfer of beneficial interests in any Global Notes will be subject to the applicable rules and procedures of DTC and its Direct or Indirect Participants (including, if applicable, those of Euroclear and Clearstream, Luxembourg), which may change from time to time. The Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee in certain limited circumstances. Beneficial interests in the Global Notes may be exchanged for Notes in certificated form in certain limited circumstances. See "-- Transfer of Interests in Global Notes for Certificated Notes." Initially, the Trustee will act as Paying Agent and Registrar. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. DEPOSITORY PROCEDURES DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Direct Participants") and to facilitate the clearance and settlement of transactions in those securities between Direct Participants through electronic book-entry changes in accounts of Participants. The Direct Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities that clear through or maintain a direct or indirect, custodial relationship with a Direct Participant (collectively, the "Indirect Participants"), including Euroclear and Clearstream, Luxembourg. DTC may hold securities beneficially owned by other persons only through the Direct Participants or Indirect Participants and such other person's ownership interest and transfer of ownership interest will be recorded only on the records of the Direct Participant and/or Indirect Participant and not on the records maintained by DTC. DTC has advised us that, pursuant to DTC's procedures, (i) upon deposit of the Global Notes, DTC will credit the accounts of the Direct Participants designated by the initial purchasers with portions of the principal amount of the Global Notes that have been allocated to them by the initial purchasers, and (ii) DTC will maintain records of the ownership interests of such Direct Participants in the Global Notes and the transfer of ownership interests by and between Direct Participants. DTC will not maintain records of the ownership 150 interests of, or the transfer of ownership interests by and between, Indirect Participants or other owners of beneficial interests in the Global Notes. Direct Participants and Indirect Participants must maintain their own records of the ownership interests of, and the transfer of ownership interests by and between, Indirect Participants and other owners of beneficial interests in the Global Notes. Investors in the U.S. Global Notes may hold their interests therein directly through DTC if they are Direct Participants in DTC or indirectly through organizations that are Direct Participants in DTC. Investors in the Reg S Global Notes may hold their interests therein directly through DTC if they are Direct Participants in DTC, indirectly through organizations that have accounts with Direct Participants, including Euroclear or Clearstream, Luxembourg, or indirectly through organizations that are participants in Euroclear or Clearstream, Luxembourg. Morgan Guaranty Trust Company of New York, Brussels office is the operator and depository of Euroclear and Clearstream Banking S.A. is the operator and depository of Clearstream, Luxembourg (each a "Nominee" of Euroclear and Clearstream, Luxembourg, respectively). Therefore, they will each be recorded on DTC's records as the holders of all ownership interests held by them on behalf of Euroclear and Clearstream, Luxembourg, respectively. Euroclear and Clearstream, Luxembourg must maintain on their own records the ownership interests of, and transfers of ownership interests by and between, their own customers' securities accounts. DTC will not maintain such records. All ownership interests in any Global Notes, including those of customers' securities accounts held through Euroclear or Clearstream, Luxembourg, may be subject to the procedures and requirements of DTC. The laws of some states in the United States require that certain persons take physical delivery in definitive, certificated form, of securities that they own. This may limit or curtail the ability to transfer beneficial interests in a Global Note to such persons. Because DTC can act only on behalf of Direct Participants, which in turn act on behalf of Indirect Participants and others, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons or entities that are not Direct Participants in DTC, or to otherwise take actions in respect of such interests, may be affected by the lack of physical certificates evidencing such interests. For certain other restrictions on the transferability of the Notes see "-- Transfers of Interests in Global Notes for Certificated Notes." Except as described in "-- Transfers of Interests in Global Notes for Certificated Notes," owners of beneficial interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Under the terms of the Indenture, we, the Guarantors and the Trustee will treat the persons in whose names the Notes are registered (including Notes represented by Global Notes) as the owners thereof for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of the principal, premium, Liquidated Damages, if any, and interest on Global Notes registered in the name of DTC or its nominee will be payable by the Trustee to DTC or its nominee as the registered holder under the Indenture. Consequently, neither we, the Guarantors, the Trustee nor any agent of ours, the Guarantors or the Trustee has or will have any responsibility or liability for (i) any aspect of DTC's records or any Direct Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Direct Participant's or Indirect Participant's records relating to the beneficial ownership interests in any Global Note or (ii) any other matter relating to the actions and practices of DTC or any of its Direct Participants or Indirect Participants. DTC has advised us that its current payment practice (for payments of principal, interest and the like) with respect to securities such as the Notes is to credit the accounts of the relevant Direct Participants with such payment on the payment date in amounts proportionate to such Direct Participant's respective ownership interests in the Global Notes as shown on DTC's records. Payments by Direct Participants and Indirect Participants to the beneficial owners of the Notes will be governed by standing instructions and customary practices between them and will not be the responsibility of DTC, the Trustee, us or the Guarantors. None of we, the Guarantors or the Trustee will be liable for any delay by DTC or its Direct Participants or Indirect Participants in identifying the beneficial owners of the Notes, and we and the Trustee may conclusively rely on 151 and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Notes for all purposes. The Global Notes will trade in DTC's Same-Day Funds Settlement System and, therefore, transfers between Direct Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in immediately available funds. Transfers between Indirect Participants (other than Indirect Participants who hold an interest in the Notes through Euroclear or Clearstream, Luxembourg) who hold an interest through a Direct Participant will be effected in accordance with the procedures of such Direct Participant but generally will settle in immediately available funds. Transfers between and among Indirect Participants who hold interests in the Notes through Euroclear and Clearstream, Luxembourg will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Notes described herein, crossmarket transfers between Direct Participants in DTC, on the one hand, and Indirect Participants who hold interests in the Notes through Euroclear or Clearstream, Luxembourg, on the other hand, will be effected by Euroclear's or Clearstream, Luxembourg's respective Nominee through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, Luxembourg; however, delivery of instructions relating to cross-market transactions must be made directly to Euroclear or Clearstream, Luxembourg, as the case may be, by the counterparty in accordance with the rules and procedures of Euroclear or Clearstream, Luxembourg and within their established deadlines. Indirect Participants who hold interests in the Notes through Euroclear and Clearstream, Luxembourg may not deliver instructions directly to Euroclear's or Clearstream Luxembourg's Nominee. Euroclear or Clearstream, Luxembourg will, if the transaction meets its settlement requirements, deliver instructions to its respective Nominee to deliver or receive interests on Euroclear's or Clearstream, Luxembourg's behalf in the relevant Global Note in DTC, and make or receive payment in accordance with normal procedures for same-day fund settlement applicable to DTC. Because of time zone differences, the securities accounts of an Indirect Participant who holds an interest in the Notes through Euroclear or Clearstream, Luxembourg purchasing an interest in a Global Note from a Direct Participant in DTC will be credited, and any such crediting will be reported to Euroclear or Clearstream, Luxembourg during the European business day immediately following the settlement date of DTC in New York. Although recorded in DTC's accounting records as of DTC's settlement date in New York, Euroclear and Clearstream, Luxembourg customers will not have access to the cash amount credited to their accounts as a result of a sale of an interest in a Reg S Global Note to a DTC Participant until the European business day for Euroclear or Clearstream, Luxembourg immediately following DTC's settlement date. DTC has advised us that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more Direct Participants to whose account interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such Direct Participant or Direct Participants has or have given direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange Global Notes (without the direction of one or more of its Direct Participants) for legended Notes in certificated form, and to distribute such certificated forms of Notes to its Direct Participants. See "-- Transfers of Interests in Global Notes for Certificated Notes." Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the foregoing procedures to facilitate transfers of interests in the Reg S Global Notes and in the U.S. Global Notes among Direct Participants, including Euroclear and Clearstream, Luxembourg, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of we, the Guarantors, the Initial Purchasers or the Trustee shall have any responsibility for the performance by DTC, Euroclear or Clearstream, Luxembourg or their respective Direct and Indirect Participants of their respective obligations under the rules and procedures governing any of their operations. The information in this section concerning DTC, Euroclear and Clearstream, Luxembourg and their book-entry systems has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof. 152 TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE Prior to the expiration of the 40-Day Restricted Period, a Direct or an Indirect Participant who holds an interest in a Reg S Global Note will not be permitted to transfer its interest to a U.S. Person who takes delivery in the form of an interest in the U.S. Global Notes. After the expiration of the 40-Day Restricted Period, a Direct or an Indirect Participant who holds an interest in a Reg S Global Note will be permitted to transfer its interest to a U.S. Person who takes delivery in the form of an interest in the U.S. Global Notes only upon receipt by the Trustee of a written certification from the transferor to the effect that such transfer is being made in accordance with the restrictions on transfer set forth under "Transfer Restrictions" and set forth in the legend printed on the Reg S Global Notes. Prior to the expiration of the 40-Day Restricted Period, a Direct or an Indirect Participant who holds an interest in a U.S. Global Note will not be permitted to transfer its interest to any person that takes delivery in the form of an interest in the Reg S Global Notes. After the expiration of the 40-Day Restricted Period, a Direct or an Indirect Participant who holds an interest in a U.S. Global Note will be permitted to transfer its interest to a person who takes delivery in the form of an interest in the Reg S Global Notes only upon receipt by the Trustee of a written certification from the transferor to the effect that such transfer is being made in accordance with Rule 904 of Regulation S. Transfers involving an exchange of a beneficial interest in Reg S Global Notes for a beneficial interest in U.S. Global Notes or vice versa will be effected by DTC by means of an instruction originated by the Trustee through the DTC's Deposit/Withdraw at Custodian (DWAC) system. Accordingly, in connection with such transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the one Global Note and a corresponding increase in the principal amount of the other Global Note, as applicable. Any beneficial interest in the one Global Note that is transferred to a person who takes delivery in the form of the other Global Note will, upon transfer, cease to be an interest in such first Global Note and become an interest in such other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES An entire Global Note may be exchanged for definitive Notes in registered, certificated form without interest coupons ("Certificated Notes") if (i) DTC (x) notifies us that it is unwilling or unable to continue as depositary for the Global Notes and we thereupon fail to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) we, at our option, notify the Trustee in writing that we elect to cause the issuance of Certified Notes or (iii) upon the request of the Trustee or Holders of a majority of the outstanding principal amount of the Notes, after there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. In any such case, we will notify the Trustee in writing that, upon surrender by the Direct and Indirect Participants of their interest in such Global Note, Certificated Notes will be issued to each person that such Direct and Indirect Participants and DTC identify as being the beneficial owner of the related Notes. Beneficial interests in Global Notes held by any Direct or Indirect Participant may be exchanged for Certificated Notes upon request to DTC, by such Direct Participant (for itself or on behalf of an Indirect Participant), to the Trustee in accordance with customary DTC procedures. Certificated Notes delivered in exchange for any beneficial interest in any Global Note will be registered in the names, and issued in any approved denominations, requested by DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's customary procedures). In all cases described herein, such Certificated Notes will bear the restrictive legend referred to in "Transfer Restrictions," unless we determine otherwise in compliance with applicable law. None of we, the Guarantors or the Trustee will be liable for any delay by the holder of any Global Note or DTC in identifying the beneficial owners of Notes, and we and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the holder of the Global Note or DTC for all purposes. 153 TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES Certificated Notes may only be transferred if the transferor first delivers to the Trustee a written certificate (and, in certain circumstances, an opinion of counsel) confirming that, in connection with such transfer, it has complied with the restrictions on transfer described under "Transfer Restrictions." SAME DAY SETTLEMENT AND PAYMENT The Indenture requires that payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available same day funds to the accounts specified by the holder of interests in such Global Note. With respect to Certificated Notes, we will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available same day funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. We expect that secondary trading in the Certificated Notes will also be settled in immediately available funds. 154 UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material U.S. federal income tax consequences to beneficial owners arising from the exchange offer and the ownership and disposition of the Series B Notes. The discussion is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), its legislative history, judicial authority, current administrative rulings and practice, and existing and proposed Treasury Regulations, all as in effect and existing on the date hereof. Legislative, judicial or administrative changes or interpretations after the date hereof could alter or modify the validity of the statements and conclusions set forth below, may be retroactive and could adversely affect a beneficial owner of the Notes. The discussion which follows is intended as a descriptive summary only and is not intended as tax advice to any particular investor. This summary is not a complete analysis or listing of all potential U.S. federal income tax consequences and does not address the effect of any U.S. gift, estate, state or local tax law or foreign tax law on a potential investor in the Notes. The actual tax consequences will vary depending upon the particular circumstances of each prospective investor. For purposes of this summary, a U.S. Holder is a beneficial owner of the Series A Notes or the Series B Notes who is, for U.S. federal income tax purposes: - a citizen or resident of the U.S.; - a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the U.S. or any state thereof, including the District of Columbia; - an estate the income of which is subject to U.S. federal income tax regardless of its source; or - a trust if a court within the U.S. is able to exercise primary supervision over its administration and one or more U.S. persons have authority to control all substantial decisions of the trust. If a partnership (including an entity taxable as a partnership for U.S. federal income tax purposes) holds the Series A Notes or the Series B Notes, the tax consequences of a partner will generally depend upon the status of the partner and upon the activities of the partnership. A prospective investor who is a partner of a partnership holding the Series A Notes or the Series B Notes should consult its own tax advisor. A "Non-U.S. Holder" is a beneficial owner of the Series A Notes or the Series B Notes that is not a U.S. Holder. This summary is generally limited to investors that will hold the Notes as "capital assets" within the meaning of Section 1221 of the Code, whose functional currency is the U.S. Dollar and who are investors who exchange the Series A Notes for the Series B Notes in the exchange offer. This summary does not address the tax treatment of investors that may be subject to special income and withholding tax rules including, without limitation: - insurance companies; - tax-exempt organizations; - pension funds; - banks or other financial institutions; - U.S. expatriates; - holders subject to the alternative minimum tax; - broker-dealers; - dealers or traders in currencies or securities; and - holders who hold the Notes as a hedge against currency risks, as a position in a "straddle" for tax purposes, or as part of a conversion or other integrated transaction. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE UNITED STATES OR OTHER TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES, INCLUDING THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. 155 TAX CONSEQUENCES OF THE EXCHANGE OFFER The exchange of the Series A Notes for the Series B Notes pursuant to the exchange offer will not constitute a taxable exchange for U.S. federal income tax purposes. Accordingly, a holder of a Series A Note will not recognize gain or loss on the receipt of a Series B Note pursuant to the exchange offer. A holder's holding period for the Series B Notes will include the holding period of the Series A Notes exchanged therefore and such holder's adjusted basis in the Series B Notes received will equal the basis of the Series A Notes exchanged therefore immediately before the exchange. TAXATION OF U.S. HOLDERS PAYMENTS OF INTEREST You will be subject to tax on any interest on your Series B Note as ordinary income at the time you receive the interest or when it accrues, depending on your method of accounting for tax purposes. SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION OF A NOTE Your tax basis in your Note will generally be the cost of your Note. Upon the sale, exchange, retirement or other disposition of a Note, you will generally recognize gain or loss equal to the difference between the amount realized on such disposition and your tax basis in your Note. Gain or loss recognized on the sale, exchange, retirement or other disposition of a Note generally will be capital gain or loss (except to the extent attributable to accrued but unpaid interest). Net capital gains derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. Certain limitations exist on the deductibility of capital losses by both corporations and individual taxpayers. TAXATION OF NON-U.S. HOLDERS PAYMENTS OF INTEREST Subject to the discussion concerning backup withholding below, you generally will not be subject to U.S. federal income tax on interest on the Note if the interest qualifies as "portfolio interest". Interest that you receive on the Notes will qualify as "portfolio interest" if: (i) you do not actually or constructively own 10% or more of the total combined voting power of all our classes of stock entitled to vote, (ii) you are not a controlled foreign corporation that is related to us through stock ownership, (iii) you are not a bank receiving the interest on a loan made in the ordinary course of your business as a bank and (iv) you provide a certification to us, made under penalties of perjury, that you are not a U.S. person and the certificate provides the name and address of the beneficial holder of the Note. If you receive payments of interest on a Note that are not "U.S. trade or business income" and the interest does not qualify as portfolio interest, these payments will be subject to withholding tax at a rate of 30% unless you are a beneficiary of an income tax treaty that reduces or eliminates this withholding. For purposes of this summary "U.S. trade or business income" is income or gain that is (i) effectively connected with the conduct of a trade or business of the non-U.S. Holder in the United States or (ii) attributable to a permanent establishment or to a fixed base in the United States, if the non-U.S. Holder is the beneficiary of an applicable income treaty that so provides. If you receive payments of interest on a Note that are U.S. trade or business income, these payments will not be subject to withholding. Instead, you will be subject to tax on these payments at regular graduated U.S. federal income tax rates. Corporate non-U.S. Holders who recognize U.S. trade or business income on payments of interest on a Note will generally also be subject to branch profits tax at a 30% rate on gain realized on these payments, unless this tax is reduced or eliminated by an applicable income tax treaty. If you wish to claim the benefits of an applicable income tax treaty that reduces or eliminates the rate of withholding tax on interest payments on your Notes or if you wish to claim exemption from withholding on payments of interest because these payments are U.S. trade or business income, you must provide a properly- 156 executed IRS Form W-8BEN or W-8ECI (or the appropriate successor forms) prior to the payment of interest on your Note. SALE, EXCHANGE, RETIREMENT OR OTHER DISPOSITION OF A NOTE Generally, non-U.S. Holders will not be subject to U.S. federal income tax on gain realized on a sale, exchange, retirement or other disposition of a Note. However, non-U.S. Holders who are individuals and who are present for 183 days or more in the year in which they sell, exchange, retire or otherwise dispose of their Note and non-U.S. Holders who recognize U.S. trade or business income on a sale, exchange, retirement or other disposition of their Note generally will be subject to U.S. federal income tax on any gain realized. Gain or loss realized on a disposition of a Note by a non-U.S. Holder will generally equal the difference between the amount realized on the disposition and the non-U.S. Holder's tax basis in the Note. A non-U.S. Holder's tax basis in a Note will generally equal the cost of the Note to the non-U.S. Holder. Gain realized will be capital gain or loss. Capital gains realized by non-corporate holders that are U.S. trade or business income on property held for more than one year are subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations. Corporate non-U.S. Holders who recognize U.S. trade or business income on a sale, exchange, retirement or other disposition of their Note will generally also be subject to branch profits tax at a 30% rate on gain realized on disposition of a Note, unless this tax is reduced or eliminated by an applicable income tax treaty. BACKUP WITHHOLDING AND INFORMATION REPORTING The Code generally requires annual "information reporting" to the IRS and to each holder of a Note and "backup withholding" with respect to certain payments on the Notes. In general, if you are a non-corporate U.S. Holder, we and other payors are required to report to the IRS all payments of principal, and interest on your Note. In addition, we and other payors are required to report to the IRS any payment of proceeds of the sale of your Note before maturity within the United States. Additionally, backup withholding will apply to any payments, if you fail to provide an accurate taxpayer identification number, or you are notified by the IRS that you have failed to report all interest and dividends required to be shown on your federal income tax returns. A non-U.S. Holder generally will not be subject to information reporting and backup withholding with respect to payments made by U.S. payors provided that the non-U.S. Holder furnishes to the payor (i) an appropriate IRS Form W-8 BEN, or acceptable substitute form, upon which the holder certifies to its non- U.S. status or (ii) other documentation upon which the payor may rely to treat the payments as made to a non-U.S. person in accordance with U.S. Treasury Regulations or the non-U.S. Holder otherwise establishes an exemption. 157 ERISA CONSIDERATIONS If you intend to use plan assets to exchange for any of the Series B Notes offered by this prospectus, you should consult with counsel on the potential consequences of your investment under the fiduciary responsibility and prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the prohibited transaction provisions of the Code. If you intend to use governmental or church plan assets to exchange for any of the Series B Notes, you should consult with counsel on the potential consequences of your investment under similar provisions applicable under laws governing governmental and church plans. The following summary is based on the provisions of ERISA and the Code and related guidance in effect as of the date of this prospectus. This summary does not attempt to be a complete summary of these considerations. Future legislation, court decisions, administrative regulations or other guidance will change the requirements summarized in this section. Any of these changes could be made retroactively and could apply to transactions entered into before the change is enacted. FIDUCIARY RESPONSIBILITIES ERISA imposes requirements on (1) employee benefit plans subject to ERISA, (2) entities whose underlying assets include employee benefit plan assets, for example, collective investment funds and insurance company general accounts, and (3) fiduciaries of employee benefit plans. Under ERISA, fiduciaries generally include persons who exercise discretionary authority or control over plan assets. Before using any employee benefit plan assets to exchange for any of the Series B Notes offered in connection with this prospectus, you should determine whether the investment: (1) is permitted under the plan document and other instruments governing the plan; and (2) is appropriate for the plan in view of its overall investment policy and the composition and diversification of its portfolio, taking into account the limited liquidity of the Series B Notes. You should consider all factors and circumstances of a particular investment in the Notes, including, for example, the risk factors discussed in "Risk Factors" and the fact that in the future there may not be a market in which you will be able to sell or otherwise dispose of your interest in the Series B Notes. We are not making any representation that the exchange for Series B Notes under a plan meets the fiduciary requirements for investment by plans generally or any particular plan or that such an investment is appropriate for plans generally or any particular plan. PROHIBITED TRANSACTIONS ERISA and the Code prohibit a wide range of transactions involving (1) employee benefit plans and arrangements subject to ERISA and/or the Code, and (2) persons who have specified relationships to the plans. These persons are called "parties in interest" under ERISA and "disqualified persons" under the Code. The transactions prohibited by ERISA and the Code are called "prohibited transactions." If you are a party in interest or disqualified person who engages in a prohibited transaction, you may be subject to excise taxes and other penalties and liabilities under ERISA and/or the Code. As a result, if you are considering using plan assets to exchange for any of the Series B Notes offered by this prospectus, you should consider whether the investment might be a prohibited transaction under ERISA and/or the Code. Prohibited transactions may arise, for example, if the exchange under a plan with respect to which we, or any of our affiliates, are a party in interest or a disqualified person. Exemptions from the prohibited transaction provisions of ERISA and the Code may apply depending in part on the type of plan fiduciary making the decision to exchange and the circumstances under which such decision is made. Some of these exemptions include: (1) Prohibited transaction class exemption or "PTCE" exemptions 75-1 (relating to specified transactions involving employee benefit plans and broker-dealers, reporting dealers and banks); 158 (2) PTCE 84-14 (relating to specified transactions directed by independent qualified professional asset managers); (3) PTCE 90-1 (relating to specified transactions involving insurance company pooled separate accounts); (4) PTCE 91-38 (relating to specified transactions by bank collective investment funds); (5) PTCE 95-60 (relating to specified transactions involving insurance company general accounts); and (6) PTCE 96-23 (relating to specified transactions directed by in-house asset managers). These exemptions do not, however, provide relief from the self-dealing prohibitions under ERISA and the Code. In addition, there is no assurance that any of these class exemptions or other exemption will be available with respect to any particular transaction involving the exchange. TREATMENT OF NOTES AS DEBT INSTRUMENTS Some transactions involving our operation could give rise to prohibited transactions under ERISA and the Code if our assets were deemed to be plan assets. Pursuant to Department of Labor Regulations Section 2510.3-101 (which we refer to as the "plan assets regulations"), in general, when a plan acquires an "equity interest" in an entity such as Herbalife International, Inc., the plan's assets include both the equity interest and an undivided interest in each of the underlying assets of the entity unless exceptions set forth in the plan assets regulations apply. In general, an "equity interest" is defined under the plan assets regulations as any interest in an entity other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. Although there is very little published authority concerning the application of this definition, we believe that the Notes should be treated as debt rather than equity interest under the plan assets regulations because the Notes (1) should be treated as indebtedness under applicable local law and debt, rather than equity, for United States tax purposes and (2) should not be deemed to have any "substantial equity features." However, no assurance can be given that the Notes will be treated as debt for purposes of ERISA. If the Notes were to be treated as an equity interest under the plan assets regulations, the purchase of the Notes using plan assets could cause our assets to become subject to the fiduciary and prohibited transaction provisions of ERISA and the Code unless investment in the Notes by "benefit plan investors" is not "significant," as determined under the plan assets regulations. We cannot assure you that the criteria for this exception will be satisfied at any particular time and no monitoring or other measures will be taken to determine whether such criteria are met. This means that, if the Notes are treated as equity interests under the plan asset regulations and investment in the Notes by benefit plan investors is significant, our assets could be treated as the plan assets subject to ERISA and a non-exempt prohibited transaction could arise in connection with our operating activities. Any insurance company proposing to invest assets of its general account in the Notes should consider the implications of the U.S. Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510 U.S. 86, 114 S. Ct. 517 (1993), which, in some circumstances, treats such general account as including the assets of a plan that owns a policy or other contract with such insurance company, as well as the effect of Section 401 of ERISA, as interpreted by regulations issued by the Department of Labor. GOVERNMENT AND CHURCH PLANS Governmental plans and some church plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transactions provisions of ERISA or the Code, may be subject to state or other federal laws that are very similar to the provisions of ERISA and the Code. If you are a fiduciary of a governmental or church plan, you should consult with counsel before purchasing any Notes offered for sale in connection with this prospectus. 159 FOREIGN INDICIA OF OWNERSHIP ERISA also prohibits plan fiduciaries from maintaining the indicia of ownership of any plan assets outside the jurisdiction of the United States district courts except in specified cases. Before investing in any Note offered for sale in connection with this prospectus, you should consider whether the acquisition, holding or disposition of Notes would satisfy such indicia of ownership rules. REPRESENTATIONS AND WARRANTIES If you acquire or accept Notes offered in connection with this prospectus, you will be deemed to have represented and warranted that either: (1) you have not used plan assets to acquire such Note; or (2) your acquisition and holding of a Note (A) is exempt from the prohibited transaction restrictions of ERISA and the Code under one or more prohibited transaction class exemptions or does not constitute a prohibited transaction under ERISA and the Code, and (B) meets the fiduciary requirements of ERISA. 160 PLAN OF DISTRIBUTION We are not using any underwriters for this exchange offer. We are also bearing the expenses of the exchange. Based on interpretations by the staff of the SEC set forth in no action letters issued to third parties, we believe that you may transfer Series B Notes issued under the exchange offer in exchange for Series A Notes unless you are: - our "affiliate" within the meaning of Rule 405 under the Securities Act; - a broker-dealer that acquired Series A Notes directly from us; or - a broker-dealer that acquired Series A Notes as a result of market-making or other trading activities without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that you acquire the Series B Notes in the ordinary course of your business and you are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the Series B Notes. Broker-dealers receiving Series B Notes in the exchange offer will be subject to a prospectus delivery requirement with respect to resales of the Series B Notes. To date, the staff of the SEC has taken the position that participating broker-dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as this exchange offer, other than a resale of an unsold allotment from the original sale of the Series A Notes, with the prospectus contained in the exchange offer registration statement. Pursuant to the Registration Agreement, each broker-dealer that receives Series B Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such Series B Notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Series B Notes received in exchange for Series A Notes where such Series A Notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until March 5, 2003, all dealers effecting transactions in the Series B Notes may be required to deliver a prospectus. We will not receive any proceeds from any sale of Series B Notes by broker-dealers. Series B Notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Series B Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Series B Notes. Any broker-dealer that resells Series B Notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such Series B Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Series B Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the Notes), other than commissions or concessions of any brokers or dealers, and will indemnify the holders of the Notes (including any broker-dealers) against specified liabilities, including liabilities under the Securities Act. 161 VALIDITY OF THE SECURITIES The validity of the Series B Notes will be passed upon by our special counsel, Chadbourne & Parke LLP, New York, New York. Certain legal matters with respect to Nevada will be passed upon for us by Marshall Hill Cassas & de Lipkau, Reno, Nevada. Certain legal matters with respect to California law will be passed upon for us by Irell & Manella, Los Angeles, California. Certain legal matters with respect to Delaware law will be passed upon for us by Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware. Certain legal matters with respect to Cayman Islands law will be passed upon for us by Maples & Calder, Grand Cayman, Cayman Islands. Certain legal matters with respect to Luxembourg law will be passed upon for us by Bonn Schmitt Steichen, Luxembourg. Certain legal matters with respect to Brazilian law will be passed upon for us by Corvo Advogados, Sao Paulo, Brazil. Certain legal matters with respect to English law will be passed upon for us by Chadbourne & Parke, a Multinational Partnership, London, England. Certain legal matters with respect to Finnish law will be passed upon for us by Hannes Snellman, Helsinki, Finland. Certain legal matters with respect to Israeli law will be passed upon for us by Herzog, Fox & Neeman, Tel Aviv, Israel. Certain legal matters with respect to Japanese law will be passed upon for us by Tomotsune & Kimura, Tokyo, Japan. Certain legal matters with respect to Mexican law will be passed upon for us by Bufete Carrillo Gamboa, S.C., Mexico City, Mexico. Certain legal matters with respect to Swedish law will be passed upon for us by Manneheimer Swartling, Stockholm, Sweden. Certain partners of Chadbourne & Parke LLP own limited partnership interests in Whitney Strategic Partners V, L.P., the fair market value of which in the aggregate exceeds $60,000. Whitney Strategic Partners V, L.P. is a beneficial owner of preferred shares of WH Holdings. EXPERTS The financial statements of Herbalife International, Inc. and subsidiaries as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The financial statements of WH Intermediate Holdings Ltd. and subsidiaries as of July 5, 2002 and for the period from May 23, 2002 (date of inception) to July 5, 2002, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We currently voluntarily file reports and other information under Section 15(d) of the Securities Exchange Act of 1934. The reports and other information can be inspected and copied at the public reference facilities that the SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549 or at their facilities in New York and Chicago. Please call the SEC at (800) 732-0330 for further information on the operation of the public reference rooms. The SEC also maintains a website at http://www.sec.gov, which contains reports and other information regarding registrants that file electronically with the SEC. We have agreed that, whether or not we are required to do so by the rules and regulations of the SEC, for so long as any of the Notes remain outstanding, we will furnish to the holders of the Notes and file with the SEC, unless the SEC will not accept the filing, all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if we were required to file those forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report by our certified independent accountants. 162 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE HERBALIFE INTERNATIONAL, INC. ---- Independent Auditors' Report for Herbalife International, Inc. ..................................................... F-2 Consolidated Balance Sheets as of December 31, 2000 and December 31, 2001......................................... F-3 Consolidated Statements of Income for the Years ended December 31, 1999, 2000 and 2001.......................... F-4 Consolidated Statements of Changes in Stockholders' Equity for the Years ended December 31, 1999, 2000 and 2001...... F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 1999, 2000 and 2001.......................... F-6 Notes to Consolidated Financial Statements for the Years ended December 31, 1999, 2000 and 2001.................... F-7 WH INTERMEDIATE HOLDINGS LTD. Independent Auditors' Report for WH Intermediate Holdings Ltd. ..................................................... F-35 Consolidated Balance Sheet as of July 5, 2002............... F-36 Consolidated Statement of Operations for the Period ended July 5, 2002.............................................. F-37 Consolidated Statement of Stockholder's Deficiency for the Period ended July 5, 2002................................. F-38 Consolidated Statement of Cash Flows........................ F-39 Notes to Consolidated Financial Statements for the Period ended July 5, 2002........................................ F-40 WH INTERMEDIATE HOLDINGS LTD. Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002 (unaudited)............................ F-44 Consolidated Statements of Income for the one month period ended July 31, 2002, the two month period ended September 30, 2002, the seven month period ended July 31, 2002, and the three and nine month periods ended September 30, 2001 (unaudited)............................................... F-46 Consolidated Statements of Cash Flows for the seven month period ended July 31, 2002, the two month period ended September 30, 2002 and the nine month period ended September 30, 2001 (unaudited)............................ F-47 Notes to Consolidated Financial Statements for the seven months ended July 31, 2002, the two months ended September 30, 2002 and the nine months ended September 30, 2001 (unaudited)............................................... F-48
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Herbalife International, Inc.: We have audited the accompanying consolidated balance sheets of Herbalife International, Inc. and subsidiaries (the "Company") as of December 31, 2000 and 2001, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2000 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Los Angeles, California February 19, 2002 (May 21, 2002 as to Note 11; November 11, 2002 as to Note 16) F-2 HERBALIFE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- NOTES 2000 2001 ------- ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents................................... 2 $110,336,000 $179,237,000 Marketable securities....................................... 2 29,914,000 21,944,000 Receivables, net of allowance for doubtful accounts of $3,968,000 and $1,466,000 at December 31, 2000 and December 31, 2001, respectively, including related party receivables of $1,950,000 and $736,000 at December 31, 2000 and December 31, 2001, respectively.................. 2,6,8 24,600,000 27,609,000 Inventories................................................. 2,3 99,332,000 72,208,000 Prepaid expenses and other current assets................... 8,788,000 14,379,000 Deferred income taxes....................................... 2,13 28,459,000 27,741,000 ------------ ------------ Total current assets.................................... 301,429,000 343,118,000 ------------ ------------ PROPERTY at cost............................................ 2,5 Furniture and fixtures...................................... 18,585,000 18,900,000 Equipment................................................... 78,468,000 90,440,000 Leasehold improvements...................................... 29,646,000 32,393,000 ------------ ------------ 126,699,000 141,733,000 Less accumulated depreciation and amortization.............. (65,049,000) (81,026,000) ------------ ------------ 61,650,000 60,707,000 ------------ ------------ DEFERRED COMPENSATION ASSETS................................ 6,7 31,313,000 43,221,000 OTHER ASSETS including related party receivables of $91,000 at December 31, 2000...................................... 8 6,527,000 3,172,000 DEFERRED INCOME TAXES....................................... 2,13 13,077,000 16,831,000 GOODWILL net of accumulated amortization of $1,946,000 and $2,119,000 at December 31, 2000 and December 31, 2001, respectively.............................................. 2 2,941,000 3,286,000 ------------ ------------ TOTAL................................................... $416,937,000 $470,335,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ 2 $ 18,791,000 $ 19,793,000 Royalty overrides........................................... 2 68,996,000 58,202,000 Accrued compensation........................................ 17,458,000 22,712,000 Accrued expenses............................................ 28,375,000 36,203,000 Dividends payable........................................... 4,372,000 4,720,000 Current portion of contracts payable and bank loans......... 4,5 7,013,000 9,395,000 Advance sales deposits...................................... 2 6,175,000 5,800,000 Income taxes payable........................................ 2,9,13 5,038,000 8,480,000 ------------ ------------ Total current liabilities............................... 156,218,000 165,305,000 ------------ ------------ NON-CURRENT LIABILITIES: Contracts payable, net of current portion................... 4,5 1,404,000 1,217,000 Deferred compensation liability............................. 6,7 28,964,000 35,678,000 Other non-current liabilities............................... 5,732,000 5,548,000 ------------ ------------ Total liabilities....................................... 192,318,000 207,748,000 ------------ ------------ MINORITY INTEREST........................................... 2,8 2,218,000 1,671,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES............................... 5,6,7,9 STOCKHOLDERS' EQUITY:....................................... 10 Class A Common Stock, $0.01 par value; 33,333,333 shares authorized, 10,150,666, and 11,212,696 shares issued and outstanding at December 31, 2000 and December 31, 2001, respectively.............................................. 102,000 112,000 Class B Common Stock, $0.01 par value; 66,666,667 shares authorized, and 18,994,447 and 20,293,759 shares issued and outstanding at December 31, 2000 and December 31, 2001, respectively........................................ 190,000 203,000 Paid-in capital in excess of par value...................... 58,860,000 77,717,000 Retained earnings........................................... 170,259,000 194,415,000 Accumulated other comprehensive loss........................ 2,12 (7,010,000) (11,531,000) ------------ ------------ Total stockholders' equity.............................. 222,401,000 260,916,000 ------------ ------------ TOTAL................................................... $416,937,000 $470,335,000 ============ ============
See the accompanying notes to consolidated financial statements F-3 HERBALIFE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED DECEMBER 31, ------------------------------------------------ NOTES 1999 2000 2001 ------ -------------- -------------- -------------- Retail sales.......................... 2 $1,793,508,000 $1,764,851,000 $1,656,168,000 Less -- distributor allowances on product purchases................... 2 837,283,000 820,723,000 774,513,000 Handling and freight income........... 142,660,000 141,356,000 138,475,000 -------------- -------------- -------------- Net sales............................. 2 1,098,885,000 1,085,484,000 1,020,130,000 Cost of sales......................... 8 264,909,000 268,992,000 241,522,000 Royalty overrides..................... 2 397,143,000 382,322,000 355,225,000 Marketing, distribution and administrative expenses............. 2,12 344,260,000 363,731,000 354,608,000 Buy-out transaction expenses.......... -- 9,498,000 -- Interest income -- net................ 1,750,000 2,354,000 3,413,000 -------------- -------------- -------------- Income before income taxes and minority interest................... 94,323,000 63,295,000 72,188,000 Income taxes.......................... 2,9,13 36,314,000 25,318,000 28,875,000 -------------- -------------- -------------- Income before minority interest....... 58,009,000 37,977,000 43,313,000 Minority interest..................... 2,8 1,086,000 1,058,000 725,000 -------------- -------------- -------------- NET INCOME............................ $ 56,923,000 $ 36,919,000 $ 42,588,000 ============== ============== ============== EARNINGS PER SHARE.................... 2,10 Basic............................... $ 1.99 $ 1.28 $ 1.40 Diluted............................. $ 1.86 $ 1.22 $ 1.36 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic............................... 28,603,000 28,827,000 30,422,000 Dilutive effect of stock options.... 1,976,000 1,526,000 828,000 -------------- -------------- -------------- Diluted............................. 30,579,000 30,353,000 31,250,000 ============== ============== ==============
See the accompanying notes to consolidated financial statements F-4 HERBALIFE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PAID IN ACCUMULATED CAPITAL IN OTHER TOTAL COMMON COMMON EXCESS OF RETAINED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE STOCK A STOCK B PAR VALUE EARNINGS INCOME EQUITY INCOME -------- -------- ----------- ------------ ------------- ------------- ------------- Balance at January 1, 1999..... $100,000 $186,000 $54,823,000 $110,941,000 $ (2,239,000) $163,811,000 Issuance of 21,831 shares of Class A Common Stock and 46,663 Shares of Class B Common Stock under the 1991 Stock Option Plan & other.... 1,000 469,000 (1,000) 469,000 Additional capital from tax benefit of 1991 stock option plan......................... 98,000 98,000 Net income..................... 56,923,000 56,923,000 $56,923,000 Translation adjustments........ 2,477,000 2,477,000 2,477,000 Unrealized loss on marketable securities................... (25,000) (25,000) (25,000) ----------- Total comprehensive income..... $59,375,000 =========== Cash dividends declared........ (17,151,000) (17,151,000) -------- -------- ----------- ------------ ------------ ------------ Balance at December 31, 1999... $100,000 $187,000 $55,390,000 $150,712,000 $ 213,000 $206,602,000 Issuance of 148,328 shares of Class A Common Stock and 344,711 Shares of Class B Common Stock under the 1991 Stock Option Plan & other.... 2,000 3,000 3,403,000 (14,000) 3,394,000 Additional capital from tax benefit of 1991 stock option plan......................... 67,000 67,000 Net income..................... 36,919,000 36,919,000 $36,919,000 Translation adjustments........ (7,229,000) (7,229,000) (7,229,000) Unrealized gain on marketable securities................... 6,000 6,000 6,000 ----------- Total comprehensive income..... $29,696,000 =========== Cash dividends declared........ (17,358,000) (17,358,000) -------- -------- ----------- ------------ ------------ ------------ Balance at December 31, 2000... $102,000 $190,000 $58,860,000 $170,259,000 $ (7,010,000) $222,401,000 Issuance of 1,061,859 shares of Class A Common Stock and 1,298,965 Shares of Class B Common Stock under the 1991 Stock Option Plan & other.... 10,000 13,000 17,434,000 10,000 17,467,000 Additional capital from tax benefit of 1991 stock option plan......................... 1,423,000 1,423,000 Net income..................... 42,588,000 42,588,000 $42,588,000 Translation adjustments........ (6,817,000) (6,817,000) (6,817,000) Unrealized gain on marketable securities................... 12,000 12,000 12,000 Cumulative effect of accounting change....................... 909,000 909,000 909,000 Net change in derivative instruments.................. 1,375,000 1,375,000 1,375,000 ----------- Total comprehensive income..... $38,067,000 =========== Cash dividends declared........ (18,442,000) (18,442,000) -------- -------- ----------- ------------ ------------ ------------ Balance at December 31, 2001... $112,000 $203,000 $77,717,000 $194,415,000 $(11,531,000) $260,916,000 ======== ======== =========== ============ ============ ============
See the accompanying notes to consolidated financial statements F-5 HERBALIFE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 2000 2001 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 56,923,000 $ 36,919,000 $ 42,588,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............................... 14,001,000 15,693,000 18,056,000 Deferred income taxes....................................... (4,081,000) (8,889,000) (3,036,000) Unrealized foreign exchange loss (gain)..................... (572,000) 2,702,000 383,000 Minority interest in earnings............................... 1,086,000 1,058,000 725,000 Other....................................................... 90,000 882,000 515,000 Changes in operating assets and liabilities: Receivables................................................. 13,155,000 4,116,000 (3,867,000) Inventories................................................. (12,003,000) (2,937,000) 24,154,000 Prepaid expenses and other current assets................... 6,635,000 (70,000) (5,542,000) Accounts payable............................................ 7,401,000 (1,564,000) 2,135,000 Royalty overrides........................................... 5,832,000 7,809,000 (8,206,000) Accrued expenses and accrued compensation................... 11,209,000 (8,675,000) 15,557,000 Advance sales deposits...................................... 948,000 (2,195,000) (163,000) Income taxes payable........................................ (15,160,000) (478,000) 5,452,000 Deferred compensation liability............................. 9,950,000 1,770,000 6,714,000 ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................................................ 95,414,000 46,141,000 95,465,000 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property....................................... (30,743,000) (24,952,000) (10,940,000) Proceeds from sale of property.............................. 65,000 149,000 145,000 Net changes in marketable securities........................ 3,998,000 (28,751,000) 7,981,000 Other assets................................................ (6,967,000) 6,970,000 (1,644,000) Deferred compensation assets................................ (9,870,000) (3,384,000) (11,908,000) ------------ ------------ ------------ NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES................................................ (43,517,000) (49,968,000) (16,366,000) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid.............................................. (17,148,000) (17,285,000) (18,094,000) Distributions to minority interest.......................... (1,063,000) (1,452,000) (1,272,000) Additions to bank loans and contracts payable............... 3,304,000 2,392,000 1,903,000 Principal payments on bank loans and contracts payable...... (1,603,000) (1,128,000) (3,460,000) Exercise of stock options................................... 469,000 3,394,000 17,467,000 ------------ ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES......... (16,041,000) (14,079,000) (3,456,000) ------------ ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........................................ 1,703,000 (10,038,000) (6,742,000) ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 37,559,000 (27,944,000) 68,901,000 CASH AND CASH EQUIVALENTS AT JANUARY 1...................... 100,721,000 138,280,000 110,336,000 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT PERIOD END..................... $138,280,000 $110,336,000 $179,237,000 ============ ============ ============ CASH PAID DURING THE YEAR: Interest Paid............................................... $ 1,812,000 $ 1,109,000 $ 1,079,000 ============ ============ ============ Income Taxes Paid........................................... $ 47,428,000 $ 31,026,000 $ 28,693,000 ============ ============ ============ NON-CASH ACTIVITIES: Acquisitions of property from capital leases................ $ 1,864,000 $ 431,000 $ 3,811,000 ============ ============ ============
See the accompanying notes to consolidated financial statements F-6 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001 1. GENERAL Herbalife International, Inc. and its subsidiaries ("the Company") market weight management products, nutritional supplements and personal care products worldwide. The Company's products are marketed through a network marketing system in which "distributors" who are generally independent contractors, purchase products for resale to retail consumers and other distributors. As of December 31, 2001, the Company conducted business in 53 countries. In the Company's foreign markets, distributors market the same, or essentially the same, products as those sold in the United States and in fundamentally the same manner. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICY The consolidated financial statements include the accounts of the Company and its subsidiaries; all significant intercompany transactions and accounts have been eliminated. TRANSLATION OF FOREIGN CURRENCIES Foreign subsidiaries' asset and liability accounts are translated for consolidated financial reporting purposes into U.S. Dollar amounts at year-end exchange rates. Revenue and expense accounts are translated at the average rates during the year. Foreign exchange translation adjustments are included in accumulated other comprehensive loss on the accompanying consolidated balance sheets. Transaction losses, which include the cost of forward exchange and option contracts, were $7,417,000, $7,661,000 and $549,000 in the years ended December 31, 1999, 2000 and 2001, respectively, and are included in marketing, distribution and administrative expenses in the accompanying consolidated statements of income. FORWARD EXCHANGE CONTRACTS AND OPTION CONTRACTS The Company enters into forward exchange contracts and option contracts in managing its foreign exchange risk on sales to distributors, purchase commitments denominated in foreign currencies, intercompany transactions and bank loans. The Company does not use the contracts for trading purposes. Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended and interpreted, established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the underlying hedged item are recognized concurrently in earnings. If the derivative is designated in a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income ("OCI") and are recognized in the statement of operations when the hedged item affects earnings. SFAS 133 defined new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized concurrently in earnings. As of January 1, 2001, the Company recorded a net gain of $909,000 ($545,000 net of tax) as a cumulative transition adjustment to earnings. This adjustment relates to derivatives not designated as hedges prior to adoption of SFAS 133, and represents the difference between the carrying value and the fair value of such instruments at January 1, 2001. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of money market accounts and foreign F-7 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company's cash and cash equivalents. MARKETABLE SECURITIES The Company's marketable securities are classified as "available for sale." Fluctuations in fair value are included in accumulated other comprehensive loss on the accompanying consolidated balance sheets. Marketable securities are comprised primarily of tax-exempt municipal bonds. ACCOUNTS RECEIVABLE Accounts receivable consist principally of receivables from credit card companies, arising from the sale of product to the Company's distributors, and receivables from importers, who are utilized in a limited number of countries to sell product to distributors. Due to the geographic dispersion of its credit card receivables, the collection risk is not considered to be significant. Although receivables from importers can be significant, the Company performs ongoing credit evaluations of its importers and maintains an allowance for potential credit losses. The Company believes that it provides adequate allowances for receivables from its distributors. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has estimated the fair value of its financial instruments using the following methods and assumptions: The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturities of these instruments. Marketable securities are based on the quoted market prices for these instruments. Foreign exchange contracts are based on exchange rates at year-end. The fair value of option and forward contracts is based on dealer quotes. The book values of the Company's debt instruments are considered to approximate their fair values because the interest rates of these instruments approximate current rates offered to the Company. INVENTORIES Inventories are stated at lower of cost (on the first-in, first-out basis) or market. LONG-LIVED ASSETS Depreciation of furniture, fixtures and equipment (including computer hardware and software) is computed on a straight-line basis over the estimated useful lives of the related assets, which range from three to seven years. Leasehold improvements are amortized on a straight-line basis over the life of the related asset or the term of the lease, whichever is shorter. Goodwill is being amortized over periods ranging from fifteen to forty years. Effective January 1, 2002, amortization of goodwill was discontinued. See "Recently Issued Accounting Pronouncements." Long-lived assets, including goodwill, are reviewed for impairment, based on undiscounted cash flows, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss is based on the estimated fair market value of the asset. INCOME TAXES Income tax expense includes income taxes payable for the current year and the change in deferred income tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or income tax returns. A valuation allowance is recognized to reduce the F-8 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) carrying value of deferred income tax assets if it is believed to be more likely than not that a component of the deferred income tax assets will not be realized. ROYALTY OVERRIDES An independent distributor may earn commissions, called royalty overrides or production bonuses, based on retail volume. Such commissions are based on the retail sales volume of certain other members of the independent sales force who are sponsored by the distributor. MINORITY INTEREST On December 30, 1996, the Company sold shares of Herbalife of Japan to certain directors, executive officers and resident managers of Herbalife of Japan (see "Note 8, Transactions with Related Parties"). In 2001, the Company repurchased some of these shares. The minority stockholders' interest in the equity of Herbalife of Japan approximates 7%, 7% and 6.6% at December 31, 1999, 2000 and 2001, respectively. REVENUE RECOGNITION The Company records its retail sales based upon suggested retail prices as reflected on the Company's sales invoices to its distributors. The Company does not receive the amount reported as retail sales, but generally receives the net sales price in cash or through credit card payments upon receipt of orders from distributors. The net sales price is the suggested retail price less the distributor allowance plus handling and freight income. Sales, related royalty overrides, and allowances for product returns are recorded when the merchandise is shipped, in accordance with the Company's shipping terms. Advance sales deposits represent prepaid orders for which the Company has not shipped the merchandise. EARNINGS PER SHARE Net income as presented on the accompanying statements of consolidated income is used as the numerator in the earnings per share calculation for both the basic and diluted computations. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the incremental shares issuable upon the assumed exercise of stock options. RECLASSIFICATIONS Net sales In the first quarter of 2001, the Company adopted the provisions of Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," which requires that amounts billed to customers for shipping and handling fees be classified as revenues. Reclassifications have been made to increase net sales by $142,660,000 and $141,356,000 for the years ended December 31, 1999 and December 31, 2000, respectively, to reflect $119,779,000 and $117,259,000 of shipping and handling fees on sales of product, previously reported as reductions to royalty overrides, and $22,881,000 and $24,097,000 of freight charges previously reported as reductions of marketing, distribution and administrative expenses. Cost of sales Beginning in the second quarter of 2001, cost of sales includes freight expenses relating to delivery of products to distributors. The freight expenses were previously included in marketing, distribution and administrative expenses. There is no impact on net income. All periods presented have been reclassified on a F-9 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) comparable basis. The amounts reclassified were $18,267,000 and $18,189,000 for the years ended December 31, 1999 and December 31, 2000, respectively. Other Certain reclassifications were made to the prior year financial statements to conform to the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The adoption of SFAS 141 did not have a significant impact on the Company's financial statements. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The Company adopted SFAS No. 142 on January 1, 2002 and as a result, annual goodwill amortization of $173,000 was discontinued. SFAS 142 also required the Company to complete a transitional goodwill impairment test. The adoption of SFAS 142 did not have a significant impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This new statement also supersedes certain aspects of Accounting Principle Board Opinion 30 ("APB No. 30"), "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be reported in discontinued operations in the period incurred (rather than as of the measurement date as presently required by APB No. 30). In addition, more dispositions may qualify for discontinued operations treatment. The adoption of SFAS 144 did not have a significant impact on the Company's financial statements. In November 2001, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendors Products," which addresses the accounting for consideration given by a vendor to a customer or a reseller of the vendors products. In April 2001, the EITF reached a consensus on EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendors Products," which provides guidance on the income statement classification of consideration from a vendor to a reseller in connection with the reseller's purchase of the vendor's products or to promote sales of the vendor's products. This new guidance F-10 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) provides that consideration from a vendor to a reseller is generally presumed to be a reduction of the selling prices of the vendor's products, and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income statement. The Company provides distributors with discounts on product purchases and classifies these discounts as a reduction of revenue. The adoption of EITF Issue No. 00-25 and EITF Issue No. 01-09 did not have a significant impact on the Company's financial statements. 3. INVENTORIES Inventories consist primarily of finished goods available for resale and can be categorized as follows:
DECEMBER 31, ------------------------- 2000 2001 ----------- ----------- Product.................................................... $89,932,000 $66,463,000 Literature................................................. 6,064,000 4,157,000 Promotional items.......................................... 3,336,000 1,588,000 ----------- ----------- Total................................................. $99,332,000 $72,208,000 =========== ===========
4. CONTRACTS PAYABLE AND BANK LOANS Contracts payable and bank loans consist of the following:
DECEMBER 31, ------------------------ 2000 2001 ---------- ----------- Capitalized leases, due in monthly installments through 2004 (Note 5).................................................. $2,388,000 $ 3,439,000 Bank loans and Contracts Payable............................ 6,029,000 7,173,000 ---------- ----------- Total....................................................... 8,417,000 10,612,000 Less current portion........................................ 7,013,000 9,395,000 ---------- ----------- Long-term portion........................................... $1,404,000 $ 1,217,000 ========== ===========
Annual scheduled payments of bank loans and contracts payable are: $9,395,000 (2002), $1,054,000 (2003), and $163,000 (2004). The Company has lines of credit (the "Lines of Credit") for use in Turkey and India under separate agreements with two separate banks which provide for unsecured borrowings of up to $8,000,000 and bear interest at LIBOR plus a negotiated spread, which can vary depending on the currency in which the loan is provided. Outstanding borrowings under the Lines of Credit were $4,682,000 at December 31, 2000 and $6,566,000 at December 31, 2001, respectively. The Company also had other borrowings of $1,347,000 at December 31, 2000 and $607,000 at December 31, 2001. As of December 31, 2001, the Company has $15.4 million of credit facilities which supported letters of credit, guarantees and borrowings. As of December 31, 2001, the Company had $1.2 million of letters of credit, $2.7 million of guarantees, and $6.6 million of borrowings outstanding. 5. LEASE OBLIGATIONS The Company has warehouse and office facilities, furniture and fixtures and equipment leases, which expire at various dates through 2010. Under the lease agreements, the Company is also obligated to pay property taxes, insurance, and maintenance costs. F-11 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Certain of the leases contain renewal options. Future minimum rental commitments for non-cancelable operating leases and capital leases at December 31, 2001 were as follows:
OPERATING CAPITAL ----------- ---------- 2002........................................................ $13,412,000 $2,385,000 2003........................................................ 11,037,000 1,102,000 2004........................................................ 7,995,000 167,000 2005........................................................ 6,640,000 -- 2006........................................................ 2,606,000 -- Thereafter.................................................. 527,000 -- ----------- ---------- Total....................................................... $42,217,000 3,654,000 =========== Less: Amounts included above representing interest.......... 215,000 ========== Present value of net minimum lease payments................. $3,439,000 ==========
Rental expense for the years ended December 31, 1999, 2000 and 2001 was $18,339,000, $21,961,000 and $19,998,000, respectively. Property under capital leases is included in property on the accompanying consolidated balance sheets as follows:
DECEMBER 31, ------------------------- 2000 2001 ----------- ----------- Equipment.................................................. $ 8,559,000 $ 8,995,000 Less: accumulated amortization............................. (5,881,000) (5,124,000) ----------- ----------- Total...................................................... $ 2,678,000 $ 3,871,000 =========== ===========
6. EMPLOYEE COMPENSATION PLANS In addition to the stock option plan discussed in Note 10, 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, 2000 or 2001. 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 are 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, 2000 and 2001 were $16,165,000, $4,578,000 and $3,468,000, respectively. In accordance with the 1994 Plan, the Company advanced targeted performance bonus amounts to the participants. As of December 31, 2000 and 2001, the remaining outstanding principal and accrued interest was $1,040,000 and $331,000, 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) F-12 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for two-year notes at the time of the advances. The rates for outstanding advances ranged from 4.67% to 6.45% at December 31, 2000 and were 4.25% at December 31, 2001. 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 five years. The Company contributed $974,000, $1,167,000 and $1,344,000, for the years ended December 31, 1999, 2000 and 2001, 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 participants 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 deferred compensation expense net of participant contributions was $2,488,000, $2,741,000 and $3,917,000, for 1999, 2000 and 2001, respectively. The long-term deferred compensation liability under the deferred compensation plans was $24,435,000 and $29,941,000 at December 31, 2000 and 2001, respectively. In 2001, the Company adopted an Executive Retention Plan. The purpose of the Executive Retention Plan is to provide financial incentives for a select group of management and highly compensated employees of the Company to continue to provide services to the Company during the period immediately before and immediately after a change in control, as defined. The Company also established an Executive Retention Trust to provide benefits under the Executive Retention Plan. The Executive Retention Trust is an irrevocable trust established with an institutional trustee. The Administrative Committee of the Executive Retention Plan will establish an individual account in the Executive Retention Trust for each participant in the Executive Retention Plan. Until the occurrence of a change in control, the Administrative Committee will control the investment of the assets in the Executive Retention Trust, and will determine the allocation of the assets of the Executive Retention Trust to the individual accounts of participants. Each participant who qualifies for a benefit under the Executive Retention Plan will receive a lump sum benefit equal to the dollar amount in his or her individual account in the Executive Retention Trust. The benefit shall be paid within 90 days after the participant qualifies for the benefit. If a participant's employment with the Company terminates before the participant qualifies for a benefit under the Executive Retention Plan, the participant's account in the Executive Retention Trust will F-13 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) revert to the Company. A participant's benefit under the Executive Retention Plan will be reduced if the amount would cause payment of federal excise tax. The deferred compensation plans and the Supplemental Executive Retirement Plan (See Note 7, "Retirement Plan") are unfunded and their benefits are paid from the general assets of the Company, except that the Company has contributed 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. The value of the assets in the "rabbi trust" was $31,313,000 and $35,964,000 as of December 31, 2000 and 2001, respectively. The Company has also contributed to the Executive Retention Trust, which is an irrevocable trust. This irrevocable trust's assets will be used to pay the benefits of the Executive Retention Plan and are not intended to be reachable by the Company's creditors. The value of the assets in the irrevocable trust was $7,257,000 as of December 31, 2001. Certain of the officers have agreements with the Company which provide for payments in the event of a change in control ("Change in Control Payments"), as defined by the agreements. The Change in Control Payments would generally be for an amount equal to three times the officer's annual compensation level. However, such Change in Control Payments cannot exceed an amount which would cause the payment of federal excise tax. In 2001, the Company adopted two Change in Control Plans for Senior Management, a Change in Control Plan and a Management Employee Change in Control Plan. In the event of a change in control, each eligible employee is entitled to receive a severance payment three times such eligible employee's compensation. Compensation is defined as the eligible employee's annual base salary in effect immediately prior to the change in control plus for Senior Executives an amount equal to his or her cash bonus received in the last full fiscal year prior to the change in control. The change in control payment will be reduced to the extent the Company is required to make severance payments to the eligible employee under the Worker Adjustment and Retraining Notification Act, or other severance arrangements between the eligible employee and the Company. The change in control payment will also be reduced to the extent necessary to preserve the Company's deduction for the change in control payment under the Internal Revenue Code, and to prevent the eligible employee from being subject to an excise tax on the change in control payment. Each eligible employee is also entitled to receive health benefits coverage for a period up to three years following his or her termination of employment. In consideration of the change in control payment, each eligible employee is required to agree (1) to enter into a separation and general release agreement with the Company, (2) not to use or disclose confidential information of the Company and (3) not to solicit employees and distributors of the Company for a two-year period. 7. RETIREMENT PLAN In September 1997, the Company implemented a nonqualified, non-contributory Supplemental Executive Retirement Plan ("SERP") providing retirement benefits for a select group of management. The normal retirement benefit under the SERP is 60 quarterly installment payments commencing at age 65, each of which equals one-quarter of 2% of "compensation" times the number of years of participation up to 20 years. A participant becomes fully vested in his or her interest in the SERP on his or her normal or early retirement date, death, or disability, or on a change in control of the Company. If a participant's employment is terminated for cause, the Company has the discretion to reduce his or her vested benefit to zero. In all other cases, a participant's vested interest is zero until he or she has completed five years of participation, and gradually increases to 100% when he or she has completed nine years of participation. The Plan Administrator has the discretion to credit a participant with additional years of participation as of his or her date of hire or F-14 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) commencement of participation in the SERP. The following table shows the net periodic pension cost and other data about the SERP:
1999 2000 2001 ----------- ------------ ------------ CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year/inception............................ $ 9,029,000 $ 8,412,000 $ 11,140,000 Service cost................................ 1,214,000 1,010,000 1,363,000 Interest cost............................... 546,000 624,000 746,000 Amendments.................................. -- 1,285,000 -- Actuarial (gain) loss....................... (2,346,000) 1,767,000 (414,000) Benefits paid............................... (31,000) (1,958,000) (1,401,000) ----------- ------------ ------------ Benefit obligation at end of year........... $ 8,412,000 $ 11,140,000 $ 11,434,000 =========== ============ ============ Funded status............................... $(8,412,000) $(11,140,000) $(11,434,000) Unrecognized actuarial (gain) loss.......... (735,000) 1,001,000 587,000 Unrecognized prior service cost............. 4,696,000 5,610,000 5,110,000 ----------- ------------ ------------ Net amount recognized....................... $(4,451,000) $ (4,529,000) $ (5,737,000) =========== ============ ============ Amounts recognized in the consolidated balance sheets consist of: Accrued benefit liability................... $(5,021,000) $ (7,872,000) $ (8,946,000) Intangible asset............................ 570,000 3,343,000 3,209,000 ----------- ------------ ------------ Net amount recognized....................... $(4,451,000) $ (4,529,000) $ (5,737,000) =========== ============ ============ WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate............................... 7.5% 7.0% 7.0% Rate of compensation increase............... 4.0% 4.0% 4.0% COMPONENTS OF NET PERIODIC BENEFIT COST Service cost................................ $ 1,214,000 $ 1,010,000 $ 1,363,000 Interest cost............................... 546,000 624,000 746,000 Amortization of prior service cost.......... 371,000 371,000 499,000 Amortization of actuarial loss.............. 31,000 -- -- ----------- ------------ ------------ Net periodic pension cost................... $ 2,162,000 $ 2,005,000 $ 2,608,000 =========== ============ ============
8. TRANSACTIONS WITH RELATED PARTIES In addition to advances described in Note 6, the Company has made additional advances to certain officers. The aggregate outstanding principal and accrued interest was $666,000 and $397,000 at December 31, 2000 and 2001, 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 ranged from 4.98% to 6.15% at December 31, 2000 and were 5.48% at December 31, 2001. In December 1996, the Company sold an approximate 7% interest in Herbalife of Japan, K.K., its Japanese subsidiary, to certain Company directors, executive officers and resident managers of Herbalife of 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 were payable in 16 equal quarterly principal and interest installments, through December 2001. The outstanding note receivable balance was $335,000 and zero at December 31, F-15 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2000 and 2001, respectively, and is included in receivables and other assets on the accompanying consolidated balance sheets. 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 was deferred, and will be recognized as the interest is sold to a third party. In 2001, a 0.5% interest in Herbalife of Japan, K.K. was repurchased from an executive officer based upon a new valuation performed by the same independent investment banking firm. The minority interest in Herbalife of Japan, K.K. at December 31, 2001 was approximately 6.6%. The board of directors of Herbalife of Japan, K.K. and the Company have initiated steps in Japan that are expected to result in the repurchase of the minority interest in Herbalife of Japan, K.K. for cash. At the conclusion of these steps, Herbalife of Japan, K.K. will again be a wholly-owned subsidiary of the Company. The valuation of Herbalife of Japan, K.K. for purposes of the repurchase will be based upon a valuation methodology identical to that used when the minority interest was issued, and will be supported by a valuation opinion issued by an independent investment banking firm. The repurchase remains subject to various Japanese judicial and regulatory approvals. In addition, the Company made a loan of $1,964,000 to its former Chief Executive Officer, Mark Hughes, during 1999. Such loan, which accrued interest at the rate of 4.62% per annum, was repaid during 2000. On May 21, 2001, the estate of Mark Hughes ("Estate") exercised 1.9 million stock options. A short-term full-recourse loan in the amount of $13,625,000 was issued to the Estate to finance the exercise. The loan balance as of June 30, 2001 was $13,732,000 including interest at a rate of 7% per annum. The receivable balance plus interest was fully paid on July 3, 2001. Two senior executives of the Company are minority shareholders in B.L.I. Holdings, Inc., a holding company for two of the Company's suppliers of personal care products. Total purchases from B.L.I. Holdings, Inc. and its subsidiaries was $495,000 for 2001. 9. CONTINGENCIES The Company is from time to time engaged in routine litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters. However, some of these matters are material and an adverse outcome in these matters could have a material impact on the Company's financial condition and operating results. In September 2000, a putative class action lawsuit was filed in the District Court, Clark County, Nevada (Tharp v. Herbalife International, Inc., et al.). A second putative class action lawsuit was filed in the same court in August 2001 (Brown v. Herbalife International Inc., et al.). The Tharp lawsuit alleges breaches of fiduciary obligations by the Company's directors and its majority stockholder in connection with the adoption by the Company of the Preferred Share Purchase Rights Plan and the rejection of a purported offer by a third party to acquire a controlling interest in the Company. The Brown lawsuit similarly alleges breaches of fiduciary obligations in connection with an alleged rejection of an offer from a third party to purchase the Company. The plaintiffs in the lawsuits request (i) an order compelling the defendants to take steps to seek a sale of the Company, (ii) an order enjoining the defendants in office, (iii) unspecified damages, and (iv) other relief. The Company has reached an oral settlement to pay plaintiff's legal fees of $190,000 and the Company's insurance company has agreed to pay 50% of the settlement amount. The settlement remains subject to documentation and court approval for which a hearing date has not yet been set. In addition, on or about April 12, 2002, Harbor Finance Partners, allegedly an Herbalife stockholder, filed a purported class action (which was amended on June 13, 2002) against the Company in the District Court of Clark County in the State of Nevada, naming the Company, its Board of Directors and one former director as defendants ("Defendants") and alleging various breaches of fiduciary duty arising out of the announced merger transaction between Herbalife and WH Holdings, a subsidiary of Whitney & Co., LLC. The complaint was served on April 24, 2002. The defendants filed a motion to dismiss the case on May 14, 2002. Plaintiff's F-16 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) counsel has indicated that the plaintiff intends to seek expedited discovery and to file a motion for some form of preliminary relief in connection with the announced merger transaction. Herbalife and its Board of Directors deny the allegations and intend to vigorously defend these charges in litigation. However, an adverse result in this litigation could have a material adverse effect on the Company's financial condition and operating results. In August 2001, a lawsuit was filed by Michael Rosen, a former Executive Vice President of the Company, in the Superior Court of the State of California for the County of Los Angeles (Michael E. Rosen v. Herbalife International, Inc., and Herbalife International of America, Inc.). The complaint alleged a single cause of action for breach of an oral and implied contract for continued employment and sought damages in excess of $15 million. The parties have reached a settlement with respect to this lawsuit and certain related litigation. The Company's liability had been provided for at December 31, 2001. The Company and certain of its distributors have been named as defendants in a purported class action lawsuit filed in the U.S. District Court for the Central District of California (Jacobs v. Herbalife International, Inc., et al). The lawsuit was filed on February 19, 2002. The complaint alleges that specified marketing plans employed by the distributor defendants are illegal, and that the Company has permitted the use of these marketing plans and/or failed to supervise its distributor's conduct to prevent violations of law by them. The complaint does not challenge the legality of Herbalife's marketing system. The complaint seeks to state causes of action under RICO and various state and other federal laws. The complaint was dismissed with leave to amend, the deadline for which is set as January 2, 2003. The Company believes that it has meritorious defenses to the allegations contained in the lawsuit. However, an adverse result in this litigation could have a material adverse effect on the Company's financial condition and operating results. Certain of the Company's subsidiaries have been subject to tax audits by governmental authorities in their respective countries. In certain of these tax audits, governmental authorities are proposing that significant amounts of additional taxes and related interest and penalties are due. The Company and its tax advisors believe that there are substantial defenses to the allegations that additional taxes are owing, and the Company is vigorously contesting the additional proposed taxes and related charges. These matters may take several years to resolve, and the Company cannot be sure of their ultimate resolution. However, an adverse outcome in these matters could have a material impact on the Company's financial condition and operating results. 10. STOCKHOLDERS' EQUITY On July 27, 2000, the Company's Board of Directors adopted a Preferred Share Purchase Rights Plan (the "Plan"), in order to encourage any person or group interested in acquiring the Company to negotiate with the Board of Directors of the Company prior to attempting an acquisition. Under the terms of the Plan, which expires on August 21, 2010, the Company declared a dividend of one Preferred Share Purchase Right (collectively, the "Rights"), for each outstanding share of Class A Common Stock and Class B Common Stock held at the close of business on August 21, 2000. Initially, the Rights are attached to the Common Stock and not represented by separate certificates. The Rights will become exercisable, if not earlier redeemed, only after a person or group (an "Acquiring Person") has acquired, or announced a tender offer which would result in a person or group acquiring, 15% or more of the Company's Class A Common Stock or the combined classes of Common Stock. Initially, each Right will entitle shareholders to buy one one-hundredth of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $40.00. However, if a person or group becomes an Acquiring Person, the Plan allows the Company's shareholders to purchase, at an exercise price of $40.00 per Right, subject to adjustment, Class B Common Stock of the Company having a market value at that time of $80.00. The Company will generally be entitled to redeem the Rights at $.01 per Right at any time until a person or group has become an Acquiring Person. Until exercise, a Right holder, as such, has no rights as a shareholder. Rights held by an Acquiring Person will become void and will not be exercisable to purchase shares at the bargain price. In addition, under certain F-17 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) circumstances involving the acquisition of the Company in a merger or other business combination that has not been approved by the Board of Directors of the Company, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring company's common shares having a market value at that time of twice the exercise price of the Rights. The Company's 1994 Plan allows for the granting of stock-based performance awards authorized by the Compensation Committee of the Board of Directors. Compensation costs for these awards are recorded based on the quoted market price of the Company's common stock at the grant date in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations ("APB 25"). The Company's 1991 Stock Option Plan ("1991 Plan"), as amended, permits the granting of non-qualified stock options to key employees and consultants to purchase 7,900,000 shares of the Company's Class A Stock and/or Class B Stock (less shares previously exercised) at prices not less than 85% of the fair market value of such shares on the date the option is granted. All options outstanding at December 31, 2001 were granted at the fair market value of such shares on the grant date. The contractual life of the options are generally 10 years and they vest ratably over a maximum of 5 years in minimum annual installments of 20%. The Company accounts for stock option grants in accordance with APB 25. Had compensation cost for stock option grants been calculated using the fair value provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated in the following table:
1999 2000 2001 ----------- ----------- ----------- Net Income -- as reported..................... $56,923,000 $36,919,000 $42,588,000 Net Income -- pro forma....................... 47,944,000 34,014,000 41,378,000 Basic EPS -- as reported...................... 1.99 1.28 1.40 Basic EPS -- pro forma........................ 1.68 1.18 1.36 Diluted EPS -- as reported.................... 1.86 1.22 1.36 Diluted EPS -- pro forma...................... 1.59 1.13 1.33
The fair value of the stock options granted during the years presented was determined using the Black-Scholes option pricing model and the following weighted average assumptions:
1999 2000 2001 --------------------- ----------------- ------------------- CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B --------- --------- ------- ------- ------- --------- Risk free interest rate..... 4.72% 5.21% N/A N/A N/A 2.92% Expected option life........ 4.9 years 3.7 years N/A N/A N/A 3.0 years Volatility.................. 60.65% 59.78% N/A N/A N/A 56.67% Dividend yield.............. 4.70% 5.50% N/A N/A N/A 6.50%
F-18 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Option groups outstanding at December 31, 1999, 2000 and 2001 and related option information follows:
CLASS A STOCK CLASS B STOCK ---------------------------- ----------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ----------- -------------- ------------ -------------- 1999 Outstanding at January 1.......... 2,240,000 $ 7.85 5,107,000 $ 6.58 Granted........................... 1,000 14.38 198,000 8.69 Exercised......................... (22,000) 7.39 (46,000) 6.63 Canceled.......................... (1,000) 8.00 (23,000) 6.63 ----------- ------ ------------ ------ Outstanding at December 31........ 2,218,000 $ 7.86 5,236,000 $ 6.66 ====== ====== Available for grant at December 31.............................. 1,000 337,000 ----------- ------------ Total reserved shares........ 2,219,000 5,573,000 =========== ============ Exercisable at December 31........ 1,217,000 $ 7.75 2,553,000 $ 6.54 =========== ====== ============ ====== Option prices per share Granted......................... $ 14.38 $8.63-$11.63 Exercised....................... $7.38-$8.00 $ 6.63 Weighted average fair value of options granted during the year............................ $ 5.57 $ 3.02 2000 Outstanding at January 1.......... 2,218,000 $ 7.86 5,236,000 $ 6.66 Granted........................... -- -- -- -- Exercised......................... (149,000) 7.45 (345,000) 6.49 Canceled.......................... (41,000) 7.99 (267,000) 6.74 ----------- ------ ------------ ------ Outstanding at December 31........ 2,028,000 $ 7.89 4,624,000 $ 6.67 ====== ====== Available for grant at December 31.............................. 37,000 640,000 ----------- ------------ Total reserved shares........ 2,065,000 5,264,000 =========== ============ Exercisable at December 31........ 1,807,000 $ 7.87 3,409,000 $ 6.63 =========== ====== ============ ====== Option prices per share Granted......................... N/A N/A Exercised....................... $0.88-$8.00 $ 0.88-$8.63 Weighted average fair value of options granted during the year............................ N/A N/A
F-19 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CLASS A STOCK CLASS B STOCK ---------------------------- ----------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ----------- -------------- ------------ -------------- 2001 Outstanding at January 1.......... 2,028,000 $ 7.89 4,624,000 $ 6.67 Granted........................... -- -- 500,000 11.30 Exercised......................... (1,062,000) 7.89 (1,299,000) 6.52 Canceled.......................... (18,000) 8.00 (21,000) 6.74 ----------- ------ ------------ ------ Outstanding at December 31........ 948,000 $ 7.88 3,804,000 $ 7.33 ====== ====== Available for grant at December 31.............................. 55,000 161,000 ----------- ------------ Total reserved shares........ 1,003,000 3,965,000 =========== ============ Exercisable at December 31........ 900,000 $ 7.87 2,739,000 $ 6.75 =========== ====== ============ ====== Option prices per share Granted......................... N/A $ 11.30 Exercised....................... $7.38-$8.00 $ 6.63-$8.63 Weighted average fair value of options granted during the year............................ N/A 3.14
The following table summarizes information regarding option groups outstanding at December 31, 2001:
WTD. AVG. WTD. WTD. REMAINING AVG. AVG. OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE RANGE OF EXERCISE PRICES: OUTSTANDING LIFE PRICE EXERCISABLE PRICE - ------------------------- ----------- ----------- -------- ----------- -------- CLASS A $ 7.38............................ 170,000 3 Years $ 7.38 170,000 $ 7.38 $ 7.50............................ 25,000 3 Years $ 7.50 25,000 $ 7.50 $ 8.00............................ 752,000 5 Years $ 8.00 705,000 $ 8.00 $14.38............................ 1,000 7 Years $14.38 -- $ -- CLASS B $ 6.63............................ 3,146,000 5 Years $ 6.63 2,585,000 $ 6.63 $ 8.63............................ 129,000 7 Years $ 8.63 129,000 $ 8.63 $ 8.88............................ 28,000 7 Years $ 8.88 11,000 $ 8.88 $11.30............................ 500,000 10 Years $11.30 14,000 $11.30 $11.63............................ 1,000 7 Years $11.63 -- $ --
11. SEGMENT INFORMATION The Company is a network marketing company that sells a wide range of weight management products, dietary and nutritional supplements and personal care products within one industry segment as defined under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company's products are primarily manufactured by third-party providers and then sold to independent distributors who sell Herbalife products to retail consumers or other distributors. The Company's chief operating decision makers review both geographic and product line information. F-20 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has operations throughout the world (53 countries as of December 31, 2001) and is organized and managed by geographic area. Transactions between geographic segments generally represent export sales from the United States to foreign operations. Information reviewed by the Company's chief operating decision makers on significant geographic segments, as defined under SFAS No. 131, is prepared on the same basis as the consolidated financial statements. In the first quarter of 2002, the Company's chief operating decision makers began reviewing operating results for revised geographic segments, as well as reviewing gross margin by product line. Segment disclosure information has been updated to reflect these new measures for all periods presented.
YEAR ENDED DECEMBER 31, ------------------------------ 1999 2000 2001 -------- -------- -------- (DOLLARS IN MILLIONS) RETAIL SALES United States........................................ $ 416.1 $ 453.0 $ 441.7 Japan................................................ 518.4 406.9 304.5 South Korea.......................................... 129.3 127.9 114.9 Mexico............................................... 44.8 75.2 98.3 German Group(1)...................................... 106.7 99.5 110.8 Italy................................................ 121.1 101.8 107.4 Others............................................... 457.1 500.6 478.6 -------- -------- -------- TOTAL RETAIL SALES..................................... $1,793.5 $1,764.9 $1,656.2 -------- -------- -------- NET SALES United States........................................ $ 261.5 $ 284.4 $ 278.8 Japan................................................ 302.3 238.0 178.1 South Korea.......................................... 86.8 86.0 77.1 Mexico............................................... 27.1 45.4 59.1 German Group(1)...................................... 66.6 62.6 69.4 Italy................................................ 75.7 63.0 66.5 Others............................................... 278.9 306.1 291.1 -------- -------- -------- TOTAL NET SALES........................................ $1,098.9 $1,085.5 $1,020.1 -------- -------- -------- OPERATING MARGIN(2) United States........................................ $ 86.9 $ 97.4 $ 111.9 Japan................................................ 140.1 117.2 86.3 South Korea.......................................... 44.5 47.2 42.6 Mexico............................................... 9.0 15.3 24.0 German Group(1)...................................... 26.5 22.8 25.3 Italy................................................ 32.8 24.7 25.4 Others............................................... 97.0 109.5 107.9 -------- -------- -------- TOTAL OPERATING MARGIN................................. $ 436.8 $ 434.1 $ 423.4
F-21 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 2000 2001 -------- -------- -------- (DOLLARS IN MILLIONS) -------- -------- -------- MARKETING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES(3).......................................... (344.3) (373.2) (354.6) INTEREST INCOME, NET................................... 1.8 2.4 3.4 -------- -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST....... 94.3 63.3 72.2 INCOME TAXES........................................... (36.3) (25.3) (28.9) MINORITY INTEREST...................................... (1.1) (1.1) (0.7) -------- -------- -------- NET INCOME............................................. $ 56.9 $ 36.9 $ 42.6 ======== ======== ========
YEAR ENDED DECEMBER 31, ------------------------------ 1999 2000 2001 -------- -------- -------- (DOLLARS IN MILLIONS) RETAIL SALES BY PRODUCT LINE: Inner Nutrition...................................... $1,548.8 $1,513.5 $1,452.5 Outer Nutrition...................................... 198.1 200.6 178.2 Literature........................................... 56.9 57.7 51.5 Other................................................ 18.0 21.1 15.7 Return and Refund.................................... (28.3) (28.0) (41.7) -------- -------- -------- TOTAL RETAIL SALES..................................... $1,793.5 $1,764.9 $1,656.2 -------- -------- -------- DISTRIBUTOR ALLOWANCES................................. (837.3) (820.7) (774.5) HANDLING AND FREIGHT INCOME............................ 142.7 141.3 138.4 -------- -------- -------- NET SALES.............................................. $1,098.9 $1,085.5 $1,020.1 -------- -------- -------- COST OF SALES Inner Nutrition...................................... $ 140.9 $ 151.9 $ 146.4 Outer Nutrition...................................... 24.1 26.5 22.7 Literature........................................... 21.1 23.4 20.7 Freight, Duty and Other.............................. 78.8 67.2 51.7 -------- -------- -------- TOTAL COST OF SALES.................................... $ 264.9 $ 269.0 $ 241.5 -------- -------- -------- GROSS MARGIN........................................... $ 834.0 $ 816.5 $ 778.6 ======== ======== ========
YEAR ENDED DECEMBER 31, ------------------------ 1999 2000 2001 ------ ------ ------ (DOLLARS IN MILLIONS) TOTAL ASSETS United States............................................ $184.1 $195.2 $283.0 Japan.................................................... 66.7 51.5 32.6 South Korea.............................................. 41.6 28.3 23.0 Mexico................................................... 4.8 3.4 9.4 German Group(1).......................................... 13.5 7.7 9.1 Italy.................................................... 13.9 9.4 11.6 Others................................................... 91.2 121.4 101.6 ------ ------ ------ TOTAL ASSETS............................................... $415.8 $416.9 $470.3 ====== ====== ======
F-22 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------ 1999 2000 2001 ------ ------ ------ (DOLLARS IN MILLIONS) CAPITAL EXPENDITURES United States............................................. $24.2 $14.4 $11.5 Japan..................................................... 1.1 1.2 0.4 South Korea............................................... 1.1 1.1 0.1 Mexico.................................................... 0.2 0.7 0.2 German Group(1)........................................... 0.1 0.4 0.1 Italy..................................................... 0.1 0.4 -- Others.................................................... 5.8 7.2 2.5 ----- ----- ----- TOTAL CAPITAL EXPENDITURES.................................. $32.6 $25.4 $14.8 ===== ===== =====
- --------------- (1) German Group includes Germany, Austria and Switzerland. (2) Operating Margin represents net sales less cost of sales and royalty overrides. (3) The year ended December 31, 2000 includes a one-time charge of $9.5 million relating to fees and expenses in connection with the termination of a proposed buy-out transaction by Mark Hughes, our founder and Chief Executive Officer at that time. 12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. In accordance with the transition provisions of SFAS 133, the Company recorded a cumulative-effect type adjustment of $621,000 (gain) in earnings to recognize the fair value of all derivatives that were designated as fair-value hedges. The Company also recorded a cumulative-effect type adjustment of $621,000 (loss) in earnings to recognize the difference (attributable to the hedged risks) between the carrying values and the fair values of related hedged assets and liabilities. Additionally, the Company recorded a cumulative-effect type adjustment of $909,000 ($545,000 net of tax) in accumulated other comprehensive income to recognize the fair value of all derivatives that are designated as cash flow hedges. This cumulative effect adjustment to other comprehensive income was reclassified to earnings during the course of 2001. The Company is exposed to foreign exchange risk relating to its international business operations. As part of its overall strategy to manage the level of exposure to the risk of foreign exchange on sales to distributors, purchase commitments denominated in foreign currencies, intercompany transactions and bank loans, the Company enters into forward exchange and option contracts having maximum maturities of one year. On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure (fair value hedge or cash flow hedge). If a derivative does not qualify in a hedging relationship, the derivative is recorded at fair value and changes in its fair value are reported currently in earnings. The Company designates certain derivatives as fair value hedges. For all qualifying and highly effective fair value hedges, the changes in the fair value of a derivative and the gain or loss on the hedged asset or liability relating to the risk being hedged are recorded currently in earnings. These amounts are recorded in marketing, distribution and administrative expenses and provide offsets to one another. The Company designates certain derivatives as cash flow hedges. For all qualifying and highly effective cash flow hedges, the changes in the effective portion of the fair value of the derivative are recorded in other F-23 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) comprehensive income (OCI). At December 31, 2001, the Company anticipates reclassifying $2,284,000 of gain reported in OCI to earnings within 12 months. 13. INCOME TAXES The components of income before income taxes were:
YEAR ENDED DECEMBER 31, --------------------------------------- 1999 2000 2001 ----------- ----------- ----------- Domestic...................................... $23,432,000 $14,198,000 $49,951,000 Foreign....................................... 70,891,000 49,097,000 22,237,000 ----------- ----------- ----------- $94,323,000 $63,295,000 $72,188,000 =========== =========== ===========
Income taxes are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 2000 2001 ----------- ------------ ----------- CURRENT: Foreign...................................... $33,999,000 $ 25,377,000 $17,745,000 Federal...................................... 3,910,000 7,289,000 12,021,000 State........................................ 2,486,000 1,541,000 2,145,000 DEFERRED: Foreign...................................... 1,652,000 (10,455,000) 3,675,000 Federal...................................... (5,204,000) 1,541,000 (6,557,000) State........................................ (529,000) 25,000 (154,000) ----------- ------------ ----------- $36,314,000 $ 25,318,000 $28,875,000 =========== ============ ===========
F-24 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences which gave rise to deferred income tax assets and liabilities are as follows:
YEAR ENDED DECEMBER 31, ------------------------- 2000 2001 ----------- ----------- DEFERRED INCOME TAX ASSETS: Intercompany profit in inventory........................... $ 1,792,000 $ 6,308,000 Accruals not currently deductible.......................... 16,013,000 19,233,000 Accrued foreign withholding tax on unremitted earnings..... 2,141,000 1,453,000 Foreign tax credits and tax loss carryforwards of certain foreign subsidiaries..................................... 7,256,000 6,858,000 Less valuation allowance................................... (1,226,000) (3,468,000) Depreciation/amortization.................................. 773,000 16,000 Deferred compensation plan................................. 10,134,000 13,370,000 Accrued state income taxes................................. 149,000 -- Accrued vacation........................................... 2,213,000 1,883,000 Unrealized foreign exchange................................ 2,364,000 2,659,000 Other...................................................... 3,142,000 2,071,000 ----------- ----------- $44,751,000 $50,383,000 ----------- ----------- DEFERRED INCOME TAX LIABILITIES: Intangible assets.......................................... $ 828,000 $ 795,000 Inventory deductibles...................................... 2,387,000 5,016,000 ----------- ----------- $ 3,215,000 $ 5,811,000 ----------- ----------- Net........................................................ $41,536,000 $44,572,000 =========== ===========
At December 31, 2001, the Company's deferred income tax asset for net operating loss carryforwards of certain foreign subsidiaries of $6,664,000 was reduced by a valuation allowance of $3,468,000. The net operating loss carryforwards expire in varying amounts between 2002 and 2009. Realization of the income tax carryforwards is dependent on generating sufficient taxable income prior to expiration of the carryforwards. Although realization is not assured, management believes it is more likely than not that the net carrying value of the income tax carryforwards will be realized. The amount of the income tax carryforwards that is considered realizable, however, could be reduced if estimates of future taxable income during the carryforward period are reduced. F-25 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax expense differs from the "expected" income tax expense by applying the United States statutory rate of 35% as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 2000 2001 ------------ ----------- ----------- Tax expense at United States statutory rate....................................... $ 33,013,000 $22,153,000 $25,266,000 Increase (decrease) in tax resulting from: Differences between U.S. and foreign tax rates on foreign income, including withholding taxes.......................... 9,603,000 5,981,000 7,131,000 U.S. tax (benefit) on foreign income net of foreign tax credits........................ (10,914,000) 3,494,000 (7,876,000) Increase (decrease) in valuation allowances................................. 5,049,000 (5,621,000) 2,242,000 Life insurance proceeds...................... -- (1,750,000) -- State taxes, net of federal benefit.......... 1,616,000 966,000 1,234,000 Other........................................ (2,053,000) 95,000 878,000 ------------ ----------- ----------- Total................................... $ 36,314,000 $25,318,000 $28,875,000 ============ =========== ===========
Cumulative undistributed earnings of foreign subsidiaries for which no deferred taxes have been provided approximated $18,141,000 at December 31, 2001. Deferred income taxes on these earnings have either not been provided as these amounts have been reinvested in the foreign subsidiaries, or in certain instances, it is expected that any additional taxes on the earnings of foreign subsidiaries, if remitted, would be substantially offset by U.S. foreign tax credits. 14. FINANCIAL INSTRUMENTS Foreign exchange option contracts are used primarily to hedge Yen-denominated and Mexican Peso-denominated intercompany sales made by Herbalife International of America, Inc. to the Company's Japanese and Mexican subsidiaries and to hedge Euro denominated sales made by Herbalife International of Europe, Inc. to the Company's distributors. The exchange rate at which these contracts may be exercised is based upon the daily average exchange rate for a particular month. The Company has guidelines that establish a net $5 million limit on the amount of annual option premiums. The Company purchases average rate put options, which give the Company the right, but not the obligation, to sell foreign currency at a specified exchange rate ("strike rate"). These contracts provide protection in the event the foreign currency weakens beyond the option strike rate. In some instances, the Company sells (writes) foreign currency call options to finance the purchase of put options, which gives the counterparty the right, but not the obligation to buy foreign currency from the Company at a specified strike rate. These contracts serve to limit the benefit the Company would otherwise derive from strengthening of the foreign currency beyond the strike rate. Such written call options are only entered into contemporaneously with purchased put options. The fair value of option contracts are based on third-party bank quotes. F-26 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides information about the details of the Company's option contracts:
AVERAGE STRIKE FOREIGN CURRENCY COVERAGE PRICE FAIR VALUE MATURITY DATE - ---------------- ----------- --------------- ---------- -------------- AT DECEMBER 31, 2000 Purchased Puts (Company may Sell Yen/Buy USD) Japanese Yen................ $18,000,000 107.55 - 108.30 $ 909,000 Jan.-Mar. 2001 =========== ========== Written Calls (Counterparty may Buy Yen/Sell USD Japanese Yen................ $18,000,000 104.10 - 104.60 $ 5,000 Jan.-Mar. 2001 =========== ========== Purchased Puts (Company may Sell Euro/Buy USD) Euro........................ $ 5,328,000 0.8880 $ 1,000 Jan. 2001 Euro........................ 5,334,000 0.8890 16,000 Feb. 2001 ----------- ---------- $10,662,000 $ 17,000 =========== ========== AT DECEMBER 31, 2001 Purchased Puts (Company may Sell Yen/Buy USD) Japanese Yen................ $ 9,000,000 115.30 - 116.18 $1,022,000 Jan.-Mar. 2002 Japanese Yen................ 9,000,000 114.56 - 115.43 1,042,000 Apr.-Jun. 2002 ----------- ---------- $18,000,000 $2,064,000 =========== ========== Written Calls (Counterparty may Buy Yen/Sell USD) Japanese Yen................ $ 9,000,000 109.00 - 111.50 $ -- Jan.-Mar. 2002 Japanese Yen................ 9,000,000 109.00 - 111.50 (2,000) Apr.-Jun. 2002 ----------- ---------- $18,000,000 $ (2,000) =========== ==========
Foreign exchange forward contracts are occasionally used to hedge non-functional currency advances between subsidiaries and bank loans. The Company also uses foreign exchange forward contracts to hedge non-functional currency purchase commitments. The objective of these contracts is to reduce the impact of foreign currency movements on the subsidiary's financial results. The fair value of forward contracts is based on third-party bank quotes. F-27 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The table below describes the forward contracts that were outstanding:
FORWARD FOREIGN CURRENCY CONTRACT DATE POSITION MATURITY DATE CONTRACT RATE FAIR VALUE - ---------------- ------------- ---------- ------------- ------------- ---------- AT DECEMBER 31, 2000 Buy Deutsche Mark/Sell USD.................. 9/11/2000 $1,070,000 Jan-Aug 2001 2.23-2.26 $1,156,000 Buy French Francs/Sell USD.................. 9/11/2000 624,000 Jan-Jul 2001 7.5 - 7.56 674,000 Buy Italian Lire/Sell USD.................. 9/11/2000 5,841,000 Jan-Aug 2001 2,216 - 2,235 6,325,000 Buy French Francs/Sell British Pound........ 4/13/2000 1,533,000 3/30/2001 10.6874 1,568,000 Buy Italian Lire/Sell British Pound........ 6/23/2000 1,473,000 6/15/2001 3,034 1,452,000 AT DECEMBER 31, 2001 Buy Israeli Shekel/Sell British Pound........ 12/13/2001 $ 930,000 06/20/2002 6.1175 $ 897,000 Buy British Pound/Sell Israel Shekel........ 12/17/2001 912,000 06/20/2002 6.2400 927,000 Buy US Dollar/Sell British Pound........ 12/17/2001 956,000 06/20/2002 1.4428 950,000 Buy US Dollar/Sell Indian Rupee......... 12/28/2001 1,864,000 11/29/2002 51.1400 1,851,000
All foreign subsidiaries excluding those operating in hyper-inflationary environments designate their local currencies as their functional currency. At year end, the total amount of cash held by foreign subsidiaries primarily in Japan and Korea was $69.2 million of which $11.2 million was maintained or invested in U.S. Dollars. 15. QUARTERLY INFORMATION (UNAUDITED)
2000 2001 ------------ ------------ FIRST QUARTER ENDED MARCH 31 Retail sales............................................. $458,423,000 $399,668,000 Net sales................................................ 281,014,000 245,751,000 Gross profit(1).......................................... 213,453,000 185,695,000 Net income............................................... 5,929,000 8,561,000 Net income per common share: Basic.................................................... $ 0.21 $ 0.29 Diluted.................................................. 0.19 0.29 Dividends per share...................................... 0.15 0.15
F-28 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 2001 ------------ ------------ SECOND QUARTER ENDED JUNE 30 Retail sales............................................. $441,235,000 $413,433,000 Net sales................................................ 272,120,000 255,032,000 Gross profit(1).......................................... 204,789,000 193,622,000 Net income............................................... 11,653,000 10,044,000 Net income per common share: Basic.................................................... $ 0.41 $ 0.34 Diluted.................................................. 0.39 0.33 Dividends per share...................................... 0.15 0.15 THIRD QUARTER ENDED SEPTEMBER 30 Retail sales............................................. $442,001,000 $424,317,000 Net sales................................................ 271,876,000 261,587,000 Gross profit(1).......................................... 203,881,000 201,355,000 Net income............................................... 11,806,000 14,026,000 Net income per common share: Basic.................................................... $ 0.41 $ 0.45 Diluted.................................................. 0.39 0.44 Dividends per share...................................... 0.15 0.15 FOURTH QUARTER ENDED DECEMBER 31 Retail sales............................................. $423,192,000 $418,750,000 Net sales................................................ 260,474,000 257,760,000 Gross profit(1).......................................... 194,369,000 197,936,000 Net income............................................... 7,531,000 9,957,000 Net income per common share: Basic.................................................... $ 0.26 $ 0.32 Diluted.................................................. 0.25 0.31 Dividends per share...................................... 0.15 0.15
- --------------- (1) Gross profit consists of net sales less cost of sales. 16. SUPPLEMENTAL INFORMATION The following condensed consolidated balance sheets, statements of operations, and statements of cash flows have been presented as a result of the merger between Herbalife International, Inc. and WH Acquisition, Inc. and related financing transactions. Such financial statements have been segregated between those entities that will guarantee the notes issued in connection with the transaction ("Subsidiary Guarantors"), and those entities that will not guarantee the notes ("Non-Guarantors"). The Guarantor entities are: Herbalife International of America, Inc. Herbalife International Communications, Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife China, LLC Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. F-29 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Herbalife International (Thailand) Ltd. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International Do Brasil Ltda. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C. V. Herbalife Sweden Aktiebolag Herbalife Taiwan, Inc. Consolidating condensed statement of operation data for the years ended December, 31, 2001, 2000 and 1999 is summarized as follows:
YEAR ENDED DECEMBER 31, 2001 ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) Net sales................... -- $877.8 $218.3 $(76.0) $1,020.1 Cost of sales............... -- 216.9 97.0 (72.4) 241.5 Royalty overrides........... -- 238.8 116.4 -- 355.2 Marketing, distribution and administrative expenses... $ 0.4 281.2 73.0 -- 354.6 Equity in subsidiary (income).................. (43.3) (0.8) -- 44.1 -- Buy-out transaction expenses.................. -- -- -- -- -- Interest income -- net...... -- (3.4) -- -- (3.4) Intercompany charges (income).................. (6.4) 76.5 (70.0) (0.1) -- ------ ------ ------ ------ -------- Income before income taxes and minority interest..... 49.3 68.6 1.9 (47.6) 72.2 Income taxes................ 2.4 22.6 3.9 -- 28.9 ------ ------ ------ ------ -------- Income before minority interest.................. 46.9 46.0 (2.0) (47.6) 43.3 Minority interest........... -- 0.7 -- -- 0.7 ------ ------ ------ ------ -------- NET INCOME.................. $ 46.9 $ 45.3 $ (2.0) $(47.6) $ 42.6 ====== ====== ====== ====== ========
F-30 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 2000 --------------------------------------------------------------------------- HERBALIFE SUBSIDIARY NON- TOTAL INTERNATIONAL, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------------------- ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) Net sales....................... -- $891.6 $251.4 $(57.5) $1,085.5 Cost of sales................... -- 232.2 94.8 (58.0) 269.0 Royalty overrides............... -- 263.7 118.6 -- 382.3 Marketing, distribution and administrative expenses....... $ 1.6 290.9 71.2 -- 363.7 Equity in subsidiary (income)... (37.3) (2.1) -- 39.4 -- Buy-out transaction expenses.... -- 9.5 -- -- 9.5 Interest income -- net.......... -- (1.4) (0.9) -- (2.3) Intercompany charges (income)... (3.6) 62.0 (58.4) -- -- ------ ------ ------ ------ -------- Income before income taxes and minority interest............. 39.3 36.8 26.1 (38.9) 63.3 Income taxes.................... 0.8 10.7 13.8 -- 25.3 ------ ------ ------ ------ -------- Income before minority interest...................... 38.5 26.1 12.3 (38.9) 38.0 Minority interest............... -- 1.1 -- -- 1.1 ------ ------ ------ ------ -------- NET INCOME...................... $ 38.5 $ 25.0 $ 12.3 $(38.9) $ 36.9 ====== ====== ====== ====== ========
YEAR ENDED DECEMBER 31, 1999 --------------------------------------------------------------------------- HERBALIFE SUBSIDIARY NON- TOTAL INTERNATIONAL, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------------------- ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) Net sales....................... -- $918.9 $231.7 $(51.7) $1,098.9 Cost of sales................... -- 227.2 89.4 (51.7) 264.9 Royalty overrides............... -- 273.9 123.2 -- 397.1 Marketing, distribution and administrative expenses....... $ (0.7) 286.9 58.1 -- 344.3 Equity in subsidiary (income)... (39.4) (1.3) -- 40.7 -- Buy-out transaction expenses.... -- -- -- -- -- Interest income -- net.......... -- (2.8) 1.0 -- (1.8) Intercompany charges (income)... (30.7) 101.4 (70.7) -- -- ------ ------ ------ ------ -------- Income before income taxes and minority interest............. 70.8 33.6 30.7 (40.7) 94.4 Income taxes.................... 12.6 15.4 8.4 -- 36.4 ------ ------ ------ ------ -------- Income before minority interest...................... 58.2 18.2 22.3 (40.7) 58.0 Minority interest............... -- 1.1 -- -- 1.1 ------ ------ ------ ------ -------- NET INCOME...................... $ 58.2 $ 17.1 $ 22.3 $(40.7) $ 56.9 ====== ====== ====== ====== ========
F-31 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Consolidating condensed balance sheet data as of December 31, 2001 and 2000 is summarized as follows:
AS OF DECEMBER 31, 2001 --------------------------------------------------------------------------- HERBALIFE SUBSIDIARY NON- TOTAL INTERNATIONAL, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------------------- ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) CURRENT ASSETS Cash and marketable securities.................... $ 0.2 $ 167.3 $ 33.7 -- $201.2 Receivables..................... -- 21.1 6.5 -- 27.6 Intercompany receivables........ 184.9 (150.0) (34.9) -- -- Inventories..................... -- 57.6 20.7 $(6.1) 72.2 Other Current Assets............ -- 36.6 5.5 -- 42.1 ------ ------- ------ ----- ------ Total current assets....... 185.1 132.6 31.5 (6.1) 343.1 ------ ------- ------ ----- ------ PROPERTY, net................... -- 48.3 12.4 -- 60.7 OTHER NON-CURRENT ASSETS........ 0.9 60.0 7.0 (1.4) 66.5 ------ ------- ------ ----- ------ TOTAL ASSETS.................... $186.0 $ 240.9 $ 50.9 (7.5) $470.3 ====== ======= ====== ===== ====== CURRENT LIABILITIES: Accounts payable................ -- $ 14.0 $ 5.8 -- $ 19.8 Royalty overrides............... -- 42.6 15.6 -- 58.2 Accrued compensation and expenses...................... -- 45.1 13.8 -- 58.9 Other current liabilities....... 17.6 3.3 7.5 -- 28.4 ------ ------- ------ ----- ------ Total current liabilities..... 17.6 105.0 42.7 -- 165.3 ------ ------- ------ ----- ------ NON-CURRENT LIABILITIES......... 3.8 38.0 0.6 -- 42.4 MINORITY INTEREST............... -- 1.7 -- -- 1.7 STOCKHOLDERS' EQUITY............ 164.6 96.2 7.6 (7.5) 260.9 ------ ------- ------ ----- ------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.......... $186.0 $ 240.9 $ 50.9 $(7.5) $470.3 ====== ======= ====== ===== ======
AS OF DECEMBER 31, 2000 --------------------------------------------------------------------------- HERBALIFE SUBSIDIARY NON- TOTAL INTERNATIONAL, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------------------- ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) CURRENT ASSETS Cash and marketable securities.................... $ 0.2 $100.1 $ 40.0 -- $140.3 Receivables..................... 0.2 23.3 1.1 -- 24.6 Intercompany receivables........ 47.3 (23.1) (24.2) -- -- Inventories..................... -- 74.8 27.1 $ (2.6) 99.3 Other Current Assets............ -- 33.1 4.1 -- 37.2 ------ ------ ------ ------ ------ Total current assets....... 47.7 208.2 48.1 (2.6) 301.4 ------ ------ ------ ------ ------ PROPERTY, net................... -- 52.1 9.6 -- 61.7
F-32 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF DECEMBER 31, 2000 --------------------------------------------------------------------------- HERBALIFE SUBSIDIARY NON- TOTAL INTERNATIONAL, INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------------------- ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) OTHER NON-CURRENT ASSETS........ 91.8 43.8 2.8 (84.6) 53.8 ------ ------ ------ ------ ------ TOTAL ASSETS.................... $139.5 $304.1 $ 60.5 $(87.2) $416.9 ====== ====== ====== ====== ====== CURRENT LIABILITIES: Accounts payable................ -- $ 13.5 $ 5.3 -- $ 18.8 Royalty overrides............... -- 51.3 17.7 -- 69.0 Accrued compensation and expenses...................... -- 32.3 13.5 -- 45.8 Other current liabilities....... $ 16.6 (0.3) 6.3 -- 22.6 ------ ------ ------ ------ ------ Total current liabilities..... 16.6 96.8 42.8 -- 156.2 ------ ------ ------ ------ ------ NON-CURRENT LIABILITIES......... 3.8 31.6 0.7 -- 36.1 MINORITY INTEREST............... -- 2.2 -- -- 2.2 STOCKHOLDERS' EQUITY............ 119.1 173.5 17.0 $(87.2) 222.4 ------ ------ ------ ------ ------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.......... $139.5 $304.1 $ 60.5 $(87.2) $416.9 ====== ====== ====== ====== ======
Consolidating condensed statement of cash flows data for the years ended December 31, 2001, 2000 and 1999:
YEAR ENDED DECEMBER 31, 2001 ------------------------------------------------------------------------------- NON- HERBALIFE GUARANTOR GUARANTOR TOTAL INTERNATIONAL, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------- ------------ ------------ ------------ ------------ (DOLLARS IN MILLIONS) Net cash provided by (used in) operating activities........... $ 46.3 $ 110.5 $ 10.1 $(71.4) $ 95.5 Net cash provided by (used in) investing activities........... (45.1) 89.9 (2.4) (58.8) (16.4) Net cash provided by (used in) financing activities........... (1.2) (120.8) (11.7) 130.2 (3.5) Effect of exchange rate changes on cash...... -- (4.5) (2.2) -- (6.7) ------ ------- ------ ------ ------ Net increase (decrease) in cash.............. -- 75.1 (6.2) -- 68.9 Cash at beginning of period............... 0.2 70.2 39.9 -- 110.3 ------ ------- ------ ------ ------ Cash at end of period............... $ 0.2 $ 145.3 $ 33.7 $ -- $179.2 ====== ======= ====== ====== ======
F-33 HERBALIFE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 2000 ------------------------------------------------------------------------------- NON- HERBALIFE GUARANTOR GUARANTOR TOTAL INTERNATIONAL, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------- ------------ ------------ ------------ ------------ (DOLLARS IN MILLIONS) Net cash provided by (used in) operating activities............... $ 17.7 $ 53.5 $ 12.0 $(37.1) $ 46.1 Net cash provided by (used in) investing activities............... (3.8) (43.9) (4.9) 2.6 (50.0) Net cash provided by (used in) financing activities............... (13.7) (21.3) (12.9) 34.0 (13.9) Effect of exchange rate changes on cash.......... -- (5.1) (5.4) 0.5 (10.0) ------ ------ ------ ------ ------ Net increase (decrease) in cash..................... 0.2 (16.8) (11.2) -- (27.8) Cash at beginning of period................... -- 86.9 51.2 -- 138.1 ------ ------ ------ ------ ------ Cash at end of period...... $ 0.2 $ 70.1 $ 40.0 $ -- $110.3 ====== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1999 ------------------------------------------------------------------------------- NON- HERBALIFE GUARANTOR GUARANTOR TOTAL INTERNATIONAL, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------- ------------ ------------ ------------ ------------ (DOLLARS IN MILLIONS) Net cash provided by (used in) operating activities............... $ 17.2 $ 75.8 $25.0 $(22.6) $ 95.4 Net cash provided by (used in) investing activities............... -- (34.8) (1.6) (7.1) (43.5) Net cash provided by (used in) financing activities............... (17.2) (20.5) (6.9) 28.6 (16.0) Effect of exchange rate changes on cash.......... -- 1.3 (0.7) 1.1 1.7 ------ ------ ----- ------ ------ Net increase (decrease) in cash..................... -- 21.8 15.8 -- 37.6 Cash at beginning of period................... -- 65.3 35.4 -- 100.7 ------ ------ ----- ------ ------ Cash at end of period...... $ -- $ 87.1 $51.2 $ -- $138.3 ====== ====== ===== ====== ======
17. SUBSEQUENT EVENT (UNAUDITED) SALE OF THE COMPANY On April 10, 2002, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which on July 31, 2002 WH Holdings (Cayman Islands) Ltd., a Cayman Islands company ("Parent"), acquired the Company in a merger transaction, with an aggregate purchase price of approximately $651.5 million. F-34 INDEPENDENT AUDITORS' REPORT To the Board of Directors of WH Intermediate Holdings Ltd.: We have audited the accompanying consolidated balance sheet of WH Intermediate Holdings Ltd. and subsidiaries (the "Company") as of July 5, 2002, and the related consolidated statements of operations, stockholder's deficiency, and cash flows for the period May 23, 2002 (date of inception) to July 5, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of July 5, 2002, and the results of its operations and its cash flows for the period May 23, 2002 to July 5, 2002 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Los Angeles, California October 30, 2002 F-35 WH INTERMEDIATE HOLDINGS LTD. & SUBSIDIARIES CONSOLIDATED BALANCE SHEET
JULY 5, 2002 ------------ ASSETS Cash and Cash Equivalents................................. $154,163,000 Interest Receivable....................................... 48,000 Income Tax Receivable..................................... 608,000 ------------ TOTAL CURRENT ASSETS...................................... 154,819,000 ------------ Deferred Financing Costs (Note 3)......................... 28,467,000 ------------ TOTAL ASSETS.............................................. $183,286,000 ============ LIABILITIES AND STOCKHOLDER'S DEFICIENCY Due to Parent............................................. $ 37,000 Accrued Interest.......................................... 431,000 Accrued Deferred Financing Costs.......................... 20,985,000 ------------ TOTAL CURRENT LIABILITIES................................. 21,453,000 ------------ Long Term Debt, less unamortized discount (Note 3)........ 162,887,000 ------------ TOTAL LIABILITIES......................................... 184,340,000 ------------ STOCKHOLDER'S DEFICIENCY Common stock $1.00 par value, 50,000 shares authorized, 1 share issued and outstanding........................................ -- Accumulated Deficit....................................... (1,054,000) ------------ TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY............ $183,286,000 ============
See the accompanying notes to the consolidated financial statements. F-36 WH INTERMEDIATE HOLDINGS LTD. & SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD MAY 23, 2002 TO JULY 5, 2002 ------------ Interest Expense, net (Note 3)............................ $1,662,000 ---------- LOSS BEFORE INCOME TAXES.................................. 1,662,000 ---------- Income Tax Benefit........................................ (608,000) ---------- NET LOSS.................................................. $1,054,000 ==========
See the accompanying notes to the consolidated financial statements. F-37 WH INTERMEDIATE HOLDINGS LTD. & SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIENCY
SHARES COMMON STOCK ACCUMULATED DEFICIT TOTAL ------ ------------ ------------------- ----------- Balance at May 23, 2002.................. -- -- -- -- Original issuance of common stock........ 1 Net Loss................................. $(1,054,000) $(1,054,000) ------ ------------ ----------- ----------- Balance at July 5, 2002.................. 1 $ -- $(1,054,000) $(1,054,000) ====== ============ =========== ===========
See the accompanying notes to the consolidated financial statements. F-38 W.H. INTERMEDIATE HOLDINGS LTD. & SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD MAY 23, 2002 TO JULY 5, 2002 --------------- OPERATING ACTIVITIES: Net loss.................................................... $ (1,054,000) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of deferred financing costs and debt discount............................................... 1,279,000 Changes in operating assets and liabilities: Increase in interest receivable........................ (48,000) Increase in income tax receivable...................... (608,000) Increase in accrued interest........................... 431,000 ------------ Net cash provided by operating activities................... -- ------------ FINANCING ACTIVITIES: Amounts paid relating to deferred financing costs......... (8,755,000) Amounts borrowed from Parent.............................. 37,000 Bonds issued, net of discount............................. 162,881,000 ------------ Net cash provided by financing activities................... 154,163,000 ------------ INCREASE IN CASH AND CASH EQUIVALENTS....................... 154,163,000 ------------ CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $154,163,000 ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............................................... -- Taxes.................................................. --
See the accompanying notes to the consolidated financial statements. F-39 WH INTERMEDIATE HOLDINGS LTD. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD MAY 23, 2002 TO JULY 5, 2002 1. ORGANIZATION WH Intermediate Holdings Ltd., a Cayman Islands company (the "Parent"), and its direct and indirect wholly owned subsidiaries, WH Luxembourg Holdings SaRL, a Luxembourg unipersonal limited liability company ("Lux Holdings"), WH Luxembourg Intermediate Holdings SaRL, a Luxembourg unipersonal limited liability company ("Lux Intermediate"), WH Luxembourg CM SaRL, a Luxembourg unipersonal limited liability company ("Lux CM"), and WH Acquisition Corp., a Nevada corporation ("WH Acquisition"), were formed on behalf of Whitney & Co. LLC ("Whitney") and Golden Gate Private Equity, Inc. ("Golden Gate"), in order to acquire Herbalife International, Inc., a Nevada corporation, and its subsidiaries, ("Herbalife"). The Parent and its subsidiaries are referred to collectively herein as the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICY The consolidated financial statements include the accounts of the Company and its subsidiaries; all significant intercompany transactions and accounts have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 3. DEBT In connection with the merger, the Company and its affiliates consummated certain related financing transactions, including the issuance by WH Acquisition on June 27, 2002 of $165 million of 11 3/4% Senior Subordinated Notes (the "Senior Subordinated Notes") issued at 98.716% of par, due July 15, 2010. Interest is to be paid semiannually on January 15th and July 15th commencing on January 15, 2003. In conjunction with this financing, the Company incurred $25.1 million of debt issuance costs, which are being amortized, on a straight-line basis, which approximates the effective interest method, over the term of the debt. The Senior Subordinated Notes are fully and unconditionally, jointly and severally guaranteed by certain subsidiaries of the Company. The Senior Subordinated Notes include customary covenants that restrict, among other things, the ability to incur additional debt, pay dividends or make certain other restricted payments, incur liens, merge or sell all or substantially all of the assets, or enter into various transactions with affiliates. In addition to the Senior Subordinated Notes, the Company was provided with a bridge financing commitment which, as of July 5, 2002, was not drawn upon. The Company incurred $4.7 million in fees related to the bridge financing, which are being amortized on a straight-line basis, over the term of the commitment, which expired on July 31, 2002. F-40 WH INTERMEDIATE HOLDINGS LTD. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD MAY 23, 2002 TO JULY 5, 2002 4. SUBSEQUENT EVENT -- FINANCING In connection with the merger, Herbalife entered into a Credit Agreement dated as of July 31, 2002 among Herbalife, as borrower, the guarantor parties thereto, the lender party thereto and UBS AG, Stamford branch, as Administrative Agent and Collateral Agent (the "Credit Agreement"), which provides for a term loan amount of $180 million and a revolving credit facility in the amount of $25 million (collectively, the "Senior Credit Facility"). Repayments under the term loan facility began on September 30, 2002 in the amount of $5.0 million, with all other payments to be made in the amount of $7.5 million on a quarterly basis, except for the final payment due on June 30, 2008 in the amount of $10.0 million. The revolving credit facility is available until July 31, 2007. The term loan and the revolving credit facility bear interest, at the option of the Company, at either the alternate base rate or the LIBOR rate plus in each case an applicable margin. The base rate applicable margin for the term loan is 3.00%, while the LIBOR rate applicable margin is 4.00%. The base rate applicable margin for the revolving credit facility is 2.75%, while the LIBOR rate applicable margin is 3.75%. Per the terms of the Senior Credit Facility, on October 30, 2002, the Company purchased a three year 5% LIBOR (three months) interest rate cap covering $43.75 million of the outstanding bank term loan debt under the Senior Credit Facility. In addition to the scheduled repayments, Herbalife must prepay amounts due under the Senior Credit Facility with 50% of its Excess Cash Flow (as defined in the Credit Agreement) as calculated on an annual basis commencing 120 days after each fiscal year end. The Senior Credit Facility is guaranteed by certain subsidiaries of the Company. The obligations under the Senior Credit Facility are secured by (i) first priority pledges of (A) all the stock of Herbalife and each of its direct and indirect subsidiaries, other than certain foreign subsidiaries and (B) 65% of the equity interests of certain foreign subsidiaries of Herbalife and (ii) security interests in and liens on all accounts receivable, inventory and other property and assets of Herbalife and certain of its direct and indirect subsidiaries and affiliates. The Credit Facility includes customary covenants, including maintenance of certain leverage, fixed charge coverage, and interest coverage ratios, along with covenants that restrict, among other things, the ability to incur additional debt, pay dividends or make certain other restricted payments, and incur liens, merge or sell all or substantially all of the assets, or enter into various transactions with affiliates. 5. SUBSEQUENT EVENT -- ACQUISITION On July 31, 2002, WH Acquisition merged with and into Herbalife with Herbalife being the surviving corporation. The merger was consummated pursuant to the Agreement and Plan of Merger by and among WH Holdings (Cayman Islands) Ltd., sole shareholder of the Parent and a Cayman Islands company ("WH Holdings"), WH Acquisition and Herbalife entered into on April 10, 2002 (the "Merger Agreement"). Each stockholder of Herbalife received $19.50 in cash for each share of common stock. The holders of each outstanding option to purchase Herbalife common stock received an amount in cash equal to the excess of $19.50 over the exercise price of such option. As a result of the merger, Herbalife was delisted from the NASDAQ National Market. The merger was undertaken to (i) provide the public stockholders of Herbalife with cash for their shares of common stock, (ii) permit WH Holdings to acquire ownership of Herbalife, (iii) incentivize continuing management by allowing them to share in future earnings and growth of Herbalife through investment in WH Holdings, (iv) provide key distributors of Herbalife an opportunity to participate in future earnings and growth of Herbalife through investment in WH Holdings and (v) allow the controlling stockholder of Herbalife, the Mark Hughes Family Trust, to diversify its assets through an orderly transfer of ownership of Herbalife to WH Holdings. The merger price per share was determined by the Board of Directors of Herbalife, after receiving the recommendation of a Special Committee of members of the Board who were not affiliated with Herbalife or its controlling stockholder. The Board determined that the merger price of $19.50 per share was fair, from a financial point of view, to the stockholders unaffiliated with the controlling F-41 stockholder and the option holders based on the opinion of two financial advisors, as well as financial analyses which included historical share price analysis, comparable company analysis, discounted cash flow and leveraged buyout analysis, and other factors set forth in the proxy statement related to the merger. The merger has been accounted for as a purchase in accordance with SFAS No. 141, "Business Combinations." The total purchase price of approximately $651.5 million was allocated to the acquired assets and assumed liabilities based upon estimates of their respective fair value as of the closing date using valuations and other studies that have substantially been finalized. The final allocation of the purchase cost may differ from the preliminary amounts included herein. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition (dollars in millions):
AT JULY 31, 2002 ---------------- Current assets.............................................. $ 388.7 Property.................................................... 51.8 Marketing franchise......................................... 180.0 Trademark and tradename..................................... 130.0 Product certification and other intangible assets........... 7.4 Goodwill.................................................... 208.4 Other long term assets...................................... 42.6 -------- Total assets acquired....................................... $1,008.9 Current liabilities......................................... $ 192.8 Other non-current liabilities............................... 35.9 Long term debt.............................................. 1.2 Deferred income tax......................................... 127.5 -------- Total liabilities assumed................................... $ 357.4 -------- Net assets acquired......................................... $ 651.5 --------
In connection with the merger, Herbalife incurred transaction expenses and stock option payments of approximately $54.7 million. In addition, the Company incurred debt issuance costs of approximately $41.5 million. The merger was financed through: - gross proceeds of $162.9 million from sale of Senior Subordinated Notes (as defined in Note 4 herein) (face value of $165.0 million); - borrowing of $180.0 million under the $205.0 million Senior Credit Facility (as defined in Note 4 herein); - contribution of net proceeds of $24.0 million by WH Holdings from the sale of its $38 million of 15.5% Senior Notes (the "Senior Notes") (face value $38.0 million); - contribution by Whitney, Golden Gate and selected members of Herbalife's distributor organization and senior management of $176.0 million from the sale of 12% Series A Cumulative Convertible Preferred Shares of WH Holdings (the "Preferred Shares") by WH Holdings; and - use of available cash balances of Herbalife of approximately $228.4 million, of which $4.6 million was used to repurchase Herbalife's minority shares in its Japanese subsidiary (which payment was made during the second quarter), $6.7 million was used to repay existing debt and $217.1 million was used to finance the merger and pay related fees and expenses. F-42 In connection with the merger, WH Holdings contributed the proceeds from the sale of the Preferred Shares and the sale of the Senior Notes, totaling $200.0 million, to the Parent as capital. Immediately upon the consummation of the merger, the Parent assumed indirectly through one of its subsidiaries the liability of $7.2 million of expenses relating to the merger and related financing transactions from WH Holdings, resulting in a net capital contribution of $192.8 million. F-43 WH INTERMEDIATE HOLDINGS LTD. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2002 2001 (SUCCESSOR) (PREDECESSOR) ------------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 75,993,000 $179,237,000 Marketable securities..................................... 1,161,000 21,944,000 Receivables, including related party receivables of $736,000 (2001)........................................ 30,106,000 27,609,000 Inventories............................................... 56,651,000 72,208,000 Prepaid expenses and other current assets................. 29,931,000 14,379,000 Deferred income taxes..................................... 20,432,000 27,741,000 ------------ ------------ Total current assets........................................ 214,274,000 343,118,000 Property, at cost, net of accumulated depreciation and amortization of $2,552,000 (2002) and $81,026,000 (2001).................................................... 50,560,000 60,707,000 Deferred compensation plan assets........................... 38,232,000 43,221,000 Other assets................................................ 4,463,000 2,922,000 Deferred income taxes....................................... -- 16,831,000 Deferred financing costs, net............................... 40,128,000 -- Marketing Franchise......................................... 180,000,000 -- Trademark and Tradename..................................... 130,000,000 -- Product Certification and other intangible assets, net of accumulated amortization of $617,000 (2002)............... 6,783,000 250,000 Goodwill.................................................... 208,350,000 3,286,000 ------------ ------------ TOTAL....................................................... $872,790,000 $470,335,000 ============ ============
See the accompanying notes to consolidated financial statements F-44 WH INTERMEDIATE HOLDINGS LTD. CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
SEPTEMBER 30, DECEMBER 31, 2002 2001 (SUCCESSOR) (PREDECESSOR) ------------- ------------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 23,528,000 $ 19,793,000 Royalty overrides......................................... 62,028,000 58,202,000 Accrued compensation...................................... 33,029,000 22,712,000 Accrued expenses.......................................... 45,402,000 36,203,000 Dividends payable......................................... -- 4,720,000 Current portion of long term debt......................... 32,574,000 9,395,000 Advance sales deposits.................................... 11,354,000 5,800,000 Income taxes payable...................................... -- 8,480,000 ------------ ------------ Total current liabilities................................... 207,915,000 165,305,000 NON-CURRENT LIABILITIES: Long term debt, net of current portion.................... 308,945,000 1,217,000 Deferred compensation..................................... 32,695,000 35,678,000 Deferred income taxes..................................... 123,688,000 -- Other non-current liabilities, including related party payables of $417,000 (2002)............................ 2,077,000 5,548,000 ------------ ------------ Total liabilities........................................... 675,320,000 207,748,000 ------------ ------------ MINORITY INTEREST........................................... -- 1,671,000 ------------ ------------ STOCKHOLDERS' EQUITY: Common Stock, $1.00 par value, 50,000 shares authorized, 1 share issued and outstanding (September 30, 2002)...... -- -- Class A Common Stock, $0.01 par value; 33,333,333 shares authorized, 11,212,696 shares issued and outstanding (December 31, 2001).................................... -- 112,000 Class B Common Stock, $0.01 par value; 66,666,667 shares authorized, 20,293,759 shares issued and outstanding (December 31, 2001).................................... -- 203,000 Paid-in-capital in excess of par value.................... 192,776,000 77,717,000 Retained earnings......................................... 5,814,000 194,415,000 Accumulated other comprehensive loss...................... (1,120,000) (11,531,000) ------------ ------------ Total stockholders' equity.................................. 197,470,000 260,916,000 ------------ ------------ TOTAL....................................................... $872,790,000 $470,335,000 ============ ============
See the accompanying notes to consolidated financial statements F-45 WH INTERMEDIATE HOLDINGS LTD. CONSOLIDATED STATEMENTS OF INCOME
QUARTER NINE MONTHS --------------------------------------------- -------------------------------------------------- 2002 2001 2002 2001 ----------------------------- ------------- ------------------------------ ----------------- JULY 1 AUGUST 1 QUARTER JANUARY 1 AUGUST 1 NINE MONTHS TO TO ENDED TO TO ENDED JULY 31 SEPTEMBER 30 SEPTEMBER 30 JULY 31 SEPTEMBER 30 SEPTEMBER 30 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) ------------- ------------- ------------- -------------- ------------- ----------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------- ------------- ------------- -------------- ------------- ----------------- Retail sales............. $156,220,000 $ 285,800,000 $424,317,000 $1,047,690,000 $ 285,800,000 $1,237,417,000 Distributor allowances on product purchases............ (73,335,000) (134,126,000) (198,557,000) (492,997,000) (134,126,000) (578,570,000) Handling & freight income............... 13,521,000 24,501,000 35,827,000 89,495,000 24,501,000 103,523,000 ------------ ------------- ------------- -------------- ------------- -------------- Net sales................ 96,406,000 176,175,000 261,587,000 644,188,000 176,175,000 762,370,000 Cost of sales.......... 20,747,000 38,145,000 60,232,000 140,553,000 38,145,000 181,698,000 ------------ ------------- ------------- -------------- ------------- -------------- Gross Profit............. 75,659,000 138,030,000 201,355,000 503,635,000 138,030,000 580,672,000 Royalty overrides...... 33,862,000 61,789,000 90,251,000 227,233,000 61,789,000 266,777,000 Marketing, distribution & administrative expenses............. 31,642,000 53,930,000 88,161,000 207,390,000 53,930,000 261,738,000 Merger transaction expenses............. 50,673,000 -- -- 54,708,000 -- -- Interest expense (income) -- net...... (335,000) 12,622,000 (664,000) (1,364,000) 12,622,000 (3,059,000) ------------ ------------- ------------- -------------- ------------- -------------- Income (loss) before income taxes and minority interest...... (40,183,000) 9,689,000 23,607,000 15,668,000 9,689,000 55,216,000 Income taxes........... (16,074,000) 3,875,000 9,443,000 6,267,000 3,875,000 22,086,000 ------------ ------------- ------------- -------------- ------------- -------------- Income (loss) before minority interest...... (24,109,000) 5,814,000 14,164,000 9,401,000 5,814,000 33,130,000 Minority interest...... -- -- 138,000 189,000 -- 499,000 ------------ ------------- ------------- -------------- ------------- -------------- NET INCOME (LOSS)........ $(24,109,000) $ 5,814,000 $ 14,026,000 $ 9,212,000 $ 5,814,000 $ 32,631,000 ============ ============= ============= ============== ============= ==============
See the accompanying notes to consolidated financial statements F-46 WH INTERMEDIATE HOLDINGS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS
2002 2001 ----------------------------- ------------- JANUARY 1 AUGUST 1 NINE MONTHS TO TO ENDED JULY 31 SEPTEMBER 30 SEPTEMBER 30 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 9,212,000 $ 5,814,000 $ 32,631,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................. 11,722,000 3,752,000 13,060,000 Amortization of deferred financing costs.................. -- 1,344,000 -- Deferred income taxes..................................... 3,186,000 896,000 (1,742,000) Unrealized foreign exchange loss.......................... 2,448,000 (167,000) 1,774,000 Minority interest in earnings............................. 189,000 -- 499,000 Other..................................................... 2,338,000 149,000 1,079,000 Changes in operating assets and liabilities: Receivables............................................. (11,712,000) 9,374,000 (2,888,000) Inventories............................................. 11,462,000 3,110,000 17,688,000 Prepaid expenses and other current assets............... (14,107,000) (4,708,000) (2,428,000) Accounts payable........................................ 14,831,000 (9,613,000) 5,169,000 Royalty overrides....................................... 3,948,000 49,000 (7,172,000) Accrued expenses and accrued compensation............... 1,895,000 5,961,000 11,851,000 Advance sales deposits.................................. 3,230,000 2,132,000 1,114,000 Income taxes payable.................................... 718,000 146,000 2,440,000 Deferred compensation liability......................... (1,459,000) (1,523,000) 6,246,000 ------------ ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES................... 37,901,000 16,716,000 79,321,000 ------------ ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property................................... (4,741,000) (1,873,000) (7,179,000) Proceeds from sale of property.......................... 191,000 49,000 127,000 Changes in marketable securities, net................... 20,691,000 105,000 7,890,000 Increase in other assets................................ (2,300,000) (33,000) (1,222,000) Deferred compensation plan assets....................... 5,154,000 (166,000) (11,019,000) Acquisition of Herbalife International, Inc............. -- (650,893,000) -- ------------ ------------- ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... 18,995,000 (652,811,000) (11,403,000) ------------ ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid.......................................... (9,682,000) -- (13,405,000) Distribution to and purchase of minority interest....... (4,598,000) -- (956,000) Additions to bank loans................................. 29,000 -- 2,206,000 Principal payments on bank loans and contract payables.............................................. (3,799,000) (10,433,000) (2,493,000) Increase in deferred financing costs.................... (27,788,000) (13,693,000) -- Exercise of stock options............................... 10,546,000 -- 15,055,000 Equity contributions.................................... -- 200,000,000 -- Assumption of shareholder acquisition expense........... -- (7,223,000) -- Term loan and senior sub notes.......................... -- 342,882,000 -- ------------ ------------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... (35,292,000) 511,533,000 407,000 ------------ ------------- ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 980,000 (1,266,000) (5,419,000) ------------ ------------- ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 22,584,000 (125,828,000) 62,906,000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 179,237,000 201,821,000 110,336,000 ------------ ------------- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $201,821,000 $ 75,993,000 $173,242,000 ============ ============= ============ NON-CASH ACTIVITIES: Acquisitions of property from capital leases.............. $ 2,058,000 $ 13,000 $ 3,494,000 ============ ============= ============
See the accompanying notes to consolidated financial statements F-47 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION WH Intermediate Holdings Ltd., a Cayman Islands company (the "Parent"), and its direct and indirect wholly owned subsidiaries, WH Luxembourg Holdings S.a.R.L., a Luxembourg unipersonal limited liability company ("Lux Holdings"), WH Luxembourg Intermediate Holdings S.a.R.L., a Luxembourg unipersonal limited liability company ("Lux Intermediate"), WH Luxembourg CM S.a.R.L., a Luxembourg unipersonal limited liability company ("Lux CM"), and WH Acquisition Corp., a Nevada corporation ("WH Acquisition"), were formed on behalf of Whitney & Co., LLC ("Whitney") and Golden Gate Private Equity, Inc. ("Golden Gate"), in order to acquire Herbalife International, Inc., a Nevada corporation, and its subsidiaries, ("Herbalife" or "Predecessor"). The Parent and its subsidiaries are referred to collectively herein as the Company. On July 31, 2002, WH Acquisition merged with and into Herbalife with Herbalife being the surviving corporation. The merger was consummated pursuant to the Agreement and Plan of Merger by and among WH Holdings (Cayman Islands) Ltd., sole shareholder of the Parent and a Cayman Islands company ("WH Holdings"), WH Acquisition and Herbalife entered into on April 10, 2002 (the "Merger Agreement"). Each stockholder of Herbalife received $19.50 in cash for each share of common stock. The holders of each outstanding option to purchase Herbalife common stock received an amount in cash equal to the excess of $19.50 over the exercise price of such option. As a result of the merger, Herbalife was delisted from the NASDAQ National Market. The stock of Herbalife is no longer publicly traded and, therefore, earnings per share calculations are no longer included for financial statement presentation. The merger was undertaken to (i) provide the public stockholders of Herbalife with cash for their shares of common stock, (ii) permit WH Holdings to acquire ownership of Herbalife, (iii) incentivize continuing management by allowing them to share in future earnings and growth of Herbalife through investment in WH Holdings, (iv) provide key distributors of Herbalife an opportunity to participate in future earnings and growth of Herbalife through investment in WH Holdings and (v) allow the controlling stockholder of Herbalife, the Mark Hughes Family Trust, to diversify its assets through an orderly transfer of ownership of Herbalife to WH Holdings. The merger price per share was determined by the Board of Directors of Herbalife, after receiving the recommendation of a Special Committee of members of the Board who were not affiliated with Herbalife or its controlling stockholder. The Board determined that the merger price of $19.50 per share was fair, from a financial point of view, to the stockholders unaffiliated with the controlling stockholder and the option holders based on the opinion of two financial advisors, as well as financial analyses which included historical share price analysis, comparable company analysis, discounted cash flow and leveraged buyout analysis, and other factors set forth in the proxy statement related to the merger. The merger has been accounted for as a purchase in accordance with SFAS No. 141, "Business Combinations." Accordingly, the acquired assets and liabilities have been recorded at fair value. Because of this, different bases of accounting have been used to prepare the Company and Predecessor consolidated financial statements. In the future, the primary differences will relate to additional interest expense on the new debt and depreciation and amortization of deferred financing costs recorded at fair value at the date of the merger. The total purchase price of approximately $651.5 million was allocated to the acquired assets and assumed liabilities based upon estimates of their respective fair value as of the closing date using valuations and other studies that have substantially been finalized. The final allocation of the purchase price may differ F-48 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) from the preliminary amounts included herein. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition (dollars in millions):
AT JULY 31, 2002 ---------------- Current assets.............................................. $ 388.7 Property.................................................... 51.8 Marketing franchise......................................... 180.0 Trademark and tradename..................................... 130.0 Product certification and other intangible assets........... 7.4 Goodwill.................................................... 208.4 Other long term assets...................................... 42.6 -------- Total assets acquired....................................... $1,008.9 -------- Current liabilities......................................... $ 192.8 Other non-current liabilities............................... 35.9 Long term debt.............................................. 1.2 Deferred income tax......................................... 127.5 -------- Total liabilities assumed................................... $ 357.4 -------- Net assets acquired......................................... $ 651.5 --------
In connection with the merger, the Predecessor incurred transaction expenses and stock option payments of approximately $54.7 million, which have been reflected in the Predecessor financial statements. In addition, the Company incurred debt issuance costs of approximately $41.5 million, which have been capitalized as deferred financing costs in the Company's consolidated balance sheet. The following pro forma results for the three and nine months ended September 30, 2001 and September 30, 2002 are based on the historical financial statements of the Predecessor, adjusted to give effect to the merger and related financing transactions as if the transactions had occurred as of January 1, 2001 (in millions).
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, --------------- --------------- 2002 2001 2002 2001 ------ ------ ------ ------ Net Sales.......................................... $272.6 $261.6 $820.4 $762.4 Net Income......................................... 12.6 6.8 35.2 11.7
The merger was financed through: - gross proceeds of $162.9 million from sale of Senior Subordinated Notes (as defined in Note 4 herein) (face value of $165.0 million); - borrowing of $180.0 million under the $205.0 million Senior Credit Facility (as defined in Note 4 herein); - contribution of net proceeds of $24.0 million by WH Holdings from the sale of its $38 million of 15.5% Senior Notes (the "Senior Notes") (face value $38.0 million); - contribution by Whitney, Golden Gate and selected members of Herbalife's distributor organization and senior management of $176.0 million from the sale of 12% Series A Cumulative Convertible Preferred Shares of WH Holdings (the "Preferred Shares") by WH Holdings; and F-49 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - use of available cash balances of Herbalife of approximately $228.4 million, of which $4.6 million was used to repurchase Herbalife's minority shares in its Japanese subsidiary (which payment was made during the second quarter), $6.7 million was used to repay existing debt and $217.1 million was used to finance the merger and pay related fees and expenses. In connection with the merger, WH Holdings contributed the proceeds from the sale of the Preferred Shares and the sale of the Senior Notes, totaling $200.0 million, to the Parent as capital. Immediately upon the consummation of the merger, the Parent assumed indirectly through one of its subsidiaries the liability of $7.2 million of expenses relating to the merger and related financing transactions from WH Holdings, resulting in a net capital contribution of $192.8 million. 2. BASIS OF PRESENTATION The unaudited interim financial information of the Parent and its subsidiaries (the "Successor") and of Herbalife and its subsidiaries have been prepared in accordance with Article 10 of the Securities and Exchange Commission's Regulation S-X. The Successor financial statements as of September 30, 2002 and for the two months ended September 30, 2002 include the Parent, and all of its direct and indirect subsidiaries, including Herbalife from the date of the merger. The Successor financial statements also include interest expense and amortization of debt issuance costs incurred prior to the consummation of the merger. In the opinion of management, the accompanying interim financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial statements as of September 30, 2002 and for the one month period ended July 31, 2002, the two month period ended September 30, 2002, the seven month period ended July 31, 2002 and the three and nine month periods ended September 30, 2001. As a result of the merger and related financing transactions results prior to the merger are not comparable with those subsequent to the merger. RECLASSIFICATIONS Certain reclassifications were made to the prior year financial statements to conform to the current year presentation. NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," SFAS No. 144, "Accounting for the Impairment or Disposals of Long-Lived Assets," and Emerging Issues Task Force ("EITF") Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products". The adoption of SFAS No. 142, SFAS No. 144, and EITF Issue No. 01-09 had no material impact on the Company's financial statements. In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds or amends, effective immediately upon adoption, several other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company is currently evaluating the impact these pronouncements will have on its consolidated statements. F-50 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements for the period beginning August 1, 2002 include the accounts of the Parent and its subsidiaries and for the periods prior to August 1, 2002 include the accounts of Herbalife and its subsidiaries; all significant intercompany transactions and accounts have been eliminated. Translation of Foreign Currencies Foreign subsidiaries' asset and liability accounts are translated for consolidated financial reporting purposes into U.S. dollar amounts at year-end exchange rates. Revenue and expense accounts are translated at the average rates during the year. Foreign exchange translation adjustments are included in accumulated other comprehensive loss on the accompanying consolidated balance sheets. Forward Exchange Contracts and Option Contracts The Company enters into forward exchange contracts and option contracts in managing its foreign exchange risk on sales to distributors, purchase commitments denominated in foreign currencies, intercompany transactions and bank loans. The Company does not use the contracts for trading purposes. Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As of January 1, 2001, the Company recorded a net gain of $909,000 ($545,000 net of tax) as a cumulative transition adjustment to earnings. This adjustment relates to derivatives not designated as hedges prior to adoption of SFAS No. 133, and represents the difference between the carrying value and the fair value of such instruments at January 1, 2001. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of money market accounts and foreign and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company's cash and cash equivalents. Marketable Securities The Company's marketable securities are classified as "available for sale." Fluctuations in fair value are included in accumulated other comprehensive loss on the accompanying consolidated balance sheets. Marketable securities are comprised primarily of tax-exempt municipal bonds. Accounts Receivable Accounts receivable consists principally of receivables from credit card companies, arising from the sale of product to the Company's distributors, and receivables from importers, who are utilized in a limited number of countries to sell products to distributors. Due to the geographic dispersion of its credit card receivables, the collection risk is not considered to be significant. Although receivables from importers can be significant, the Company performs ongoing credit evaluations of its importers and maintains an allowance for potential credit losses. The Company believes that it provides adequate allowances for receivables from its distributors. F-51 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fair Value of Financial Instruments The Company has estimated the fair value of its financial instruments using the following methods and assumptions: The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturities of these instruments. Marketable securities are based on the quoted market prices for these instruments. Foreign exchange contracts are based on exchange rates at period end. The fair value of option and forward contracts are based on dealer quotes. The book values of the Company's debt instruments are considered to approximate their fair values because the interest rates of these instruments approximate current rates offered to the Company. Inventories Inventories are stated at lower of cost (on the first-in, first-out basis) or market. Long-Lived Assets Depreciation of furniture, fixtures and equipment (including computer hardware and software) is computed on a straight-line basis over the estimated useful lives of the related assets, which range from three to seven years. Leasehold improvements are amortized on a straight-line basis over the life of the related asset or the term of the lease, whichever is shorter. Goodwill was being amortized over periods ranging from fifteen to forty years. Effective January 1, 2002, amortization of goodwill was discontinued. See "New Accounting Pronouncements." Intangible assets with definite lives are amortized over the expected life, which is two years for the product certification. Long-lived assets are reviewed for impairment, based on undiscounted cash flows, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss is based on the estimated fair market value of the asset. Goodwill and intangible assets with indefinite lives are evaluated on an annual basis for impairment, or more frequently if events or changes in circumstances indicated that the asset might be impaired. Income Taxes Income tax expense includes income taxes payable for the current year and the change in deferred income tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or income tax returns. A valuation allowance is recognized to reduce the carrying value of deferred income tax assets if it is believed to be more likely than not that a component of the deferred income tax assets will not be realized. Royalty Overrides An independent distributor may earn commissions, called royalty overrides or production bonuses, based on retail volume. Such commissions are based on the retail sales volume of certain other members of the independent sales force who are sponsored by the distributor. Revenue Recognition The Company records its retail sales based upon suggested retail prices as reflected on the Company's sales invoices to its distributors. The Company does not receive the amount reported as retail sales, but generally receives the net sales price in cash or through credit card payments upon receipt of orders from distributors. The net sales price is the suggested retail price less the distributor allowance plus handling and F-52 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) freight income. Sales, related royalty overrides, and allowances for product returns are recorded when the merchandise is shipped in accordance with the Company's shipping terms. Advance sales deposits represent prepaid orders for which the Company has not shipped the merchandise. 3. TRANSACTIONS WITH RELATED PARTIES The Company has entered into agreements with Whitney and Golden Gate to pay monitoring fees for their services and other fees and expenses. Under the monitoring fee agreements, the Company is obligated to pay an annual amount of up to $5.0 million, but not less than $2.5 million for an initial period of ten years. Subject to the provisions in the Credit Agreement (as defined in Note 4 herein), such fees can be paid on a current basis with certain limitations and any unpaid balance will accrue interest of a rate of 12% per annum. For the two months ended September 30, 2002, the Company expensed monitoring fees in the amount of $833,000 and capitalized debt related services and expenses in the amount of $23.4 million. Also, in connection with the Senior Credit Facility discussed below, Whitney Private Debt Fund, L.P. lent $5.0 million of the $180 million term loan to Herbalife. In connection with the purchase of the Preferred Shares, WH Holdings and WH Acquisition entered into an indemnity agreement with Whitney and Golden Gate, pursuant to which WH Holdings and Herbalife (as successor-in-interest to WH Acquisition) agreed to indemnify Whitney and Golden Gate for losses and claims resulting from, arising out of or any way related to the merger, including existing litigation. Whitney has been sued in San Francisco by Rosemont Associates and Joseph Urso for $20 million in a suit alleging breach of contract, breach of covenants of good faith and fair dealing, quantum meruit and other causes of action arising out of the sale of Herbalife to Whitney and others. Whitney believes it has meritorious defenses to the suit and is vigorously contesting it. Frank P. Morse and Robert A. Sandler, two former senior executives of the Company, are minority shareholders in B.L.I. Holdings, Inc., a holding company for two of the Company's suppliers of personal care products. Total purchases from B.L.I. Holdings, Inc. and its subsidiaries were $919,000 for the seven months ended July 31, 2002, $199,000 for the two months ended September 30, 2002, and $241,000 for the nine months ended September 30, 2001. 4. LONG TERM DEBT In connection with the merger, the Parent and its affiliates consummated certain related financing transactions, including the issuance by WH Acquisition on June 27, 2002 of $165.0 million of 11 3/4% Senior Subordinated Notes (the "Senior Subordinated Notes") issued at 98.716% of par, due July 15, 2010. Interest is to be paid semiannually on January 15th and July 15th, commencing on January 15, 2003. In conjunction with this financing, the Company incurred $25.1 million of debt issuance costs, which are being amortized, on a straight-line basis, which approximates the effective interest method, over the term of the debt. In addition, Herbalife entered into a Credit Agreement dated as of July 31, 2002 among Herbalife, as borrower, the guarantors party thereto, the lenders party thereto and UBS AG, Stamford Branch, as Administrative Agent and Collateral Agent (the "Credit Agreement"), which provides for a term loan amount of $180.0 million and a revolving credit facility in the amount of $25.0 million (collectively, the "Senior Credit Facility"). Repayments under the term loan facility began on September 30, 2002 in the amount of $5.0 million, with all other payments to be made in the amount of $7.5 million on a quarterly basis, except for the final payment due on June 30, 2008 in the amount of $10.0 million. The revolving credit facility is available until July 31, 2007. The term loan and the revolving credit facility bear interest, at the option of the Company, at either the alternate base rate or the LIBOR rate plus in each case an applicable margin. The base rate applicable margin for the term loan is 3.00%, while the LIBOR rate applicable margin is 4.00%. As of September 30, 2002, the revolving credit facility had no amounts borrowed. As of September 30, 2002 the Company had selected the LIBOR rate based alternative with the September 30, 2002 interest rate of 5.8%. F-53 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The base rate applicable margin for the revolving credit facility is 2.75%, while the LIBOR rate applicable margin is 3.75%. Per the terms of the Senior Credit Facility, on October 30, 2002, the Company purchased a three year 5% LIBOR (three months) interest rate cap covering $43.75 million of the outstanding bank term loan debt under the Senior Credit Facility. In addition to the scheduled repayments, Herbalife must prepay amounts due under the Senior Credit Facility with 50% of its Excess Cash Flow (as defined in the Credit Agreement) as calculated on an annual basis commencing 120 days after each fiscal year end commencing December 31, 2002. In conjunction with this financing, the Company incurred $16.4 million of debt issuance costs, which are being amortized over the term of the debt using the effective interest method. The Senior Subordinated Notes and the Senior Credit Facility are guaranteed by the Guarantors (as defined in Note 10 herein). The Senior Credit Facility is also guaranteed by WH Holdings. The obligations under the Senior Credit Facility are secured by (i) first priority pledges of (A) all of the stock of the Guarantors and (B) 65% of the equity interests of the foreign subsidiaries of Herbalife that are not Guarantors other than HIIP Investment Co., LLC, Herbalife Foreign Sales Corporation, Importadora Y Distribuidora Herbalife International de Chile Limitada, Herbalife International Greece S.A., Herbalife Hungary Trading, Limited, PT Herbalife Indonesia, Herbalife International SBN.BHD, HBL International Maroc S.a.R.L, Herbalife International Products N.V., Herbalife International Holdings, Inc., Herbalife International, S.A., Herbalife Dominicana, S.A., and Herbalife Del Ecuador, S.A. and (ii) security interests in and liens on all accounts receivable, inventory and other property and assets of WH Holdings and the Guarantors (other than the escrow account for interest on the Senior Notes). The Senior Subordinated Notes and Senior Credit Facility include customary covenants that restrict, among other things, the ability to incur additional debt, pay dividends or make certain other restricted payments, incur liens, merge or sell all or substantially all of the assets, or enter into various transactions with affiliates. Additionally, the Senior Credit Facility includes covenants relating to the maintenance of certain leverage, fixed charge coverage, and interest coverage ratios. Long term debt consisted of the following:
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------ Senior subordinated notes................................. $162,949,000 $ -- Borrowing under Senior Credit Facility.................... 175,000,000 -- Leases.................................................... 2,612,000 3,439,000 Other debt................................................ 958,000 7,173,000 ------------ ----------- $341,519,000 $10,612,000 Less-current portion...................................... 32,574,000 9,395,000 ------------ ----------- $308,945,000 $ 1,217,000 ============ ===========
5. CONTINGENCIES The Company is from time to time engaged in routine litigation. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate by management for these litigation matters. However, some of these matters are material and an adverse outcome in these matters could have a material impact on the Company's financial condition and operating results. F-54 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In September 2000, a putative class action lawsuit was filed in the District Court, Clark County, Nevada (Tharp v. Herbalife International, Inc., et al.). A second putative class action lawsuit was filed in the same court in August 2001 (Brown v. Herbalife International Inc., et al.). The Tharp lawsuit alleges breaches of fiduciary obligations by the Company's directors and its majority stockholder in connection with the adoption by the Company of the Preferred Share Purchase Rights Plan and the rejection of a purported offer by a third party to acquire a controlling interest in the Company. The Brown lawsuit similarly alleges breaches of fiduciary obligations in connection with an alleged rejection of an offer from a third party to purchase the Company. The plaintiffs in the lawsuits request (1) an order compelling the defendants to take steps to seek a sale of the Company, (2) an order enjoining the defendants in office, (3) unspecified damages, and (4) other relief. The Company has reached an oral settlement agreement to pay plaintiff's legal fees of $190,000 and the Company's insurance company has agreed to pay 50% of the settlement amount. The settlement remains subject to documentation and court approval for which a hearing date has not yet been set. In addition, on or about April 12, 2002, Harbor Finance Partners, allegedly an Herbalife stockholder, filed a purported class action against Herbalife in the District Court of Clark County in the State of Nevada, naming Herbalife, its Board of Directors and one former director as defendants ("Defendants") and alleging a claim of breach of fiduciary duty arising out of the announced merger transaction between Herbalife and WH Holdings. The District Court gave final approval to a settlement on November 1, 2002 providing for the payment of Plaintiff's legal fees of $650,000, which is included in the Company's financial statements. Payments pursuant to the settlement were made in early November 2002. The Company and certain of its distributors have been named as defendants in a purported class action lawsuit filed in the U.S. District Court for the Central District of California (Jacobs v. Herbalife International, Inc., et al.). The lawsuit was filed on February 19, 2002. The complaint alleges that specified marketing plans employed by the distributor defendants are illegal, and that the Company has permitted the use of these marketing plans and/or failed to supervise its distributors' conduct to prevent violations of law by them. The complaint does not challenge the legality of Herbalife's marketing system. The complaint seeks to state causes of action under RICO and various state and other federal laws. The complaint was dismissed with leave to amend, the deadline for which is set as January 2, 2003. The Company believes that it has meritorious defenses to the allegations contained in the lawsuit. However, an adverse result in this litigation could have a material adverse effect on the Company's financial condition and operating results. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, the Company has been and is currently subjected to various product liability claims. Although the effects of these claims to date have not been material to the Company, it is possible that current and future product liability claims could have a material adverse impact on the Company's financial condition and operating results given the higher level of self insurance the Company has accepted. The Company currently maintains product liability insurance with a deductible of $7.5 million. Certain of the Company's subsidiaries have been subject to tax audits by governmental authorities in their respective countries. In certain of these tax audits, governmental authorities are proposing that significant amounts of additional taxes and related interest and penalties are due. The Company and its tax advisors believe that there are substantial defenses to the allegations that additional taxes are owing, and the Company is vigorously contesting the additional proposed taxes and related charges. These matters may take several years to resolve, and the Company cannot be sure of their ultimate resolution. However, an adverse outcome in these matters could have a material adverse impact on the Company's financial condition and operating results. F-55 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. COMPREHENSIVE INCOME Comprehensive income is summarized as follows:
QUARTER NINE MONTHS -------------------------------------------- -------------------------------------------- 2002 2001 2002 2001 ---------------------------- ------------- ---------------------------- ------------- JULY 1 AUGUST 1 QUARTER JANUARY 1 AUGUST 1 NINE MONTHS TO TO ENDED TO TO ENDED JULY 31 SEPTEMBER 30 SEPTEMBER 30 JULY 31 SEPTEMBER 30 SEPTEMBER 30 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) ------------- ------------ ------------- ------------- ------------ ------------- Net income (loss)............ $(24,109,000) $5,814,000 $14,026,000 $9,212,000 $5,814,000 $32,631,000 Cumulative effect of accounting change (SFAS No. 133)....................... -- -- -- -- -- 909,000 Net change on derivative instruments................ (217,000) (38,000) (1,132,000) (2,023,000) (38,000) 5,000 Foreign currency translation adjustment................. (916,000) (1,082,000) 64,000 1,428,000 (1,082,000) (4,636,000) Unrealized gain on marketable securities................. 22,000 -- 9,000 14,000 -- 24,000 ------------ ---------- ----------- ---------- ---------- ----------- Comprehensive income (loss)..................... $(25,220,000) $4,694,000 $12,967,000 $8,631,000 $4,694,000 $28,933,000 ============ ========== =========== ========== ========== ===========
The net change on derivative instruments represents the fair value changes caused by marking to market these instruments on September 30, 2002. Foreign currency translation adjustment measures the impact of converting primarily foreign currency assets and liabilities into US dollars. Gains/(losses) on marketable securities reflects the change in fair value of securities classified as available for sale. For discussion of derivative instruments, see Note 8 herein. 7. SEGMENT INFORMATION The Company is a network marketing company that sells a wide range of weight management products, dietary and nutritional supplements and personal care products within one industry as defined under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company's products are manufactured by third-party providers and then sold to independent distributors who sell Herbalife products to retail consumers or other distributors. The Company's chief operating decision makers review both geographic and product line information. The Company has operations throughout the world (55 countries as of September 30, 2002) and is organized and managed by geographic areas. Transactions between geographic segments generally represent export sales from the United States to foreign operations. Information reviewed by the Company's chief F-56 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) operating decision makers on significant geographic segments, as defined under SFAS No. 131, is prepared on the same basis as the consolidated financial statements and is as follows: FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENTS
QUARTER NINE MONTHS ------------------------------------------- ------------------------------------------- 2002 2001 2002 2001 ---------------------------- ------------ ---------------------------- ------------ JULY 1 TO AUGUST 1 TO QUARTER JANUARY 1 TO AUGUST 1 TO NINE MONTHS JULY 31 SEPTEMBER 30 ENDED JULY 31 SEPTEMBER 30 ENDED (PREDECESSOR) (SUCCESSOR) SEPTEMBER 30 (PREDECESSOR) (SUCCESSOR) SEPTEMBER 30 ------------- ------------ ------------ ------------- ------------ ------------ TOTAL RETAIL SALES: United States........... $ 41.9 $ 75.3 $112.9 $ 301.0 $ 75.3 $ 340.9 Japan................... 21.2 38.0 77.2 143.7 38.0 227.6 South Korea............. 10.9 16.9 34.2 69.6 16.9 83.7 Mexico.................. 10.2 17.8 27.1 63.8 17.8 73.2 German Group(1)......... 12.6 24.7 27.8 84.1 24.7 81.0 Italy................... 9.6 15.4 25.0 60.0 15.4 81.3 Others.................. 49.8 97.7 120.1 325.5 97.7 349.7 ------ ------ ------ -------- ------ -------- Total retail sales... $156.2 $285.8 $424.3 $1,047.7 $285.8 $1,237.4 ------ ------ ------ -------- ------ -------- NET SALES: United States........... $ 26.2 $ 47.5 $ 71.5 $ 189.1 $ 47.5 $ 215.4 Japan................... 12.4 22.3 45.2 84.1 22.3 133.1 South Korea............. 7.7 11.9 22.8 46.8 11.9 56.0 Mexico.................. 6.1 10.6 16.3 38.3 10.6 44.0 German Group(1)......... 8.0 15.3 17.4 52.2 15.3 50.8 Italy................... 5.8 9.4 15.4 36.8 9.4 50.3 Others.................. 30.2 59.2 73.0 196.9 59.2 212.8 ------ ------ ------ -------- ------ -------- Net sales............ $ 96.4 $176.2 $261.6 $ 644.2 $176.2 $ 762.4 ------ ------ ------ -------- ------ -------- GROSS PROFIT: United States........... $ 20.1 $ 35.1 $ 49.5 $ 143.1 $ 35.1 $ 152.6 Japan................... 10.3 18.7 37.6 71.0 18.7 113.3 South Korea............. 6.3 9.5 18.6 37.6 9.5 45.4 Mexico.................. 4.4 8.5 12.7 30.3 8.5 33.6 German Group(1)......... 6.5 12.3 15.1 41.1 12.3 39.1 Italy................... 4.9 8.1 14.0 30.0 8.1 39.5 Others.................. 23.2 45.8 53.9 150.5 45.8 157.2 ------ ------ ------ -------- ------ -------- Gross Profit......... $ 75.7 $138.0 $201.4 $ 503.6 $138.0 $ 580.7 ------ ------ ------ -------- ------ -------- OPERATING MARGIN(2): United States........... $ 11.6 $ 18.9 $ 24.7 $ 79.5 $ 18.9 $ 76.0 Japan................... 5.6 10.3 20.7 39.5 10.3 64.2 South Korea............. 4.3 6.5 12.5 24.9 6.5 30.4 Mexico.................. 2.2 4.6 7.0 16.0 4.6 18.1 German Group(1)......... 3.2 7.0 9.1 21.5 7.0 21.2 Italy................... 2.8 4.8 8.6 16.9 4.8 22.2 Others.................. 12.1 24.1 28.4 78.1 24.1 81.7 ------ ------ ------ -------- ------ -------- Total operating margin............. $ 41.8 $ 76.2 $111.0 $ 276.4 $ 76.2 $ 313.8 ------ ------ ------ -------- ------ -------- Marketing, distribution & administrative expenses............. 31.6 53.9 88.2 207.4 53.9 261.7 Merger transaction expenses............. 50.7 -- -- 54.7 -- -- Interest expense net.... (0.3) 12.6 (0.7) (1.4) 12.6 (3.1)
F-57 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTER NINE MONTHS ------------------------------------------- ------------------------------------------- 2002 2001 2002 2001 ---------------------------- ------------ ---------------------------- ------------ JULY 1 TO AUGUST 1 TO QUARTER JANUARY 1 TO AUGUST 1 TO NINE MONTHS JULY 31 SEPTEMBER 30 ENDED JULY 31 SEPTEMBER 30 ENDED (PREDECESSOR) (SUCCESSOR) SEPTEMBER 30 (PREDECESSOR) (SUCCESSOR) SEPTEMBER 30 ------------- ------------ ------------ ------------- ------------ ------------ ------ ------ ------ -------- ------ -------- Income before income taxes and minority interest............. (40.2) 9.7 23.5 15.7 9.7 55.2 Income taxes............ (16.1) 3.9 9.4 6.3 3.9 22.1 Minority interest....... -- -- 0.1 0.2 -- 0.5 ------ ------ ------ -------- ------ -------- Net Income (loss)......... $(24.1) $ 5.8 $ 14.0 $ 9.2 $ 5.8 $ 32.6 ====== ====== ====== ======== ====== ========
- --------------- (1) German Group includes the operations of Germany, Austria and Switzerland (2) Operating margin represents gross profit less royalty overrides FINANCIAL INFORMATION BY PRODUCT SEGMENTS
QUARTER NINE MONTHS ------------------------------------------- ------------------------------------------- 2002 2001 2002 2001 ---------------------------- ------------ ---------------------------- ------------ JULY 1 TO AUGUST 1 TO QUARTER JANUARY 1 TO AUGUST 1 TO NINE MONTHS JULY 31 SEPTEMBER 30 ENDED JULY 31 SEPTEMBER 30 ENDED (PREDECESSOR) (SUCCESSOR) SEPTEMBER 30 (PREDECESSOR) (SUCCESSOR) SEPTEMBER 30 ------------- ------------ ------------ ------------- ------------ ------------ RETAIL SALES BY PRODUCT LINE ARE AS FOLLOWS: Inner Nutrition......... $140.7 $ 255.7 $ 376.0 $ 930.0 $ 255.7 $1,083.5 Outer Nutrition......... 15.6 26.6 41.3 107.8 26.6 128.5 Literature.............. 4.1 7.9 13.2 28.8 7.9 39.8 Other................... 1.5 2.7 3.4 9.5 2.7 12.0 Return & refund......... (5.7) (7.1) (9.6) (28.4) (7.1) (26.4) ------ ------- ------- -------- ------- -------- Total Retail Sales... 156.2 285.8 424.3 1,047.7 285.8 1,237.4 Distributor Allowances.... (73.3) (134.1) (198.6) (493.0) (134.1) (578.6) Handling and Freight Income.................. 13.5 24.5 35.9 89.5 24.5 103.6 ------ ------- ------- -------- ------- -------- Net Sales............ 96.4 176.2 261.6 644.2 176.2 762.4 COST OF SALES Inner Nutrition......... 14.1 25.4 38.0 90.8 25.4 110.9 Outer Nutrition......... 1.3 2.7 5.0 12.0 2.7 16.1 Literature.............. 1.3 2.9 5.4 11.3 2.9 15.6 Freight, duty and other................ 4.0 7.2 11.8 26.5 7.2 39.1 ------ ------- ------- -------- ------- -------- Total Cost of Sales.............. 20.7 38.2 60.2 140.6 38.2 181.7 ------ ------- ------- -------- ------- -------- GROSS PROFIT.............. $ 75.7 $ 138.0 $ 201.4 $ 503.6 $ 138.0 $ 580.7 ====== ======= ======= ======== ======= ========
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES For discussion on derivatives and hedging activities, see Note 2 herein. The Company designates certain derivatives as fair value hedges. For all qualifying and highly effective fair value hedges, the changes in the fair value of a derivative and the gain or loss on the hedged asset or F-58 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) liability relating to the risk being hedged are recorded currently in earnings. These amounts are recorded in marketing, distribution and administrative expenses and provide offsets to one another. The Company designates certain derivatives as cash flow hedges. For all qualifying and highly effective cash flow hedges, the changes in the effective portion of the fair value of the derivative are recorded in other comprehensive income ("OCI"). At September 30, 2002, the net loss in OCI was $38,000. All OCI amounts will be reclassified to earnings within 12 months. 9. RESTRUCTURING RESERVE As of the date of the merger, the Company started to implement a plan to reduce costs of the business and recorded a severance and restructuring accrual as part of the cost of the merger. The accrued severance is for identified employees including executives, corporate functions and administrative support. There may be other employees identified for involuntary termination to complete the plan and, if so, an additional amount of severance will be accrued and goodwill will increase. Actions required by the plan of termination began immediately after consummation of the transaction and the period of time to complete the plan will not extend past 12 months after the merger date. The following table summarizes the activity in the Company's restructuring accrual: Accrual made as of July 31, 2002............................ $10.2 Payments made............................................... 3.1 ----- Balance at September 30, 2002............................... $ 7.1 =====
10. SUPPLEMENTAL INFORMATION The consolidated financial statement data, as of September 30, 2002 and the two months ended September 30, 2002 has been aggregated by entities that guarantee the Senior Subordinated Notes (the "Guarantors") and entities that do not guarantee the Senior Subordinated Notes (the "Non-Guarantors"). The Guarantors include the Parent, Lux Holdings, Lux Intermediate, Lux CM (collectively, the "Parent Guarantors") and Herbalife's operating subsidiaries in Brazil, Finland, Israel, Japan, Mexico, United Kingdom, U.S. (other than Herbalife Investment Co., LLC), Sweden, Taiwan and Thailand (collectively, the "Subsidiary Guarantors"). All other subsidiaries are Non-Guarantors. F-59 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Consolidating condensed statements of income for the periods of July 1 to July 31, 2002, August 1 to September 30, 2002, quarter ended September 30, 2002 and nine months ended September 30, 2002 are summarized as follows:
JULY 1 TO JULY 31, 2002 (IN MILLIONS) ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ Net sales........................... -- $82.4 $23.1 $(9.1) $ 96.4 Cost of sales....................... -- 18.7 10.8 (8.8) 20.7 Royalty overrides................... -- 20.6 13.3 -- 33.9 Marketing, distribution & administrative expenses........... -- 24.2 7.4 -- 31.6 Merger transaction expenses......... $ 50.7 -- -- -- 50.7 Equity in Subsidiary (Income) loss.............................. (5.9) -- -- 5.9 -- Interest expense -- net............. -- (0.3) -- -- (0.3) Intercompany charges................ (1.1) 10.8 (9.7) -- -- ------ ----- ----- ----- ------ Income before income taxes and minority interest................. (43.7) 8.4 1.3 (6.2) (40.2) Income taxes........................ (19.9) 3.0 0.8 -- (16.1) ------ ----- ----- ----- ------ Income before minority interest..... (23.8) 5.4 0.5 (6.2) (24.1) Minority interest................... -- -- -- -- -- ------ ----- ----- ----- ------ NET INCOME.......................... $(23.8) $ 5.4 $ 0.5 $(6.2) $(24.1) ====== ===== ===== ===== ======
AUGUST 1 TO SEPTEMBER 30, 2002 (IN MILLIONS) ----------------------------------------------------------------------------------- HERBALIFE PARENT INTERNATIONAL, SUBSIDIARY NON- TOTAL GUARANTORS INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- -------------- ---------- ---------- ------------ ------------ Net sales..................... -- -- $150.8 $39.3 $(14.0) $176.1 Cost of sales................. -- -- 34.9 17.7 (14.5) 38.1 Royalty overrides............. -- -- 40.3 21.5 -- 61.8 Marketing, distribution & administrative expenses..... -- $ 1.2 38.8 13.9 -- 53.9 Merger transaction expenses... -- -- -- -- -- -- Equity in Subsidiary (Income) loss........................ $(5.5) (12.6) (0.2) -- 18.3 -- Interest expense -- net....... -- 12.7 (0.2) 0.1 -- 12.6 Intercompany charges.......... -- (2.0) 17.3 (15.3) -- -- ----- ------ ------ ----- ------ ------ Income before income taxes and minority interest........... 5.5 0.7 19.9 1.4 (17.8) 9.7 Income taxes.................. -- (4.8) 8.0 0.7 -- 3.9 ----- ------ ------ ----- ------ ------ Income before minority interest.................... 5.5 5.5 11.9 0.7 (17.8) 5.8 Minority interest............. -- -- -- -- -- -- ----- ------ ------ ----- ------ ------ NET INCOME.................... $ 5.5 $ 5.5 $ 11.9 $ 0.7 $(17.8) $ 5.8 ===== ====== ====== ===== ====== ======
F-60 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTER ENDED SEPTEMBER 30, 2001 ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ Net sales........................... -- $220.1 $ 59.1 $(17.6) $261.6 Cost of sales....................... -- 53.7 24.5 (18.0) 60.2 Royalty overrides................... -- 61.2 29.1 -- 90.3 Marketing, distribution & administrative expenses........... $ 0.5 66.2 19.3 2.2 88.2 Merger transaction expenses......... -- -- -- -- -- Equity in Subsidiary (Income) loss.............................. (13.1) 1.7 -- 11.4 -- Interest expense -- net............. -- (0.8) 0.1 -- (0.7) Intercompany charges................ (2.3) 20.7 (18.4) -- -- ------ ------ ------ ------ ------ Income before income taxes and minority interest................. 14.9 17.4 4.5 (13.2) 23.6 Income taxes........................ 0.8 6.5 2.2 -- 9.5 ------ ------ ------ ------ ------ Income before minority interest..... 14.1 10.9 2.3 (13.2) 14.1 Minority interest................... -- 0.1 -- -- 0.1 ------ ------ ------ ------ ------ NET INCOME.......................... $ 14.1 $ 10.8 $ 2.3 $(13.2) $ 14.0 ====== ====== ====== ====== ======
JANUARY 1 TO JULY 31, 2002 (IN MILLIONS) ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ Net sales........................... -- $551.3 $142.5 $(49.6) $644.2 Cost of sales....................... -- 128.1 63.2 (50.7) 140.6 Royalty overrides................... -- 147.3 79.9 -- 227.2 Marketing, distribution & administrative expenses........... $ (0.8) 165.9 42.3 -- 207.4 Merger transaction expenses......... 54.7 -- -- -- 54.7 Equity in Subsidiary (Income) loss.............................. (36.4) (0.5) -- 36.9 -- Interest expense -- net............. -- (1.8) 0.4 -- (1.4) Intercompany charges................ (7.5) 62.9 (55.4) -- -- ------ ------ ------ ------ ------ Income before income taxes and minority interest................. (10.0) 49.4 12.1 (35.8) 15.7 Income taxes........................ (18.6) 19.9 5.0 -- 6.3 ------ ------ ------ ------ ------ Income before minority interest..... 8.6 29.5 7.1 (35.8) 9.4 Minority interest................... -- 0.2 -- -- 0.2 ------ ------ ------ ------ ------ NET INCOME.......................... $ 8.6 $ 29.3 $ 7.1 $(35.8) $ 9.2 ====== ====== ====== ====== ======
F-61 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 (IN MILLIONS) ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ Net sales........................... -- $654.8 $162.8 $(55.2) $762.4 Cost of sales....................... -- 165.3 68.5 (52.1) 181.7 Royalty overrides................... -- 180.5 86.3 -- 266.8 Marketing, distribution & administrative expenses........... $ 0.3 206.7 52.6 2.2 261.8 Merger transaction expenses......... -- -- -- -- -- Equity in Subsidiary (Income) loss.............................. (39.8) -- -- 39.8 -- Interest expense -- net............. -- (3.2) 0.1 -- (3.1) Intercompany charges................ 2.8 51.8 (54.5) (0.1) -- ------ ------ ------ ------ ------ Income before income taxes and minority interest................. 36.7 53.7 9.8 (45.0) 55.2 Income taxes........................ (1.2) 19.0 4.3 -- 22.1 ------ ------ ------ ------ ------ Income before minority interest..... 37.9 34.7 5.5 (45.0) 33.1 Minority interest................... -- 0.5 -- -- 0.5 ------ ------ ------ ------ ------ NET INCOME.......................... $ 37.9 $ 34.2 $ 5.5 $(45.0) $ 32.6 ====== ====== ====== ====== ======
Consolidating condensed balance sheet data as of September 30, 2002 and December 31, 2001 are summarized as follows:
SEPTEMBER 30, 2002 (IN MILLIONS) ----------------------------------------------------------------------------------- HERBALIFE PARENT INTERNATIONAL, SUBSIDIARY NON- TOTAL GUARANTORS INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- -------------- ---------- ---------- ------------ ------------ CURRENT ASSETS: Cash and marketable securities.................. -- $ 0.3 $ 48.2 $ 28.7 -- $ 77.2 Receivables................... -- -- 20.4 9.7 -- 30.1 Intercompany receivables...... -- (8.0) 33.4 (25.4) -- -- Inventories................... -- -- 45.4 15.8 $ (4.6) 56.6 Other Current Assets.......... -- 5.2 41.2 3.9 -- 50.3 ------ ------ ------ ------ ------- ------ Total current assets..... -- (2.5) 188.6 32.7 (4.6) 214.2 Property, net................. -- (2.2) 42.0 10.8 -- 50.6 OTHER NON-CURRENT ASSETS...... $198.3 567.2 59.0 3.4 (219.9) 608.0 ------ ------ ------ ------ ------- ------ TOTAL ASSETS.................. $198.3 $562.5 $289.6 $ 46.9 $(224.5) $872.8 ====== ====== ====== ====== ======= ====== CURRENT LIABILITIES: Accounts Payable.............. -- -- $ 19.4 $ 4.1 -- $ 23.5 Royalties Overrides........... -- $ (2.0) 43.6 20.4 -- 62.0 Accrued compensation and expenses.................... -- 6.3 55.5 16.7 -- 78.5 Other current liabilities..... -- 22.1 18.1 3.7 -- 43.9 ------ ------ ------ ------ ------- ------ Total current liabilities............ -- 26.4 136.6 44.9 -- 207.9
F-62 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2002 (IN MILLIONS) ----------------------------------------------------------------------------------- HERBALIFE PARENT INTERNATIONAL, SUBSIDIARY NON- TOTAL GUARANTORS INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- -------------- ---------- ---------- ------------ ------------ NON-CURRENT LIABILITIES....... -- 432.1 34.7 0.6 -- 467.4 MINORITY INTEREST............. -- -- -- -- -- -- STOCKHOLDERS' EQUITY.......... 198.3 104.0 118.3 1.4 $(224.5) 197.5 ------ ------ ------ ------ ------- ------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........ $198.3 $562.5 $289.6 $ 46.9 $(224.5) $872.8 ====== ====== ====== ====== ======= ======
DECEMBER 31, 2001 (IN MILLIONS) ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ CURRENT ASSETS: Cash and marketable securities...... $ 0.2 $ 167.3 $ 33.7 -- $201.2 Receivables......................... -- 21.1 6.5 -- 27.6 Intercompany receivables............ 184.9 (150.0) (34.9) -- -- Inventories......................... -- 57.6 20.7 $(6.1) 72.2 Other Current Assets................ -- 36.6 5.5 -- 42.1 ------ ------- ------ ----- ------ Total current assets........... 185.1 132.6 31.5 (6.1) 343.1 Property, net....................... -- 48.3 12.4 -- 60.7 OTHER NON-CURRENT ASSETS............ 0.9 60.0 7.0 (1.4) 66.5 ------ ------- ------ ----- ------ TOTAL ASSETS........................ $186.0 $ 240.9 $ 50.9 $(7.5) $470.3 ====== ======= ====== ===== ====== CURRENT LIABILITIES: Accounts Payable.................... -- $ 14.0 $ 5.8 -- $ 19.8 Royalties Overrides................. -- 42.6 15.6 -- 58.2 Accrued compensation and expenses... -- 45.1 13.8 -- 58.9 Other current liabilities........... $ 17.6 3.3 7.5 -- 28.4 ------ ------- ------ ----- ------ Total current liabilities...... 17.6 105.0 42.7 -- 165.3 NON-CURRENT LIABILITIES............. 3.8 38.0 0.6 -- 42.4 MINORITY INTEREST................... -- 1.7 -- -- 1.7 STOCKHOLDERS' EQUITY................ 164.6 96.2 7.6 $(7.5) 260.9 ------ ------- ------ ----- ------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY................ $186.0 $ 240.9 $ 50.9 $(7.5) $470.3 ====== ======= ====== ===== ======
F-63 WH INTERMEDIATE HOLDINGS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Consolidating condensed statement of cash flows data for the periods of January 1 to July 31, 2002, August 1 to September 30, 2002, and nine months ended September 30, 2001 is summarized as follows:
JANUARY 1 TO JULY 31, 2002 ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ Net cash provided by (used in) operating activities.............. $ 32.0 $ 46.9 $ (2.1) $(38.9) $ 37.9 Net cash provided by (used in) investing activities.............. (10.5) 26.9 1.3 1.3 19.0 Net cash provided by (used in) financing activities.............. (21.5) (40.4) (11.0) 37.6 (35.3) Effect of exchange rate changes on cash.............................. -- (0.6) 1.6 -- 1.0 Cash at beginning of period......... 0.2 145.3 33.7 -- 179.2 ------ ------ ------ ------ ------ Cash at end of period............... $ 0.2 $178.1 $ 23.5 -- $201.8 ====== ====== ====== ====== ======
AUGUST 1 TO SEPTEMBER 30, 2002 ----------------------------------------------------------------------------------- HERBALIFE PARENT INTERNATIONAL, SUBSIDIARY NON- TOTAL GUARANTORS INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- -------------- ---------- ---------- ------------ ------------ Net cash provided by (used in) operating activities........ $ 5.6 $ 146.4 $(120.0) $10.6 $(25.9) $ 16.7 Net cash provided by (used in) investing activities........ (5.5) (660.6) (8.0) (0.4) 21.7 (652.8) Net cash provided by (used in) financing activities........ -- 514.4 (2.4) (4.7) 4.2 511.5 Effect of exchange rate changes on cash............. -- -- (0.8) (0.4) -- (1.2) Cash at beginning of period... -- 0.2 178.1 23.5 -- 201.8 ----- ------- ------- ----- ------ ------- Cash at end of period......... $ 0.1 $ 0.4 $ 46.9 $28.6 -- $ 76.0 ===== ======= ======= ===== ====== =======
NINE MONTHS ENDED SEPTEMBER 30, 2001 ---------------------------------------------------------------------- HERBALIFE INTERNATIONAL, SUBSIDIARY NON- TOTAL INC. GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ---------- ------------ ------------ Net cash provided by (used in) operating activities.............. $ 21.4 $ 89.4 $ 15.4 $(46.9) $ 79.3 Net cash provided by (used in) investing activities.............. (23.5) (9.6) (2.1) 23.8 (11.4) Net cash provided by (used in) financing activities.............. 2.1 (14.4) (10.4) 23.1 0.4 Effect of exchange rate changes on cash.............................. -- (4.1) (1.3) -- (5.4) Cash at beginning of period......... 0.2 70.1 40.0 -- 110.3 ------ ------ ------ ------ ------ Cash at end of period............... $ 0.2 $131.4 $ 41.6 -- $173.2 ====== ====== ====== ====== ======
F-64 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THE NOTES OR OUR SOLICITATION OF YOUR OFFER TO BUY THE NOTES IN ANY JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY HAVE NOT CHANGED SINCE THE DATE OF THIS PROSPECTUS. UNTIL MARCH 5, 2003, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNUSED ALLOTMENTS OR SUBSCRIPTIONS. HERBALIFE INTERNATIONAL, INC. $165,000,000 OFFER TO EXCHANGE ALL OUTSTANDING 11 3/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2010 FOR 11 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2010 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ----------------- PROSPECTUS ----------------- DECEMBER 20, 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Herbalife International, Inc.'s bylaws provide that, except to the extent expressly prohibited by the Nevada Revised Statutes, we must indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of Herbalife International, Inc., by reason of the fact that he is or was a director, officer, employee or agent of Herbalife International, Inc., or is or was serving at the request of Herbalife International, Inc. as a director, officer, employee or agent of another corporation, against expenses, including attorneys' fees, judgment, fines and amount paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of Herbalife International, Inc., and, with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of Herbalife International, Inc., and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to managers, officers or persons controlling us pursuant to the foregoing, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER DESCRIPTION PAGENO./(FOOTNOTE) - ------- ----------- ------------------ 2 .1 Agreement and Plan of Merger, dated April 10, 2002, by and among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd. and WH Acquisition Corp. ..................... (11) 3 .1 Amended and Restated Articles of Incorporation of Herbalife International, Inc. ........................................ (10) 3 .2 Bylaws of Herbalife International, Inc. .................... (1) 3 .3 Memorandum and Articles of Association of WH Intermediate Holdings Ltd. .............................................. (11) 3 .4 Constitutional Document of WH Luxembourg Holdings S.a.R.L. ................................................... (14) 3 .5 Constitutional Document of WH Luxembourg Intermediate Holdings S.a.R.L. .......................................... (14) 3 .6 Constitutional Document of WH Luxembourg CM S.a.R.L. ....... (14) 3 .7 Articles of Incorporation of Herbalife International of America, Inc. .............................................. (14) 3 .8 Certificate of Amendment of Articles of Incorporation of Herbalife International of America, Inc. ................... (14) 3 .9 Certificate of Amendment of Articles of Incorporation of Herbalife International of America, Inc. ................... (14) 3 .10 Certificate of Amendment of Articles of Incorporation dated January 8, 1987 of Herbalife International of America, Inc. ....................................................... (14) 3 .11 Bylaws of Herbalife International of America, Inc. ......... (14) 3 .12 Articles of Incorporation of Herbalife International Communications, Inc. ....................................... (14) 3 .14 Bylaws of Herbalife International Communications, Inc. ..... (14) 3 .14 Articles of Incorporation of Herbalife International Distribution, Inc. ......................................... (14) 3 .15 Bylaws of Herbalife International Distribution, Inc. ....... (14)
II-1
EXHIBIT NUMBER DESCRIPTION PAGENO./(FOOTNOTE) - ------- ----------- ------------------ 3 .16 Articles of Incorporation of Herbalife International of Europe, Inc. ............................................... (14) 3 .17 Bylaws of Herbalife International of Europe, Inc. .......... (14) 3 .18 Certificate of Incorporation of Herbalife International Do Brasil Ltda. (Delaware)..................................... (15) 3 .19 Certificate of Amendment of Certificate of Incorporation of Herbalife International Do Brasil Ltda. (Delaware).......... (15) 3 .20 Bylaws of Herbalife International Do Brasil Ltda. (Delaware).................................................. (15) 3 .21 Amendment to Articles of Association of Herbalife International Do Brasil Ltda. .............................. (15) 3 .22 Articles of Association of Herbalife International Do Brasil Ltda. ...................................................... (15) 3 .23 Memorandum of Association Herbalife (UK) Limited............ (15) 3 .24 Articles of Association of Herbalife (UK) Limited........... (15) 3 .25 Memorandum of Association of Herbalife Europe Limited....... (15) 3 .26 Articles of Association of Herbalife Europe Limited......... (15) 3 .27 Deeds of Foundation of Herbalife International Finland OY... (15) 3 .28 Articles of Association of Herbalife International Finland OY.......................................................... (15) 3 .29 Articles of Association of Herbalife International of Israel (1990) Ltd. ................................................ (15) 3 .30 Memorandum of Association of Herbalife International of Israel (1990) Ltd. ......................................... (15) 3 .31 Articles of Incorporation of Herbalife of Japan K.K. ....... (15) 3 .32 Restated Bylaws of Herbalife of Japan K.K. ................. (15) 3 .33 Bylaws and Articles of Incorporation of Herbalife Internacional de Mexico, S.A. de C.V. ...................... (15) 3 .34 Copia Certificada of Herbalife Products de Mexico, S.A. de C.V......................................................... (15) 3 .35 Articles of Association of Herbalife Sweden Aktiebolag...... (15) 3 .36 Limited Liability Company Agreement of Herbalife China, LLC......................................................... (15) 3 .37 Amendment to Limited Liability Company Agreement of Herbalife China, LLC(2)..................................... (15) 3 .38 Articles of Incorporation of Herbalife Taiwan, Inc. ........ (14) 3 .39 Bylaws of Herbalife Taiwan, Inc. ........................... (14) 3 .40 Certificate of Incorporation of Herbalife International (Thailand) Ltd.............................................. (15) 3 .41 Bylaws of Herbalife International (Thailand) Ltd. .......... (14) 4 .1 Form of Class A Common Stock and Class B Common Stock Certificates of Herbalife International, Inc. .............. (11) 4 .2 Indenture, dated as of June 27, 2002 between WH Acquisition Corp., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SaRL, WH Luxembourg Intermediate Holdings SaRL, WH Luxembourg CM SaRL and The Bank of New York as Trustee governing 11 3/4% Senior Subordinated Notes due 2010........ (12) 5 .1 Opinion of Chadbourne & Parke LLP as to the legality of the Series B Notes being registered hereby...................... (15) 5 .2 Opinion of Maples & Calder, Counsel to WH Intermediate Holdings Ltd................................................ 5 .3 Opinion of Marshall Hill Cassas & de Lipkau, counsel to Herbalife International Inc................................. (15) 5 .4 Opinion of Bonn Schmitt Steichen, counsel to WH Luxembourg Holdings S.a.R.L., WH Luxembourg Intermediate Holdings S.a.R.L. and WH Luxembourg CM S.a.R.L....................... (15)
II-2
EXHIBIT NUMBER DESCRIPTION PAGENO./(FOOTNOTE) - ------- ----------- ------------------ 5 .5 Opinion of Irell & Manella, counsel to Herbalife International of America, Inc., Herbalife International Communications Inc., Herbalife International Distribution, Inc., Herbalife International of Europe, Inc., Herbalife Taiwan, Inc. and Herbalife International (Thailand) Ltd..... (15) 5 .6 Opinion of Corvo Advogados, counsel to Herbalife International Do Brasil Ltda................................ (15) 5 .7 Opinion of Chadbourne & Parke, a Multinational Partnership, to Herbalife (UK) Limited and Herbalife Europe Limited...... (15) 5 .8 Opinion of Mr. Robin Potts, QC.............................. 5 .9 Opinion of Hannes Snellman, counsel to Herbalife International Finland OY.................................... (15) 5 .10 Opinion of Herzog, Fox & Neeman, counsel to Herbalife International of Israel (1990) Ltd.......................... (15) 5 .11 Opinion of Tomotsune & Kimura counsel to Herbalife of Japan K.K......................................................... (15) 5 .12 Opinion of Bufete Carrillo Gamboa, S.C., counsel to Herbalife Internacional de Mexico, S.A. de C.V. and Herbalife Products de Mexico, S.A. de C.V................... (15) 5 .13 Opinion of Mannheimer Swartling, counsel to Herbalife Sweden Aktiebolag.................................................. (15) 5 .14 Opinion of Morris, Nichols, Arsht & Tunnell, counsel to Herbalife China, LLC and Herbalife International Do Brasil Ltda. (Delaware)............................................ (15) 8 .1 Opinion of Chadbourne & Parke LLP regarding tax matters..... (14) 9 .1 Shareholders' Agreement dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney V, L.P., Whitney Strategic Partners V, L.P., WH Investments Ltd., CCG Investments (BVI), L.P., CCG Associates, LLC, CCG Associates -- AI, LLC, CCG Investment Fund -- AI, LP, CCG AV, LLC -- Series C, CCG AV, LLC -- Series E, and certain other persons............................................... (14) 9 .2 Institutional Shareholders' Agreement dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney V, L.P., Whitney Strategic Partners V, L.P., WH Investments Ltd., CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG Investment Fund-AI, LP, CCG AV, LLC-Series C, CCG AV, LLC-Series E, and certain other persons....................................... (14) 10 .1 1991 Stock Option Plan of Herbalife International, Inc., as amended..................................................... (4) 10 .2 1992 Executive Incentive Compensation Plan of Herbalife International, Inc., as amended*............................ (1),(4) 10 .3 Form of Individual Participation Agreement relating to of Herbalife International, Inc.'s Executive Compensation Plan*....................................................... (1) 10 .4 Form of Indemnity Agreement between Herbalife International, Inc. and certain officers and directors of the Company*..... (1) 10 .5 1994 Performance Based Annual Incentive Compensation Plan of Herbalife International, Inc., as amended and restated in 1996*....................................................... (2),(4),(5) 10 .6 Office lease agreement between Herbalife International, Inc. and State Teacher's Retirement System, dated July 20, 1995........................................................ (3) 10 .7 Senior Executive Deferred Compensation Plan of Herbalife International, Inc., effective January 1, 1996, as amended*.................................................... (3) 10 .8 Management Deferred Compensation Plan of Herbalife International, Inc., effective January 1, 1996, as amended*.................................................... (3) 10 .9 Master Trust Agreement between Herbalife International, Inc. and Imperial Trust Company, Inc., effective January 1, 1996*....................................................... (3) 10 .10 401K Plan of Herbalife International, Inc., as amended*..... (3)
II-3
EXHIBIT NUMBER DESCRIPTION PAGENO./(FOOTNOTE) - ------- ----------- ------------------ 10 .11 Supplemental Executive Retirement Plan of Herbalife International, Inc.*........................................ (6) 10 .12 Credit Agreement between Herbalife International of America, Inc. and First National Bank of Chicago, dated December 14, 1998........................................................ (7) 10 .13 Employment agreement, dated as of November 1, 2000, between John Reynolds and Herbalife International, Inc. and Herbalife International of America, Inc.*................... (8) 10 .14 Employment agreement, dated as of August 20, 2000, between Carol Hannah and Herbalife International, Inc. and Herbalife International of America, Inc.*............................. (8) 10 .15 Employment agreement, dated as of August 20, 2000 between Brian Kane and Herbalife International, Inc. and Herbalife International of America, Inc.*............................. (8) 10 .16 Senior Executive Change in Control Plan of Herbalife International, Inc., effective June 29, 2000*............... (8) 10 .17 Management Employee Change in Control Plan of Herbalife International, Inc., effective June 29, 2000*............... (8) 10 .18 Trust Agreement for Herbalife 2001 Executive Retention Plan, effective March 15, 2001*................................... (9) 10 .19 2001 Executive Retention Plan of Herbalife International, Inc., effective March 15, 2001.............................. (9) 10 .20 Employment agreement, dated as of August 20, 2000 between Frank Morse and Herbalife International, Inc. and Herbalife International of America, Inc.*............................. (10) 10 .21 Employment agreement, dated as of November 1, 2001 between Francis X. Tirelli and Herbalife International, Inc. and Herbalife International of America, Inc.*................... (10) 10 .22 Separation Agreement and General Release, dated December 31, 2001, between Timothy Gerrity and Herbalife International, Inc. and Herbalife International of America, Inc.*#......... (10) 10 .23 Separation Agreement and General Release, dated October 19, 2001, between Christopher Pair and Herbalife International, Inc. and Herbalife International of America, Inc.*#......... (10) 10 .24 Separation Agreement and General Release, dated as of May 17, 2002, between Robert A. Sandler and Herbalife International, Inc. and Herbalife International of America, Inc. and Clarification Re Paragraph 3(a) Of Separation and General Release Agreement*#................................. (12) 10 .25 Agreement for retention of legal services, dated as of May 20, 2002, by and among Herbalife International, Inc., Herbalife International of America, Inc. and Robert Sandler*.................................................... (12) 10 .26 Purchase Agreement, dated as of June 21, 2002, by and among WH Acquisition Corp., Herbalife International, Inc., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SaRL, WH Luxembourg Intermediate Holdings SaRL, WH Luxembourg CM SaRL and UBS Warburg LLC......................................... (12) 10 .27 Registration Rights Agreement, dated as of June 27, 2002, by and among WH Acquisition Corp., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SaRL, WH Luxembourg Intermediate Holdings SaRL, WH Luxembourg CM SaRL and UBS Warburg LLC................................................. (12) 10 .28 Credit Agreement, dated as of July 31, 2002, by and among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SaRL, WH Luxembourg Intermediate Holdings SaRL, WH Luxembourg CM SaRL and the Subsidiary Guarantors party thereto, and certain lenders and agents named therein....... (12)
II-4
EXHIBIT NUMBER DESCRIPTION PAGENO./(FOOTNOTE) - ------- ----------- ------------------ 10 .29 Security Agreement, dated as of July 31, 2002, by Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SaRL, WH Luxembourg Intermediate Holdings SaRL, WH Luxembourg CM SaRL and the Subsidiary Guarantors party thereto in favor of UBS AG, Stamford Branch, as Collateral Agent.................... (12) 10 .30 Amendment to Agreements of Distributorship, effective as of July 31, 2002 made and entered into by Herbalife International, Inc. for the benefit of all of Herbalife International, Inc.'s existing and future independent distributors that meet the requirements to become (or remain) a distributor according to company policy........... (12) 10 .31 Monitoring Fee Agreement dated as of July 31, 2002, between Herbalife International, Inc. and Whitney & Co., LLC........ (14) 10 .32 Monitoring Fee Agreement dated as of July 31, 2002, between Herbalife International, Inc. and GGC Administration, LLC... (14) 10 .33 Indemnity Agreement dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., WH Acquisition Corp., Whitney & Co., LLC, Whitney V, L.P., Whitney Strategic Partners V, L.P., GGC Administration, L.L.C., Golden Gate Private Equity, Inc., CCG Investments (BVI), L.P., CCG Associates-AI, LLC, CCG Investment Fund-AI, LP, CCG AV, LLC- Series C, CCG AV, LLC-Series E, CCG Associates-QP, LLC and WH Investments Ltd.......................................... (14) 10 .34 Independent Directors Stock Option Plan of WH Holdings (Cayman Islands) Ltd........................................ (15) 10 .35 Form of Independent Directors Stock Option Agreement........ (15) 10 .36 Executive Officer Stock Option Plan of WH Holdings (Cayman Islands) Ltd................................................ (15) 10 .37 Form of Non-Statutory Stock Option Agreement................ (15) 10 .38 Form of Incentive Stock Option Agreement.................... (15) 10 .39 Amendment No. 1 to Credit Agreement dated as of December 18, 2002, among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd., WH Intermediate Holdings Ltd., WH Luxembourg Holdings S.a.R.L., WH Luxembourg Intermediate Holdings S.a.R.L., WH Luxembourg CM S.a.R.L. and each of the Subsidiary Guarantors....................................... (15) 21 List of subsidiaries of WH Intermediate Holdings, Ltd....... (14) 23 .1 Consent of Deloitte & Touche................................ (15) 23 .2 Consent of Chadbourne & Parke LLP (included in Exhibit 5.1 and Exhibit 8.1 hereto)..................................... (15) 24 .1 Power of Attorney of WH Intermediate Holdings Ltd. ......... (14) 24 .2 Power of Attorney of Herbalife International, Inc. ......... (14) 24 .3 Power of Attorney of Herbalife International of America, Inc. ....................................................... (14) 24 .4 Power of Attorney of Herbalife International Communications, Inc. ....................................................... (14) 24 .5 Power of Attorney of Herbalife International Distribution, Inc. ....................................................... (14) 24 .6 Power of Attorney of Herbalife International of Europe, Inc. ....................................................... (14) 24 .7 Power of Attorney of Herbalife International Do Brasil Ltda........................................................ (14) 24 .8 Power of Attorney of Herbalife International Do Brasil Ltda. (Delaware) ................................................. (14) 24 .9 Power of Attorney of Herbalife (UK) Limited................. (14) 24 .10 Power of Attorney of Herbalife Europe Limited............... (14) 24 .11 Power of Attorney of Herbalife International Finland OY..... (14) 24 .12 Power of Attorney of Herbalife International of Israel (1990) Ltd. ................................................ (14)
II-5
EXHIBIT NUMBER DESCRIPTION PAGENO./(FOOTNOTE) - ------- ----------- ------------------ 24 .13 Power of Attorney of Herbalife of Japan K.K. ............... (14) 24 .14 Power of Attorney of Herbalife Internacional de Mexico, S.A. de C.V. .................................................... (14) 24 .15 Power of Attorney of Herbalife Products de Mexico, S.A. de C.V. ....................................................... (14) 24 .16 Power of Attorney of Herbalife Sweden Aktiebolag............ (14) 24 .17 Power of Attorney of Herbalife China, LLC................... (14) 24 .18 Power of Attorney of Herbalife Taiwan, Inc. ................ (14) 24 .19 Power of Attorney of Herbalife International (Thailand) Ltd. ....................................................... (14) 25 .1 Statement of Eligibility of Trustee......................... (14) 99 .1 -- Form of Letter of Transmittal for the 11 3/4% Senior Subordinated Notes Due 2010................................. (14) 99 .2 -- Form of Notice of Guaranteed Delivery for the 11 3/4% Senior Subordinated Notes Due 2010.......................... (14) 99 .3 -- Form of Letter to Holders................................ (14) 99 .4 -- Form of Letter to Clients................................ (14) 99 .5 -- Form of Letter to Registered Holders and Depositary Trust Company Participants........................................ (14) 99 .6 -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9............................... (14) 99 .7 -- Form of Exchange Agent Agreement......................... (14) 99 .8 Certification pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002... (13) 99 .9 Certification pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002... (13)
- --------------- (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-66576) declared effective by the SEC on October 8, 1993. (2) Incorporated by reference to the Company's Definitive Proxy Statement relating to its 1994 Annual Meeting of Stockholders. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (4) Incorporated by reference to the Company's Definitive Proxy Statement relating to its 1996 Annual Meeting of Stockholders. (5) Incorporated by reference to the Company's Definitive Proxy Statement relating to the Special Shareholder Meeting held on December 11, 1997. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (7) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2000. (9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2001. (10) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2001. (11) Incorporated by reference to the Company's Current Report on Form 8-K, dated April 10, 2002. II-6 (12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2002. (13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2002. (14) Incorporated by reference to the Company's Registration Statement on Form S-4 (Reg. No. 333-10118), dated November 13, 2002. (15) Filed herewith. * Management contract or compensatory plan or arrangement filed in response to Item 14(a)(3) of the instructions to Form 10-K. # Certain portions of this exhibit have been omitted and filed separately under an application for confidential treatment. ITEM 22. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless, in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes: (1) that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (2) that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415 (section 230.415 of this chapter), will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) to respond to requests for information that is incorporated by reference into this prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. II-7 (e) to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-8 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. WH INTERMEDIATE HOLDINGS LTD. By: /s/ STEVEN E. RODGERS -------------------------------------- Name: Steven E. Rodgers Title: President Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ STEVEN E. RODGERS Director and President and December 20, 2002 ------------------------------------------------ Treasurer (Principal Executive Steven E. Rodgers Officer, Principal Financial Officer, Controller and Principal Accounting Officer) * Director and Secretary December 20, 2002 ------------------------------------------------ John C. Hockin /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 ------------------------------------------------ William D. Lowe *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-9 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL, INC. By: /s/ WILLIAM D. LOWE -------------------------------------- Name: William D. Lowe Title: Senior Vice President Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Co-President December 20, 2002 ------------------------------------------------ (Principal Executive Officer) Brian L. Kane * Co-President December 20, 2002 ------------------------------------------------ (Principal Executive Officer) Carol Hannah /s/ WILLIAM D. LOWE Senior Vice President, Finance December 20, 2002 ------------------------------------------------ and Treasury (Principal William D. Lowe Financial Officer, Controller and Principal Accounting Officer) * Director December 20, 2002 ------------------------------------------------ James H. Fordyce * Director December 20, 2002 ------------------------------------------------ John C. Hockin * Director December 20, 2002 ------------------------------------------------ Steven E. Rodgers * Director December 20, 2002 ------------------------------------------------ Jesse Rogers * Director December 20, 2002 ------------------------------------------------ Prescott Ashe * Director December 20, 2002 ------------------------------------------------ Ken Diekroeger * Director December 20, 2002 ------------------------------------------------ Stefan L. Kaluzny * Director December 20, 2002 ------------------------------------------------ Charles L. Orr
II-10
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board and December 20, 2002 ------------------------------------------------ Director Peter M. Castleman *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-11 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in Luxembourg, on December 20, 2002. WH LUXEMBOURG HOLDINGS S.A.R.L. By: /s/ FABRIZIO SUARIA ------------------------------------ Name: Fabrizio Suaria Title: Manager Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ FABRIZIO SUARIA Manager (Principal Executive December 20, 2002 - ----------------------------------- Officer, Principal Financial Fabrizio Suaria Officer, Controller and Principal Accounting Officer) /s/ CHRISTOPHE THOMANN Manager December 20, 2002 - ----------------------------------- Christophe Thomann /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 - ----------------------------------- William D. Lowe
II-12 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in Luxembourg, on December 20, 2002. WH LUXEMBOURG HOLDINGS S.A.R.L. By: /s/ FABRIZIO SUARIA ------------------------------------ Name: Fabrizio Suaria Title: Manager Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ FABRIZIO SUARIA Manager (Principal Executive December 20, 2002 - ----------------------------------- Officer, Principal Financial Fabrizio Suaria Officer, Controller and Principal Accounting Officer) /s/ CHRISTOPHE THOMANN Manager December 20, 2002 - ----------------------------------- Christophe Thomann /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 - ----------------------------------- William D. Lowe
II-13 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in Luxembourg, on December 20, 2002. WH LUXEMBOURG HOLDINGS S.A.R.L. By: /s/ FABRIZIO SUARIA ------------------------------------ Name: Fabrizio Suaria Title: Manager Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ FABRIZIO SUARIA Manager (Principal Executive December 20, 2002 - ----------------------------------- Officer, Principal Financial Fabrizio Suaria Officer, Controller and Principal Accounting Officer) /s/ CHRISTOPHE THOMANN Manager December 20, 2002 - ----------------------------------- Christophe Thomann /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 - ----------------------------------- William D. Lowe
II-14 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL OF AMERICA, INC. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Co-President (Principal December 20, 2002 ------------------------------------------------ Executive Officer) Brian L. Kane * Co-President (Principal December 20, 2002 ------------------------------------------------ Executive Officer) Carol Hannah /s/ WILLIAM D. LOWE Senior Vice President, Finance December 20, 2002 ------------------------------------------------ and Treasury (Principal William D. Lowe Financial Officer, Controller and Principal Accounting Officer) * Director December 20, 2002 ------------------------------------------------ James H. Fordyce * Director December 20, 2002 ------------------------------------------------ John C. Hockin * Director December 20, 2002 ------------------------------------------------ Steven E. Rodgers * Director December 20, 2002 ------------------------------------------------ Jesse Rogers * Director December 20, 2002 ------------------------------------------------ Prescott Ashe * Director December 20, 2002 ------------------------------------------------ Ken Diekroeger * Director December 20, 2002 ------------------------------------------------ Stefan L. Kaluzny
II-15
SIGNATURE TITLE DATE --------- ----- ---- * Director December 20, 2002 ------------------------------------------------ Charles L. Orr * Chairman of the Board and December 20, 2002 ------------------------------------------------ Director Peter M. Castleman By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-16 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL COMMUNICATIONS, INC. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and President and December 20, 2002 ------------------------------------------------ Secretary (Principal Executive Brian L. Kane Officer) * Director December 20, 2002 ------------------------------------------------ Carol Hannah /s/ WILLIAM D. LOWE Chief Financial Officer December 20, 2002 ------------------------------------------------ (Principal Financial Officer, William D. Lowe Controller and Chief Accounting Officer) *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-17 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL DISTRIBUTION, INC. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and President and December 20, 2002 ------------------------------------------------ Secretary (Principal Executive Brian L. Kane Officer) * Director December 20, 2002 ------------------------------------------------ Carol Hannah /s/ WILLIAM D. LOWE Chief Financial Officer December 20, 2002 ------------------------------------------------ (Principal Financial Officer, William D. Lowe Controller and Chief Accounting Officer) *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-18 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL OF EUROPE, INC. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and President and December 20, 2002 ---------------------------------------------- Secretary (Principal Executive Brian L. Kane Officer) * Director December 20, 2002 ---------------------------------------------- Carol Hannah /s/ WILLIAM D. LOWE Chief Financial Officer December 20, 2002 ---------------------------------------------- (Principal Financial Officer, William D. Lowe Controller and Chief Accounting Officer) *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-19 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL DO BRASIL LTDA. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President of Herbalife International, Inc. Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Delegate Manager (Principal December 20, 2002 ----------------------------------------------- Executive Officer, Principal Sergio Gianechini Financial Officer, Controller and Principal Accounting Officer) * Director December 20, 2002 ----------------------------------------------- James H. Fordyce * Director December 20, 2002 ----------------------------------------------- John C. Hockin * Director December 20, 2002 ----------------------------------------------- Steven E. Rodgers * Director December 20, 2002 ----------------------------------------------- Jesse Rogers * Director December 20, 2002 ----------------------------------------------- Prescott Ashe * Director December 20, 2002 ----------------------------------------------- Ken Diekroeger Director December 20, 2002 ----------------------------------------------- Stefan L. Kaluzny * Director December 20, 2002 ----------------------------------------------- Charles L. Orr
II-20
SIGNATURE TITLE DATE --------- ----- ---- * Director December 20, 2002 ----------------------------------------------- Peter M. Castleman /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 ----------------------------------------------- William D. Lowe *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-21 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL DO BRASIL LTDA., a Delaware Corporation By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and President and December 20, 2002 ----------------------------------------------- Secretary (Principal Executive Brian L. Kane Officer) * Director December 20, 2002 ----------------------------------------------- Carol Hannah /s/ WILLIAM D. LOWE Chief Financial Officer December 20, 2002 ----------------------------------------------- (Principal Financial Officer, William D. Lowe Controller and Principal Accounting Officer) *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-22 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE (UK) LIMITED By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President of Herbalife International, Inc. Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and Managing December 20, 2002 ----------------------------------------------------- Director (Principal Richard Hobby Executive Officer, Principal Financial Officer, Controller and Principal Accounting Officer) * Director December 20, 2002 ----------------------------------------------------- Christophe Thomann /s/ WILLIAM D. LOWE Authorized U.S. December 20, 2002 ----------------------------------------------------- Representative William D. Lowe *By: /s/ WILLIAM D. LOWE ------------------------------------------------ William D. Lowe Attorney-in-Fact
II-23 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. Herbalife Europe Limited By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President of Herbalife International, Inc. Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and Managing December 20, 2002 ----------------------------------------------------- Director (Principal Brian L. Kane Executive Officer, Principal Financial Officer, Controller and Principal Accounting Officer) * Director December 20, 2002 ----------------------------------------------------- Christophe Thomann /s/ WILLIAM D. LOWE Authorized U.S. December 20, 2002 ----------------------------------------------------- Representative William D. Lowe *By: /s/ WILLIAM D. LOWE ------------------------------------------------ William D. Lowe Attorney-in-Fact
II-24 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. Herbalife International Finland OY By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President of Herbalife International, Inc. Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director (Principal December 20, 2002 ----------------------------------------------------- Executive Officer, Fabrizio Suaria Controller and Principal Accounting Officer) * Director December 20, 2002 ----------------------------------------------------- Tomasz Stanislawski /s/ WILLIAM D. LOWE Authorized U.S. December 20, 2002 ----------------------------------------------------- Representative William D. Lowe *By: /s/ WILLIAM D. LOWE ------------------------------------------------ William D. Lowe Attorney-in-Fact
II-25 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. Herbalife International of Israel (1990) Ltd. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President of Herbalife International, Inc. Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and President December 20, 2002 ----------------------------------------------------- (Principal Executive Brian L. Kane Officer, Principal Financial Officer, Controller and Chief Accounting Officer) * Director December 20, 2002 ----------------------------------------------------- Carol Hannah /s/ WILLIAM D. LOWE Authorized U.S. December 20, 2002 ----------------------------------------------------- Representative William D. Lowe *By: /s/ WILLIAM D. LOWE ------------------------------------------------ William D. Lowe Attorney-in-Fact
II-26 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE OF JAPAN K.K. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Statutory Auditor Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director December 20, 2002 ------------------------------------------- Brian L. Kane /s/ WILLIAM D. LOWE Statutory Auditor (Principal December 20, 2002 ------------------------------------------- Financial Officer, Controller William D. Lowe and Principal Accounting Officer) * Director and Representative December 20, 2002 ------------------------------------------- Director (Principal Executive Joe Wojcik Officer) * Director December 20, 2002 ------------------------------------------- John Purdy Director December 20, 2002 ------------------------------------------- Margaret Snowden * Director December 20, 2002 ------------------------------------------- Song Churl Park /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 ------------------------------------------------ William D. Lowe *By: /s/ WILLIAM D. LOWE --------------------------------------- William D. Lowe Attorney-in-Fact
II-27 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNACIONAL DE MEXICO, S.A. DE C.V. By: /s/ WILLIAM D. LOWE ------------------------------------- Name: William D. Lowe Title: Director Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and Chairman December 20, 2002 - ------------------------------------------------- (Principal Executive Officer) Brian L. Kane * Director December 20, 2002 - ------------------------------------------------- Carol Hannah /s/ WILLIAM D. LOWE Director and Secretary December 20, 2002 - ------------------------------------------------- (Principal Financial Officer, William D. Lowe Controller and Principal Accounting Officer) /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 - ------------------------------------------------- William D. Lowe *By: /s/ WILLIAM D. LOWE ----------------------------------------- William D. Lowe Attorney-in-Fact
II-28 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE PRODUCTS DE MEXICO, S.A. DE C.V. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Director Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and Chairman December 20, 2002 - ------------------------------------------ (Principal Executive Officer) Brian L. Kane * Director December 20, 2002 - ------------------------------------------ Carol Hannah /s/ WILLIAM D. LOWE Director and Secretary December 20, 2002 - ------------------------------------------ (Principal Financial Officer, William D. Lowe Controller and Principal Accounting Officer) /s/ WILLIAM D. LOWE Authorized U.S. Representative December 20, 2002 - ------------------------------------------ William D. Lowe *By: /s/ WILLIAM D. LOWE -------------------------------------- William D. Lowe Attorney-in-Fact
II-29 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE SWEDEN AKTIEBOLAG By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President of Herbalife International, Inc. Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director (Principal Executive December 20, 2002 - ------------------------------------------ Officer, Principal Financial Fabrizio Sauria Officer, Controller and Principal Accounting Officer) Authorized U.S. Representative December 20, 2002 /s/ WILLIAM D. LOWE - ------------------------------------------ William D. Lowe *By: /s/ WILLIAM D. LOWE -------------------------------------- William D. Lowe Attorney-in-Fact
II-30 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE CHINA, LLC By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Senior Vice President of Herbalife International, Inc. Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Manager (Principal Executive December 20, 2002 ------------------------------------------------ Officer, Principal Financial Brian L. Kane Officer, Controller and Principal Accounting Officer) * Manager December 20, 2002 ------------------------------------------------ John Purdy * Manager December 20, 2002 ------------------------------------------------ Joe Wojcik * Manager December 20, 2002 ------------------------------------------------ Bernard O'Brien *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-31 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE TAIWAN, INC. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and President and December 20, 2002 ------------------------------------------------ Secretary (Principal Executive Brian L. Kane Officer) * Director December 20, 2002 ------------------------------------------------ Carol Hannah /s/ WILLIAM D. LOWE Chief Financial Officer December 20, 2002 ------------------------------------------------ (Principal Financial Officer, William D. Lowe Controller and Chief Accounting Officer) *By: /s/ WILLIAM D. LOWE ------------------------------------------ William D. Lowe Attorney-in-Fact
II-32 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on December 20, 2002. HERBALIFE INTERNATIONAL (THAILAND) LTD. By: /s/ WILLIAM D. LOWE ------------------------------------ Name: William D. Lowe Title: Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933 this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director and President and December 20, 2002 ----------------------------------------------------- Secretary (Principal Brian L. Kane Executive Officer) * Director December 20, 2002 ----------------------------------------------------- Carol Hannah /s/ WILLIAM D. LOWE Chief Financial Officer December 20, 2002 ----------------------------------------------------- (Principal Financial William D. Lowe Officer, Controller and Principal Accounting Officer) *By: /s/ WILLIAM D. LOWE ------------------------------------------------ William D. Lowe Attorney-in-Fact
II-33 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------------ ----------- 3.18 Certificate of Incorporation of Herbalife International Do Brasil Ltda. (Delaware) 3.19 Certificate of Amendment of Certificate of Incorporation of Herbalife International Do Brasil Ltda. (Delaware) 3.20 Bylaws of Herbalife International Do Brasil Ltda. (Delaware) 3.21 Amendment to Articles of Association of Herbalife International Do Brasil Ltda. 3.22 Articles of Association of Herbalife International Do Brasil Ltda. 3.23 Memorandum of Association of Herbalife (UK) Limited 3.24 Articles of Association of Herbalife (UK) Limited 3.25 Memorandum of Association of Herbalife Europe Limited 3.26 Articles of Association of Herbalife Europe Limited 3.27 Deeds of Foundation of Herbalife International Finland OY 3.28 Articles of Association of Herbalife International Finland OY 3.29 Articles of Association of Herbalife International of Israel (1990) Ltd. 3.30 Memorandum of Association of Herbalife International of Israel (1990) Ltd. 3.31 Articles of Incorporation of Herbalife of Japan K.K. 3.32 Restated Bylaws of Herbalife of Japan K.K. 3.33 Bylaws and Articles of Incorporation of Herbalife Internacional de Mexico, S.A. de C.V. 3.34 Copia Certificada of Herbalife Products de Mexico, S.A. de C.V. 3.35 Articles of Association of Herbalife Sweden Aktiebolag 3.36 Limited Liability Company Agreement of Herbalife China, LLC 3.37 Amendment to Limited Liability Company Agreement of Herbalife China, LLC 3.40 Certificate of Incorporation of Herbalife International (Thailand) Ltd. 5.1 Opinion of Chadbourne & Parke LLP as to the legality of the Series B Notes being registered hereby 5.2 Opinion of Maples & Calder, counsel to WH Intermediate Holdings Ltd. 5.3 Opinion of Marshall Hill Cassas & de Lipkau, counsel to Herbalife International Inc. 5.4 Opinion of Bonn Schmitt Steichen, counsel to WH Luxembourg Holdings S.a.R.L., WH Luxembourg Intermediate Holdings S.a.R.L. and WH Luxembourg CM S.a.R.L. 5.5 Opinion of Irell & Manella, counsel to Herbalife International of America, Inc., Herbalife International Communications Inc., Herbalife International Distribution, Inc., Herbalife International of Europe, Inc., Herbalife Taiwan, Inc. and Herbalife International (Thailand) Ltd. 5.6 Opinion of Corvo Advogados, counsel to Herbalife International Do Brasil Ltda. 5.7 Opinion of Chadbourne & Parke, a Multinational Partnership, to Herbalife (UK) Limited and Herbalife Europe Limited 5.8 Opinion of Mr. Robin Potts, QC 5.9 Opinion of Hannes Snellman, counsel to Herbalife International Finland OY 5.10 Opinion of Herzog, Fox & Neeman, counsel to Herbalife International of Israel (1990) Ltd. 5.11 Opinion of Tomotsune & Kimura, counsel to Herbalife of Japan K.K. 5.12 Opinion of Bufete Carrillo Gamboa, S.C., counsel to Herbalife Internacional de Mexico, S.A. de C.V. and Herbalife Products de Mexico, S.A. de C.V.
EXHIBIT NO. DESCRIPTION - ------------ ----------- 5.13 Opinion of Mannheimer Swartling, counsel to Herbalife Sweden Aktiebolag 5.14 Opinion of Morris, Nichols, Arsht & Tunnell, counsel to Herbalife China, LLC and Herbalife International Do Brasil Ltda. (Delaware) 10.34 Independent Directors Stock Option Plan of WH Holdings (Cayman Islands) Ltd. 10.35 Form of Independent Directors Stock Option Agreement 10.36 Executive Officer Stock Option Plan of WH Holdings (Cayman Islands) Ltd. 10.37 Form of Non-Statutory Stock Option Agreement 10.38 Form of Incentive Stock Option Agreement 10.39 Amendment No. 1 to Credit Agreement dated as of December 18, 2002, among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd., WH Intermediate Holdings Ltd., WH Luxembourg Holdings S.a.R.L., WH Luxembourg Intermediate Holdings S.a.R.L., WH Luxembourg CM S.a.R.L. and each of the Subsidiary Guarantors 23.1 Consent of Deloitte & Touche 23.2 Consent of Chadbourne & Parke LLP (included in Exhibit 5.1)
EX-3.18 3 y65450a1exv3w18.txt CERTIFICATE OF INCORPORATION EXHIBIT 3.18 CERTIFICATE OF INCORPORATION OF HERBALIFE INTERNATIONAL DO BRASIL LTDA. (DELAWARE) a Delaware corporation ONE: The name of this corporation is: Herbalife International do Brasil Ltda. (Delaware). TWO: The address of this corporation's registered office in the State of Delaware is 1050 S. State Street in the City of Dover, County of Kent. The name of its registered agent at such address is CorpAmerica, Inc. THREE: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the "DGCL"). FOUR: The total number of shares of stock which this corporation is authorized to issue is One Hundred Thousand (100,000) shares and all such shares are to be without par value. FIVE: The following provisions are inserted for the management of the business and the conduct of the affairs of this corporation: A. The Board of Directors may adopt, amend or repeal the Bylaws of this corporation. B. Election of directors need not be by written ballot. SIX: No director of this corporation shall be personally liable to this corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which such director derived an improper personal benefit. This Article SIX is also contained in Article VIII, Section 1, of this corporation's Bylaws. No amendment to or repeal of this Article SIX shall apply to or have any effect on the liability or alleged liability of any director of this corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the DGCL is amended hereafter to further eliminate or limit the personal liability of directors, the liability of a director of this corporation shall be limited or eliminated to the fullest extent permitted by the DGCL, as amended. SEVEN: The name and mailing address of the sole incorporator is as follows: C.A. Webb Irell & Manella 1800 Avenue of the Stars Suite 900 Los Angeles, California 90067 I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate of Incorporation, do certify that the facts stated are true, and accordingly, have hereto set my hand this 24th day of August, 1995. /s/ C.A. Webb ---------------------------- C. A. Webb, Incorporator 2 EX-3.19 4 y65450a1exv3w19.txt CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORP. EXHIBIT 3.19 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF HERBALIFE INTERNATIONAL DO BRASIL LTDA. (DELAWARE) ------------------------------------------------- a Delaware corporation Herbalife International do Brasil Ltda. (Delaware), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. That Article ONE of the Certificate of Incorporation of this corporation is amended to read in full as follows: "The name of this corporation is: Herbalife International do Brasil Ltda." 2. Said Amendment has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, by approval of the Board of Directors of the corporation and by the affirmative vote of the holders of at least of a majority of the outstanding stock entitled to vote. IN WITNESS WHEREOF, Herbalife International do Brasil Ltda. (Delaware) has caused this Certificate of Amendment of Certificate of Incorporation to be signed by its President this 29th day of March, 1996. /s/ Christopher Pair -------------------------------------- Christopher Pair, President EX-3.20 5 y65450a1exv3w20.txt BYLAWS OF HERBALIFE INTERNATIONAL DO BRAZIL LTDA. EXHIBIT 3.20 HERBALIFE INTERNATIONAL DO BRASIL LTDA. (DELAWARE) BYLAWS TABLE OF CONTENTS
Page ARTICLE I DOMESTICATION OF NON-UNITED STATES CORPORATION................. 1 ARTICLE II OFFICES........................................................ 1 Section 1. Registered Office.............................................. 1 Section 2. Other Offices.................................................. 1 ARTICLE III MEETINGS OF STOCKHOLDERS....................................... 1 Section 1. Place of Meetings.............................................. 1 Section 2. Annual Meetings................................................ 1 Section 3. Special Meetings............................................... 1 Section 4. Notice of Meetings............................................. 2 Section 5. Quorum; Adjournment............................................ 2 Section 6. Proxies and Voting............................................. 2 Section 7. Stock List..................................................... 3 Section 8. Actions by Stockholders........................................ 3 ARTICLE IV BOARD OF DIRECTORS............................................. 4 Section 1. Duties and Powers.............................................. 4 Section 2. Number and Term of Office...................................... 4 Section 3. Vacancies...................................................... 4 Section 4. Meetings....................................................... 4 Section 5. Quorum......................................................... 5 Section 6. Actions of Board Without a Meeting............................. 5
Section 7. Meetings by Means of Conference Telephone...................... 5 Section 8. Committees..................................................... 5 Section 9. Compensation................................................... 6 Section 10. Removal........................................................ 6 ARTICLE V OFFICERS....................................................... 6 Section 1. General........................................................ 6 Section 2. President...................................................... 6 Section 3. Vice President................................................. 7 Section 4. Secretary...................................................... 7 Section 5. Other Officers................................................. 7 ARTICLE VI STOCK.......................................................... 7 Section 1. Transfers...................................................... 7 Section 2. Regulations.................................................... 7 ARTICLE VII NOTICES........................................................ 8 Section 1. Notices........................................................ 8 Section 2. Waiver of Notice............................................... 8 ARTICLE VIII DIRECTORS' LIABILITY AND INDEMNIFICATION....................... 8 Section 1. Directors' Liability........................................... 8 Section 2. Right to Indemnification....................................... 8 Section 3. Right of Claimant to Bring Suit................................ 9 Section 4. Non-Exclusivity of Rights...................................... 10 Section 5. Insurance and Trust Fund....................................... 10
ii Section 6. Indemnification of Employees and Agents of the Corporation..... 10 Section 7. Amendment...................................................... 10 ARTICLE IX AMENDMENTS..................................................... 11
iii BYLAWS OF HERBALIFE INTERNATIONAL DO BRASIL LTDA. (DELAWARE) (hereinafter called the "Corporation") ARTICLE I DOMESTICATION OF NON-UNITED STATES CORPORATION The Corporation is a domesticated corporation under Section 388 of the Delaware General Corporation Law. Except as expressly required by Delaware law, the Certificate of Incorporation or these Bylaws, the Corporation shall be regulated, administered and governed in the same manner and to the same effect as Herbalife International do Brasil Ltda., a Brazilian limited liability company ("Herbalife Brasil"). ARTICLE II OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware. Section 2. Other Office. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE III MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and sated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders may be called by the Board of Directors, the President, or by the holders of shares entitled to cast not less than 10% of the votes at the meeting. Upon request in writing to the President, any Vice President or the Secretary by any person (other than the board) entitled to call a special meeting of stockholders, the officer forthwith shall cause notice to be given to the stockholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice. Section 4. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation. Section 5. Quorum; Adjournment. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law or the Certificate of Incorporation. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time without notice other than announcement at the meeting, until a quorum shall be present or represented. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 6. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting. 2 Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law or the Certificate of Incorporation. All voting, including on the election of directors but excepting where otherwise provided herein or required by law or the Certificate of Incorporation, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or such stockholder's proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or the Certificate of Incorporation, all other matters shall be determined by a majority of the votes cast. Section 7. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in such stockholder's name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 8. Actions by Stockholders. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 3 ARTICLE IV BOARD OF DIRECTORS Section 1. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 2. Number and Term of Office. The Board of Directors shall consist of one (1) member until changed by a bylaw amending this section duly adopted by the vote or written consent of the Board of Directors or of a majority of the outstanding shares entitled to vote. Except as provided in Section 3 of this Article, directors shall be elected by the holders of record of a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director or by the stockholders entitled to vote at any Annual or Special Meeting held in accordance with Article III, and the directors so chosen shall hold office until the next Annual or Special Meeting duly called for that purpose and until their successors are duly elected and qualified, or until their earlier resignation or removal. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. The first meeting of each newly-elected Board of Directors shall be held immediately following the Annual Meeting of Stockholders and no notice of such meeting shall be necessary to be given the newly-elected directors in order legally to constitute the meeting, provided a quorum shall be present. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the President or a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Meetings 4 may be held at any time without notice if all the directors are present or if all those not present waive such notice in accordance with Section 2 of Article VII of these Bylaws. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of Board Without a Meeting. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the directors then in office, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any committee, to the extent allowed by law and provided in the Bylaw or resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of 5 the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Removal. Unless otherwise restricted by the Certificate of Incorporation or Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE V OFFICERS Section 1. General. The officers of the Corporation shall be appointed by the Board of Directors and shall consist of a President, one or more Vice Presidents, and a Secretary. The Board of Directors may also appoint such other officers as the Board of Directors, in its discretion, shall deem necessary or appropriate from time to time. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. Each officer of the Corporation shall hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may at any time, with or without cause, by the affirmative vote of a majority of directors then in office, remove any officer. Section 2. President. The President shall be the chief operating officer of the Corporation, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have and exercise such further powers and duties as may be specifically delegated to or vested in the President from time to time by these Bylaws or the Board of Directors. Section 3. Vice President. Each Vice President shall have all the duties and powers of and be subject to all the restrictions upon a delegate-manager of Herbalife Brasil. 6 Section 4. Secretary. The Secretary shall record all the proceedings of the meetings of the Board of Directors and the Stockholders, and any committee thereof when required, in a book or books to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. The Secretary shall have custody of the seal of the Corporation and the Secretary shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 5. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE VI STOCK Section 1. Transfers. Shares of stock of the Corporation shall be paired with an equal number of quotas of Herbalife Brasil and may be transferred only with and at the time of transfer of quotas of Herbalife Brasil. The shares of the Corporation's stock shall not at any time be separately transferable. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and only when such transfer is simultaneous with the transfer of quotas of Herbalife Brasil and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 2. Regulations. The Board of Directors shall have power and authority to make all such rules and regulations not inconsistent with law or with the Certificate of Incorporation as may be deemed expedient concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. 7 ARTICLE VII NOTICES Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable and such notice shall be deemed to be given at the time of receipt thereof if given personally or at the time of transmission thereof if given by telegram, telex or cable. Section 2. Waiver of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member or a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE VIII DIRECTORS' LIABILITY AND INDEMNIFICATION Section 1. Directors' Liability. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the Delaware General Corporation Law is amended hereafter to further eliminate or limit the personal liability of directors, the liability of a director of this Corporation shall be limited or eliminated to the fullest extent permitted by the Delaware General Corporation Law, as amended. Section 2. Right to Indemnification. Each person who was or is made a party to or is threatened to be made a party to or is involuntarily involved in any action, suit or 8 proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving (during his or her tenure as director and/or officer) at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, whether the basis of such Proceeding is an alleged action or inaction in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law (or other applicable law), as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with such Proceeding. Such director or officer shall have the right to be paid by the Corporation for expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law (or other applicable law) requires, the payment of such expenses in advance of the final disposition of any such Proceeding shall be made only upon receipt by the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it should be determined ultimately that he or she is not entitled to be indemnified under this Article or otherwise. Section 3. Right of Claimant to Bring Suit. If a claim under Section 2 of this Article is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, together with interest thereon, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim, including reasonable attorneys' fees incurred in connection therewith. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law (or other applicable law) for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (or of its full Board of Directors, its directors who are not parties to the Proceeding with respect to which indemnification is claimed, its stockholders, or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law (or other applicable law), nor an actual determination by any such person or persons that such claimant has not met such applicable standard of conduct, 9 shall be a defense to such action or create a presumption that the claimant has not met the applicable standard of conduct. Section 4. Non-Exclusivity of Rights. The rights conferred by this Article shall not be exclusive of any other right which any director, officer, representative, employee or other agent may have or hereafter acquire under the Delaware General Corporation Law or any other statute, or any provision contained in the Corporation's Certificate of Incorporation or Bylaws, or any agreement, or pursuant to a vote of stockholders or disinterested directors, or otherwise. Section 5. Insurance and Trust Fund. In furtherance and not in limitation of the powers conferred by statute: (1) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and (2) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements) , as well as enter into contracts providing indemnification to the fullest extent permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to ensure the payment of such amount as may become necessary to effect indemnification as provided therein, or elsewhere. Section 6. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, including the right to be paid by the Corporation the expenses incurred in defending any Proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VIII or otherwise with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. Section 7. Amendment. This Article VIII, Section 1, is also contained in Article SIX of the Corporation's Certificate of Incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time the comparable Certificate Article is altered, amended or repealed. Any repeal or modification of this Article VIII 10 shall not change the rights of an officer or director to indemnification with respect to any action or omission occurring prior to such repeal or modification. ARTICLE IX AMENDMENTS Except as otherwise specifically stated within an Article to be altered, amended or repealed, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting. 11 The undersigned, as the incorporator of Herbalife International do Brasil Ltda. (Delaware) hereby adopts the foregoing bylaws as the bylaws of said corporation. Dated as of August 25, 1995. /s/ C.A. Webb ------------------------------------ C. A. Webb, Incorporator The undersigned, being the sole director of Herbalife International do Brasil Ltda. (Delaware), hereby adopts the foregoing bylaws as the bylaws of said corporation. Dated as of August 25, 1995. /s/ Christopher Pair ------------------------------------ Christopher Pair, Director THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of Herbalife International do Brasil Ltda. (Delaware) and that the foregoing bylaws were adopted as the bylaws of said corporation as of the 25th day of August, 1995, by Written Consent of the sole director of said corporation. Dated as of August 25, 1995. /s/ Christopher Pair ------------------------------------ Christopher Pair, Secretary EX-3.21 6 y65450a1exv3w21.txt AMENDMENT OF ARTICLE OF ASSOCIATION EXHIBIT 3.21 FREE TRANSLATION HERBALIFE INTERNATIONAL DO BRASIL LTDA. C.N.P.J. No. 00.292.858/0001-77 NIRE 35.212.644.296 Amendment to the Articles of Association By this private instrument, the undersigned: (a) HERBALIFE INTERNATIONAL, INC., a company organized and existing under the laws of the State of Nevada, United States of America, with its principal place of business at 1800 Century Park East, Century City, California 90067, United States of America, herein represented by its attorney-in-fact, Esther Donio Bellegarde Nunes, Brazilian, married, attorney, resident and domiciled in the City of Sao Paulo, State of Sao Paulo, at Rua Boa Vista, 254, 9th floor, bearer of Identity Card R.G. No. 4.497.900-9 SSP/SP and enrolled in the Individual Taxpayers' Register (CPF) under No. 527.133.268-34; and (b) HERBALIFE INTERNATIONAL OF AMERICA, INC., a company organized and existing under the laws of the State of California, United States of America, with its principal place of business at 1800 Century Park East, Century City, California 90067, United States of America, herein represented by its attorney-in-fact, Esther Donio Bellegarde Nunes, identified above, as quotaholders representing the entire quota capital of HERBALIFE INTERNATIONAL DO BRASIL LTDA. ("Company"), a Brazilian limited liability (limitada) company with its principal place of business in the City of Sao Paulo, State of Sao Paulo, at Al. Santos, 1787, suites 71 and 72, with its Articles of Association and latest amendment thereto duly filed at the Commercial Registry of the State of Sao Paulo (JUCESP) under Nos. 35.212.644.296 and 188.896/01-6, on November 9, 1994 and September 13, 2001, respectively, have mutually agreed to amend the abovementioned Articles of Association as follows: 1. - The quotaholders mutually resolve to change the Company's current principal place of business located at Al. Santos, 1787, suites 71 and 72, in the City of Sao Paulo, State of Sao Paulo, to Rua Marina Ciufuli Zanfelice, 371, Plot of land F, 14, 1st floor, part, in the City of Sao Paulo, State of Sao Paulo, where the Company's administrative office shall operate. 2. - The quotaholders further resolve to change the Company's branch located at Al. Santos, 1787, ground floor, suites 2, 3 and 4, in the City of Sao Paulo, State of Sao Paulo, to Rua Marina Ciufuli Zanfelice, 371, Plot of land F, 14, mezzanine floor, in the City of Sao Paulo, State of Sao Paulo, where the Company's administrative and contact office shall operate. 3. - Accordingly, article 2 of the Articles of Association shall henceforth become effective with the following new wording: "Article 2. - The Company's principal place of business is located in the City of Sao Paulo, State of Sao Paulo, at Rua Marina Ciufuli Zanfelice, 371, Plot of land F, 14, 1st floor, part, where the Company's administrative office shall operate. Branches, offices and representative offices may be maintained elsewhere in Brazil or abroad, by resolution of the quotaholder(s) representing a majority of the Company's quota capital." 4. - In view of the above resolution, the quotaholders resolve not only to amend article 2 of the Articles of Association, but also to consolidate the Articles of Association which, after being duly adapted, shall henceforth become fully effective with the following new wording: 2 "ARTICLES OF ASSOCIATION OF HERBALIFE INTERNATIONAL DO BRASIL LTDA. Article 1. - The name of the Company is HERBALIFE INTERNATIONAL DO BRASIL LTDA. Article 2. - The Company's principal place of business is located in the City of Sao Paulo, State of Sao Paulo, at Rua Marina Ciufuili Zanfelice, 371, Plot of land F, 14, 1st floor, part, where the Company's administrative office shall operate. Branches, offices and representative offices may be maintained elsewhere in Brazil or abroad, by resolution of the quotaholder(s) representing a majority of the Company's quota capital. Article 3. - The Company engages in: (a) the handling, packaging, labeling, distribution, marketing, promotion, advertising, consultancy, import and export, purchase, sale, direct selling or catalog sales on the wholesale market, either directly or through third parties, of food products, beverages, weight control and loss products, nutritional and health supplements, skin and hair care products, hygiene products, perfumes, cosmetics and related products; (b) the consultancy and rendering of services to companies and corporations in which the Company has a corporate interest, as well as to third parties; (c) the participation in any way in the management, supervision, operation and promotion of companies, corporations and businesses; and (d) the representation of other foreign or domestic companies, on its own behalf or on behalf of third parties. Article 4. - The Company is established for an indeterminate period of time. Article 5. - The quota capital of the Company is two million fourteen thousand and two hundred reais (R$ 2.014.200,00), divided into two million fourteen thousand and two hundred (2,014,200) quotas of one real (R$ 1,00) each, distributed between the quotaholders as follows: (a) HERBALIFE INTERNATIONAL, INC. holds two million fourteen thousand one hundred and ninety-nine (2,014,199) quotas, in the total amount of two million fourteen thousand one hundred and ninety-nine reais (R$ 2.014.199,00); and (b) HERBALIFE INTERNATIONAL OF AMERICA, INC. holds one (1) quota, in the total amount of one real (R$ 1,00). Sole Paragraph - The liability of the quotaholders is limited to the total amount of the Company's quota capital. Article 6. - The Company's business shall be managed and administered by the quotaholder HERBALIFE INTERNATIONAL, INC., which shall perform its activities with full 3 and unrestricted powers. The managing quotaholder may delegate its powers to one or more delegate managers, who shall be appointed and replaced at the exclusive discretion of the managing quotaholder, by means of the respective instrument of appointment of delegate manager. Paragraph 1. - The monthly compensation of the delegate managers shall be established by the managing quotaholder and shall be charged to the Company's general expense account. Paragraph 2. - The administration and management powers attributed to the delegate managers shall observe the limits established in these Articles of Association, in addition to those expressly set out in the respective instrument of appointment of delegate manager. Article 7. - The managing quotaholder, the delegate managers or the attorneys-in-fact appointed on behalf of the Company shall perform the acts necessary or advisable for its administration, except as specified in article 8 hereof, and their powers shall include, but shall not be limited to, those necessary: (a) to represent the Company, in its capacity as either plaintiff or defendant, in and out of court, as regards third parties and any public agency or any federal, state or municipal authorities, as well as independent governmental agencies, mixed-capital companies and quasi-governmental entities; (b) to administer, manage and direct the business of the Company, and to purchase, sell, exchange or otherwise dispose of the Company's assets and properties, establishing the prices, terms and conditions thereof; and (c) to sign any documents, even those creating a liability or obligation for the Company, including deeds, instruments of indebtedness, negotiable instruments, checks, money orders and other documents. Sole Paragraph - Powers of attorney issued by the Company shall be signed by the managing quotaholder or by any of the delegate managers upon prior authorization of the managing quotaholder, shall stipulate specifically the powers granted, and shall be valid for a limited period. Article 8. - The powers to purchase, sell, mortgage or otherwise dispose of or create a lien on real properties shall always be exercised by the quotaholder(s) representing a majority of the quota capital of the Company, either directly or by its/their attorneys-in-fact. Article 9. - The acts of any of the Company's quotaholders, delegate managers, employees or attorneys-in-fact that involve the Company in any obligation regarding business or transactions which exceed the scope of its business purpose, such as sureties, aval guarantees, endorsements or any other guarantees whatsoever in favor of third parties, are hereby expressly permitted upon the prior authorization of the quotaholder(s) representing a majority of the Company's quota capital. 4 Article 10. - No quotaholder may assign or transfer any of its quotas, either to the other quotaholders or to third parties, without the prior written consent of the quotaholder(s) representing a majority of the Company's quota capital. Article 11. - The fiscal year of the Company shall begin on January 1st and end on December 31st. At the end of each fiscal year, the balance sheet and profit and loss statement shall be prepared for that fiscal year. Article 12. - The net profits earned in each fiscal year shall be allocated as determined by the quotaholder(s) representing a majority of the Company's quota capital, all quotaholders' being assured of their proportional share. Quotaholders shall have no rights in or to any portion of the profits until a specific resolution is passed determining their allocation. Article 13. - In the event of winding-up or liquidation of the Company, the liquidator shall be the quotaholder HERBALIFE INTERNATIONAL, INC. or its designee. In this event, the assets of the Company shall be used to satisfy its outstanding obligations. The remaining assets, if any, shall be apportioned among the quotaholders ratably to the number of quotas each of them holds. Article 14. - The withdrawal, termination, exclusion, bankruptcy or debt rehabilitation (concordata) of any quotaholder shall not result in the winding-up of the Company, which shall continue to exist with the remaining quotaholders, unless the latter decide that the Company shall be liquidated, provided they represent a majority of the Company's quota capital. The assets pertaining to the withdrawn, terminated, excluded, bankrupt or legally incapacitated (concordatario) quotaholder shall be calculated on the basis of the latest balance sheet prepared by the Company, and shall be paid to his heirs or its successors within six months of the event. Article 15. - These Articles of Association may be freely amended at any time, including amendments for the purpose of excluding a quotaholder, by resolution of the quotaholder(s) representing a majority of the quota capital of the Company. Article 16. - Disputes arising out of these Articles of Association shall be submitted to the courts of the City of Sao Paulo, State of Sao Paulo, to the exclusion of all others, however privileged they may be." 5 IN WITNESS WHEREOF, the parties sign this instrument in three (3) counterparts of identical content, in the presence of the two undersigned witnesses. Sao Paulo, May 17, 2002 HERBALIFE INTERNATIONAL, INC. ______________(sgd)___________ By Esther Donio Bellegarde Nunes HERBALIFE INTERNATIONAL OF AMERICA, INC. ______________(sgd)__________ By Esther Donio Bellegarde Nunes Witnesses: ____________(sgd)____________ Name: Robson Luis Ramos Bujato RG: 26.180.379-7 SSP/SP _____________(sgd)________ Name: Carlos Paccelli Bigliati RG: 9.973.846-SSP/SP [Rubber stamp of the Commercial Registry of the State of Sao Paulo] 6 EX-3.22 7 y65450a1exv3w22.txt ARTICLES OF ASSOCIATION EXHIBIT 3.22 "ARTICLES OF ASSOCIATION OF HERBALIFE INTERNATIONAL DO BRASIL LTDA. Article 1. - The name of the Company is HERBALIFE INTERNATIONAL DO BRASIL LTDA. Article 2. - The Company's principal place of business is located in the City of Sao Paulo, State of Sao Paulo, at Rua Marina Ciufuli Zanfelice, 371, Plot of land F, 14, 1st floor, part, where the Company's administrative office shall operate. Branches, offices and representative offices may be maintained elsewhere in Brazil or abroad, by resolution of the quotaholder(s) representing a majority of the Company's quota capital. Article 3. - The Company engages in: (a) the handling, packaging, labeling, distribution, marketing, promotion, advertising, consultancy, import and export, purchase, sale, direct selling or catalog sales on the wholesale market, either directly or through third parties, of food products, beverages, weight control and loss products, nutritional and health supplements, skin and hair care products, hygiene products, perfumes, cosmetics and related products; (b) the consultancy and rendering of services to companies and corporations in which the Company has a corporate interest, as well as to third parties; (c) the participation in any way in the management, supervision, operation and promotion of companies, corporations and businesses; and (d) the representation of other foreign or domestic companies, on its own behalf or on behalf of third parties. Article 4. - The Company is established for an indeterminate period of time. Article 5. - The quota capital of the Company is two million fourteen thousand and two hundred reais (R$ 2.014.200,00), divided into two million fourteen thousand and two hundred (2,014,200) quotas of one real (R$ 1,00) each, distributed between the quotaholders as follows: (a) HERBALIFE INTERNATIONAL, INC. holds two million fourteen thousand one hundred and ninety-nine (2,014,199) quotas, in the total amount of two million fourteen thousand one hundred and ninety-nine reais (R$ 2.014.199,00); and (b) HERBALIFE INTERNATIONAL OF AMERICA, INC. holds one (1) quota, in the total amount of one real (R$ 1,00). Sole Paragraph - The liability of the quotaholders is limited to the total amount of the Company's quota capital. Article 6. - The Company's business shall be managed and administered by the quotaholder HERBALIFE INTERNATIONAL, INC., which shall perform its activities with full and unrestricted powers. The managing quotaholder may delegate its powers to one or more delegate managers, who shall be appointed and replaced at the exclusive discretion of the managing quotaholder, by means of the respective instrument of appointment of delegate manager. Paragraph 1. - The monthly compensation of the delegate managers shall be established by the managing quotaholder and shall be charged to the Company's general expense account. Paragraph 2. - The administration and management powers attributed to the delegate managers shall observe the limits established in these Articles of Association, in addition to those expressly set out in the respective instrument of appointment of delegate manager. Article 7. - The managing quotaholder, the delegate managers or the attorneys-in-fact appointed on behalf of the Company shall perform the acts necessary or advisable for its administration, except as specified in article 8 hereof, and their powers shall include, but shall not be limited to, those necessary: (a) to represent the Company, in its capacity as either plaintiff or defendant, in and out of court, as regards third parties and any public agency or any federal, state or municipal authorities, as well as independent governmental agencies, mixed-capital companies and quasi-governmental entities; (b) to administer, manage and direct the business of the Company, and to purchase, sell, exchange or otherwise dispose of the Company's assets and properties, establishing the prices, terms and conditions thereof; and (c) to sign any documents, even those creating a liability or obligation for the Company, including deeds, instruments of indebtedness, negotiable instruments, checks, money orders and other documents. Sole Paragraph - Powers of attorney issued by the Company shall be signed by the managing quotaholder or by any of the delegate managers upon prior authorization 2 of the managing quotaholder, shall stipulate specifically the powers granted, and shall be valid for a limited period. Article 8. - The powers to purchase, sell, mortgage or otherwise dispose of or create a lien on real properties shall always be exercised by the quotaholder(s) representing a majority of the quota capital of the Company, either directly or by its/their attorneys-in-fact. Article 9. - The acts of any of the Company's quotaholders, delegate managers, employees or attorneys-in-fact that involve the Company in any obligation regarding business or transactions which exceed the scope of its business purpose, such as sureties, aval guarantees, endorsements or any other guarantees whatsoever in favor of third parties, are hereby expressly permitted upon the prior authorization of the quotaholder(s) representing a majority of the Company's quota capital. Article 10. - No quotaholder may assign or transfer any of its quotas, either to the other quotaholders or to third parties, without the prior written consent of the quotaholder(s) representing a majority of the Company's quota capital. Article 11. - The fiscal year of the Company shall begin on January 1st and end on December 31st. At the end of each fiscal year, the balance sheet and profit and loss statement shall be prepared for that fiscal year. Article 12. - The net profits earned in each fiscal year shall be allocated as determined by the quotaholder(s) representing a majority of the Company's quota capital, all quotaholders' being assured of their proportional share. Quotaholders shall have no rights in or to any portion of the profits until a specific resolution is passed determining their allocation. Article 13. - In the event of winding-up or liquidation of the Company, the liquidator shall be the quotaholder HERBALIFE INTERNATIONAL, INC. or its designee. In this event, the assets of the Company shall be used to satisfy its outstanding obligations. The remaining assets, if any, shall be apportioned among the quotaholders ratably to the number of quotas each of them holds. Article 14. - The withdrawal, termination, exclusion, bankruptcy or debt rehabilitation (concordata) of any quotaholder shall not result in the winding-up of the Company, which shall continue to exist with the remaining quotaholders, unless the latter decide that the Company shall be liquidated, provided they represent a majority of the Company's quota capital. The assets pertaining to the withdrawn, terminated, excluded, bankrupt or legally incapacitated (concordatario) quotaholder shall be calculated on the 3 basis of the latest balance sheet prepared by the Company, and shall be paid to his heirs or its successors within six months of the event. Article 15. - These Articles of Association may be freely amended at any time, including amendments for the purpose of excluding a quotaholder, by resolution of the quotaholder(s) representing a majority of the quota capital of the Company. Article 16. - Disputes arising out of these Articles of Association shall be submitted to the courts of the City of Sao Paulo, State of Sao Paulo, to the exclusion of all others, however privileged they may be." IN WITNESS WHEREOF, the parties sign this instrument in three (3) counterparts of identical content, in the presence of the two undersigned witnesses. Sao Paulo, May 17, 2002 HERBALIFE INTERNATIONAL, INC. ______________(sgd)_________________ By ESTHER DONIO BELLEGARDE NUNES HERBALIFE INTERNATIONAL OF AMERICA, INC. ______________(sgd)_________________ By ESTHER DONIO BELLEGARDE NUNES Witnesses: 1. - ______________(sgd)_________________ Name: Robson Luis Ramos Bujato RG: 26.180.379-7 SSP/SP 2. - ______________(sgd)_________________ Name: Carlos Paccelli Bigliati RG: 9.973.846-SSP/SP [Rubber stamp of the Commercial Registry of the State of Sao Paulo] 4 EX-3.23 8 y65450a1exv3w23.txt MEMORANDUM OF ASSOCIATION OF HERBALIFE (UK) LTD. EXHIBIT 3.23 THE COMPANIES ACTS 1948 TO 1981 COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION OF HERBALIFE (U.K.) LIMITED* 1. The Name of the Company is "LEGIBUS 315 LIMITED".* 2. The Registered Office of the Company will be situate in England. 3. The Objects for which the Company is established are: **(A) (i) To mix process manufacture acquire import market publicise promote supply sell distribute dispose of and/or otherwise deal in herbs vitamins minerals proteins oils fats carbohydrates (and any combinations thereof) and other foods and nutritious substances and dietary and food supplements and soaps creams oils gels lotions toiletries and other health and beauty products and medicines. (ii) To carry on business as manufacturers, builders and suppliers of and dealers in goods of all kinds, and as mechanical, general, electrical, marine, radio, electronic, aeronautical, chemical, petroleum, gas civil and constructional engineers and manufacturers, importers and exporters of, dealers in machinery, plant and equipment of all descriptions and component parts thereof, forgings, castings, tools, implements, apparatus and all other articles and things. (iii) To act as an investment holding company and to co-ordinate the business of any companies in which the Company is for the time being interested, and to acquire (whether by original subscription, tender, purchase exchange or otherwise) the whole of or any part of the stock, shares, debentures, debenture stocks, bonds and other securities issued or guaranteed by any body corporate * The name of the Company was changed to Herbalife (U.K.) Limited on 15th July 1983 pursuant to a Special Resolution of the Company dated 23rd June 1983. ** As altered by a Special Resolution of the Company dated 8th November 1983. constituted or carrying on business in any part of the world or by any government, sovereign ruler, commissioners, public body or authority and to hold the same as investments, and to sell, exchange, carry and dispose of the same. (iv) To carry on the businesses in any part of the world as importers, exporters, buyers, sellers and distributors of and dealers in and to win, process and work produce of all kinds. (B) To carry on the following businesses namely, contractors, garage proprietors, filling station proprietors, owners and charterers of road vehicles, aircraft and ships and boats of every description, lightermen and carriers of goods and passengers by road, rail, water or air, forwarding, transport and commission agents, customs agents, stevedores, wharfingers, cargo superintendents, packers, warehouse storekeepers, cold store keepers, hotel proprietors, caterers, publicans, consultants, advisers, financiers, bankers, advertising agents, insurance brokers, travel agents, ticket agents and agency business of all kinds and generally to provide entertainment for and render services of all kinds to others and to carry on any other trade or business whatsoever which can in the opinion of the Directors be advantageously carried on by the Company in connection with or as auxiliary to the general business of the Company. (C) To buy, sell, manufacture, repair, alter, improve, manipulate, prepare for market, let on hire, and generally deal in all kinds of plant, machinery, apparatus, tools, utensils, materials, produce, substances, articles and things for the purpose of any of the businesses specified herein, or likely to be required by customers or other persons having, or about to have, dealings with the Company. (D) To build, construct, maintain, alter, enlarge, pull down and remove or replace any buildings, shops, factories, offices, works, machinery, engines and to clear sites for the same or to join with any person, firm or company in doing any of the things aforesaid and to work, manage and control the same or join with others in so doing. (E) To enter into contracts, agreements and arrangements with any other company for the carrying out by such other company on behalf of the Company of any of the objects for which the Company is formed. (F) To acquire, undertake and carry on the whole or any part of the business, property and liabilities of any person or company carrying on any business which the Company is authorised to carry on or possess, or which may seem to the Company capable of being conveniently carried on or calculated directly or indirectly to enhance the value of or render profitable any of the Company's property or rights, or any property suitable for the purposes of the Company. 2 (G) To enter into any arrangements with any Government or authorities, supreme, municipal, local or otherwise, that may seem conducive to the Company's objects or any of them, and to obtain from any such Government or authority, any rights, privileges, and concessions which the Company may think it desirable to obtain, and to carry out, exercise and comply with any such arrangements, rights, privileges and concessions. (H) To apply for, or join in applying for, purchase or by other means acquire and protect, prolong and renew, whether in the United Kingdom or elsewhere any patents, patent rights, brevets d'invention, licences, registered designs, protections and concessions, which may appear likely to be advantageous or useful to the company, and to use and turn to account and to manufacture under or grant licences or privileges in respect of the same, and to expend money in experimenting and testing and making researches, and in improving or seeking to improve any patents, inventions or rights which the Company may acquire or propose to acquire. (I) To enter into partnership or into any arrangement for sharing profits, union of interests, co-operation, joint adventure, reciprocal concession, or otherwise with any company, or with any employees of the Company, including in such case if thought fit the conferring of a participation in the management or its directorate or with any company carrying on or engaged in any business or transaction capable of being conducted so as directly or indirectly to benefit the Company, and to give to any company special rights or privileges in connection with or control over this Company, and in particular the right to nominate one or more Directors of this Company. And to lend money to, guarantee the contracts of, or otherwise assist any such company, and to take or otherwise acquire shares or securities of any such company, and to sell, hold, re-issue, with or without guarantee, or otherwise deal with the same. (J) To subsidise, and assist any persons or companies and to act as agents for the collection, receipt or payment of money and generally to act as agents for and render services to customers and others. (K) Either with or without the Company receiving any consideration or advantage, direct or indirect, from giving any such guarantee, to guarantee or otherwise provide security by personal covenant or by mortgaging or charging all or any part of the undertaking, property and assets present and future and uncalled capital or by both such methods or by any other means whatsoever the performance of the obligations and the payment of any moneys (including but not limited to capital or principal, premiums, dividends or interest, commissions, charges, discount and any costs or expenses relating thereto whether on any stocks, shares or securities or in any other manner whatsoever) by any company, firm or person including but not limited to any company which is for the time being the Company's holding company as defined by Section 154 of the Companies Act, 1948 or a subsidiary of the Company or of the Company's holding company as so defined or any 3 company, firm or person who is for the time being a member or otherwise has any interest in the Company or is associated with the Company in any business or venture or any other person firm or company whatsoever. A guarantee shall also include any other obligation (whatever called) to pay, purchase, provide funds (whether by advance of money the purchase of or the subscription of shares or other securities, the purchase of assets or services, or otherwise) for the payment of or to indemnify against the consequences of default in the payment of or otherwise be responsible for any indebtedness of any other company firm or person. (L) To promote any company for the purpose of acquiring all or any of the property and liabilities of this Company, or for any other purpose which may seem directly or indirectly calculated to benefit this Company. (M) To pay out of the funds of the Company all expenses which the Company may lawfully pay of or incident to the formation, registration and advertising of or raising money for the Company, and the issue of its capital, or for contributing to or assisting any company either issuing or purchasing with a view to issue all or any part of the Company's capital in connection with the advertising or offering the same for sale or subscription, including brokerage and commissions for obtaining applications for or taking, placing or underwriting or procuring the underwriting of shares, debentures or debenture stock. (N) To remunerate any person, firm or company rendering service to the Company whether by cash payment or by the allotment to him or them of shares or securities of the Company credited as fully paid up in full or in part or otherwise. (O) Generally to purchase, take on lease or exchange, hire, or otherwise acquire any real or personal property and any rights or privileges which the Company may think necessary or convenient for the purposes of its business. (P) To receive money on deposit upon such terms as the Company may approve. (Q) To invest and deal with the moneys of the Company in such manner as may from time to time be determined. (R) To lend money with or without security, but not to carry on the business of a registered money lender. (S) To borrow or raise or secure the payment of money in such manner as the Company shall think fit, and in particular by the issue of debentures or debenture stock, perpetual or otherwise charged upon all or any of the Company's property (both present and future), including its uncalled capital, and to purchase, redeem or pay off any such securities. (T) To remunerate any company for services rendered or to be rendered, in placing, or assisting to place, or guaranteeing the placing or procuring the 4 underwriting of any of the shares or debentures, or other securities of the Company or of any company in which this Company may be interested or propose to be interested, or in or about the conduct of the business of the Company, whether by cash payment or by the allotment of shares, or securities of the Company credited as paid up in full or in part, or otherwise. (U) To subscribe for either absolutely or conditionally or otherwise acquire and hold shares, stocks, debentures, debenture stock or other obligations of any other company having objects altogether or in part similar to those of this Company. (V) To draw, make, accept, endorse, discount, execute and issue promissory notes, bills of lading, warrants, debentures and other negotiable and transferable instruments. (W) To sell, lease, exchange, let on hire, or dispose of any real or personal property or the undertaking of the Company, or any part or parts thereof, for such consideration as the Company may think fit, and, in particular, for shares whether fully or partly paid up, debentures or securities of any other company, whether or not having objects altogether, or in part, similar to those of the Company, and to hold and retain any shares, debentures or securities so acquired and to improve, manage, develop, sell, exchange, lease, mortgage, dispose of or turn to account or otherwise deal with all or any part of the property or rights of the Company. (X) To adopt such means of making known the businesses and products of the Company as may seem expedient, and in particular by advertising in the Press, by circulars, by purchase and exhibition of works of art or interest, by publication of books and periodicals, and by granting prizes, rewards and donations. (Y) To support, subscribe or contribute to any charitable or public object and any institution, society or club which may be for the benefit of the Company or its Directors, officers or employees, or the Directors, officers and employees of its predecessors in business, or of any subsidiary, allied or associated company, or which may be connected with any town or place where the Company carries on business and to subsidise or assist any association of employers or employees or any trade association. To give pensions, gratuities, annuities or charitable aid to any person (including any Directors or former Directors) who may have served the Company or its predecessors in business or any subsidiary, allied or associated company or to the wives, children or other dependents or relatives of such persons, to make advance provision for the payment of such pensions, gratuities or annuities as aforesaid by establishing or acceding to such trusts schemes or arrangements (whether or not capable of approval by the Commissioners of Inland Revenue under any relevant legislation for the time being in force) as may seem expedient, to appoint trustees or to act as trustee of any such schemes or arrangements. 5 (Z) To establish and contribute to any scheme for the purchase or subscription by trustees of shares in the Company to be held for the benefit of the Company's employees, and to lend money to the Company's employees, to enable them to purchase or subscribe for shares in the Company and to formulate and carry into effect any scheme for sharing the profits of the Company with employees or any of them. (AA) To obtain any Provisional Order or Act of Parliament for enabling the Company to carry any of its objects into effect or for effecting any modifications of the Company's constitution or for any other purposes which may seem expedient, and to oppose any proceedings or applications which may seem calculated directly or indirectly to prejudice the Company's interests. (BB) To establish, grant and take up agencies in any part of the world, and to do all such other things as the Company may deem conducive to the carrying on of the Company's business, either as principals, or agents, and to remunerate any persons in connection with the establishment or granting of such agencies upon such terms and conditions as the Company may think fit. (CC) To do all or any of the above things in any part of the world and as principals, agents, contractors, trustees or otherwise, and by or through trustees, agents or otherwise, and either alone or in conjunction with others and to procure the Company to be registered or recognised in any foreign country or place. (DD) To distribute any of the property of the Company in specie among the shareholders. (EE) To amalgamate with any other company having objects altogether or in part similar to those of this Company. (FF) To do all such other things as are incidental or conducive to the attainment of the above objects, or any of them. And it is hereby declared that the word "company" in this Clause shall be deemed to include any person or partnership or other body of persons whether domiciled in the United Kingdom or elsewhere and words denoting the singular number only shall include the plural number and vice versa, and so that the objects specified in each paragraph of this Clause shall, except where otherwise expressed in such paragraph, be regarded as independent objects, and in nowise limited or restricted by reference to or inference from the terms of any other paragraph or the name of the Company. 4. The liability of the Members is limited. 6 5. The Share Capital of the Company is L100 divided into 100 shares of L1 each.* - -------------- * On 7th June 1984 the authorised share capital was increased to L200,000 divided into 200,000 shares of L1 each. 7 WE, the several persons whose names and addresses are subscribed are desirous of being formed into a Company, in pursuance of this Memorandum of Association, and we respectively agree to take the number of shares in the Capital of the Company set opposite our respective names. - -------------------------------------------------------------------------------- NAMES, ADDRESSES AND DESCRIPTIONS Number of OF SUBSCRIBERS Shares taken by each Subscriber - -------------------------------------------------------------------------------- CHRISTINE ANNE LEE One Blackfriars House, 19, New Bridge Street, London, EC4V 6BY LEGAL EXECUTIVE (ASSOC) LEGIBUS NOMINEES LIMITED For and on behalf of LEGIBUS NOMINEES LIMITED One Blackfriars House, 19, New Bridge Street, London, EC4V 6BY - -------------------------------------------------------------------------------- DATED the 25th February, 1983 WITNESS to all the above Signatures: ROBERT WILLIAM CONRAD Blackfriars House, 19, New Bridge Street, London, EC4V 6BY LEGAL EXECUTIVE 8 EX-3.24 9 y65450a1exv3w24.txt ARTICLES OF ASSOCIATION OF HERBALIFE (UK) LTD. EXHIBIT 3.24 THE COMPANIES ACTS 1948 TO 1981 COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION** - of - HERBALIFE (U.K.) LIMITED* PRELIMINARY 1. (A) In these Articles "Table A" means Part I of Table A in the First Schedule to the Companies Act, 1948 as amended, "the 1948 Act" means the Companies Act 1948, "the 1976 Act" means the Companies Act 1976 and "the 1980 Act" means the Companies Act 1980 and "the 1981 Act" means the Companies Act 1981. (B) The Regulations contained in Table A shall apply to the Company save in so far as they are excluded or modified hereby. The Regulations of Table A numbered 15, 24, 52, 54, 64, 75, 77, 79, 87, 88, 89, 90, 91, 92, 93, 94, 107, 128, 128A and 136 shall not apply, but, subject as aforesaid, and in addition to the remaining Regulations of Table A the following shall be the Articles of Association of the Company. PRIVATE COMPANY. 2. The Company is a private company and accordingly any invitation to the public to subscribe for any shares or debentures of the Company is prohibited. SHARES. 3. The share capital of the Company is L200,000 divided into 200,000 shares of L1 each. 4. (A) The Directors shall have unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any relevant securities of the Company to such persons, at such times and generally on such terms and conditions as the Directors may determine. The authority hereby conferred shall, subject to Section 14(5) of the 1980 Act, be for a period of five years from the date of incorporation unless renewed, varied or revoked by the Company in General Meeting, and the maximum amount of relevant securities which may be allotted pursuant to such authority shall be the authorised but as yet unissued share capital of the Company at the date of allotment. - -------- ** As amended by Special Resolution on 4th November 1986. * The name of the Company was changed from Legibus 315 Limited on 15th July 1983 pursuant to a Special Resolution of the Company dated 23rd June 1983. (B) The Directors shall be entitled under the authority conferred by sub-paragraph (A) of this Article or under any renewal thereof to make at any time prior to the expiry of such authority any offer or agreement which would or might require relevant securities of the Company to be allotted after the expiry of such authority. 5. The pre-emption provisions of Section 89(1) and Sections 90(1) to (6) of the Companies Act 1985 shall apply to any allotment of the Company's equity securities. 6. The lien conferred by Regulation 11 of Table A shall attach to fully paid shares and to all shares registered in the name of any person indebted or under liability to the Company whether he be the sole registered holder thereof or one of two or more joint holders and shall extend to all moneys presently payable by him or his estate to the Company. 7. The Directors may from time to time make calls upon the Members in respect of any moneys unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times, provided that except in so far as may be otherwise agreed between the Company and any Member in the case of the shares held by him no call shall exceed one-fourth of the nominal value of the share or be payable at less than one month from the date fixed for the payment of the last preceding call, and each Member shall (subject to receiving at least fourteen days' notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine. 8. Subject to the provisions of the 1981 Act, any shares in the capital of the Company may be issued on the terms that they are, or at the option of the Company are to be liable, to be redeemed on such terms and in such manner as the Company before the issue of the shares may by Special Resolution determine. 9. Subject to the provisions of the 1981 Act, the Company may purchase its own shares (including any redeemable shares) and make a payment in respect of the redemption or purchase of any of its own shares otherwise than out of its distributable profits or out of the proceeds of a fresh issue of shares. NOTICES. 10. Every notice calling a General Meeting shall comply with the provisions of Section 136(2) of the 1948 Act, as to giving information to Members in regard to their right to appoint proxies, and all notices and other communications relating to a General Meeting which any Member is entitled to receive shall also be sent to the Auditor for the time being of the Company. RESOLUTIONS. 11. Any such resolution in writing as is referred to in Regulation 73A of Table A may consist of several documents in the like form each signed by one or more of the Members (or their duly authorised representatives) in that Regulation referred to. 2 TRANSFERS. 12. An instrument of transfer of a share (other than a partly paid share) need not be executed on behalf of the transferee and Regulation 22 of Table A shall be modified accordingly. 13. The Directors, may in their absolute discretion and without assigning any reason therefor decline to register any transfer of any share, whether or not it is a fully paid share. PROCEEDINGS AT GENERAL MEETINGS. 14. All business shall be deemed special that is transacted at an extraordinary general meeting, and also all that is transacted at an annual general meeting with the exception of declaring a dividend, the consideration of the accounts, balance sheets, and the reports of the Directors and auditors, the election of Directors in place of those retiring, the appointment of, and the fixing of the remuneration of, the auditors, and the fixing of the remuneration of the Directors. 15. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time and place as the Director may determine, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the meeting shall be dissolved. 16. It shall not be necessary to give any notice of an adjourned meeting and Regulation 57 of Table A shall be construed accordingly. 17. A poll may be demanded by the Chairman or by any Member present in person or by proxy and entitled to vote and Regulation 58 of Table A shall be modified accordingly. 18. A Member for whom a receiver, curator bonis or other person in the nature of a receiver or curator bonis has been appointed by a Court in England and Wales or Scotland having jurisdiction in that behalf on the ground that the Member is incapable by reason of mental disorder of managing and administering his property and affairs may vote, whether on a show of hands or on a poll, by the person so appointed and that person may appoint a proxy to vote on a poll on behalf of the Member. DIRECTORS. 19. Unless and until otherwise determined by the Company in general meeting the number of Directors shall be not less than two. 20. A Director need not hold any shares of the Company to qualify him as a Director but he shall be entitled to receive notice of and attend at all General Meetings of the 3 Company and at all separate General Meetings of the holders of any class of shares in the Capital of the Company and Regulation 134 of Table A shall be modified accordingly. 21. If any Director shall be called upon to perform extra services or to make special exertions in going or residing abroad or otherwise for any of the purposes of the Company, the Company may remunerate the director so doing either by a fixed sum or by a percentage of profits or otherwise as may be determined by a resolution passed at a Board Meeting of the Directors of the Company, and such remuneration may be either in addition to or in substitution for any other remuneration to which he may be entitled as a Director. 22. The Directors may exercise all the powers of the Company to borrow or raise money and to mortgage or charge its undertaking, property and uncalled capital and subject to Section 14 of the 1980 Act to issue debentures, debenture stock and other securities as security for any debt, liability or obligation of the Company or of any third party. 23. Without prejudice to the obligation of any director to disclose his interest in accordance with Section 199 of the 1948 Act (as amended by Section 60 of the 1980 Act) a Director may vote as a Director in regard to any contract, transaction or arrangement in which he is interested, or upon any matter arising thereout, and if he does so vote his vote shall be counted and he shall be reckoned in calculating a quorum when any such contract transaction or arrangement is under consideration and Regulation 84 of Table A shall be modified accordingly. 24. A Director present at any meeting of Directors or Committees of Directors need not sign his name in a book kept for that purpose and Regulation 86 of Table A shall be modified accordingly. 25. The Directors on behalf of the Company may pay a gratuity pension or allowance on retirement to any Director who has held any other salaried office or place of profit with the Company or on his death to his widow or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance. 26. The office of Director shall be vacated if the Director (a) becomes bankrupt or makes any arrangement or composition with his creditors generally; or (b) becomes prohibited from being a Director by reason of any order made under Section 188 of the 1948 Act or under Section 28 of the 1976 Act; or (c) in the opinion of all his co-Directors becomes incapable by reason of mental disorder of discharging his duties as Director; or (d) subject as hereinafter provided resigns his office by notice in writing to the Company. 27. A Director shall not retire by rotation and Regulations 96 and 97 of Table A shall be modified accordingly. 4 28. A Director appointed to fill a casual vacancy or as an addition to the Board shall not retire from office at the Annual General Meeting next following his appointment and the last sentence of Regulation 95 of Table A shall be deleted. 29. The holder or holders of a majority in nominal value of such part of the issued share capital of the Company as confers the right for the time being to attend and vote at general meetings of the Company may at any time or from time to time by memorandum in writing signed by or on behalf of him or them and left at or sent to the Registered Office of the Company remove any Director from office or appoint any person to be a Director. Such removal or appointment shall (in the absence of contrary provision in the relevant memorandum) take effect forthwith upon delivery of the memorandum to the Registered Office of the Company or on the date specified therein. 30. (A) Any Director may by writing under his hand appoint (1) any other Director, or (2) any other person who is approved by the Board of Directors as hereinafter provided to be his alternate; and every such alternate shall (subject to his giving to the Company an address within the United Kingdom at which notices may be served on him) be entitled to receive notices of all meetings of the Directors and, in the absence from the Board of the Director appointing him, to attend and vote at Meetings of the Directors, and to exercise all the powers, rights, duties and authorities of the Director appointing him: Provided always that no such appointment of a person other than a Director shall be operative unless and until the approval of the Board of Directors by a majority consisting of two-thirds of the whole Board shall have been given and entered in the Directors' Minute Book. A Director may at any time revoke the appointment of an alternate appointed by him, and subject to such approval as aforesaid appoint another person in his place, and if a Director shall die or cease to hold the office of Director the appointment of his alternate shall thereupon cease and determine. A Director acting as alternate shall have an additional vote at meetings of Directors for each Director for whom he acts as alternate but he shall count as only one for the purpose of determining whether a quorum be present. (B) Every person acting as an alternate Director shall be an officer of the Company, and shall alone be responsible to the Company for his own acts and defaults, and he shall not be deemed to be the agent of or for the Director appointing him. The remuneration of any such alternate Director shall be payable out of the remuneration payable to the Director appointing him, and shall consist of such portion of the last-mentioned remuneration as shall be agreed between the alternate and the Director appointing him. 31. Any such resolution in writing as is referred to in Regulation 106 of Table A may consist of several documents in the like form each signed by one or more of the Directors for the time being entitled to receive notice of a meeting of the Directors and Regulation 106 of Table A shall be modified accordingly. 32. No person shall be or become incapable of being appointed a Director by reason only of his having attained the age of seventy or any other age nor shall any special notice be required in connection with the appointment or the approval of the appointment of such person, and no Director shall vacate his office at any time by reason only of the fact that he has attained the age of seventy or any other age. 5 33. The Directors may from time to time appoint one or more of their body to hold any executive office in the management of the business of the Company including the office of Chairman or Deputy Chairman or Managing or Joint Managing or Deputy or Assistant Managing Director as the Directors may decide such appointment being (subject to Section 47 of the 1980 Act, if applicable) for such fixed term or without limitation as to period and on such terms as they think fit and a Director appointed to any executive office shall (without prejudice to any claim for damages for breach of any service contract between him and the Company) if he ceases to hold the office of Director from any cause ipso facto and immediately cease to hold such executive office. 34. A Director holding such executive office as aforesaid for a fixed period shall not be entitled to resign as a Director of the Company and Article 26(d) hereof shall be interpreted accordingly. CAPITALISATION OF PROFITS. 35. The Directors may with the authority of an Ordinary Resolution of the Company: (a) subject as hereinafter provided, resolve to capitalise any undivided profits of the Company (whether or not the same are available for distribution and including profits standing to any reserve) or, any sum standing to the credit of the Company's share premium account or capital redemption reserve fund; (b) appropriate the profits or sum resolved to be capitalised to the Members in proportion to the nominal amount of Ordinary Shares (whether or not fully paid) held by them respectively, and apply such profits or sum on their behalf, either in or towards paying up the amounts, if any, for the time being unpaid on any shares held by such Members respectively, or in paying up in full unissued shares or debentures of the Company of a nominal amount equal to such profits or sum, and allot and distribute such shares or debentures credited as fully paid up, to and amongst such Members, or as they may direct, in the proportion aforesaid, or partly in one way and partly in the other: provided that the share premium account and the capital redemption reserve fund and any such profits which are not available for distribution may, for the purposes of this Article, only be applied in the paying up of unissued shares to be issued to Members credited as fully paid; (c) resolve that any shares allotted under this article to any Member in respect of a holding by him of any partly paid Ordinary Shares shall, so long as such Ordinary Shares remain partly paid, rank for dividends only to the extent that such partly paid Ordinary Shares rank for dividend; (d) make such provisions by the issue of fractional certificates or by payment in cash or otherwise as the Directors think fit for the case of shares or debentures becoming distributable under this Article in fractions; (e) authorise any person to enter on behalf of all the Members concerned into an agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any shares or debentures to which they may be entitled upon such 6 capitalisation (any agreement made under such authority being thereupon effective and binding on all such Members); and (f) generally do all acts and things required to give effect to such resolution as aforesaid. 36. The reference to "regulation 128 or 128A above" in Regulation 129 of Table A shall be construed as if it were a reference to Article 35 hereof. PROVISION FOR EMPLOYEES. 37. The Company shall exercise the power conferred upon it by Section 74(1) of the 1980 Act only with the prior sanction of a Special Resolution. If at any time the capital of the Company is divided into different classes of shares, the exercise of such power as aforesaid shall be deemed to be a variation of the rights attached to each class of shares and shall accordingly require the prior consent in writing of the holders of three-fourths in nominal value of the issued shares of each class or the prior sanction of an extraordinary resolution passed at a separate meeting of the holders of the shares of each class convened and held in accordance with the provisions of Regulation 4 of Table A. INDEMNITIES. 38. Every Director, Managing Director, agent, auditor, secretary and other officer for the time being of the Company shall be indemnified out of the assets of the Company against any liability incurred by him in defending any proceedings relating to his conduct as an officer of the Company, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application under Section 448 of the 1948 Act in which relief is granted to him by the court. 7 - -------------------------------------------------------------------------------- NAMES, ADDRESSES AND DESCRIPTIONS OF SUBSCRIBERS - -------------------------------------------------------------------------------- CHRISTINE ANNE LEE Blackfriars House, 19, New Bridge Street, London, EC4V 6BY LEGAL EXECUTIVE (ASSOC) LEGIBUS NOMINEES LIMITED For and on behalf of LEGIBUS NOMINEES LIMITED Blackfriars House, 19, New Bridge Street, London, EC4V 6BY - -------------------------------------------------------------------------------- DATED the 25th February, 1983 WITNESS to all the above Signatures: ROBERT WILLIAM CONRAD Blackfriars House, 19, New Bridge Street, London, EC4V 6BY LEGAL EXECUTIVE CAL.840.L.199.MAE 8 EX-3.25 10 y65450a1exv3w25.txt MEMORANDUM OF ASSOCIATION OF HERBALIFE EUROPE LTD. EXHIBIT 3.25 THE COMPANIES ACTS 1985 AND 1989 ---------------------------------------- PRIVATE COMPANY LIMITED BY SHARES ---------------------------------------- MEMORANDUM OF ASSOCIATION OF HERBALIFE EUROPE LIMITED(1) 1. The Company's name is "HERBALIFE EUROPE LIMITED". 2. The Company's registered office is to be situated in England and Wales. 3. The Company's objects are: (A) (i) To mix, process, manufacture, acquire, import, market, publicise, promote, supply, sell, distribute, dispose of, and/or otherwise deal in herbs, vitamins, minerals, proteins, oils, fats, carbohydrates (and any combinations thereof) and other foods and nutritious substances and dietary and food supplements and soaps, creams, oils, gels, lotions, toiletries and other health and beauty products and medicines. (ii) To carry on business as manufacturers, builders and suppliers of and dealers in goods of all kinds, and as mechanical, general, electrical, marine, radio, electronic, aeronautical, chemical, petroleum, gas civil and constructional engineers, and manufacturers, importers and exporters of, dealers in machinery, plant and equipment of all descriptions and component parts thereof, forgings, castings, tools, implements, apparatus and all other articles and things. (iii) To act as an investment holding company and to co-ordinate the business of - ---------- 1 The Company was incorporated with the name Fennelglade Limited on 22 February 1996. Its name was changed to Herbalife Europe Limited pursuant to a special resolution passed on 2 May 1996. any companies in which the Company is for the time being interested, and to acquire (whether by original subscription, tender, purchase exchange or otherwise) the whole of or any part of the stock, shares, debentures, debenture stocks, bonds and other securities issued or guaranteed by a body corporate constituted or carrying on business in any part of the world or by any government, sovereign ruler, commissioners, public body or authority and to hold the same as investments, and to sell, exchange, carry and dispose of the same. (iv) To carry on the businesses in any part of the world as importers, exporters, buyers, sellers, distributors and dealers and to win, process and work produce of all kinds. (B) To carry on the following businesses, namely, contractors, garage proprietors, filling station proprietors, owners and charterers of road vehicles, aircraft and ships and boats of every description, lightermen and carriers of goods and passengers by road, rail, water or air, forwarding, transport and commission agents, customs agents, stevedores, wharfingers, cargo superintendents, packers, warehouse storekeepers, cold store keepers, hotel proprietors, caterers, publicans, consultants, advisers, financiers, bankers, advertising agents, insurance brokers, travel agents, ticket agents and agency business of all kinds and generally to provide entertainment for and render services of all kinds to others and to carry on any other trade or business which can in the opinion of the directors be advantageously carried on by the Company in connection with or ancillary to any of the businesses of the Company. (C) To buy, sell, manufacture, repair, alter, improve, manipulate, prepare for market, let on hire, and generally deal in all kinds of plant, machinery, apparatus, tools, utensils, materials, produce, substances, articles and things for the purpose of any of the businesses specified in clause 3, or which may be required by persons having, or about to have, dealings with the Company. (D) To build, construct, maintain, alter, enlarge, pull down, remove and replace any buildings, shops, factories, offices, works, machinery and engines, and to work, manage and control these things. (E) To enter into contracts, agreements and arrangements with any person for the carrying out by that person on behalf of the Company of any object for which the Company is formed. (F) To acquire, undertake and carry on the whole or any part of the business, property and liabilities of any person carrying on any business which may in the opinion of the directors be capable of being conveniently carried on, or calculated directly or 2 indirectly to enhance the value of or make profitable any of the Company's property or rights, or any property suitable for the purposes of the Company. (G) To enter into any arrangement with a government or authority, whether national, international, supreme, municipal, local or otherwise, that may in the opinion of the directors be conducive to any object of the Company, and to obtain from that government or authority any right, privilege or concession which in the opinion of the directors is desirable, and to carry out, exercise and comply with that arrangement, right, privilege or concession. (H) To apply for, purchase and by other means acquire, protect, prolong and renew any patent, patent right, brevet d'invention, licence, secret process, invention, trade mark, service mark, copyright, registered design, protection, concession and right of the same or similar effect or nature, and to use, turn to account, manufacture under and grant licences and privileges in respect of those things, and to spend money in experimenting with, testing, researching, improving and seeking to improve any of those things. (I) To acquire an interest in, amalgamate with and enter into partnership or any arrangement for the sharing of profits, union of interests, co-operation, joint venture, reciprocal concession or otherwise with any person, or with any employees of the Company. To lend money to, guarantee the contracts of, and otherwise assist that person or those employees, and to take and otherwise acquire an interest in that person's shares or other securities and to sell, hold, re-issue, with or without guarantee, and otherwise deal with those shares or other securities. (J) To lend money to, subsidise and assist any person, to act as agents for the collection, receipt and payment of money and generally to act as agents and brokers for and perform services for any person, and to undertake and perform sub-contracts. (K) To enter into any guarantee or contract of indemnity or suretyship, and to provide security, including, without limitation, the guarantee and provision of security for the performance of the obligations of and the payment of any money (including, without limitation, capital, principal, premiums, dividends, interest, commissions, charges, discount and any related costs or expenses whether on shares or other securities) by any person including, without limitation, any body corporate which is for the time being the Company's holding company, the Company's subsidiary, a subsidiary of the Company's holding company or any person which is for the time being a member or otherwise has an interest in the Company or is associated with the Company in any business or venture, with or without the Company 3 receiving any consideration or advantage (whether direct or indirect), and whether by personal covenant or mortgage, charge or lien over all or part of the Company's undertaking, property, assets or uncalled capital (present and future) or by other means. For the purposes of paragraph (K) "guarantee" includes any obligation, however described, to pay, satisfy, provide funds for the payment or satisfaction of (including, without limitation, by advance of money, purchase of or subscription for shares or other securities and purchase of assets or services), indemnify against the consequences of default in the payment of, or otherwise be responsible for, any indebtedness of any other person. (L) To promote, finance and assist any person for the purpose of acquiring all or any of the property, rights and undertaking or assuming the liabilities of the Company, and for any other purpose which may in the opinion of the directors directly or indirectly benefit the Company, and in that connection to place, guarantee the placing of, underwrite, subscribe for, and otherwise acquire all or any part of the shares or other securities of a body corporate. (M) To pay out of the funds of the Company all or any expenses which the Company may lawfully pay of or incidental to the formation, registration, promotion and advertising of and raising money for the Company and the issue of its shares or other securities, including, without limitation, those incurred in connection with the advertising and offering of its shares or other securities for sale or subscription, brokerage and commissions for obtaining applications for and taking, placing, underwriting or procuring the underwriting of its shares or other securities. (N) To remunerate any person for services rendered or to be rendered to the Company, including, without limitation, by cash payment or by the allotment of shares or other securities of the Company, credited as paid up in full or in part. (O) To purchase, take on lease, exchange, hire and otherwise acquire any real or personal property and any right or privilege over or in respect of it. (P) To receive money on deposit on any terms the directors think fit. (Q) To invest and deal with the Company's money and funds in any way the directors think fit. (R) To lend money and give credit with or without security. (S) To borrow, raise and secure the payment of money in any way the directors think fit, including, without limitation, by the issue of debentures and other securities, 4 perpetual or otherwise, charged on all or any of the Company's property (present and future) or its uncalled capital, and to purchase, redeem and pay off those securities. (T) To remunerate any person for services rendered or to be rendered in placing, assisting and guaranteeing the placing and procuring the underwriting of any share or other security of the Company or of any person in which the Company may be interested or proposes to be interested, or in connection with the conduct of the business of the Company, including, without limitation, by cash payment or by the allotment of shares or other securities of the Company, credited as paid up in full or in part. (U) To subscribe for, acquire and hold (in each case absolutely or conditionally) shares, debentures and other securities of any person and to co-ordinate, finance and manage the business and operation of any person in which the Company has an interest. (V) To draw, make, accept, endorse, discount, execute and issue promissory notes, bills of exchange, bills of lading, warrants, debentures and other negotiable or transferable instruments. (W) To sell, lease, exchange, let on hire and dispose of any real or personal property and the whole or part of the undertaking of the Company, for such consideration as the directors think fit, including, without limitation, for shares, debentures or other securities, whether fully or partly paid up, of any person, whether or not having objects (altogether or in part) similar to those of the Company. To hold any shares, debentures and other securities so acquired, and to improve, manage, develop, sell, exchange, lease, mortgage, dispose of, grant options over, turn to account and otherwise deal with all or any part of the property and rights of the Company. (X) To adopt any means of publicising and making known the businesses, services and products of the Company as the directors think fit, including, without limitation, advertisement, publication and distribution of notices, circulars, books and periodicals, purchase and exhibition of works of art and interest and granting and making of prizes, rewards and donations. (Y) To support, subscribe to and contribute to any charitable or public object and any institution, society and club which may be for the benefit of the Company or persons who are or were directors, officers or employees of the Company, its predecessor in business, any subsidiary of the Company or any person allied to or associated with the Company, or which may be connected with any town or place 5 where the Company carries on business. To subsidise and assist any association of employers or employees and any trade association. To grant pensions, gratuities, annuities and charitable aid and to provide advantages, facilities and services to any person (including any director or former director) who may have been employed by or provided services to the Company, its predecessor in business, any subsidiary of the Company or any person allied to or associated with the Company and to the spouses, children, dependants and relatives of those persons and to make advance provision for the payment of those pensions, gratuities and annuities by establishing or acceding to any trust, scheme or arrangement (whether or not capable of approval by the Commissioners of Inland Revenue under any relevant legislation) the directors think fit, to appoint trustees and to act as trustee of any trust, scheme or arrangement, and to make payments towards insurance for the benefit of those persons and their spouses, children, dependants and relatives. (Z) To establish and contribute to any scheme for the purchase or subscription by trustees of shares or other securities of the Company to be held for the benefit of the employees of the Company, any subsidiary of the Company or any person allied to or associated with the Company, to lend money to those employees or to trustees on their behalf to enable them to purchase or subscribe for shares or other securities of the Company and to formulate and carry into effect any scheme for sharing the profits of the Company with employees. (AA) To apply for, promote and obtain any Act of Parliament and any order or licence of any government department or authority (including, without limitation, the Department of Trade and Industry) to enable the Company to carry any of its objects into effect, to effect any modification of the Company's constitution and for any other purpose which the directors think fit, and to oppose any proceeding or application which may in the opinion of the directors directly or indirectly prejudice the Company's interests. (BB) To establish, grant and take up agencies, and to do all other things the directors may deem conducive to the carrying on of the Company's business as principal or agent, and to remunerate any person in connection with the establishment or granting of an agency on the terms and conditions the directors think fit. (CC) To distribute among the shareholders in specie any of the Company's property and any proceeds of sale or disposal of any of the Company's property and for that purpose to distinguish and separate capital from profits, but no distribution amounting to a reduction of capital may be made without any sanction required by law. 6 (DD) To purchase and maintain insurance for the benefit of any person who is or was an officer or employee of the Company, a subsidiary of the Company or a company in which the Company has or had an interest (whether direct or indirect) or who is or was trustee of any retirement benefits scheme or any other trust in which any officer or employee or former officer or employee is or has been interested, indemnifying that person against liability for negligence, default, breach of duty or breach of trust or any other liability which may lawfully be insured against. (EE) To amalgamate with any other person and to procure the Company to be registered or recognised in any part of the world. (FF) Subject to the Act, to give (whether directly or indirectly) any kind of financial assistance (as defined in section 152(1)(a) of the Act) for any purpose specified in section 151(1) or section 151(2) of the Act. (GG) To do all or any of the things provided in any paragraph of clause 3: (i) in any part of the world; (ii) as principal, agent, contractor, trustee or otherwise; (iii) by or through trustees, agents, subcontractors or otherwise; and (iv) alone or with another person or persons. (HH) To do all things that are in the opinion of the directors incidental or conducive to the attainment of all or any of the Company's objects, or the exercise of all or any of its powers. (II) The objects specified in each paragraph of clause 3 shall, except where otherwise provided in that paragraph, be regarded as independent objects, and are not limited or restricted by reference to or inference from the terms of any other paragraph or the name of the Company. None of the paragraphs of clause 3 or the objects or powers specified or conferred in or by them is deemed subsidiary or ancillary to the objects or powers mentioned in any other paragraph. The Company has as full a power to exercise all or any of the objects and powers provided in each paragraph as if each paragraph contained the objects of a separate company. (JJ) In clause 3, a reference to: (i) a "person" includes a reference to a body corporate, association or 7 partnership whether domiciled in the United Kingdom or elsewhere and whether incorporated or unincorporated; (ii) the "Act" is, unless the context otherwise requires, a reference to the Companies Act 1985, as modified or re-enacted or both from time to time; and (iii) a "subsidiary" or "holding company" is to be construed in accordance with section 736 of the Act. 4. The liability of the members is limited. 5. The Company's share capital is L100 divided into 100 shares of L1 each. 8 I, being the sole subscriber to this memorandum of association, wish to be formed into a company pursuant to this memorandum; and I agree to take the number of shares in the capital of the company shown opposite my name. - -------------------------------------------------------------------------------- NAME AND ADDRESS OF SUBSCRIBER Number of shares taken by the sole Subscriber - -------------------------------------------------------------------------------- CHANTAL ELIZABETH BRACKENBURY ONE For and on behalf of Legibus Nominees Limited 200 Aldersgate Street London EC1A 4JJ - -------------------------------------------------------------------------------- DATED the day of , 1996. WITNESS to the above Signature: DENISE WARD 200 Aldersgate Street London EC1A 4JJ 9 EX-3.26 11 y65450a1exv3w26.txt ARTICLES OF ASSOCIATION OF HERBALIFE EUROPE LTD. EXHIBIT 3.26 THE COMPANIES ACTS 1985 AND 1989 --------------------------------------- PRIVATE COMPANY LIMITED BY SHARES --------------------------------------- ARTICLES OF ASSOCIATION OF HERBALIFE EUROPE LIMITED(1) PRELIMINARY 1. (A) The regulations contained in Table A in the Schedule to the Companies (Table A to F) Regulations 1985 (as amended) ("Table A") apply to the Company except to the extent that they are excluded or modified by these articles. (B) The regulations of Table A numbered 24, 38, 60, 61, 64, 73, 74, 75, 76, 77, 78, 80, 81, 90, 94, 95, 96, 97, 98, 115 and 118 do not apply. The regulations of Table A numbered 37, 46, 53, 57, 59, 62, 65, 66, 67, 68, 72, 79, 84, 88, 110, 112 and 116 are modified. The regulations of Table A numbered 88, 89, 91 and 93 are excluded if and for so long as there is a sole director of the Company. The regulations of Table A numbered 40 and 54 are modified if and for so long as the Company has only one member. Subject to these exclusions and modifications, and in addition to the remaining regulations of Table A, the following are the articles of association of the Company. (C) Where an ordinary resolution of the Company is expressed to be required for any purpose, a special or extraordinary resolution is also effective for that purpose, and where an extraordinary resolution is expressed to be required for any purpose, a special resolution is also effective for that purpose. - ---------- (1) The Company was incorporated with the name Fennelglade Limited on 22 February 1996. Its name was changed to Herbalife Europe Limited pursuant to a special resolution dated 2 May 1996. PRIVATE COMPANY 2. The Company is a private company limited by shares and accordingly any invitation to the public to subscribe for any shares or debentures of the Company is prohibited. SHARE CAPITAL 3. The authorised share capital of the Company at the date of incorporation of the Company is L100 divided into 100 shares of L1 each. 4. (A) Subject to the provisions of the Act, the directors have general and unconditional authority to allot (with or without conferring rights of renunciation), grant options over, offer or otherwise deal with or dispose of any unissued shares of the Company (whether forming part of the original or any increased share capital) to such persons, at such times and on such terms and conditions as the directors may decide but no share may be issued at a discount. (B) The directors have general and unconditional authority, pursuant to section 80 of the Act, to exercise all powers of the Company to allot relevant securities for a period expiring on the fifth anniversary of the date of incorporation of the Company unless previously renewed, varied or revoked by the Company in general meeting. (C) The maximum amount of relevant securities which may be allotted pursuant to the authority conferred by paragraph (B) is the amount of the authorised but as yet unissued share capital of the Company at the date of incorporation of the Company. (D) By the authority conferred by paragraph (B), the directors may before the authority expires make an offer or agreement which would or might require relevant securities of the Company to be allotted after, it expires and may allot relevant securities in pursuance of that offer or agreement. 5. The pre-emption provisions of section 89(1) of the Act and the provisions of sub-sections (1) to (6) inclusive of section 90 of the Act do not apply to any allotment of the Company's equity securities. TRANSFERS 6. The directors may, in their absolute discretion and without giving any reason, refuse to register the transfer of a share to any person, whether or not it is a fully-paid share or a share on which the Company has a lien. 2 GENERAL MEETINGS 7. Regulation 37 of Table A is modified by the deletion of the words "eight weeks" and the substitution for them of the words "28 days". NOTICE OF GENERAL MEETINGS 8. An annual general meeting and an extraordinary general meeting called for the passing of a special resolution or an elective resolution must be called by at least 21 clear days' notice. All other extraordinary general meetings must be called by at least 14 clear days' notice but a general meeting, other than a meeting called for the passing of an elective resolution, may be called by shorter notice if it is so agreed: (a) in the case of an annual general meeting, by all the members entitled to attend and vote at that meeting; and (b) in the case of any other meeting, by a majority in number of the members having a right to attend and vote, being (i) a majority together holding not less than such percentage in nominal value of the shares giving that right as has been determined by elective resolution of the members in accordance with the Act, or (ii) if no such elective resolution is in force, a majority together holding not less than 95 per cent. in nominal value of the shares giving that right. The notice must specify the time and place of the meeting and the general nature of the business to be transacted and, in the case of an annual general meeting, must specify that the meeting is an annual general meeting. Subject to the provisions of the articles and to any restrictions imposed on any shares, the notice must be given to all the members, to all persons entitled to a share in consequence of the death or bankruptcy of a member and to the directors and auditors. PROCEEDINGS AT GENERAL MEETINGS 9. A poll may be demanded by the chairman or by any member present in person or by proxy and entitled to vote and regulation 46 of Table A is modified accordingly. 10. Regulation 53 of Table A is modified by the addition at the end of the following sentence: "If a resolution in writing is described as a special resolution or as an extraordinary resolution, it has effect accordingly.". 3 VOTES OF MEMBERS 11. Regulation 57 of Table A is modified by the inclusion after the word "shall" of the phrase ", unless the directors otherwise determine,". 12. Regulation 59 of Table A is modified by the addition at the end of the following sentence: "Deposit of an instrument of proxy does not preclude a member from attending and voting at the meeting or at any adjournment of it.". 13. An instrument appointing a proxy must be in writing in any usual form or in any other form which the directors may approve and must be executed by or on behalf of the appointor. 14. Regulation 62 of Table A is modified by the deletion in paragraph (a) of the words "deposited at" and by the substitution for them of the words "left at or sent by post or by facsimile transmission to", by the substitution in paragraph (a) of the words "at any time" in place of "not less than 48 hours" and by the substitution in paragraph (b) of the words "at any time" in place of "not less than 24 hours". NUMBER OF DIRECTORS 15. Unless otherwise determined by ordinary resolution, the number of directors (other than alternate directors) is not subject to any maximum and the minimum number is one. ALTERNATE DIRECTORS 16. A director may appoint, any person willing to act, whether or not he is a director of the Company, to be an alternate director. That person need not be approved by resolution of the directors, and regulation 65 is modified accordingly. 17. An alternate director who is absent from the United Kingdom is entitled to receive notice of all meetings of directors and meetings of committees of directors and regulation 66 of Table A is modified accordingly. 18. Regulation 68 of Table A is modified by the addition at the end of the following sentence: "Any such notice may be left at or sent by post or facsimile transmission to the office or another place designated for the purpose by the directors.". 4 DELEGATION OF DIRECTORS' POWERS 19. Regulation 72 is modified by the addition at the end of the regulation of the following sentence: "Where a provision of the articles refers to the exercise of a power, authority or discretion by the directors and that power, authority or discretion has been delegated by the directors to a committee, the provision must be construed as permitting the exercise of the power, authority or discretion by the committee.". APPOINTMENT AND REMOVAL OF DIRECTORS 20. The directors are not subject to retirement by rotation. Regulations 73, 74 and 75 of Table A do not apply, and reference in regulations 67 and 84 to retirement by rotation must be disregarded. 21. The Company may by ordinary resolution appoint a person who is willing to act to be a director either to fill a vacancy or as an additional director. 22. A person appointed by the directors to fill a vacancy or as an additional director is not required to retire from office at the annual general meeting next following his appointment and the last two sentences of regulation 79 of Table A are deleted. 23. No person is incapable of being appointed a director by reason of his having reached the age of 70 or another age. No special notice is required in connection with the appointment or the approval of the appointment of such person. No director is required to vacate his office at any time because he has reached the age of 70 or another age and section 293 of the Act does not apply to the Company. 24. The holder or holders of more than half in nominal value of the shares giving the right to attend and vote at general meetings of the Company may remove a director from office and appoint a person to be a director, but only if the appointment does not cause the number of directors to exceed a number fixed by or in accordance with the articles as the maximum number of directors. The removal or appointment is effected by notice to the Company signed by or on behalf of the holder or holders. The notice may consist of several documents in similar form each signed by or on behalf of one or more holders and shall be left at or sent by post or facsimile transmission to the office or such other place designated by the directors for the purpose. The removal or appointment takes effect immediately on deposit of the notice in accordance with the articles or on such later date (if any) specified in the notice. DISQUALIFICATION AND REMOVAL OF DIRECTORS 25. The office of a director is vacated if: 5 (a) he ceases to be a director by virtue of any provision of the Act or he becomes prohibited by law from being a director; or (b) he becomes bankrupt or makes any arrangement or composition with his creditors generally; or (c) he becomes, in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director; or (d) he resigns his office by notice to the Company; or (e) he is for more than six consecutive months absent without permission of the directors from meetings of directors held during that period and his alternate director (if any) has not during that period attended any such meetings instead of him, and the directors resolve that his office be vacated; or (f) he is removed from office by notice addressed to him at his last-known address and signed by all his co-directors; or (g) he is removed from office by notice given by a member or members under article 24. REMUNERATION OF DIRECTORS 26. A director who, at the request of the directors, goes or resides abroad, makes a special journey or performs a special service on behalf of the Company may be paid such reasonable additional remuneration (whether by way of salary, percentage of profits or otherwise) and expenses as the directors may decide. 27. Regulation 88 of Table A is modified by the exclusion of the third sentence and the substitution for it of the following sentences: "Every director must receive notice of a meeting, whether or not he is absent from the United Kingdom. A director may waive the requirement that notice be given to him of a board meeting, either prospectively or retrospectively.". 28. A director or his alternate may validly participate in a meeting of the directors or a committee of directors through the medium of conference telephone or similar form of communication equipment if all persons participating in the meeting are able to hear and speak to each other throughout the meeting. A person participating in this way is deemed to be present in person at the meeting and is counted in a quorum and entitled to vote. Subject to the Act, all business transacted in this way by the directors or a committee of directors is for the purposes of the articles deemed to be validly and effectively transacted at a meeting of the directors or of a committee of directors although fewer than two directors or alternate directors are physically present at the same place. The meeting is 6 deemed to take place where the largest group of those participating is assembled or, if there is no such group, where the chairman of the meeting then is. 29. If and for so long as there is a sole director of the Company: (a) he may exercise all the powers conferred on the directors by the articles by any means permitted by the articles or the Act; (b) for the purpose of regulation 89 of Table A the quorum for the transaction of business is one; and (c) all other provisions of the articles apply with any necessary modification (unless the provision expressly provides otherwise). 30. Without prejudice to the obligation of any director to disclose his interest in accordance with section 317 of the Act, a director may vote at a meeting of directors or of a committee of directors on any resolution concerning a matter in respect of which he has, directly or indirectly, an interest or duty. The director must be counted in the quorum present at a meeting when any such resolution is under consideration and if he votes his vote must be counted. DIVIDENDS 31. The directors may deduct from a dividend or other amounts payable to a person in respect of a share any amounts due from him to the Company on account of a call or otherwise in relation to a share. CAPITALISATION OF PROFITS 32. The directors may, with the authority of an ordinary resolution of the Company, resolve that any shares allotted under regulation 110 of Table A to any member in respect of a holding by him of any partly-paid shares rank for dividend, so long as those shares remain partly paid, only to the extent that those partly-paid shares rank for dividend and regulation 110 of Table A is modified accordingly. NOTICES 33. Regulation 112 of Table A is modified by the deletion of the last sentence and the substitution for it of the following: "A member whose registered address is not within the United Kingdom is entitled to have notices given to him at that address.". A notice sent to a member (or another person entitled to receive notices under the articles) by post to an address within the United Kingdom is deemed to be given: (a) 24 hours after posting, if pre-paid as first class, or 7 (b) 48 hours after posting, if pre-paid as second class. A notice sent to a member (or other person entitled to receive notices under the articles) by post to an address outside the United Kingdom is deemed to be given 72 hours after posting, if pre-paid as airmail. Proof that an envelope containing the notice was properly addressed, pre-paid and posted is conclusive evidence that the notice was given. A notice not sent by post but left at a member's registered address is deemed to have been given on the day it was left. 34. Regulation 116 of Table A is modified by the deletion of the words "within the United Kingdom". INDEMNITY 35. Subject to the provisions of the Act, but without prejudice to any indemnity to which he may otherwise be entitled, each person who is a director, alternate director or secretary of the Company must be indemnified out of the assets of the Company against all costs, charges, losses and liabilities incurred by him in the proper execution of his duties or the proper exercise of his powers, authorities and discretions including, without limitation, a liability incurred: (a) defending proceedings (whether civil or criminal) in which judgment is given in his favour or in which he is acquitted, or which are otherwise disposed of without a finding or admission of material breach of duty on his part, or (b) in connection with any application in which relief is granted to him by the court from liability for negligence, default, breach of duty or breach of trust in relation to the affairs of the Company. 36. The directors may exercise all the powers of the Company to purchase and maintain insurance for the benefit of a person who is or was: (a) a director, alternate director, secretary or auditor of the Company or of a company which is or was a subsidiary undertaking of the Company or in which the Company has or had an interest (whether direct or indirect); or (b) trustee of a retirement benefits scheme or other trust in which a person referred to in the preceding paragraph is or has been interested, indemnifying him against liability for negligence, default, breach of duty or breach of trust or other liability which may lawfully be insured against by the Company. 8 SOLE MEMBER 37. If and for so long as the Company has only one member: (a) in relation to a general meeting, the sole member or a proxy for that member or (if the member is a corporation) a duly authorised representative of that member is a quorum and regulation 40 of Table A is modified accordingly; (b) a proxy for the sole member may vote on a show of hands and regulation 54 of Table A is modified accordingly; (c) the sole member may agree that any general meeting, other than a meeting called for the passing of an elective resolution, be called by shorter notice than that provided for by the articles; and (d) all other provisions of the articles apply with any necessary modification (unless the provision expressly provides otherwise). 9 NAME AND ADDRESS OF SUBSCRIBER CHANTAL ELIZABETH BRACKENBURY For and on behalf of Legibus Nominees Limited 200 Aldersgate Street London EC1A 4JJ DATED this day of 1996 WITNESS to the above signature: Denise Ward 200 Aldersgate Street London EC1A 4JJ 10 EX-3.27 12 y65450a1exv3w27.txt DEEDS OF FOUNDATION OF HERBALIFE INT'L. FINLAND OY EXHIBIT 3.27 DEEDS OF FOUNDATION HERBALIFE INTERNATIONAL FINLAND OY Office translation from Finnish DEED OF FORMATION The undersigned has today decided to form a company named Herbalife International Finland Oy, the domicile of which is Helsinki. The issues referred to under Section 2 Article 2 in the Companies Act are set out as follows: 1 The founder is Johan Aalto, Attorney, Finnish citizen, Kauniainen, address: c/o Asianajotoimisto Hannes Snellman, Etelaranta 8, 00130 Helsinki. 2 For each of the shares, its nominal value of FIM 100 has to be paid to the company. 3 One thousand (1.000) shares corresponding to the share capital of FIM 100.000 are offered for subscription to Herbalife International Inc. immediately after the signing of this Deed of Formation. 4 The shares shall be paid in full by 3.7.1995 at the latest. 5 The constitutive meeting is held immediately after the signing of this Deed of Formation and the subscription of the shares without a separate notice. 6 A draft for the Articles of Association has been attached to this Deed of Formation. Helsinki, 3.5.1995 /s/ Johan Aalto - ---------------------- Johan Aalto 2 Office translation from Finnish SUBSCRIPTION LIST The undersigned company, which has got acquainted with the attached copy of the Deed of Formation of Herbalife International Finland Oy, hereby subscribes all of the 1,000 (one thousand) offered shares of the company. Helsinki, 3.5.1995 - ---------------------- Herbalife International Inc. /s/ Christopher Pair - ---------------------- 9800 La Cienega Blvd., Inglewood California 90301, United States of America I approve of the above subscription. Place and time as above. /s/ Johan Aalto - ---------------------- Johan Aalto 3 EX-3.28 13 y65450a1exv3w28.txt ARTICLES OF ASSO. OF HERBALIFE INT'L. FINLAND OY EXHIBIT 3.28 Office translation from Finnish ARTICLES OF ASSOCIATION HERBALIFE INTERNATIONAL FINLAND OY 1 Section The name of the company is Herbalife International Finland Oy and its domicile is Helsinki. 2 Section The purpose of the company is to import and export, distribute and market food products, beverages, weight loss and weight management products, health and nutritional supplements, skin and hair products, cosmetics, and other types of products of similar kind and other activities related thereto and to provide consultation and other services connected to the above. The company may also own, rent and lease real property, and own shares and other bond securities. 3 Section The minimum share capital is one hundred thousand Finnish markkas (FIM 100.000) and the maximum share capital is four hundred thousand Finnish markkas (FIM 400.000) within which limits the share capital can be increased or decreased without amending the articles of association. The nominal value of the shares is one hundred Finnish markkas (FDA 100). 4 Section The Board of Directors of the company consists of at least one (1), but not more than six (6) members, who shall be elected at the annual shareholders' meeting for a term of office expiring on the closing of the first annual shareholders' meeting following their election. If less than three ordinary members are elected, at least one deputy member shall be elected. The Board of Directors forms a quorum when more than half of its members are present. The Board of Directors may take decisions in writing without convening provided that all members of the Board agree on the decision and sign it. 5 Section The company can have a Managing Director, who is appointed by the Board of Directors. 6 Section The company name may be signed by the Managing Director and a member of the Board both alone. The Board of Directors decides on giving the authority to sign for the company and on granting procura proxies. 7 Section The fiscal year of the company is a calendar year. 8 Section The annual shareholders' meeting shall be held annually by the end of June. 9 Section The company shall have one (1) auditor, who must be a public certified auditing firm. The auditor holds office until the end of the next annual shareholders' meeting. 10 Section Shareholders' meetings shall be convened by registered mail which must be sent not later than ten days before the meeting to the addresses provided by the shareholders to the Board of Directors. Other information to the shareholders shall be posted by registered mail. 11 Section At the annual meeting of shareholders it shall be: presented - --------- 1. the closing of the books including the balance sheet, profit and loss statement and the annual report; 2. the auditors' report; 3. an explanation of the Board of Directors to the possible remarks made by the auditor; decided - ------- 4. on the confirmation of the profit and loss statement, measures caused by the profit or loss according to the confirmed balance sheet and payment of dividends; 5. on granting discharge for the members of the Board of Directors and the Managing Director; 6. on the fees for the Board of Directors and the auditors; 7. on the number of members of the Board of Directors; elected - ------- 8. the members of the Board of Directors, possible deputy members of the Board of Directors and the auditor; handled - ------- 9. other items presented on the call to the meeting. 2 EX-3.29 14 y65450a1exv3w29.txt ARTICLES OF ASSOCIATION OF HERBALIFE INT'L ISREAL EXHIBIT 3.29 THE COMPANIES ORDINANCE COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF H.P.H. PRODUCTS PRELIMINARY 1. Second Schedule Excluded The articles contained in the Second Schedule of the Ordinance and all regulations thereof shall not apply to the Company. 2. Interpretation (a) In these Articles the following terms shall bear the meaning ascribed to them below: the "Company" shall mean the above named company. the "Ordinance" shall mean the Companies Ordinance (New Version) 5743-1983. the "Memorandum" shall mean the Memorandum of Association of the Company, as originally registered and as it may from time to time be amended. the "Articles" shall mean the articles of association contained in these Articles, as originally registered and as they may from time to time be amended. (b) Terms and expressions used in the Articles and not defined herein, shall bear the same meaning as in the Ordinance in force on the date when the Articles first became effective. (c) Sections 2, 4, 5, 6, 7, 8, and 10 of the Interpretation Law 5741-1981, shall apply, mutatis mutandis, to the interpretation of the Articles. (d) The captions in the Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof. 3. Private Company The company is a private company, and accordingly: (a) the right to transfer shares in the Company shall be restricted as hereinafter provided; (b) any invitation to the public to subscribe for any shares or debentures of the Company is hereby prohibited; (c) the number of members of the Company for the time being (exclusive of persons who are in the employment of the Company and of persons who having been formerly in the employment of the Company were, while in such employment, and have continued after termination of such employment to be, members of the Company), shall not exceed fifty (50). Two or more persons who jointly hold one or more shares in the Company shall, for the purposes of this Article, be deemed a single member. 2 SHARE CAPITAL 4. Initial Share Capital The initial share capital of the Company is Fifteen Thousand One Hundred New Israeli Shekels (NIS 15,100) divided into Fifteen Thousand One Hundred (15,100) Shares of One New Israeli Shekel nominal value each. 5. Alteration of Share Capital The Company may, from time to time, by Special Resolution: (a) increase its share capital by any amount it thinks expedient by the creation of new shares. The power to increase the share capital may be exercised by the Company whether or not all the shares then authorized have been issued and whether or not all the shares theretofore issued have been called up for payment. Such Special Resolution shall set forth the amount of the increase, the number of the new shares created thereby, their nominal value and class, and may also provide for the rights preferences or deferred rights that shall be attached to the newly created shares and the restrictions to which such shares shall be subject; (b) consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares; (c) subdivide its issued or unissued shares, or any of them, into shares of smaller nominal value than is fixed by the Memorandum; provided, however, that the proportion between the amount paid and the amount unpaid on each share which is not fully paid-up shall be retained in the subdivision; (d) convert all or any of its fully paid-up shares into stock. The provisions of these Articles applicable to fully paid-up shares shall apply to stock as well, and the words "share" and "shareholder" therein contained shall be deemed to include "stock" and "stockholder", respectively; (e) reconvert any stock into fully paid-up shares of any denomination or class; (f) cancel any shares which, at the date of the passing of the Special Resolution, have not been issued or agreed to be issued and diminish the amount of its share capital by the aggregate nominal value of the shares so cancelled; (g) subject to any approval or consent required by law, reduce its share capital in any manner whatsoever. 3 SHARES 6. Rights Attached to Shares (a) Subject to any contrary provision of the Memorandum or the Articles, same rights, obligations and restrictions shall be attached to all the shares of the Company regardless of their denomination or class. (b) If at any time the share capital is divided into different classes of shares, the rights attached to any class may be modified or abrogated by the Company by Special Resolution, subject to the consent in writing of the holders of seventy-five percent (75%) of the issued shares of such class or the sanction of a Special Resolution passed at a separate General Meeting of the holders of the shares of such class. The provisions of these Articles relating to General Meetings shall, mutatis mutandis, apply to any separate General Meeting of the holders of the shares of a particular class, provided, however, that the requisite quorum at any such separate General Meeting shall be one or more Members present in person or by proxy and holding not less than fifty percent (50%) of the issued shares of such class. (c) The enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed, for purposes of Article 6(b), to modify or abrogate the rights attached to the issued shares of such class or of any other class. 7. Issuance of Shares Issuance of shares of the Company shall be under the control of the Board of Directors, who shall have the exclusive authority to issue the Company's shares, in whole or in part, otherwise dispose of them or grant options to acquire the shares, to such persons and on such terms and conditions as the Board of Directors may think fit. 8. Share Certificates (a) Each member shall be entitled to receive from the Company one (1) share certificate in respect of the shares of any class registered in his name on the Register of Members or, if approved by the Board of Directors, to several share certificates each for one or more of such shares. (b) Each share certificate issued by the Company shall be numerated, denote the class and serial numbers of the shares represented thereby and the name of the owner thereof as registered on the Register of Members, and may also specify the amount paid-up thereon. A share certificate shall be signed by the Company. (c) A share certificate denoting two or more persons as co-owners of the shares represented thereby shall be delivered to the person first named on the Register of Members in respect of such co-ownership. 4 (d) A share certificate defaced or defective, may be replaced upon being delivered to the Company and being cancelled. A share certificate lost or destroyed may be replaced upon furnishing of evidence to the satisfaction of the Board of Directors proving such loss or destruction and on condition that the Company be furnished with such indemnity or security as the Board of Directors may think fit. A member requesting replacement of a share certificate shall bear all the costs incurred by the Company in connection with the provisions of this Article. 9. Registered Owner The Company shall be entitled to treat the person registered on the Register of Members as the holder of any share, as the absolute owner thereof, and accordingly, shall not be bound to recognize any trust or other right, whether at law or in equity, of any other person to or in respect of such share. 10. Calls on Shares (a) The Board of Directors may, from time to time, make calls upon members in respect of any sum unpaid on their shares which is not, by the terms of issuance thereof, payable at a fixed time. Each member shall pay to the Company the amount of every call so made upon him at the time(s) and place(s) designated in such call. Unless otherwise stipulated in the resolution of the Board of Directors, each payment in response to a call shall be deemed to constitute a pro rata payment on account of all the shares in respect of which such call was made. A call may contain a call for payment in installments. (b) Notice of any call shall be given in writing to the member(s) in question not less than fourteen (14) days prior to the time of payment as fixed therein. At any time before the due date of any such payment, the Board of Directors may, by a notice to the member(s), revoke such call, in whole or in part, postpone the designated date(s) of payment or change the designated place of payment. (c) If, by the terms of issuance of any share, any amount is made payable at any fixed time, such amount shall be payable at such a time, and the holder of the share shall he deemed, for all intents and purposes, to have duly received a call in respect of such payment. (d) The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. A call duly made upon one of the joint holders shall be deemed to have been duly made upon all of the joint holders. (e) Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof at a rate equal to the then prevailing rate of interest for unauthorized overdrafts as charged by Bank Leumi Le-Israel B.M. The provision of this Article 10(e) shall in no way deprive the Company of, or derogate from, any other rights and remedies it may have against such member pursuant to the Articles or any pertinent law. 5 (f) The Board of Directors may allow any member to prepay any amount not yet payable in respect of his shares, and may approve the payment of interest for such prepayment at a rate as may be agreed upon between the Board of Directors and the member so prepaying. (g) Upon the issuance of shares of the Company, the Board of Directors may provide for the terms of payment of such shares, and may provide for differences among the allottees as to such terms. 11. Forfeiture and Surrender (a) If any member fails to pay any amount payable in respect of a call, or interest thereon as provided for herein, the Company, by resolution of the Board of Directors, may at any time thereafter, so long as the said amount or interest remains unpaid, forfeit all or any of the shares in respect of which said call had been made. Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys' fees and costs of suit, shall be added to, and shall, for all purposes (including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call. (b) Upon the adoption of a resolution of forfeiture, the Board of Directors shall cause notice thereof to be given to such member, which notice shall state that, in the event of failure to pay the entire amount so payable within a period stipulated in the notice (which period shall be not less than fourteen (14) days), such shares shall be, ipso facto, forfeited. Prior to the expiration of such period, the Board of Directors may extend the period specified in the notice of forfeiture or nullify such resolution of forfeiture, but no such nullification shall estop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of said amount. (c) Whenever shares are forfeited as herein provided, all dividends theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time. (d) The Company, by resolution of the Board of Directors, may accept the voluntary surrender by any member of all or any part of his shares. (e) Any share forfeited or surrendered as provided herein shall thereupon become the property of the Company, and the same may be reissued or otherwise disposed of as the Board of Directors may think fit. (f) Any member whose shares have been forfeited or surrendered shall cease to be a member in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay to the Company all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, and the Board of Directors, in its discretion, may enforce the payment of such moneys, or any part thereof. In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing by the member in question (but not yet due) arising from any cause whatsoever, whereupon all of such amounts shall forthwith become due and payable. 6 The Board of Directors may, at any time before any share so forfeited or surrendered shall have been reissued or otherwise disposed of to a third party, nullify the forfeiture or surrender on such conditions as it thinks fit, but no such nullification shall estop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 11. 12. Lien The Company shall have, at all times, a first and paramount lien upon all the shares registered in the name of each member on the Register of Members, upon all the dividends declared in respect of such shares and upon the proceeds of the sale thereof, as security for his obligations. For the purposes of this Article 12, the term "obligation" shall mean any and all present and future indebtedness which may at any time be owing by the member in question to the Company, however arising, whether such indebtedness is absolute or contingent, joint or several, matured or unmatured, liquidated or non-liquidated. 13. Sale of Shares after Forfeiture or Surrender or in Enforcement of Lien Upon any sale of shares after forfeiture or surrender or in the course of enforcement of lien, the Company may appoint any person to execute an instrument of transfer of the shares so sold or any other instrument required to effect the sale, and shall be entitled to register the purchaser on the Register of Members as the holder of the shares so purchased. The purchaser shall not be obliged to check the regularity of the proceedings of forfeiture, surrender or enforcement of lien or the application of the purchase money, and after his name has been entered in the Register of Members in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only, and against the Company exclusively. 14. Redeemable Shares Subject to any applicable law, the Company may issue redeemable shares and redeem the same. TRANSFER OF SHARES 15. Effectiveness of Transfer of Shares A transfer of title to shares of the Company, whether voluntarily or by operation of law, shall not confer upon the transferee any rights whatsoever towards the Company unless and until such time as the transfer has been approved by the Board of Directors, who shall have the absolute and unfettered discretion either to approve or disapprove any such transfer. 16. Registration of Transfer A transfer of title to shares of the Company, if approved by the Board of Directors, shall be recorded in the Register of Members. 7 17. Procedure on Voluntary Transfer of Shares A member desiring to transfer to another person title to his shares, or any part thereof, shall give the Company a notice to this effect and furnish the Company with an instrument of transfer, in a form to be prescribed by the Board of Directors, duly executed by such member and the transferee. 18. Procedure on Transfer of Shares by Operation of the Law Any person becoming entitled to shares of the Company by operation of law who desires to be registered as a member in respect thereof, shall furnish the Company with evidence, to the satisfaction of the Board of Directors, of his title to the shares. GENERAL MEETINGS 19. Annual General Meeting An Annual General Meeting shall be held once in every calendar year at such time (within a period of not more than fifteen (15) months after the last preceding Annual General Meeting) and at such place as may be determined by the Board of Directors. 20. Extraordinary General Meeting (a) All General Meetings other than Annual General Meetings shall be called "Extraordinary General Meetings". (b) The Board of Directors may, whenever it thinks fit, convene an Extraordinary General Meeting, and shall be obliged to do so upon receipt of requisition in writing in accordance with Section 109 of the Ordinance. (c) Members of the Company shall not be authorised to convene a General Meeting except as stated in Section 110 of the Ordinance. 21. Notice of General Meeting (a) Not less than seven (7) days' prior written notice shall be given of any General Meeting to those Members entitled to attend thereat. Each such notice shall specify the place, the day and the hour of the General Meeting and the general nature of the matters to be discussed thereat. If the General Meeting is to consider the passing of a Special or Extraordinary Resolution, the notice shall set out the terms of such resolution. (b) The accidental omission to give notice of a meeting, or the non-receipt of notice by any member entitled to receive notice, shall not invalidate the proceedings at such meeting. (c) A member entitled to receive notices of General Meetings may waive such right, generally or in respect of a specific General Meeting, and shall be deemed to have waived such right with respect to any General Meeting at which he was present, in person or by proxy. 8 22. Quorum (a) One or more members present in person or by proxy and holding shares conferring in the aggregate more than fifty percent (50%) of the voting power of the Company, shall constitute a quorum at General Meetings. No business shall be considered or transacted at a General Meeting, or at any adjournment thereof, unless the requisite quorum is present when the meeting proceeds to business. (b) If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall, if convened upon requisition under Section 110 of the Ordinance, be dissolved, but in any other case it shall stand adjourned to the same day in the next week, at the same time and place. The requisite quorum at an adjourned General Meeting shall be one or more members, present in person or by proxy, holding at least one share. The only business to be considered at an adjourned General Meeting shall be those matters which might have been lawfully considered and/or transacted at the General Meeting originally called if a requisite quorum had been present and adopt only such types of resolutions which could have been adopted at the General Meeting originally called. 23. Chairman The Chairman, if any, of the Board of Directors or another person appointed by the Board of Directors, shall preside as Chairman at every General Meeting of the Company. The Chairman of any General Meeting shall not be entitled to a second or casting vote. 24. Adoption of Resolutions at General Meetings (a) An Ordinary Resolution shall be deemed adopted if supported by members vested with more than fifty percent (50%) of the total voting power attached to the shares whose holders were present, in person or by proxy, at such meeting and voted thereon. (b) A Special or Extraordinary Resolution shall he deemed adopted if supported by members vested with seventy-five percent (75%) or more of the total voting power attached to the shares whose holders were present, in person or by proxy, at such meeting and voted thereon; provided, however, that an adoption of a Special Resolution shall be subject to a 21 days' prior notice of the General Meeting, as provided for in Section 115(a) of the Ordinance. (c) Any resolution put to the vote of a General Meeting shall be decided on a show of hands unless a poll is demanded, prior to a vote by a show of hands, by any member present in person or by proxy and entitled to vote at the meeting. (d) A declaration by the Chairman of the meeting that a resolution has been carried or lost, shall be conclusive evidence of the fact without proof of the proper contents of such a declaration or of the number or proportion of the votes recorded in favor of or against such resolution. 9 25. Resolutions in Writing A resolution in writing agreed upon by all members of the Company then entitled to vote at General Meetings, shall be deemed to have been adopted by a General Meeting duly convened and held. Unless otherwise specified in the resolution, same shall be deemed to have been adopted as an Ordinary Resolution. 26. Voting Power Subject to the provisions of Article 27(a) below and subject to any other provision hereof pertaining to voting rights attached to shares of the Company, whether in general or in regards to a specific matter or matters, every member shall have one vote for each share registered in his name on the Register of Members, without regard to its nominal value, whether the vote is conducted by a show of hands or by a poll. 27. Attendance and Voting Rights at General Meetings (a) No member shall be entitled to be present or vote at a General Meeting (or be counted as a part of the quorum thereat) unless all calls duly made and other sums then payable by him in respect of his shares in the Company have been paid up. (b) A corporate body being a Member of the Company and entitled to vote at or attend a General Meeting may exercise such rights by authorizing any person, whether in general or for a specific General Meeting, to be present or vote on its behalf. Upon the request of the Chairman of the General Meeting, written evidence of such authorization and its validation (in a form acceptable to the Chairman) shall be delivered to him. (c) (1) A member entitled to vote at or attend a General Meeting may appoint a proxy, whether in general or for a specific General Meeting, to exercise such rights. (2) The appointment of a proxy shall be in writing and shall be in the following form: "I, the undersigned, ________________________, being a member of (name of member) ___________________________ hereby appoint ____________________, of (name of company) (name of proxy) __________________________ as my proxy to attend [and vote] on my behalf (address of proxy) at [any General Meeting of the Company] [the General Meeting to be held on the _____ day of _________, 19__] and at any adjournment thereof. Signed this ____ day of ___________, 19__ ______________________ (signature of member)" 10 (3) The instrument appointing a proxy shall be delivered to the Company not less than forty-eight (48) hours before the time designated for the pertinent General Meeting at which the person named in the instrument proposes to attend. (4) A proxy may not delegate his powers to any other person. (5) Termination of the appointment of a proxy shall be governed by the provisions of Section 14 of the Agency Law, 5725-1965. (d) If two or more persons are registered as joint owners of any share, the right to attend the General Meeting, if attached to such share, shall be conferred upon all of the joint holders, but the right to vote at the General Meeting, if attached to such share, shall be conferred exclusively upon the senior amongst the joint holders attending the General Meeting, in person or by proxy; and for this purpose seniority shall be determined by the order in which the names stand on the Register of Members. BOARD OF DIRECTORS 28. Powers of Board of Directors (a) The Board of Directors shall be vested with the exclusive authority to exercise all of the Company's powers which are not, by the Ordinance, the Memorandum, the Articles or any applicable law, required to be exercised or done by the Company in General Meeting. (b) Without derogating from the above, the management of the business of the Company shall be vested exclusively in the Board of Directors. 29. Exercise of Powers of Board of Directors (a) The powers conferred upon the Board of Directors shall be vested in the Board as a collective body, and not in each one or more of the directors individually, and all such powers may be exercised by the Board of Directors by passing resolutions in accordance with the provisions of the Articles. (b) A resolution proposed at any meeting of the Board of Directors shall be deemed to have been passed by the Board if voted for by a majority of the directors attending such meeting. (c) A resolution in writing to which all of the directors then in office have given their written consent shall be deemed to have been unanimously adopted by the Board of Directors in a meeting duly convened and held. 30. Committees of Directors The Board of Directors may delegate any or all of its powers to committees, each consisting of two or more Directors, and it may, from time to time, revoke or alter the powers so delegated. Each committee shall, in the exercise of the powers so delegated, conform to any regulations as may be prescribed from time to time by the Board of Directors. 11 31. Number of Directors Until otherwise determined by Special Resolution of the Company, the Board of Directors shall consist of not less than 1 but not more than 6. 32. Appointment and Removal of Directors (a) The directors shall be elected, from time to time, by Ordinary Resolution passed at a General Meeting of the Company. Likewise, removal of any director or filling vacancy, however created, in the Board of Directors shall be effected by Ordinary resolution of the Company in its General Meeting. (b) Notwithstanding the provisions of Article 32(a), the holders of shares conferring a majority of total voting power attached to all of the shares of the Company, may, from time to time, appoint directors, remove directors and fill any vacancy, however created, in the Board of Directors. (c) The powers conferred pursuant to Article 32(b) shall be exercisable by serving the Company with written notice and shall take effect on the date specified in such notice, or upon the delivery to the Company, whichever is the later. (d) The first members of the Board of Directors, as from the date of incorporation of the Company, shall be: (1) Mark Hughes (2) Larry Thompson (3) Christopher Pair 33. Qualification of Directors No person shall be disqualified to serve as a director by reason of his not holding shares in the Company or by reason of his having served as a director in the past. 34. Effect of Vacancy In the event of a vacancy, however created, in the Board of Directors, the remaining directors, if not less than the requisite quorum as provided in Article 41 hereof, may continue to act in every matter. 35. Vacation of Director's Office The office of a director shall he vacated: (1) upon his death; (2) on the date at which he is declared a bankrupt or, if the director is a corporation, is put in liquidation; 12 (3) on the date he is declared legally incapacitated; (4) on the date as fixed in the resolution electing him to his office or in the notice of his appointment, as the case may be; (5) on the date fixed in the resolution or notice of his removal or on the date of receipt of such notice by the Company, whichever is later; (6) on the date fixed in a written notice of resignation given by him to the Company or on the date of receipt of such notice by the Company, whichever is later. 36. Remuneration of Directors No director shall be paid any remuneration by the Company for his services as Director except as may be otherwise provided by the Board of Directors. 37. Conflict of Interests (a) A director having, directly or indirectly, an interest in any existing transaction to which the Company is a party, or in which the Company has an interest, shall give the Company a notice thereof disclosing the nature of his interest in the transaction. (b) A director shall not be disqualified from holding his office by virtue of having an interest in any such transaction, nor shall he be deprived of his right to attend a meeting at which such transaction is considered, to be counted at the quorum present at the meeting or to express his opinion in the matter; but he shall not be entitled to vote for or against such transaction or in respect of any matter relating thereto. (c) The deprivation of the voting right as provided in Article 37(b) shall not apply to: 1. any arrangement for giving any director a security, a guarantee or an indemnity in respect of moneys lent by him to the Company or obligations undertaken by him for the benefit of the Company; 2. any arrangement for giving any third party a security, a guarantee or an indemnity in respect of an indebtedness of the Company for which the director has assumed responsibility, in whole or in part, by way of a guarantee, an indemnity or giving a security; 3. any transaction, the subject matter of which is the issuance of shares or debentures to any director. (d) A director may hold any other office under the Company, whether with or without remuneration, and may enter into an agreement with the Company with respect to the terms of his appointment to such office. The provisions of Article 37(b) shall apply to any meeting of the Board of Directors whereat a director is appointed to hold such office or whereat the terms of any such appointment are considered and determined. 13 (e) A director may be engaged by the Company in rendering professional services to the Company, whether with or without remuneration, and may enter into an agreement with the Company with respect to the terms of his engagement. The provisions of Article 37(b) shall apply to any meeting of the Board of Directors whereat such engagement of a director and its terms are considered and determined. 38. Alternate Director (a) A director may, by written notice to the Company, appoint an alternate for himself (hereinafter referred to as "Alternate Director"), remove such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever. Unless the appointing director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specified meeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for an indefinite period, and for all purposes. (b) Any notice given to the Company pursuant to Article 38(a) shall become effective on the date fixed therein or upon receipt thereof by the Company, whichever is later. (c) An Alternate Director shall have all the rights and obligations of the director who appointed him, provided, however, that he may not in turn appoint an alternate for himself (unless the instrument appointing him otherwise expressly provides), and provided further that an Alternate Director shall have no standing at any meeting of the Board of Directors of any Committee thereof while the director who appointed him is present. (d) Any person, whether or not he be a member of the Board of Directors, may act as an Alternate Director. One person may act as Alternate Director for several directors, and in such event he shall have a number of votes (and shall be treated as the number of persons for purposes of establishing a quorum) equal to the number of directors for whom he acts as Alternate Director. If an Alternate Director is also a director in his own right, his rights as an Alternate Director shall be in addition to his rights as a director. (e) An Alternate Director shall alone be responsible for his own acts and defaults, and he shall not be deemed the agent of the director(s) who appointed him. (f) The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 35, and such office shall ipso facto be vacated if the director who appointed such Alternate Director ceases to be a director. 39. Meetings of the Board of Directors Subject to Articles 40 and 41 below, the Board of Directors may meet, adjourn its meetings and otherwise regulate such meetings and proceedings as it deems fit. 14 40. Convening Meetings of the Board of Directors (a) The Chairman of the Board or any number of directors constituting not less than one-third of the whole Board of Directors may, at any time, convene a meeting of the Board of Directors, by giving to each of the other directors at least four (4) days' prior notice thereof. Such notice shall specify the exact time and place of the meeting so called and the general nature of the business to be considered and transeted thereat. (b) The accidental omission to give notice of a meeting, or the non-receipt of notice by any director, shall not invalidate the proceedings at such meeting. (c) A director may waive his right to receive notice of any meeting, in general or in respect of a specific meeting, and shall be deemed to have waived such right with respect to any meeting at which he was present. 41. Quorum A majority of the number of directors as specified in or determined pursuant to Article 31 hereof (as the case may be) shall constitute a quorum at meetings of the Board of Directors. No business shall be considered or transacted at any meeting of the Board of Directors unless the requisite quorum is present when the meeting proceeds to business. 42. Chairman of the Board of Directors The Board of Directors may from time to time elect one of its members to be the Chairman of the Board of Directors, remove such Chairman from office and appoint another in his place. The Chairman of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairman, or if at any meeting he is not present, or if he is unwilling to take the chair, the directors present shall choose one of their number to be the chairman of such meeting. 43. Validity of Acts of Directors Despite Defects All acts done bona fide at any meeting of the Board of Directors, or of a Committee of the Board of Directors shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants, or any of them, in such meetings, or that they, or any of them, were disqualified, be as valid as if there was no such defect or disqualification. GENERAL MANAGER 44. General Manager (a) The Board of Directors may, from time to time, appoint one or more persons, whether or not directors, as General Manager(s) of the Company, either for a fixed term or without any limitation of time, and may confer powers, authorities and rights or impose duties upon such person or persons and fix his or their salaries and emoluments as the Board of Directors may deem fit. 15 (b) Notwithstanding the provisions of any agreement between the General Manager and the Company, the Company shall be vested with the power, exercisable by a resolution of the Board of Directors, to remove the General Manager from his office or to revoke or alter his powers, authorities, rights, duties or salary. MINUTES 45. Minutes (a) The proceedings of each General Meeting, meeting of the Board of Directors and meeting of Committee of Directors shall be recorded in the minutes of the Company. Such minutes shall set forth the names of the persons present at every such meeting and all resolutions adopted thereat and shall be signed by the chairman of that meeting. (b) Any minutes purporting to be executed and signed as aforesaid, shall constitute evidence that the meeting was duly held and conducted as recorded in the minutes, unless proven otherwise. DIVIDENDS AND PROFITS 46. Declaration of Dividends (a) The Board of Directors may from time to time declare such interim dividend as may appear to the Board of Directors to be justified by the profits of the Company. (b) The General Meeting may, by Ordinary Resolution, declare a final dividend for a fiscal year of the Company, provided that the amount of dividend so declared does not exceed the amount of final dividend proposed by the Board of Directors. (c) Subject to any special or qualified rights conferred upon the holders of shares as to dividends, all dividends shall be declared and paid according to the amounts paid on the shares in respect whereof the dividends are declared and paid, but where no amount has been paid on account of any shares whatsoever, dividends may be declared and paid up according to the nominal value of the shares. Where an amount has been prepaid on account of shares and the Company agrees to pay interest to the holder thereof by reason of such prepayment, the amount so prepaid shall not be deemed, for the purposes of this Article, to be payment on account of such shares. (d) Notice of the declaration of a dividend shall be given to all those entitled to such dividend. 47. Payment of Dividends Exclusively from Profits No dividend shall be paid otherwise than out of the profits of the Company. 16 48. Interest on Dividend The Company shall not be obliged to pay and shall not pay interest on any declared dividend. 49. Payment of Dividends Subject to Article 50, any declared dividend may be paid by check to the order of the person entitled to receive such dividend (and if there are two or more persons entitled to the dividend in respect of the same share - to the order of any one of such persons) or to the order of such person as the person entitled thereto may by writing direct. Every such check shall be sent to the address of the payee, as notified to the Company. 50. Payment in Specie Upon the recommendation of the Board of Directors approved by Ordinary Resolution of the Company in its General Meeting, a dividend may be paid, in full or in part, by the distribution of specific assets of the Company or by distribution of shares or debentures of the Company or of any other company, or in any one or more of such ways. 51. Setting-Off Dividends Where the Company is obliged to pay dividends or other amounts in respect of shares, same may be set-off by the Company against any indebtedness, however arising, liquidated or non-liquidated, of the person entitled to receive the dividend. The provisions contained in this Article shall not prejudice the right of the Company to other remedies available to it pursuant to the Articles or any applicable law. 52. Unclaimed Dividends (a) Dividends unclaimed by the person entitled thereto within thirty (30) days after the date they become payable, may be invested or otherwise used by the Company, as it deems fit, until claimed; but the Company shall not be deemed a trustee in respect thereof. (b) Any dividend unclaimed after a period of seven (7) years from the date the same become payable, shall be forfeited and shall revert to the Company, unless otherwise directed by the Board of Directors. 53. Reserves and Funds (a) The Board of Directors may, before recommending distribution of any dividend, resolve to set aside out of the profits of the Company or out of an asset revaluation fund and carry to reserve or reserves such sums as it deems fit, and direct the designation, application and use of such sums. The Board of Directors may also determine that any such sums which it deems prudent not to distribute as dividends, be carried forward and remain as such at the disposal of the Company, without placing same to reserve. 17 (b) The Board of Directors may, from time to time, direct the revaluation of the assets of the Company, in whole or in part, and create an assets revaluation fund out of the revaluation surplus, if any. 54. Capitalization of Profits (a) Upon the recommendation of the Board of Directors, the Company in General Meeting may resolve that it desires to capitalize all or any part of its moneys or assets standing to the credit of any reserve fund or to the credit of the profit and loss account or otherwise available for distribution as dividend (including moneys or assets received as premiums on shares or debentures), and direct accordingly that such moneys or assets be set free for distribution amongst the members who would have been entitled thereto if distributed by way of dividend and in the same proportion, on condition that same be not paid in cash or in specie but be applied towards paying up any amounts for the time being unpaid on any issued shares held by such members and/or towards paying up in full the consideration (as shall be fixed in said resolution) for shares or debentures of the Company to be issued to such members credited as fully paid up. (b) Whenever such a resolution as aforesaid shall have been passed, the Board of Directors shall make all appropriations and applications of the moneys or assets resolved to be capitalized thereby, and generally shall do all acts and things required to give effect thereto. The Board of Directors may authorize any person to enter on behalf of all members entitled thereto to an agreement with the Company providing for the issuance of any shares or debentures, credited as fully paid, to which they may be entitled upon such capitalization or for the payment upon their behalf, by the application thereto of their proportions of the moneys or assets resolved to be capitalized, of the amounts or any part thereof remaining unpaid on their existing shares, and any agreement made under such authority shall be effective and binding on all such members. BRANCH REGISTERS 55. Authority to Keep Branch Registers The Company may keep branch registers in any reciprocal state. 56. Provisions in Respect of Keeping Branch Registers Subject to the provisions contained in part E of Chapter C of the Ordinance, the Board of Directors shall be authorized to make such rules and procedures in connection with the keeping of such branch registers as it may, from time to time, think fit. NOTICES 57. Notices in Writing Unless otherwise prescribed by the Board of Directors, all notices pursuant to the Articles shall be in writing. 18 58. Addresses for Receipt of Notice Each member and each director shall furnish the Company with an address for the receipt of any notice, document or other communication relating to the Company, its business or affairs. 59. Receipt of Notice A person shall be deemed to have received any notice, document or other communication if and when same comes to his attention or is received by him or at the address furnished by him to the Company pursuant to Article 58. The Company shall be deemed to have received any notice, document or other communication if and when same is received at its registered address or principal place of business. INDEMNITY 60. Indemnity of Directors and Officers The Company may indemnify any director or officer for the time being of the Company against any liability incurred by him in defending any proceeding, whether civil or criminal, in which judgment is given in his favor or in which he is acquitted or in which relief under Section 90 of the Ordinance is granted to him by the court. WINDING UP 61. Distribution of Assets If the Company be wound up, then, subject to the provisions of any applicable law and to any special or restricted rights attached to a share, the assets of the Company in excess of its liabilities shall be distributed among the members in proportion to the paid-up capital of the Company attributable to the shares in respect of which such distribution is being made. The paid-up capital attributable to any share (whether issued at its nominal value, at a premium or at a discount), shall be the nominal value of such share, provided, however, that if less than the full issuance price of such share has been paid to the Company, the paid-up capital attributable thereto shall be such proportion of the nominal value as the amount paid to the Company on the share bears to its full issuance price. 19 We, the undersigned, are desirous of being formed into a Company in pursuance of this Memorandum of Association, and we respectively agree to take the number of shares set opposite our respective names:
- -------------------------------------------------------------------------------- No. of Name Address Shares Signature - -------------------------------------------------------------------------------- Herbalife 9800 La Cienega Blvd. 99 Herbalife International, Inc. Inglewood, CA 90301 International, Inc. U.S.A. By /s/ Neil J. Wilkof ------------------------ Neil J. Wilkof, Adv. pursuant to a power of attorney dated 13.12.90 Herbalife 9800 La Cienega Blvd. 1 Herbalife International of Inglewood, CA 90301 International of America, Inc. U.S.A. America, Inc. By /s/ Neil J. Wilkof ------------------------ Neil J. Wilkof, Adv. pursuant to a power of attorney dated 13.12.90 - --------------------------------------------------------------------------------
The 18 day of December, 1990. Witness to signatures: - ---------------------------- 20 EX-3.30 15 y65450a1exv3w30.txt MEMEORANDUM OF ASSO. OF HERBALIFE INT'L OF ISREAL EXHIBIT 3.30 THE COMPANIES ORDINANCE COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION of H.P.H. PRODUCTS LTD. 1. The name of the Company shall be: H.P.H. PRODUCTS LTD. 2. The object of the Company is to engage in any lawful business, act or activity for which a company may be registered under the laws of Israel. Without limiting in any manner the scope and generality of the foregoing, the Company shall have the following objects: (a) To acquire, import, market, publicize, promote, supply, sell, distribute, dispose of, and/or otherwise deal in herbs, vitamins, minerals, proteins, oils, fats, carbohydrates (and any combinations thereof) and other foods, confectionery, and nutritious substances and dietary and food supplements and soaps, creams, oils, gels, lotions, toiletries, and other health and beauty products and medicines. (b) To promote and operate one or more direct sales plans within Israel and enter into appropriate contracts with individual participants in such plan or plans. (c) To engage in industry and manufacture, build, erect, extend, improve, maintain and supervise, control and manage factories and workshops, laboratories and installations and to engage in research and experiments for the advancement of science and to deal in products of any kind. (d) (i) To engage in the activity or business of researching, developing, manufacturing, producing, vending, purchasing, licensing (as licensor or licensee), leasing (as lessor or lessee), importing, exporting, supplying, distributing, acting as agent for or dealing in any products, materials, goods, merchandise and movable property of every description, and to engage in the activity or business of furnishing, buying, supplying, selling, promoting, leasing (as lessor or lessee), licensing (as licensor or licensee), importing, exporting, distributing, acting as agent for or dealer in, or otherwise handling or dealing in, any service. (ii) To acquire, create, form, operate, encourage or otherwise Promote or manage any kind or enterprise. (e) To hold lands generally, purchase, take on lease or exchange or acquire, with or without consideration, any rights or interest in land, buildings, structures or plantations of any type or description whatsoever, to erect, construct, improve, repair, furnish, enlarge, alter or demolish any building or structure, sell, lease, exchange, mortgage or otherwise dispose of, with or without consideration, and generally to deal in lands, buildings, structures and plantations upon such terms and conditions as the Company may deem fit. (f) To form, promote, organize and assist or aid in forming, promoting or organizing of companies, syndicates or partnerships of all kinds for the purpose of acquiring and undertaking any property and liabilities of the Company and of advancing, directly or indirectly, the attainment of any of the objects thereof, or for any other purpose which the Company may think expedient, or to take or otherwise acquire, hold and dispose of shares, subsidize or otherwise assist any such company. (g) To apply for, obtain, acquire, hold, maintain, exploit and sell and transfer permits, licenses, leases and other rights and interests of any kind which entitle, permit or enable the Company to engage in any business or activity which the Company is authorized to engage in. (h) To carry on the business of owners, managers and operators of hotels, rest houses and recreation houses, cafes, pension houses, clubs, restaurants and bars. (i) To enter into any arrangements with the State of Israel, or with any other state or with any government or authority, whether supreme, municipal, local or otherwise, which may seem expedient to the Company and to obtain from any such state, government or authority any concessions, grants, rights or privileges whatsoever as the Company may think fit or which seem to the Company capable of being turned to account, and to comply with, work, develop, carry out, exercise and turn to account any such arrangements, concessions, grants, rights or privileges. (j) To enter into any partnership or arrangement in the nature of a partnership, cooperation or union of interests with any company or person engaged or interested or about to become engaged or interested in the establishment, carrying on or conduct of any business or enterprise which the Company is authorized to establish, carry on or conduct, or from which the Company would or might derive any benefit, whether direct or indirect, and to subsidize or aid any company or person whatsoever. (k) To borrow and raise moneys and secure the repayment thereof in the manner and on the terms as the Company may deem advisable, and particularly by the issue of debentures, debenture stock, bonds, obligations, mortgages and securities of all kinds and for that purpose to mortgage and charge in any manner whatsoever the Company's property, in whole or in part, present and future, whether movable or immovable, including its uncalled capital and any specific property and any of the rights of the Company. (l) To lend moneys and to grant credits to any person in such manner and upon such conditions as the Company may deem expedient and to receive from those to whom the Company shall lend moneys or grant credit or for whom the Company shall give guarantees, all such securities as the Company may deem fit, including debentures, debenture stocks, bonds, obligations, mortgages on immovables and movable property and other pledges and charges, including floating charges, and to sell, transfer, assign, surrender, release or discharge all such securities on such terms and conditions as the Company may deem fit. 2 (m) To guarantee for any other person the payment of moneys and the performance of agreements, contracts and undertakings and to secure the performance of the guarantee by securities (as hereinbefore specified) and to redeem, discharge and pay off all such securities. (n) To participate in the establishment, formation, management of businesses, concerns or transactions of any industrial enterprise and to participate in the supervision or control thereof and for such purpose to act as directors or sole director and to appoint managers, accountants or experts or attorneys and to remunerate them for their work. (o) To engage in the management of businesses, transactions and ventures, whether commercial or otherwise, connected with the business of the Company or incidental thereto. (p) To engage in the business of agents and representatives and to receive moneys, securities, assets and chattels of any kind for transfer, safeguarding or dealing, either with or without consideration and in any manner whatsoever. (q) (i) To establish any trust for the issue, with preferred, deferred or other rights, of stock and securities or certificates or other documents based on or representing shares, stock or other assets allocated for the objects of any such trust, and to determine, arrange and, if the Company shall think fit, to undertake and to execute any such trust, and to issue, hold or transfer to others any stock, securities and certificates or other documents conferring preferred, deferred or other rights as aforesaid. (ii) To act as trustee by virtue of any document creating or securing debentures, debenture stock, obligations or other securities and to undertake and execute any trust duties and to undertake to perform the duties of directors, receivers, treasurers, custodians and trust company and to act in any such capacity. (iii) To undertake and perform the duties of trusteeships, the implementation of which may be desirable, whether for reward or otherwise. (iv) To appoint any company or person as trustees for the holding of securities for the Company and for the protection of its interests. (r) To purchase or otherwise acquire and undertake, whether as a going concern or otherwise, any business of any person or company or any property, assets, goodwill, rights and liabilities of the proprietors of that business, whether connected with or incidental to such business. (s) To amalgamate or merge with any company and to do all acts and things (whether by the formation of companies or otherwise) required or conducive to the amalgamation or merger of the activities of any companies, concerns, firms or industries of all kinds, and to establish concerns for the sale of their products. (t) To engage in the exploration and the exploitation of natural resources, including minerals, underground strata, subsea water, seas, lakes, rivers, brooks, wells, springs, pools, whether stagnant or running. 3 (u) To deal in metals, salts, acids, alkalines and other chemicals, basic or compound, rubber, precious stones and pearls, electricity, electrical works, radio, leather, paper, glass, wood, stone, minerals, building materials of all kinds and raw materials of all kinds. (v) To deal in and grow plants, wild, cultivated and others, fruits and vegetables, animals of all descriptions, and in all kinds of food stuffs. (w) To carry on commercial and industrial agencies of all branches and kinds. (x) To carry on the business of transportation of any kind, by land, sea and air. (y) To build, contract, erect, expand, improve, develop, supervise or maintain stores, garages, workshops, works for the supply of light and heat, water works, shops, hotels, clubs, places of worship, reacting rooms, restaurants, baths, bathing beaches, places of entertainment, parks, dwelling houses and other buildings and all constructions and other conveniences which the Company may think useful or necessary. (z) To sell or otherwise liquidate the property or any investment of the Company. (aa) To insure the Company, its property, installations, undertakings, business and operations, in whole or in part, against all damage, loss, risk or liability. (bb) To provide for the welfare of employees or ex-employees of the Company and of their wives, families, relatives or dependents by building or contributing to the building of houses of flats or by grant of pensions, allowances, bonus or other payments or by creating, subscribing or contributing to provident funds, associations, institutions, funds or trusts or by establishing or subscribing or contributing towards places of instruction or rest, hospitals, dispensaries or by giving medical or other attendance or in any other manner as the Company shall think fit. (cc) To invest and deal with the moneys of the Company not immediately required for the business of the Company in such manner as the Company may from time to time determine. (dd) To sell, lease, mortgage, abandon or otherwise transfer the Company's undertaking, in whole or in part, for such consideration as the Company may deem fit, and in particular in consideration for shares, debentures-or securities of any company engaged wholly or partly in business or activities similar to those of the Company. (ee) To distribute among its members in specie or kind the property or assets of the Company, in whole or in part, or any proceeds of sale or disposal of any property or assets of the Company, but so that no distribution amounting to a reduction of capital shall be made except with the sanction required by law. (ff) To cause and procure the registration or recognition of the Company in, or under the laws of, any country or place in the world, to obtain and cause the enacting of any law, enactment, ordinance or administrative or judicial order or otherwise in Israel or any other country or place in the world and to take all such steps as nay be necessary for the grant to the Company of rights and privileges in any part of the world. 4 (gg) To engage in investment, subscription for purchase, purchase (including purchase by exchange) and holding of shares, stock, debentures, debenture stock, obligations, bonds and any securities issued or prepared in Israel or abroad by any company, whether established in Israel or abroad and whether it engages in business in Israel or not, and to do the same by preliminary subscription for purchase, participation in syndication, offer, purchase, exchange or otherwise, to guarantee subscription for purchase as aforesaid, to utilize and pursue all rights and powers conferred by virtue of the ownership thereof or incidental thereto and to purchase or otherwise acquire and hold shares, debentures, obligations, bonds or securities of any other kind, issued in Israel or abroad. (hh) To acquire in any manner movables or all kinds of rights or concessions which the Company may deem beneficial or advantageous, and to sell, charge, give on lease or otherwise transfer such property and rights. And it is hereby agreed that in this Memorandum of Association the following expressions shall have the following meanings: "Person" - includes, save where this expression relates to this Company, any company, co-operative society, partnership, any other corporation, body politic or public or other juristic person or body of persons whether incorporated or unincorporated. "To deal in" - "to carry on the business of" - "to engage in" "to do" -"to act" - - include to deal in and to do by way of promoting, founding, establishing, holding, carrying on, assisting, managing, developing, improving, advancing, producing, renewing, dealing in, quarrying, mining, pumping, exploring, owning, taking on loans, giving on loans, hiring, letting, purchasing, selling, exchanging, participating, partioning, encumbering, accepting encumbrances, accepting rights or benefits, granting rights or benefits, trading, supplying, marketing, carrying, importing, acting as commission agents and in any other way whatsoever. "Property" - includes immovables and movables, rights, interests and privileges of any kind whatsoever, chosen in possession or in action, permits, licenses, leases and concessions whether in existence or future, goodwill and the right to use the same. AND it is hereby agreed and declared that, save where otherwise expressly provided each of the objects and powers set out in each of the paragraphs of this Clause, expressly or impliedly, is an independent main object and shall in no way be limited or restricted by reference to or inference from any of the other paragraphs of this Clause or the name of the Company. 3. The liability of the members is limited. 4. The share capital of the Company shall be Fifteen Thousand One Hundred New Israeli Shekels (NIS 15,100) divided into Fifteen Thousand One Hundred (15,100) Shares of One New Israeli Shekel (NIS 1.-) each. The rights and classes of the shares shall be set out in the Articles of Association of the Company as in force from time to time. 5 We, the undersigned, are desirous of being formed into a Company in pursuance of this Memorandum of Association, and we respectively agree to take the number of shares set opposite our respective names:
- ------------------------------------------------------------------------------ Name Address No. of Signature shares - ------------------------------------------------------------------------------ Herbalife 9800 La Cienega Blvd. 99 Herbalife International, Inc. Inglewood, CA 90301 International, Inc. U.S.A. By /s/ Neil J. Wilkof -------------------- Neil J. Wilkof, Adv. pursuant to a power of attorney dated 13.12.90 Herbalife 9800 La Cienega Blvd. 1 Herbalife International of Inglewood, CA 90301 International of America, Inc. U.S.A. America, Inc. By /s/ Neil J. Wilkof -------------------- Neil J. Wilkof, Adv. pursuant to a power of attorney dated 13.12.90 - ------------------------------------------------------------------------------
The ____ day of December, 1990 Witness to signatures: /s/ Ruven Borkovsky - --------------------------------- 6 EX-3.31 16 y65450a1exv3w31.txt ARTICLES OF INCORPORATION OF HERBALIFE OF JAPAN EXHIBIT 3.31 ARTICLES OF INCORPORATION Herbalife of Japan K.K. ARTICLES OF INCORPORATION OF HERBALIFE OF JAPAN K.K. CHAPTER 1 GENERAL PROVISIONS Article 1. (Corporate Name) This company shall be called "HERBALIFE OF JAPAN KABUSHIKIKAISHA" which shall be expressed in English as "Herbalife of Japan K.K." Article 2. (Objectives and Purposes) The objectives and purposes of the company shall be as follows: (1) Import, export, production and sale of: (i) nutrition supplements containing vitamins, minerals and other nutrients; (ii) natural foods made by processing herb, plants and seed; and (iii) pharmaceuticals, quasi-pharmaceuticals and cosmetics (2) Import, export and sale of daily sundries; (3) Publications; (4) Any other businesses incidental to the above objectives. Article 3. (Location of Head Office) The company shall have its office located at Chiyoda-ku, Tokyo. Article 4. (Method of Public Notices) Public Notices of the company shall be published in the Official Gazette (Kampo). CHAPTER 2 SHARES Article 5. (Total Number of Shares Authorized to be Issued by the Company) The total number of shares authorized to be issued by the company shall be One Hundred and Eighty (180) shares. Article 6. (Record Date) (1) The shareholders of the company on the Shareholder Register as of December 31 shall have the voting right to vote at the ordinary general meeting of shareholders for the settling term. (2) Notwithstanding the terms and conditions stipulated in these Articles of Incorporation, the temporary record date shall be established by the Board of Directors as it shall become necessary. Article 7. Share Handling Regulations. Type of shares of the company and transfer of shares, registration of pledge and cancellation thereof, indication of trust and cancellation thereof, non-possession of share certificate(s), re-issuance of share certificate(s), acceptance of notification and other matters pertaining to the handling of shares and fees therefor shall be processed based on the Share Handling Regulations determined by a resolution of the Board of Directors in addition to provision of law or these Articles. CHAPTER 3 GENERAL MEETING OF SHAREHOLDERS Article 8. (Convocation of General Meeting of Shareholders) The ordinary general meeting of shareholders of the company shall be convened in March each year and an extraordinary general meeting of the company may be convened whenever as it becomes necessary. 2 Article 9. (Person to Convene Meeting and Chairman Thereof) (1) The general meeting of shareholders of the company shall be convened by the President and Director and shall act as the Chairman of such meeting. (2) In the event that the President and Director is prevented from presiding at the meeting, another of the directors shall convene the general meeting of shareholders and shall act as the Chairman in an order previously determined by the Board of Directors. Article 10. (Resolution) Unless otherwise provided by provision of law or these Articles, resolution of a general meeting of shareholders shall be adopted by a majority of voting rights of shareholders present. Article 11. (Voting Rights by Proxy) (1) A shareholder may exercise the voting rights of other shareholders of the company by proxy. (2) Such proxy shall present a document of proxy to the company for each general meeting of shareholders. Article 12. (Minutes of General Meeting of Shareholders) The result, points and development of the proceedings of a General Meeting of Shareholders shall be prepared in minutes and the Chairman of the meeting and the directors present shall affix their signatures or seals to the minutes. CHAPTER 4 DIRECTORS AND BOARD OF DIRECTORS Article 13. (Number of Directors) The company shall have thirteen (13) or less directors. 3 Article 14. (Method of Electing Directors) (1) Directors shall be elected at a general meeting of shareholders. (2) Election of Directors shall be resolved by a majority of shareholders present representing more than one third of the total number of shares with voting rights. (3) No cumulative vote shall be used for the election of directors. Article 15. (Term of Office of Directors) (1) Term of office of the directors shall expire at the conclusion of the ordinary general meeting of shareholders held with respect to the last of the fiscal year ending within two (2) years after their assumption of office. (2) The term of office of any director elected to fill a vacancy created and with an increase in the number of directors shall be until the expiration of other directors currently holding the office. Article 16. (Representative Directors and Directors with Special Title) (1) The Board of Directors shall, by its resolution, elect Representative Directors of the company. (2) The Board of Directors may, by its resolution, elect one (1) President and Director, one (1) Chairman and Director, and one (1) or more Vice Presidents and Directors, Senior Managing Directors and Managing Directors. Article 17. (Convocation and Chairman of the Board of Directors) (1) Except as otherwise required by provision of law, the President and Director shall convene a meeting of the Board of Directors and shall act as the chairman of the meeting. (2) In the event that the President and Director is prevented from presiding at the meeting, another of the directors shall convene a meeting of the Board of Directors and act as the chairman in an order previously determined by the resolution of the Board of Directors. 4 Article 18. (Notice of Convocation of the Board of Directors' Meeting) (1) To convene a meeting of the Board of Directors, a notice shall be issued to each of the directors and auditors at least seven (7) days prior to the date of the meeting; provided, however, that such term of notice may be shortened in case of urgent need. (2) Provided, however, that the meeting of the Board of Directors may be held by dispensing the procedures of issuing notice of convocation by unanimous consent of all the directors and auditors. Article 19. (Resolution Method of the Board of Directors) A resolution of the Board of Directors shall be adopted by a majority vote of the directors present and the number of directors present must be a majority of the total number of directors in office. Article 20. (Minutes of the Board of Directors) The results, points and development of the proceedings of the Board of Directors shall be prepared in minutes and the directors present shall affix their signatures or seals to the minutes. Article 21. (Regulations of the Board of Directors) Except as otherwise required by provision of law or by the Articles, the matters pertaining to the Board of Directors shall proceed based on Regulations determined by the Board of Directors. Article 22. (Remuneration and Retirement Allowance for Directors) Remuneration and retirement allowance for directors shall be determined by a resolution of a general meeting of shareholders. 5 CHAPTER 5 AUDITORS AND AUDITORS MEETING Article 23. (Number of Auditors) The company shall have four (4) or less auditors. Article 24. (Election Method of Auditors) (1) Auditors shall be elected by a resolution of a general meeting of shareholders. (2) Election of Auditors shall be resolved by a majority of shareholders present representing more than one third of the total number of shares with voting rights. Article 25. (Term of Office of Auditors) (1) The term of office of the auditors shall expire at the conclusion of the ordinary general meeting of shareholders held with respect to the last of the fiscal year ending within three (3) years after their assumption of office. (2) The term of office of any auditor elected to fill a vacancy created and with an increase in the number of auditors shall be until the expiration of the term of other auditors currently holding the office. Article 26. (Full Time Auditor) Full time auditor shall be elected by mutual vote. Article 27. (Notice of Convocation of the Auditors Meeting) (1) To convene a meeting of the auditors, notice of convocation shall be issued to each of the auditors at least seven (7) days prior to the date of the meeting, provided, that such term of notice may be shortened in case of urgent need. (2) With a unanimous consent of all the auditors, the auditors meeting may be held by dispensing the notice of convocation. 6 Article 28. (Resolution Method of the Auditors Meeting) Except as otherwise required by provision of law, a resolution of the auditors meeting shall be adopted by a majority vote of the auditors. Article 29. (Minutes of the Auditors Meeting) The results, points and development of the proceedings of the Auditors Meeting shall be prepared in minutes and the auditors present shall affix their signatures or seals to the minutes. Article 30. (Regulations of the Auditors Meeting) Except as otherwise required by provision of law or by these Articles, the matters pertaining to the auditors meeting shall be proceeded based on Regulations determined by the Auditors Meeting. Article 31. (Remuneration and Special Retirement Allowance for Auditors) Remuneration and special retirement allowance for auditors shall be determined by a resolution of a general meeting of shareholders. CHAPTER 6 ACCOUNT Article 32. (Fiscal Year and Account Settlement) The fiscal year of the company shall commence on January of each year and end on December 31 of the same year and the account shall be settled at the end of the fiscal year. Article 33. (Profit-Dividend) Profit-Dividend of the company shall be paid to the shareholders or pledgees listed on the final shareholder register as of December 31 of each year. 7 Article 34. (Interim Profit-Dividend) The company may, by a resolution of the Board of Directors, declare an interim profit-dividend to the shareholders or pledgees listed on the final shareholder register as of June 30 of each year. Article 35. (Exclusion Period of Profit-Dividend) The company shall not be obliged to pay any profit-dividend and interim profit-dividend, in case where the said dividend has not been collected within three (3) full years after the date such dividend tendered for payment. 8 EX-3.32 17 y65450a1exv3w32.txt RESTATED BYLAWS OF HERBALIFE OF JAPAN K.K. EXHIBIT 3.32 - -------------------------------------------------------------------------------- HERBALIFE OF JAPAN KABUSHIKI KAISHA which shall be expressed in English as "HERBALIFE OF JAPAN K.K." Restated Bylaws - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ARTICLE I. OFFICES ...........................................................1 Section 1. Registered Office.........................................1 Section 2. Other Offices.............................................1 ARTICLE II. MEETINGS OF STOCKHOLDERS..........................................1 Section 1. Place of Meetings.........................................1 Section 2. Annual Meetings...........................................1 Section 3. Special Meetings..........................................1 Section 4. Notice of Meetings........................................1 Section 5. Quorum; Adjournment.......................................2 Section 6. Proxies and Voting........................................2 Section 7. Stock List................................................3 Section 8. Actions by Stockholders...................................3 ARTICLE III. BOARD OF DIRECTORS...............................................4 Section 1. Duties and Powers.........................................4 Section 2. Number and Term of Office.................................4 Section 3. Vacancies.................................................4 Section 4. Meetings..................................................4 Section 5. Quorum....................................................5 Section 6. Actions of Board Without a Meeting........................5 Section 7. Meetings by Means of Conference Telephone.................5 Section 8. Committees................................................5 Section 9. Compensation..............................................5
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PAGE Section 10. Removal...................................................6 ARTICLE IV. OFFICERS .........................................................6 Section 1. General...................................................6 Section 2. Election; Term of Office..................................6 Section 3. Chairman of the Board.....................................6 Section 4. President.................................................6 Section 5. Vice President............................................7 Section 6. Secretary.................................................7 Section 7. Assistant Secretaries.....................................7 Section 8. Treasurer.................................................7 Section 9. Assistant Treasurers......................................8 Section 10. Other Officers............................................8 ARTICLE V. STOCK .............................................................8 Section 1. Form of Certificates......................................8 Section 2. Signatures................................................8 Section 3. Lost Certificates.........................................8 Section 4. Transfers.................................................8 Section 5. Record Date...............................................9 Section 6. Beneficial Owners.........................................9 Section 7. Voting Securities Owned by the Corporation................9 ARTICLE VI. NOTICES ..........................................................9 Section 1. Notices...................................................9
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PAGE Section 2. Waiver of Notice..........................................9 ARTICLE VII. GENERAL PROVISIONS..............................................10 Section 1. Dividends................................................10 Section 2. Disbursements............................................10 Section 3. Corporation Seal.........................................10 ARTICLE VIII. DIRECTORS' LIABILITY AND INDEMNIFICATION.......................10 Section 1. Directors' Liability.....................................10 Section 2. Right to Indemnification.................................11 Section 3. Right of Claimant to Bring Suit..........................11 Section 4. Non-Exclusivity of Rights................................12 Section 5. Insurance and Trust Fund.................................12 Section 6. Indemnification of Employees and Agents of the Corporation..............................................12 Section 7. Amendment................................................12 ARTICLE IX. AMENDMENTS.......................................................12
iii RESTATED BYLAWS OF HERBALIFE OF JAPAN KABUSHIKI KAISHA which shall be expressed in English as "Herbalife of Japan K.K. (hereinafter called the "Corporation") ARTICLE I. OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II. MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders may be called by the Board of Directors, the Chairman of the Board, the President, or by the holders of shares entitled to cast not less than ten (10) percent of the votes at the meeting. Upon request in writing to the Chairman of the Board, the President, any Vice President or the Secretary by any person (other than the board) entitled to call a special meeting of stockholders, the officer forthwith shall cause notice to be given to the stockholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the persons entitled to call the meeting may give the notice. Section 4. Notice of Meetings. Notice of the place, if any, date, and hour of all stockholder meetings, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation. Section 5. Quorum; Adjournment. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law or the Certificate of Incorporation. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, if any, date, or time without notice other than announcement at the meeting, until a quorum shall be present or represented. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, notice of the place, if any, date, and time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 6. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. 2 Each stockholder shall have one (1) vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law or the Certificate of Incorporation. All voting, including on the election of directors but excepting where otherwise provided herein or required by law or the Certificate of Incorporation, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or such stockholder's proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or the Certificate of lncorporation, all other matters shall be determined by a majority of the votes cast. Section 7. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in such stockholder's name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 8. Actions by Stockholders. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or 3 persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this Section 8, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (A) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (B) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery in accordance with the provisions of Section 228(d) of the Delaware General Corporation Law. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III. BOARD OF DIRECTORS Section 1. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 2. Number and Term of Office. The Board of Directors shall consist of one (1) or more members. The number of directors shall be fixed and may be changed from time to time by resolution duly adopted by the Board of Directors or the stockholders, except as otherwise provided by law or the Certificate of Incorporation. Except as provided in Section 3 of this Article, directors shall be elected by the holders of record of a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. 4 Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director or by the stockholders entitled to vote at any Annual or Special Meeting held in accordance with Article II, and the directors so chosen shall hold office until the next Annual or Special Meeting duly called for that purpose and until their successors are duly elected and qualified, or until their earlier resignation or removal. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. The first meeting of each newly elected Board of Directors shall be held immediately following the Annual Meeting of Stockholders and no notice of such meeting shall be necessary to be given the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director by whom it is not waived either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, facsimile, telegram or electronic transmission on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Meetings may be held at any time without notice if all the directors are present or if all those not present waive such notice in accordance with Section 2 of Article VI of these Bylaws. Section 5. Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of Board Without a Meeting. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or any committee thereof. Such filing shall be in paper form if the 5 minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the directors then in office, designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the Corporation. The Board of Directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any committee, to the extent allowed by law and provided in the Bylaw or resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Removal. Unless otherwise restricted by the Certificate of Incorporation or Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. 6 ARTICLE IV. OFFICERS Section 1. General. The officers of the Corporation shall be appointed by the Board of Directors and shall consist of a Chairman of the Board or a President, or both, a Secretary and a Treasurer (or a position with the duties and responsibilities of a Treasurer). The Board of Directors may also appoint one (1) or more vice presidents, assistant secretaries or assistant treasurers, and such other officers as the Board of Directors, in its discretion, shall deem necessary or appropriate from time to time. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. Section 2. Election; Term of Office. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect a Chairman of the Board or a President, or both, a Secretary and a Treasurer (or a position with the duties and responsibilities of a Treasurer), and may also elect at that meeting or any other meeting, such other officers and agents as it shall deem necessary or appropriate. Each officer of the Corporation shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors together with the powers and duties customarily exercised by such officer; and each officer of the Corporation shall hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may at any time, with or without cause, by the affirmative vote of a majority of directors then in office, remove any officer. Section 3. Chairman of the Board. The Chairman of the Board, if there shall be such an officer, shall be the chief executive officer of the Corporation. The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors and shall have such other duties and powers as may be prescribed by the Board of Directors from time to time. Section 4. President. The President shall be the chief operating officer of the Corporation, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have and exercise such further powers and duties as may be specifically delegated to or vested in the President from time to time by these Bylaws or the Board of Directors. In the absence of the Chairman of the Board or in the event of his inability or refusal to act, or if the Board has not designated a Chairman, the President shall perform the duties of the Chairman of the Board, and when so acting, shall have all of the powers and be subject to all of the restrictions upon the Chairman of the Board. 7 Section 5. Vice President. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one (1) vice president, the vice presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The vice presidents shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 7. Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, or the Secretary, and shall have the authority to perform all functions of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 8. Treasurer. The Treasurer shall be the Chief Financial Officer, shall have the custody of the corporate funds and securities, shall keep complete and accurate accounts of all receipts and disbursements of the Corporation, and shall deposit all monies and other valuable effects of the Corporation in its name and to its credit in such banks and other depositories as may be designated from time to time by the Board of Directors. The Treasurer shall disburse the funds of the Corporation, taking proper vouchers and receipts for such disbursements, and shall render to the Board of Directors, 8 at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall, when and if required by the Board of Directors, give and file with the Corporation a bond, in such form and amount and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of his or her duties as Treasurer. The Treasurer shall have such other powers and perform such other duties as the Board of Directors or the President shall from time to time prescribe. Section 9. Assistant Treasurers. Except as may be otherwise provided in these Bylaws, Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, or the Treasurer, and shall have the authority to perform all functions of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. Section 10. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V. STOCK Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board or the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. Section 2. Signatures. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When 9 authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 7. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board, the President, any Vice President or the Secretary and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the 10 Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE VI. NOTICES Section 1. Notices to Stockholders. If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law. Section 2. Waiver of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the notice required to be given to such person. ARTICLE VII. GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting or by any Committee of the Board of Directors having such authority at any meeting thereof, and may be paid in cash, in property, in shares of the capital stock or in any combination thereof. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All notes, checks, drafts and orders for the payment of money issued by the Corporation shall be signed in the name of the Corporation by such officers or such other persons as the Board of Directors may from time to time designate. 11 Section 3. Corporation Seal. The corporate seal, if the Corporation shall have a corporate seal, shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII. DIRECTORS' LIABILITY AND INDEMNIFICATION Section 1. Directors' Liability. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of this provision shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. This Section 1 is also contained in Article SEVENTH of the Corporation's Certificate of Incorporation, and accordingly, may be altered, amended or repealed only to the extent and at the time such Certificate Article is altered, amended or repealed. Section 2. Right to Indemnification. Each person who was or is made a party to or is threatened to be made a party to or is involuntarily involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving (during his or her tenure as director and/or officer) at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, whether the basis of such Proceeding is an alleged action or inaction in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law (or other applicable law), as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with such Proceeding. Such director or officer shall have the right to be paid by the Corporation for expenses 12 incurred in defending any such Proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law (or other applicable law) requires, the payment of such expenses in advance of the final disposition of any such Proceeding shall be made only upon receipt by the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it should be determined ultimately that he or she is not entitled to be indemnified under this Article or otherwise. Section 3. Right of Claimant to Bring Suit. If a claim under Section 2 of this Article is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, together with interest thereon, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim, including reasonable attorneys' fees incurred in connection therewith. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law (or other applicable law) for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (or of its full Board of Directors, its directors who are not parties to the Proceeding with respect to which indemnification is claimed, its stockholders, or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law (or other applicable law), nor an actual determination by any such person or persons that such claimant has not met such applicable standard of conduct, shall be a defense to such action or create a presumption that the claimant has not met the applicable standard of conduct. Section 4. Non-Exclusivity of Rights. The rights conferred by this Article shall not be exclusive of any other right which any director, officer, representative, employee or other agent may have or hereafter acquire under the Delaware General Corporation Law or any other statute, or any provision contained in the Corporation's Certificate of Incorporation or Bylaws, or any agreement, or pursuant to a vote of stockholders or disinterested directors, or otherwise. Section 5. Insurance and Trust Fund. In furtherance and not in limitation of the powers conferred by statute: 13 (1) the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and (2) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the fullest extent permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to ensure the payment of such amount as may become necessary to effect indemnification as provided therein, or elsewhere. Section 6. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, including the right to be paid by the Corporation the expenses incurred in defending any Proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VIII or otherwise with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. Section 7. Amendment. Any repeal or modification of this Article VIII shall not change the rights of an officer or director to indemnification with respect to any action or omission occurring prior to such repeal or modification. ARTICLE IX. AMENDMENTS Except as otherwise specifically stated within an Article to be altered, amended or repealed, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted at any meeting of the Board of Directors or of the stockholders. 14 THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Representative Director of HERBALIFE OF JAPAN KABUSHIKI KAISHA which shall be expressed in English as "Herbalife of Japan K.K." and that the foregoing Restated Bylaws were adopted as the Restated Bylaws of said corporation as of the 29th day of July, 2002, by the Board of Directors and the sole stockholder of said corporation to be effective upon the filing and effectiveness of the Restated Certificate of Incorporation. Dated as of July 29, 2002. ----------------------------------- John Purdy, Representative Director EX-3.33 18 y65450a1exv3w33.txt BYLAWS OF ARTICLES OF INCORP. EXHIBIT 3.33 HERBALIFE INTERNACIONAL S.A. DE C.V. BY-LAWS AND ARTICLES OF INCORPORATION NAME, DURATION, DOMICILE AND CORPORATE OBJECT ARTICLE 1. The name of the company shall be HERBALIFE INTERNACIONAL DE MEXICO, always followed by the words "Sociedad Anonima de Capital Variable" or its abbreviation "S.A. de C.V.". ARTICLE 2. The duration of the company shall be ninety nine years, from the date of execution hereof. ARTICLE 3. The company shall have its domicile in the city of Guadalajara, Jalisco, Mexico, but it may establish branches and agencies elsewhere, at the discretion of the Administrator or the Board of Directors. ARTICLE 4. The objects of the company shall be: a) To manufacture, purchase, sell, export, import, distribute, represent, process, in-bond manufacture and, in general, deal with all kinds of natural or chemical products for nutritive and weight-control purposes. b) To render advisory, counseling and representation services in connection with marketing, advertisement sales and trading with all kinds of nutritive products, and similar and related activities. c) To issue, subscribe, endorse and guarantee credit instruments including obligations of third parties, with or without security. d) To participate in other companies or corporations through the purchase of shares of stock or corporate interest. To participate in the administration or liquidation of all kind of corporations and to issue debentures. e) In general, to execute all types of agreements and execute all actions as may be required, necessary or advisable to pursue the above corporate objects. f) To purchase the real and personal property that may be necessary to pursue its corporate objects. 2 SHARES AND CAPITAL STOCK ARTICLE 5. The company's capital stock shall be variable. The fixed portion of the capital stock shall be the amount of pesos $5,000,000, represented by 5,000 registered shares, fully subscribed to each with a par value of pesos $1,000. The variable portion of the capital stock shall be unlimited. The shares representing the capital stock shall be divided in two series: Series "A" shares, which shall always represent the fixed portion of the capital stock without right to withdraw, and series "B" shares, which shall always represent the variable portion of said capital stock. All of the shares of the capital stock confer the same rights and obligations on the holders. The capital stock may be subscribe to by Mexican nationals or foreigners. ARTICLE 6. Any increase or reduction in the variable portion of the capital stock shall be carried out by resolution of an ordinary general shareholders' meeting and shall not be considered as an amendment to the by-laws of the company. Said variation shall not be notarized, but shall be recorded in the capital variations book pursuant to article 219 of the General Corporation Law. 3 ARTICLE 7. All shares confer equal rights and obligations on the holders and each share certificate may represent more than one share. The provisional or final share certificates shall be issued in accordance with the requirements established in article 125 of the General Corporation Law, they shall be signed by two members of the board of directors or by the sole administrator, and shall embody the provisions of the following article. ARTICLE 8. Any foreigner that upon the organization of this company or in the future shall acquire any share, interest or participation therein shall be considered as Mexican in regard to the shares, interest or participation, it being understood that such foreigner agrees not to invoke the protection of his government, under penalty, in the event of breaching such agreement, of forfeiting such interest or participation to the Mexican Nation. ARTICLE 9. The company shall keep a stock transfer book, pursuant to provisions of article 128 of the General Corporation Law. ARTICLE 10. The shareholders shall have a preferential right to subscribe to the shares issued in case of an increase in the capital stock. 4 SHAREHOLDERS' MEETINGS ARTICLE 11. Fundamental authority shall be lodged in the shareholders functioning as a corporate body at shareholders' meetings. The meetings of the shareholders may be ordinary or extraordinary. The annual ordinary meeting of the shareholders shall be held within four months following the end of the fiscal year and will consider the matters contained in article 181 of the General Corporation Law. The extraordinary meetings may be held whenever they may be called and will consider the matters contained in article 182 of the above mentioned law. ARTICLE 12. Ordinary and extraordinary shareholders' meetings shall be called by the Board of Directors or the sole administrator, as the case may be, or in the absence thereof, by the examiner, or the competent authorities by publishing a notice in the federal official gazette or in one newspaper of wide circulation of the company's domicile, at least fifteen days before the date scheduled for holding the meeting. Such call shall set forth the agenda and shall be signed by the responsible person. 5 ARTICLE 13. Ordinary shareholders' meetings shall be regarded as legally convened when at least 50% of the shares of stock are represented thereat, if held pursuant to a first call. Resolutions shall require a majority vote. Extraordinary shareholders' meetings shall be regarded as legally convened when at least 75% of the shares of stock are represented thereat. Resolutions shall require the affirmative vote of 50% of the shares of stock. If an ordinary shareholders' meeting is held pursuant to a second or subsequent call, resolutions shall require the affirmative vote of the majority of the shares represented thereat. If an extraordinary Shareholders' Meeting is held pursuant to a second or subsequent call, resolutions shall require the affirmative vote of shares representing at least 50% of the capital stock. Shareholders shall be entitled to one vote per each share held. ARTICLE 14. No call shall be required if all of the shareholders are present or represented at an ordinary or extraordinary meeting. 6 ARTICLE 15. Shareholders may attend the meetings in person or through any representative appointed by proxy or telegram. Neither the administrator, nor the members of the board of directors or the examiner can represent shareholders at shareholders' meetings. ARTICLE 16. Shareholders' meetings shall be presided by the administrator and the chairman of the Board of Directors, and in their absence, by the person appointed by the shareholders in said meeting. The secretary shall be appointed by the shareholders' meeting or the secretary of the Board of Directors. The presiding officer shall appoint one inspector from among the shareholders present, who shall certify the number of shares represented. ARTICLE 17. The minutes of the shareholders' meetings shall be recorded in a minute book and shall be signed by the presiding officer, the secretary and the examiner. Minutes of extraordinary shareholders' meetings shall be notarized and recorded with the Public Registry of Commerce, except as provided in article 6 of these by-laws. The attendance list and the documents supporting the call shall be attached to the minutes as provided by Law and these by-laws. 7 ARTICLE 18. The resolutions legally adopted at the shareholders' meetings are mandatory, even for absent or dissident shareholders, except for the right of opposition provided by the General Corporation Law. ADMINISTRATION ARTICLE 19. The direction and management shall be vested in a board of directors or a sole administrator, as resolved at the general ordinary shareholders' meeting. If a Board of Directors is designated by the shareholders, it will consist of at least 3 members, including a president, a secretary, and a treasurer; the shareholders' meeting may designate the number of alternates it deems necessary. The members of the Board of Directors or the sole administrator, as the case may be, may be shareholders or not and they must be designated at an ordinary shareholders' meeting by a majority vote and they will hold office until their removal. ARTICLE 20. Each director or the sole administrator shall deposit with the company a bond in the amount of pesos $1,000 to guarantee the performance of his duties in the amount of $1,000.00. 8 Pursuant to article 153 of the General Corporation Law, the examiner shall issue a certification proving such deposit in order to record the designation of the sole administrator or the directors in the Public Registry of Commerce. ARTICLE 21. If the management of the company is entrusted to a board of directors, the attendance of 50% of its members shall be necessary to constitute a quorum. Resolutions shall be adopted by the majority vote of the directors present at a meeting and the president shall have tie-breaking power. ARTICLE 22. The sole administrator or the Board of Directors, through the chairman, shall have the powers necessary to carry out the corporate objects set forth in article 4 herein. Consequently, they will be granted with powers of attorney for litigation and collections, for acts of administration and acts of ownership, as provided in article 2475 of the Civil Code for the State of Jalisco and 2554 of the Civil Code for the Federal District, with all of the general and special powers that pursuant to the Law require a special clause, including but not limited to the following: I. To withdraw any action, including constitutional proceedings. II. To compromise. 9 III. To submit to arbitration. IV. To answer and submit interrogatories. V. To make assignment of property. VI. To take exceptions to judges. VII. To receive payments. VIII. To file and withdraw criminal denunciations. IX. To become coadjutor of the Public Prosecutor. X. To appear before labor authorities, as provided in article 523, of the Mexican Labor Law, and before the workers' housing development fund, the Mexican Institute of Social Security and the Worker's Purchasing Fund; to take any action to solve individual and collective conflicts on behalf of the company, as provided in article 11 of the Mexican Labor Law, which reads as follows: The officers, directors, managers, administrators and other officers with managing authority in the company, will be considered as attorney-in-fact of the company and their relations with workers will have a binding effect for the company. 10 XI. To issue, subscribe, endorse, negotiate and guarantee negotiable instruments, in accordance with article 9 of the General Negotiable Instruments and Credit Operations Law. XII. To confer, grant or substitute general or special powers of attorney and revoke the same. ARTICLE 23. In addition to the board of directors or the sole administrator the company may have one or more directors, assistant directors, managers, and assistant managers, who may not be shareholders and shall be designated by a majority vote of the board of directors, the sole administrator or the general ordinary shareholders' meeting. They will hold office until their removal and shall have the powers and duties offered at the moment of their designation. EXAMINER ARTICLE 24. The vigilance of the company's affairs shall be vested in an examiner, who may not be a shareholder and shall have the obligations and authority granted herein and those faculties provided in article 166 of the General Corporation Law. The examiner shall be a designated by the shareholders' meeting and will hold office until his substitute has 11 been designated and qualified. They shall deposit the guaranty mentioned in article 20 above for the faithful performance of his duties. FINANCIAL INFORMATION ARTICLE 25. The fiscal year of the company in no case shall exceed twelve months, except for the first one that will commence on the date of incorporation and will finish the day before the beginning of the fiscal year determined by the sole administrator, the board of directors or the shareholders' meeting at the end of each fiscal year. The financial information referred to in article 172 of the General Corporation Law shall be prepared for submission to the shareholders. ARTICLE 26. The above mentioned information and the report of the Examiner must be concluded and submitted to the shareholders at least 15 days before the date scheduled for the shareholders' meeting in which it will be considered. ARTICLE 27. a) A minimum of 5% for the legal reserve fund shown in the balance sheet shall be set aside each year from the net profits, until said reserve fund is equivalent to 20% of the capital stock of the company. This provision shall also apply in the event of reduction of this reserve fund again. 12 b) The remaining profits may be distributed as dividends to the shareholders and will be delivered to them upon delivery of the respective coupon within the term and pursuant to the conditions provided by the shareholders or the board of directors. The shareholders will absorb the losses of the company in an amount equivalent to their contributions and their liability shall not exceed the par value of their shares. The incorporators shall have no special participation in the profits. DISSOLUTION AND LIQUIDATION OF THE COMPANY ARTICLE 28. The company shall be dissolved in any of the events established in article 229 of the General Corporation Law, and consequently: A) At the expiration of the term referred to in Article 4 above. B) In the event it becomes impossible for the company to pursue its principal object or said object is duly achieved. C) By resolution adopted at an extraordinary shareholders' meeting, as provided by this instrument and the Law. D) If the number of shareholders becomes less than the minimum established by law. E) If the company loses two-thirds of its capital stock. 13 ARTICLE 29. In the event it is agreed to liquidate the company by a resolution adopted by the vote of shareholders presenting 60% of the capital stock, the shareholders shall elect a liquidator for the purpose of winding up the affairs of the company, pursuant to chapter 11 of the General Corporation Law. TRANSIENT ARTICLES SUBSCRIPTION OF CAPITAL STOCK ARTICLE 1. The shareholders hereby subscribe to the shares representing the capital stock as follows: Mr. Mark Hughes subscribes to 2,450 shares with a par value in the aggregate of pesos $2,450,000. Corpomexico Internacional, S.A. de C.V., 750 shares with a par value in the aggregate of pesos $750,000. Mr. Jose Alonso Parra Osuna 1,000 shares with a par value in the aggregate of pesos of $1,000,000. Mrs. Carmen Gonzalez Gomez de Parra 300 shares with a par value in the aggregate of pesos $300,000. 14 Mr. Jose Alonso Parra Gonzalez 250 shares with a par value in the aggregate of pesos $250,000. Mr. Jorge Arturo Parra Gonzalez 250 shares with a par value in the aggregate of pesos $250,000. All the shareholders pay in cash the price of the shares subscribed to by each of them, by delivering such amounts to the company. ARTICLE 2. Upon execution of these articles of incorporation, the shareholders receive the provisional share certificates representing the shares they have subscribed; said provisional certificates shall be exchanged for final certificates, which shall be issued within a term that shall not exceed one year from the date hereof. APPOINTMENT OF OFFICERS ARTICLE 3. The appearing parties, as first general ordinary shareholders' meeting, unanimously resolve: a) The management of the company shall be vested in a board of directors, formed by the following persons: 15 Chairman: Mr. Jose Alonso Parra Osuna Secretary: Mr. Jose Alonso Parra Gonzalez Treasurer: Mr. Jorge Arturo Parra Gonzalez The Board of Directors shall be represented by its chairman, and will have the powers of attorney established in article 22 above, which is incorporated herein by this reference. b) Mr. Jose Alonso Parra Gonzalez is hereby designated as attorney-in-fact of the company and will also have the powers provided in article 22 of these by-laws, except for the acts of ownership, as this power will be granted exclusively to the chairman of the board of directors. c) Mr. Luis Jorge Cardenas Diaz is hereby designated as Examiner of the company. d) The fiscal year shall begin on January 1st and finish on December 31 of each year, except for the first fiscal year, which will begin on the date hereof and terminate on December 31 of the same year. ARTICLE 4. Mr. Jorge Arturo Parra Gonzalez, as treasurer of the Board of Directors, hereby represents that the shareholders, the examiner and the directors have deposited with the company the aforesaid amounts as payment of their contributions and as guaranties for the performance of their duties. 16 EX-3.34 19 y65450a1exv3w34.txt COPIA CERTIFICADA OF HERBALIFE PRODUCTS DE MEXICO Exhibit 3.34 ARMANDO GALVEZ PEREZ ARAGON, ESQ. NOTARIAL OFFICE NO. 103 CERTIFIED COPY WHICH CONTAINS THE PARTNERSHIP AGREEMENT FOR THE JOINT STOCK COMPANY WITH OPEN-ENDED CAPITAL "HERBALIFE PRODUCTS DE MEXICO" 22,313 633 1992 AMEYALCO NO. 24 CASI ESQ. INSURGENTES, COL. DEL VALLE, MEXICO CITY, D.F. C.P. 03100 TELEPHONE NOS. 669.11.14 ; 523.79.04 - FAX NO. 682.02.78 1 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District GAPA/RMR/RSR/MMP BOOK NUMBER SIX HUNDRED AND THIRTY-THREE. DOCUMENT NUMBER TWENTY-TWO THOUSAND THREE HUNDRED AND THIRTEEN. IN MEXICO CITY, FEDERAL DISTRICT, on the first day of June, nineteen hundred and ninety-two, ARMANDO GALVEZ PEREZ ARAGON, Esq., the holder of Public Notarial Office Number One Hundred and Three of the Federal District, does set forth as follows: A) THE OFFICIAL FILING OF POWERS GRANTED ABROAD, which was carried out at the request of PAULINO OLAVARRJETA URALDE, Esq.; B) THE PARTNERSHIP AGREEMENT, UNDER THE FORM OF A JOINT STOCK COMPANY WITH OPEN-ENDED CAPITAL, by which "HERBALIFE PRODUCTS DE MEXICO" is incorporated, with the participation of "HERBALIFE INTERNATIONAL," INC. and "HERBALIFE INTERNATIONAL OF AMERICA," INC., both of them represented herein by PAULINO OLAVARRJETA URALDE, Esq., who also appears on his own behalf, and GERARDO HERNANDEZ REYES, Esq., and DANIEL DEL RIO LOAIZA, Esq., as shareholders thereof, under the following recitals and articles of incorporation: RECITALS ONE. Before me appeared PAULINO OLAVARRJETA URALDE, Esq., who requested, under the terms of Article ninety-two of the Law on Notaries for the Federal District, that I officially file the special powers of attorney granted by "HERBALIFE INTERNATIONAL," INC. and "HERBALIFE INTERNATIONAL OF AMERICA," INC. to PAULINO OLAVARRJETA URALDE, Esq., DANIEL A. DEL RIO LORAIZA, Esq., HERMAN KIEHNLE, Esq., and JOSE F. SALEM, Esq. in order for them to exercise it jointly or individually, both granted in the city of Inglewood, California, the United States of America, 2 on the twenty-seventh day of May, nineteen hundred and ninety-two, before Mrs. NANCY LOU MOHR, Notary Public in and for the County of the City of Los Angeles, State of California, United States of America, whose signature was certified by Mr. Jose Angel Pescador Osuna, Consul General of Mexico in the City of Los Angeles, State of California, United States of America, on the twenty-eighth day of May, nineteen hundred and ninety-two. I am attaching instrument the originals of the aforementioned documents hereto as Appendices "A" and "B," together with their corresponding translations and legalizations. TWO. The appearing parties displayed to me License No. 09022076, and File No. 9209021223, Page No. 35317, issued by the Office of the Secretary of Foreign Relations on the twenty-second day of May, nineteen hundred and ninety-two, authorizing the formation of a JOINT STOCK COMPANY WITH OPEN-ENDED CAPITAL under the name "HERBALIFE PRODUCTS DE MEXICO". I am attaching this license hereto, together with its payment order, as Appendix "C". In view of the foregoing, the appearing parties agree to the following: TERMS AND CONDITIONS THE OFFICIAL FILING OF POWERS OF ATTORNEY SOLE PARAGRAPH. In order that they may take legal effect in Mexico, under the terms of Article ninety-two of the Law on Notaries for the Federal District, the special powers granted abroad are officially filed, which powers were granted to [sic] "HERBALIFE INTERNATIONAL," INC. and "HERBALIFE INTERNATIONAL OF AMERICA," INC. in favor of PAULINO OLAVARRJETA, Esq. DANIEL A. DEL RIO, Esq. HERMAN KIEHNLE, Esq. and JOSE F. SALEM, Esq. who 3 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District shall enjoy the authority set forth in said powers of attorney. THE PARTNERSHIP AGREEMENT FOR THE JOINT STOCK COMPANY WITH OPEN-ENDED CAPITAL. ARTICLES OF INCORPORATION ARTICLE ONE. NAME. The name of the company is "HERBALIFE PRODUCTS DE MEXICO," which shall always be followed by the words "SOCIEDAD ANONIMA DE CAPITAL VARIABLE" [joint stock company with open-ended capital], or the abbreviation thereof, "S.A. DE C.V.". ARTICLE TWO. DOMICILE. The domicile of the company shall be in the city of Guadalajara, State of Jalisco, but it may establish branch offices and agencies and designate contractual domiciles in such agreements as it may make. ARTICLE THREE. CORPORATE PURPOSE. The purposes of the company shall be: I. The purchase, sale, importing, exporting, distribution, and sales control of nutritional supplements and beauty and hygiene products. II. The acquisition, subscription, holding, control, and transfer, by any means, of shares of stock, securities, or partnership shares in any type of company or enterprise, and the holding of equity in all manner of businesses. III. To provide and to receive all manner of technical, administrative, and consulting services to or from industrial, commercial, and service companies, whether within the Republic of Mexico or abroad. IV. To establish, acquire, construct, lease, operate, and possess, in any manner allowed by law, factories, workshops, plants, warehouses, offices, stores, and other establishments necessary for achieving the corporate purposes, as well as to acquire all manner of industrial and commercial businesses, including their shares, assets, and rights. 4 V. To represent or act as agent in the Republic of Mexico or abroad for industrial or commercial companies, whether domestic or foreign. VI. To purchase, sell, lease, manage, mortgage, and, in general, to trade, in any manner, in real and personal property within the limitations established by the law. VII. To establish branch offices and subsidiaries in the Mexican Republic or abroad. VIII. To lend or borrow money with or without security, to issue bonds, debentures, obligations, or other debt securities with the participation of such institutions as may be required in each case in accordance with the law. IX. To stand surety or guarantor for the obligations of third parties as well as to issue and subscribe debt instruments relating to the purposes of the business. X. The acquisition, use, and transfer, by all legal means, of any type of vehicle for the use of the company that may be necessary or convenient for the performance of the business thereof. XI. To obtain, acquire, use, or dispose of all manner of patents, trademarks, trade names, or rights thereto, whether in Mexico or abroad. XII. To redeem its own shares, and, if applicable, issue dividend shares. XIII. In general, to enter into contracts, perform transactions, and carry out all acts necessary or appropriate to achieve the purposes referred to above, as well as the performance of any other civil or commercial act allowed by law. ARTICLE FOUR. DURATION. The duration of the company shall be ninety-nine years commencing from the date of the signing 5 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District of this instrument. ARTICLE FIVE. WAIVER OF NATIONALITY. Any foreigner who, at the organizational meeting or at anytime thereafter, acquires an interest or equity holding in the company shall be deemed, merely by virtue of such fact, to be a Mexican with respect to one and all and shall be deemed to agree not to invoke the protection of his government under penalty, in the event of a breach of his agreement, of forfeiting such interest or equity holding to the nation of Mexico. ARTICLE SIX. CAPITAL STOCK. A. The closed-end portion of the capital stock, with no right of withdrawal, is TEN MILLION MEXICAN PESOS, and shall be represented by TEN THOUSAND REGISTERED SHARES with a par value of ONE THOUSAND MEXICAN PESOS each. B. The open-ended portion of the capital stock shall be unlimited and shall be represented by registered shares with a par value of ONE THOUSAND MEXICAN PESOS, each. C. All of the shares shall confer equal rights and obligations on their owners. ARTICLE SEVEN. CLASSES OF SHARES. All of the shares representing the capital stock shall be for open subscription and shall be divided into two classes of shares, series roman numeral one which shall always represent the closed-end portion of the capital, and series roman numeral two, which shall always represent the open-ended portion of the capital stock. ARTICLE EIGHT. ISSUANCE OF CERTIFICATES. The share certificates shall be issued in accordance with the requirements established in Articles one hundred and eleven, one hundred and twenty-five, one hundred and twenty-seven, and the other pertinent articles of the General Law on Commercial Companies, as well as Articles twenty-eight and thirty-one of the Law for the Promotion of Mexican Investment 6 and Governing Foreign Investment, and must contain the provisions of Article fifteen of these articles of incorporation. The shares must be represented by printed certificates that are numbered in sequence, which must be signed by two full directors. ARTICLE NINE. OWNERSHIP AND TRANSFER OF SHARES. A. Ownership of the shares shall be transferred by means of endorsing the respective certificate or security, or by any other legal transfer. The subscription, acquisition, and transfer of the shares shall be acknowledged by the company only when they have been recorded in the share registry to be kept by the Secretary. The securities or share certificates transferred under the terms indicated shall be delivered to the company to be cancelled and for new securities or certificates to be issued to the transferee. B. The shares owned by foreign investors must also be recorded in the registry referred to in Article twenty-three of the Law for the Promotion of Mexican Investment and Governing Foreign Investment within the period indicated in that law. No dividends or any other amount whatsoever corresponding to capital reductions or to the liquidation of the company shall be paid to foreign shareholders who are not recorded in the registry established in that law or whose registration has been cancelled. C. All transfers of shares shall be deemed to be unconditional and without reservation with respect to the company. Therefore, any person that acquires one or more shares shall assume all of the rights and obligations of the transferor in relation to the company. The possession of one or more shares implies 7 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District acceptance on the part of the holder of the provisions of these articles of incorporation, of any revisions or amendments made thereto, and of the resolutions adopted in meetings of shareholders and of the Board of Directors, within the scope of their respective powers. ARTICLE TEN. INDIVISIBLE SHARES AND LOST SHARES. A. The company shall deem each share to be an indivisible whole. If a share belongs to two or more persons they must appoint a joint representative who shall be the only one entitled to attend shareholders' meetings. In the event that no joint representative is appointed, the person whose name appears first in the share registry shall be deemed to be the joint representative. B. In the event of the loss, destruction, or theft of one or more share certificates, the procedure established in Articles forty-four, et seq., of the General Law on Securities and Credit Transactions shall be followed. ARTICLE ELEVEN. CAPITAL INCREASES. A. Any increase in the open-ended portion of the capital stock shall be carried out by means of a resolution by a regular shareholders' meeting and any increase in the closed-end portion of the capital, with no right of withdrawal, shall require a resolution by a special shareholders' meeting. No increase shall be authorized unless the shares representing the increase immediately preceding it have been fully subscribed and paid in. B. All of the increases and reductions in the capital stock shall be recorded in the registry for capital changes that the company shall keep for such purpose. C. When adopting the corresponding resolution, the shareholders' meeting 8 that authorizes the increase shall determine the terms and conditions for carrying it out. The shareholders shall have a preemptive right to subscribe increases in the capital stock in proportion to the number of shares that each of them owns, within fifteen days from the date the notice of the capital increase is published in the Official Gazette, or in the newspaper having the greatest circulation where company is domiciled, or from the date of the shareholders' meeting if all of the shareholders were present or represented. The remaining shares that were not subscribed shall be subscribed only by such person or persons as the Board of Directors or said shareholders' meeting may designate. ARTICLE TWELVE. CAPITAL REDUCTIONS. Capital reductions affecting the closed-end portion must be approved by a special shareholders' meeting. Capital reductions affecting the open-ended portion shall require only a resolution of a regular meeting of shareholders. In the event of a capital reduction, provided that more than two years have not passed since they were subscribed and paid, shares paid in cash, in full or in part, shall not be redeemed unless the holders of such shares provide security for the value of the property contributed as payment for such shares as provided by the shareholders' meeting that approves the reduction. ARTICLE THIRTEEN. SHAREHOLDERS' MEETINGS. A. Supreme authority resides in the shareholders' meetings. They shall be regular or special and shall be held at the domicile of the company. 9 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District B. The regular annual shareholders' meeting shall be held within four months of the end of the fiscal year. Other regular or special shareholders' meetings may be held when convened as established in this instrument. C. Shareholders' meetings shall be called by the Board of Directors, by the Chairman, by the statutory auditor, or as proposed in the General Law on Commercial Companies. The meeting notice must include the agenda, i.e., the list of matters to be deliberated upon, as well as the date, place, and time the meeting is to be held. The meeting notices must be published in the Official Gazette of the Federation or in one of the newspapers having the greatest circulation where the company is domiciled at least fifteen days prior to the date indicated for the meeting. No meeting notice shall be required when all of the shareholders are present or represented when the meeting is convened. Shareholders' meetings shall consider only the matters included in the respective meeting notice. D. The regular shareholders' meetings may make decisions on all matters except for the following, which are reserved for special shareholders' meetings: 1. An extension of the duration of the company; 2. An early dissolution of the company; 3. An increase or reduction in the closed-end portion of the capital stock; 4. A change in the purpose of the company; 5. A change in the nationality of the company; 6. A change in the form of the company; 10 7. Merger with another company; 8. A split of the company; 9. The issuance of preferred shares; 10. Redemption by the company of shares from the closed-end portion of the capital stock and the issuance of certificates of retired stock rights, or beneficial shares; 11. The issuance of bonds; 12. Any other amendment to the articles of incorporation. E. Regular shareholders' meetings shall be deemed to be lawfully convened when at least fifty-one percent of the shares of the capital stock are represented, if held on a first or subsequent meeting notice. Special shareholders' meetings shall be deemed to be lawfully convened when at least seventy-five percent of the capital stock is present or represented, if it involves a first or subsequent meeting. F. The resolutions of the regular shareholders' meetings shall be valid when adopted by a favorable vote of a majority of the shareholders present at the meeting; the resolutions of the special shareholders' meetings shall be valid when adopted by a favorable vote of shareholders representing fifty-one percent of the shares of the capital stock. G. Board members may not vote at shareholders' meetings to approve their accounts or on any matter affecting their personal accountability. H. In adherence to the provisions of Article eight of this instrument, only those persons recorded as shareholders in the 11 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District share register shall have the right to appear or be represented at the shareholders' meetings. The shareholders may vote in person or through a proxy. Each shareholders or shareholder's representative shall be entitled to one vote per share. The proxy may be conferred by telex, cable, or fax and subsequently confirmed by letter. The board members, general manager, or statutory auditors may, as the case may be, represent their own shares, but they shall not represent any other shareholders in any shareholders' meeting. I. At the start of a general shareholders' meeting the presiding officer shall appoint two ballot officers who shall certify which shareholders are present and the number of shares represented. The shareholders shall decide with respect to challenges arising in regard to the attendance list or to the legal capacity of the persons present, once the Secretary has been heard. ARTICLE FOURTEEN. MINUTES. A. The minutes of the shareholders' meetings, whether regular or special, and of the Board of Directors' meetings, including those not held due to a lack of quorum, shall be signed at least by the Presiding Officer, the Secretary, and by any statutory auditors present. B. The minutes of the shareholders' meetings and of the Board of Directors meetings shall be recorded in a book of minutes to be kept by the secretary, along with a duplicate of the minutes. In the case of shareholders' meetings, the attendance list of the shareholders present certified by the ballot officers, the proxies, copies of the publication 12 of the meeting notice and reports, company financial statements, and other documents submitted to the shareholders' meeting of shareholders or to the board shall be attached. C. When the minutes of a shareholders' meeting or Board of Directors' meeting cannot be recorded in the authorized book, such minutes shall be officially filed with a public notary. The minutes of special shareholders' meetings shall be officially filed and recorded with the Commercial Section of the Public Register of Property where the company is domiciled ARTICLE FIFTEEN. BOARD OF DIRECTORS. A. The direction and management of all of the matters, property, and interests of the company shall be conferred on a Board of Directors made up of the number of directors elected by a shareholders' meeting, which shall in no case be less than three, with their respective alternate members. The alternate directors may also be elected by the shareholders and each of them may attend board meetings in the absence of any full director and shall be entitled to vote in his absence, provided that he is so authorized in writing or by telex, cable, or fax confirmed by letter. The directors and their alternates need not be shareholders. The alternate directors shall enjoy the same powers as the full directors. B. Any shareholders or group of shareholders that represents at least twenty-five percent of the capital stock shall be entitled to appoint one full director and his respective alternate. If one or more groups of shareholders exercise this right, the other full and alternate directors shall be appointed by a majority vote of the other shareholders. The directors appointed in accordance with the provisions of this paragraph shall not be in addition to but, rather, shall form part of the directors who are to make up the Board of 13 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District directors. C. The directors shall be appointed for a term of one year and they shall continue to hold office until such time as their successors have been appointed and have taken office. D. Any full or deputy director may be removed from office at any time with or without cause by means of a resolution of a regular meeting of shareholders. E. For the purpose of securing the faithful performance of his duties, each full director and his deputy shall deposit with the company such security as may be indicated thereto at the time of the election thereof. Such security shall not be transferred during the time when the director is in office and shall not be returned until such time as a meeting of shareholders has approved the accounts pertaining to the period when the director was in office. F. The members of the board of directors shall not incur any personal liability at all to such persons as they may contract with on behalf of the company and, to the latter, they shall only be liable for the performance of their duties under the terms of this recorded instrument. ARTICLE SIXTEEN. BOARD MEETINGS A. The Board of Directors' meetings shall consider and vote only on those items that appear on the agenda. B. A majority of the directors or their alternates must be present to have a quorum. If there is no quorum, those board members in attendance may postpone the meeting until the necessary quorum is met. C. Each director shall have one vote and the chairman shall not have a deciding vote in the case of a tie. 14 D. Resolutions shall be made by a majority vote of the board members attending the meeting. ARTICLE SEVENTEEN THE BOARD'S POWERS A. The Board of Directors shall represent the company with the fullest general and special powers granted by law, including, but not limited to, those listed below: 1. Powers for legal actions and collections, for administrative acts and acts of ownership as stipulated in Article two thousand five hundred and fifty-four of the Civil Code for the Federal District and the corresponding articles in the Civil Codes of all the States of the Mexican Republic. 2. Powers as required by the special clause pursuant to Article two thousand five hundred and eighty-seven of the Civil Code for the Federal District and the corresponding ones in the Civil Codes of all the States of the Mexican Republic, plus the power to bring amparo proceedings, conduct them and withdraw them. 3. Powers to obtain financing and loans, to subscribe to, grant, endorse, trade and endorse all types of negotiable instruments under the terms of Article nine of the General Law on Negotiable Instruments and Credit Transactions. 4. Powers to confer, grant and rescind all types of endorsements and guarantees, even in favor of third parties in any type of commercial and/or civil transaction, and, generally, to carry out any legal acts relating to the corporate purpose. 5. Powers to confer and revoke general and special powers of attorney. 15 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District B. The Board of Directors is expressly authorized to initiate, defend, continue or abandon all types of lawsuits and actions relating to the company's interests before all types of courts; to file civil complaints, and to file criminal complaints to the police and to the court; to grant special powers relating to all types of criminal proceedings; to submit disputes to arbitration; to initiate all of the proceedings and recourses established under Federal, State or Municipal Laws including labor-related proceedings in the name of and on behalf of the company; to direct and manage all types of contentious, administrative, penal, civil or out-of-court matters in which the company is a defendant or a plaintiff. C. The Board of Directors shall appoint a Chairman from among its own members, and shall also appoint a Secretary and an Assistant Secretary, none whom need be members of the Board. The Board shall also appoint any other officer, delegates or committees it deems appropriate to conduct the company's business in a suitable manner. These officers may or may not be directors. The same person may hold more than one office provided these offices are compatible. Any officer may be removed from office at any time, with or without cause, by a vote of the Board. Any vacancy may be filled by a vote of the Board. ARTICLE EIGHTEEN. POWERS OF THE OFFICERS. A. The Chairman of the Board shall preside over all of the shareholders' meetings and the Board of Directors' meetings. He shall deliver reports to the directors and to the shareholders, and 16 shall carry out all of the duties assigned to him by the Board of Directors. Should the Chairman be absent or incapacitated, the Board shall appoint a director who shall preside over the shareholders' meeting or the Board meeting. B. The managing director or general manager shall be in charge of the company's daily operations and management. Said officer shall be appointed by the shareholders or by the Board of Directors and shall have the powers granted to him at the time he is appointed or at a later date. C. The Secretary shall act as Secretary at the shareholders' meetings and the Board of Directors' meetings. He shall draw up the meeting notices for all of the shareholders' meetings and board meetings. He shall take the minutes, send certifications, keep the company's minute books and shall prepare the reports and carry out the other duties inherent in his job or any others that may be assigned to him by the Chairman, the Board of Directors, or this instrument. In the Secretary's absence, the Assistant Secretary shall take his place. ARTICLE NINETEEN. STATUTORY AUDITORS A. The shareholders shall appoint by majority vote one or more statutory auditors and their deputies, who may or may not be shareholders and who shall be responsible for the company's supervision pursuant to the General Law on Commercial Companies. B. Any shareholder or group of shareholders that represents at least twenty-five percent of the capital stock shall be entitled to appoint a regular auditor and an alternate. C. The regular auditors and their alternates shall serve for one year or until their successors have been elected and 17 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District taken office. They may be re-elected. D. The regular auditors and their alternates shall deposit with the company the security indicated by the general shareholders' meeting at the time they were elected in order to guarantee the faithful performance of their duties. ARTICLE TWENTY. FISCAL YEAR. The company's fiscal year shall run from the January first through December thirty-first of each year, except for the first year, which shall run from the date this instrument is signed until December thirty-first of the same year. The financial information referred to in Article one hundred and seventy-two of the General Law on Commercial Companies shall be drawn up annually to be presented to the shareholders. ARTICLE TWENTY-ONE. DISTRIBUTION OF EARNINGS. Once the financial information has been approved by a shareholders' meeting, at least five percent shall be deducted from the net profits each year for the legal reserve until said reserve equals twenty percent of the capital stock. The remaining profits may be distributed as dividends to the shareholders, kept in the company as retained earnings or disposed of as determined by a vote of the shareholders. The shareholders' meeting or, failing that, the Board of Directors, shall set the date on which the declared dividends shall be paid out. The dividends shall be paid to the shareholders recorded in the book of registered shareholders on the date set for the dividend payment. Those dividends not collected within five years of the announced payment date shall be deemed to be waived and transferred to the company. 18 ARTICLE TWENTY-TWO. DISSOLUTION.. The company shall be dissolved at the end of the period indicated in Article four of this instrument unless this period is extended before its termination by a resolution of a special shareholders' meeting or unless the company is dissolved early for any of the following reasons: 1. The company can no longer carry out the main purpose for which it was formed. 2. It has lost two-thirds of its capital stock. 3. By a resolution of a special shareholders' meeting. 4. The number of shareholders falls below the level required by law. ARTICLE TWENTY-THREE. LIQUIDATION. Should it be necessary to liquidate the company, the shareholders shall elect one or more liquidators by a majority vote. The liquidator(s) shall be empowered to conduct the company's transactions and liquidate its business; collect the amounts owed to the company and repay its debts; sell the company's assets at the price or prices the aforesaid liquidators deem fair according to their best knowledge and understanding; distribute the company's remaining assets among the shareholders in proportion to their respective interests; take all suitable and appropriate measures to conclude the company's liquidation in accordance with Articles two hundred and forty-two and two hundred and forty-eight of the General Law on Commercial Companies as well as to obtain the cancellation of the company's register once the liquidation is completed. The liquidator(s) 19 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District together shall also be empowered to act as a general agent as stipulated in Articles two thousand five hundred and fifty-four and two thousand five hundred and eighty seven of the Civil Code governing the Federal District and the corresponding articles of the Civil Codes for all of the States of the Mexican Republic. ARTICLE TWENTY-FOUR. APPLICABLE LAW For all matters that are not expressly stipulated in this instrument, the General Law on Commercial Companies shall apply. PROVISIONAL ARTICLES ONE. The signers declare that they have subscribed and paid in cash the required minimum of the company's capital as follows:
SHAREHOLDER SHARES VALUE ----------- ------ ----- Herbalife International, Inc. Nine thousand eight hundred and Nine thousand eight hundred and represented by Mr. Paulino Olavarrjeta ninety-seven ninety-seven thousand pesos Uralde, Esq., - --------------------------------------- ------------------------------- -------------------------------- Herbalife International of America, One hundred One-hundred thousand pesos Inc. represented by Mr. Paulino Olavarrjeta Uralde, Esq., - --------------------------------------- ------------------------------- -------------------------------- Mr. Paulino Olavarrjeta Uralde, Esq., One One thousand pesos - --------------------------------------- ------------------------------- --------------------------------
20
SHAREHOLDER SHARES VALUE ----------- ------ ----- Gerardo Hernandez Reyes Esq. One One thousand pesos - --------------------------------------- ------------------------------- -------------------------------- Antonio Daniel Del Rio Loaiza Esq. One One thousand pesos - --------------------------------------- ------------------------------- -------------------------------- Total: Ten thousand shares Ten million pesos Mexican currency - --------------------------------------- ------------------------------- --------------------------------
TWO. The shareholders by a unanimous vote resolve as follows: I. That the company be administered by a Board of Directors composed as follows: BOARD OF DIRECTORS
Full members: Alternate members: - ------------- ------------------ Mark Hughes Paulino Olavarrjeta Uralde Esq. Lawrence Thompson Tim Gerrity Christopher Pair Sergio Roberto Medina Gomez
Be it resolved that any alternate member of the Board of Directors may act in the absence of any full member without waiting to be appointed. II. Andres Martinez, Public Accountant, is appointed as Statutory Auditor. Be it recorded for all legal purposes that the persons appointed as Directors, General Manager and Statutory Auditor have accepted their responsibilities and pledged and guaranteed the faithful performance of their duties by depositing in the Company's corporate treasury the amount of TEN THOUSAND PESOS in Mexican currency each, according to information received. III. Mr. Sergio Roberto Medina Gomez is appointed as General Manager. IV. The fiscal years shall run from January first through December thirty-first of each year. As an exception, the first fiscal year shall be irregular in that it begins 21 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District on the date this instrument is signed and ends on December thirty-first of this year. V. HERBALIFE PRODUCTS DE MEXICO, SOCIEDAD ANONIMA DE CAPITAL VARIABLE, grants the following powers of attorney to Mr. SERGIO ROBERTO MEDINA GOMEZ: 1. A general power of attorney for administrative acts and for legal actions and collections as stipulated in Article two thousand five hundred and fifty-four of the Civil Code for the Federal District and the corresponding articles in the Civil Codes of all the States of the Mexican Republic, with all the general and special powers which by law require a special clause pursuant to Article two thousand five hundred and eighty-seven of the aforesaid Code and the corresponding articles in the other Civil Codes cited herein, such as to withdraw a claim, settle, submit to arbitration, submit and answer interrogatories, file challenges, accept transfers of assets, receive payments, issue receipts and cancellations; to represent the company in civil, commercial and criminal proceedings and to dispute claims and continue the proceedings through all the courts until completion; to bring amparo proceedings, conduct them and withdraw them with the knowledge that said attorney-in-fact may act before all kinds of Reconciliation and Arbitration Boards, whether Local or Federal, and before Arbitration Courts, Authorities and Tax Courts and before any other kind of Authority; enter into collective or individual labor agreements; file all types of criminal complaints to the police, accusations and criminal complaints to courts, represent the company in any criminal proceeding, to formally assist as coadjutor to the Attorney General's Office, pardon the accused when appropriate, offer 22 evidence in criminal proceedings in accordance with Article nine of the Criminal Procedures Code and the corresponding Criminal Procedures Codes of the other States of the Mexican Republic. It is understood that the powers conferred herein are listed by way of illustration, but not limitation, for the exercise of this mandate. 2. A special power of attorney for administrative acts and for legal actions and collections, acting as General Manager, whose appointment is confirmed in this act, so that in his capacity as the aforesaid company's legal representative and, in keeping with his responsibilities within the company, in accordance with Articles nine, eleven, eight hundred and seventy-six and eight hundred and eighty eight of the Federal Labor Law, has the authority to bind the company in its labor relations, individually and/or collectively with its workers and employees and with the unions and organizations to which said workers or employees belong, in order that the aforementioned Mr. SERGIO ROBERTO MEDINA GOMEZ takes part in managing these labor relations, whether individual and/or collective, including express powers in this regard to enter into, sign, revise and/or amend individual and/or collective labor agreements, take part in any mediation proceedings before any type of Labor Authority, be they Federal or Local, and to submit and answer interrogatories. This mandate is granted under the terms of Articles two thousand five hundred and fifty-four and two thousand five hundred and eighty-seven of the Civil Code for the Federal District with all the general and special powers referred to in said Articles, including, 23 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District but not limited to: to take part in mediation proceedings and negotiations before any Labor Authority, whether Federal or Local, settle, submit to arbitration, submit and answer interrogatories, file challenges, accept transfers of assets, receive payments, issue receipts and cancellations; to respond to complaints and formulate counterclaims, file criminal complaints with the police, make accusations and criminal complaints before the courts, pardon the accused and, in general, carry out all the actions pertaining to the principal Company and continue the proceedings through all of the courts until completion with the knowledge that this authorization may be exercised before Reconciliation Boards, Reconciliation and Arbitration Boards, whether Local or Federal, the Secretariat of Labor and Social Welfare, the Labor Offices of the State Governments and before any other Labor authority, whether Federal or Local, unions, individuals, institutions and companies, all the above in the name of and on behalf of the aforesaid principal company and as its legal representative. 3. MR. SERFIO ROBERTO MEDIAN GOMEZ is authorized to proceed with the corresponding legal authorization, as well as to record in the Public Business Registry of the City of Guadalajara, State of Jalisco, the notarial certified copy of the notarial instrument setting forth this company's incorporation. I, THE NOTARY PUBLIC, DO CERTIFY: I. That the appearing person identified himself as shown in the identification list attached as Appendix "D" to this instrument, and that I regard him as legally able to execute this document. II. That Mr. PAULINO OLAVARRJETA URALDE, Esq. states that his principals are 24 legally able to execute this document and certifies the legal personality he purports to have, and that his powers have not been revoked, or modified in any way, relative to the documents referred to in the opening paragraphs of this instrument. III. That in regards to their personal information, and warned of the penalties for making false statements, the appearing parties state that they are: Mr. PAULINO OLAVARRJETA URALDE, Esq., Mexican by birth, a native of the City of Salinas, State of San Luis Potosi, where he was born on the twenty-ninth of February, nineteen hundred and forty, married, Attorney, domiciled at Liverpool number one hundred twenty-three, Colonia Juarez, Delegacion Cuauhtemoc, in this City. Mr. GERARDO HERNANDEZ REYES Esq., Mexican by birth, a native of Mexico City in the Federal District, where he was born on the fourteenth of August, nineteen hundred and forty-nine, married, Attorney, and domiciled at the same place as the above. Mr. DANIEL ANTONIO DEL RIO LOAIZA Esq., Mexican by birth, a native of Mexico City in the Federal District, where he was born on the forth of March, nineteen hundred and fifty-seven, married, Attorney, and domiciled at the same place as the above. IV. The appearing parties expressly state under sworn oath that they release the undersigned Notary of any responsibility for obtaining an official confirmation and registration in the applicable Public Business Registry of the notarial certified copy to be sent of this instrument. V. That he saw the documents cited in this instrument. 25 [emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District VI. The appearing parties, having read this instrument and had it explained to them, stated their approval of it and signed this instrument on the third of June, nineteen hundred and ninety-two, for which reason I authorize the same as a preventive measure. I certify the foregoing. SIGNATURES OF MSSRS. PAULINO OLAVARRJETA URALDE, Esq., GERARDO HERNANDEZ REYES Esq. AND DANIEL ANTONIO DEL RIO LOAIZA Esq.] SEALS. BEFORE ME. ARMANDO GALVEZ PEREZ ARAGON. SEAL AUTHENTICATING SEAL. So as to comply with the provisions of Article two thousand five hundred and fifty-four of the Civil Code in force in the Federal District, the following was transcribed: "ARTICLE 2554. With respect to all of the general powers for legal actions and collections, it is sufficient to say they are granted with all the general and special powers that by law require a special clause in order for them to be understood to be conferred without any limitation. With respect to the general powers to manage assets, it is sufficient to say they are given as such for the authorized agent to have full administrative powers. With respect to the general powers to exercise acts of ownership, it is sufficient that they be given as such for the authorized agent to have full powers of ownership, both with respect to the assets and to taking all types of steps to defend them. When, in the three aforementioned cases, the aim is to limit the authorized agent's powers, the limitations or the powers shall be special. The notaries shall insert this article in the notarial certified copies of the powers of attorney being granted". 26 I, ARMANDO GALVEZ PEREZ ARAGON, Public Notary number one hundred and three of the Federal District, CERTIFY that this photocopy is a true and exact reproduction of its original with which I compared it. I do hereby certify the following. Mexico City, Federal District, on the fifth of June, nineteen hundred and ninety-two. [Signature] [seal with the emblem of Mexico:] ARMANDO GALVEZ PEREZ ARAGON, Notarial Office No. 103, Mexico City, Federal District EX-3.35 20 y65450a1exv3w35.txt ARTICLES OF ASSO. OF HERBALIFE SWEDEN AKTIEBOLAG EXHIBIT 3.35 Translation Annex 1 27 October 1999 556485-4361 ARTICLES OF ASSOCIATION Section 1 The name of the company is Herbalife Sweden Aktiebolag. Section 2 The company's business activities shall be to import, trade in, distribute and market weight regulating products, food, food additives, skincare products and haircare products, cosmetics and other products for the personal care and similar products, as well as activities connected therewith. Section 3 The registered office of the company shall be in Stockholm. Section 4 The par value of each share shall be SEK one hundred (100). Section 5 The share capital shall amount to minimum SEK 100,000 and maximum SEK 400,000. Section 6 The Board of Directors shall consist of minimum one and maximum five members. The Directors of the Board shall be elected annually at the Annual General Meeting for a period of time up to and including the next Annual General Meeting. If the Board consists of one or two members, a deputy member shall be elected. Section 7 One or two auditors as well as one or two deputy auditors shall be elected. Section 8 The Annual General Meeting shall be held within six months from the end of the financial year. The following matters shall be dealt with at the Annual General Meeting: 1. Election of chairman at the meeting, 2. Election of one or two minute-checkers, 3. Establishing and approval of voting list, 4. Approval of the agenda, 5. Compliance with the rules of convocation, 6. Presentation of the Annual Report and the Auditor's Report, 7. Adoption of the Profit and Loss Statement and the Balance Sheet and resolution regarding the disposition of the profit or loss according to the adopted Balance Sheet, 8. Resolution regarding discharging the members of the Board and the Managing Director from responsibility, 9. Resolution regarding fees to the members of the Board and the Auditors, 10. Election of Board members, and where applicable, Auditors and Deputy Auditors, if any, 11. Other matters, duly referred to the Annual General Meeting. Section 9 Summons to the Annual General Meeting shall be sent by registered mail at the earliest six weeks and at the latest two weeks before the meeting. Section 10 At the General Meeting each shareholder is entitled to vote for the full number of shares represented by him. Section 11 The financial year shall be January 1 - December 31. Section 12 If a share in the company has been transferred to a person who does not already hold shares in the company, the share shall immediately be offered the shareholders for redemption by written notice to the Board of Directors. The acquisition of the share shall thereby be verified. When the share has thus been offered, the Board of Directors shall immediately give notice of this offer to the company's shareholders, whose addresses are indicated in the share register or who are otherwise known to the company, and request those who wish to exercise the redemption right to apply to the Board of Directors in writing within two months of the notice to the Board of Directors of the transfer of the share. Should more than one person apply, the order of priority among them shall be decided by drawing of lots conducted by a notary public. However, if several shares are being offered at the same time, the shares shall first, as far as possible, be divided in proportion to the previous shareholding among those who wish to redeem. The redemption sum shall be the purchase price, which, in case of a dispute, shall be determined by arbitration in accordance with the Arbitration Act. The redemption sum shall be paid within one month of the date at which the redemption price was determined. If no one has given notice to redeem shares offered within the time stipulated, or if the redemption sum has not been paid within the time stipulated, the offerer has the right to become the registered owner of the share. CERTIFIED TO BE A TRUE COPY: /s/ Linda Johansoon -------------------------------- Linda Johansoon +46 8 505 761 28 EX-3.36 21 y65450a1exv3w36.txt LIMITED LIABILITY CO. AGREEMENT OF HERBALIFE CHINA EXHIBIT 3.36 LIMITED LIABILITY COMPANY AGREEMENT FOR HERBALIFE LEINER, LLC, A DELAWARE LIMITED LIABILITY COMPANY NY3 - 302963.01 TABLE OF CONTENTS
Page ---- ARTICLE 1 - INTERPRETATION...................................................................................2 1.1 Definitions.....................................................................................2 1.2 Successors and Assigns..........................................................................8 1.3 Construction....................................................................................8 ARTICLE 2 - EFFECTIVE DATE 8 2.1 Effective Date..................................................................................8 ARTICLE 3 - FORMATION AND ORGANIZATIONAL MATTERS.............................................................8 3.1 Formation.......................................................................................8 3.2 Name............................................................................................8 3.3 Principal Place of Business.....................................................................8 3.4 Registered Office and Registered Agent..........................................................8 3.5 Permitted Businesses............................................................................9 3.6 Term............................................................................................9 ARTICLE 4 - CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS.......................................................9 4.1 Initial Capital Contributions...................................................................9 4.2 Additional Capital Contributions and Funding of the WFOE........................................9 4.3 Capital Accounts...............................................................................12 4.4 No Interest....................................................................................13 4.5 Failure to Make Capital Contributions..........................................................13 4.6 Member Loans to Company........................................................................14 4.7 No Withdrawal..................................................................................15 ARTICLE 5 - RIGHTS AND DUTIES OF BOARD OF MANAGERS..........................................................15 5.1 Management.....................................................................................15 5.2 Number, Appointment, Tenure....................................................................15 5.3 No Exclusive Duty to Company...................................................................16 5.4 Compensation and Reimbursement.................................................................16 5.5 Certain Powers of Board of Managers............................................................16 5.6 Meetings of Board of Managers..................................................................17 5.7 Resolutions Requiring Super-Majority Votes.....................................................17 5.8 Other Manner of Acting.........................................................................18 ARTICLE 6 - MANAGEMENT AND OPERATION OF THE WFOE............................................................18 6.1 Board of Directors.............................................................................18 6.2 Board Meeting of the WFOE......................................................................18
i 6.3 Chairman of the Boards ........................................................................19 6.4 General Manager ...............................................................................19 6.5 Divisions of WFOE .............................................................................19 6.6 No Subsidy of Loss Among Divisions ............................................................20 6.7 Close Down of a Division ......................................................................20 6.8 Deputy General Manager ........................................................................22 6.9 The Chief Accountant ..........................................................................22 6.10 Salaries ......................................................................................22 6.11 Annual Operating Plan and Budgets .............................................................23 6.12 Transfer Pricing of the Manufacturing Division ................................................23 6.13 License Agreements ............................................................................23 6.14 Termination of the WFOE .......................................................................24 6.15 Financial Operating Policies and Procedures....................................................24 6.16 Ownership of Formulae etc......................................................................24 ARTICLE 7 - RIGHTS AND OBLIGATIONS OF MEMBERS...............................................................24 7.1 Limitation of Liability........................................................................24 7.2 List of Members................................................................................25 7.3 Company Books..................................................................................25 7.4 Priority and Return of Capital.................................................................25 7.5 No Preemptive Rights...........................................................................25 7.6 No Withdrawal or Resignation...................................................................25 7.7 Payments to Members............................................................................25 7.8 Indemnification................................................................................25 7.9 Competing Activities...........................................................................26 7.10 Transactions between the Company and the Members...............................................26 7.11 No Voting Rights...............................................................................26 ARTICLE 8 - STANDARD OF CARE AND INDEMNIFICATION OF MANAGERS, OFFICERS AND EMPLOYEES........................26 8.1 Standard of Care...............................................................................26 8.2 Indemnification of Managers, Officers and Employees............................................27 ARTICLE 9 - PERCENTAGE INTERESTS AND ADJUSTMENT.............................................................27 9.1 Percentage Interests...........................................................................27 9.2 Adjustment of Percentage Interests.............................................................27 9.3 Right to Terminate this Agreement and Right of Purchase........................................28 ARTICLE 10 - ACCOUNTING, PROFITS AND LOSSES OF WFOE'S DIVISIONS AND MEMBERS' FUNDING OBLIGATIONS............28 10.1 Divisional Accounting..........................................................................28 10.2 Divisional Gain or Loss Upon Sale of Assets....................................................28 10.3 Appraisal of the Assets of the Company and of the WFOE.........................................29
ii ARTICLE 11 - ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS..................................29 11.1 Allocations of Net Profit and Net Loss.........................................................29 11.2 Additional Allocation Provisions...............................................................30 11.3 Tax Allocations................................................................................32 11.4 Allocations With Respect to Changes in Membership Interests....................................32 11.5 Distributions..................................................................................32 11.6 Accounting Principles..........................................................................33 11.7 Interest on and Return of Capital Contributions................................................33 11.8 Loans to Company...............................................................................33 11.9 Records and Report.............................................................................33 11.10 Returns and Other Elections....................................................................34 11.11 Tax Matters Partner............................................................................34 11.12 Trapped Profits Reconciliation Payment.........................................................34 ARTICLE 12 - TRANSFER AND ASSIGNMENT OF MEMBERSHIP INTEREST.................................................35 12.1 General........................................................................................35 12.2 Specific Provisions Governing Transfers........................................................35 12.3 Right of First Refusal.........................................................................36 12.4 Further Requirements on Transfer...............................................................37 12.5 Effectiveness of Transfer......................................................................38 ARTICLE 13 - NEW MEMBERS 38 13.1 Restrictions on Admission of New Members.......................................................38 13.2 Allocations to New Members.....................................................................38 13.3 Agreement to be Bound by this Agreement........................................................38 ARTICLE 14 - TERMINATION AND DISSOLUTION 38 14.1 Dissolution....................................................................................38 14.2 Winding Up, Liquidation and Distribution of Assets.............................................39 14.3 Certificate of Cancellation....................................................................40 14.4 Effect of Filing of Certificate of Cancellation................................................41 14.5 Return of Contribution Nonrecourse to Other Members............................................41 ARTICLE 15 - COMPLIANCE WITH LEGAL REQUIREMENTS 41 15.1 Compliance with Applicable Laws................................................................41 15.2 Compliance with United States Export Controls..................................................41 15.3 Compliance with Foreign Corrupt Practices Act..................................................41 ARTICLE 16 - MISCELLANEOUS PROVISIONS 42 16.1 Notices........................................................................................42 16.2 Application of Delaware Law....................................................................42 16.3 Dispute Resolution.............................................................................42
iii 16.4 Waiver of Action for Partition.................................................................43 16.5 Entire Agreement and Amendments................................................................43 16.6 Execution of Additional Instruments ...........................................................43 16.7 Waivers .......................................................................................43 16.8 Rights and Remedies Cumulative ................................................................43 16.9 Severability ..................................................................................43 16.10 Binding Effect ................................................................................43 16.11 Creditors .....................................................................................43 16.12 Counterparts ..................................................................................43 16.13 Investment Representations.....................................................................43 16.14 Confidentiality................................................................................44 SCHEDULE A Members and Each Members Initial Capital Contributions...........................................46 SCHEDULE B Initial Annual Divisional Operating Plans........................................................47 SCHEDULE C Financial Operating Policies and Procedures......................................................48 SCHEDULE D WFOE's Pricing Policy For Sale Of Semi-Processed Materials.......................................60
iv LIMITED LIABILITY COMPANY AGREEMENT FOR HERBALIFE LEINER, LLC, A DELAWARE LIMITED LIABILITY COMPANY THIS LIMITED LIABILITY COMPANY AGREEMENT (the "Agreement") of HERBALIFE LEINER, LLC (the "Company") is made and entered into as of this ______ day of ____________, 1999, by and between HERBALIFE INTERNATIONAL, INC., a Nevada corporation ("Herbalife"), and LEINER HEALTH PRODUCTS, INC., a Delaware corporation ("Leiner"), as members of the Company (collectively, the "Members"). RECITALS: A. On February 16, 1999, Herbalife caused to be filed with the office of the Secretary of State of the State of Delaware a Certificate of Formation of the Company, a limited liability company organized under the laws of the State of Delaware. Prior to the Effective Date of this Agreement, Herbalife was the sole Member of the Company. B. On December 28, 1997, Herbalife established "Herbalife International (Suzhou) Nutritional Products Ltd.," a wholly foreign-owned enterprise company in Suzhou, China (the "WFOE"). Herbalife is the sole investor in the WFOE. C. Herbalife and Leiner desire to enter into a business arrangement whereby Herbalife and Leiner will indirectly jointly and beneficially own the WFOE through the Company. D. As a step in the implementation of the proposed business arrangement between Herbalife and Leiner, Herbalife has agreed to transfer to the Company all of Herbalife's interest in the registered capital of the WFOE upon approval by the relevant Chinese approval authority of the proposed transfer and of the Amended and Restated Articles of Association of the WFOE as agreed by the parties to this Agreement. E. Concurrent with the execution of this Agreement, the parties will enter into a Subscription Agreement of even date herewith, whereby they agree that, upon the satisfaction of certain conditions precedent set forth therein, the parties shall contribute to the capital of the Company, which shall fund inter alia, the remaining amount of the registered capital of the WFOE. F. The parties hereto desire to approve and adopt this Limited Liability Company Agreement to govern the business and affairs of the Company and to set forth their respective rights, privileges, duties, obligations and mutual agreements with respect to the Company and the WFOE, to be effective from the Effective Date. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 INTERPRETATION 1.1. Definitions. The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided herein): "Affiliate" shall mean, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by, or under common control with such Person, (ii) any Person owning, directly or indirectly, fifty percent (50%) or more of the outstanding voting interests of such Person, (iii) any officer, director, or general partner of such Person, or (iv) any Person who is an officer, director, general partner, trustee, or holder of fifty percent (50%) or more of the voting interests of any Person described in clauses (i) through (iii) of this sentence. For purposes of this definition, the term "controls", "is controlled by", or "is under common control with" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person. "Approved Leiner Expenses" has the meaning set forth in Article 4.1. "Articles of Association" shall mean the Amended and Restated Articles of Association of the WFOE, as may be amended and in effect from time to time. "Boards" shall mean, collectively, the Board of Managers of the Company and the Board of Directors of the WFOE. "Board of Directors" shall mean the Board of Directors of the WFOE. "Board of Managers" shall mean the Board of Managers of the Company. "Capital Account" as of any given date shall mean the Capital Account as defined by Article 4.3(a). "Capital Contribution" shall mean the amount of cash or the net fair market value of any property contributed to the capital of the Company by a Member whenever made. "Initial Capital Contribution" shall mean the amount set forth in SCHEDULE A contributed to the Company pursuant to Article 4.1 of this Agreement. 2 "Certificate" shall mean the Certificate of Formation of the Company as filed by the organizer of the Company with the Secretary of State of the State of Delaware, as the same may be amended from time to time. "Chairman" shall mean the Chairman of the Board of Managers and the Chairman of the Board of Directors. "Code" shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequent superseding federal revenue laws. "Company" shall mean Herbalife Leiner, LLC. "Delaware Act" shall mean the Delaware Limited Liability Company Act at Title 6 of the Delaware Code, Sections 18-101 through Sections 18-1109, as the same may be amended from time to time. "Depreciation" means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year for United States federal income tax purposes, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at any time during such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such Gross Asset Value as of such time as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset is zero, Depreciation shall be determined with reference to such Gross Asset Value using any reasonable method selected by the Board of Managers. "Distribution Division" shall mean, with respect to Herbalife, the Herbalife Division; and with respect to Leiner, the Leiner Division. "Division" shall mean each or any of the WFOE's Divisions. "Director" shall mean one or more members of the Board of Directors. References to the Directors in the singular or as him, her, it, itself or other like references shall also, where the context so requires, be deemed to include the plural or the masculine or feminine reference, as the case may be. "Effective Date" shall have the meaning set forth in Article 2.1. "Fiscal Year" shall mean the fiscal year of the Company and/or the WFOE, as the case may be, which shall be the calendar year. 3 "GAAP" shall mean the Generally Accepted Accounting Principles of the United States. "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset. (ii) The Gross Asset Values of all Company assets shall be adjusted to equal their respective fair market values, as of the following times: (a) the acquisition of a Membership Interest in the Company by a new or existing Member in exchange for more than a de minimis Capital Contribution, if such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company; (b) the distribution by the Company to a Member of more than a de minimis amount of Company money or property as consideration for a Membership Interest in the Company, if necessary or appropriate to reflect the relative economic interests of the Members; (c) the liquidation of the Company within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g); and (d) at such other times as necessary or advisable in order to comply with Treasury Regulation Sections 1.704-1(b) and 1.704-2. (iii) The Gross Asset Value of any Company asset distributed to a Member shall be the gross fair market value of such asset on the date of distribution. (iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulation Section 1.704-l(b)(2)(iv)(m) and subparagraph (vi) of the definition of "Net Profit" and "Net Loss"; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that the Members reasonably 4 determine that an adjustment pursuant to subparagraph (ii) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). (v) If the Board of Managers and a Member contributing or receiving distribution of an asset cannot agree on the Gross Asset Value of such asset, such value shall be determined by an independent international accounting firm at the expense of the Company. If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraphs (i), (ii), or (iv) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Profit or Net Loss. "Herbalife Division" shall have the meaning set forth in Article 6.5. "Herbalife Net Profit or Net Loss" shall mean Net Profit or Net Loss computed separately for the Herbalife Division under Article 10.1. "Leiner Division" shall have the meaning set forth in Article 6.5. "Leiner Net Profit or Net Loss" shall mean Net Profit or Net Loss computed separately for the Leiner Division under Article 10.1. "Manager" shall mean one or more members of the Board of Managers. References to the Managers in the singular or as him, her, it, itself or other like references shall also, where the context so requires, be deemed to include the plural or the masculine or feminine reference, as the case may be. "Manufacturing Division" shall have the meaning set forth in Article 6.5. "Manufacturing Net Profit or Net Loss" shall mean the Net Profit or Net Loss computed separately for the Manufacturing Division under Article 10.1. "Member" shall mean, in connection with the formation of the Company, Herbalife, and as of and after the Effective Date, each of Herbalife and Leiner, and any other Person who may be admitted as a member of the Company in accordance with Article 13 of this Agreement. "Membership Interest" shall mean a Member's entire interest in the Company, including such Member's share in the Company's Net Profit, Net Loss and distribution of the Company's assets pursuant to this Agreement and the Delaware Act and such other rights and privileges that the Member may enjoy by being a Member. 5 "MOFTEC" shall mean the Ministry of Foreign Trade and Economic Cooperation of the PRC. "Net Profit" or "Net Loss" shall mean, for each Fiscal Year (or other relevant period), an amount equal to the Company's taxable income or loss for such fiscal year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(l) shall be included in taxable income or loss, and all fees and reimbursements payable to any Member shall be regarded as deductions), with the following adjustments: (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this definition of Net Profit or Net Loss shall be added to such taxable income or loss; (ii) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation Section 1.704-l(b)(2)(iv)(i), and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this definition of Net Profit or Net Loss shall be subtracted from such taxable income or loss; (iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) or subparagraph (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Profit or Net Loss; (iv) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the provisions in the definition of "Depreciation" in this Article l above. (vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required 6 pursuant to Treasury Regulation Section l.704-l(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's Membership Interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Profit or Net Loss; and (vii) Notwithstanding any other provision of this definition of Net Profit or Net Loss, any items which are specially allocated pursuant to Article 11.2 shall not be taken into account in computing Net Profit or Net Loss. "Nonrecourse Debt" has the meaning set forth in Treasury Regulation Section 1.704-2(b)(3). "Nonrecourse Deductions" has the meaning set forth in Treasury Regulation Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a fiscal year of the Company shall be determined in accordance with the rules of Treasury Regulation Section 1.704-2(c). "PRC" shall mean the People's Republic of China (excluding for purposes of this Agreement, Hong Kong, S.A.R., Macau and Taiwan). "PRC Approval Authority" shall mean the Administrative Commission of the Suzhou Industrial Park in Suzhou, China, which is the original approval and examination authority of the WFOE, and/or such other relevant PRC authorities. "Partner Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(3). "Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation Section 1.704-2(b)(4). "Partner Nonrecourse Deductions" has the meaning set forth in Treasury Regulation Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Company taxable year shall be determined in accordance with the rules of Treasury Regulation Section l.704-2(i)(2). 7 "Partnership Minimum Gain" has the meaning set forth in Treasury Regulation Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Company taxable year shall be determined in accordance with Treasury Regulation Section 1.704-2(d). "Percentage Interest" shall mean the percentage of a Member's ownership in the Company, initially as set forth opposite the name of such Member in Article 9.1, and as such percentage may be adjusted from time to time pursuant to the terms of this Agreement, such adjusted percentage as prevailing at the relevant time. "Person" shall mean any individual, general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, estate, association, or other entity, whether foreign or domestic, and their heirs, executors, administrators, legal representatives, successors and assigns where the context so permits. "Prime Rate" shall mean, on any relevant day, the prime rate as published in the Western U.S. edition of The Wall Street Journal on that day, or if the relevant day is not a business day, the prime rate as published in the Western U.S. edition of The Wall Street Journal on the immediately preceding business day. "Regulatory Allocations" has the meaning set forth in Article 11.2. "Reserves" shall mean funds set aside or amounts allocated to reserves which shall be maintained in amounts deemed sufficient by the Board of Managers for working capital and to pay taxes, insurance, debt service or other costs or expenses incident to the ownership or operation of the Company's business. "Subscription Agreement" shall mean the Subscription Agreement of even date herewith between the Company, Herbalife and Leiner. "Transfer" shall mean: (i) sell, assign, pledge, hypothecate, transfer, exchange or otherwise transfer for consideration, or (ii) gift, bequeath or otherwise transfer for no consideration; and where the context requires, the term "Transfer" may be used as a noun. "Transferring Member" shall mean any Member who Transfers all or any part of its Membership Interest. "Treasury Regulations" shall include temporary and final regulations promulgated under the Code. "WFOE" shall mean H&L (Suzhou) Health Products Ltd., formerly Herbalife International (Suzhou) Nutritional Products Ltd., a wholly foreign-owned enterprise company established and existing in the Suzhou Industrial Park, Suzhou, People's 8 Republic of China, which is in the business of manufacturing in the PRC, and selling and distributing in the PRC and international markets, health food products, nutritional supplements, other food products, personal care products and related promotional products. "WFOE's Divisions" shall collectively mean the Herbalife Division, the Leiner Division and the Manufacturing Division, each of which may be referred to as a "Division". 1.2. Successors and Assigns. The expressions "Herbalife", "Leiner" and "Member" shall where the context permits include their respective successors and permitted assigns and any Person deriving title under them. 1.3. Construction. In this Agreement, unless the context requires otherwise, words importing the singular include the plural and vice versa and words importing a gender include every gender; references to this Agreement or the Subscription Agreement or any other agreement referred to herein and therein shall be construed as references to such document as the same may be amended, or supplemented from time to time; unless otherwise stated, references to Articles are to articles of this Agreement and references to Schedules are to schedules to this Agreement. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision hereof. ARTICLE 2 EFFECTIVE DATE 2.1. Effective Date. This Agreement shall become effective on the Effective Date. The term "Effective Date" as used herein shall refer to the date upon which all of the conditions precedent set forth in Articles 3.2 and 3.3 of the Subscription Agreement are satisfied or waived by the appropriate party or parties thereto or such other date as is mutually agreed to in writing by Herbalife and Leiner. ARTICLE 3 FORMATION AND ORGANIZATIONAL MATTERS 3.1. Formation. The Company has been organized as a Delaware limited liability company by executing and delivering the Certificate to the Secretary of State of the State of Delaware in accordance with and pursuant to the Delaware Act. 9 3.2. Name. The name of the Company is "Herbalife Leiner, LLC". The Company may conduct business under that name or any other name approved and designated by the Board of Managers. 3.3. Principal Place of Business. The principal place of business of the Company shall be at 9800 La Cienega Boulevard, Inglewood, California 90301, U.S.A. The Company may locate its places of business and registered office at any other place or places as the Board of Managers may deem advisable. 3.4. Registered Office and Registered Agent. The Company's initial registered office shall be at the office of its registered agent at 30 Old Rudrick Lane, Dover, Delaware 19901, and the name of its initial registered agent shall be CorpAmerica, Inc. At any time, the Board of managers may designate another registered agent and/or registered office. 3.5. Permitted Businesses. The business of the Company shall be to invest in, own, and operate the WFOE, and to carry on any and all activities in connection therewith, and to have and exercise all of the powers, rights and privileges which a limited liability company organized pursuant to the Delaware Act may have and exercise. The Company shall have no other purpose and shall engage in no other business activity, except as may be otherwise determined by the Board of Managers. 3.6. Term. The term of the Company commenced on the date of the formation of the Company in accordance with and pursuant to the Delaware Act, and shall continue until October 5, 2048, the expiration date of the term of the WFOE (or earlier if the WFOE is sold by the Company or liquidated prior to the expiration date of its term), or the expiration date of any extended term of the WFOE, unless the Company is earlier dissolved in accordance with either the provisions of this Agreement or the Delaware Act. ARTICLE 4 CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS 4.1. Initial Capital Contributions. Herbalife and Leiner have each contributed such amount as set forth in Schedule A as its Initial Capital Contribution. In addition, the parties hereto acknowledge that (i) Herbalife has already incurred expenses in an amount equal to Six Hundred Four Thousand Eight Hundred Forty-Three and 8/100 United States Dollars (US$604,843.08) in connection with the formation and organization of the WFOE, which amount shall be deemed to have been contributed by Herbalife to the capital of Company; and (ii) Leiner has incurred expenses in connection with the formation and organization of the WFOE, which amount shall be deemed to have been 10 contributed by Leiner to the capital of Company to the extent that such expenses are approved by the relevant government authorities of the PRC (the "Approved Leiner's Expenses"). 4.2. Additional Capital Contributions and Funding of the WFOE. (a) Each of Herbalife and Leiner shall make additional Capital Contributions as each of them from time to time deems appropriate to fund all the capital requirements of its Distribution Division (i.e., Herbalife for the Herbalife Division and Leiner for the Leiner Division). Herbalife shall have the obligation to make additional Capital Contributions to the Company to fund the Herbalife Division to the extent required to enable the WFOE to meet on a timely basis all financial obligations incurred by the WFOE on behalf of the Herbalife Division. Leiner shall have the obligation to make additional Capital Contributions to the Company to fund the Leiner Division to the extent required to enable the WFOE to meet on a timely basis all financial obligations incurred by the WFOE on behalf of the Leiner Division. Herbalife shall not be required to make any additional Capital Contributions to fund the capital requirements of the Leiner Division or financial obligations incurred by the WFOE on behalf of the Leiner Division, and Leiner shall not be required to make any additional Capital Contributions to fund the capital requirements of the Herbalife Division or the financial obligations of the WFOE incurred on behalf of the Herbalife Division. (b) Herbalife and Leiner shall be required to make additional Capital Contributions from time to time as directed by the Board of Managers to fund all the capital requirements of the Manufacturing Division and all the financial obligations of the WFOE incurred on behalf of the Manufacturing Division in proportion to the their respective Percentage Interests, except that, notwithstanding any other provision of this Agreement, the maximum amount of capital that Leiner shall be required to contribute to the Manufacturing Division under Article 4.1 (to the extent that any of Leiner's Initial Capital Contributions thereunder is utilized by the Manufacturing Division), this Article 4.2(b), Article 4.2(e) and Article 4.2(f), together with the Approved Leiner Expenses (if any), shall not exceed Five Million United States Dollars (US$5,000,000). (c) The parties hereto acknowledge that the current total investment and registered capital of the WFOE are Sixteen Million Eight Hundred Fifty Nine Thousand United States Dollars (US$16,859,000) and Six Million Seven Hundred Forty Three Thousand and Six Hundred United States Dollars (US$6,743,600), respectively, and that the difference between the amount of total investment and the registered capital may be funded either by loans from the Company, from the Members or from any third party or banks and other financial institution, as directed by the Board of Managers. The Members agree that the preference for providing additional funding to the WFOE, after its original registered capital has been fully contributed, is by way of loans from the 11 Company, funded by Capital Contributions or loans from the Members, or from bank loans. (d) After the Company has paid in the full amount of the approved registered capital of the WFOE, whenever either the Herbalife Division or the Leiner Division needs additional funding for its operations, Herbalife or Leiner, as the case may be, shall submit to the Board of Managers of the Company for approval a proposal outlining the purpose and the amount of the additional funds required and the proposed source of the funds. Provided the Member submitting the proposal agrees to fully fund the increase and the proposal would not materially and adversely affect the overall business of the WFOE, the Members shall cause the Board of Managers to approve the proposal. The Members and the Board of Managers of the Company shall then procure that the Board of Directors of the WFOE approve the same proposal, provided that if the additional funding is to be provided by either of the parties or the Company, and not by a bank or financial institutions, the injection of additional funds to the Company for use by the Herbalife Division or the Leiner Division, as the case may be, shall be by one of the following means, in the order set out below: (i) To the extent that the difference between the approved amounts of total investment and registered capital has not been fully funded by loans, the responsible Member for the relevant Division shall either provide a loan or contribute additional capital, in the amount of the additional funds required, to the Company, and the Company shall provide the amount as a loan to the WFOE, which shall then be utilized by the relevant Division. (ii) If, at the time additional funds are required by the WFOE. the difference between the then approved amounts of total investment and registered capital has been fully handed by loans, the Members shall cause the Board of Directors of the WFOE to unanimously approve a proposal for an increase in the registered capital and total investment amount of the WFOE. After the application for an increase of registered capital total investment amount has been approved by the PRC Approval Authority, the party responsible for the relevant Division shall either provide a loan or contribute additional capital, in the amount of the additional funds required, to the Company, and the Company shall contribute an amount not to exceed the unfunded portion of increased registered capital to the WFOE as additional capital contribution, which shall then be utilized by the relevant Division. (iii) After the approved increase of registered capital of the WFOE has been fully contributed by the Company, the difference between the increased total investment amount and the increased registered capital may be funded by the Member responsible for the relevant Division either by providing a loan or by making additional 12 Capital Contributions to the Company and the Company shall provide the amount as a loan to the WFOE. (e) If the Manufacturing Division requires additional financing for its operation after the Company has paid in the full amount of the approved registered capital of the WFOE, the Deputy General Manager of the Manufacturing Division shall submit to the Board of Managers a proposal outlining and supporting the purpose and the amount of the additional funds required. If the Board of Managers approves the funding request, which approval shall not be unreasonably withheld, the Members shall cause the Board of Directors of the WFOE to approve the funding request. Upon the approval of the Board of Directors of the WFOE, Herbalife and Leiner shall each provide the funds required proportionate to their respective Percentage Interests by any of the methods enumerated in Article 4.2(d) (i) to (iii) as authorized by the Boards, provided that, nothing herein shall require Leiner to contribute, in the aggregate, more than Five Million United States Dollars (US$5,000,000) to the Manufacturing Division pursuant to Article 4.1 (to the extent that any of Leiner's Initial Capital Contribution is utilized by the Manufacturing Division and to the extent that there is any Approved Leiner Expenses), Article 4.2(b), this Article 4.2(e) and Article 4.2(f). (f) Each of the Members shall make additional Capital Contributions to the Company to meet the cash requirements of the Manufacturing Division. On the first day of each fiscal quarter of the WFOE, each Member is required to fund, through its Capital Contributions to the Company, any Projected Cash Flow Deficit of the Manufacturing Division (as defined below) for that fiscal quarter as determined at the end of the previous fiscal quarter, provided that nothing herein shall require Leiner to contribute, in the aggregate, more than Five Million United States Dollars (US$5,000,000) to the Manufacturing Division pursuant to Article 4.1 (to the extent that any of Leiner's Initial Capital Contribution is utilized by the Manufacturing Division and to the extent that there is any Approved Leiner Expenses), Article 4.2(b), Article 4.2(e) and this Article 4.2(f). As used herein, the term "Projected Cash Flow Deficit of the Manufacturing Division" shall mean the additional net cash requirements of the Manufacturing Division after considering all cash sources, uses and available balances arising from the projected performance of the Manufacturing Division for the following fiscal quarter based on a quarterly budget for the relevant quarter prepared by the Deputy General Manager of the Manufacturing Division and approved by the Boards. (g) The parties agree that for purposes of fulfilling each Member's obligations to fund the capital and cash requirements of the Manufacturing Division and the financial obligations of the WFOE incurred on behalf of the Manufacturing Division pursuant to Articles 4.2(b), 4.2(e) and 4.2(f), if, at the time any such finding obligation arises, a Distribution Division has excess cash that will not be utilized by such Distribution Division in the following fiscal quarter, then the Member responsible for such 13 Distribution Division may use such excess cash to fund, in whole or in part, its proportionate share of the Capital Contributions required to be made to the Company for the benefit of the Manufacturing Division by transferring such excess cash from the Distribution Division to the Manufacturing Division, and the excess cash so transferred shall be treated as if it had been distributed to the Member and then re-contributed by the Member to the Company as its Capital Contribution for the benefit of the Manufacturing Division. 4.3 Capital Accounts. (a) There shall be established and maintained for each Member on the books of the Company a capital account (the "Capital Account") in accordance with the following provisions: A separate Capital Account will be maintained for each Member. Each Member's Capital Account will be increased by (1) the amount of money contributed by such Member to the Company; (2) the Gross Asset Value of property contributed by such Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Code Section 752); (3) allocations to such Member of Net Profit; and (4) items in the nature of income or gain which are specially allocated pursuant to Article 11.2. Each Member's Capital Account will be decreased by (1) the amount of money distributed to such Member by the Company; (2) the Gross Asset Value of property distributed to such Member by the Company (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to under Code Section 752); (3) allocations to such Member of Net Losses; and (4) items in the nature of expenses or losses which are specially allocated pursuant to Article 11.2. (b) In the event of a permitted sale or exchange of a Membership Interest in the Company pursuant to Article 12, the Capital Account of the Transferring Member shall become the Capital Account of the transferee to the extent it relates to the transferred Membership Interest in accordance with Section 1.704-1(b)(2)(iv) of the Treasury Regulations. (c) The manner in which Capital Accounts are to be maintained pursuant to this Article 4.3 is intended to comply with the requirements of Code Section 704(b) and the Treasury Regulations promulgated thereunder and the provisions herein regarding maintenance of Capital Accounts shall be interpreted and applied in a manner consistent with such Regulations. If the Company determines that the manner in which Capital Accounts are to be maintained pursuant to the preceding provisions of this Article 4.3 should be modified in order to comply with Code Section 704(b) and the Treasury Regulations, then notwithstanding anything to the contrary contained in the preceding provisions of this Article 4.3, the method in which Capital Accounts are maintained shall be so modified; provided, however, that any change in the manner of maintaining Capital 14 Accounts shall not materially alter the economic agreement between or among the Members as set forth in this Agreement. 4.4 No Interest. No interest shall accrue on or be paid by the Company to any Member in respect of the Capital Contributions or Capital Account of such Member. 4.5 Failure to Make Capital Contributions. If the Board of Managers has determined that an additional Capital Contribution is required from any Member pursuant to Article 4.2(b) or (e) (subject to Leiner's maximum obligation to contribute no more than US$5 million), and if a Member does not timely contribute capital as and when required pursuant to Article 4.2(b) or (e), that Member shall be in default under this Agreement. In such event, the non-defaulting Members may send the defaulting Member written notice of such default, giving it ten (10) days from the date such notice is given to contribute the entire amount of the defaulting Member's required Capital Contribution. If the defaulting Member does not contribute its required capital to the Company within said ten (10) day period, without prejudice to any adjustment to the respective Percentage Interests of the Members pursuant to Article 9.2, those non-defaulting Members may elect any one or more of the following remedies: (a) The non-defaulting Members may advance funds to the Company to cover those amounts which the defaulting Member fails to contribute. Amounts which a non-defaulting Member so advances on behalf of the defaulting Member shall become a loan due and owing from the defaulting Member to such non-defaulting Member and bear interest at a rate equal to the sum of (i) the Prime Rate and (ii) two percent (2%) per annum. Interest shall accrue from day to day and calculated on the actual number of days elapsed and a 360 day year for the period from the date of the advance to the date when the loan is fully repaid. All cash distributions otherwise distributable to the defaulting Member under this Agreement shall instead be paid to the non-defaulting Members making such advances until such advances and interest thereon are paid in full. In any event, any such advances shall be due and payable by the defaulting on demand by the non-defaulting Members. Any amounts repaid shall first be applied to interest and thereafter to principal. Effective upon a Member becoming a defaulting Member, such Member grants to the non-defaulting Members who advance funds under this Article 4.5(a) a security interest in its Membership Interest to secure its obligation to repay such advances and agrees to execute and deliver a promissory note, together with a security agreement, and such UCC-l financing statements and assignments of certificates of membership (or other documents of transfer) as such non-defaulting Members may reasonably request. (b) The Company or the non-defaulting Members may purchase the defaulting Member's entire Membership Interest in accordance with the same terms and conditions as those set forth in Article 12 except that the purchase price shall be an amount equal to 15 eighty percent (80%) of the fair market value of the defaulting Member's Membership Interest determined by an independent appraiser selected by the Board of Managers, the costs of which shall be borne by the defaulting Member. (c) The defaulting Members may not have the right, if so determined by the Board of Managers, to receive any distributions from the Company until the non-defaulting Members have first received distributions in an amount equal to the additional capital contributed by each non-defaulting Member to the Company plus simple interest thereon at a rate equal to the sum of (i) the Prime Rate and (ii) two percent (2%) per annum per annum. Interest shall accrue from day to day and calculated on the actual number of days elapsed and a 360 day year for the period from the date the additional Capital Contribution was made by the non-defaulting Member to the date when the loan is fully repaid. (d) The defaulting Member may, if so determined by the Board of Managers, lose its voting and approval rights under the Delaware Act, the Certificate and this Agreement until such time as the defaulting Member cures the default. (e) If the defaulting Member does not make a required contribution of property, the Company may require the defaulting Member to contribute cash equal to that portion of the fair market value of the contribution that has not been made. This remedy is in addition to, and not in lieu of any other rights, including the right to specific performance, the remedies listed above in this Article 4.5, or any other rights of the Company or its Members under applicable law. Each Member acknowledges and agrees that the remedies described in this Article 4.5 bear a reasonable relationship to the damages which the Members estimate may be suffered by the Company and the non-defaulting Members by reason of the failure of a defaulting Member to make an additional Capital Contribution and the election of any or all of the above described remedies is not unreasonable under the circumstances existing as of the date hereof. The election of the non-defaulting Members, to pursue any remedy provided in this Article 4.5 shall not be a waiver or limitation of the right to pursue an additional or different remedy available hereunder or at law or in equity with respect to any subsequent default. 4.6 Member Loans to Company. Except as otherwise provided herein, no Member shall be required to make any loan or advance to the Company, guarantee or otherwise provide security for any liability of the Company to any third party, or to otherwise provide credit to or on behalf of the Company. Notwithstanding the preceding sentence, the parties agree as follows: 16 (a) The Members shall cooperate with each other and the Board of Managers, and enter into such documents as necessary or required, to obtain loans for the Company, or the WFOE, as the case may be, that are determined by the Board of Managers as necessary for the Company's business or operations, provided that, nothing herein shall require a Member to guaranty any obligation of the Company or the WFOE or to make Capital Contributions in excess of those required by this Agreement. All loans from the Members to the Company and from the Company to the WFOE shall be on such terms as the Boards shall approve with the votes of at least two-thirds of the Managers or the Directors, as the case may be, then in office, with the intent that no Member or Division shall obtain more favorable terms than the other Members or Divisions. (b) Any Member may voluntarily make a loan or advance to the Company; provided, however, that any such loan or advance is determined by the Board of Managers to be necessary to the business of the Company and the terms and conditions thereof are approved in advance by the Board of Managers. In the event that any Member makes a loan or advance to the Company, the amount of such loan or advance shall be treated as a debt owed by the Company to such Member and not as a Capital Contribution. Unless otherwise agreed by the Members, loans by Members to the Company or the WFOE, or from the Company to the WFOE for the lending Member's Division, shall be repaid pro-rata; provided, however, that no lending Member's loan shall be repaid if by repayment of such loan that Member's Division would be insolvent. 4.7 No Withdrawal. No Member shall have any right to withdraw any portion of its Capital Contributions or, except as otherwise provided herein, to receive any distributions of cash or property from the Company prior to the dissolution and winding up of the Company. ARTICLE 5 RIGHTS AND DUTIES OF BOARD OF MANAGERS 5.1 Management. (a) The business and affairs of the Company shall be managed by its Board of Managers. Except as set forth herein, the Board of Managers shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incidental to the management of the Company's business and objectives. No one Manager may take or effect any action on behalf of the Company or otherwise bind the Company in the absence of a formal delegation of authority by the Board of Managers to such Manager. Unless authorized to do so by this Agreement or by the Board of Managers, no Member, officer, attorney-in- 17 fact, employee or other agent of the Company shall have any power or authority to bind the Company. (b) The Board of Managers may delegate to Herbalife, or such other Person the Board of Managers shall deem appropriate, authority to handle ministerial and administrative matters on behalf of the Company. Such matters shall consist of preparation and filing of tax returns of the Company, preparation and filing of routine legal documents on behalf of the Company (such as filings with the Delaware Secretary of State), sending notices to the Board of Managers and preparation of minutes of the proceedings of the Board of Managers, opening and maintaining bank and other depositary accounts on behalf of the Company, provided that, any checks drawn on behalf of the Company or withdrawal of funds from a Company account in excess of Ten Thousand United States Dollars (US$10,000) or its equivalent in any foreign currency shall require two signatures, one being a Manager appointed by Herbalife and one being a Manager appointed by Leiner. Except as set forth in this Article 5.1(b), the Company shall not delegate any authority or responsibility to Herbalife or any other Person without the approval of not less than two-thirds of the members of the Board of Managers. The fee to be paid to Herbalife in connection with performing the duties described in this Article 5.1(b) shall be an amount determined by the Board of Managers, which shall not exceed Thirty Thousand United States Dollars (US$30,000) in any twelve-month period. 5.2 Number, Appointment, Tenure. The Board of Managers shall consist of five (5) Managers, three (3) of whom shall be appointed by Herbalife and two (2) of whom shall be appointed by Leiner. Either Member may, with or without cause, remove and replace a Manager appointed by such Member at any time upon notice to other Member. Unless removed earlier by the appointing Member, each Manager shall serve for a term of two (2) years and may serve consecutive terms if so appointed by the appointing Member. If a seat on the Board of Managers is vacated by retirement, resignation, removal, disability or death, the Member that originally appointed such Manager shall appoint a successor. Managers need not be employed by the Members of the Company. 5.3 No Exclusive Duty to Company. No Manager shall be required to manage the Company as his or her sole and exclusive function and he or she may be an employee of a Member and/or have other business interests and engage in activities in addition to those relating to the Company. No Manager nor any Member shall incur any liability to the Company or to any of the Members as a result of engaging in any other business or venture. 5.4 Compensation and Reimbursement. No Manager shall be entitled to compensation from the Company for services rendered to the Company as such, except that the Company shall reimburse the Managers for all reasonable expenses incurred by 18 the Managers in connection with their service to the Company, including the costs and expenses for attending meetings of the Board of Managers. 5.5 Certain Powers of Board of Managers. Without limiting the generality of Article 5.1, the Board of Managers shall have power and authority, after due action, on behalf of the Company: (a) to acquire property from any Person as the Board of Managers may determine, whether or not such Person is directly or indirectly affiliated or connected with any Manager or Member; (b) to borrow money for the Company on such terms as the Board of Managers deem appropriate, and in connection therewith, to hypothecate, encumber and grant security interests in the assets of the Company to secure repayment of the borrowed sums. No debt shall be contracted or liability incurred by or on behalf of the Company except by the Board of Managers, or to the extent permitted under the Delaware Act, by agents or employees of the Company expressly authorized to contract such debt or incur such liability by the Board of Managers; (c) to lend money to the WFOE; (d) to employ accountants, legal counsel or other experts to perform services for the Company and to compensate them through the use of Company funds; (e) to invest Company funds; (f) to execute on behalf of the Company all instruments and documents, including, without limitation, checks; drafts; notes and other negotiable instruments; mortgages or deeds of trust; security agreements; financing statements; documents providing for the acquisition, mortgage or disposition of the Company's property; assignments, bills of sale; leases; and any other instruments or documents necessary to the business of the Company; (g) to enter into any and all other agreements on behalf of the Company, in such forms as the Board of Managers may approve; (h) to appoint such agents, officers and delegees as may be necessary or appropriate to the conduct of the business; and (i) to open bank accounts in the name and on behalf of the Company and determine who shall have the signatory power over such accounts, 19 (j) to do and perform all other acts as may be necessary or appropriate to the conduct of the Company's business. 5.6 Meetings of Board of Managers. Meetings of the Board of Managers shall be held upon the request of any two Managers; but in any event, the Board of Managers shall meet at least once every six (6) months. The Board of Managers may designate any place, either within or outside the State of Delaware, as the place of meeting of the Board of Managers. If no designation is made, the place of meeting shall be the principal place of business of the Company. Notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called shall be delivered not less than ten (10) nor more than thirty (30) days before the date of the meeting. A majority of the Board of Managers, including at least one Manager appointed by Herbalife and one Manager appointed by Leiner, shall constitute a quorum at meetings of the Board of Managers. At all meetings of the Board of Managers, a Manager may vote in person or by proxy executed in writing authorizing another Manager to act on his or her behalf. Such proxy shall be filed with the Board of Managers before or at the time of the meeting. If a quorum is present, the affirmative vote of a majority of the Managers then in office shall constitute the act of the Board of Managers, except for matters requiring the affirmative votes of at least two-thirds of the Managers then in office under Article 5.7. 5.7 Resolutions Requiring Super-Majority Votes. Resolutions on the following matters shall only be adopted with the vote or written consent of at least two-thirds of the Managers then in office: (a) Any amendment to, or modification of, the Certificate; (b) Any amendment or waiver of any of the provisions of this Agreement; (c) The merger, corporate reorganization, acquisition, liquidation, dissolution, or winding up of the Company, or any steps likely to lead to such merger, corporate reorganization, acquisition, liquidation, dissolution, or winding up of the Company; (d) The sale, exchange, or other disposition of all, or substantially all, of the Company's assets, including, without limitation, the registered capital of the WFOE; (e) The Transfer of all or any portion of a Member's Membership Interest to a third party purchaser pursuant to Articles 12.2(b) and (c), but each Manager's consent to such a transfer shall not be unreasonably withheld; (f) The admission of any Person as a new Member other than the admission of an Affiliate of an existing Member pursuant to Article 12; 20 (g) The cancellation of a semi-annual meeting of the Board of Managers; (h) Any decision not to distribute any amount of the Manufacturing Net Profit within one year of its accrual; (i) Approval of the appointment or removal of the General Manager of the WFOE; (j) Any borrowing by the WFOE; (k) The entry into any agreement or contract not in the ordinary course of business, and the entry into any agreement or contract between the Company and Herbalife or Leiner, or any of their Affiliates, including but not limited to the trademark license agreements, technology license agreements and consulting services agreements to be entered into pursuant to Article 6.13 (a) and (b); (l) The adoption of any policy or resolution solely relating to or concerning the operation, business or affairs of only one of the Distribution Divisions or relating to any decision to fund financial obligations on behalf of one of the Distribution Divisions; and (m) Any other matters expressly provided under this Agreement as requiring the approval or affirmative votes of no less than or at least two-thirds of the Managers. 5.8 Other Manner of Acting. Any Manager may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting by means of such equipment shall constitute presence in person at such meeting. Action may be taken without a meeting if the action is evidenced by one or more written consents signed by all of the Managers. ARTICLE 6 MANAGEMENT AND OPERATION OF THE WFOE 6.1 Board of Directors. The parties hereto acknowledge and agree that the business of the WFOE shall be managed by a Board of Directors in accordance with the WFOE's Articles of Association, PRC law, and consistent with the provisions of this Agreement and the plans and policies adopted by the Company's Board of Managers. The Members shall ensure that the Board of Directors of the WFOE shall have the same number of members as the Board of Managers of the Company and that members of the Board of Managers of the Company at any time shall also serve as members of the Board of Directors of the WFOE. 21 6.2 Board Meeting of the WFOE. If any meeting of the Board of Directors of the WFOE is to be held, the Members shall cause the Board of Managers of the Company to hold such a meeting immediately after a meeting of the Board of Managers at the same seating. The Members shall procure that the Managers appointed by each of them shall at all times cause the Board of Directors of the WFOE to vote in favor of all decisions approved by the Board of Managers of the Company. 6.3 Chairman of the Boards. The Members shall cause the Chairman of the Board of Managers of the Company and the Chairman of the Board of Directors of the WFOE to be the same person (the "Chairman"). The Chairman shall be selected by Herbalife from the Managers and the Members shall cause each of their representatives on the Board of Managers to elect the Manager selected by Herbalife to be the Chairman of the Boards. The Chairman shall be the legal representative of the WFOE. The Chairman shall, when present, preside at all meetings of the Board of Managers and the Board of Directors. He shall also have such powers and perform such duties as are specified in this Agreement and as may from time to time be assigned to him by the Board of Managers. 6.4 General Manager. The WFOE shall have a General Manager who shall be appointed by the affirmative votes of at least two-thirds of the Directors then in office, shall serve a term of two years, and may serve consecutive terms if re-appointed by the Board of Directors. The parties agree that the first General Manager shall be Mr. Merv Stark. The General Manager shall be responsible for such matters as may be required of the General Manager by PRC law and regulations, including but not limited to signing and execution of agreements and other documents for and on behalf of the WFOE as required by PRC law and regulations or as shall be expressly delegated by the Board of Directors with the approval of at least two-thirds of the Directors. The day-to-day operation and active management of each of the Divisions shall, to the maximum extent permitted by law, vest in the Deputy General Manager of the relevant Division as provided in Article 6.8. The General Manager may be stationed outside of the WFOE's principal place of business or branch offices. 6.5 Divisions of WFOE. The Members shall cause the following divisions and departments to be established in the WFOE: (a) Herbalife Division. The Herbalife Division, sometimes referred to herein as the Distribution Division of Herbalife, shall be responsible for the distribution of Herbalife's line of products, including those products manufactured by the WFOE, and the profits, losses and management of which shall be the sole responsibility of Herbalife. (b) Leiner Division. The Leiner Division, sometimes referred to herein as the Distribution Division of Herbalife, shall be responsible for the distribution of Leiner's 22 line of products, including those products manufactured by the WFOE, and the profits, losses and management of which shall be the sole responsibility of Leiner. (c) Manufacturing Division. The Manufacturing Division shall be responsible for (i) the manufacturing of nutritional and personal care products of the WFOE, and (ii) the sourcing in the PRC of raw materials, ingredients and packaging materials for the nutritional and personal care products of the WFOE, and if requested by the Members, for the Members' lines of products. The profits and losses of the Manufacturing Division shall be shared by the parties as provided in Article 11.1(c). The management of the Manufacturing Division shall be the primary responsibility of the Deputy General Manager of the Manufacturing Division in accordance with an annual budget of the Manufacturing Division submitted to and approved by the Boards. The Deputy General Manager of the Manufacturing Division shall cause an annual budget of the Manufacturing Division to be prepared and submitted to the Boards for approval at least thirty (30) days prior to the beginning of each new Fiscal Year. 6.6 No Subsidy of Loss Among Divisions. The Members acknowledge that it is their intention that the WFOE shall be operated in such a way that the profits of one Division must not be used to subsidize the losses or lack of profit of the other Division(s). 6.7 Close Down of a Division. (a) In the event that the Board of Managers determines in good faith that for compelling financial or business reasons which have had, or are reasonably expected to have, a material adverse effect on the WFOE, a Division of the WFOE should be closed down, the Members shall cause their respective nominees on the Board of the Directors to vote in favor of that decision and, except in the case where the Member responsible for the Division to be closed down exercises its right to purchase the assets of its Division as set forth below, shall cause the said Division to be closed down by having the Member responsible for the Division to be closed down sell or liquidate all of the assets and pay off all of the liabilities of said Division as soon as reasonably practicable. If necessary, the responsible Member of the Division to be closed down shall contribute additional funds to the Company in order for the WFOE to pay off all of the liabilities and to fulfill all of the outstanding financial obligations of the WFOE incurred on behalf of the Division. If the Board of Managers directs that the Herbalife Division is to be closed down, then Herbalife shall have the right to purchase any or all of the assets belonging to the Herbalife Division if it notifies the Board of Managers of its election to do so within thirty (30) days after the Board of Managers resolves to close down the Herbalife Division. If the Board of Managers directs that the Leiner Division is to be closed down, then Leiner shall have the right to purchase any or all of the assets belonging to the Leiner Division if it notifies the Board of Managers of its election to do so within thirty (30) days after the Board of Managers resolves to close down the Leiner Division. If 23 Herbalife or Leiner so elects to purchase the assets of a Division which is to be closed down, then the schedule to close down that Division shall be structured to permit Herbalife or Leiner, as the case may be, to form a new legal entity in the PRC and obtain the requisite licenses for conducting business in the PRC with the purchased assets provided that, in no event shall the time period allowed to close down a Division exceed twelve (12) months. The price to be paid by the Member electing to purchase the assets of the Division to be closed down shall be the book value of such assets. (b) At any time during the term of the WFOE, Herbalife or Leiner (the "responsible Member") shall have the right to voluntarily close down the Herbalife Division or the Leiner Division, as the case may be, by giving at least thirty (30) days prior written notice to the other Member and the Boards. The other Member shall have the right to purchase any of the fixed assets (excluding any finished inventory) belonging solely to the Division to be closed down by giving written notice to the responsible Member and the Boards within thirty (30) days after the date of the closing down notice from the responsible Member. The price to be paid by the other Member electing to purchase such fixed assets shall be the fair market value of such fixed assets. If the Members cannot agree on the fair market value of such fixed assets, such value shall be determined by an independent international accounting firm, whose costs shall be borne by the Members equally. If the other Member does not or fails to exercise its right of purchase as aforesaid, then the responsible Member shall cause the Division to be closed down as soon as reasonably practicable by selling or liquidating all of the assets and paying off all of the liabilities of the Division. If necessary, the responsible Member of the Division to be closed down shall contribute additional funds to the Company in order for the WFOE to pay off all of the liabilities and to fulfill all of the outstanding financial obligations of the WFOE incurred on behalf of the Division. (c) In the event of any change of current PRC law and policy which would permit foreign invested enterprises to sell products, including products sold by the WFOE, that are not manufactured by such foreign invested enterprises, then each Member shall, subject to the provision below, have the right to voluntarily close down its Distribution Division and transfer all of the assets of the Distribution Division to be closed down to another legal entity formed by such Member in the PRC or an Affiliate of such Member in the PRC ("Distributing Company"), by giving at least thirty (30) days prior written notice to the other Member and the Boards. After receipt of such a notice, the Members shall negotiate in good faith and agree on the respective maximum aggregate amounts of additional investment each Member is required to make to the Manufacturing Division or the WFOE after the close down of the relevant Distribution Division(s) pursuant to this Article 6.7(c). In addition, the Members shall procure that each Distributing Company enter into a supply or sale and purchase agreement with the WFOE, under the terms of which the Distributing Company shall, after the close down of the relevant Distribution Division(s), purchase its respective products that can be 24 manufactured by the WFOE based on the WFOE's manufacturing capability at the time of the close down of the relevant Distribution Division(s), on substantially the same terms as those purchases made between the relevant Distribution Division(s) and the Manufacturing Division prior to the close down of said Distribution Division(s). (d) If the Herbalife Division is to be closed down, either as directed by the Board of Managers pursuant to Article 6.7(a) above or voluntarily pursuant to Article 6.7(b) or (c) above, or if Herbalife decides to put the business of the Herbalife Division into dormancy, then Herbalife shall bear (i) all of the costs and expenses relating to the closing down of the Herbalife Division, and (ii) all of the actual out-of-pocket costs and expenses incurred specifically to service or to maintain the Herbalife Division in dormancy as agreed upon by the Members. If the Leiner Division is to be closed down, either as directed by the Board of Managers pursuant to Article 6.7(a) above or voluntarily pursuant to Articles 6.7(b) or (c) above, or if Leiner decides to put the business of the Leiner Division into dormancy, then Leiner shall bear (i) all of the costs and expenses relating to the closing down of the Leiner Division, and (ii) all of the actual out-of-pocket costs and expenses incurred specifically to service or to maintain the Leiner Division in dormancy as agreed upon by the Members. 6.8 Deputy General Manager. Each of the WFOE's Divisions shall be headed by a Deputy General Manager who shall, to the maximum extent permitted by PRC law, be responsible for the day-to-day operation and active business of the relevant Division and for implementing plans and policies of the Boards. The Deputy General Managers shall report to the Board of Directors but shall also at the same time inform, and provide copies of all information and documents so communicated to the Board of Directors to, the General Manager. The Deputy General Manager of the Herbalife Division shall be selected by Herbalife, the Deputy General Managers of the Leiner Division and the Manufacturing Division shall be selected by Leiner, and the Members shall cause their respective representatives on the Board of Directors to appoint all of the Deputy General Managers so selected by the Members. The Deputy General Manager of each Division shall be the chief operating officer of the relevant Division and shall decide on all matters relating to the operation of that Division except for matters relating to the WFOE that are specifically provided herein as to be decided by the Board of Directors or the General Manager. The Deputy General Manager shall have the authority to sign any contract, agreement or other document relating solely to the business and operation of his or her responsible Division, except where such document is required by PRC law or regulation to be signed by the General Manager, then such document shall be co-signed by the General Manager. Where a joint signature is required, the General Manager shall exert its best efforts to promptly execute and deliver the requested document unless the General Manager determines in good faith that such actions would violate any applicable law, regulation or government policy, or would be inconsistent with any business plan, policy or resolution adopted by the Boards or any provisions of this Agreement or any 25 other agreement between the parties hereto. In such event, the General manager shall immediately report the matters to the Board of Directors which may direct the General manager to co-sign the document if it determines in good faith that the document to be signed and the actions contemplated thereunder are not illegal under applicable law, regulation or policy, or are not inconsistent with any business plan, policy or resolution adopted by the Boards or any provisions of this Agreement or any other agreement between the parties hereto. 6.9 The Chief Accountant. The WFOE shall have a Chief Accountant who shall be appointed by the Board of Directors. The Chief Accountant shall be the chief financial officer of the WFOE. The Chief Accountant shall: (i) have charge and custody of and be responsible for all funds of the WFOE other than those allocated to the each of the WFOE's Divisions; (ii) receive and give receipts for moneys due and payable to the WFOE from any source whatsoever, and deposit all such moneys in the name of the WFOE or a WFOE's Division in such banks, trust companies or other depositories as shall be selected by the Board of Directors; (iii) supervise the keeping of financial records and the preparation of financial statements of each of the WFOE's Divisions and the WFOE, and (iv) in general perform all the duties incident to the office of Chief Accountant and such other duties as from time to time may be assigned to him by the General Manager or by the Board of Directors. 6.10 Salaries. The salaries and other compensation of the officers and other employees of the WFOE shall be fixed from time to time by the Board of Directors, and no officer or employee shall be prevented from receiving such salary by reason of the fact that he or she is also a Director of the WFOE or a Manager of the Company. 6.11 Annual Operating Plan and Budgets. As soon as practicable following the Effective Date, the parties hereto shall procure that the Boards approve the WFOE's initial annual divisional operating plans attached hereto as SCHEDULE B. The parties hereto shall procure that the WFOE prepare rolling four-year divisional capital plans and annual divisional and consolidated operating plans of the WFOE in accordance with the provisions set forth in Part III of SCHEDULE C. 6.12 Transfer Pricing of the Manufacturing Division. (a) For purposes of determining the Net Profit or Net Loss of the WFOE's Divisions, on the internal accounts of the Divisions to be prepared by the Company, the Manufacturing Division shall charge, and receive payment from, the Herbalife Division and the Leiner Division, a price for each of the finished products manufactured by the Manufacturing Division for such Divisions, so that the Manufacturing Division shall have a gross margin equal to twenty percent (20%) of the Transfer Price (as defined in Part I, Section B of SCHEDULE C) from the "sale" of such products to the Herbalife Division or 26 the Leiner Division, as the case may be, as more particularly illustrated in Part I, Section B of SCHEDULE C. For such accounting purposes, a "sale" of a product from the Manufacturing Division shall be deemed to take place when the Manufacturing Division finishes the production of the product and the product is ready for sale by the Herbalife Division or the Leiner Division, as the case may be. (b) The Manufacturing Division shall charge a minimum price for the procurement of, processing, manufacturing and sale of semi-processed materials by the WFOE to either of the Members, any Affiliate of either Member, or any third party, in accordance with the pricing policy set forth in SCHEDULE D. 6.13 License Agreements. (a) Herbalife and Leiner shall, subject to the approval of the Boards, enter into such trademark license and/or technology license with the WFOE as may be required for the operation of the WFOE, under the terms of which the WFOE shall pay a license fee and/or royalty at a reasonable rate determined by the Boards as may be approved by the local counterpart of MOFTEC. (b) Herbalife shall, subject to the approval of the Boards, enter into a marketing consulting services agreement with the WFOE, under the terms of which Herbalife shall provide marketing, training and other non-maintenance support services to the WFOE in consideration for a service fee payable by the WFOE. Leiner shall, subject to the approval of the Boards, enter into a manufacturing consulting services agreement with the WFOE in consideration for a service fee payable by the WFOE. (c) Any technology license agreement entered into between Herbalife or Leiner and the WFOE pursuant to Article 6.13(a) above shall be submitted for approval by, and registration with, the relevant local counterpart of MOFTEC, within ten (10) days after their execution. Any trademark license agreement entered into between Herbalife or Leiner and the WFOE shall be registered with the Office of Trademarks and Patents of the PRC within ten (10) days after their execution. (d) The license fees, royalties and service fees payable by the WFOE under any technology or trademark license agreement and any consulting services agreement shall, for the purposes of the WFOE's and the Divisions' internal accounting and the determination of Herbalife Net Profit or Net Loss, or Leiner Net Profit or Net Loss, be allocated as the expenses of the Herbalife Division, or the Leiner Division, as the case may be, which utilizes the relevant technology, trademark or services so licensed or provided, and if any of such technology or service is utilized by the Manufacturing Division, the license fees and royalties shall be charged as expenses to Herbalife and Leiner in accordance with the provisions of Part I, Section B of SCHEDULE C under the 27 definition of "Fixed Factory Costs" for the purposes of determining the Herbalife Net Profit or Net Loss, and the Leiner Net Profit or Net Loss, respectively. 6.14 Termination of the WFOE. Upon the expiration of the term of the WFOE, or upon the termination or dissolution of the WFOE upon the occurrence of any of the termination events set forth in the Articles of Association of the WFOE, at the election of either Herbalife or Leiner or both, the parties hereto shall, to the extent permitted by law, procure that the Board of Managers of the Company, the Board of Directors of the WFOE and the liquidation committee of the WFOE take such actions so as to preserve the integrity of the assets of the WFOE and either party may purchase the assets of its Division of the WFOE instead of liquidating the assets for distribution of sales proceeds to the Company. 6.15 Financial Operating Policies and Procedures. The Members agree that the Financial Operating Policies and Procedures attached hereto as SCHEDULE C shall govern certain financial and accounting matters of the Company and the WFOE as specified therein. 6.16 Ownership of Formulae etc. The parties hereto agree that all formulae, know-how, trade secrets, patents, copyrights, trademarks and all other similar proprietary rights (collectively, the "Intellectual Property Rights") developed by either the Herbalife Division or the Leiner Division shall be deemed to be owned by Herbalife or Leiner, as the case may be. Upon the termination or dissolution of the WFOE, the parties shall cause the Board of Directors or the liquidation committee of the WFOE to distribute such Intellectual Property Rights to the Company, which shall in turn immediately distribute such Intellectual Property Rights to Herbalife or Leiner, as the case may be. Each party hereto covenants to the other party that it will not, and it shall cause its respective Division in the WFOE not to, use the Intellectual Property Rights of the other party at any time during and after the existence of the WFOE. ARTICLE 7 RIGHTS AND OBLIGATIONS OF MEMBERS 7.1 Limitation of Liability. A Member shall not be personally liable to creditors of the Company for any debts, obligations, liabilities or losses of the Company, whether arising in contract, tort or otherwise, beyond such Member's Capital Contributions under Articles 4.1 and 4.2 and any additional Capital Contributions made by such Member pursuant to the provisions of Article 6.7 and 11.12, except as otherwise required by law. 28 7.2 List of Members. Upon the written request of any Member, the Board of Managers shall provide a list showing the names and addresses of all Members. 7.3 Company Books. In accordance with Article 11.8 herein, the Board of Managers shall maintain and preserve, during the term of the Company, the accounts, books and other relevant Company documents. Upon reasonable written request, each Member and its duly authorized representative shall have the right, at a time during ordinary business hours, as reasonably determined by the Board of Managers, to inspect and copy such Company documents (at the requesting Member's expense) which the Board of Managers, in its discretion, deems appropriate for any purpose reasonably related to the requesting Member's Membership Interest. 7.4 Priority and Return of Capital. Except as may be expressly provided in Article 11, no Member shall have priority over any other Member, either as to the return of Capital Contributions or as to Net Profit, Net Loss or distributions; provided that this Article 7.4 shall not apply to (i) the repayment by the Company of loans (as distinguished from Capital Contributions) which a Member has made to the Company, and (ii) the payment of royalties, license fees or service fees payable to Herbalife and Leiner by the WFOE. 7.5 No Preemptive Rights. Except as otherwise provided herein, no Member shall have any preemptive or preferential right, including any such right with respect to (a) additional Capital Contributions; (b) issuance or sale of Membership Interests, whether unissued or hereafter created; (c) issuance of any obligations, evidences of indebtedness or other securities of the Company convertible into or exchangeable for, or carrying or accompanied by any rights to receive, purchase or subscribe to, any such unissued Membership Interest; (d) issuance of any right of, subscription to or right to receive, or any warrant or option for the purchase of, any of the foregoing securities; or (e) issuance or sale of any other securities that may be issued or sold by the Company. 7.6 No Withdrawal or Resignation. No Member shall have the right to withdraw, retire or voluntarily resign as a Member of the Company prior to the dissolution and winding up of the Company and any withdrawal, retirement or resignation by a Member shall constitute a breach of this Agreement. 7.7 Payments to Members. Except as specified in this Agreement, no Member or Affiliate of such member is entitled to remuneration for services rendered or goods provided to the Company or the WFOE. However, the Company shall reimburse the Members and their Affiliates for organizational expenses (including, without limitation, legal and accounting fees and costs) incurred to form the Company and to prepare the Certificate and this Agreement and, as approved by the Members, for the actual cost of goods and materials used by the Company. 29 7.8 Indemnification. The Company shall indemnify and hold harmless each Member for any act taken in its capacity as a Member, other than acts that involve a breach of fiduciary duty. The standard of the fiduciary duties a Member owes to the Company and to its Members are those of a partner to a partnership and to the partners of the partnership. 7.9 Competing Activities. Each Member shall engage the services of the Manufacturing Division whenever it or its Affiliates purchases directly from the PRC raw materials, ingredients, semi-finished products, finished products and packaging materials for its lines of products or business, whether to be sold in the PRC market or abroad, to the extent that the Manufacturing Division has the capability to process such materials. Each Member shall use its best efforts to create business for the export of products manufactured by the WFOE. Subject to the preceding sentences, the Members and their Affiliates may engage or invest in any activity, other than those that might be in direct competition with the Company or the WFOE in the PRC. Neither the Company nor any Member shall have any right in or to such other activities or to the income or proceeds derived therefrom. No Member shall be obligated to present any investment opportunity to the Company, even if the opportunity is of the character that, if presented to the Company, could be taken by the Company. Each Member shall have the right to hold any investment opportunity for its own account or to recommend such opportunity to persons other than the Company. The Members acknowledge that certain Members and their Affiliates own and/or manage other businesses, including businesses that may compete with the Company and for the Members' time. Each Member hereby waives any and all rights and claims which he or she may otherwise have against the other Members and their Affiliates as a result of any of such activities. 7.10 Transactions between the Company and the Members. Notwithstanding that it may constitute a conflict of interest, the Members and their Affiliates may engage in any transaction with the Company or the WFOE so long as such transaction is not expressly prohibited by this Agreement and so long as the terms and conditions of such transaction, on an overall basis, are fair and reasonable to the Company and are at least as favorable to the Company as those that are generally available from persons capable of similarly performing them or if Members holding a majority of the Membership Interests held by the Members having no interest in such transaction (other than their interests as Members) approve the transaction in writing. 7.11 No Voting Rights. The Members shall have no voting rights with respect to matters relating to the management and affairs of the Company or the WFOE, except through the appointment of their designated Managers in accordance with Article 5.2 and the amendment of this Agreement. 30 ARTICLE 8 STANDARD OF CARE AND INDEMNIFICATION OF MANAGERS, OFFICERS AND EMPLOYEES 8.1 Standard of Care. No Manager or officer shall be liable to any Member or to the Company by reason of the actions of such person in the conduct of the business of the Company except for fraud, gross negligence or willful misconduct. 8.2 Indemnification of Managers, Officers and Employees. The Company shall, to the fullest extent to which is it empowered to do so by the Delaware Act or any other applicable law, indemnify and make advances for expenses to any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a Manager, officer or employee of the Company, against losses, damages, expenses (including attorneys' fees), judgments, fines and amounts reasonably incurred by him or her in connection with such action, suit or proceeding. ARTICLE 9 PERCENTAGE INTERESTS AND ADJUSTMENT 9.1 Percentage Interests. With effect from the Effective Date, the initial respective Percentage Interests of the Members shall be as set forth below, which interests may only be adjusted from time to time in accordance with Article 9.2: (a) Herbalife: 60%; and (b) Leiner: 40%. 9.2 Adjustment of Percentage Interests. Upon the occurrence of any of the following events (each an "Adjustment Event"), the Percentage Interests of the Members shall be adjusted so that the Percentage Interest of each Member shall be the percentage calculated by dividing the aggregate Capital Contributions of such Member to the Manufacturing Division as at the time immediately after the occurrence of the Adjustment Event by the total amount of both Members' Capital Contributions to the Manufacturing Division as at the time immediately after the occurrence of the Adjustment Event: (a) Either Member's failure to make the additional Capital Contribution to meet the cash requirements of the Manufacturing Division in proportion to its Percentage Interest as required under Article 4.2(f); 31 (b) Either Member's failure to contribute additional capital to the Company for the purpose of finding the capital requirements of the Manufacturing Division and all the financial obligations of the WFOE incurred on behalf of the Manufacturing Division in proportion to the its Percentage Interest (subject to the Members' agreement that Leiner is only required to contribute capital to the Company for purposes of finding the Manufacturing Division up to a maximum amount of Five Million United States Dollars (US$5,000,000); or (c) In the event that the Manufacturing Division is in need of additional capital but Leiner chooses not to contribute more than its maximum capital amount of Five Million United States Dollars (US$5,000,000) to the Company to find the Manufacturing Division but Herbalife contributes additional capital to the Company to fund any of such additional capital requirements of the Manufacturing Division. Except as provided in Articles 9.1 and 9.2, the Percentage Interests shall not be adjusted in any other event. Herbalife and Leiner agree that that their Capital Contributions to the Herbalife Division and Leiner Division, respectively, shall not change their respective Percentage Interests. 9.3 Right to Terminate this Agreement and Right of Purchase. (a) Subject to Article 4.5, whenever a Member's Percentage Interest falls below ten percent (10%), that Member (the "Terminating Member") shall have an option to terminate this Agreement, subject to the other Members' right of purchase described in paragraph (b) below. (b) The Terminating Member shall give written notice to the other Members (the "non-terminating Members") of its intention to terminate this Agreement if none of the other Members exercises the right to purchase the Terminating Member's Percentage Interest within ninety (90) days after receiving the written notice. The non-terminating Members, and each of them shall, on a basis pro rata to their Percentage Interests or on a basis pro rata to the Percentage Interests of those other Members exercising their right of purchase, have the right to purchase all (but not less than all) of the Percentage Interest of the Terminating Member by giving written notification to the Terminating Member of their intention to do so within ninety (90) days after receiving the written notice from the Terminating Member. The failure of the non-terminating Members to so notify the Terminating Member of their desire to exercise their right of purchase within said ninety (90) day period shall result in the termination of this Agreement, the dissolution of the Company and the WFOE. (c) In the event that the non-terminating Members (or any one or more of the non-terminating Members) give written notice to the Terminating Member of their desire 32 to exercise their right to purchase all of the Terminating Member's Percentage Interest in the Company, the purchase price shall be eighty percent (80%) of the Terminating Member's Capital Account. The non-terminating Members shall have the right to designate the time, date and place of closing, provided that the date of closing shall be within six (6) months after the date of the non-terminating Members' written notice to the Terminating Member of their desire to exercise their right of purchase as aforesaid. ARTICLE 10 ACCOUNTING; PROFITS AND LOSSES OF WFOE'S DIVISIONS AND MEMBERS' FUNDING OBLIGATIONS 10.1 Divisional Accounting. In addition to the preparation of financial statements as required by, and in accordance with, PRC laws and regulations, the WFOE shall prepare separate calculations of the Net Profit or Net Loss for each of the WFOE's Divisions in accordance with the provisions of Articles 6.12 and 6.13, Schedule C and any other relevant provisions of this Agreement. 10.2 Divisional Gain or Loss Upon Sale of Assets. (a) In the event of the sale of all or part of the assets of more than one Division, or of all or part of the assets of one or more Divisions together with other assets of the WFOE, for purposes of determining the gain or loss of each of the Divisions, the sales proceeds shall be allocated among the assets sold in accordance with their relative fair market values as agreed by the Members. If the Members cannot agree on such relative fair market values, such determination shall be made by an independent international accounting firm at the expense of the WFOE. (b) In the event of the sale of any asset belonging solely to any one of the Divisions, the gain, loss and proceeds of such sale shall be allocated to the relevant Division to which the asset belonged. 10.3 Appraisal of the Assets of the Company and of the WFOE. In the event that all or substantially all of the assets of the Company or of the WFOE are to be sold under the terms of this Agreement, the price for the sale of such assets shall be based upon the fair market value of the assets of each of the Divisions. If the Members cannot agree on the fair market value of the assets of each of the Divisions, such value shall be determined by an independent international accounting firm at the expense of the WFOE. 33 ARTICLE 11 ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS 11.1 Allocations of Net Profit and Net Loss. The Net Profit or Net Loss shall be allocated between the Members as follows: (a) Herbalife Net Profit or Net Loss shall be allocated one hundred percent (100%) to Herbalife. (b) Leiner Net Profit or Net Loss shall be allocated one hundred percent (100%) to Leiner. (c) (i) Manufacturing Net Profit shall first be allocated to Herbalife to the extent of any Manufacturing Net Loss allocated to Herbalife pursuant to Article 11.l(c)(iii), but only if the Percentage Interests of the Members have not been adjusted pursuant to Article 9.2 in connection with Herbalife's finding of such Manufacturing Net Loss. (ii) Manufacturing Net Profit or Net Loss shall next be allocated between Herbalife and Leiner in proportion to their respective Percentage Interests prevailing at the time of the allocation. (iii) Notwithstanding the provisions of Article 11.1(c)(ii), no Manufacturing Net Loss shall be allocated to Leiner to the extent such allocation would create or increase a deficit in the "Leiner Manufacturing Division Adjusted Capital Account". For purposes of the preceding sentence, "Leiner Manufacturing Division Adjusted Capital Account" means the portion of Leiner's Capital Account allocable to the Manufacturing Division, increased by any amounts that Leiner is obligated (or deemed obligated pursuant to the penultimate sentences of Treasury Regulations Sections l.704-2(g)(l) and 1.704-2(i)(5)) to contribute or restore to the Manufacturing Division. Any Manufacturing Division Net Loss that is not allocated to Leiner because of the application of this Article 11.1(c)(iii) shall be allocated to Herbalife. By way of illustration, the Leiner Manufacturing Division Adjusted Capital Account shall include any part of the Five Million United States Dollars (US$5,000,000) that Leiner remains obligated to contribute to fund the Manufacturing Division pursuant to Articles 4.1 and 4.2. 11.2 Additional Allocation Provisions. Notwithstanding the foregoing provisions of this Article 11: 34 (a) Special Allocations. (i) Minimum Gain Chargeback. Except as otherwise provided in Treasury Regulation Section 1.704-2(f), and notwithstanding any other provision of this Article 11, if there is a net decrease in Partnership Minimum Gain during any fiscal year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Partnership Minimum Gain, as determined under Treasury Regulation Section 1.704-2(g). The items to be allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Article 11.2(a)(i) is intended to qualify as a "minimum gain chargeback" within the meaning of Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith. (ii) Partner Minimum Gain Chargeback. Except as otherwise provided in Treasury Regulation Section 1.704-2(i)(4), and notwithstanding the any other provision of this Article 11, if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal year, each Member who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(4). The items to be so allocated shall be determined in accordance with Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Article 11 .2(a)(ii) is intended to qualify as a "chargeback of partner nonrecourse debt minimum gain" within the meaning of Treasury Regulation Section 1.704-2(i) and shall be interpreted consistently therewith. (iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any Nonrecourse Deductions for any Fiscal Year shall be attributed to the Divisions in accordance with the principles of Article 11.2(c) and allocated between the Members in the same manner that the Net Profits of such Division are allocated under Article 11.1. Any Partner Nonrecourse Deductions for any Fiscal 35 Year shall be specially allocated to the Member(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Treasury Regulation Section 1.704-2(i). (iv) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), or any other event causes such Member to have a deficit in its Capital Account (which for this purpose shall be increased by any amounts that such Member is obligated, or is deemed obligated pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(l) and 1.704-2(i)(5), to contribute or restore to the Company and decreased by the items described in Treasury Regulations Section 1.704-l(b)(2)(ii)(d)(4), (5) or (6)), items of income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate such deficit as quickly as possible; provided, however, that an allocation shall be made under this Article 11.2(a)(iv) only if and to the extent that such deficit would exist after all other allocations provided for in this Article 11 had been tentatively made as if this Article 11.2(a)(iv) were not in the Agreement. (b) Curative Allocation. The allocations set forth in Articles 11.2(a) (the "Regulatory Allocations") are intended to comply with certain regulatory requirements, including the requirements of Treasury Regulation Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Article 11.1, the Regulatory Allocations shall be taken into account if necessary in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. (c) Divisional Application. (i) Nonrecourse Deductions and Partner Nonrecourse Deductions. For purposes of making the allocations set forth in Articles 11.2(a)(iii), debt shall first be allocated among the Divisions on the basis of the use of the proceeds of such debt (or, if debt cannot be allocated among the Divisions on such basis, on such other basis as the Board of Managers reasonably determines) and the deductions attributable to such debt shall be attributed to the corresponding Division. 36 (ii) Chargebacks. For purposes of making the allocations set forth in Articles 11.2(a)(i) and (ii), items of income or gain shall, to the extent possible, be charged back from the same Division that produced the corresponding Nonrecourse Deductions or Partner Nonrecourse Deductions (or, if the income or gain cannot be charged back on such basis, on such other basis as the Board of Managers reasonably determines). 11.3 Tax Allocations. (a) In General. Except as otherwise provided in this Article 11.3, for income tax purposes each item of income, gain, loss and deduction (collectively, "Tax Items") shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated in accordance with the provisions set forth in Articles 11.1 and 11.2. (b) Allocations Respecting Section 704(c) Reevaluations. Tax Items with respect to Company property that is contributed to the Company by a Member shall be shared among the Members for income tax purposes pursuant to Treasury Regulations promulgated under Section 704(c) of the Code, so as to take into account the variation, if any, between the basis of the property to the Company and its initial Gross Asset Value. With respect to Company property, if any, that is initially contributed to the Company upon its formation, such variation between basis and initial Gross Asset Value shall be taken into account using a method chosen by the Board of Managers consistent with the Treasury Regulations. In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations of tax items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Treasury Regulation under the same method. 11.4 Allocations With Respect to Changes in Membership Interests. If any Membership Interest is transferred, or is increased or decreased during any Fiscal Year by reason of the admission of a new Member or otherwise, each item of income, gain, loss, deduction, or credit for such Fiscal Year shall be allocated among the Members in accordance with any method, as determined by the Board of Managers, permitted by Code Section 706(d) and the Treasury Regulations promulgated thereunder, in order to take into account the Members' varying interests during such Fiscal Year. 37 11.5 Distributions. Distributions and liquidating distributions shall be made as follows: (a) Subject to Section 18-607 of the Delaware Act, the Board of Managers may cause the Company to make distributions of cash or other property at such time and in such amounts as shall be determined by the Board of Managers. The parties agree that they shall cause the Boards to distribute any and all of the after-tax net profits of the WFOE (after allocation to statutory reserve fund and employee bonus and welfare funds of the WFOE) to the Members through the Company at the end of each Fiscal Year. Except as otherwise agreed by the parties. such distributions shall be made as follows: (i) first, to the extent that prior distributions with respect to such Net Profit has not been made pursuant to this paragraph (a)(i), to the Members to the extent of and in proportion to the aggregate amount for all periods of Net Profit (net of the aggregate amount of Net Loss) that has been allocated to each; (ii) next, to the Members to the extent of and in proportion to their positive Capital Account balances after giving effect to any distribution under paragraph (i) above; (iii) finally, to the Members in proportion to their respective Percentage Interests prevailing at the time of the distribution. (b) Upon liquidation of the Company, liquidating distributions shall be made in accordance with Article 14.2 below. (c) The Company may offset damages for breach of this Agreement by a Member whose Membership Interest is liquidated against the amount otherwise distributable to such Member pursuant to this Article 11.5. (d) A Member has no right to demand and receive any distribution in a form other than cash. (e) All amounts required to be withheld pursuant to the Code or any provision of any foreign, state or local tax law with respect to any distribution or allocation to a Member may, in the sole discretion of the Board of Managers, be treated for all purposes under this Agreement as amounts distributed to such Member pursuant to this Article 11.5 (to be offset against distributions that would otherwise be made to such Member). 38 11.6 Accounting Principles. The Company's financial statements shall be prepared and its profit and loss statement shall be determined in accordance with GAAP applied on a consistent basis using the accrual method of accounting. 11.7 Interest on and Return of Capital Contributions. No Member shall be entitled to interest on its Capital Contribution or to a return of its Capital Contribution. 11.8 Loans to Company. Nothing in this Agreement shall prevent any Member from making secured or unsecured loans to the Company by agreement with the Company. 11.9 Records and Report. At the expense of the Company, the Board of Managers shall maintain records and accounts of the operations and expenditures of the Company. At a minimum, the Company shall keep at its principal place of business the following records: (a) A current list of the full name and last known business or mailing address of each Member and Manager; (b) A copy of the Certificate and all amendments thereto, together with executed copies of any powers of attorney pursuant to which any amendment has been executed; (c) Copies of the Company's financial statements and federal, state and local income tax returns and reports, if any, for the three most recent years; and (d) Copies of the Company's currently effective written Agreement, as amended. 11.10 Returns and Other Elections. The Tax Matters Partner (as defined in Article 11.11) shall cause the preparation and timely filing of all tax returns required to be filed by the Company pursuant to the Code and all other tax returns deemed necessary and required in each jurisdiction in which the Company does business. Copies of such returns or pertinent information therefrom shall be furnished to the Members within a reasonable time after the end of the Company's Fiscal Year. All elections permitted to be made by the Company under federal or state laws shall be made by the Tax Matters Partner in its sole discretion. In recognition of the fact that the Company expects to be treated as a partnership for U.S. federal income tax purposes, the Members agree to treat their Membership Interest as partnership interests for U.S. federal and state income tax purposes and to report all Company items consistent with the partnership information return. 39 11.11 Tax Matters Partner. Herbalife is designated the "Tax Matters Partner" (as defined in Code Section 6231), and is authorized and required to represent the Company (at the Company's expense) in connection with all examinations of the Company's affairs by tax authorities, including, without limitation, administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. The Tax Matters Partner shall exercise a duty of reasonable care in the discharge of such duties and shall consult with the Members in connection with any material tax elections to be made by the Tax Matters Partner for the Company. The Members agree to cooperate with each other and to do or refrain from doing any and all things reasonably required to conduct such proceedings. 11.12 Trapped Profits Reconciliation Payment. At the end of each of the WFOE's fiscal years, in the event that the Distribution Division of one Member (the "Receiving Member") has Trapped Profits (as defined below) in its Distribution Division and the WFOE is unable to distribute the full amount of such Trapped Profits to the Receiving Member by reason of the cumulative net losses of the other Member's Division (the "Paying Member") at the end of such fiscal year, then the Paying Member shall, within ten (10) days of the receipt of a written request by the Receiving Member, make a Capital Contribution (the "Trapped Profits Payment") to the Company, which shall immediately distribute the amount of the Trapped Profits Payment to the Receiving Member. The Paying Member's Capital Account shall be increased by the amount of the Trapped Profits Payment, and the Capital Account of the Receiving Member shall be decreased by the amount of the Trapped Profits Payment. The Receiving Member shall, immediately upon receipt of the Trapped Profits Payment, cause its Distribution Division to transfer cash to the Distribution Division of the Paying Member in an amount equal to the Trapped Profits Payment. The Trapped Profits Payment shall equal the lesser of the following amounts: (i) the Trapped Profits of the Distribution Division of the Receiving Member, and (ii) (A) the cumulative net losses of the Distribution Division of the Paying Member, less (B) all Trapped Profits Payments previously paid by the Paying Member pursuant to this Article 11.12. For purposes of this Article 11.12, the term "Trapped Profits" of the Receiving Member's Distribution Division shall equal the cumulative net profits of such Division (after allocation to statutory reserve and employee bonus and welfare finds of the WFOE as required under PRC law and regulations) in the relevant fiscal year of the WFOE, reduced by the sum of (a) all prior distributions to the Receiving Member pursuant to Article 11.5(a)(i) (including any excess cash that is deemed to have been distributed to the Receiving Member under Article 4.2(g) to the extent that such deemed distribution is made out of the net profits of the Receiving Member's Distribution Division), and (b) all Trapped Profits Payments previously made to the Receiving Member pursuant to this Article 11.12. The parties agree that the profits and losses of the Manufacturing Division shall be ignored for purposes of calculating the Trapped Profits Payment under this Article 11.12, and that to the extent that the WFOE 40 has any after-tax net profits after allocation to its statutory funds, such net profits shall be distributed first before the Trapped Profits Payment is made pursuant to this Article 11.12. ARTICLE 12 TRANSFER AND ASSIGNMENT OF MEMBERSHIP INTEREST 12.1 General. No Member shall Transfer any of its Membership Interest, except in accordance with the provisions contained herein. Any Transfer pursuant to this Article 12 shall only be effective to the extent set forth in this Article 12. Each Member hereby acknowledges the reasonableness of the restrictions on the Transfers of Membership Interests imposed by this Agreement in view of the Company purposes and the relationship of the Members. Accordingly, the restrictions on Transfers contained herein shall be specifically enforceable. In the event that any Member pledges or otherwise encumbers any of its Membership Interest as security for repayment of a liability, any such pledge or hypothecation shall be made pursuant to a pledge or hypothecation agreement that requires the pledgee or secured party to be bound by all the terms and conditions of this Article 12; provided, however, that if such secured party is already a Member, than such Member hereby consents in advance to be bound by the terms hereof in respect of such pledged Membership Interest. 12.2 Specific Provisions Governing Transfers. The following specific provisions shall apply to any and all Transfers of Membership Interest: (a) Transfers to Affiliates Allowed. A Member may Transfer all, but not part, of its Membership Interest to an Affiliate at any time without the consent of the other Members. The Members expressly agree that a Member may, pursuant to this Article 12.2(a), Transfer its Membership Interest to an Affiliate which subsequently offers any of such Affiliate's shares for sale in an initial public offering of such Affiliate's shares. (b) No Transfer in First Four (4) Years Except to Affiliates. No Member shall Transfer any of its Membership Interest within four (4) years after the Effective Date without the prior written consent of the other Members, except for the Transfer of its Membership Interest to an Affiliate of the Member pursuant to the provisions of Article 12.2(a) above. (c) Transfers after Four (4) Years. At any time after the fifth (5th) anniversary of the Effective Date, a Member may Transfer all or any portion of its Membership Interest to a third party purchaser (including another existing Member) with the prior 41 written consent of the other Members and subject to the other Members' right of first refusal as set forth in Article 12.3. 12.3 Right of First Refusal. (a) At any time after the fifth (5th) anniversary of the Effective Date, a Member that desires to sell all or any portion of its Membership Interest in the Company) (a "Selling Member") to a third party purchaser (including another existing Member), after obtaining the prior written consent of the other Members to such sale, shall obtain from such third party purchaser a bona fide written offer to purchase such interest, stating the terms and conditions upon which the purchase is to be made and the consideration offered therefor. The Selling Member shall give written notification to the remaining Members, by certified mail, express overnight courier or personal delivery, of its intention to so transfer such interest, furnishing to the remaining Members a copy of the aforesaid written offer to purchase such interest. (b) The remaining Members, and each of them shall, on a basis pro rata to their Percentage Interests or on a basis pro rata to the Percentage Interests of those remaining Members exercising their right of first refusal, have the right to exercise a right of first refusal to purchase all (but not less than all) of the interest proposed to be sold by the Selling Member upon the same terms and conditions as stated in the aforesaid written offer to purchase by giving written notification to the Selling Member of their intention to do so within thirty (30) days after receiving written notice from the Selling Member. The failure of all the remaining Members (or any one or more of them) to so notify the Selling Member of their desire to exercise this right of first refusal within said thirty (30) day period shall result in the termination of the right of first refusal and the Selling Member shall be entitled to consummate the sale of its interest in the Company, or such portion of its interest, if any, with respect to which the right of first refusal has not been exercised, to such third party purchaser. (c) In the event the remaining Members (or any one or more of the remaining Members) give written notice to the Selling Member of their desire to exercise this right of first refusal and to purchase all of the Selling Member's interest in the Company which the Selling Member desires to sell upon the same terms and conditions as are stated in the aforesaid written offer to purchase, the remaining Members shall have the right to designate the time, date and place of closing, provided that the date of closing shall be within ninety (90) days after receipt of written notification from the Selling Member of the third party offer to purchase. (d) In the event of either the purchase of the Selling Member's Membership Interest a third party purchaser or the gift of an Membership Interest, and as a condition to recognizing one or more of the effectiveness and binding nature of any such Transfer 42 and substitution of a new Member as against the Company or otherwise, the remaining Members may require the Selling Member or gifting Member and the proposed purchaser, donee or successor-in-interest, as the case may be to execute, acknowledge and deliver to the remaining Members such instruments of transfer, assignment and assumption and such other certificates, representations and documents, and to perform all such other acts which the remaining Members may deem necessary or desirable to: (i) constitute such purchaser, as an Member; (ii) confirm that the person desiring to be admitted as a Member, has accepted, assumed and agreed to be subject to and bound by all of the terms, obligations and conditions of this Agreement, as the same may have been further amended; (iii) preserve the Company after the completion of such sale, transfer, assignment, or substitution under the laws of each jurisdiction in which the Company is qualified, organized or does business; (iv) maintain the status of the Company as a partnership for federal tax purposes; and (v) assure compliance with any applicable state and federal laws including securities laws and regulations. (e) Any Transfer of a Membership Interest or admission of a Member in compliance with this Article 12 shall be deemed effective as of the last day of the calendar month in which the remaining Members' consent thereto was given, or, if no such consent was required pursuant to Article 12.3(f), then on such date that the donee or successor in interest complies with Article 12.3(d). The Selling Member agrees, upon request of the remaining Members, to execute such certificates or other documents and perform such other acts as may be reasonably requested by the remaining Members from time to time in connection with such sale, transfer, assignment, or substitution. The Selling Member hereby indemnifies the Company and the remaining Members against any and all loss, damage, or expense (including, without limitation, tax liabilities or loss of tax benefits) arising directly or indirectly as a result of any transfer or purported transfer in violation of this Article 12. (f) A gifting Member may gift all or any portion of its Membership Interest (without regard to Articles 12.3(a) and 12.3(b)), provided, however, that the donee or other successor-in-interest (collectively, "donee") complies with Article 12.3(d) and further provided that the donee is either the gifting Member's spouse, former spouse, or lineal descendent (including adopted children). In the event of the gift of all or any portion of a gifting Member's Membership Interest to one or more donees who are under 43 25 years of age, one or more trusts shall be established to hold the gifted interest(s) for the benefit of such donee(s) until all of the donee(s) reach the age of at least 25 years. 12.4 Further Requirements on Transfer. Notwithstanding that a Transfer is otherwise permitted under this Article 12, no Member shall Transfer any of its or his Membership Interest: (i) without registration under applicable federal and state securities laws, or unless it or he delivers an opinion of counsel satisfactory to the other Members that registration under such laws is not required; (ii) if the Membership Interest subject to the Transfer, when added to the total of all other Membership Interests subject to sales or gifts in the preceding twelve (12) consecutive months prior thereto, would result in the termination of the Company under Section 708 of the Code; (iii) without any proposed transferee or donee agreeing to be bound by this Agreement; (iv) without the proposed transferee or donee making all representations and delivering all such certificates, evidences or assurances reasonably requested by the other Members; and (v) without the proposed transferee or donee paying any reasonable expenses in connection with its admission as a Member. 12.5 Effectiveness of Transfer. Any Transfer of any of a Member's Membership Interest in the Company will take effect on the first day following receipt by the Members of written notice that all of the requirements of Article 12 have been met. ARTICLE 13 NEW MEMBERS 13.1 Restrictions on Admission of New Members. The Company shall not issue any additional Membership Interests to any Person other than Herbalife, Leiner, or a permitted transferee of an existing Membership Interest in accordance with Article 12, subject to the terms and conditions of this Agreement. For the purpose of this Article 13, a "new Member" shall mean a permitted transferee of an existing Membership Interest in accordance with Article 12 which is admitted as a Member of the Company. 13.2 Allocations to New Members. No new Members shall be entitled to any retroactive allocation of any item of income, gain, loss, deduction or credit of the Company. The Board of Managers may, at its option, at the time a Member is admitted, close the Company books (as though the Company's Fiscal Year has ended) or make pro rata allocations of items of income, gain, loss, deduction or credit to a new Member for that portion of the Company's Fiscal Year in which the new Member was admitted, in accordance with the provisions of Code Section 706(d) and the Treasury Regulations promulgated thereunder. 44 13.3 Agreement to be Bound by this Agreement. All new Members shall be required to execute, acknowledge and deliver to the other Members such certificates, representations and documents, and to perform all other acts which the Board of Managers may deem necessary or desirable to confirm that such new Members have accepted, assumed and agreed to be subject to and bound by all of the terms, obligations and conditions of this Agreement, as the same may have been further amended. ARTICLE 14 TERMINATION AND DISSOLUTION 14.1 Dissolution. (a) The Company shall be dissolved upon the occurrence of any of the following events: (i) the expiration of the period fixed for the duration of the Company pursuant to Article 3.6; (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act; (iii) the decision by the Board of Managers to dissolve the Company; (iv) the expiration of at least one (1) year's prior written notice given by either Member exercising its right to terminate this Agreement to the other Member at any time after the fifth (5th) anniversary of the Effective Date; (v) at each ten-year anniversary of the Effective Date, upon the expiration of at least one (1) year's prior written notice given by either Member exercising its right to terminate this Agreement to the other Member; or (vi) upon the exercise of a Member's option to terminate this Agreement whenever that Member's Percentage Interest falls below ten percent (10%) and the non-terminating Member does not or fails to exercise its right of purchase in accordance with Article 9.3. (b) Dissolution of the Company shall be effective on the day the Company's duration expires or as determined by the Board of Managers, as the case may be, but the Company shall not terminate until the certificate of cancellation shall be filed with the 45 Secretary of State of the State of Delaware and the assets of the Company are distributed as provided in Article 14.2 below. Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the affairs of the Members shall continue to be governed by this Agreement. 14.2 Winding Up, Liquidation and Distribution of Assets. (a) Upon dissolution, the Board of Managers may wind up the Company's affairs provided that the Board of Managers has not wrongfully dissolved the Company, but the Court of Chancery, upon cause shown, may wind up the Company's affairs upon application of any Member or his legal representative, and in connection therewith, may appoint a liquidating trustee. (b) Upon dissolution, an accounting shall be made of the Company's assets, liabilities and operations, from the date of the last previous accounting until the date of dissolution. The Board of Managers shall immediately proceed to wind up the affairs of the Company. (c) If the Company is dissolved and its affairs are to be wound up, the Board of Managers shall cause the WFOE (unless the WFOE is sold or otherwise transferred by the Company) to liquidate in accordance with the provisions of PRC law and its Articles of Association, cause the Board of Directors to serve on the WFOE's liquidation committee, and shall: (i) Sell or otherwise liquidate all of the Company's assets and the WFOE's assets as promptly as practicable, giving priority to the extent possible under law, to Herbalife to purchase the assets of the Herbalife Division and to Leiner to purchase the assets of the Leiner Division; (ii) Determine and allocate any Net Profit or Net Loss resulting from such sales to the Members' Capital Accounts in accordance with Articles 10.1, 10.2 and 11; (iii) Discharge all liabilities of the Company, including liabilities to Members who are creditors of the Company to the extent permitted by law, excluding liabilities for distributions to Members under Article 11.5; and (iv) Distribute the remaining assets to Members in accordance with the positive balance (if any) of each Member's Capital Account (as determined after taking into account all Capital Account 46 adjustments for the Company's taxable year during which the liquidation occurs), giving priority to the extent possible under law, to Herbalife in respect of the assets of the Herbalife Division and to Leiner in respect of the assets of the Leiner Division. Any such distributions to the Members in respect of their Capital Accounts shall be made within the time specified in Section 1.704-l(b)(2)(ii)(b)(2) of the Treasury Regulations. (d) Upon completion of the winding up, liquidation and distribution of the assets of the Company, the Company shall be deemed terminated. (e) The Board of Managers shall comply with all requirements of applicable law pertaining to the winding up of the affairs of the Company and the final distribution of its assets. 14.3 Certificate of Cancellation. When all debts, liabilities and obligations of the Company have been paid and discharged or adequate provisions have been made therefor and all of the remaining property and assets of the Company have been distributed, a certificate of cancellation shall be executed by one or more authorized persons, which certificate shall set forth the information required by the Delaware Act. A certificate of cancellation shall be filed with the Secretary of State of the State of Delaware to accomplish the cancellation of the Certificate of the Company upon the dissolution and completion of the winding up of the Company. 14.4 Effect of Filing of Certificate of Cancellation. Upon the filing of the certificate of cancellation with the Secretary of State of the State of Delaware, the existence of the Company shall cease, except for the purpose of suits, other proceedings and appropriate action as provided in the Delaware Act. The Board of Managers shall have authority to distribute any Company property discovered after dissolution, convey real estate and take such other action as may be necessary on behalf of and in the name of the Company. 14.5 Return of Contribution Nonrecourse to Other Members. Except as provided by law or as expressly provided in this Agreement, upon dissolution, each Member shall look solely to the assets of the Company for the return of its Capital Contribution. If the property remaining after the payment or discharge of the debts and liabilities of the Company is insufficient to return the cash contribution of one or more Members, such Member or Members shall have no recourse against any other Member, except as otherwise provided by law. 47 ARTICLE 15 COMPLIANCE WITH LEGAL REQUIREMENTS 15.1 Compliance with Applicable Laws. In the exercise of their respective rights, and the performance of their respective obligations, under this Agreement, each party hereto shall comply strictly, and shall utilize its best efforts to cause the Company, the WFOE, each of its Affiliates, each Manager and each Director to comply strictly, with all applicable laws, regulations and governmental orders of the United States, the PRC and their respective political subdivisions. 15.2 Compliance with United States Export Controls. The parties hereto shall cause the Company and the WFOE to comply with all applicable United States export control laws and regulations, including but not limited to, the Export Administration Regulations, 15 C.F.R. Parts 730-774, and the export control laws and regulations of the PRC. In furtherance of the parties' respective obligations under this Article 15.2, neither party hereto shall cause or permit the Company or the WFOE to export any commodities, software or technology, or any direct product of such software or technology, from the United States or the PRC, as the case may be, to any other country except as authorized under the United States' and the PRC's export control laws and regulations. The parties' obligations under this Article 15.2 shall survive the termination of this Agreement for any reason whatsoever. Each party hereto shall have the right to inspect all export and shipping records of the Company and the WFOE at any time during the continuance of this Agreement, upon reasonable written notice to the Company or the WFOE, as the case may be, to confirm compliance by the Company or the WFOE, as the case may be, with all applicable United States and PRC export control laws and regulations. 15.3 Compliance with Foreign Corrupt Practices Act. Each party hereto acknowledges that the Company, as a limited liability company organized and existing under the laws of the State of Delaware, U.S.A., is subject to the provisions of the United States Foreign Corrupt Practices Act, 15 U.S.C. Section 78dd-l et seq. (the "FCPA"), which prohibits any United States person, firm, corporation or other entity from paying, giving, or offering to pay or give any money or any other thing of value to any foreign official, foreign political party, or candidate for foreign political office for the purpose of obtaining or retaining any business, or to secure any other unfair advantage. The parties hereto shall therefore cause the Company, the WFOE, each Manager, each Director, and each officer, employee and agent of the Company and the WFOE to comply with all requirements of the FCPA, and each party hereby represents and warrants that it has not, and will not, take or cause or permit to be taken any action which would violate any provision of the FCPA, in connection with the performance of this Agreement, any of the agreements attached as Schedules hereto, or any of the transactions contemplated herein or therein. 48 ARTICLE 16 MISCELLANEOUS PROVISIONS 16.1 Notices. Any notice, demand or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be addressed to each Member at the addresses shown in SCHEDULE A, and/or to the Company at its principal office or to such other address as a party may from time to time designate by notice to the other parties. Unless specifically provided otherwise in this Agreement, any such notice, demand or communication may be given personally, by mail, by facsimile or by express overnight courier. If notice is given by mail, such notice shall be deemed to have been given when actually received. If notice is given by facsimile, such notice shall be deemed to be delivered when the facsimile is transmitted over the telephone lines, as confirmed by the transmitting machine. If notice is given by express overnight courier, such notice shall be deemed to be delivered when received at the addressee's business or residence address, as confirmed by the courier service tracking records. 16.2 Application of Delaware Law. This Agreement and its interpretation shall be subject to and is governed exclusively by its terms and by the laws of the State of Delaware, without regard to its conflicts of laws rules, and specifically the Delaware Act and the Certificate. In the event of a direct conflict between the provisions of this Agreement and the provisions of the Delaware Act or the Certificate, such provisions of the Delaware Act or the Certificate, as the case may be, will be controlling. 16.3 Dispute Resolution. Any dispute, controversy or claim arising out of or relating to this Agreement shall be finally and exclusively resolved by submission to a single arbitrator in accordance with the arbitration rules of the American Arbitration Association in Los Angeles, California. The prevailing party shall be entitled to reasonable attorneys' fees and costs. The arbitrator shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrator shall rule on motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys' fees and costs, to the same extent as a court of competent law or equity, should the arbitrator determine that the discovery was refused or objected to without substantial justification. The arbitrator shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted under California substantive law to resolve a dispute. 16.4 Waiver of Action for Partition. Each Member irrevocably waives during the term of the Company any right that it may have to maintain any action for partition with respect to the property of the Company. 49 16.5 Entire Agreement and Amendments. This Agreement and the Subscription Agreement, together with the Schedules attached hereto and the Exhibits attached to the Subscription Agreement and all other agreements referred to herein and in the Subscription Agreement, set forth the entire agreement between the parties relating to the subject matter hereof and supersede all prior agreements, understandings and communications, whether oral or written. This Agreement may not be amended or modified except by a writing signed by all of the Members owning Membership Interests at the relevant time and with the approval of at least two-thirds of the Managers then in office. 16.6 Execution of Additional Instruments. Each Member hereby agrees to execute such other and further statements of interest and holdings, designations, powers of attorney and other instruments necessary to comply with any laws, rules or regulations. 16.7 Waivers. The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation. 16.8 Rights and Remedies Cumulative. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive the right to use any or all other remedy. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise. 16.9 Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law. 16.10 Binding Effect. Each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors and assigns. 16.11 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Company. 16.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 50 16.13 Investment Representations. The undersigned Members understand (1) that the Membership Interests issued pursuant to this Agreement have not been registered under the Securities Act of 1933 or any state securities laws (the "Securities Acts") because the Company is issuing these Membership Interests in reliance upon the exemptions from the registrations requirements of the Securities Acts providing for issuance of securities not involving a public offering, (2) that the Company has relied upon the fact that the Membership Interests are to be held by each Member for investment, and (3) that exemption from registrations under the Securities Acts would not be available if the Membership Interests were acquired by a Member with a view to distribution. Accordingly, each Member hereby confirms to the Company that such Member is acquiring a Membership Interest for such own Member's account, for investment and not with a view to the resale or distribution thereof without complying with an exemption for registration under the Securities Acts. Each Member agrees not to transfer, sell or offer for sale any of portion of the Membership Interest unless there is an effective registration or other qualification relating thereto under the Securities Acts or unless the holder of the Membership Interest delivers to the Company an opinion of counsel, satisfactory to the Company, that such registration or other qualification under such Securities Acts is not required in connection with such transfer, offer or sale. Each Member understands that the Company is under no obligation to register the Membership Interests or to assist such Member in complying with any exemption from registration under the Securities Acts if such Member should at a later date wish to dispose of the Membership Interest. Prior to acquiring a Membership Interest, each Member has made an investigation of the Company and its business and the Company has made available to each such Member all information with respect thereto which such Member needed to make an informed decision to acquire a Membership Interest. Each Member considers himself to be a person possessing experience and sophistication as an investor which are adequate for the evaluation of the merits and risks of such Member's investment in a Membership Interest. 16.14 Confidentiality. Except as contemplated hereby or required by a court of competent authority, each Member shall keep confidential for a period of five (5) years and shall not disclose to others and shall use its reasonable efforts to prevent its Affiliates and any of its, or its Affiliates', present or former employees, agents, and representatives from disclosing to others without the prior written consent of the Members any information which (1) pertains to this Agreement, any negotiations pertaining thereto, any of the transactions contemplated hereby, or the business of the Company, or (2) pertains to confidential or proprietary information of any Member or the Company or which any Member has labeled in writing as confidential or proprietary; provided that any Member may disclose to its Affiliates' employees, agents, and representatives any 51 information made available to such Member. No Member shall use, and each Member shall use its best efforts to prevent any Affiliate of such Member from using, any information which (1) pertains to this Agreement, any negotiations pertaining hereto, any of the transactions contemplated hereby, or the business of the Company, or (2) pertains to the confidential or proprietary information of any Member or the Company or which any Member has labeled in writing as confidential or proprietary, except in connection with the transactions contemplated hereby. IN WITNESS WHEREOF, the parties hereto have caused their signatures, or the signatures of their duly authorized representatives, to be set forth below as of the day and year first above written. MEMBERS: HERBALIFE INTERNATIONAL, INC. LEINER HEALTH PRODUCTS, INC. By: /s/ Christopher Pair By: /s/ Gale K. Benscessen ---------------------------- ---------------------------------- Name: Name: Gale K. Benscessen Title: Title: President 52 SCHEDULE A MEMBERS AND EACH MEMBER'S INITIAL CAPITAL CONTRIBUTIONS
Amount of Initial Member Capital Contribution ------ -------------------- Herbalife International, Inc. US$507,000 1800 Century Park East, 15th Floor Los Angeles, CA 90067-1501 Facsimile No.: (310) 557-3915 Attention: Christopher Pair Leiner Health Products, Inc. US$505,770 901 East 233rd Street Carson, CA 90745-6204 Facsimile No.: (310) 952-7763 Attention: Gale Bensussen
SCHEDULE B INITIAL ANNUAL DIVISIONAL OPERATING PLANS TO BE COMPLETED AND INSERTED UPON MUTUAL AGREEMENT OF THE PARTIES. SCHEDULE C FINANCIAL OPERATING POLICIES AND PROCEDURES Table of Contents I. Cost Allocation Provisions A. Definition of Costs B. Allocation of Costs C. Timing of Cost Allocations D. Allocation Approval Cost Allocation Matrix II. Profit and Loss Allocation of the WFOE and the Company A. Allocation Methodology B. Timing of Profit and Loss Allocations C. Allocation Approval III. Budgets, Books and Records and Reporting Process A. Budgets B. Books and Records; Financial Close and Reporting Process Operating Budgets and Financial Close and Reporting Process Matrix FINANCIAL OPERATING POLICIES AND PROCEDURES I. COST ALLOCATION PROVISIONS A. Definition of Costs Division Costs Herbalife Division Costs. The Herbalife Division Costs shall consist of all costs and expenses incurred by the Herbalife Division's operation plus Excess Fixed Costs of the Manufacturing Division allocated to Herbalife. Leiner Division Costs. The Leiner Division Costs shall consist of all costs and expenses incurred by the Leiner Division's operation plus Excess Fixed Costs of the Manufacturing Division allocated to Leiner. Manufacturing Division Costs. The Manufacturing Division Costs shall consist of (i) all costs incurred by the Manufacturing Division's operation, (ii) salary of the General Manager of the WFOE, and (iii) WFOE Corporate Expenses less Excess Fixed Costs of the Manufacturing Division. WFOE Costs WFOE Costs shall be defined as consisting of: (i) identifiable Divisional costs, or costs clearly identifiable and attributable to a particular Division yet invoiced to the WFOE ("Identifiable Divisional Costs"); (ii) salary of the General Manager of the WFOE, which shall be One United States Dollar (US$1.00) per year; (iii) WFOE Corporate Expenses, which is defined to include all costs and expenses incurred at the WFOE level which do not fall within items (i), (ii), (iv), (v), (vi) and (vii) in this paragraph, for example, general office and administrative costs, travel, legal, accounting, consulting and other outside services, Board of Directors expenses, business licenses, and costs of the departments and personnel of the WFOE which provide business services to the Divisions; (iv) allocations to the reserve fund and employee bonus and welfare funds of the WFOE ("Allocation to WFOE Funds"); (v) income taxes of the WFOE ("WFOE Income Taxes"); (vi) interest expense of the WFOE ("WFOE Interest Expenses"); and (vii) foreign exchange net gains or losses. Company Costs Company Costs shall consist of any and all costs incurred at the Company level other than interest expense of the Company ("Company Interest Expense"), which shall be referred to as Company Corporate Expenses. Company Corporate Expenses shall 56 include, but not be limited to: general office and administrative costs, travel, legal, accounting, consulting and other outside services, Board of Managers expenses, and taxes other than partnership income taxes. B. Allocation of Costs Divisional Cost Allocations Herbalife Division. The Herbalife Division shall be responsible for all Herbalife Division Costs. Leiner Division. The Leiner Division shall be responsible for all Leiner Division Costs. Manufacturing Division. The Manufacturing Division shall charge the Herbalife Division, the Leiner Division and any and all third parties for which the Manufacturing Division produces products, a price for each product manufactured by the Manufacturing Division. With respect to the products manufactured by the Manufacturing Division for either the Herbalife Division or the Leiner Division (each is sometimes referred to as the "purchaser" or "purchasing division" below), the Manufacturing Division shall charge a Transfer Price for each such product that yields a twenty percent (20%) Gross Margin on the Transfer Price from the sale of the product by the Manufacturing Division. The Gross Margin earned by the Manufacturing Division shall be allocated (i) sixty percent (60%) to Herbalife and (ii) forty percent (40%) to Leiner, subject to any adjustment in Percentage Interests pursuant to Article 9.2 of the Limited Liability Company Agreement for Herbalife Leiner LLC (the "Agreement"). The Excess Fixed Costs of the Manufacturing Division shall be allocated initially (i) sixty-five percent (65%) to Herbalife and (ii) thirty-five percent (35%) to Leiner, and shall be adjusted from time to time in proportion to any adjustment in the Percentage Interests pursuant to Article 9.2 of the Agreement (i.e., the allocation percentages shall be adjusted with the same percentage change as that of the Percentage Interests). In the above paragraph: "Transfer Price" shall be the sum of (i) Direct Costs and Variable Factory Overhead collectively divided by .80, plus (ii) Allocated Depreciation. "Gross Margin" shall mean Transfer Price minus Manufacturing Costs. 57 "Depreciation" shall mean the current year estimated depreciation and amortization for the Manufacturing Division. "Allocated Depreciation" shall mean an amount calculated by applying the Factor to the Depreciation. "Factor" shall be the percentage derived by dividing the current year estimated Direct Costs, as determined from the annual operating budget, to the Direct Costs estimated for the fifth (5th) year of production, as determined in the first five year plan established by the Manufacturing Division, provided that 100% of Fixed Factory Costs is allocated to Manufacturing Costs in the fifth (5th) year of production. "Manufacturing Costs" shall mean all of the Direct Costs plus an amount equal to the Variable Factory Overhead plus Allocated Depreciation. "Direct Costs" shall mean all variable costs included in or associated with the manufacturing of the product(s), including but not limited to, raw materials, direct labor, packaging components, labels, supplies consumed in manufacturing, cartons and containers, quality assurance testing, etc. "Variable Factory Overhead" shall be an amount calculated by applying the Factor to the current year estimated Fixed Factory Overhead. "Fixed Factory Costs", sometimes referred to herein as "Fixed Costs", shall mean the cash costs and expenses of the Manufacturing Division not directly charged to the manufacturing of a product and reasonably required to operate and maintain the Manufacturing Division, which shall include general and administrative costs, license fees and royalties for technology or service utilized by the Manufacturing Division, all Company Costs, and all WFOE Costs excluding those that are specifically allocated to either of the Distribution Divisions pursuant to the section "WFOE Cost Allocations" below. In interpreting this provision, the parties agree that all costs and expenses that are not Direct Costs or have not been specifically allocated to one of the Distribution Divisions shall be treated as Fixed Factory Costs and no items shall be double-counted. 58 Depreciation shall not be deducted in determining the Fixed Factory Costs. "Fixed Factory Overhead" shall mean Fixed Factory Costs minus Depreciation. "Excess Fixed Costs of the Manufacturing Division" shall mean the Fixed Factory Overhead remaining after deducting the amount charged to the Transfer Price as Variable Factory Overhead, defined as "Excess Fixed Costs", plus "Excess Depreciation", defined as Depreciation less Allocated Depreciation. The Manufacturing Division shall invoice the purchaser of products immediately upon completion of the manufacturing process and quality assurance-approval. The purchasing division will pay for the products immediately upon receipt of the invoice from the Manufacturing Division. The "title" to and "ownership" of the products will pass to the purchaser upon payment of the corresponding invoice. The following is an illustration of the calculation of Gross Margin and the allocation of the costs, profits and losses of the Manufacturing Division: MANUFACTURING DIVISION: ALLOCATION OF COSTS, PROFITS LOSSES (FOR ILLUSTRATION PURPOSES ONLY. AMOUNTS DO NOT REFLECT ESTIMATES OR FORECASTS.)
MANUFACTURING DIVISION P&L HERBALIFE ALLOCATION LEINER ALLOCATION SHARE % SHARE % Transfer Price 100 100% Manufacturing Cost: Direct Cost 62 62% (1) Variable Factory Overhead Absorbed 12 12% (2) Allocated Depreciation 8 8% -------------- Total Manufacturing Cost 82 82% -------------- Gross Margin 18 18% $ 11 60%* $ 7 40%* (3) Excess Fixed Costs (18) -18% (12) 65%** (6) 35%** (4) Excess Depreciation (12) -12% (8) 65%** (4) 35%** -------------- Operating Income $ (12) -12% ==============
* Subject to any adjustment of Percentage Interests ** Subject to adjustment in proportion to any adjustment of Percentage Interests 59 ALLOCATION OF FIXED COST OVERHEAD: Fixed Costs $ 50 Less: Depreciation 20 ---- Fixed Factory Overhead 30 Factor 39% Current year % of year 5 direct costs used to allocate net fixed cost overhead to manufacturing cost calculation. (1) Variable Factory Overhead 12 ---- (3) Excess Fixed Costs 18 ==== ALLOCATION OF DEPRECIATION: Annual Depreciation $ 20 Factor 39% Current year % of year 5 direct costs used to allocate net fixed cost overhead to manufacturing cost calculation. (2) Allocation to Manufacturing Cost 8 Year 5 to have 100% net fixed ---- cost overhead absorbed in manufacturing cost calculation. (4) Excess Depreciation 12 Depreciation portion allocated ==== to manufacturing cost is not marked up for a Gross Margin of 20%.
FACTOR: Year 1 Year 2 Year 3 Year 4 Year 5 ------ ------ ------ ------ ------ Projected Annual Direct Costs $ 19 $ 41 $ 62 $ 105 $ 162 Current Year % of Year 5 12% 25% 39% 65% 100%
With respect to semi-processed materials manufactured by the Manufacturing Division for either Member, any Affiliate of either Member or any other third parties, the Manufacturing Division shall charge a minimum price calculated as a mark-up on the Direct Costs relating to the manufacturing of the semi-processed materials in accordance with, and as more particularly provided in Schedule D to the Agreement. WFOE Cost Allocations The WFOE Costs as defined herein shall be allocated in the following manner: Identifiable Division Costs. The WFOE shall allocate to each Division all specifically attributable divisional costs as appropriate. The WFOE shall request all vendors, as appropriate and where possible, to allocate invoice charges to the appropriate Divisions to ensure proper identification and allocation of costs. Salary of the General Manager of the WFOE shall be US$1.00 per year and shall be allocated, as part of Fixed Factory Costs, to the Manufacturing Division. WFOE Corporate Expenses. The WFOE shall allocate all WFOE Corporate Expenses as part of Fixed Factory Costs, to the Manufacturing Division. Allocation to WFOE Funds. In any year for which the Board of Directors of the WFOE makes allocations to the reserve fund and employee bonus and welfare funds of the WFOE from the WFOE's after-tax net profits as required by PRC law and regulations, the allocations so made to such funds shall be apportioned among the Division(s) in proportion to the ratio which the net 60 profits of that Division bears to the WFOE's consolidated net profits after tax. If at any time any amount that has been allocated to any of the WFOE reserve or employee bonus or welfare fund is to be returned or released as not being required for its intended usage, such amount shall be returned to each Division in the same proportion as the aggregate contributions made by such Division to such fund(s) bears to the aggregate contributions made by all Divisions to such fund(s). WFOE Income Taxes. In any year for which the WFOE incurs income tax liability to the PRC, any political subdivision thereof, and/or any other taxing authority within the PRC having jurisdiction over the WFOE with respect to income taxes, the income taxes so paid and/or accrued by the WFOE shall be apportioned among the Division(s) in accordance with the ratio which that portion of the WFOE's taxable income attributable to each Division having taxable income bears to the WFOE's taxable income. In no event shall any income tax expense be allocated to a Division prior to the tax year after the last tax year of the WFOE's PRC 100% income tax holiday. WFOE Interest Expense. The WFOE shall allocate interest expense incurred on indebtedness held at the WFOE level to the Divisions. Debt held at the WFOE level may originate from third party lenders or via intercompany borrowings from the Company. Interest expense on indebtedness as incurred by the WFOE regardless of funding source will be allocated to each Division based upon the actual interest expense incurred by the WFOE multiplied by the percentage of total debt funding of the WFOE which was incurred for the benefit of such Division(s). Foreign Exchange Net Gains or Losses. The WFOE shall allocate Foreign Exchange Net Gains or Losses to the appropriate Division(s) as agreed by the parties. Company Level Cost Allocations Company Corporate Expenses. Company Costs, herein defined and referred to as Company Corporate Expenses, shall be allocated, as part of Fixed Factory Overhead, to the Manufacturing Division. Company Interest Expense. The Company shall allocate interest expense incurred on the indebtedness held at the Company level to the Divisions which utilized the indebtedness. Debt held at the Company level may originate from third party lenders or the Members. Interest expense on indebtedness as incurred by the Company regardless of funding source will be allocated to each Division based upon the actual interest expense incurred by the Company multiplied by the percentage of total debt funding of the Company which was incurred for the benefit of such Division(s). 61 C. Timing of Cost Allocations The Manufacturing Division, WFOE, and Company Cost Allocations shall be allocated to the Divisions as described above at the conclusion of each monthly fiscal period. D. Allocation Approval The Board of Directors shall approve the cost allocations for each of the Divisions, the WFOE and the Company in accordance with the provisions of the Agreement and this Schedule C. II. PROFIT AND LOSS ALLOCATION OF THE WFOE AND THE COMPANY A. Allocation Methodology 1. The Net Profit and Net Loss of the Divisions shall be allocated to the Members' Capital Accounts in accordance with Article 11 of the Agreement. 2. Any interest income of the Company or the WFOE shall be allocated to the relevant Division(s) to the extent that such interest income is generated from funds for the use of such Division(s). To the extent that the funds that generated such income is not clearly identifiable as belonging to a particular Division or is not specifically attributable to a particular Division, then the interest income generated from such funds of the Company or the WFOE shall be allocated as part of the Company and WFOE Income as provided in paragraph 3 below. 3. Company and WFOE Income, which is defined herein as any income of the Company or the WFOE not specifically assigned under this Schedule C or any provision in the Agreement to any of the Divisions, shall be allocated equitably to the Members as the Board of Managers shall determine. The Board of Managers shall, to the extent possible, make the allocation based on the economic interests of the Members in such income. B. Timing of Profit and Loss Allocations The Net Profit and Net Loss of the Divisions shall be allocated as aforesaid at the conclusion of each monthly fiscal period. 62 C. Allocation Approval The Board of Directors shall approve the profit and loss allocations for each of the Divisions in accordance with the provisions of the Agreement and this Schedule C. III. BUDGETS, BOOKS AND RECORDS AND REPORTING PROCESS A. Budgets 1. Manufacturing Division. The Deputy General Manager of the Manufacturing Division shall prepare and submit to the Board of Directors an annual operating plan ("AOP") for the Manufacturing Division at least 60 days prior to the commencement of each new fiscal year of the WFOE. The Deputy General Manager of the Manufacturing Division shall consult with Herbalife, Leiner and the WFOE Chief Accountant in preparing each AOP. Such AOP shall be in sufficient detail to provide an estimate of cash flows, capital requirements and other financial requirements of the Manufacturing Division for the upcoming year. Such AOP shall also include other information as may be necessary to enable the Board of Directors to make an informed decision with respect to approval of such AOP. In connection with preparation of the AOP for the Manufacturing Division, the Deputy General Manager of the Manufacturing Division shall prepare and submit to the Board of Directors a rolling four-year capital plan ("Capital Plan"). Such Capital Plan shall set forth the projected fixed capital and working capital expenditures for each of the next four years. The Deputy General Manager of the Manufacturing Division shall consult with the Chief Accountant of the WFOE, Leiner and Herbalife in preparing such Capital Plan. The Capital Plan shall include such other information as may be necessary to enable the Board of Directors to make an informed decision with respect to approval of such Capital Plan. The Board of Directors shall review the AOP and the Capital Plan of the Manufacturing Division within 30 days of receipt. Approval shall be premised upon the best interests of the WFOE as a whole, provided that, the Board of Directors shall give deference to the expertise of the Deputy General Manager of the Manufacturing Division with respect to all operational matters pertaining to the Manufacturing Division. Failure to object to the AOP and/or the Capital Plan within 30 days of receipt shall be deemed approval by the Board of Directors. In addition, at least one (1) month prior to the commencement of each fiscal quarter, the Deputy General Manager of the Manufacturing Division shall prepare and submit to the Board of Directors for approval an operating budget of the Manufacturing Division for following fiscal quarter. The Deputy General Manager of the Manufacturing Division shall consult with Herbalife, Leiner and the WFOE Chief Accountant in preparing each quarterly budget. Such quarterly budget shall be in sufficient detail to provide an estimate of cash flows, capital requirements and other financial requirements of the Manufacturing Division for the upcoming 63 quarter, shall reflect any adjustments to be made to the AOP of the Manufacturing Division for that fiscal year, and shall also include other information as may be necessary to enable the Board of Directors to make an informed decision with respect to approval of such quarterly budget. The quarterly budget of the Manufacturing Division shall be deemed approved by the Board of Directors if the Board of Directors fails to object to such quarterly budget within 15 days of its receipt. 2. Herbalife Division and the Leiner Division. The Deputy General Managers of the Herbalife Division and the Leiner Division shall each prepare an AOP and Capital Plan for their respective divisions. Such AOPs shall be in sufficient detail to provide an estimate of cash flows, capital requirements and other financial requirements of the relevant Division for the upcoming year. Such AOPs shall also include other information as may be necessary to enable the Board of Directors to make an informed decision with respect to approval of such AOPs. The Capital Plan for each of the Distribution Division shall set forth the projected fixed capital and working capital expenditure for each of the four years. Such Capital Plan shall include such other information as may be necessary to enable the Board of Directors to make an informed decision with respect to approval of such Capital Plan. Copies of such AOPs and Capital Plans shall be furnished not later than 60 days prior to the commencement of each fiscal year of the WFOE to the Board of Directors. To the extent required by the laws, regulations or practices of the PRC, the Board of Directors shall approve such Plans. In no event shall approval be withheld unless such plans, in the good faith judgment of the Board of Directors, would violate the laws and regulations of the PRC, or unless such plans provide for the incurrence or assumption of indebtedness which has not been approved by the Board of Managers or the Board of Directors, or unless such plans are inconsistent with any provision of the Agreement or any policy or resolution adopted by the Board of Managers or Board of Directors. In addition, at least one (1) month prior to the commencement of each fiscal quarter, the Deputy General Manager of each Distribution Division shall prepare and submit to the Board of Directors for approval an operating budget of such Distribution Division for following fiscal quarter. Such quarterly budget shall be in sufficient detail to provide an estimate of cash flows, capital requirements and other financial requirements of the relevant Distribution Division for the upcoming quarter, shall reflect any adjustments to be made to the AOP of relevant Distribution Division for that fiscal year, and shall also include other information as may be necessary to enable the Board of Directors to make an informed decision with respect to approval of such quarterly budget. The quarterly budget of each Distribution Division shall be deemed approved by the Board of Directors if the Board of Directors fails to object to such quarterly budget within 15 days of its receipt. 3. WFOE Consolidated AOP and Rolling Capital Plans, Etc. Each year the WFOE Chief Accountant shall consolidate the AOPs for each of the Divisions and the accompanying divisional Capital Plans for the approval of both the Board of Directors of the WFOE and the Board of Managers of the Company at least thirty (30) days prior to the commencement of the 64 new fiscal year of the WFOE. Such plans shall be in sufficient detail to provide an estimate of cash flow, capital requirements and other financial requirements of the WFOE for such year. Such plans shall also include such other information or other matters necessary in order to inform the Board of Directors of the WFOE and the Board of Managers of the Company of the WFOE business and to enable the parties to make an informed decision with respect to their approval of such Plans. Submission of the WFOE consolidated AOP and Capital Plans to the Board of Directors of the WFOE and the Board of Managers shall include the detailed AOPs and Capital Plans of each of the Divisions. The Board of Directors of the WFOE and the Board of Managers of the Company shall review the proposed plans as prepared by the WFOE within thirty (30) days of receipt and may offer revisions thereto. After the final Plans have been approved, the Deputy General Managers shall implement the Plans and shall be responsible for managing Divisional performance of the Plans. In addition to the above, the WFOE Chief Accountant and the General Manager, in consultation with the Deputy General Manager of each of the Divisions, shall on a timely basis prepare an annual consolidated list of imported goods of the WFOE for submission with the PRC Customs authorities, and such other reports or plans as required of the WFOE in compliance with PRC laws and regulations. B. Books and Records; Financial Close and Reporting Process 1. Books and Records. The books, accounts and records of each Division shall be maintained and managed at the WFOE level by the WFOE Chief Accountant. In addition, the WFOE Chief Accountant shall keep consolidated books, accounts and records with respect to the business and operation of the WFOE, and shall be responsible for preparing financial statements and tax reports for the WFOE. All the Deputy General Managers and all accounting staff assigned to any Division shall fully cooperate with the WFOE Chief Accountant and his staff in connection with the preparation of the books and records of each Division and the WFOE financial statements and tax reports. 2. Monthly Close. There shall be a monthly financial close for each of the Divisions and the WFOE. Such process shall include all closing month end journal entries, reconciliations, inner-company eliminations and additional consolidating and closing entries as may be required. The monthly close end process shall be completed no later than 10 business days subsequent to the end of each fiscal month. Concurrent with the completion of the monthly financial close process, a monthly financial report for each Division shall be prepared by the WFOE Chief Accountant with the assistance of the Deputy General Manager of each Division. Such report shall be distributed to the Board of Directors, the Board of Managers, the General Manager and each of the Deputy General Managers. 65 3. Quarterly and Annual Close. The quarterly and fiscal year end financial close process shall follow the same procedures as the monthly financial close process except that: (i) The quarterly close shall be completed no later than 15 business days following the end of each fiscal quarter, and (ii) The fiscal year end close shall be completed no later than 15 days following the end of each fiscal year. The quarterly and fiscal year end financial reporting process shall follow the same procedures as the monthly financial reporting process, except that in addition to the preparation of a quarterly financial report and a fiscal year end report for each of Division, the WFOE Chief Accountant shall also prepare a consolidated quarterly financial report and a fiscal year end report for the WFOE respectively, concurrently with the completion of the quarterly and fiscal year end financial close processes respectively. Such reports shall be distributed to the Board of Directors, the Board of Managers, the General Manager and each of the Deputy General Managers. 4. Accounting Policies. The fiscal year of the WFOE and the Company shall be the calendar year. All financial statements shall be prepared in accordance with GAAP and shall furthermore comply with all applicable PRC accounting and financial reporting requirements and standards. 66 OPERATING BUDGETS AND FINANCIAL CLOSE AND PROCESS
WFOE DIVISIONS TIMING WHO APPROVAL Operating Budgets: Annual Divisional X 60 days prior to Divisional Deputy Board of Directors Operating Plans commencement General Manager of each new Fiscal Year Rolling Four Year X 60 days prior to Divisional Deputy Board of Directors Divisional Operating Plan commencement General Manager of each new Fiscal Year Quarterly Divisional X One month prior Divisional Deputy Board of Directors Operating Budget to the commence- General Manager ment of each new fiscal quarter Annual WFOE Consolidated 30 days prior to the Chief Accountant Board of Directors and Operating and Rolling Four X commencement of Board of Managers Year Capital Plan each new Fiscal Year Financial Close and Reporting: Monthly Financial Close X 10 business days Deputy General Board of Directors and and Reporting Process subsequent to the Managers and Board of Managers end of each fiscal Chief Accountant month Quarterly Financial Close X 15 business days Deputy General Board of Directors and and Reporting Process subsequent to the Managers and Board of Managers end of each fiscal Chief Accountant quarter Fiscal Year End Financial X 15 business days Deputy General Board of Directors and Close and Reporting subsequent to the Managers and Board of Managers end of each fiscal Chief Accountant year
67 SCHEDULE D WFOE'S PRICING POLICY FOR SALE OF SEMI-PROCESSED MATERIALS OBJECTIVE: The objective of this policy is to establish a guideline for developing the minimum price that is to be applied for the sale of Semi-Processed Materials from the WFOE to either Member of the Company (or any of their related subsidiaries), or to an unrelated third party. For the purpose of this policy, "Semi-Processed Materials" is defined as component chemicals or combination of component chemicals that have been further processed; such as milled, granulated, blended, spray dried and/or converted into tablet of capsules. This policy only applies to raw materials, which can be processed by the Manufacturing Division. POLICY: The "minimum price" is to be the sum of all direct costs plus a 12.5% mark-up of that sum to accommodate the absorption of a portion of plant overhead and a profit margin for the benefit of the WFOE. For the purpose of this policy, "direct costs" shall mean all items of expense directly associated with the value-added manufacturing of the Semi-Processed Materials, including, but not limited to, the following: 1. Purchase price of component ingredients; 2. Purchase price of manufacturing aids and consumable materials; 3. Inbound freight for items 1 and 2 above; 4. Cost of production labor (including benefits) directly attributable to the value-added manufacturing for the Semi-Processed Materials and 5. Laboratory tests, both analytical and microbiological. For the purpose of this policy, the 12.5% is intended to be apportioned as follows: (a) 7.5% as an overhead absorption mark-up; and (b) 5% as a profit mark-up. POLICY EXCEPTION: If in the case that the purchase price of the component ingredients are so intrinsically expensive that the application of the 12.5% mark-up would make the resulting selling price of the Semi-Processed Materials inherently un-competitive, the Deputy General Manager of the Manufacturing Division may apply to the Board of Directors for approval to use a lower margin in the calculation. This application should include the rationale that supports the use of a lower margin. 69 EX-3.37 22 y65450a1exv3w37.txt AMENDMENT OF LIMITED LIABILITY CO. AGREEMENT EXHIBIT 3.37 AMENDMENT TO LIMITED LIABILITY COMPANY AGREEMENT OF HERBALIFE LEINER, LLC THIS AMENDMENT (this "Amendment") to the Limited Liability Company Agreement of Herbalife Leiner, LLC, a Delaware limited liability company (the "Company"), between Leiner Health Products, Inc ("Leiner") and Herbalife International, Inc. ("Herbalife") (as originally adopted and amended from time to time, the "Company Agreement"), is made and entered into as of July 31, 2002. Capitalized terms used in this Amendment and not otherwise herein defined are used as defined in the Company Agreement. W I T N E S S E T H : WHEREAS, Section 16.5 of the Company Agreement provides that the Company Agreement may be amended by a writing signed by all of the Members owning Membership Interests at the relevant time with the approval of at least two-thirds of the Managers then in office; and WHEREAS, the undersigned Managers constitute at least two-thirds of the Managers of the Company; and WHEREAS, pursuant to the Membership Interest Sale and Purchase Agreement between Leiner and Herbalife dated as of November 29, 2001, Leiner has sold to Herbalife all of the Membership Interest of Leiner in the Company; and WHEREAS, Herbalife is the sole Member of the Company owning all of the Membership Interest in the Company; NOW, THEREFORE, the Company Agreement is amended as follows: 1. Approval of Name Change. The name of the Company shall be Herbalife China, LLC and the change of the Company's name to Herbalife China, LLC on the records of the Secretary of State of the State of Delaware is hereby ratified and confirmed in all respects. 2. Affiliate Obligations. Notwithstanding anything to the contrary in the Company Agreement, the Company shall have the power and authority, and it shall be within the Company's authorized purposes, to (i) guarantee any or all obligations of any or all of its Affiliates and (ii) secure any such guarantee or guarantees with any or all of the Company's assets. Notwithstanding anything to the contrary in the Company Agreement, any Manager or officer of the Company acting alone and without further action of any other Manager or officer or the Member of the Company is authorized to execute, deliver and cause the Company to perform its obligations under all agreements, instruments, promissory notes, deeds of trust, mortgages or other documents as the Manger or officer executing the same shall determine to be necessary or desirable in connection with the operations of the Company including the guarantee by the Company of any or all obligations of any and all Affiliates and the grant of a security interest, lien or mortgage on all or any part of the Company's assets to secure such guarantee or guarantees, his or her execution thereof to be conclusive evidence of such determination. 3. Execution, Delivery and Performance of the Loan Documents. Notwithstanding anything to the contrary in the Company Agreement, the Company is authorized and directed and shall have all requisite power and authority to execute, deliver and perform its obligations under (i) the Security Agreement (the "Security Agreement"), dated on or about the date hereof, among inter alia, Herbalife, WH Holdings (Cayman Islands) Ltd. ("Holdings"), WH Intermediate Holdings Ltd. ("Parent"), WH Luxembourg Holdings S.a.R.L. ("Luxembourg Holdings"), WH Luxembourg Intermediate Holdings S.a.R.L. ("Luxembourg Intermediate Holdings") and WH Luxembourg CM S.a.R.L. ("Luxembourg CM" and collectively with Holdings, Parent Luxembourg Holdings and Luxembourg Intermediate Holdings, the "Initial Guarantors"), each of the subsidiary guarantors listed on the signature pages to the Security Agreement and from time to time becoming a party thereto by execution of a joinder agreement (the "Subsidiary Guarantors" and collectively with the Initial Guarantors, the "Guarantors") and UBS AG, Stamford Branch (the "Collateral Agent") in its capacity as collateral agent for the lending institutions (the "Lenders") from time to time party to the Credit Agreement and (ii) the Credit Agreement, dated on or about the date hereof, among, inter alia, Herbalife and the Guarantors, the Lenders from time to time party thereto, GE Capital Corporation, as Syndication Agent, Rabobank International as Documentation Agent and the Collateral Agent as Administrative Agent (the "Credit Agreement" and together with the Security Agreement, the "Loan Documents"); and the Company is authorized and directed and shall have all requisite power and authority to execute and deliver all such other agreements, documents, promissory notes, deeds of trust, mortgages or other instruments necessary or incidental to the Loan Documents and perform its obligations thereunder. 4. Authorization of Managers and Officers. Notwithstanding anything to the contrary in the Company Agreement, any Manager or officer of the Company acting alone and without further action of any other Manager or officer or the Member of the Company is authorized and directed to execute, deliver and cause the Company to perform its obligations under the Loan Documents with such changes, modifications and 2 amendments as the Manager or officer executing the same determines to be appropriate, his or her execution thereof to be conclusive evidence of such determination; and any Manager or officer of the Company acting alone and without further action of any other Manager or officer or the Member of the Company is authorized and directed to execute, deliver and to cause the Company to perform its obligations under all such other agreements, documents, promissory notes, deeds of trust, mortgages or other instruments as the Manager or officer executing the same shall determine to be necessary or incidental to the Loan Documents, his or her execution thereof to be conclusive evidence of such determination. 5. Governing Law. This Amendment shall be governed by, and construed and enforced under, the laws of the Stare of Delaware. 6. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the day and year first above written. HERBALIFE INTERNATIONAL, INC., AS SOLE MEMBER /s/ Douglas Sages --------------------------------------- By: Douglas Sages Title: Executive Vice President /s/ Frank Morse --------------------------------------- Name: Frank Morse Manager /s/ Brian Kane --------------------------------------- Name: Brian Kane Manager /s/ John Purdy --------------------------------------- Name: John Purdy Manager 3 /s/ Bernard O'Brien --------------------------------------- Name: Bernard O'Brien Manager --------------------------------------- Name: Joe Wojick Manager 4 EX-3.40 23 y65450a1exv3w40.txt CERTIFICATE OF INCORP. OF HERBALIFE INT'L THAILAND EXHIBIT 3.40 ARTICLES OF INCORPORATION OF HERBALIFE INTERNATIONAL (THAILAND), LTD. ONE: The name of this corporation is Herbalife International (Thailand), Ltd. TWO: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THREE: The name and address of this corporation's initial agent for service of process is: Patti Berman 9800 La Cienega Boulevard, 13th Floor Inglewood, California 90301 FOUR: This corporation is authorized to issue one class of shares of stock; the total number of said shares is 1,000. FIVE: The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. SIX: This corporation is authorized to indemnify the directors and officers of this corporation to the fullest extent permissible under California law. Dated: November 9, 1995. /s/ S. A. Morgan --------------------------------------- S. A. Morgan, Incorporator EX-5.1 24 y65450a1exv5w1.txt OPINION OF CHADBOURNE & PARKE LLP [CHADBOURNE & PARKE LETTERHEAD] Exhibit 5.1 December 19, 2002 Herbalife International, Inc. and each of the Guarantors of the Series B Notes 1800 Century Park East Los Angeles, California 90067 Ladies and Gentlemen: In connection with the registration under the Securities Act of 1933, as amended (the "Act") of $165,000,000 principal amount of 11-3/4% Series B Senior Subordinated Notes due 2010 (the "Series B Notes") of Herbalife International, Inc., a Nevada corporation (the "Issuer"), and the guarantees by each of the guarantors listed on Schedule A hereto (such guarantors are hereinafter referred to as the "Guarantors" and the Guarantors, together with the Issuer, are hereinafter referred to as the "Registrants") of the Issuer's obligations under the Series B Notes (the "Guarantees" and, together with the Series B Notes the "Securities"), we, as your special counsel, have examined originals or copies, certified or otherwise identified to our satisfaction, of such corporate records, agreements, documents and other instruments and such certificates or comparable documents of public officials and representatives of the Registrants, and have made such other and further investigations, as we have deemed relevant and necessary as a basis for the opinion hereinafter set forth. In such Herbalife International, Inc. 2 December 19, 2002 examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Indenture relating to the Securities. Based on the foregoing, and subject to the qualifications and limitations stated herein, we advise you that, in our opinion, when the Registration Statement on Form S-4 registering the Securities (the "Registration Statement") has become effective under the Act, the terms of the Securities have been duly established in conformity with the Indenture so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Issuer or the Guarantors and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Issuer and the Guarantors, and the Securities have been duly executed and authenticated in accordance with the Indenture and issued and delivered in exchange for the Series A Notes and the guarantees thereon as contemplated in the Registration Statement, the Series B Notes will constitute the valid and legally binding obligations of the Issuer and the Guarantees will constitute valid and legally binding obligations of each of the Guarantors, in each case subject to the effects of bankruptcy, insolvency, fraudulent Herbalife International, Inc. 3 December 19, 2002 conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. With your permission, with respect to matters of Nevada law, we have relied exclusively on the opinion of Marshall Hill Cassas & de Lipkau dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Marshall Hill Cassas & de Lipkau, that (i) the Issuer is duly formed or incorporated, validly existing and in good standing under the laws of the State of Nevada, (ii) the Issuer has all corporate power and authority under Nevada law to consummate the Exchange Offer and to execute, deliver and perform its obligations under the Registration Statement, the Indenture, the Purchase Agreement, the Notes and the Registration Rights Agreement (the "Note Documents") and (iii) each of the Note Documents has been duly authorized, executed and delivered by the Issuer under Nevada law. With your permission, with respect to matters of California law, we have relied exclusively on the opinion of Irell & Manella dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is Herbalife International, Inc. 4 December 19, 2002 in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Irell & Manella, that (i) each of the Guarantors formed or incorporated in California is duly formed or incorporated, validly existing and in good standing under the laws of the State of California, (ii) each of the Guarantors formed or incorporated in California has all corporate power and authority under California law to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by each of the Guarantors formed or incorporated in California under California law. With your permission, with respect to matters of Delaware law, we have relied exclusively on the opinion of Morris, Nichols, Arsht & Tunnell dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to that matters as are contained in such opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Morris, Nichols, Arsht & Tunnell, that (i) each of the Guarantors formed or incorporated in Delaware is duly formed or incorporated, validly existing and in good standing under the laws of the State of Delaware, (ii) each of the Guarantors formed or incorporated in Delaware has all Herbalife International, Inc. 5 December 19, 2002 corporate power and authority under Delaware law to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by each of the Guarantors formed or incorporated in Delaware under Delaware law. With your permission, with respect to matters of Cayman Islands law, we have relied exclusively upon the opinion of Maples & Calder dated December 19, 2002, as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Maples & Calder, that (i) WH Intermediate Holdings Ltd. is duly incorporated, validly existing and in good standing under the laws of Cayman Islands, (ii) WH Intermediate Holdings Ltd. has all corporate power and authority under the laws of the Cayman Islands to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by WH Intermediate Holdings Ltd. under Cayman Islands law. With your permission, with respect to matters of Luxembourg law, we have relied exclusively on the opinion of Bonn Schmitt Steichen dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and Herbalife International, Inc. 6 December 19, 2002 which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Bonn Schmitt Steichen, that (i) each of WH Luxembourg Holdings S.a.R.L., WH Luxembourg Intermediate Holdings S.a.R.L. and WH Luxembourg CM S.a.R.L. is duly formed or incorporated, validly existing and in good standing under the laws of Luxembourg, (ii) each of WH Luxembourg Holdings S.a.R.L., WH Luxembourg Intermediate Holdings S.a.R.L. and WH Luxembourg CM S.a.R.L. has all corporate power and authority under Luxembourg law to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by each of WH Luxembourg Holdings S.a.R.L., WH Luxembourg Intermediate Holdings S.a.R.L. and WH Luxembourg CM S.a.R.L. under Luxembourg law. With your permission, with respect to matters of Brazilian law, we have relied exclusively on the opinion of Corvo Advogados dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Corvo Advogados, that (i) Herbalife International Do Herbalife International, Inc. 7 December 19, 2002 Brasil Ltda. is duly formed or incorporated, validly existing and in good standing under the laws of Brazil, (ii) Herbalife International Do Brasil Ltda. has all corporate power and authority under the laws of Brazil to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by Herbalife International Do Brasil Ltda. under the laws of Brazil. With your permission, with respect to matters of English law, we have relied exclusively on the opinion of Chadbourne & Parke, a Multinational Partnership dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Chadbourne & Parke, a Multinational Partnership, that (i) each of Herbalife (UK) Limited and Herbalife Europe Limited is duly formed or incorporated, validly existing and in good standing under the laws of England, (ii) each of Herbalife (UK) Limited and Herbalife Europe Limited has all corporate power and authority under the laws of England to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by each of Herbalife (UK) Limited and Herbalife Europe Limited under the laws of England. Herbalife International, Inc. 8 December 19, 2002 With your permission, with respect to matters of Finnish law, we have relied exclusively on the opinion of Hannes Snellman dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Hannes Snellman, that (i) Herbalife International Finland OY is duly formed or incorporated, validly existing and in good standing under the laws of Finland, (ii) Herbalife International Finland OY has all corporate power and authority under the laws of Finland to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by Herbalife International Finland OY under the laws of Finland. With your permission, with respect to matters of Israeli law, we have relied exclusively on the opinion of Herzog, Fox & Neeman dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Herzog, Fox & Neeman, that (i) Herbalife International of Herbalife International, Inc. 9 December 19, 2002 Israel (1990) Ltd. is duly formed or incorporated, validly existing and in good standing under the laws of Israel, (ii) Herbalife International of Israel (1990) Ltd. has all corporate power and authority under the laws of Israel to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by Herbalife International of Israel (1990) Ltd. under the laws of Israel. With your permission, with respect to matters of Japanese law, we have relied exclusively on the opinion of Tomotsune & Kimura dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Tomotsune & Kimura, that (i) Herbalife of Japan K.K. is duly formed or incorporated, validly existing and in good standing under the laws of Japan, (ii) Herbalife of Japan K.K. has all corporate power and authority under the laws of Japan to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by Herbalife of Japan K.K. under the laws of Japan. With your permission, with respect to matters of Mexican law, we have relied exclusively on the opinion of Bufete Carrillo Gamboa, S.C. dated as of Herbalife International, Inc. 10 December 19, 2002 December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Bufete Carillo Gamboa, S.C., that (i) each of Herbalife Internacional de Mexico, S.A. de C.V. and Herbalife Products de Mexico, S.A. de C.V is duly formed or incorporated, validly existing and in good standing under the laws of Mexico, (ii) each of Herbalife Internacional de Mexico, S.A. de C.V. and Herbalife Products de Mexico, S.A. de C.V has all corporate power and authority under the laws of Mexico to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by each of Herbalife Internacional de Mexico, S.A. de C.V. and Herbalife Products de Mexico, S.A. de C.V under the laws of Mexico. With your permission, with respect to matters of Swedish law, we have relied exclusively on the opinion of Manneheimer Swartling dated as of December 19, 2002 as to the matters set forth therein, a copy of which has been delivered to you and which is in form and scope satisfactory to us, and our opinion is subject to the same assumptions, qualifications and limitations with respect to such matters as are contained in that opinion. Without limiting the foregoing, we have assumed, in reliance upon the opinion of Manneheimer Swartling, that (i) Herbalife Sweden Herbalife International, Inc. 11 December 19, 2002 Aktiebolag is duly formed or incorporated, validly existing and in good standing under the laws of Sweden, (ii) Herbalife Sweden Aktiebolag has all corporate power and authority under the laws of Sweden to execute, deliver and perform its obligations under the Note Documents and (iii) each of the Note Documents has been duly authorized, executed and delivered by Herbalife Sweden Aktiebolag under the laws of Sweden. Also, we have relied as to certain matters on information obtained from public officials, officers of the Issuer and the Guarantors and other sources believed by us to be responsible, and we have assumed that the Indenture has been duly authorized, executed and delivered by the Trustee thereunder, an assumption which we have not independently verified. We are members of the bar of the State of New York and we do not express any opinion herein concerning any laws other than the laws of the State of New York and the federal law of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the references to us under the heading "Validity of Securities" in the Prospectus therein. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Herbalife International, Inc. 12 December 19, 2002 Very truly yours, Chadbourne & Parke LLP Schedule A Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.a.R.L. WH Luxembourg Intermediate Holdings S.a.R.L. WH Luxembourg Holdings S.a.R.L. WH Intermediate Holdings Ltd. EX-5.2 25 y65450a1exv5w2.txt OPINION OF CAYMAN ISLANDS COUNSELTO WH INTERM. Exhibit 5.2 [MAPLES AND CALDER LETTERHEAD] December 19, 2002 To: Herbalife International, Inc. and each of the Guarantors of the Series B Notes (listed on Schedule A hereto) 1800 Century Park East Los Angeles CA 90067 Chadbourne & Parke LLP 30 Rockefeller Plaza New York NY 10112 Dear Sirs WH Intermediate Holdings Ltd. (the "COMPANY") We have acted as counsel as to Cayman Islands law to the Company in connection with the offer to exchange (the "EXCHANGE OFFER") the 11-3/4% Series B Senior Subordinated Notes due 2010 (the "SERIES B NOTES") issued by Herbalife International, Inc. (the "ISSUER"), for an equal principal amount of the Issuer's outstanding 11-3/4% Series A Senior Subordinated Notes due 2010 (the "SERIES A NOTES"), and in connection with the preparation of the prospectus (the "PROSPECTUS") contained in the registration statement on Form S-4 (the "REGISTRATION STATEMENT (NO. 333-101188)") filed with the Securities and Exchange Commission by, inter alios, the Company for the purpose of registering the Series B Notes and, inter alia, the guarantee by the Company of the Issuer's obligations under the Series B Notes (the "GUARANTEE") under the Securities Act of 1933, as amended. 1 DOCUMENTS REVIEWED We have reviewed originals, copies, drafts or conformed copies of the following documents: 1.1 the Certificate of Incorporation and Memorandum and Articles of Association of the Company as registered or adopted on 23rd May, 2002; 2 1.2 the written resolutions dated 21st June, 2002 and the corporate records of the Company maintained at its registered office in the Cayman Islands; 1.3 a Certificate of Good Standing issued by the Registrar of Companies (the "CERTIFICATE OF GOOD STANDING"); 1.4 a certificate from a Director of the Company a copy of which is annexed hereto (the "DIRECTOR'S CERTIFICATE"); 1.5 the Indenture dated as of June 27, 2002 between the Issuer, The Bank of New York as Trustee and the Company, WH Luxembourg Holdings SARL, WH Luxembourg Intermediate Holdings SARL and WH Luxembourg CM SARL as Guarantors in respect of the Notes (the "INDENTURE"); 1.6 the Registration Rights Agreement dated as of June 27, 2002 between the Issuer, Herbalife International, Inc., UBS Warburg LLC as Initial Purchaser, the Company and the other Guarantors named therein; 1.7 the Purchase Agreement dated June 21, 2002, between the Issuer, Herbalife International, Inc., the Company and the other Guarantors named therein; and 1.8 the Guarantee. The documents referred to in paragraphs 1.5 to 1.8 above are collectively referred to as the "TRANSACTION DOCUMENTS". 2 ASSUMPTIONS The following opinion is given only as to, and based on, circumstances and matters of fact existing and known to us on the date of this opinion. This opinion only relates to the laws of the Cayman Islands which are in force on the date of this opinion. In giving this opinion we have relied (without further verification) upon the completeness and accuracy of the Director's Certificate and the Certificate of Good Standing. We have also relied upon the following assumptions, which we have not independently verified: 2.1 the Transaction Documents have been or will be authorised and duly executed and delivered by or on behalf of all relevant parties (other than the Company as a matter of Cayman Islands law) in accordance with all relevant laws (other than the laws of the Cayman Islands); 2.2 the Transaction Documents are, or will be, legal, valid, binding and enforceable against all relevant parties in accordance with their terms under the laws of the State of New York and all other relevant laws (other than the laws of the Cayman Islands); 2.3 the choice of the laws of the State of New York as the governing law of the Transaction Documents has been made in good faith and would be regarded as a valid and binding selection which will be upheld by the courts of the State of New York as a matter of the 3 laws of the State of New York and all other relevant laws (other than the laws of the Cayman Islands); 2.4 copy documents, conformed copies or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals; 2.5 all signatures, initials and seals are genuine; 2.6 the power, authority and legal right of all parties under all relevant laws and regulations (other than the laws of the Cayman Islands) to enter into, execute, deliver and perform their respective obligations under the Transaction Documents; and 2.7 there is nothing under any law (other than the law of the Cayman Islands) which would or might affect the opinions hereinafter appearing. Specifically, we have made no independent investigation of the laws of the State of New York. 3 OPINIONS Based upon, and subject to, the foregoing assumptions and the qualifications set out below, and having regard to such legal considerations as we deem relevant, we are of the opinion that: 3.1 The Company has been duly incorporated as an exempted company with limited liability and is validly existing and in good standing under the laws of the Cayman Islands. 3.2 The Company has full power and authority under its Memorandum and Articles of Association to enter into, execute and perform its obligations under the Transaction Documents. 3.3 The execution and delivery of the Transaction Documents and the performance by the Company of its obligations thereunder do not conflict with or result in a breach of any of the terms or provisions of the Memorandum and Articles of Association of the Company or any law, public rule or regulation applicable to the Company in the Cayman Islands currently in force. 3.4 The execution, delivery and performance of the Transaction Documents has been authorised by and on behalf of the Company and, assuming the Transaction Documents have been executed and delivered by a director of the Company, the Transaction Documents have been duly executed and delivered on behalf of the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms. 3.5 No authorisations, consents, approvals, licenses, validations or exemptions are required by law from any governmental authorities or agencies or other official bodies in the Cayman Islands in connection with: 3.5.1 the execution, creation or delivery of the Transaction Documents; 4 3.5.2 subject to the payment of the appropriate stamp duty, enforcement of the Transaction Documents; or 3.5.3 the performance by the Company of its obligations under any of the Transaction Documents. 3.6 No taxes, fees or charges (other than stamp duty) are payable (either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands in respect of: 3.6.1 the execution or delivery of the Transaction Documents; 3.6.2 the enforcement of the Transaction Documents; 3.6.3 payments made under, or pursuant to, the Transaction Documents. The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. 3.7 The courts of the Cayman Islands will observe and give effect to the choice of the laws of the State of New York as the governing law of the Transaction Documents. 3.8 Based solely on our inspection of the Register of Writs and Other Originating process in the Grand Court of the Cayman Islands from the date of incorporation of the Company there were no actions or petitions pending against the Company in the courts of the Cayman Islands as at close of business in the Cayman Islands on [ ] January, 2003. 3.9 Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the State of New York, the courts of the Cayman Islands will recognise a foreign judgment as the basis for a claim at common law in the Cayman Islands provided such judgment: 3.9.1 is given by a competent foreign court; 3.9.2 imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given; 3.9.3 is final; 3.9.4 is not in respect of taxes, a fine or a penalty; and 3.9.5 was not obtained in a manner and is not of a kind the enforcement of which is contrary to the public policy of the Cayman Islands. 5 3.10 It is not necessary to ensure the legality, validity, enforceability or admissibility in evidence of the Transaction Documents that any document be filed, recorded or enrolled with any governmental authority or agency or any official body in the Cayman Islands. 4 QUALIFICATIONS The opinions expressed above are subject to the following qualifications: 4.1 The term "ENFORCEABLE" as used above means that the obligations assumed by the Company under the Transaction Documents are of a type which the courts of the Cayman Islands will enforce. It does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their terms. In particular: 4.1.1 enforcement may be limited by bankruptcy, insolvency, liquidation, reorganisation, readjustment of debts or moratorium or other laws of general application relating to or affecting the rights of creditors; 4.1.2 enforcement may be limited by general principles of equity. For example, equitable remedies such as specific performance may not be available, inter alia, where damages are considered to be an adequate remedy; 4.1.3 some claims may become barred under the statutes of limitation or may be or become subject to defenses of set-off, counterclaim, estoppel and similar defenses; 4.1.4 where obligations are to be performed in a jurisdiction outside the Cayman Islands, they may not be enforceable in the Cayman Islands to the extent that performance would be illegal under the laws of that jurisdiction; 4.1.5 the Cayman Islands court has jurisdiction to give judgment in the currency of the relevant obligation and statutory rates of interest payable upon judgments will vary according to the currency of the judgment. If the Company becomes insolvent and is made subject to a liquidation proceeding, the Cayman Islands court will require all debts to be proved in a common currency, which is likely to be the "functional currency" of the Company determined in accordance with applicable accounting principles. Currency indemnity provisions have not been tested, so far as we are aware, in the courts of the Cayman Islands; and 4.1.6 obligations to make payments that may be regarded as penalties will not be enforceable. 4.2 Cayman Islands stamp duty may be payable if the original Transaction Documents are brought to or executed in the Cayman Islands. 4.3 To maintain the Company in good standing under the laws of the Cayman Islands, annual filing fees must be paid and returns made to the Registrar of Companies. 6 4.4 The obligations of the Company may be subject to restrictions pursuant to United Nations sanctions as implemented under the laws of the Cayman Islands. 4.5 A certificate, determination, calculation or designation of any party to the Transaction Documents as to any matter provided therein might be held by a Cayman Islands court not to be conclusive final and binding if, for example, it could be shown to have an unreasonable or arbitrary basis, or in the event of manifest error. 4.6 In principle a Cayman Islands court will award costs and disbursements in litigation in accordance with the relevant contractual provisions but there remains some uncertainty as to the way in which the rules of the Grand Court will be applied in practice. Whilst it is clear that costs incurred prior to judgment can be recovered in accordance with the contract, it is likely that post-judgment costs (to the extent recoverable at all) will be subject to taxation in accordance with Grand Court Rules Order 62. 4.7 We reserve our opinion as to the extent to which a Cayman Islands court would, in the event of any relevant illegality, sever the offending provisions and enforce the remainder of the transaction of which such provisions form a part, notwithstanding any express provisions in this regard. 4.8 We make no comment with regard to the references to foreign statutes in the Transaction Documents. We express no view as to the commercial terms of the Transaction Documents or whether such terms represent the intentions of the parties and make no comment with regard to the representations which may be made by the Company. This opinion is given as of the date shown and may not be relied upon as of any later date. This opinion may be relied upon by the addressees only. It may not be relied upon by any other person except with our prior written consent. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement (No. 333-101188). Yours faithfully, MAPLES AND CALDER 7 SCHEDULE Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.a.R.L. WH Luxembourg Intermediate Holdings S.a.R.L. WH Luxembourg Holdings S.a.R.L. WH Intermediate Holdings Ltd. WH Intermediate Holdings Ltd. P.O. Box 309GT, Ugland House, South Church Street, George Town Grand Cayman, Cayman Islands December 19, 2002 To: Maples and Calder P.O. Box 309GT, Ugland House, South Church Street, George Town Grand Cayman, Cayman Islands Dear Sirs, WH Intermediate Holdings Ltd. (the "COMPANY") I, John C. Hockin, being a director of the Company, am aware that you are being asked to provide a legal opinion (the "OPINION") in relation to certain aspects of Cayman Islands law. Capitalised terms used in this certificate have the meaning given to them in the Opinion. I hereby certify that: 1 The Memorandum and Articles of Association of the Company as adopted or registered on 23rd May, 2002 remain in full force and effect and are unamended. 2 The Company has not entered into any mortgages or charges over its property or assets. 3 The written resolutions of the board of directors dated June 21, 2002 and the written resolutions of the board of directors dated November 12, 2002 (the "RESOLUTIONS") were signed by all the directors in the manner prescribed in the Articles of Association of the Company. 4 The authorised share capital of the Company is US$50,000 into 50,000 shares of US$1.00 par value each. The issued share capital of the Company is one share of US$1.00 each, which have been issued and are fully paid up. 5 The shareholders of the Company have not restricted or limited the powers of the directors in any way. There is no contractual or other prohibition (other than as arising under Cayman Islands law) binding on the Company prohibiting it from entering into and performing its obligations under the Transaction Documents. 6 The Resolutions were duly adopted, are in full force and effect at the date hereof and have not been amended, varied or revoked in any respect. 7 The directors of the Company at the date of Resolutions and at the date hereof were and are as follows: Steven Rodgers John Hockin 8 The Minute Book and corporate records of the Company as maintained at its registered office in the Cayman Islands and made available to you are complete and accurate in all material respects, and all minutes and resolutions filed therein represent a complete and accurate record of all meetings of the shareholders and directors (or any committee thereof) (duly convened in accordance with the Articles of Association) and all resolutions passed at the meetings, or passed by written consent as the case may be. 9 Prior to, at the time of, and immediately following execution of the Transaction Documents the Company was able to pay its debts as they fell due and entered into the Transaction Documents for proper value and not with an intention to defraud or hinder its creditors or by way of fraudulent preference. 10 Each director considers the transactions contemplated by the Transaction Documents to be of commercial benefit to the Company and has acted bona fide in the best interests of the Company, and for a proper purpose of the Company, in relation to the transactions the subject of this Opinion. 11 To the best of my knowledge and belief, having made due inquiry, the Company is not the subject of legal, arbitral, administrative or other proceedings in any jurisdiction. Nor have the directors or shareholders taken any steps to have the Company struck off or placed in liquidation, nor have any steps been taken to wind up the Company. Nor has any receiver been appointed over any of the Company's property or assets. I confirm that you may continue to rely on this Certificate as being true and correct on the day that you issue the Opinion unless I shall have previously notified you personally to the contrary. Signature: /s/ John C. Hockin ----------------------------------- John C. Hockin EX-5.3 26 y65450a1exv5w3.txt OPINION OF NEVADA COUNSEL TO HERBALIFE INT'L. INC. Exhibit 5.3 MARSHALL HILL CASSAS & DE LIPKAU LAWYERS December 19, 2002 Herbalife International, Inc. and each of the Guarantors of the Series B Notes 1800 Century Park East Los Angeles, California 90067 Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 RE: Ladies and Gentlemen: We are acting as special Nevada counsel to Herbalife International, Inc., a Nevada corporation (the "Issuer") in connection with the offer to exchange (the "Exchange Offer") the Issuer's 11-3/4 % Series B Senior Subordinated Notes due 2010 (the "Series B Notes"), for an equal principal amount of the Issuer's outstanding 11-3/4 % Series A Senior Subordinated Notes due 2010 (the "Series A Notes"), and in connection with the preparation of the prospectus (the "Prospectus") contained in the registration statement on Form S-4 as filed with the Securities and Exchange Commission on November 13, 2002 (the "Registration Statement (No. 333-101188)") by the Issuer and each of the guarantors listed on Schedule A hereto (such guarantors hereinafter referred to as the "Guarantors" and the Guarantors together with Issuer hereinafter referred to as the "Registrants") for the purpose of registering the Series B Notes and the guarantees by the Guarantors of the Issuer's obligations under the Series B Notes (the "Guarantees") under the Securities Act of 1933, as amended (the "Act"). The Series A Notes and the Guarantees have been, and the Series B Notes will be, issued pursuant to an Indenture, dated as of June 27, 2002, between WH Acquisition Corp. (whose obligations were assumed by the Issuer upon the consummation of the merger of the Issuer with WH Acquisition Corp.), the Guarantors and The Bank of New York, as trustee (the "Trustee"), as supplemented by the Supplemental Indenture dated as of July 31, 2002 (the "Indenture"). Unless otherwise defined herein, terms defined in the Prospectus are used herein as defined therein. In connection with the opinions rendered herein, we have reviewed copies (including faxed copies) of the following documents: 1. The following documents of Issuer on file with the Nevada Secretary of State ("SOS"): a. Articles of Incorporation for Sage Court Ventures, Inc. filed September 26, 1985; Herbalife International, Inc. and to each of the Guarantors of the Series B Notes Page 2 b. Certificate of Amendment to Articles of Incorporation changing name to Herbalife International, Inc. filed December 10, 1986; c. Certificate of Amendment to Articles of Incorporation filed November 22, 1989; d. Certificate of Designation filed February 11, 1992; e. Certificate of Amendment to Articles of Incorporation filed May 14, 1993; f. Amended and Restated Articles of Incorporation filed December 12, 1997; g. Certificate of Designation filed August 9, 2000; h. Articles of Merger and Amended and Restated Articles of Incorporation filed July 31, 2002; and i. Certificate of Amendment to Articles of Incorporation filed September 23, 2002. 2. The Bylaws of Issuer as amended (see below). 3. The following Resolutions of the Incorporator, Board of Directors or Stockholders of Issuer: a. Minutes of Incorporators' Organization Meeting for Sage Court Ventures, Inc. ("Incorporator's Resolutions"); b. Action by Directors of Sage Court Ventures, Inc. Without A Meeting, dated November 24, 1986; c. Minutes of Special Stockholders' Meeting of Sage Court Ventures, Inc., dated November 24, 1986; d. Unanimous Written Consent of the Board of Directors of Herbalife International, Inc., dated June ___, 2002; e. Written Consent of the Majority Stockholder of Herbalife International, Inc., dated June ____, 2002; and f. Resolutions Adopted by Unanimous Written Consent of the Board of Directors of Herbalife International, Inc. as of June 24, 2002 (the "June Resolutions"). 4. The Registration Statement. 5. Certificate of Existence (including Amendments) for Issuer issued on November 15, 2002, by the Nevada Secretary of State. Herbalife International, Inc. and to each of the Guarantors of the Series B Notes Page 3 6. Resolutions Adopted by Unanimous Written Consent of the Board of Directors of Herbalife International, Inc., dated as of June 24, 2002. 7. Action by Unanimous Written Consent of the Board of Directors to Herbalife International, Inc., dated November 11, 2002 regarding the Exchange Offer and the Exchange Offer Registration Statement. 8. Agreement and Plan of Merger dated as of April 10, 2002, By and Among WH Holdings (Cayman Islands), Ltd., Issuer and WH Acquisition Corp. ("WH") (the "Merger Agreement"). 9. Herbalife International, Inc. Certificate of Assistant Secretary dated December 13, 2002, executed by Vicki Tuchman, Assistant Corporate Secretary of Issuer, a copy of which (without exhibits) is attached hereto as Exhibit A. Section 1.5 of the Merger Agreement provided that the Bylaws of WH would become the Bylaws of Issuer (the "Surviving Corporation") upon the effectiveness of the merger of those two corporations. The Bylaws described at item 2 above are the Bylaws of WH at the time the merger became effective and was later amended by an amendment adopted on September 20, 2002. We have assumed that the charter documents described at items 1(a) through 1(i) above are the only charter documents of Issuer on filed with the SOS and that the Bylaws described at item 2 above are the currently effective Bylaws of Issuer. We have assumed that the Resolutions described at items 3(a) through 3(f) and item 7 above were duly adopted by the Incorporator, Board of Directors or Stockholders which have purported to do so. We have assumed the genuineness of all signatures, the conformity to original documents of all copies of documents supplied to us and the authenticity of the original of those documents. Attorneys involved in the preparation of this opinion are admitted to practice law in the State of Nevada and we do not express any opinion as to the laws of any jurisdiction other than the laws of the State of Nevada. Based upon and subject to the foregoing, and subject to the further qualifications set forth below, we are of the opinion that, under Nevada law: 1. The Issuer is duly incorporated, validly existing and in good standing under the laws of the State of Nevada; 2. The Issuer has all corporate power and authority under Nevada law to consummate the Exchange Offer and to execute, deliver and perform its obligations under the Registration Statement, the Indenture, the Purchase Agreement, the Notes and the Registration Rights Agreement (the "Note Documents"); and Herbalife International, Inc. and to each of the Guarantors of the Series B Notes Page 4 3. The Series B Notes have been duly authorized and, when executed by the "Authorized Officers" (as defined in the June Resolutions), will be duly executed. 4. The Note Documents (other than Series B Notes) have been duly authorized and, when executed by the Authorized Officers as provided in the June Resolutions, were duly executed. Our opinions above are subject to, qualified and limited by the following qualifications. An incorporator adopted the initial Bylaws of Issuer, elected a board of directors, appointed officers and authorized the issuance of stock. Unlike Delaware law and California law, among others, Nevada law does not give incorporators the authority to conduct these activities. See Delaware General Corporation Law, Section 107; California Corporation Code Section 210. After the initial stockholders were issued stock, the stockholders proceeded to elect directors; those directors proceeded to elect officers. As a result, there is a question as to the validity of the process by which the initial board of directors was elected and the initial stockholders became stockholders. This means the legality of the election of all subsequent boards and the valid issuance of all subsequent issuances of stock can be questioned. This, in turn, questions all actions taken by all subsequent boards and all subsequent stockholder actions ever since. However, Nevada and the laws of other states recognize de facto directors. A de facto director is one in the possession of an office and discharging its duties under color of authority. A de facto director fails being a de jure director by some irregularity in his or her election or by ineligibility or the failure to qualify as required. 2 FLETCHER CYC. CORP. Section 373-374. Nevada law has long recognized de facto directors. STATE EX. REL. CORY V. CURTIS, 9 Nev. 325 (1874); ORR WATER DITCH COMPANY V. RENO WATER COMPANY, 17 Nev. 166, 30 P.695 (1882). In WALCOTT V. WELLS, 21 Nev. 47, 24 P.367 (1890), the Nevada Supreme Court listed four (4) characteristics for a de facto officer, relying on STATE EX. REL. CORY V. CURTIS, SUPRA. Those four (4) factors are: (1) One who has the reputation of being an officer yet is not a good officer in point of law; (2) One who actually performs the duties of an office with apparent right under color of an appointment or election; (3) One who has the color of right or title to the office; and (4) One who has the apparent title of an officer de jure. The law of other states also recognize the concept of de facto directors. See CONSUMERS SALT CO. V. RIGGINS, 208 Cal. 537, 282 P. 954 (1930); RUSSELL V. GOLDEN RULE MINING CO., 63 Ariz. 11, 159 P.2d 776 (1945); PRICKETT V. AMERICAN STEEL AND PUMP CO., 253 A.2d 86 (Del. Ch. 1969); DROB V. NATIONAL MEMORIAL PARK, INC., 41 A.2d 589 (Del. Ch. 1945). Herbalife International, Inc. and to each of the Guarantors of the Series B Notes Page 5 We are informed that the initial Board of Directors was elected by an incorporator in a method that would be familiar to those dealing with Delaware corporations, among other states. The process is described in the Incorporator's Resolutions described at item 3(a) above. While it is not free from doubt, if the issue were properly brought before a Nevada court and assuming no stockholder objected to the authority of the directors over time, we believe a Nevada court should find that the directors elected by the incorporator in the Incorporator's Resolutions were de facto directors and that their actions and the actions of all subsequent board of directors of Issuer are valid. The subsequent ratification of the actions of the incorporator by the board of directors and the majority stockholder in June, 2002 (see items 3(d) and 3(e) above) further support this conclusion. With respect to the actions of stockholders electing directors and approving basic corporate transactions, we note Nevada Revised Statutes 104.8202, a part of Nevada's Uniform Commercial Code. NRS 104.8202(2)(a) operates to validate a security which an issuer asserts may be invalid. This statute provides that a security issued with a defect "going to its validity, is valid in the hands of a purchaser for value and without notice of the particular defect unless the defect involves a violation of a constitutional provision." Nevada's version of the Uniform Commercial Code provides that a person gives "value" for rights if the person acquires them "generally, in return for any consideration sufficient to support a simple contract." NRS 104.1201(45). We assume that the stockholders of Issuer over the years have given value for their shares and that the issuance of their shares was otherwise valid. Therefore, while it is not free from doubt, if the issue were properly presented to a Nevada court, and assuming once again that no stockholder objects to the authority of the stockholders voting on corporate matters over the years, we believe a Nevada court should find that the stockholders have validly elected the board of directors of Issuer over the years, further validating the actions of the board. The opinions expressed in this letter are based upon Nevada laws, rules and regulations in effect and the facts in existence as of the date of this letter. We assume no obligation to update the opinions set forth in this letter or to apprise anyone of any changes in any applicable laws or facts occurring after the date of this letter which may affect the opinions set forth herein. No opinions other than those expressly made in this letter are implied. This opinion is rendered only to you and may not be relied upon or used by you or anyone else for any purpose or otherwise circulated or furnished to, quoted by or relied upon by any other person or entity for any purpose without our prior express written consent. Notwithstanding the foregoing, we hereby consent to the filing of this opinion as an exhibit to the Registration Statement (No. 333-101188). Herbalife International, Inc. and to each of the Guarantors of the Series B Notes Page 6 Very truly yours, MARSHALL HILL CASSAS & DE LIPKAU By /s/ John P. Fowler -------------------------- John P. Fowler JPF/llb HERBALIFE INTERNATIONAL, INC. CERTIFICATE OF ASSISTANT CORPORATE SECRETARY I, VICKI TUCHMAN, the Assistant Corporate Secretary of Herbalife International, Inc., a Nevada corporation (the "Company"), does hereby certify on behalf of the Company, and not in my individual capacity, as follows: 1. I am the duly appointed and acting Assistant Corporate Secretary of the Company and I am authorized to execute this Certificate on behalf of the Company. 2. Attached hereto as Exhibit 1 is the full, true and correct copy of the Agreement and Plan of Merger by and among WH Holdings (Cayman Islands), Ltd., the Company and WH Acquisition Corp., a Nevada corporation, dated as of April 10, 2002 (the "Merger Agreement"). 3. Attached hereto as Exhibit 2 is a full, true and correct copy of the Bylaws of WH Acquisition Corp. which, pursuant to Section 1.5 of the Merger Agreement, upon the date the merger between the Company and WH Acquisition Corp. became effective, became the Bylaws of the Company. 4. Attached hereto as Exhibit 3 is the full, true and correct copy of an amendment to the Bylaws described in the previous paragraph which were adopted by the Board of Directors of the Company on September 20, 2002, and are now in full force and effect. 5. The Bylaws described in the preceding two paragraphs are in full force and effect and have not been amended, supplemented or changed in any way. 6. Attached hereto as Exhibits 4, 5, 6, 7 and 8 respectively, are full, true and correct copies of the Resolutions of the Incorporator, Board of Directors and Stockholders of the Company, as follows: a. Minutes of Incorporators Organization Meeting for Sage Court Ventures, Inc. ("Incorporator's Resolutions"); b. Action by Directors of Sage Court Ventures, Inc., without a meeting dated November 24, 1986; c. Minutes of Special Stockholders' Meeting of Sage Court Ventures, Inc., dated November 24, 1986; d. Unanimous Written Consent of the Board of Directors of Herbalife International, Inc., dated June ___, 2002; e. Written Consent of the Majority Stockholder of Herbalife International, Inc., dated June ____, 2002; and f. Resolutions Adopted by Unanimous Written Consent of the Board of Directors of Herbalife, International, Inc. as of June 24, 2002. 7. The documents described in the preceding paragraph are the originals of such documents found in the minute books and records of the Company. To the knowledge of the undersigned, there have been no material changes, additions or alterations in the minute books and records of the Company with respect to the documents described in the preceding paragraph and they have not been amended, modified or rescinded since their adoption and remain full force and effect. 8. The resolutions described at items 7(d) and 7(e) above are the only resolutions adopted by the Board of Directors and majority Stockholders of the Company, as applicable, relating to subject matters described therein. 9. The Resolutions of the Board of Directors of the Company described at item 7(f) above have not been amended, modified or rescinded since their adoption and remain in full force and effect as of the date hereof; and said resolutions are the only resolutions adopted by the Board of Directors of the Company in connection with authorization, execution and delivery of the Purchase Agreement and related documents described therein, including but not limited to the Registration Rights Agreement dated as of June 27, 2002 By and Among WH Acquisition Corp., the Guarantors listed therein and UBS Warburg LLC. 10. The Law Firm of Marshall Hill Cassas & de Lipkau is entitled to rely on this Certificate in connection with the opinions to be given by such firm in connection with the Exchange Offer substituting the Company's 11 3/4 % Series B Senior Subordinated Notes 2010 for the Company's outstanding 11 3/4 % Series A Senior Subordinated Notes 2010. IN WITNESS WHEREOF, I have, on behalf of the Company, executed this Certificate on December 13 2002. HERBALIFE INTERNATIONAL, INC. By /s/Vicki Tuchman ---------------------------- Vicki Tuchman, Assistant Corporate Secretary EX-5.4 27 y65450a1exv5w4.txt OPINION OF LUXEMBOURG COUNSEL [Bonn Schmitt Steichen Letterhead] EXHIBIT 5.4 HERBALIFE INTERNATIONAL INC. and each of the parties listed in Schedule A hereto 1800 Century Park East Los Angeles, CA 90067 UNITED STATES OF AMERICA CHADBOURNE & PARKE LLP 30 Rockefeller Plaza USA - NEW YORK, N.Y. 10112 Luxembourg, December 19, 2002 WH LUXEMBOURG HOLDINGS S.a.R.L. WH LUXEMBOURG INTERMEDIATE HOLDINGS S.a.R.L. WH LUXEMBOURG CM S.a.R.L. (HEREINAFTER REFERRED TO AS THE "WH GUARANTORS") ------------------------------------------------------------------------------- Dear Sirs, We have acted as Luxembourg counsel in connection with: - a notes indenture dated as of the 27th of June 2002 (hereinafter referred to as the "Indenture") between WH ACQUISITION CORP., a Nevada corporation, WH INTERMEDIATE HOLDINGS LIMITED, a Cayman Islands corporation, the WH Guarantors and the BANK OF NEW-YORK as trustee; - a registration rights agreement dated as of the 27th of June 2002 (hereinafter referred to as the "Registration Rights Agreement") between WH ACQUISITION CORP., a Nevada corporation, the WH Guarantors and UBS WARBURG LLC; - a purchase agreement dated as of the 21st of June 2002 (hereinafter referred to as the "Purchase Agreement") between WH ACQUISITION CORP., a Nevada corporation, HERBALIFE INTERNATIONAL, INC., a Nevada 2 corporation, and the entities listed on the signature pages of the Agreement as guarantors, including the WH Guarantors; and - a guarantee dated as of the 27th of June 2002 (hereinafter referred to as the "Guarantee") executed by the WH Guarantors and the other signatories thereto in respect of the Guarantee Obligations (as defined in the Indenture). We have examined copies of the Indenture, the Registration Rights Agreement and the Purchase Agreement and such other documents as we have considered necessary. We have not made any investigation of, and do not purport to express any opinion on, the law of any jurisdiction other than Luxembourg. We have assumed: (i) the capacity, power and authority of each of the parties (other than the WH Guarantors) to execute and deliver the Indenture, the Guarantee, the Registration Rights Agreement and the Purchase Agreement (together the "DOCUMENTS"); (ii) that the execution copies of the Documents correspond in substance to the drafts that were submitted to us; (iii) the due execution of the Documents by each of the parties (other than the WH Guarantors); (iv) the due delivery of the Documents by each of the parties (other than the WH Guarantors); (v) the conformity to original documents of all copy documents examined by us; and (vi) the validity of the Documents and all other documents related to this transaction under their governing laws (other than the laws of Luxembourg) and the laws governing the parties thereto (other than the WH Guarantors). Capitalised terms used herein but not otherwise defined shall have the meanings given to them in the Documents. Based upon and subject to the foregoing, we are of the following opinion: 3 1. The WH Guarantors are corporations (societes a responsabilite limitee) duly organised and validly existing for an unlimited duration under the laws of Luxembourg and have the corporate capacity, power and authority to enter into the Documents and to carry out the transactions on the part of the WH Guarantors thereby contemplated. The WH Guarantors have not been declared bankrupt and, to the best of our knowledge, no steps have been taken for their winding up. 2. The entry into and the execution, delivery and performance of the Documents has been duly authorised on behalf of each of the WH Guarantors. 3. The Documents have been duly executed and delivered and the obligations of the WH Guarantors contained in the Documents constitute valid and legally binding obligations of the WH Guarantors enforceable against the WH Guarantors in accordance with their terms. 4. None of the WH Guarantors is in violation of its constitutional documents. 5. The execution or delivery of the Documents or performance of any of the WH Guarantors' obligations under the Documents does not infringe or is not inconsistent with or a breach of or default under, any provision of the constitutional documents of any of the WH Guarantors or any Luxembourg law or regulation by which the WH Guarantors are bound and nothing in Luxembourg law or public policy will prevent the Documents from being enforced in the Luxembourg courts. 6. Subject to the provisions of qualification (o), it is not necessary or advisable in order to ensure the legality, validity, enforceability or admissibility in evidence of any of the Documents that it or any other document be notarised or subject to any other formality or be filed, recorded, registered or enrolled with any court or authority in Luxembourg or that any other action be taken in relation to the same or any of them. 7. There is no withholding or other tax or duty imposed by any law, rule or regulation in Luxembourg on any payment to be made by the WH Guarantors under any of the Documents, save that payments made pursuant to the Documents may constitute taxable income in the hands of recipients resident in Luxembourg and/or recipients not resident in Luxembourg but having a permanent establishment or a permanent representative in Luxembourg to which or to whom the Documents are attributable. 8. The choice of law of the State of New-York, USA as the governing law of the Documents to which the WH Guarantors are parties will be upheld as a valid choice of law by the courts of Luxembourg. If any of the Documents to which the WH Guarantors are parties are sought to be enforced in Luxembourg in accordance with the laws of the State of New-York, USA, the courts of competent jurisdiction in 4 Luxembourg would recognise the choice of law and apply the laws of the State of New-York, USA, subject to qualification (t). 9. If a Luxembourg court were to accept jurisdiction in any legal suit, action or proceeding arising out of or in connection with the Documents, it would accept, and give effect to, the choice of law provisions of the Documents. The opinions expressed herein are subject to the following qualifications: (a) the obligations of the parties under the Documents may be limited by the general principles of bankruptcy, insolvency, liquidation, reorganisation, reconstruction or other laws affecting the enforcement of creditors' rights generally (hereafter the "INSOLVENCY LAWS", and the relevant proceedings being referred to collectively as the "INSOLVENCY PROCEEDINGS"), and, in particular, in relation to the WH Guarantors: - during a gestion controlee (controlled management) procedure under the Grand-Ducal Decree dated May 24, 1935 on the procedure of gestion controlee, the rights of secured creditors are frozen until a final decision has been taken by the court as to the petition for controlled management; - the obligations of the WH Guarantors under the Documents may be affected and, after their performance, subject to annulment by a court on the basis of Article 445 of the Luxembourg Code of Commerce, if the Documents have been entered into during the suspect period ("periode suspecte"), such period being determined by the court in the judgement opening the insolvency proceedings, and preceding the date of such judgement by a maximum of 6 months and 10 days, and if the Documents constitute or contain, or the performance of such obligations thereunder would constitute (i) a contract for the transfer of movable or immovable property done without consideration, or a contract or transaction done with notably insufficient consideration for the insolvent party, or (ii) a payment, whether in cash or by transfer, assignment, sale, set-off or otherwise for debts not yet due, or a payment other than in cash or bills of exchange for debts due, or (iii) a contractual or judiciary mortgage, pledge, or charge on the debtor's assets for previously contracted debts; - the obligations of the WH Guarantors under the Documents may be affected and after their performance, subject to annulment by a court on the basis of Article 446 of the Luxembourg Code of Commerce, if the Documents constitute or contain, or the performance of such obligations thereunder would constitute a payment for due debts or 5 an onerous act done by the WH Guarantors after the stoppage of payments (such date as determined by the court) and prior to the judgement opening insolvency proceedings, if the counter-party that has received from or dealt with the WH Guarantors had knowledge of the stoppage of payments; - regardless of the date of execution and performance, the Documents may be declared null and void in relation to the WH Guarantors, if they have been entered into with the fraudulent intent of the parties thereto to deprive other creditors of the insolvent party of their rights (Article 448 of the Code of Commerce); - the obligations of the WH Guarantors may be affected or limited by the rights of the receiver liquidator or other court official appointed in the Insolvency Proceedings to selectively perform contracts profitable to the insolvent party's estate and renounce to the performance of contracts which are not profitable to the insolvent party's estate ("cherry-picking"), where such contracts have not been terminated automatically by the opening of the insolvency proceedings on the basis of an express contractual provision, or by operation of law; (b) by application of article 203 of the Luxembourg Code on Commercial Companies a company not respecting any provision of Luxembourg criminal law or Luxembourg Law on Commercial Companies (especially but not limited to the obligations to lodge with the Register and publish the annual accounts) may be put into judicial liquidation upon the application of the Public Prosecutor; (c) the rights and obligations of the parties under the Documents may be limited by general principles of criminal law, including but not limited to criminal freezing orders; (d) whilst, in the event of any proceedings being brought in a Luxembourg court in respect of a monetary obligation expressed to be payable in a currency other than Euro, a Luxembourg court would have power to give judgement expressed as an order to pay a currency other than Euro, enforcement of the judgement against the WH Guarantors in Luxembourg would be available only in Euro and for such purposes all claims or debts would be converted into Euro; (e) a Luxembourg court may stay proceedings if concurrent proceedings are being brought elsewhere; (f) the expression valid and binding in paragraph 3 above means that the obligations expressed to be assumed under the Documents are of a type which the Luxembourg courts would treat as valid and binding. It does not mean that these 6 obligations will necessarily be enforced in all circumstances in accordance with their terms, as to which reference is made to the other qualifications expressed in this opinion and to the fact that a remedy such as specific performance or the issue of an injunction or a remedy such as termination for breach of contract are discretionary. In particular, notwithstanding any agreement purporting to confer the availability of any remedy, such remedy may not be available where damages instead of specific performance or specific performance instead of termination for breach of contract are considered by the court to be an adequate alternative remedy; (g) a contractual provision conferring or imposing a remedy, an obligation or penalty consequent upon default may not be fully enforceable if it were construed by a Luxembourg court as constituting an excessive pecuniary remedy; (h) a Luxembourg court may refuse to give effect to a purported contractual obligation to pay costs imposed upon another party in respect of the costs of any unsuccessful litigation brought against that party before a Luxembourg court and a Luxembourg court may not award by way of costs all of the expenditure incurred by a successful litigant in proceeding brought before such court; (i) with respect to provisions under which determination of circumstances or certification by any party is stated or implied to be conclusive and binding upon the WH Guarantors, a Luxembourg court would be authorised to examine whether such determination occurred in good faith; (j) claims may become barred under the statute of limitations or may be or become subject to defences of set-off or counterclaim. As a principle, in commercial matters, claims are barred at the end of ten years and claims relating to interests at the end of five years; (k) the Luxembourg courts would not apply a chosen foreign law if the choice was not made bona fide and/or if: - the foreign law was not pleaded and proved; or - if pleaded and proved, such foreign law would be contrary to the mandatory rules of Luxembourg law or manifestly incompatible with Luxembourg international public policy or public order; (l) a Luxembourg court may refuse to apply the chosen governing law: - if all elements of the matter are localised in a country other than the jurisdiction of the chosen governing law in which case it may apply the imperative laws of that jurisdiction; or 7 - if the agreement has a strong connection to another jurisdiction and certain laws of that jurisdiction are applicable regardless of the chosen governing law ("lois de police"), in which case it may apply those laws; or - if a party is subject to insolvency proceedings, in which case it apply the insolvency laws of the jurisdiction in which such insolvency proceedings have been regularly opened to the effects of such insolvency; (m) notwithstanding the jurisdiction clause contained in the Documents, Luxembourg courts would have in principle jurisdiction for any conservatory or provisional action in connection with assets located in Luxembourg and such action would most likely be governed by Luxembourg law; (n) the admissibility as evidence of the Documents before a Luxembourg court or Public Authority to which the Documents are produced may require that the Documents be accompanied by a complete or partial translation in the French or German language; (o) although such orders are rarely made in practice, Luxembourg courts may require the prior registration of the Documents, or any other document if they were to be produced in a Luxembourg court action, in which case a registration duty would become payable; (p) no opinion is given as to whether the performance of the Documents would cause any borrowing limits, debt/equity ratios, prudential, regulatory or other applicable ratios or borrowing limits to be exceeded or as to the consequences thereof; (q) other than as referred to in paragraph 6, no opinion is expressed on any tax consequences of the transactions considered; (r) no opinion is expressed or implied in relation to the accuracy of any representation or warranty given by or concerning any of the parties to the Documents or whether such parties or any of them have complied with or will comply with any covenant or undertaking given by them or the terms and conditions of any obligations binding upon them; (s) a severability clause may be ineffective if a Luxembourg court considers that the illegal, invalid or unenforceable clause was a substantive or material clause; (t) as regards the enforcement in Luxembourg of a civil or commercial judgement delivered in a court of a state different from the Signatory States of the Brussels or the Lugano Convention which is expressed to have jurisdiction in the 8 Documents (the "COURT"), such enforcement would make it necessary to commence recognition and enforcement proceedings before the Luxembourg courts and, in this respect, (i) the enforceable nature of such judgement, (ii) the international jurisdiction of the Court in light of the Luxembourg applicable rules, (iii) the jurisdiction of the Court in light of its own domestic applicable rules, (iv) the application of the appropriate law as determined by the Luxembourg rules of conflict of laws, (v) the compliance with the rules of procedure as determined by the law applicable to the Court and (vi) the compliance of such judgement with Luxembourg public order ("ordre public") would be examined; (u) a company which has been incorporated, but whose articles of incorporation have not yet been published in the Memorial C will not be entitled to start any legal proceedings as plaintiff until such publication has been made; (v) we express no opinion as regards the enforceability of any security interest (including any guarantee) in the Documents in case the security interest was called in an abusive manner. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement No. 333-101188. However, no further disclosure will be allowed without our prior consent. This opinion is governed by Luxembourg law and Luxembourg courts shall have exclusive jurisdiction thereon. Yours faithfully, BONN SCHMITT STEICHEN 9 SCHEDULE A Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications, Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.a.R.L. WH Luxembourg Intermediate Holdings S.a.R.L. WH Luxembourg Holdings S.a.R.L. WH Intermediate Holdings Ltd. EX-5.5 28 y65450a1exv5w5.txt OPINION OF CALIFORNIA COUNSEL EXHIBIT 5.5 [Irell & Manella LLP Letterhead] December 19, 2002 Herbalife International, Inc. and Each of the subsidiaries listed on Schedule A hereto 1800 Century Park East Los Angeles, California 90067 Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Re: 11-3/4% Senior Subordinated Notes due 2010 of Herbalife International, Inc. Ladies and Gentlemen: This opinion is furnished to you, Herbalife International, Inc. (the "Company"), the subsidiaries listed on Schedule A hereto and Chadbourne & Parke LLP, in connection with the Company's Registration Statement on Form S-4, No. 333-101188 (the "Registration Statement"), filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, pertaining to the registration of $165 million in principal amount of the Company's 11-3/4% Series B Senior Subordinated Notes due 2010 (the "Series B Notes"). The Series B Notes will be offered in exchange for the Company's outstanding $165 million in principal amount of 11-3/4% Series A Senior Subordinated Notes due 2010 (the "Series A Notes" and collectively with the Series B Notes, the "Notes"). The Series A Notes were initially purchased by UBS Warburg LLC ("UBS") pursuant to a Purchase Agreement, dated as of June 21, 2002, by and among the Company, UBS, WH Acquisition Corp. ("WH"), and the entities listed on the signature pages thereto as guarantors (the "Purchase Agreement"). We have acted as special counsel for the subsidiaries of the Company listed on Schedule B hereto incorporated in California (the "Applicable Herbalife Guarantors") in connection with the transactions contemplated by the Purchase Agreement. For the purpose of rendering this opinion, we have reviewed the following documents (collectively, the "Loan Documents"): (a) the Purchase Agreement; Herbalife International, Inc. The subsidiaries on Schedule A hereto Chadbourne & Parke LLP December 19, 2002 Page 2 (b) the Joinders to the Purchase Agreement dated as of July 31, 2002 executed by each of the Applicable Herbalife Guarantors (the "Purchase Agreement Joinders"); (c) the Registration Rights Agreement dated as of June 27, 2002, among UBS, WH, WH Intermediate Holdings Ltd., WH Luxembourg Holdings SARL, WH Luxembourg Intermediate Holdings SARL and WH Luxembourg CM SARL (the "Registration Rights Agreement"); (d) the Joinders to the Registration Rights Agreement dated as of July 31, 2002 executed by each of the Applicable Herbalife Guarantors (the "Registration Rights Agreement Joinders"); (e) the Guarantee dated as of July 31, 2002 executed by each of the Applicable Herbalife Guarantors, guaranteeing the obligations under the Notes (the "Guarantees"); and (f) the Supplemental Indenture dated as of July 31, 2002 executed by each of the Applicable Herbalife Guarantors (the "Supplemental Indenture"). We also have reviewed such other matters and documents as we have deemed necessary or relevant as a basis for this opinion. In our review, we have assumed, without investigation, the legal capacity of all natural persons signing documents in their respective individual capacities, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or reproduction copies, and the authenticity of the originals of such copies. Insofar as this opinion relates to factual matters, information with respect to which is in the possession of the Company or the Applicable Herbalife Guarantors, we have relied upon certificates, statements and representations of officers and other representatives of the Company and the Applicable Herbalife Guarantors. This opinion is limited to the laws of the State of California and we express no opinion as to the laws of any other jurisdiction (including, without limitation, the securities and blue sky laws of any such jurisdiction). Based upon the foregoing, and on the assumptions herein set forth, and subject to the limitations, qualifications and exceptions set forth herein, we are of the opinion that: 1. Each of the Applicable Herbalife Guarantors is a corporation duly formed, validly existing and in good standing under the laws of the State of California. Herbalife International, Inc. The subsidiaries on Schedule A hereto Chadbourne & Parke LLP December 19, 2002 Page 3 2. Each of the Applicable Herbalife Guarantors has all requisite corporate power and authority to execute, deliver and perform all of its obligations under the Purchase Agreement Joinder to which it is a party, the Registration Rights Agreement Joinder to which it is a Party, the Guarantee to which it is a party and the Supplemental Indenture, and each of the Applicable Herbalife Guarantors has all requisite corporate power and authority to perform all of its obligations under the Purchase Agreement and the Registration Rights Agreement. 3. Each of the Applicable Herbalife Guarantors has duly authorized, executed and delivered the Purchase Agreement Joinder to which it is a party, the Registration Rights Agreement Joinder to which it is a party, the Guarantee to which it is a party and the Supplemental Indenture. We have assumed, with your permission, that no agreement or understanding that is not otherwise known to us exists between the Company or any of its subsidiaries and any other parties that would modify, supplement or amend any document reviewed by us. The opinions rendered herein are based upon applicable law and factual circumstances (including the state of our knowledge) as of the date of this opinion. We do not undertake, and hereby expressly disclaim, any obligation to inform you of changes in any applicable law or relevant legal principles of law, or changes in our interpretation of such law or principles, or factual circumstance (including the state of our knowledge) subsequent to the date of this opinion. Please note that we are opining only as to the matters expressly set forth herein, and no opinion should be inferred as to any other matters. This opinion is rendered only to you and is solely for your benefit in connection with the Registration Statement. This opinion may not be relied upon by any other person for any other purpose or in any other context, or furnished to, used, circulated, quoted or referred to, or relied upon by, any person for any purpose without our prior written consent. Notwithstanding the foregoing, we hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, IRELL & MANELLA LLP SCHEDULE A Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.a.R.L. WH Luxembourg Intermediate Holdings S.a.R.L. WH Luxembourg Holdings S.a.R.L. WH Intermediate Holdings Ltd. SCHEDULE B Herbalife International Communications, Inc. Herbalife International of America, Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand), Ltd. EX-5.6 29 y65450a1exv5w6.txt OPINION OF BRAZIL COUNSEL Exhibit 5.6 [CORVO ADVOGADOS LETTERHEAD] Sao Paulo, December 19, 2002. TO HERBALIFE INTERNATIONAL, INC. AND EACH OF THE GUARANTORS OF THE SERIES B NOTES. CHADBOURNE & PARKE LLP Dear Sirs. We have acted as counsel as to the laws of Brazil to Herbalife International do Brasil Ltda. (the "COMPANY") in connection with the offer to exchange (the "EXCHANGE OFFER") the 11-3/4% Series B Senior Subordinated Notes due 2010 (the "SERIES B NOTES") issued by Herbalife International, Inc.(the "ISSUER") , for an equal principal amount of the Issuer's outstanding 11-3/4% Series A Senior Subordinated Notes due 2010 (the "SERIES A NOTES"), and in connection with the preparation of the prospectus (the "PROSPECTUS") contained in the registration statement on Form S-4 (the "REGISTRATION STATEMENT (NO. 333-101188)") filed with the Securities and Exchange Commission by the Issuer and the Company for the purpose of registering the Series B Notes and, inter alia, the guarantee by the Company of the Issuer's obligations under the Series B Notes (the "GUARANTEE") under the Securities Act of 1933, as amended. In connection with this opinion, we have examined a copy of the Supplemental Indenture, of the Guarantee, and of the Joinder Agreements to the Supplemental Indenture, to the Purchase Agreement and to the Registration Rights Agreement (the "DOCUMENTS"), which were executed on July 31, 2002. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such corporate records, agreements, documents and other instruments, and such comparable documents of representatives of the Company as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth. In such examinations, we have assumed the genuineness of all signatures, the authenticity of documents submitted to us and the conformity to original documents of all documents submitted to us as certified, conformed, photostatic copies or facsimiles. In addition, we have assumed, without investigation, that each of the Documents is valid and binding on, and enforceable against, all parties thereto other than the Company. In rendering our opinion, we have relied as to matters of fact, to the extent we deem necessary and proper, on representations and warranties and other statements as to certain factual matters contained in the Documents, and other certificates of officers and representatives of the Company. We have made no independent investigation as to whether the representations and warranties and other statements in the Documents, certificates referred to herein are accurate or complete. Based on the foregoing, having regard for such legal considerations as we deem relevant, and subject to the qualifications and limitations contained herein, it is our opinion that: (1) The COMPANY is duly organized, validly existing and in good standing under the laws of Brazil, has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business and is in good standing in every jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license. (2) The COMPANY has all the corporate power and authority to execute, deliver and perform all of its obligations under each of the Documents, and to carry out the transactions contemplated thereby. (3) The execution, delivery and performance by the COMPANY of each of the Documents and the consummation by the COMPANY of the transactions contemplated thereby have been duly authorized by all requisite corporate action. Each of the Documents has been duly executed and delivered by the COMPANY. (4) No permit, license, registration, authorization, plan, directive, consent, order or approval of any Governmental Authority that has not been obtained or performed and that is not in full force and effect is required to authorize, or is required in connection with, the execution or delivery of any of the Documents, or the enforceability of such Documents against the COMPANY. (5) Each of the DOCUMENTS constitutes a valid and binding obligation of the COMPANY enforceable against the COMPANY in accordance with their terms. (6) As far as the obligations of the COMPANY in each of the DOCUMENTS do not include any pledge, the choice of law of the State of New York, United States of America as the governing law of the DOCUMENTS will be upheld as a valid choice of law by the courts of Brazil. If the DOCUMENTS are sought to be enforced in Brazil in accordance with the laws of the State of New York, United States of America, the courts of competent jurisdiction in Brazil would recognize the choice of law and apply the laws of the State of New York, United States of America, in the terms of the Article 9 of the Decree-Law n. 4.657 as of September 4th, 1942, ("Lei de Introducao ao Codigo Civil"). (7) Our opinions set forth above are subject to the following qualifications and limitations: (a) We do not express any opinion with respect to the law of any jurisdiction other than the laws of Brazil. Without limiting the generality of the foregoing, we express no opinion concerning the laws of any other jurisdiction in which any party related to the Documents may be located or in which enforcement of the Documents may be sought which limits the amount of interest that may be legally charged or collected. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement No. 333-101188. Very truly yours, CORVO ADVOGADOS LUIZ R. CORVO, SENIOR PARTNER EX-5.7 30 y65450a1exv5w7.txt OPINION OF UK COUNSEL EXHIBIT 5.7 CHADBOURNE & PARKE ENGLISH LAW OPINION December 19, 2002 To: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY 10112-0127 To: Herbalife International, Inc. and each of the guarantors of the Series B Notes (listed on Appendix A hereto) 1800 Century Park East Los Angeles, CA 90067 Attention: RE: HERBALIFE (UK) LIMITED ("HERBALIFE UK") AND HERBALIFE EUROPE LIMITED ("HERBALIFE EUROPE") Dear Sirs: You have requested our opinion concerning certain Agreements (as defined below) to which Herbalife (UK) Limited and Herbalife Europe Limited, private limited companies organised under the Laws of England and Wales (the "UK Subsidiaries" and each a "UK Subsidiary") are parties. We are qualified solicitors practising English law and this opinion is given only with respect to English law as currently applied by the English courts and is itself governed by English law. We have not investigated the laws of any country other than England. We also express no opinion as to whether or not a foreign court (applying its own conflict of laws rule) will act in accordance with the parties' agreement as to the jurisdiction and/or choice of law or uphold the terms of the Guarantee. We express no opinion as to matters of fact. 1. DEFINITIONS AND INTERPRETATION In this opinion: 1.1 Unless otherwise defined herein, capitalised terms used in this legal opinion shall have the following meanings: "AGREEMENTS" Means the following documents governed by New York law: the Guarantee, the Supplemental Indenture, the Joinder to the Purchase Agreement and the Joinder to the Registration Rights Agreement; 1 "GUARANTEE" means a guarantee dated as of 31 July, 2002 among the UK Subsidiaries and certain affiliated guarantors guaranteeing, inter alia, (i) the due and punctual payment of the principal of, premium, if any, and interest (and liquidated damages, if any) on the 11 3/4% Senior Subordinated Notes due 2010 (the "Notes") of WH Acquisition Corp., a Nevada corporation and the prompt payment of interest on the overdue principal and premium, if any, and (to the extent permitted by law) interest on any interest on the Notes, and all other payment obligations of the Company, to the holders of the Notes or the Bank of New York, and (ii) in case of any extension of time of payment or renewal of any Notes or any such other obligations, the prompt payment in full of such Notes or other obligations when due in accordance with the terms of the extension or renewal, pursuant to the Indenture; "HERBALIFE INTERNATIONAL" means Herbalife International, Inc., a Nevada corporation; "INDENTURE" means an indenture dated as of 27 June 2002 among WH Acquisition Corp.; WH Intermediate Holdings Ltd.; WH Luxembourg Holdings SaRL; WH Luxembourg Intermediate Holdings SaRL; WH Luxembourg CM SaRL, and the Bank of New York; "JOINDER TO THE PURCHASE AGREEMENT" means the joinder to the purchase agreement dated 31 July 2002 from the UK Subsidiaries and certain affiliated guarantors to UBS Warlburg LLC; "JOINDER TO THE REGISTRATION RIGHTS AGREEMENT" means the joinder to the registration rights agreement dated 31 July 2002 from the UK Subsidiaries and certain affiliated guarantors to UBS Warlburg LLC; "PURCHASE AGREEMENT" means the purchase agreement dated 21 June 2002 among WH Acquisition Corp.; Herbalife International; WH Intermediate Holdings Ltd.; WH Luxembourg Holdings SaRL; WH Luxembourg Intermediate Holdings SaRL; WH Luxembourg CM SaRL; "REGISTRATION RIGHTS AGREEMENT" means an undated registration rights agreement among WH Acquisition Corp.; UBS Warlburg LLC; WH Intermediate Holdings Ltd.; WH Luxembourg Holdings SaRL; WH Luxembourg Intermediate Holdings SaRL; and WH Luxembourg CM SaRL; "SUPPLEMENTAL INDENTURE" means a supplemental indenture dated as of 31 July 2002 among Herbalife International, the Bank of New York, the UK Subsidiaries and certain affiliated guarantors; "TAX" includes any form of taxation, levy, duty, charge, contribution or impost of whatever nature (including any applicable fine, penalty, surcharge or interest) imposed by any local, municipal, governmental, state, federal or other fiscal, revenue, customs and/or excise authority, body or official in the United Kingdom competent to impose tax. 1.2 The title of any paragraph shall not affect the meaning of that or any other paragraph. 1.3 Each reference to a person is deemed to include a reference to a company, partnership, unincorporated body and any other entity and vice versa. 2 1.4 Searches and enquiries referred to in paragraph 2 of this opinion are hereafter called the "Searches". 2. DOCUMENTS AND SEARCHES 2.1 DOCUMENTS Unless otherwise stated, in rendering this opinion, we have examined and relied on executed copies of the following documents which forms the sole basis for this opinion:- 2.1.1 the Guarantee; 2.1.2 the Supplemental Indenture and the Indenture; 2.1.3 the Joinder to the Purchase Agreement and the Purchase Agreement; 2.1.4 the Joinder to the Registration Rights Agreement and the Registration Rights Agreement; 2.1.5 copies of the Memorandum and Articles of each of the UK Subsidiaries as obtained from a search of the Registrar of Companies on 26 November 2002; 2.1.6 copy of the Certificate of Incorporation of private limited companies as obtained from a search of the Registrar of Companies on 26 November 2002 in respect of each UK Subsidiary; 2.1.7 copy of each Certificate of Incorporation on change of name as obtained from a search of the Registrar of Companies on 26 November 2002 in respect of each UK Subsidiary; 2.1.8 copy of the board minutes dated 26 July 2002 of each UK Subsidiary approving its entry into the Guarantee, the Supplemental Indenture, the Joinder to the Purchase Agreement and the Joinder to the Registration Rights Agreement; and a power of attorney appointing Mr. Frank P. Morse as attorney to execute on behalf of each of the UK Subsidiaries the aforementioned documents; 2.1.9 copy of the written resolutions dated 12 November 2002 of the Board of Directors of each of the UK Subsidiaries, approving the execution by it and filing with the Securities and Exchange Commission of the Exchange Statement on Form S-4 relating to the offer to exchange all outstanding unregistered Series A Notes (as defined in Mr Robin Potts' opinion referred to in paragraph 2.1.12) for 11 3/4% Series B Senior Subordinated Notes due 2010; 2.1.10 copies of the board minutes dated 17 December, 2002 of each UK Subsidiary, inter alia, confirming its entry into the transactions contemplated in the first paragraph of this opinion; 3 2.1.11 executed copy dated 20 July 2002 of a power of attorney in favour of Frank P. Morse executed by each UK Subsidiary; 2.1.12 an original signed opinion from Mr Robin Potts QC dated 4 December 2002 opining on section 151 of the Companies Act 1985, in the form of Appendix B; and 2.1.13 copies of certificates of the directors of each UK Subsidiary dated 17 December 2002 certifying that the board minutes and resolutions referred to in paragraphs 2.1.8 to 2.1.10 inclusive provided to us are true and complete and certifying to us those matters referred to in Appendix C. INSOLVENCY AND OTHER SEARCHES We have conducted the following Searches: 2.2.1 Searches made on the 19 December 2002 at the Companies Registry against each UK Subsidiary, and an oral enquiry made to the Central Registry of Winding-up Petitions at or about 4:00 pm on the 19 December 2002 with respect to each UK Subsidiary revealed no petition, order or resolution for the winding-up of the UK Subsidiaries and no petition for, and no notice of, appointment in respect of each UK Subsidiary of a receiver or administrator. However such searches at the Companies Registry are not conclusively capable of revealing whether or not: (i) a winding-up order has been made in respect of a company or a resolution passed for the winding-up of a company; or (ii) an administration order has been made in respect of a company; or (iii) a receiver, administrative receiver, administrator or liquidator has been appointed in respect of a company, because notice of these matters might not be filed with the Registrar of Companies immediately and, when filed, might not be entered on the public microfiche of the relevant company immediately. In addition, that search is not capable of revealing, prior to the making of the relevant order, whether or not a winding-up petition or a petition for an administration order has been presented; 2.2.2 The enquiries at the Central Registry of Winding-up Petitions referred to above relate only to a compulsory winding-up and are not capable of revealing conclusively whether or not a winding-up petition in respect of a compulsory winding-up has been presented, since details of the petition may not have been entered on the records of the Central Registry of Winding-up Petitions immediately or, in the case of a petition presented to a County Court, may not have been notified to the Central Registry and entered on such records at all, and the response to an enquiry only relates to the period of six months prior to the date when the enquiries were made; 2.2.3 Searches made on the 19 December 2002 at the Companies Registry against each UK Subsidiary did not reveal any alterations to the documents referred to in paragraphs 2.1.5 to 2.1.7 inclusive. 2.3 ASSUMPTION 2.3.1 Also, we have assumed that the information disclosed by such Searches was then accurate and has not since been altered and that such Searches did not fail to disclose any information which had been delivered for registration but did not appear from the information available at the time of our Searches and that such oral enquiry did not fail to elicit any material information. 4 3. ASSUMPTIONS In giving this opinion, we have assumed that:- 3.1 GENERAL MATTERS 3.1.1 any document referred to in paragraph 2.1 above as having been seen by us only in draft form is to be duly executed and delivered and in such form by each of the parties to it by a person or persons duly authorised to do so; 3.1.2 the genuineness of all signatures on, and the authenticity and completeness of, all documents submitted to us whether as originals or copies and that the terms of the Agreements are observed and performed by the parties thereto; 3.1.3 the conformity to originals of all documents supplied to us as photocopies or facsimile copies; 3.1.4 that the directors of each UK Subsidiary have all been validly appointed and, in authorising execution of the Agreements to which their companies are a party, have exercised their powers in accordance with their duties under all applicable laws and the Memorandum and Articles of Association of each such company revealed in the Searches and the resolutions so authorising such executions have not been revoked or varied and remain in full force and effect; 3.1.5 that all deeds, contracts, instruments, assignments, agreements and other documents in relation to the matters contemplated by the Agreements are within the capacity and powers of and have been duly authorised, executed, authenticated (where applicable) and delivered by each of the parties thereto, other than each UK Subsidiary, in accordance with all applicable laws of all applicable jurisdictions; 3.1.6 that the Agreements and the rights and obligations created thereby constitute the legal, valid and binding obligations of each of the parties thereto, other than each UK Subsidiary, in accordance with their respective terms under the laws of the State of New York, by which the Agreements are expressed to be governed and that the choice of the laws of the State of New York to govern the Agreements are recognized by the laws of the State of New York and are not subject to avoidance by any person (other than as described herein in relation to each UK Subsidiary); 3.1.7 that the Agreements are enforceable in accordance with their terms under all the applicable laws of the State of New York by which they are expressed to be governed, and that satisfactory evidence of the laws of the State of New York that are required to be pleaded and proved as a fact in any proceedings before the English courts, could be so pleaded and proved; 5 3.1.8 that the Agreements been entered into, and each of the transactions referred to or contemplated in this opinion or those documents are and will be carried out by each of the parties thereto, in good faith and for the purpose of carrying on their business and the terms of the Agreements are bona fide arm's length commercial terms and the Agreements have been entered into for bona fide commercial reasons; 3.1.9 that the representations and warranties given by the parties, including each UK Subsidiary, in the Agreements are true, correct, accurate and complete in all respects and that any statements made by the parties, including each UK Subsidiary, that they do not know, are not aware of or believe they have had no notice of any act, matter, thing or circumstance means that in fact the same does not exist or has not occurred: 3.1.10 all material facts and documents relevant to this opinion have been disclosed to us; 3.1.11 neither execution nor performance nor observance of the Agreements are contrary to any law, regulations or public policy and no foreign law affects any of the opinions stated herein; 3.1.12 the Searches and the certificates referred to in paragraph 2.1 were accurate and complete and none of the documents in paragraph 2.1 has been amended since the dates specified in that paragraph; and 3.1.13 that the opinion of Mr Robin Potts QC referred to in paragraph 5 hereof is a correct statement of English law. We have not taken any steps to verify any of the above assumptions. 4. APPLICABILITY OF ENGLISH FINANCIAL ASSISTANCE LAWS We have sought and rely on the opinion of leading corporate counsel, Mr Robin Potts, QC on the above issue. Mr Potts QC in his signed opinion dated 4 December 2002 (the form of which is attached as Appendix B) has reconfirmed that in his opinion the granting of financial assistance (including guarantees of the Series A Notes and Series B Notes, as defined in his opinion) by each UK Subsidiary in relation to the acquisition of shares in its foreign parent is not prohibited by section 151 of the Companies Act 1985 as Herbalife International (being a foreign company) does not fall within the definition of "company" in section 735 Companies Act 1985. 5. OPINION Based upon, and subject to, the foregoing and subject to the assumptions in paragraph 3 above and subject to the qualifications in paragraphs 6 and 7 below, we are of the opinion that so far as the present laws of England, as applied by the English courts at the date of this opinion:- 6 5.1 CORPORATE STATUS based on the results of the Searches, each UK Subsidiary has been duly incorporated in Great Britain and registered in England and Wales and no order or resolution for their winding up and no notice of appointment in respect of them of a liquidator, receiver, administrative receiver or administrator and no petition for the winding up of each UK Subsidiary have been presented as at the date of this opinion; 5.2 LIQUIDATION based on the results of the Searches, no step has been taken that could lead to or result in the liquidation, dissolution, administration or analogous procedure with respect to each UK Subsidiary or the appointment of a liquidator, receiver, administrator, manager, custodian, trustee or person holding an analogous position with respect to each UK Subsidiary nor has any such procedure or appointment commenced; 5.3 CORPORATE APPROVALS the consent of any person which is required by virtue of each of the Memorandum and Articles of Association of each UK Subsidiary in relation to the execution and delivery of the Agreements and the performance and observation of the terms thereof by each UK Subsidiary has been obtained and none of those actions by each UK Subsidiary will infringe the terms of, or constitute a default by each UK Subsidiary under its Memorandum or Articles of Association; 5.4 CORPORATE POWER each UK Subsidiary has the necessary corporate power and authority to enter into the Agreements and to execute, perform and observe the Agreements and no such execution, performance or observance is contrary to any provision of its Memorandum or Articles of Association 5.5 AUTHORISATION AND EXECUTION each UK Subsidiary has duly authorised and executed the Agreements to which it is a party; 5.6 VALIDITY the Agreements and the rights and obligations created thereby constitute the legal, valid and binding obligations of each UK Subsidiary; 5.7 CHOICE OF LAW the choice of New York law to govern the Guarantee will be upheld as a valid choice of law in the English courts by virtue of the Contracts (Applicable Law) Act 1990; 5.8 FORUM FOR ENFORCEMENT the English courts will recognise and enforce a valid judgment entered against each UK Subsidiary under the Guarantee by a court of competent jurisdiction in the State of New York as a debt or obligation due by a defendant to a plaintiff under English law on which a plaintiff can bring an action in an English court without re-examination or re-litigation of the merits provided that the defendant properly submitted to the jurisdiction of the courts of the State of New York and that the following circumstances applied: 5.8.1 the judgment was for a fixed and definite sum of money other than a sum payable in respect of Taxes, or other public charges of a like nature, fines, penalties or multiple damages; 5.8.2 the judgment was final and conclusive between the parties notwithstanding that it may be subject to an appeal or that an appeal is pending; 7 5.8.3 the judgment was not obtained by fraud, duress or in a manner opposed to the principles of natural justice; 5.8.4 the judgment was not given in proceedings brought in breach of an agreement for settlement of disputes; 5.8.5 the judgment is free from conflict with any other judgment that the courts of England would recognise as valid and does not amount to a judgment on a matter previously determined by an English court; 5.8.6 enforcement or recognition of the judgment is not contrary to public policy as applied by the English courts; 5.8.7 the judgment remains valid and enforceable in the court in which it was obtained unless and until it is set aside; 5.8.8 the judgment does not breach a rule of law specified in an order made by the Secretary of State in England as being concerned with the prohibition or regulation of agreements, arrangements or practices designed to restrain, distort or restrict competition; 5.8.9 enforcement procedures in respect of the judgment are instituted within the period prescribed by the Limitation Acts 1939 to 1980 or the Foreign Limitations Periods Act 1984, as applicable; 5.8.10 the judgment does not show on its face a perverse and deliberate refusal to apply generally accepted principles of private international law; 5.8.11 the enforcement of such judgment would not involve the enforcement of a foreign revenue, penal or other public law; 6. OBSERVATIONS 6.1 REPRESENTATIONS AND WARRANTIES It should be understood that for the purposes of this opinion, we have not been responsible for investigating or verifying (and have taken no steps to investigate or verify) the accuracy of the facts, or the reasonableness of any statements of opinion or intention, contained in the documents referred to in paragraph 2.1 of this opinion or the accuracy of completeness of any of the representations and warranties given by the UK Subsidiaries under the Agreements. 6.2 FOREIGN LAWS We do not express any opinion herein as to, nor have we investigated for the purposes of this opinion, the laws of any jurisdiction other than England (including those of the European Community and of New York, (save to the extent as incorporated into English law)). Further, it is assumed that no foreign law (including those of the European Community and of New York), which may apply with respect to the Guarantee or any of the transactions and matters contemplated thereby would be such as to affect any of the conclusions stated in this opinion. We have not been requested nor are we required to update this opinion in the future. 8 7. MISCELLANEOUS 7.1 RELIANCE/DISCLOSURE This opinion is addressed to you for your sole benefit and may not, without our prior written consent, (i) be relied upon by any other person, or (ii) be disclosed to any other person (except to persons who in the ordinary course of business have access to your records on the basis that they will make no further disclosure). We hereby consent to the filing of this opinion as an exhibit to the Registration Statement (No. 333-101188). 7.2 SCOPE This opinion is strictly limited to the matters stated in it and does not apply by implication to any other matters. Yours faithfully Chadbourne & Parke 9 APPENDIX A Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.a.R.L. WH Luxembourg Intermediate Holdings S.a.R.L. WH Luxembourg Holdings S.a.R.L. WH Intermediate Holdings Ltd. 10 APPENDIX B FORM OF OPINION OF MR. ROBIN POTTS QC ----------------------------------------------------------------------------- OPINION RE: ACQUISITION OF HERBALIFE INTERNATIONAL. INC. AND FINANCIAL ASSISTANCE PROVIDED BY TWO UK SUBSIDIARIES --------------------------------------------------------------------- ----------------------------------------------------------------------------- 1. TRANSACTION OVERVIEW: This transaction involved the acquisition by WH Holdings (Cayman Islands) Limited (the "Acquirer") of the entire issued share capital in Herbalife International, Inc., (a US corporation) ("Herbalife International"). The acquisition was partially financed through the issuance of 11 3/4% Series A Senior Subordinated Notes due 2010 (the "Series A Notes") issued by Herbalife International. The obligations under the Series A Notes were guaranteed by certain subsidiaries and parent companies of Herbalife International, including Herbalife (UK) Limited and Herbalife Europe Limited (together, the "UK Subsidiaries"). In connection with the Series A Notes, the following New York law governed documents were executed: (i) an Indenture, dated as of June 27, 2002 (the "Indenture"); (ii) a Purchase Agreement, dated as of June 21, 2002 (the "Purchase Agreement"); and (iii) a Registration Rights Agreement dated as of June 27, 2002 (the "Registration Rights Agreement"). The UK Subsidiaries became a party to each of these agreements (i)-(iii) by executing, respectively, (a) a Supplemental Indenture, dated as of July 31, 2002; (b) a Joinder to the Purchase Agreement; dated as of July 31, 2002 (the "Joinder to the Purchase Agreement"); and (c) a Joinder to the Registration Rights Agreement dated as of July 31, 2002 (all of which documents are governed by New York law). The UK Subsidiaries also executed (d) a New York law governed Guarantee, dated as of July 31, 2002, (the "Guarantee") with respect to the obligations of Herbalife International under the Series A Notes pursuant to the Indenture. Pursuant to the Registration Rights Agreement, Herbalife International is now offering to exchange 11 3/4% Series B Senior Subordinated Notes due 2010 (the "Series B Notes") for an equal principal amount of outstanding Series A Notes. The Series B Notes will be issued on substantially the same terms as the Series A Notes, and the terms of the Indenture provide that the Guarantee extends to the Series B Notes. A prospectus will be filed with the Securities and Exchange Commission on Form S-4 (the "Registration Statement (No. 333-101188)") for the purpose of registering the Series B Notes and, inter alia, the guarantee by the UK Subsidiaries of Herbalife International's obligations under the Series B Notes under the Securities Act of 1933, as amended. The UK Subsidiaries will become Co-Registrants in relation to their Guarantee in connection with the aforesaid exchange offering. 11 2. ALTERNATIVE ANALYSES: 2.1 Two analyses as to the application of s.151 Companies Act 1985 to financial assistance granted by the UK Subsidiaries in relation to the acquisition of shares in its foreign parent are possible. 2.2 First, Section 151(1) Companies Act 1985 provides, "Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company (i.e. Herbalife International), it is not lawful for the company (i.e. Herbalife International) or any of its subsidiaries (i.e. Herbalife (UK) Limited and Herbalife Europe Limited) to give financial assistance (eg granting guarantees to support the Series A Notes or the Series B Notes) directly or indirectly for the purpose of that acquisition (i.e. the acquisition by WH Holdings (Cayman Islands) Limited of the entire issued share capital in Herbalife International) before or at the same time as the acquisition takes place". For s.151 to apply, the acquisition must be of shares in a "company'. Section 735(1) defines "company" to mean "a company formed and registered under this Act". Section 735(4) provides that "the definitions in this section apply unless the contrary intention appears. So on a literal interpretation of the Act and on the basis that no "contrary intention" appears on the face of the legislation, financial assistance for the acquisition of shares in a company incorporated outside Great Britain appears to be outside the ambit of s.151. On this analysis Herbalife (UK) Limited and Herbalife Europe Limited, being the subsidiaries of a foreign (US) parent could give financial assistance for the purchase of shares in its (ultimate) parent, Herbalife International without requiring the exempting procedure set out in Section 155 Companies Act. 2.3 An alternative interpretation of s.151 can be made on the basis that a contrary intention under s.735(4) is possible so that "company" is interpreted to mean any company, including foreign companies. Section 151(1) in addition to referring to "company" also refers to "subsidiaries". The normal definition of "subsidiaries" is contained in s.736, which provides "a company is a "subsidiary" of another company, its "holding company", if that other company.. .(c) is a member of it and controls a majority of the voting rights in it, or if it is a subsidiary of a company which is itself a subsidiary of that other company." Herbalife (UK) Limited and Herbalife Europe Limited could fall within the definition of "subsidiary" in s.736(1) so making Herbalife International its "holding company". Sub-section 736(3) provides "in this section "company" includes any body corporate." Section 740 provides, "references in this Act to a body corporate.. .include a company incorporated elsewhere than in Great Britain". 12 In the case of Arab Bank Plc v. Merchantile Holdings Limited and another [1994] 1 BCLC 330 Millett J. held (although in relation to a case having differing facts involving shares being acquired in a UK parent company, with financial assistance proposed to be given by its foreign subsidiary company) that s.151 did not prohibit a foreign subsidiary from giving financial assistance for the acquisition of shares in its English parent company on the basis that any of its subsidiaries" in s.151 must be construed as limited to those subsidiaries which are English companies. Millett J did however look at the mischief which s.151 was to address and in that case remarked (however only as non-binding obiter) that, "the primary class of persons which the section [s. 151] was designed to protect must, in my judgment, be the creditors of the assisting company; and they are equally prejudiced by the extraction of its assets for the purpose of financing the acquisition of shares in its parent company whether that parent company is English or foreign. I can see no possible reason or justification for excluding such a case from a prohibition and, if this was indeed the result of the recasting of the statutory language in 1981, I think that it must have been inadvertent". There does therefore appear to be an argument that looking at the mischief which section 151(1) is designed to protect against and in the context of s.736(4), there is a possible contrary intention which applies the s.736(3) definition of company rather than s.735, where the company doing the actions which would be financial assistance is a UK company. 3. OPINION AND REASONS: 3.1 I have previously advised that the granting of financial assistance by the two UK subsidiaries was permitted such that no exempting procedure was required. My reasons for this conclusion, which I am pleased to reconfirm, are that: 3.1.1 Reading the judgement of MiIlett J in Arab Bank v Mercanti!e Holdings [1994] 1 BCLC 330, one can see that Millett J. considered and compared the language of section 54 of the Companies Act 1948 and the changes made by section 151 of the Companies Act 1985 (which re-enacted in similar terms the changes made by sections 42 to 44 of the Companies Act 1981). The primary change is that the prohibition now starts with the company whose shares are to be acquired (the target company) and prohibits the target company or `any of its subsidiaries' from giving financial assistance for the purchase of the shares in the target company. This is to be contrasted with the prohibition contained in section 54 of the Companies Act 1948, which was directed to the company which provided the financial assistance and declared it unlawful for that company to provide financial assistance in connection with the acquisition of its own shares or shares in its holding company. 3.1.2 Millett J observed, "it is difficult to believe that this change, which is primarily one of style, was intended to make any alteration in the substantive law, particularly when the opening words of section 153 refer back to section 151 as if it were still cast in the old form; and in an entirely domestic situation it does not do so. But because of the statutory definitions of `company' (which prima facie means an English company) and `subsidiary' (which does not) it appears to have made at least one change and may have made two". 13 3.1.3 Millett J continued in his judgement, "Formerly, the assisting company had to be a `company', i.e. an English company; but the target company did not: it was sufficient if it was the assisting company's holding company. Now, however, it is the target company which has to be `a company'; the assisting company does not: it is sufficient if it is one of the target company's subsidiaries. The new requirement that the target company must be `a company' means that the giving of financial assistance by the English subsidiary of a foreign parent company for the acquisition of shares in that company appears to be no longer prohibited." It is clear from this passage that this is the one change which Millett J believes the recasting of the 1948 Companies Act appears to make. The second change which the "recasting" may have made in the passage at paragraph 3.1.2 was thus a reference to the possibility that section 151 has rendered illegal for a foreign subsidiary of an English target company to give financial assistance for the acquisition of shares in the English target company. 3.1.4 The actual legal question which Millett J had to decide was whether section 151 has made it unlawful for a foreign subsidiary of an English parent company to give financial assistance for the purpose of acquisition of shares of its parent company (i.e. the second possible change). He stated, "The defendants submit that if the mischief sought to be prevented was the extraction of assets from the subsidiary, then the section would have prohibited an English subsidiary of a foreign parent from giving financial assistance for the purchase of shares of the parent company. This would be a formidable argument if I were persuaded that the failure to cover this case, covered in the 1948 Act, was deliberate; but I am not. The primary class of persons which this section was designed to protect must, in my judgment, be the creditors of the assisting company; and they are equally prejudiced by the extraction of its assets for the purpose of financing the acquisition of shares in its parent company whether that parent company is English or foreign. I can see no possible reason or justification for excluding such a case from the prohibition and, if this was indeed the result of the re-casting of the statutory language in 1981, I think that it must have been inadvertent". Millett J did not answer the question of whether this was the effect of the re-casting of the statutory language - all he was saying is that if this was indeed the result of the re-casting, it was not deliberate in his view. Indeed to consider that this change had not occurred would be inconsistent with the view which Millett J appears to have expressed earlier in his judgement regarding the interpretation of the changes to the 1948 Companies Act which appear to have been made requiring the target company to be an English company before the statutory prohibition operated. Ultimately, Millett J did not have to decide the point of whether or not the law had changed on this point as he was not required to do so. The actual decision of Millett J was that for the purposes of Section 151 the expression "such subsidiaries" was, notwithstanding Section 736, confined to English companies. 14 3.1.5 When reading section 151, the definition of `company' as it appears in the first line (in relation to shares being acquired or proposed to be acquired in a company) is governed by section 735, despite references to `any body corporate' in section 736 defining the expressions "subsidiary" and "holding company" (which section Millett J also considers in his judgement). A section 735 `company' is a company formed and registered under the Companies Act. In the present situation there is a US parent target and UK subsidiaries so the critical question is whether that foreign (US) parent company is a `company' for the purposes of section 151. This is answered by reading the section 735 definition of `company'. Section 735 is subject to any contrary intention as per section 735(4) but, in my opinion, none is apparent and so, the target company must be a UK company. Indeed, when Millett J refers to `company' in quotation marks when discussing sections 735 and 736, the meaning he clearly intended is that contained in section 735. 3.1.6 I do not consider that it is relevant to the present issue to turn to section 736, which defines holding company and subsidiary for this purpose - despite the provision in section 736(3) that this company includes any body corporate i.e. including overseas companies (by section 740). 3.1.7 Buckley on the Companies Act at 151.22, states that section 151 does not apply where a subsidiary registered in Great Britain gives financial assistance for the purpose of the acquisition of shares in a holding company which is not incorporated in Great Britain. There is, however, a footnote stating that, in Arab Bank, "Millett J (at 337) was not convinced that the result stated in the text was the effect of section 151. He said that if it was the result it must have been inadvertent". It is in my opinion clear from the text that the editors take the view that whether Millett J was right or wrong about the change being inadvertent, that it is indeed the effect of section 151. Gore-Browne on Companies (Boyle and Potts) at 13.9.1 expresses the same view providing, with regard to the Arab Bank case, "nor it seems does it (Arab Bank) prohibit the giving of financial assistance by an English subsidiary to acquire shares in its foreign parent". Tolleys Company Law at F4003/2 also follows this line of reasoning. (I do acknowledge that Penningtons Company Law at page 454 considered the giving of financial assistance by a UK subsidiary to a foreign holding company to be financial assistance under the 1985 Act. Palmer's Company Law does not actually appear to express any firm conclusion one way or the other.) 15 3.1.8 I also consider that it would be curious if the giving of financial assistance by a UK subsidiary for the purpose of assisting an acquisition of shares in its foreign parent were prohibited financial assistance having regard to section 155. Section 155(1) exempts from Section 151 the giving of financial assistance by a "private company". That expression is defined by Section 1(3) as a "company", i.e. an English company which is not a "public company". However, the exemption only operates where the shares are shares in the private company itself or are shares in another private company (i.e. a "company" which is the holding company of the first company). It would be very curious for the exempting procedure not to be available where the holding company is a foreign company. I think the reason why the example does not extend to financial assistance given for the purpose of the acquisition of shares in a foreign holding company is that such assistance does not fall within Section 151 at all and thus there is no necessity for the exempting procedure to cover such a case. 4. REFERENCES: In the foregoing references to any sections are to sections of the Companies Act 1985 unless expressly stated to the contrary. 5. CONFIRMATION I am pleased to confirm my opinion previously given (in particular in so far as it extends to the Series B Notes exchange offer for Series A Notes) by signing this Opinion to the effect that the granting of financial assistance by the two UK Subsidiaries was permitted such that no exempting procedure was required. I note this Opinion will be relied upon by Chadbourne & Parke LLP and Chadbourne & Parke, London, in connection with the exchange offer referred to above and I consent to the filing of this Opinion as an exhibit to the S-4 Registration Statement (No. 333-101188) for the exchange offer of $165,000,000 of outstanding Series A Notes for the registered Series B Notes. /s/ Robin Potts - ------------------------- Robin Potts QC Erskine Chambers Lincolns Inn London Date: 4 December 2002 16 APPENDIX C CONTENT OF UK SUBSIDIARIES DIRECTOR'S CERTIFICATES The directors of each of the UK Subsidiaries have certified to Chadbourne & Parke that: 1. true and complete copies of the minutes of meetings of the directors of the relevant UK Subsidiary held on 26 July 2002 and 17 December 2002 (the "Minutes") and written resolutions of the board of directors of the relevant UK Subsidiary dated 12 November 2002 and as entered in the relevant UK Subsidiary's statutory books have been provided to Chadbourne & Parke; 2. the signatures on the Minutes were the true signature of the chairman of such meeting and the written resolutions of 12 November 2002 were the true signatures of all of the Directors of the relevant UK Subsidiary; 3. such meetings were duly convened and held, a quorum of duly appointed directors entitled to vote on every resolution set out in the Minutes were present throughout such meetings and each such resolution was duly passed, has not been amended or revoked and remains in force; 4 neither any such resolutions nor their implementation nor the performance, observance or exercise of any rights or obligations under any deed or other document approved by any such resolution will contravene any restriction or obligation affecting the relevant UK Subsidiary or its Directors known to be applicable to the relevant UK Subsidiary or its Directors; 5. the execution, delivery and performance of the documents referred to in the said Minutes and resolutions, the borrowing of loans and the use of the proceeds thereof by the relevant UK Subsidiary will not violate or result in a default under any material indenture, agreement or other instrument binding upon the relevant UK Subsidiary or any of its subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the relevant UK Subsidiary or any of its subsidiaries; and 6. the execution, delivery and performance of the documents referred to in the said Minutes and resolutions will not violate or result in a default under any government approval known to be applicable to the relevant UK Subsidiary. 17 EX-5.8 31 y65450a1exv5w8.txt QC OPINION OF UK COUNSEL Exhibit 5.8 OPINION RE: ACQUISITION OF HERBALIFE INTERNATIONAL. INC. AND FINANCIAL ASSISTANCE PROVIDED BY TWO UK SUBSIDIARIES 1 TRANSACTION OVERVIEW: This transaction involved the acquisition by WH Holdings (Cayman Islands) Limited (the "Acquirer") of the entire issued share capital in Herbalife International, Inc., (a US corporation) ("Herbalife International"). The acquisition was partially financed through the issuance of 11-3/4% Series A Senior Subordinated Notes due 2010 (the "Series A Notes") issued by Herbalife International. The obligations under the Series A Notes were guaranteed by certain subsidiaries and parent companies of Herbalife International, including Herbalife (UK) Limited and Herbalife Europe Limited (together, the "UK Subsidiaries"). In connection with the Series A Notes, the following New York law governed documents were executed: (i) an Indenture, dated as of June 27, 2002 (the "Indenture"); (ii) a Purchase Agreement, dated as of June 21, 2002 (the "Purchase Agreement"); and (iii) a Registration Rights Agreement dated as of June 27, 2002 (the "Registration Rights Agreement"). The UK Subsidiaries became a party to each of these agreements (i)-(iii) by executing, respectively, (a) a Supplemental Indenture, dated as of July 31, 2002; (b) a Joinder to the Purchase Agreement; dated as of July 31, 2002 (the "Joinder to the Purchase Agreement"); and (c) a Joinder to the Registration Rights Agreement dated as of July 31, 2002 (all of which documents are governed by New York law). The UK Subsidiaries also executed (d) a New York law governed Guarantee, dated as of July 31, 2002, (the "Guarantee") with respect to the obligations of Herbalife International under the Series A Notes pursuant to the Indenture. Pursuant to the Registration Rights Agreement, Herbalife International is now offering to exchange 11-3/4% Series B Senior Subordinated Notes due 2010 (the "Series B Notes") for an equal principal amount of outstanding Series A Notes. The Series B Notes will be issued on substantially the same terms as the Series A Notes, and the terms of the Indenture provide that the Guarantee extends to the Series B Notes. A prospectus will be filed with the Securities and Exchange Commission on Form S-4 (the "Registration Statement (No. 333-101188)") for the purpose of registering the Series B Notes and, inter alia, the guarantee by the UK Subsidiaries of Herbalife International's obligations under the Series B Notes under the Securities Act of 1933, as amended. The UK Subsidiaries will become Co-Registrants in relation to their Guarantee in connection with the aforesaid exchange offering. 2 ALTERNATIVE ANALYSES: 2.1 Two analyses as to the application of s.151 Companies Act 1985 to financial assistance granted by the UK Subsidiaries in relation to the acquisition of shares in its foreign parent are possible. 2.2 First, Section 151(1) Companies Act 1985 provides, "Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company (i.e. Herbalife International), it is not lawful for the company (i.e. Herbalife International) or any of its subsidiaries (i.e. Herbalife (UK) Limited and Herbalife Europe Limited) to give financial assistance (eg granting guarantees to support the Series A Notes or the Series B Notes) directly or indirectly for the purpose of that acquisition (i.e. the acquisition by WH Holdings (Cayman Islands) Limited of the entire issued share capital in Herbalife International) before or at the same time as the acquisition takes place". For s.151 to apply, the acquisition must be of shares in a "company'. Section 735(1) defines "company" to mean "a company formed and registered under this Act". Section 735(4) provides that "the definitions in this section apply unless the contrary intention appears. So on a literal interpretation of the Act and on the basis that no "contrary intention" appears on the face of the legislation, financial assistance for the acquisition of shares in a company incorporated outside Great Britain appears to be outside the ambit of s.151. On this analysis Herbalife (UK) Limited and Herbalife Europe Limited, being the subsidiaries of a foreign (US) parent could give financial assistance for the purchase of shares in its (ultimate) parent, Herbalife International without requiring the exempting procedure set out in Section 155 Companies Act. 2.3 An alternative interpretation of s.151 can be made on the basis that a contrary intention under s.735(4) is possible so that "company" is interpreted to mean any company, including foreign companies. Section 151(1) in addition to referring to "company" also refers to "subsidiaries". The normal definition of "subsidiaries" is contained in s.736, which provides "a company is a "subsidiary" of another company, its "holding company", if that other company.. .(c) is a member of it and controls a majority of the voting rights in it, or if it is a subsidiary of a company which is itself a subsidiary of that other company." Herbalife (UK) Limited and Herbalife Europe Limited could fall within the definition of "subsidiary" in s.736(1) so making Herbalife International its "holding company". Sub-section 736(3) provides "in this section "company" includes any body corporate." Section 740 provides, "references in this Act to a body corporate.. .include a company incorporated elsewhere than in Great Britain". In the case of Arab Bank Plc v. Merchantile Holdings Limited and another [1994] 1 BCLC 330 Millett J. held (although in relation to a case having differing facts involving shares being acquired in a UK parent company, with financial assistance proposed to be given by its foreign subsidiary company) that s.151 did not prohibit a foreign subsidiary from giving financial assistance for the acquisition of shares in its English parent company on the basis that any of its subsidiaries" in s.151 must be construed as limited to those subsidiaries which are English companies. Millet J did however look at the mischief which s.151 was to address and in that case remarked (however only as non-binding obiter) that, "the primary class of persons which the section [s. 151] was designed to protect must, in my judgment, be the creditors of the assisting company; and they are equally prejudiced by the extraction of its assets for the purpose of financing the acquisition of shares in its parent company whether that parent company is English or foreign. I can see no possible reason or justification for excluding such a case from a prohibition and, if this was indeed the result of the recasting of the statutory language in 1981, I think that it must have been inadvertent". There does therefore appear to be an argument that looking at the mischief which section 151(1) is designed to protect against and in the context of s.736(4), there is a possible contrary intention which applies the s.736(3) definition of company rather than s.735, where the company doing the actions which would be financial assistance is a UK company. 3 OPINION AND REASONS: 3.1 I have previously advised that the granting of financial assistance by the two UK subsidiaries was permitted such that no exempting procedure was required. My reasons for this conclusion, which I am pleased to reconfirm, are that: 3.1.1 Reading the judgement of MiIlett J in Arab Bank v Mercanti!e Holdings [1994] 1 BCLC 330, one can see that Millett J. considered and compared the language of section 54 of the Companies Act 1948 and the changes made by section 151 of the Companies Act 1985 (which re-enacted in similar terms the changes made by sections 42 to 44 of the Companies Act 1981). The primary change is that the prohibition now starts with the company whose shares are to be acquired (the target company) and prohibits the target company or `any of its subsidiaries' from giving financial assistance for the purchase of the shares in the target company. This is to be contrasted with the prohibition contained in section 54 of the Companies Act 1948, which was directed to the company which provided the financial assistance and declared it unlawful for that company to provide financial assistance in connection with the acquisition of its own shares or shares in its holding company. 3.1.2 Millet J observed, "it is difficult to believe that this change, which is primarily one of style, was intended to make any alteration in the substantive law, particularly when the opening words of section 153 refer back to section 151 as if it were still cast in the old form; and in an entirely domestic situation it does not do so. But because of the statutory definitions of `company' (which prima facie means an English company) and `subsidiary' (which does not) it appears to have made at least one change and may have made two". 3.1.3 Millett J continued in his judgement, "Formerly, the assisting company had to be a `company', i.e. an English company; but the target company did not: it was sufficient if it was the assisting company's holding company. Now, however, it is the target company which has to be `a company'; the assisting company does not: it is sufficient if it is one of the target company's subsidiaries. The new requirement that the target company must be `a company' means that the giving of financial assistance by the English subsidiary of a foreign parent company for the acquisition of shares in that company appears to be no longer prohibited." It is clear from this passage that this is the one change which Millett J believes the recasting of the 1948 Companies Act appears to make. The second change which the "recasting" may have made in the passage at paragraph 3.1.2 was thus a reference to the possibility that is rendered illegal for a foreign subsidiary of an English target company to give financial assistance for the acquisition of shares in the English target company. 3.1.4 The actual legal question which Millett J had to decide was whether section 151 made it unlawful for a foreign subsidiary of an English parent company to give financial assistance for the purpose of acquisition of shares of its parent company (i.e. the second possible change). He stated, "The defendants submit that if the mischief sought to be prevented was the extraction of assets from the subsidiary, then the section would have prohibited an English subsidiary of a foreign parent from giving financial assistance for the purchase of shares of the parent company. This would be a formidable argument if I were persuaded that the failure to cover this case, covered in the 1948 Act, was deliberate; but I am not. The primary class of persons which this section was designed to protect must, in my judgment, be the creditors of the assisting company; and they are equally prejudiced by the extraction of its assets for the purpose of financing the acquisition of shares in its parent company whether that parent company is English or foreign. I can see no possible reason or justification for excluding such a case from the prohibition and, if this was indeed the result of the re-casting of the statutory language in 1981, I think that it must have been inadvertent". Millett J did not answer the question of whether this was the effect of the re-casting of the statutory language - all he was saying is that if this was indeed the result of the re-casting, it was not deliberate in his view. Indeed to consider that this change had not occurred would be inconsistent with the view which Millet J appears to have expressed earlier in his judgement regarding the interpretation of the changes to the 1948 Companies Act which appear to have been made requiring the target company to be an English company before the statutory prohibition operated. Ultimately, Millett J did not have to decide the point of whether or not the law had changed on this point as he was not required to do so. The actual decision of Millett J was that for the purposes of Section 151 the expression "such subsidiaries" was, notwithstanding Section 736, confined to English companies. 3.1.5 When reading section 151, the definition of `company' as it appears in the first line (in relation to shares being acquired or proposed to be acquired in a company) is governed by section 735, despite references to `any body corporate' in section 736 defining the expressions "subsidiary" and "holding company" (which section Millett J also considers in his judgement). A section 735 `company' is a company formed and registered under the Companies Act. In the present situation there is a US parent target and UK subsidiaries so the critical question is whether that foreign (US) parent company is a `company' for the purposes of section 151. This is answered by reading the section 735 definition of `company'. Section 735 is subject to any contrary intention as per section 735(4) but, in my opinion, none are apparent and so, the target company must be a UK company. Indeed, when Millet J refers to `company' in quotation marks when discussing sections 735 and 736, the meaning he clearly intended is that contained in section 735. 3.1.6 I do not consider that it is relevant to the present issue to turn to section 736, which defines holding company and subsidiary for this purpose - despite the provision in section 736(3) that this company includes any body corporate i.e. including overseas companies (by section 740). 3.1.7 Buckley on the Companies Act at 151.22, states that section 151 does not apply where a subsidiary registered in Great Britain gives financial assistance for the purpose of the acquisition of shares in a holding company which is not incorporated in Great Britain. There is, however, a footnote stating that, in Arab Bank, "Millett J (at 337) was not convinced that the result stated in the text was the effect of section 151. He said that if it was the result it must have been inadvertent". It is in my opinion clear from the text that the editors take the view that whether Millett J was right or wrong about the change being inadvertent, that it is indeed the effect of section 151. Gore-Browne on Companies (Boyle and Potts) at 13.9.1 expresses the same view providing, with regard to the Arab Bank case, "nor it seems does it (Arab Bank) prohibit the giving of financial assistance by an English subsidiary to acquire shares in its foreign parent". Tolleys Company Law at F4003/2 also follows this line of reasoning. (I do acknowledge that Penningtons Company Law at page 454 considered the giving of financial assistance by a UK subsidiary to a foreign holding company to be financial assistance under the 1985 Act. Palmer's Company Law does not actually appear to express any firm conclusion one way or the other.) 3.1.8 I also consider that it would be curious if the giving of financial assistance by a UK subsidiary for the purpose of assisting an acquisition of shares in its foreign parent were prohibited financial assistance having regard to section 155. Section 155(1) exempts from Section 151 the giving of financial assistance by a "private company". That expression is defined by Section 1(3) as a "company", i.e. an English company which is not a "public company". However, the exemption only operates where the shares are shares in the private company itself or are shares in another private company (i.e. a "company" which is the holding company of the first company). It would be very curious for the exempting procedure not to be available where the holding company is a foreign company. I think the reason why the example does not extend to financial assistance given for the purpose of the acquisition of shares in a foreign holding company is that such assistance does not fall within Section 151 at all and thus there is no necessity for the exempting procedure to cover such a case. 4 REFERENCES: In the foregoing references to any sections are to sections of the Companies Act 1985 unless expressly stated to the contrary. 5 CONFIRMATION 5.1 I am pleased to confirm my opinion previously given (in particular in so far as it extends to the Series B Notes exchange offer for Series A Notes) by signing this Opinion to the effect that the granting of financial assistance by the two UK Subsidiaries was permitted such that no exempting procedure was required. I note this Opinion will be relied upon by Chadbourne & Parke LLP and Chadbourne & Parke, London, in connection with the exchange offer referred to above and I consent to the filing of this Opinion as an exhibit to the S-4 Registration Statement No. 333-101188 for the exchange offer of $165,000,000 of outstanding Series A Notes for the registered Series B Notes. - ------------------------- Robin Potts QC Erskine Chambers Lincolns Inn London Date: 4 December 2002 EX-5.9 32 y65450a1exv5w9.txt OPINION OF FINNISH COUNSEL EXHIBIT 5.9 [HANNES SNELLMAN LETTERHEAD] RYl Herbalife International, Inc. and each of the Guaranteeing Subsidiaries of the series B Notes (Listed on Schedule A hereto) 1800 Century Park East Los Angeles, California 90067 Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY 10112 Dear Sirs, HERBALIFE INTERNATIONAL FINLAND OY We have acted as Finnish counsel for Herbalife International Finland Oy (the "COMPANY") in connection with: (a) Supplemental Indenture dated as of 31 July 2002 made between, among others, the Company, Herbalife International, Inc., the Bank of New York (in such capasity, the "Trustee") and other Guaranteeing Subsidiaries (the "SUPPLEMENTAL INDENTURE"); (b) The Guarantee dated as of 31 July 2002 issued by the Company and other Guarantors in favour of the Holders and the Trustee (as defined in the Indenture, dated June 27, 2002) in respect of the Guarantee Obligations (as defined in the Indenture) (the "GUARANTEE I"); (c) Joinder to the Purchase Agreement dated as of 31 July 2002 issued by the Company and addressed to UBS Warburg LLC and relating to the Purchase Agreement dated June 21, 2002 among WH Acquisition Corp., Herbalife International, Inc. and UBS Warburg LLC (the " JOINDER TO THE PURCHASE AGREEMENT"); and (d) Joinder to the Registration Rights Agreement dated as of 31 July 2002 issued by the Company and addressed to UBS Warburg LLC (the "JOINDER TO THE REGISTRATION RIGHTS AGREEMENT") relating to the offer to exchange (the "EXCHANGE OFFER") 11 -3/4 % Series B Senior Subordinated Notes of Herbalife International, Inc. due 2010 for an equal principal amount of outstanding 11 -3/4 % Series A Subordinated Notes due 2010. 2 The documents referred to above in point (a) - (d) are herein referred to together as the "GUARANTEEING DOCUMENTS". The obligations guaranteed under the Guaranteeing Documents are hereafter referred to as the "GUARANTEED OBLIGATIONS". Terms defined in the Guaranteeing Documents shall have the same meaning herein unless otherwise defined herein. We have for the purposes of this opinion, examined the Guaranteeing Documents and the following documents: (a) the Articles of Association of the Company, dated as of 18 November 2002; (b) a resolution of the board of directors of the Company dated 31 July 2002 authorising among other things, the execution, delivery and performance of the Guaranteeing Documents; and (c) extract of the Trade Register in respect of the Company, dated as of 18 November 2002. We have relied upon the certificates and other documents examined and have not independently established their accuracy. This opinion expresses and describes legal concepts of Finnish law and is issued and may be relied upon only on the express condition that it and all the terms, words and expressions herein shall be governed by, construed and interpreted in accordance with Finnish law. This opinion is confined to matters of Finnish law as it stands on the date hereof. We have made no enquiry into the laws of any jurisdiction other than those of Finland and no opinion is expressed or implied with respect to such laws. In giving this opinion we have assumed: (a) the genuineness of all signatures, the authenticity and completeness of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as copies and the authenticity and completeness of the original documents; (b) that each of the Guarantees and the Indenture are duly executed by and constitute a valid and legally binding obligation, in accordance with its terms, of each party thereto other than the Company; (c) that each of the Guarantees and the Indenture expressed to be governed by the laws of any jurisdiction other than those of Finland are legal, valid and binding under the laws by which they are stated to be governed; and (d) that all certificates and other documents on which we have expressed reliance remain accurate and that no additional matters would have been disclosed by a 3 company search at the Finnish Trade Register if carried out since the carrying out of the search referred to above. On the basis of the above assumptions which we have, with your permission, not investigated further, and subject to the qualifications set out below, we are of the opinion that under the laws of Finland in force and as applied at the date hereof: (a) the Company is duly organised and validly existing under the laws of Finland and has full power and capacity to execute and deliver the Guaranteeing Documents to which it is a party; (b) the Guaranteeing Documents are in appropriate form to be admissible in evidence in the courts of Finland (after translation into the Finnish or Swedish language, if necessary) and are in proper legal form under the laws of Finland for the enforcement thereof against the Company under the laws of Finland; (c) the Company has taken all necessary corporate action to authorise the execution, delivery and performance by it of the Guaranteeing Documents and it has duly executed and delivered the Guaranteeing Documents; (d) subject to the qualification e) below, the choice of the law of the State of New York as the governing law of the Guaranteeing Documents, will be recognised and given effect by the courts of Finland and the provisions therein for the submission of Company to the jurisdiction of the courts of State of New York are legal, valid and binding on the Company. If the Guaranteeing Documents are sought to be enforced in Finland in accordance with the laws of the State of New York, United States of America, the courts of competent jurisdiction in Finland would recognize the choice of law and apply the laws of the State of New York, United States of America including the choice of law rules regarding perfection contained therein; (e) the Guaranteeing Documents constitute legal, valid and binding obligations of the Company enforceable against the company in accordance with their terms; and (f) subject to the qualification f) below, there are no legal impediments to access by the Trustee to the courts of Finland, nor shall the Trustee be required to qualify under any statute or law or to pay any franchise tax, stamp tax or other similar fee to gain such access, in respect of such Guaranteeing Documents, including a proceeding for the enforcement of a judgment by a court in the United States in favor of the Trustee, except for such fees as would be required of plaintiffs, both residents and non-residents, in seeking access to the courts of Finland. This opinion is subject to the following qualifications: (a) the terms and conditions of the Guaranteeing Documents are subject to bankruptcy, moratorium, reorganisation, insolvency and other laws affecting 4 creditors' rights generally and may pursuant to the Finnish Act on Contracts (statute 1929/228, as amended) be set aside or modified if held by court of law to be unreasonable and may also be subject to limitation of action by effluxion of time; (b) enforcement of the Guaranteeing Documents may be limited by general principles of equity; in particular, equitable remedies (such as an order for specific performance or an injunction) are discretionary remedies and may not be available under the laws of Finland where damages are considered to be an adequate remedy, and nothing in this opinion should be taken to indicate that any particular remedy necessarily would be available with respect to any particular provision of the Guaranteeing Documents in any particular instance; (c) since there are no specific rules or precedents in Finnish law applicable to transactions structured as the merger at hand, the enforcement of the Guaranteeing Documents may be limited by general principles of corporate law and the Finnish Companies Act (statute 734/1978, as amended) concerning, inter alia, the distribution of funds and duty to act in the best interests of the company; (d) any provision in any of the Guaranteeing Documents which involves (or indicates) an indemnity for legal costs or costs of litigation is subject to the discretion of the court to decide whether and to what extent a party to litigation should be awarded the legal costs incurred by it in connection with the litigation or otherwise; (e) the application by a Finnish court of the laws of the State of New York in relation to the relevant Guaranteeing Documents is subject to: i) the laws of the State of New York not being contrary to such Finnish mandatory public law which due to its public nature or general interest shall be considered to be applicable irrespective of the agreed choice of law; ii) the application of the laws of the State of New York not resulting in an outcome contrary to the basic principles of the Finnish legal system; and iii) sufficient evidence as to the contents of the laws of the State of New York is submitted to a Finnish court; (f) any final and conclusive judgement of a State of New York court or federal court of the United States of America is as such not enforceable in Finland but a Finnish title for execution is required for such enforcement. In seeking a Finnish court judgement or order to such effect the judgement of a State of New York court or federal court of the United States of America will constitute circumstantial evidence of questions of fact in the case concerned and evidence of the contents of the laws of the State of New York as applied on the matter in dispute; (g) as regards jurisdiction, a Finnish court may stay proceedings if concurrent proceedings are being brought elsewhere; and 5 (h) Finnish courts may require that documents drawn up in English or any other language than Finnish or Swedish, and presented to the court shall be translated into Finnish or Swedish. We do not express any opinions herein as to any matter governed by any laws other than the laws of Finland as currently in force. It is rendered by us to you in the very matter and context specified herein. Our opinion may not, without our express consent, be divulged to or relied upon by others or referred to in any other matter or context whatsoever, except that we hereby consent to the filing of this opinion as an exhibit to the Registration Statement (No. 333-101188) under the Securities Act of 1933 on Form S-4 to be filed for the Exchange Offer. Yours very truly, HANNES SNELLMAN ATTORNEYS AT LAW LTD. Henrik Mattson 6 SCHEDULE A Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.a.R.L. WH Luxembourg Intermediate Holdings S.a.R.L. WH Luxembourg Holdings S.a.R.L. WH Intermediate Holdings Ltd. EX-5.10 33 y65450a1exv5w10.txt OPINION OF ISRAEL COUNSEL Exhbiit 5.10 [HERZOG, FOX & NEEMAN LETTERHEAD] December 19, 2002 File No. 15542 HERBALIFE INTERNATIONAL, INC, AND EACH OF THE GUARANTORS OF THE SERIES B NOTES (LISTED ON SCHEDULE A HERETO) 1800 CENTURY PARK EAST LOS ANGELES, CA 90067 CHADBOURNE & PARKE LLP 30 ROCKEFELLER PLAZA NEW YORK, NY 10112 Ladies and Gentlemen: Re: HERBALIFE INTERNATIONAL OF ISRAEL (1990) LTD. As legal counsel to Herbalife International of Israel (1990) Ltd. (the "COMPANY"), we hereby submit our opinion, as set forth below, in connection with the offer to exchange (the "EXCHANGE OFFER") 11-3/4% Series B Senior Subordinated Notes due 2010 (the "SERIES B NOTES") of Herbalife International, Inc., a Nevada corporation (the "ISSUER"), for an equal principal amount of the Issuer's outstanding 11-3/4% Series A Senior Subordinated Notes due 2010 (the "SERIES A NOTES"), and in connection with the preparation of the prospectus (the "PROSPECTUS") contained in the registration statement on Form S-4 (the "REGISTRATION STATEMENT (NO. 333-101188)") filed with the Securities and Exchange Commission by the Issuer and certain guarantors, including the Company (such guarantors are hereinafter referred to as the "GUARANTORS" and the Guarantors, together with the Issuer, are hereinafter referred to as the "REGISTRANTS") for the purpose of registering the Series B Notes and the guarantees by the Guarantors of the Issuer's obligations under the Series B Notes 2 (the "GUARANTEES") under the Securities Act of 1933, as amended (the "ACT"). The Series A Notes have been, and the Series B Notes and the Guarantees will be, issued pursuant to an Indenture, dated as of June 27, 2002, between WH Acquisition Corp. (whose obligations were assumed by the Issuer upon the consummation of the merger of the Issuer with WH Acquisition Corp.), the Guarantors and The Bank of New York, as trustee (the "TRUSTEE"), as supplemented by the Supplemental Indenture dated as of July 31, 2002 (the "INDENTURE"). Unless otherwise defined herein, terms defined in the Prospectus are used herein as defined therein. In our capacity as counsel to the Company, we have examined originals or copies of such documents of or pertaining to the Company, and have reviewed such questions of law, as we have considered necessary and appropriate for the purposes of the opinion set forth below. In rendering the opinion set forth below and on such examination, we have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures and the conformity to authentic originals of all documents submitted to us as copies. We have also assumed the legal capacity for all purposes relevant hereto of all natural persons and, with respect to all parties to agreements or instruments relevant hereto other than the Company, that such parties had the requisite power and authority (corporate or otherwise) to execute, deliver and perform such agreements or instruments, that such agreements or instruments have been duly authorized by all requisite action (corporate or otherwise), and have been executed and delivered in accordance with such authority by such parties and that such agreements or instruments are the valid, binding and enforceable obligations of such parties. The opinions hereinafter expressed are further subject to the following qualifications and exceptions: (i) The effect of bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences and equitable subordination; (ii) The effect of non-Israeli laws, judicial determinations or governmental actions affecting creditors' rights or the Company's performance of its obligations under the Guarantee, the Indenture, the Supplemental Indenture dated as of July 31, 2002, the Joinder to the Purchase Agreement dated as of July 31, 2002 and the Joinder to the Registration Rights Agreement dated as of July 31, 2002 (the "NOTE DOCUMENTS"); (iii) Limitations imposed by general principles of equity upon the availability of equitable remedies or the enforcement of provisions of any documents referred to herein and the effect of judicial decisions which have held that certain provisions are unenforceable where the enforcement thereof would violate the implied covenant of good faith and fair dealing, or would be commercially unreasonable, or where the breach thereof is not material; and (iv) Our opinions expressed herein are based upon current Israeli statutes, rules, regulations, cases and official interpretive opinions. We have considered such questions of Israeli law as we have deemed necessary for the purpose of rendering this opinion. We are members of the Bar of the State of Israel and, in rendering our opinion, we do not pass (expressly or by implication) on the laws of any jurisdiction other than the State of Israel. Our opinion relates only to Israeli laws. Based upon the foregoing, and subject to the qualifications and exceptions noted herein, we are of the opinion that: 3 (1) The Company is duly organized, validly existing and in good standing under the laws of the State of Israel. (2) The Company has all the corporate power and authority to execute, deliver and perform all of its obligations under each of the Note Documents to which it is a party, provided, however, that the scope and amount of its obligations are to the extent permitted under applicable Israeli Law. The execution, delivery and performance by the Company of each of the Note Documents to which it is a party and the consummation by the Company of the transactions contemplated thereby have been duly authorized by all requisite corporate action. Each of the Note Documents to which the Company is a party has been duly executed and delivered by the Company. (3) Each of the Note Documents to which the Company is a party constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, provided, however, that the scope and amount of the Company's obligations are to the extent permitted under applicable Israeli Law.(4) The choice of law of the State of New York, United States of America as the governing law of the Note Documents to which the company is a party is likely to be upheld as a valid choice of law by the courts of the State of Israel. If any Note Document to which the company is a party is sought to be enforced in the State of Israel in accordance with the laws of the State of New York, United States of America, the courts of competent jurisdiction in the State of Israel would probably recognize the choice of law and apply the laws of the State of New York, United States of America. This opinion is rendered only to you and is solely for your benefit in connection with the offering of the Series B Notes under the Prospectus. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement (No. 333-101188). This opinion may not be relied upon by you for any other purpose; nor may this opinion be provided to, quoted to or relied upon by, any other person or entity, for any purpose, without our prior written consent. The opinion expressed herein is as of the date hereof, and we make no undertaking to supplement the same. Very truly yours, Herzog, Fox & Neeman, Adv. 4 Schedule A Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife International de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A.de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.A.R.L. WH Luxembourg Intermediate Holdings S.A.R.L. WH Luxembourg Holdings S.A.R.L. WH Intermediate Holdings Ltd. EX-5.11 34 y65450a1exv5w11.txt OPINION OF JAPAN COUNSEL Exhibit 5.11 [TOMOTSUNE & KIMURA LETTERHEAD] December 19, 2002 HERBALIFE INTERNATIONAL, INC. AND EACH OF THE GUARANTORS OF THE SERIES B NOTES C/O HERBALIFE INTERNATIONAL, INC. 1800 CENTURY PARK EAST LOS ANGELES, CALIFORNIA CHADBOURNE & PARKE LLP 30 ROCKEFELLER PLAZA NEW YORK, NY 10112 Ladies and Gentlemen: We have acted as Japanese counsel to Herbalife International, Inc. (the "Issuer") and Herbalife of Japan K.K. ("Herbalife Japan") in connection with the offer to exchange (the "Exchange Offer") the Issuer's 11 3/4% Series B Senior Subordinated Notes due 2010 (the "Series B Notes"), for an equal principal amount of the Issuer's outstanding 11 3/4% Series A Senior Subordinated Notes due 2010 (the "Series A Notes"), and in connection with the preparation of the prospectus (the "Prospectus") contained in the registration statement on Form S-4 (the "Registration Statement (NO. 333-101188)") filed with the Securities and Exchange Commission by the Registrants for the purpose of registering the Series B Notes and the guarantee by Herbalife Japan of the Issuer's obligations under the Series B Notes (the "Guarantee") under the Securities Act of 1933, as amended (the "Act"). The Series A Notes have been, and the Series B Notes and the Guarantee will be, issued pursuant to an Indenture, dated as of June 27, 2002, between WH Acquisition Corp. (whose obligations were assumed by the Issuer upon the consummation of the merger of the Issuer with WH Acquisition Corp.), the Guarantors and The Bank of New York, as trustee (the "Trustee"), as supplemented by the Supplemental Indenture dated as of July 31, 2002 (the "Indenture"). Unless otherwise defined herein, terms defined in the Prospectus are used herein as defined therein. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such corporate records, agreements, documents and other instruments and -2- such certificates or comparable documents of public officials, and have made such other and further investigations, as we have deemed relevant and necessary as a basis for the opinion hereinafter set forth. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. Based on the foregoing, and subject to the qualifications and limitations stated herein, we are of the opinion that: (1) Herbalife Japan is validly existing under the laws of Japan; (2) Herbalife Japan has all corporate power and authority under the laws of Japan to execute, deliver and perform its obligations under the Note Documents; (3) each of the Note Documents has been duly authorized, executed and delivered by Herbalife Japan under the laws of Japan; and (4) assuming the due authorization, execution and delivery by the Trustee of the Indenture and assuming the due authorization, execution and delivery of the Guarantee and the Indenture by Guarantors other than Herbalife Japan, the Guarantee will constitute valid and legally binding obligations of Herbalife Japan, entitled to the benefits of the Indenture and enforceable against Herbalife Japan in accordance with their terms. The foregoing opinion is limited to matters of the laws of Japan, and we express no opinion herein as to any matter of law other than the laws of Japan. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement (NO. 333-101188). Yours faithfully, EX-5.12 35 y65450a1exv5w12.txt OPINION OF MEXICO COUNSEL Exhibit 5.12 [BUFETE CARRILLO GAMBOA, S.C. LETTERHEAD] December 19, 2002 HERBALIFE INTERNATIONAL, INC. AND THE GUARANTORS - - - OF THE SERIES B NOTES (LISTED ON SCHEDULE A HERETO) 1800 CENTURY PARK EAST LOS ANGELES, CALIFORNIA 90067 CHADBOURNE & PARKE LLP 30 ROCKEFELLER PLAZA NEW YORK, NY 10112 LADIES AND GENTLEMEN: We have acted as Mexican counsel to Herbalife Internacional de Mexico, S.A. de C.V. ("Herbalife Mexico"), and Herbalife Products de Mexico, S.A. de C.V. ("Herbalife Products") (hereinafter Herbalife Mexico and Herbalife Products jointly referred to as the "Guarantors"), each of them direct subsidiaries of Herbalife International Inc. (the "Issuer"), in connection with the offer to exchange (the "Exchange Offer") the Issuer's 11-3/4% Series B Senior Subordinated Notes due 2010 (the "Series B Notes"), for an equal principal amount of the Issuer's outstanding 11-3/4% Series A Senior Subordinated Notes due 2010 (the "Series A Notes"), in terms of the prospectus contained in the registration statement on Form S-4 (the "Registration Statement (No. 333-101188)") filed with the Securities and Exchange Commission by the Issuer and certain guarantors (including the Guarantors) for the purpose of registering the Series B Notes and the guarantees by the guarantors (including those of Herbalife Mexico and Herbalife Products) of the Issuer's obligations under the Series B Notes (the "Guarantees") under the Securities Act of 1933, as amended. It is our understanding that the Series A Notes and the Guarantees have been, and the Series B Notes will be, issued pursuant to an Indenture, dated as of June 27, 2002, between WH Acquisition Corp. (whose obligations were assumed by the Issuer upon the consummation of the merger of the Issuer with WH Acquisition Corp.), the guarantors (including Herbalife Mexico and Herbalife Products) and The Bank of New York, as trustee, as supplemented by the Supplemental Indenture dated as of July 31, 2002. In arriving at the opinions expressed below, we have reviewed the following documents: (i) the by-laws [estatutos sociales] of each of Herbalife Mexico and Herbalife Products; (ii) the resolutions adopted by the shareholders' meetings of each of Herbalife Mexico and Herbalife Products in connection with the transactions contemplated hereby; (iii) the Supplemental Indenture executed by the Guarantors dated as of July 31, 2002; (iv) the Guarantee executed by the Guarantors dated as of July 31, 2002; (v) the Purchase Agreement executed by the Guarantors dated as of July 31, 2002; (vi) the Registration Rights Agreement executed by the Guarantors dated as of July 31, 2002; (vii) the powers-of-attorney granting certain individuals the authority to enter into, on behalf of each of the Guarantors, the documents referred to in paragraphs (iii) through (vi) above (hereinafter the "Note Documents"); and 2 (viii) certificates issued by the Secretary of each of Herbalife Mexico and Herbalife Products relating to corporate matters and records of such companies. In rendering the opinions expressed below, we have assumed the genuiness of all signatures, as well as the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies. Additionally, we have assumed and have not verified: (i) the due authorization, execution and delivery by all parties of all of the documents related to the referred transaction (other than the Note Documents), as well as the power and authority and legal right of each of such parties under all applicable laws and regulations to enter into, execute, deliver and perform their respective obligations under such documents; (ii) the due authorization, execution and delivery by all parties (other than the Guarantors) of the Note Documents, as well as the power and authority and legal right of each of such parties (other than the Guarantors) under all applicable laws and regulations to enter into, execute, deliver and perform their respective obligations under such documents; (iii) the validity, binding effect and enforceability of all of the documents related to the referred transaction (including the Note Documents), on all parties thereto under the laws governing such documents; and (iv) the compliance with any regulatory requirements, with any authorities of any jurisdiction (other than Mexico) as a condition to the execution and delivery of all of the documents related to the referred transaction (including the Note Documents). The opinions expressed herein are limited to questions arising under or relating to the laws of Mexico and we do not purport to express an opinion on any question arising under the laws of any other jurisdiction. 3 Based upon the foregoing and subject to the assumptions and qualifications set forth herein, we are of the opinion that: 1. Herbalife Mexico and Herbalife Products are Mexican limited liability stock corporations with variable capital [sociedades anonimas de capital variable], duly organized and validly existing under the laws of Mexico; 2. The Guarantors have the corporate power and authority to execute and deliver the Note Documents and have taken all necessary corporate action to authorize the execution, delivery and performance of the Note Documents; 3. The Note Documents have been duly authorized, executed and delivered by the Guarantors. The Note Documents constitute the valid and binding obligation of Herbalife Mexico and Herbalife Products enforceable against both said companies in accordance with their respective terms; 4. The Guarantees issued by the Guarantors pursuant to the Note Documents shall continue in effect, in the understanding that in terms of the Exchange Offer and the Note Documents, the Guarantees will cover the obligations of the Issuer, regardless of the exchange of Series "B" Notes for an equal principal amount of the Issuer's outstanding Series "A" Notes; and 5. The choice of governing law of the Note Documents is a valid choice of law binding on the Guarantors. A judgment or award by a foreign court in a suit to enforce the obligations of any of the Guarantors under the Note Documents would be recognized and enforced in Mexico, provided the requirements of Mexican procedural law are met for such purposes, and that such judgment or award does not contravene Mexican public policy [leyes de orden publico]. The foregoing opinions are subject to the following qualifications: 4 (a) In the event any legal proceedings regarding the Note Documents are brought in the courts of Mexico, a Spanish translation of the respective documents prepared by a court approved translator would have to be authorized by such court after the defendant had been given an opportunity for a hearing as to the accuracy of such translation, and proceedings would thereafter be based on such translation; (b) The enforceability of the Note Documents may be limited by statutory priorities established by: (i) laws or decrees imposing federal, state or municipal fiscal obligations or other amounts, including those payable by Herbalife Mexico and/or Herbalife Products, such as social security and other types of payments owed to a governmental agency or administration with the power to collect contributions; (ii) Mexican federal labor laws regarding compensation of any kind owed by Herbalife Mexico and/or Herbalife Products to persons covered by such laws; and (iii) bankruptcy, [concurso mercantil], suspension of payments, fraudulent conveyance, insolvency, liquidation, reorganization, moratorium and similar laws affecting creditors' rights generally; (c) In the event legal proceedings are brought in Mexico seeking performance in Mexico of the obligations of Herbalife Mexico and/or Herbalife Products established in the Note Documents, under the Ley Monetaria de los Estados Unidos Mexicanos the Guarantors may discharge their obligations by paying any sums payable in a currency other than Mexican currency, in Mexican currency at the rate of exchange prevailing in Mexico on the date when payment is made. Consequently, judgment currency provisions included in the Note Documents may not be enforceable under Mexican law; (d) In any proceedings brought to the courts of Mexico for the enforcement of a judgment related to the Note Documents against the Guarantors, a Mexican court would apply Mexican procedural law in such proceedings; and (e) In the case of any suit brought before Mexican courts, said courts should apply Mexican law on statute of limitations and expiration [prescripcion] notwithstanding the choice of Law chosen by the parties in the Note Documents. We express no 5 opinion as to the enforceability of a foreign judgment deriving from a lawsuit brought once the statute of limitation period prescribed by Mexican law has elapsed. ---------------------- We express no opinion as to any agreement, instrument or other document other than as specified in this letter. This opinion letter shall in no way be construed as stating any view, express or implied on issues not included herein or based upon laws of any jurisdiction other than Mexico, the interpretation thereof or the practice thereunder, with respect to which we express no opinion. This opinion letter is furnished solely for your benefit and for the benefit of Chadbourne & Parke, LLP. Notwithstanding the foregoing, the present opinion may be filed as an exhibit to the Registration Statement (No. 333-101188). The opinions set forth above are effective as of the date hereof and are subject to change and qualification by reason of change in law and circumstances, changes in the documents to which they refer, lapse of time and other similar matters. We express no opinion as to the rights, obligations and other matters arising subsequent to the date hereof, and we assume no responsibility to advise you, your counsel or any other person of any changes to the opinions subsequent to the date hereof. VERY TRULY YOURS, BUFETE CARRILLO GAMBOA, S.C. 6 SCHEDULE A HERBALIFE INTERNATIONAL DO BRASIL LTDA. HERBALIFE (UK) LIMITED HERBALIFE EUROPE LIMITED HERBALIFE INTERNATIONAL FINLAND OY HERBALIFE INTERNATIONAL OF ISRAEL (1990) LTD. HERBALIFE OF JAPAN K.K. HERBALIFE INTERNACIONAL DE MEXICO, S.A. DE C.V. HERBALIFE PRODUCTS DE MEXICO, S.A. DE C.V. HERBALIFE SWEDEN AKTIEBOLAG HERBALIFE CHINA, LLC HERBALIFE INTERNATIONAL OF AMERICA, INC. HERBALIFE INTERNATIONAL COMMUNICATIONS INC. HERBALIFE INTERNATIONAL DISTRIBUTION, INC. HERBALIFE INTERNATIONAL OF EUROPE, INC. HERBALIFE TAIWAN, INC. HERBALIFE INTERNATIONAL (THAILAND) LTD. WH LUXEMBOURG CM S.a.R.L. WH LUXEMBOURG INTERMEDIATE HOLDINGS S.a.R.L. WH LUXEMBOURG HOLDINGS S.a.R.L. WH INTERMEDIATE HOLDINGS LTD. 7 EX-5.13 36 y65450a1exv5w13.txt OPINION OF SWEDISH COUNSEL Exhibit 5.13 [MANNHEIMER SWARTLING LETTERHEAD] Herbalife International, Inc. and each of the Guarantors of the Series B Notes (listed on Schedule A hereto) 1800 Century Park East Los Angeles, CA 90067 USA Chadbourne & Parke LLP 30 Rockefeller Plaza New York, NY 10112 Stockholm, December 19, 2002 Dear Sirs, HERBALIFE GROUP - GUARANTEES OF INDENTURE AND JOINDERS TO PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT We act as legal counsel in Sweden for Herbalife Sweden Aktiebolag (the "COMPANY") in connection with a supplemental indenture (the "SUPPLEMENTAL INDENTURE") by, inter alia, the Company as Guaranteeing Subsidiary, a guarantee (the "GUARANTEE") by, inter alia, the Company as Guarantor, a joinder to a purchase agreement (the "JOINDER TO THE PURCHASE AGREEMENT") and a joinder to a registration rights agreement (the "JOINDER TO THE REGISTRATION RIGHTS AGREEMENT") by, inter alia, the Company as Herbalife Guarantor, all dated 31 July 2002, pursuant to which the Company provides guarantees for an indenture dated 27 June 2002, (the "INDENTURE") by WH Acquisition Corp. as Issuer, and joins (i) a purchase agreement dated 21 June 2002, (the "PURCHASE AGREEMENT") and (ii) a MANNHEIMER SWARTLING Stockholm, December 19, 2002 2 - -------------------------------------------------------------------------------- registration rights agreement (the "REGISTRATION RIGHTS AGREEMENT"), between, inter alia, WH Acquisition Corp. as Issuer and UBS Warburg LLC as Initial Purchaser. 1. WE HAVE EXAMINED: (a) a pfd-document with an executed copy of the Supplemental Indenture dated 31 July 2002; (b) a pfd-document with an executed copy of the Guarantee dated 31 July 2002; (c) a pfd-document with an executed copy of the Joinder to the Purchase Agreement dated 31 July 2002; (d) a pfd-document with an executed copy of the Joinder to the Registration Rights Agreement dated 31 July 2002; (e) a copy of the Indenture dated 27 June 2002,; (f) a pfd-document with an executed copy of the Purchase Agreement dated 21 June 2002, including Annex A containing a form of the Registration Rights Agreement; (g) a copy of the Articles of Association of the Company, dated 27 October 1999; (h) a copy of a registration certificate of the Company dated 19 November 2002; and (i) a copy of the minutes from a meeting of the board of directors of the Company held on 26 July 2002. Our inquiry has been limited to an examination of the above documents and we have made no review of any other documents. The documents referred to above in paragraphs 1(a) - (d) are herein referred to as the "GUARANTEE DOCUMENTS" and each a "GUARANTEE DOCUMENT". The documents referred to above in paragraphs 1(e) - (f) are herein referred to as the "PRIMARY DOCUMENTS" and each a "PRIMARY DOCUMENT". The Guarantee Documents and the Primary Documents are jointly referred to as the "OPERATIVE DOCUMENTS" and each an "OPERATIVE DOCUMENT". MANNHEIMER SWARTLING Stockholm, December 19, 2002 3(9) - -------------------------------------------------------------------------------- 2. WE HAVE ASSUMED: (a) that the executed version of the Indenture and the Registration Rights Agreement are identical to the specimen reviewed by us and referred to in paragraphs 1(e) - (f) above; (b) the genuineness of all signatures (including the identity of the signatory) and the authenticity and completeness of all documents submitted to us and the conformity to authentic original documents of all documents submitted to us as certified, conformed, photostatic or facsimile copies or by e-mail or other electronic transmission; (c) that all documents, authorisations, powers and authorities produced to us remain in full force and effect and have not been amended or affected by any subsequent action not disclosed to us; (d) that all parties to the Operative Documents (other than the Company) are duly incorporated and validly existing under the laws of their relevant jurisdictions; (e) that the Operative Documents are duly authorised and executed by, and are within the capacity and powers of, the parties thereto (other than the Company); (f) that the Purchase Agreement, being expressed to be construed by the laws of the State of New York, is governed by the laws of the State of New York; (g) that the Primary Documents constitute legally valid, binding and enforceable obligations of the parties thereto under the laws of the State of New York, being the laws by which such documents are expressed (or assumed) to be governed; (h) that there are no provisions of the laws (including, but not limited to, public policy or mandatory rules) of any jurisdiction other than Sweden which would have any implications on the opinion we express; (i) the accuracy and completeness of all factual representations made to us (other than in respect of matters on which we express our opinion herein), and therefore we have made no independent investigation thereof; MANNHEIMER SWARTLING Stockholm, December 19, 2002 4(9) - -------------------------------------------------------------------------------- (j) that all necessary consents, authorisations and approvals whatsoever required in any relevant jurisdiction for the execution and performance of the Primary Documents by each of the parties thereto have been, or will be, obtained and that all necessary notices, filings, registrations and recordings required in any applicable jurisdiction in respect of the Primary Documents have been, or will be, given or effected in accordance with the laws and regulations of every such applicable jurisdiction; (k) that all necessary consents, authorisations and approvals whatsoever required in any relevant jurisdiction (other than Sweden) for the execution and performance of the Guarantee Documents by each of the parties thereto have been, or will be, obtained and that all necessary notices, filings, registrations and recordings required in any applicable jurisdiction (other than Sweden) in respect of the Guarantee Documents have been, or will be, given or effected in accordance with the laws and regulations of every such applicable jurisdiction; (l) that there are no provisions in, or other aspects of, any agreement or other document (other than the Operative Documents) relating or ancillary to the Operative Documents that would have any implications on the opinion we express; and (m) that there has been no mutual or relevant unilateral mistake of fact and there exists no fraud, coercion or duress. 3. ON THE BASIS OF THE FOREGOING AND SUBJECT TO THE QUALIFICATIONS AND RESERVATIONS HEREINAFTER SET FORTH, WE ARE OF THE OPINION THAT: (a) the Company is duly incorporated and validly existing as a limited liability company, possessing perpetual corporate existence and the capacity to sue and be sued in its own name, with full power, authority and legal right (corporate and other) to carry on business, to own property and to execute, and to perform all of its obligations under, the Guarantee Documents; (b) the Guarantee Documents have been duly authorised and duly executed and such documents constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms under the laws of Sweden; (c) neither the execution by the Company of any Guarantee Document nor the performance by it of any of its obligations thereunder, nor the compliance MANNHEIMER SWARTLING Stockholm, December 19, 2002 5(9) - -------------------------------------------------------------------------------- by it with the terms and conditions thereof, will: (i) violate or result in any breach of, or constitute a default under, any applicable law, or (ii) contravene or result in any breach of any provision of its Articles of Association; and (d) the choices of the law of the State of New York to govern the Operative Documents are valid and binding choices of law and will be recognised and applied by the courts of Sweden, upon proof of the relevant provisions of foreign law, subject, however, to the qualification that foreign laws will not be applied to the extent contrary to Swedish public policy and that Swedish law will be applied in a bankruptcy proceeding in respect of, or an execution against the Company. 4. THE FOREGOING OPINION IS SUBJECT TO THE FOLLOWING QUALIFICATIONS AND RESERVATIONS: (e) anything contained in this opinion is subject to all limitations (including, but not limited to, stay, pre-emption rights, delays and recovery) resulting from bankruptcy, insolvency (including, but not limited to, the effects of the Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings (the "EC INSOLVENCY REGULATION")), liquidation, reorganisation and similar laws affecting the rights of creditors generally; (f) if a Swedish company guarantees the obligations of another party without deriving any corporate benefit therefrom, the guarantee will only be valid up to the amount of the distributable reserves of the grantor at the time the guarantee is provided, and will require the consent of all shareholders; since the existence of corporate benefit is a question of fact, we do not express any opinion as to whether the Company will derive corporate benefit from guarantees provided under the Guarantee Documents; unless this is the case, the guarantees of the Company contained in the Guarantee Documents directly or indirectly for obligations owed by other parties, will be limited in validity as aforesaid; (g) a guarantee may be unenforceable if it is accessory to the obligations guaranteed, which means that should such obligations be unlawful, invalid or unenforceable, the guarantor may not be obliged to make payments under the guarantee; MANNHEIMER SWARTLING Stockholm, December 19, 2002 6(9) - -------------------------------------------------------------------------------- (h) pursuant to the Swedish Contracts Act (Sw: Avtalslagen), the terms of an agreement may be modified or set aside by a court to the extent that such terms are deemed to create unreasonable results, even if the circumstances giving rise thereto have arisen after the agreement was entered into; (i) the term "enforceable" when used herein means that the obligations assumed by the parties are of the type which Swedish courts enforce. It does not mean that such obligations will necessarily be enforced in accordance with their terms. The availability of equitable remedies, including but not limited to injunction and specific performance, is restricted and such remedies may not always be granted by the court; (j) the taking of proceedings in other jurisdictions may preclude the taking of proceedings in Sweden, if the claims and the parties respectively in the proceedings are substantially identical; the availability of access to Swedish courts may be limited by the existence of a valid arbitration agreement or clause; the opening of insolvency proceedings in other jurisdictions pursuant to the EC Insolvency Regulation, may preclude the taking of proceedings in Sweden; (k) Swedish courts may award judgments in currencies other than Swedish Kronor, but a judgment will be enforced in Swedish Kronor. Enforcement in Sweden of such judgment would, if implemented in Swedish Kronor, be generally at the rate of exchange applicable at the date of enforcement rather than at the date of judgment; choice of currency provisions may not constitute a right to refuse payment in Swedish Kronor, and the creditor may have to rely on damages or contractual indemnities in case of breach of such provisions; (l) the enforcement of the rights of a party under an agreement may be limited by general time bar provisions or the doctrine of laches; (m) it is not established by law or court precedent that a power of attorney can be made irrevocable and it is therefore submitted that all powers of attorney contained in the Operative Documents can be revoked and that they will terminate by operation of law and without notice at the bankruptcy of the party giving such powers; (n) provisions in the Operative Documents specifying that provisions thereof may only be amended or waived in writing, may not be enforceable to the extent that an oral agreement or implied agreement by trade practice or course of conduct has been created modifying provisions of the Operative MANNHEIMER SWARTLING Stockholm, December 19, 2002 7(9) - -------------------------------------------------------------------------------- Documents; (o) in proceedings before a Swedish Court, the Swedish Procedural Code will apply in respect of, inter alia, service of process, allocation of costs for the proceedings, availability of interim measures and evaluation of evidence; consequently provisions in the Operative Documents relating to such matters will not be enforceable to the extent inconsistent herewith. Specifically, without limiting the generality of the foregoing, a provision that a certain determination is conclusive and binding will not prevent judicial inquiry into the merits of any claim by the aggrieved party; (p) provisions in the Operative Documents to the effect that one party may terminate an agreement or otherwise act to the detriment of another party in the case of a bankruptcy of such other party could be considered contrary to the Swedish Bankruptcy Act (Sw: konkurslagen) and are, to the extent they are found to be so, unenforceable; (q) the right to recover damages may be limited to the extent the aggrieved party could have avoided damages by reasonable efforts; (r) on the basis of the International Monetary Fund Agreement, as interpreted and applied by Swedish courts, an obligation which is contrary to the exchange control regulations of another member state of the International Monetary Fund may not be enforceable in Sweden; (s) any transfer of rights, or payment in respect of, or other performance of, an obligation under any of the Operative Documents involving the government of any country which is currently the subject of United Nations or European Union sanctions, any person or body resident in, incorporated in or constituted under the laws of any such country or exercising public functions in any such country or any person or body controlled by any foregoing or by any person acting on behalf of any of the foregoing may be subject to restrictions pursuant to such sanctions as implemented in Swedish law; (t) this opinion is limited to matters of Swedish law as presently in force and as enacted by Swedish legislative authorities, and no opinion is expressed as to the laws of any other jurisdiction or supra-national organisation (such as the EU); in particular we do not represent ourselves to be familiar with the laws of the State of New York or the laws of any jurisdiction other than Sweden and we express no opinion in respect of matters governed by or construed in accordance with any such laws; MANNHEIMER SWARTLING Stockholm, December 19, 2002 8(9) - -------------------------------------------------------------------------------- (u) this opinion is given on the basis that it will be governed by and construed in accordance with Swedish law; and (v) this opinion is strictly limited to matters stated herein and is not to be read as extending by implication to any other matters in connection with the Operative Documents. -------------------- This opinion is addressed to its addressees for their own use and benefit and for the use of their legal advisers (without assuming any liability in relation to such advisers) and may not be relied upon by any other person or for any purpose other than in connection with the Operative Documents and it is not to be used, circulated, quoted or otherwise referred to for any other purpose, except that we consent to the filing of this opinion as an exhibit to the Registration Statement under the U.S. Securities Act of 1933, which was filed with the U.S. Securities and Exchange Commission (the "SEC") on 13 November 2002 by the registrants WH Intermediate Holdings Ltd. and Herbalife International, Inc. (Registration No. 333-101188), provided that our consent to such filing shall not give the SEC or any other party any right to rely on the contents of this opinion. We assume no obligation to advise you or the SEC of any changes in the foregoing subsequent to the date set forth in the beginning of this opinion and this opinion speaks only as of that date. Yours faithfully, MANNHEIMER SWARTLING ADVOKATBYRA Thomas Pettersson Anna Engquist MANNHEIMER SWARTLING Stockholm, December 19, 2002 9(9) - -------------------------------------------------------------------------------- Schedule A Herbalife International Do Brasil Ltda. Herbalife (UK) Limited Herbalife Europe Limited Herbalife International Finland OY Herbalife International of Israel (1990) Ltd. Herbalife of Japan K.K. Herbalife Internacional de Mexico, S.A. de C.V. Herbalife Products de Mexico, S.A. de C.V. Herbalife Sweden Aktiebolag Herbalife China, LLC Herbalife International of America, Inc. Herbalife International Communications Inc. Herbalife International Distribution, Inc. Herbalife International of Europe, Inc. Herbalife Taiwan, Inc. Herbalife International (Thailand) Ltd. WH Luxembourg CM S.a.R.L. WH Luxembourg Intermediate Holdings S.a.R.L. WH Luxembourg Holdings S.a.R.L. WH Intermediate Holdings Ltd. EX-5.14 37 y65450a1exv5w14.txt OPINION OF DELAWARE COUNSEL Exhibit 5.14 [Morris, Nichols, Arsht & Tunnell Letterhead] December 19, 2002 Herbalife International, Inc. and Each of the Guaranteeing Subsidiaries (as defined below) 1800 Century Park East Los Angeles, CA 90067 Re: Herbalife China, LLC, Herbalife International do Brasil Ltda. Ladies and Gentlemen: We have acted as special Delaware counsel to Herbalife China, LLC, a Delaware limited liability company ("Herbalife China"), and Herbalife International do Brasil Ltda., a Delaware corporation ("Herbalife Brasil" and collectively with Herbalife China, the "Companies" and each individually a "Company"), in connection with certain matters of Delaware law set forth below relating to the offer to exchange (the "Exchange Offer") the 11-3/4% Series B Senior Subordinated Notes due 2010 (the "Series B Notes") issued by Herbalife International, Inc. (the "Issuer"), for an equal principal amount of the Issuer's outstanding 11-3/4% Series A Senior Subordinated Notes due 2010 (the "Series A Notes") and in connection with the Registration Statement No. 333-101188 on Form S-4 filed with the Securities and Exchange Commission on November 13, 2002 (the "Registration Statement") by, among others, WH Intermediate Holdings Ltd. ("Parent") for the purpose of registering the Series B Notes and, among others, the guarantee by the Parent of the Issuer's obligations under the Series B Notes under the Securities Act of 1933, as amended. Capitalized terms used herein and not otherwise herein defined are used as defined in the Indenture (as defined below). In rendering this opinion, we have examined and relied on copies of the following documents in the forms provided to us: the Indenture dated as of June 27, 2002 (the "Indenture") among WH Acquisition Corp. ("WH Acquisition"), Herbalife International, Inc. ("Herbalife International"), the Guarantors (as defined therein) and The Bank of New York, as trustee (the "Trustee"); as supplemented by the Supplemental Indenture dated as of July 31, 2002 among the Herbalife International, Inc. and Each of the Guaranteeing Subsidiaries (as defined below) Page 2 guaranteeing subsidiaries signatories thereto (the "Guaranteeing Subsidiaries"), Herbalife International, as successor to WH Acquisition, and the Trustee (the "Supplemental Indenture"); the Purchase Agreement dated as of June 21, 2002 among the WH Acquisition, Herbalife International, the entities listed as guarantors on the signature pages thereto and UBS Warburg LLC ("UBS Warburg") (the "Purchase Agreement"); the Joinder to the Purchase Agreement dated as of July 31, 2002 among Herbalife International and each of the guarantors signatories thereto (the "Joinder to the Purchase Agreement"); the Registration Rights Agreement dated as of June 27, 2002 among WH Acquisition, Parent, WH Luxembourg Holdings S.a.R.L. ("Luxembourg Holdings"), WH Luxembourg CM S.a.R.L. ("Luxembourg CM") and UBS Warburg (the "Registration Rights Agreement"); the Joinder to the Registration Rights Agreement dated as of July 31, 2002 among WH Acquisition and each of the guarantors signatory thereto (the "Joinder to the Registration Rights Agreement"); the Guarantee dated as of July 31, 2002 among each of the guarantors signatories thereto (the "Guarantee" and together with the Supplemental Indenture, the Joinder to the Purchase Agreement and the Joinder to the Registration Rights Agreement, the "Transaction Documents"); the Certificate of Formation of Herbalife China (then named Herbalife Leiner, LLC) as filed in the Office of the Secretary of State of the State of Delaware (the "State Office") on February 16, 1999 (the "LLC Certificate"); the Certificate of Amendment to the LLC Certificate as filed in the State Office on January 22, 2002; the Limited Liability Company Agreement of Herbalife China dated as of February 16, 1999 (the "Original LLC Agreement"); the Limited Liability Company Agreement of Herbalife China between Borrower and Leiner Health Products, Inc., as amended by the amendment thereto dated as of July 31, 2002 (as so amended, the "LLC Agreement" and together with the LLC Certificate, the "LLC Constituent Documents"); the Certificate of Incorporation of Herbalife Brasil as filed in the State Office on August 25, 1995 (the "Brasil Certificate"); the Certificate of Domestication of Herbalife Brasil as filed in the State Office on August 25, 1995 (the "Brasil Domestication Certificate"); the Certificate of Amendment to the Brasil Certificate as filed in the State Office on April 30, 1996 (the "Brasil Amendment"); the By-Laws of Herbalife Brasil (the "Brasil By-Laws" and together with the Brasil Certificate, the Brasil Domestication Certificate and the Brasil Amendment, the "Brasil Constituent Documents" and together with the LLC Constituent Documents, the "Constituent Documents"); certain resolutions of the Board of Directors of Herbalife Brasil dated as of July 31, 2002 authorizing the execution, delivery and performance of the Transaction Documents to which it is a party by Herbalife Brasil (the "Brasil Resolutions"); and certifications of good standing for each of the Companies obtained as of a recent date from the State Office. In such examinations, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed and the legal capacity of natural persons to complete the execution of documents. We have further assumed for purposes of this opinion: (i) except to the extent addressed in opinion 1 below, the due formation or organization, valid existence and good standing of each entity that is a signatory to any of the documents examined by us under the laws of the jurisdiction of its respective formation or organization; (ii) the due adoption, authorization, approval, certification, acknowledgement, authentication, execution, filing, indexing and delivery of each of the above-referenced documents by each of the parties thereto (other than the Herbalife International, Inc. and Each of the Guaranteeing Subsidiaries (as defined below) Page 3 Companies); (iii) that each of the above-referenced agreements constitutes a legal, valid and binding obligation of each of the parties thereto, enforceable against each such party in accordance with its terms; (iv) that each member of Herbalife China has paid the full consideration due from it for its interest in Herbalife China and satisfied and complied with all other terms and conditions set forth in the Original LLC Agreement and the LLC Agreement, as applicable, in connection with its admission as a member to Herbalife China; (v) that since the filing of the LLC Certificate there has been no event or circumstances giving rise to the dissolution of Herbalife China under the Original LLC Agreement or the LLC Agreement, as applicable, or the Delaware Limited Liability Act, 6 Del. C. Sections 18-101 et seq. (the "Delaware Act"); (vi) that none of the Companies owns any property in, or conducts any business or other activities in or regulated by, the State of Delaware other than activities incident to its formation and continued existence as a Delaware limited liability company or Delaware corporation, as applicable; (vii) that Herbalife China is not organized and existing under the laws of any jurisdiction other than the State of Delaware; (viii) that the amendment to the LLC Agreement dated July 31, 2002 was signed by all of the members owning membership interests and approved by at least two-thirds of the managers then in office, (ix) that a manager or officer duly authorized by the LLC Agreement has caused Herbalife China to voluntarily and unconditionally transfer possession of executed counterparts of the Transaction Documents to each of the parties thereto with the intent of bringing the Transaction Documents into effect; (x) that the Transaction Documents executed by Herbalife China are necessary or incidental to the Credit Agreement and the U.S. Security Agreement (as defined in the Credit Agreement); (xi) that an officer duly authorized by the Brasil Resolutions has caused Herbalife Brasil to voluntarily and unconditionally transfer possession of executed counterparts of the Transaction Documents to each of the parties thereto with the intent of bringing the Transaction Documents into effect; (xii) that Herbalife Brasil is a direct or indirect wholly-owned subsidiary of the Borrower; (xiii) that the bylaws of Herbalife Brasil have been amended to provide for two members of the Board of Directors of such Company, (xiv) that the final form of each of the Transaction Documents is in substantially the form presented to the Board of Directors of Herbalife Brasil, and (xv) that each of the documents examined by us is in full force and effect, sets forth the entire understanding of the parties thereto with respect to the subject matter thereof and has not been amended, supplemented or otherwise modified, except as herein referenced or as provided in any document referenced herein. We have not reviewed any documents other than those identified above in connection with this opinion, and we have assumed that there are no other documents contrary to or inconsistent with the opinions expressed herein. Without limiting the generality of the foregoing, we understand that Herbalife Brasil is a dual domicile entity and we have reviewed no documents with respect to Herbalife Brasil other than as referenced above and we express no opinion as to the status of these entities in any jurisdiction other than the State of Delaware. No opinion is expressed herein with respect to the requirements of, or compliance with, federal or state securities or blue sky laws. In addition, we express no opinion as to, and assume no responsibility for, the Registration Statement or any other offering materials relating to the Series B Notes. As to any facts material to our opinion, other than those assumed, we have relied, without independent investigation, on the above-referenced documents and certificates and on the accuracy, as of the date hereof, of the matters therein contained. Herbalife International, Inc. and Each of the Guaranteeing Subsidiaries (as defined below) Page 4 Based upon and subject to the foregoing and to the further assumptions and qualifications set forth below, and limited in all respects to matters of Delaware law, it is our opinion that: 1. Herbalife China is a duly formed and validly existing limited liability company in good standing under the laws of the State of Delaware. Herbalife Brasil is a validly existing corporation in good standing under the laws of the State of Delaware. 2. Herbalife China has requisite limited liability company power and authority under the LLC Agreement and the Delaware Act to enter into the Transaction Documents to which it is a party and to perform its obligations thereunder. Herbalife Brasil has requisite corporate power and authority under the Brasil Constituent Documents and the General Corporation Law of the State of Delaware, 8 Del. C. Sections 101 et seq. (the "DGCL"), to enter into the Transaction Documents to which it is a party and to perform its obligations thereunder. The execution, delivery and performance by Herbalife China of the Transaction Documents to which it is a party have been duly authorized by all requisite limited liability company action. The execution, delivery and performance by Herbalife Brasil of the Transaction Documents to which it is a party have been duly authorized by all requisite corporate action. 3. The execution and delivery by Herbalife China and Herbalife Brasil of the Transaction Documents to which each is a party and the performance by Herbalife China and Herbalife Brasil of their respective obligations thereunder will not violate any provision of applicable statutes, regulations or rules of the State of Delaware or violate their respective constituent documents. We hereby consent to the filing of a copy of this opinion with the Securities and Exchange Commission as an exhibit to an amendment to the Registration Statement. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. We understand that Chadbourne & Parke LLP wishes to rely as to certain matters of Delaware law on the opinion expressed herein in connection with the rendering of its opinion dated on or about the date hereof and we hereby consent to such reliance. Except as provided in this paragraph, the opinion set forth above is expressed solely for the benefit of the addressee hereof in connection with the matters contemplated hereby and may not be relied upon for any other purpose or by any other person or entity without our prior written consent. This opinion speaks only as of the date hereof and is based on our understandings and assumptions as to present facts and our review of the above-referenced documents and certificates and the application of Delaware law as the same exists on the date hereof, and we undertake no obligation to update or supplement this opinion after the date hereof for the benefit of any person or entity with respect to any facts or circumstances that may hereafter come to our attention or any changes in facts or law that may hereafter occur or take effect. Herbalife International, Inc. and Each of the Guaranteeing Subsidiaries (as defined below) Page 5 Very truly yours, MORRIS, NICHOLS, ARSHT & TUNNELL 319976 EX-10.34 38 y65450a1exv10w34.txt BONUS PLAN OF WH HOLDINGS (CAYMAN ISLANDS) LTD. Exhibit 10.34 WH HOLDINGS (CAYMAN ISLANDS) LTD. INDEPENDENT DIRECTORS STOCK OPTION PLAN 1. Purpose of Plan. The WH Holdings (Cayman Islands) Ltd. Independent Directors Stock Option Plan (the "Plan") is designed: (a) to promote the long term financial interests and growth of WH Holdings (Cayman Islands) Ltd. (the "Company") and its affiliates by attracting and retaining independent directors with the training, experience and ability to enable them to make a substantial contribution to the success of the business of the Company and its affiliates; (b) to motivate independent directors by means of growth-related incentives to achieve long range goals; and (c) to further the alignment of interests of participants with those of the equityholders of the Company through opportunities for increased ownership in the Company. 2. Definitions. As used in the Plan, the following words will have the following meanings: (a) "Affiliate" means, with respect to the Company, any corporation directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Committee in which the Company or an Affiliate has an interest. (b) "Board" means the Board of Directors of the Company. (c) "Change of Control" means an Organic Transaction as defined in the Amended and Restated Memorandum and Articles of Association of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means one or more committees each comprised of not less than three members of the Board appointed by the Board to administer the Plan or a specified portion thereof; provided, however, that if, at any time, there will be only one director serving on the Board, the Committee may be composed of the sole director. Unless otherwise determined by the Board, if the Common Shares become registered under Section 12 of the Exchange Act and if the Committee is authorized to grant Options subject to Section 16 of the Exchange Act, each member of the Committee will be a "non-employee director" within the meaning of applicable Rule 16b-3 under the Exchange Act. (f) "Common Shares" means the common shares, par value $0.001 per share, of the Company. (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (h) "Exercise Price" means the price at which a Participant may purchase a Common Share, as provided in the Option Agreement. (i) "Fair Market Value" means the fair market value of a Share as of a particular date. If at any such time such Shares are not listed or admitted for trading on any national securities exchange or quoted on NASDAQ or a similar service, the Fair Market Value for such Shares means the fair market value of such Shares at such time as determined in good faith by the Committee. However, subsequent to an Initial Public Offering, the Fair Market Value of a Common Share will be the average of high bid and low asked prices of Common Shares as reported on the exchange on which it is listed as of such date, or if no such quotation is made on such date, the immediately preceding day on which there were quotations as reported in The Wall Street Journal. (j) "Grant" means an award made to a Participant pursuant to the Plan and described in Paragraph 5. (k) "Incentive Stock Option" means an Option which satisfies all of the applicable requirements of Code Section 422. (l) "Independent Director" means an individual who neither is: (i) an employee of the Company or any of its Affiliates; or (ii) designated as a Director by the Affiliates of the Company or its distributors. (m) "Initial Public Offering" means the underwritten public offering by the Company of its Common Shares pursuant to a registration statement (other than a registration statement relating solely to an employee benefit plan or transaction covered by Rule 145 of the Securities Act) that has been filed under the Securities Act and declared effective by the Securities and Exchange 2 Commission, or any other Federal agency at the time administering the Securities Act. (n) "Non-Statutory Stock Option" means an Option which does not satisfy all of the applicable requirements of Code Section 422 or which by its terms is not intended to be treated as an Incentive Stock Option. (o) "Option" means an option to purchase Common Shares. (p) "Option Agreement" means an agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to a Grant. (q) "Participant" means an Independent Director of the Company or one of its Affiliates, to whom one or more Grants have been made and such Grants have not all been forfeited or terminated under the Plan. (r) "Preferred Shares" means Preferred Shares as defined in the Amended and Restated Memorandum and Articles of Association of WH Holdings (Cayman Islands) Ltd. and known as the "12% Series A Cumulative Convertible Preferred Shares". (s) "Securities Act" means the Securities Act of 1933, as amended. (t) "Share" means a share of Common Shares. (u) "Shareholders' Agreement" means the shareholders' agreement, dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney V, L.P., Whitney Strategic Partners V, L.P., and WH Investments Ltd., and CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG GP Fund LLC, CCG Investment Fund-AI, LP, and CCG AV, LLC, and certain other persons who may, from time to time, become party to the agreement. (v) "Subsidiary" means any entity in an unbroken chain of entities beginning with the Company if each of the entities, or group of commonly controlled entities, other than the last entity in the unbroken chain then owns 50% or more of the total combined voting power of the other entities in such chain. (w) "Total Exercise Cost" means an amount equal to the Exercise Price multiplied by the number of Shares being purchased pursuant to the Option. 3. Administration of Plan. 3 (a) The Plan will be administered by the Committee. The Committee may adopt its own rules of procedure. Action of a majority of the members of the Committee taken at a meeting, or action taken without a meeting by unanimous written consent, will constitute action by the Committee. The Committee will have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes to such rules. (b) The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company, and the officers of the Company will be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon all Participants, the Company and all other interested persons. No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Grants, and all members of the Committee will be fully protected by the Company with respect to any such action, determination or interpretation. 4. Eligibility. Subject to Paragraph 5(a), the Committee may from time to time make Grants under the Plan to such Independent Directors of the Company or any of its Affiliates, and in such form and having such terms, conditions and limitations as the Committee may determine. Prior to participation in the Plan, the Committee may require any Participant to execute a Release and Waiver to Rights to payments and benefits under certain plans of Herbalife International, Inc. Grants may be made singly, in combination or in tandem. The terms, conditions and limitations of each Grant under the Plan will be set forth in an Option Agreement, in a form or forms approved by the Committee; provided, however, that such Option Agreement will contain provisions dealing with the treatment of Grants in the event of the termination, death or disability of a Participant, and may also include provisions concerning the treatment of Grants in the event of a Change of Control of the Company. 5. Grants. (a) The Plan provides for grants only to Independent Directors of Non-Statutory Stock Options. (b) At the time of the Grant, the Committee will determine, and will include in the Option Agreement or other Plan rules, the Option exercise price and 4 such other conditions and restrictions on the grant or exercise of the Option as the Committee deems appropriate. (c) In addition to any other restrictions contained in the Plan, an Option granted under the Plan may not be exercised more than 10 years after the date it is granted. (d) Payment of the Option price will be made in cash or, if subsequent to an Initial Public Offering, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the Option price, in accordance with the terms of the Plan, the Option Agreement and of any applicable guidelines of the Committee in effect at the time, and subject to increase for any applicable withholding requirements. 6. Limitations and Conditions. (a) The number of Shares available for Grants under the Plan will be 1,000,000, subject to adjustment in accordance with Paragraphs 7 or 8 hereof. If an Option expires, is canceled, forfeited or otherwise terminated without being exercised or settled, the Shares allocable to the unexercised portion of such Option shall remain available for grant under the Plan. (b) No Grants will be made under the Plan more than 10 years after the date the Plan is adopted by the Board or is approved by the shareholders of the Company, whichever is earlier, but the terms of Grants made on or before the expiration of the Plan may extend beyond such expiration. (c) Nothing contained herein will affect the right of the Company to terminate any Participant's employment or services at any time or for any reason. (d) Other than as specifically provided with regard to the death of a Participant or as hereinafter provided, no benefit under the Plan will be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so will be void. No such benefit will, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. At the time a Grant is made or amended or the terms or conditions of a Grant are changed, the Committee may provide for limitations or conditions on such Grant. Notwithstanding the preceding, the Participant may transfer all or part of the Option by gift to either to any member of the Participant's Immediate Family, to a trust or partnership or limited liability company solely for the benefit of the Participant or such Participant's Immediate Family Members, jointly to the Participant and one or more of the foregoing, or to any combination thereof, if applicable law permits and the Option Agreement so provides. "Immediate Family" means the Participant's spouse, children and grandchildren. (e) Participants will not be, and will not have any of the rights or privileges of, equityholders of the Company in respect of any Shares purchasable in connection with any Grant unless and until certificates representing any such 5 Shares have been issued by the Company to such Participants. Prior to an Initial Public Offering, each Participant will be required to enter into the Shareholders' Agreement with the Company, or execute a joinder to the Shareholders' Agreement in a form provided by the Company, upon the exercise of any Option under the Plan. (f) No election as to benefits or exercise of Options, or other rights may be made during a Participant's lifetime by anyone other than the Participant except by a legal representative appointed for or by the Participant, unless such all or a part of such Option has been transferred either to any member of the Participant's Immediate Family, to a trust or partnership or limited liability company solely for the benefit of the Participant or such Participant's Immediate Family members, jointly to the Participant and one or more of the foregoing, or to any combination thereof, in which case it shall only be exercisable by such transferee. (g) Absent express provisions to the contrary, any Grant under the Plan will not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or its Subsidiaries and will not affect any benefits under any other benefit plan of any kind now or subsequently in effect under which the availability or amount of benefits is related to level of compensation. The Plan is not an "employee benefit plan" under Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended. (h) Unless the Committee determines otherwise, no benefit or promise under the Plan will be secured by any specific assets of the Company or any of its Subsidiaries, nor will any assets of the Company or any of its Subsidiaries be designated as attributable or allocated to the satisfaction of the Company's obligations under the Plan. 7. Adjustments. In the event of any change in the outstanding Shares by reason of an acquisition, spin-off or reclassification, recapitalization or merger, combination or exchange of Shares or other corporate exchange, Change of Control or similar event, or as required under any Option Agreement, the Committee may adjust appropriately the number or kind of Shares or securities subject to the Plan and available for or covered by Grants and Option prices related to outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably required. 8. Merger, Consolidation, Exchange, Acquisition, Liquidation or Dissolution. In its absolute discretion, and on such terms and conditions as it deems appropriate, coincident with or after the grant of any Option, the Committee may provide, with respect to the merger or consolidation of the Company into another corporation, the exchange of all or substantially all of the assets of the Company for the securities of 6 another corporation, a Change of Control or the recapitalization, reclassification, liquidation or dissolution of the Company, either (a) that such Option cannot be exercised after such event, in which case the Committee may also provide (but will be under no obligation to provide), either by the terms of such Option or by a resolution adopted prior to the occurrence of such event, that for some period of time prior to such event, such Option will be exercisable as to all Shares subject thereto which are exercisable, or, by virtue of the event, become exercisable, notwithstanding anything to the contrary herein (but subject to the provisions of Paragraph 6(b)) or that the Option will be repurchased by the Company at a specific price and that, upon the occurrence of such event, such Option will terminate and be of no further force or effect, or (b) that even if the Option will remain exercisable after such event, from and after such event, any such Option will be exercisable only for the kind and amount of securities and/or other property, or the cash equivalent thereof, receivable as a result of such event by the holder of a number of Shares for which such Option could have been exercised immediately prior to such event, or that the Option will be repurchased by the Company at a specific price. In addition, in the event of a Change of Control, the Committee may, in its absolute discretion and on such terms and conditions as it deems appropriate, provide, either by the terms of such Option or by a resolution adopted prior to the occurrence of the Change of Control, that such Option will be exercisable as to all or any portion of the Shares subject thereto, notwithstanding anything to the contrary herein (but subject to the provisions of Paragraph 6(b)). 9. Securities Law Requirements. Shares shall not be issued under the Plan unless the issuance and delivery of the Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange or other securities markets on which the Company's securities may then be traded. 10. Amendment and Termination. The Board will have the authority to make such amendments to any terms and conditions applicable to outstanding Grants as are consistent with the Plan provided that, except for adjustments under Paragraph 7 or 8, no such action will modify such Grant in a manner adverse to the Participant without the Participant's consent except as such modification is provided for or contemplated in the terms of the Grant. The Board may amend, suspend or terminate the Plan except that no such action, other than an action under Paragraph 7 or 8, may be taken which would, without 7 shareholder approval (but only if such approval is necessary for exemption under Section 16(b) of the Exchange Act or to meet the applicable requirements of Code Section 422), increase the aggregate number of Shares available for Grants under the Plan, change the eligible class of individuals, decrease the price of outstanding Options, change the requirements relating to the Committee or extend the term of the Plan. 11. Withholding Taxes. The Company will have the right to deduct from any cash payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. The Participant must pay to the Company such amount as may be requested by the Company for the purpose of satisfying any liability for such withholding taxes before the obligation of the Company to deliver certificates for the Shares upon the exercise of an Option arises. Any Option Agreement may provide that the Participant may elect, in accordance with any conditions set forth in such Option Agreement, to pay a portion or all of such withholding taxes in Shares. 12. Governing Law. The Plan will be governed by and construed and enforced in accordance with the laws of the state of New York, without regard to the conflicts of laws principles thereof. 13. Effective Date and Termination Date. The Plan will be effective on July 31, 2002 and will terminate on July 31, 2012, subject to earlier termination pursuant to Paragraph 10. 8 EX-10.35 39 y65450a1exv10w35.txt INDEPENDENT DIRECTOR'S STOCK OPTION PLAN Exhibit 10.35 FORM OF INDEPENDENT DIRECTORS STOCK OPTION AGREEMENT AGREEMENT (this "Agreement") entered into as of the _____ day of ___, ___ by and between WH Holdings (Cayman Islands) Ltd., a Cayman Islands company (the "Company"), and the undersigned independent director (the "Participant") of the Company or its Subsidiaries. WHEREAS, pursuant to the WH Holdings (Cayman Islands) Ltd. Independent Directors Stock Option Plan (the "Plan"), the Committee designated under the Plan desires to grant to the Participant an option to acquire Common Shares, par value $0.001 per share, of the Company; and WHEREAS, the Participant desires to accept such option subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Participant, intending to be legally bound, hereby agree as follows: 1. Grant of Option. On the terms and conditions hereinafter set forth, the Company hereby grants to the Participant an option to purchase all (or any part) of ________ Shares (the "Option"). This Option is granted on _________ (the "Grant Date"). The Option is a Non-Statutory Stock Option. This Option is granted pursuant to the Plan, and is governed by the terms and conditions of the Plan. All defined terms used herein, unless specifically defined in this Agreement, have the meanings assigned to them in the Plan. 2. Exercise Price. The exercise price (the "Exercise Price") for the Shares covered by the Option will be ________ per share. 3. Time of Exercise of Option. (a) The Option will become exercisable in quarterly 5% increments beginning on the last day of the calendar quarter during which the Grant Date occurs and each subsequent last day of each following calendar quarter until the Option becomes fully exercisable on the last day of the calendar quarter immediately preceding the fifth anniversary of the Grant Date. (b) Notwithstanding any provision in this Agreement or the Plan to the contrary, unless otherwise approved by a written resolution of the Committee prior to or contemporaneously with the closing of any such transaction, any portion of the Option (whether vested or unvested and whether or not then exercisable) which has not been exercised prior to or in connection with any merger or consolidation of the Company into another corporation, the exchange of all or substantially all of the assets of the Company for the securities of another corporation, a Change of Control or the recapitalization, reclassification, liquidation or dissolution of the Company of any other fundamental corporate transaction involving the Company or any of its Subsidiaries with the same or a similar purpose or effect (as determined by the Committee in its sole discretion) shall expire and be cancelled and of no further force and effect effective upon the closing of any such transaction. 4. Term of Options and Repurchase Rights. (a) The Option will expire 10 years from the date hereof, but will be subject to earlier termination as provided below. (b) Upon termination: (i) the unexercisable portion of the Option hereby granted will terminate on the date of such termination. (ii) the exercisable portion of the Option hereby granted will be treated as follows: (A) Subject in each case to the repurchase rights described in clause (c) below and the Shareholders' Agreement, if the Participant is terminated for any reason except for Cause, the exercisable portion of the Option hereby granted will be exercisable for thirty days following the termination, unless the Participant terminates employment on account of a disability as defined in Code Section 22(e) or if the Participant dies, in which case, such Participant, or such Participant's personal representative, respectively, may exercise the exercisable portion of the Option hereby granted for 90 days following the termination of employment on account of disability or the Participant's death. (B) If the Participant is terminated for Cause, the exercisable portion of the Option hereby granted will terminate on the date of such termination. (c) The Company has the right to repurchase the Shares acquired upon the exercise of Options for a period of 90 days after the Independent Director ceases to be a director or 90 days after the Shares for which the Option is exercised are acquired, whichever is later. Notwithstanding anything to the contrary in the Shareholders' Agreement, the purchase price per Share payable under Section 6(a) or (b) of the 2 Shareholder's Agreement where such Termination (as defined in the Shareholders' Agreement): (i) was due to resignation or for Cause shall be the amount equal to the lesser of: (A) the Fair Market Value at the time of such termination; or (B) the Exercise Price; (ii) was without Cause or because of death, retirement or disability shall be the amount equal to the greater of: (A) the Fair Market Value at the time of such termination; or (B) the Exercise Price. (d) For purposes of this Agreement, the Company shall have "Cause" to terminate the Independent Director's services as a member of the Board in the event of any of the following acts or circumstances: (i) commission of a felony, a crime of moral turpitude, dishonesty, breach of trust or unethical business conduct, or any crime involving the Company or any of its Subsidiaries; (ii) willful misconduct, willful or gross neglect, fraud, misappropriation or embezzlement; (iii) performance of the Independent Director's duties in a manner that is detrimental to the Company or any of its Subsidiaries, including, but not limited to that which results in, the severe deterioration of the financial performance of the Company or any of its Subsidiaries; (iv) failure to adhere to the directions of the Chief Executive Officer or the Board of Directors, to adhere to the Company's or any of its Subsidiary's, policies or practices as they apply to Independent Directors; (v) breach of any provision of any agreement between the Company or any of its Subsidiaries, on the one hand, and the Independent Director which covers confidentiality or proprietary information, nonsolicitation or non-competition provisions; or (vi) breach in any material respect of agreement between the Company or any of its Subsidiaries, on the other hand, and the Independent Director. 5. Manner of Exercise of Option. The Option may be exercised by delivery, via first class mail, interoffice mail, fax or electronic mail of a Notice of Option Exercise and related forms to the Company stating the number of Shares with respect to which the Option is being exercised and accompanied by payment of the Total Exercise Cost in cash or by check, bank draft or money order payable to the order of the Company or, subsequent to an Initial Public Offering, through the delivery to the Company of an Authorization for Exercise of Options "Cashless" Exercise Form with irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the Total Exercise Cost, subject to such limitations as the Committee may adopt from time to time or by any combination of the above methods of payment. 6. Non-Transferability. 3 (a) The right of the Participant to exercise the Option (as and when exercisable) may not be assigned or transferred by the Participant other than by will or the laws of descent and distribution. The Option may be exercised and the Shares may be purchased during the lifetime of the Participant only by the Participant (or the Participant's legal representative in the event that the Participant's employment is terminated due to "Disability" within the meaning of Code Section 22(e)). Any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the provisions hereof, of any levy or execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option, will in each instance by null and void. 7. Representation Letter and Investment Legend. (a) In the event that for any reason the issuance of the Shares to be issued upon exercise of the exercisable Option will not be effectively registered under the 1933 Act, upon any date on which the Option is exercised, the Participant (or the person exercising the Option pursuant to Paragraph 6) will give a written representation to the Company in the form attached hereto as Exhibit A, and the Company will place the legend described in Exhibit A, upon any certificate for the Shares issued by reason of such exercise. (b) The Company will be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issuance of Shares. 8. Adjustments of Shares and Options. Subject to Paragraph 7 of the Plan, in the event of any change in the outstanding Shares by reason of an acquisition, spin-off or reclassification, recapitalization or merger, combination or exchange of Shares or other corporate exchange, Change of Control or similar event, the Committee may adjust appropriately the number or kind of Shares or securities subject to the Option and exercise prices related thereto and make such other revisions to the Option as it deems are equitably required. 9. No Special Employment Rights. Nothing contained in this Agreement will be construed or deemed by any person under any circumstances to bind the Company or any of its Subsidiaries to continue the services of the Independent Director for the period within which this Option may vest or for any other period. 10. Rights as a Shareholder. The Participant will have no right as a shareholder with respect to any Shares which may be purchased upon the exercise of this Option unless and until a certificate or certificates representing such Shares are duly 4 issued and delivered to the Participant. If at any time during the term of the Option, the Company is advised by its counsel that the Shares are required to be registered under the Securities Act or under applicable state securities laws, or that delivery of the Shares must be accompanied or preceded by a prospectus meeting the requirements of such laws, delivery of Shares by the Company may be deferred until a registration is effective or a prospectus is available or an appropriate exemption from registration is secured. 11. Withholding Taxes. The Participant hereby agrees, as a condition to any exercise of the Option, to provide to the Company an amount sufficient to satisfy its obligation to withhold certain federal, state and local taxes arising by reason of such exercise (the "Withholding Amount"), if any, by (a) authorizing the Company to withhold the Withholding Amount from the Employee's cash compensation, or (b) remitting the Withholding Amount to the Company in cash; provided that, to the extent that the Withholding Amount is not provided by one or a combination of such methods, the Company may at its election withhold from the Shares delivered upon exercise of the Option that number of Shares having a Fair Market Value as of the date immediately prior to the issuance of such Shares equal to the Withholding Amount. 12. Execution of Shareholders' Agreement and of Release and Waiver of Rights. The Participant acknowledges that, in connection with his or her prior or future purchase of Shares of the Company, he or she will execute and deliver the Shareholders' Agreement or a joinder or counterpart signature page thereto. The Participant further agrees that all Shares acquired by such Participant upon exercise of the Option will be subject to the terms and conditions of the Shareholders' Agreement as modified hereby. Prior to participation in the Plan, if the Committee requires, the Participant will execute a Release and Waiver to Rights to payments and benefits under certain plans of Herbalife International, Inc. 13. Lock-Up Agreements. The Participant agrees that notwithstanding anything to the contrary contained in this Agreement, in the event of an Initial Public Offering or any other offering of securities of the Company, except to the extent that: (a) the Participant sells his or her Shares obtained upon the exercise of the Option to the underwriters of the Company's securities in connection with such offering or (b) the underwriters do not request the following restrictions, such Participant shall not (i) offer, hedge, pledge, sell or contract to sell any such Shares, (ii) sell any option or contract to purchase any Shares, (iii) purchase any option or contract to sell any Shares; (iv) grant any option, right or warrant for the sale of any Shares, or (v) lend or otherwise dispose of or transfer any Shares during the longer of (A) any black-out period requested by the underwriters conducting any such offering of securities on behalf of the Company and (B) during the seven days prior to and during the 180 day period beginning on the effective date of such initial public offering or other offering of securities; provided, however, that such Employee shall, in any event, be entitled to sell his or her Shares 5 commencing on the expiration of the black-out period described in the aforementioned clause (A) of (B). 14. Delivery of Certificates. The Participant will have no interest in the Shares unless and until certificates for the Shares are issued following exercise of the Option. ********* [Signatures on Following Page] 6 OPTION AGREEMENT Counterpart Signature Page -------------------------- IN WITNESS WHEREOF, the Company has caused this Agreement to be executed, but its officer thereunto duly authorized, and the Participant has executed this Agreement, all as of the day and year first above written. WH HOLDINGS PARTICIPANT (CAYMAN ISLANDS) LTD. By: ______________________ _____________________ Title: __________________________ Address: (print name) Facsimile Number: ______________________ Social Security Number Email Address: 7 EXHIBIT A TO: WH HOLDINGS (CAYMAN ISLANDS) LTD. The undersigned hereby irrevocably exercises the right to purchase ____________ of the shares of Common Shares, par value $0.001 per share ("Common Shares") of WH Holdings (Cayman Islands) Ltd., a Cayman Islands company (the "Company"), evidenced by the attached Option, and herewith makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of said Option. 1. The undersigned hereby represents and warrants to and agrees with the Company as follows: (a) The undersigned understands and acknowledges that an investment in the Common Shares issuable upon exercise of this Option involves a high degree of risk and that there are limitations on the liquidity of the Common Shares issuable upon exercise of this Option. The undersigned is able to bear the economic risk of an investment in the Common Shares issuable upon exercise of this Option. The undersigned has adequate means of providing for the undersigned's current needs and contingencies; is able to afford to hold the Common Shares issuable upon exercise of this Option for an indefinite period; and has such knowledge and experience in financial and business matters such that the undersigned is capable of evaluating the merits and risks of the investment in the Common Shares issuable upon exercise of this Option; (b) The undersigned is acquiring the Common Shares issuable upon exercise of this Option for its own account for investment and not as a nominee and not with a present view to the distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"). The undersigned understands that the undersigned must bear the economic risk of this investment indefinitely unless such shares are registered pursuant to the 1933 Act and any applicable state securities laws, or an exemption from such registration is available. The undersigned has no plan or intention to sell the Common Shares issuable upon exercise of this Option at any predetermined time, and has made no predetermined arrangements to sell such shares; (c) The undersigned will not make any sale, transfer or other disposition of the shares of Common Shares issuable upon exercise of this Option in violation of (1) the 1933 Act, the Securities Exchange Act of 1934, as amended, any other applicable Federal or state securities laws or the rules and regulations of the Securities and Exchange Commission or of any state securities commissions or similar state authorities promulgated under any of the foregoing, or (2) any applicable securities laws of jurisdictions outside the United States and the rules and regulations thereunder. 2. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any of the Common Shares obtained on exercise of the Option, except in accordance with the provisions of the Option, and consents that the following legend may be affixed to the stock certificates for the Common Shares hereby subscribed for, if such legend is applicable: "THE SALE, TRANSFER OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDERS' AGREEMENT, DATED AS OF JULY 31, 2002 AMONG WH HOLDINGS (CAYMAN ISLANDS) LTD. AND CERTAIN HOLDERS OF ITS OUTSTANDING SHARE CAPITAL, AS SUCH AGREEMENT MAY BE AMENDED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF WH HOLDINGS (CAYMAN ISLANDS) LTD. IN ADDITION, THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY PROVINCIAL OR STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE PROVINCIAL OR STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT OR APPLICABLE PROVINCIAL OR STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER." 3. The undersigned requests that stock certificates for such shares be issued, and a new option agreement representing any unexercised portion hereof be issued in the name of the registered holder and delivered to the undersigned at the address set forth below: [Signature on the Following Page] 2 Dated: _________________________________ Signature of Registered Holder _________________________________ Name of Registered Holder (Print) 3 EX-10.36 40 y65450a1exv10w36.txt EMPLOYEE STOCK OPTION PLAN OF WH HOLDINGS EXHIBIT 10.36 WH HOLDINGS (CAYMAN ISLANDS) LTD. EXECUTIVE OFFICER STOCK OPTION PLAN 1. Purpose of Plan. The WH Holdings (Cayman Islands) Ltd. Stock Option Plan (the "Plan") is designed: (a) to promote the long term financial interests and growth of WH Holdings (Cayman Islands) Ltd. (the "Company") and its affiliates by attracting and retaining Senior Employees with the training, experience and ability to enable them to make a substantial contribution to the success of the business of the Company and its affiliates; (b) to motivate Senior Employees by means of growth-related incentives to achieve long range goals; and (c) to further the alignment of interests of participants with those of the equityholders of the Company through opportunities for increased ownership in the Company. 2. Definitions. As used in the Plan, the following words will have the following meanings: (a) "Affiliate" means, with respect to the Company, any corporation directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Committee in which the Company or an Affiliate has an interest. (b) "Board" means the Board of Directors of the Company. (c) "Change of Control" means an Organic Transaction as defined in the Amended and Restated Memorandum and Articles of Association of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means one or more committees each comprised of not less than three members of the Board appointed by the Board to administer the Plan or a specified portion thereof; provided, however, that if, at any time, there will be only one director serving on the Board, the Committee may be composed of the sole director. Unless otherwise determined by the Board, if the Common Shares become registered under Section 12 of the Exchange Act and if the Committee is authorized to grant Options subject to Section 16 of the Exchange Act, each member of the Committee will be a "non-employee director" within the meaning of applicable Rule 16b-3 under the Exchange Act. (f) "Common Shares" means the common shares, par value $0.001 per share, of the Company. (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (h) "Exercise Price" means the price at which a Participant may purchase a Common Share, as provided in the Option Agreement. (i) "Fair Market Value" means the fair market value of a Share as of a particular date. If at any such time such Shares are not listed or admitted for trading on any national securities exchange or quoted on NASDAQ or a similar service, the Fair Market Value for such Shares means the fair market value of such Shares at such time as determined in good faith by the Committee. However, subsequent to an Initial Public Offering, the Fair Market Value of a Common Share will be the average of high bid and low asked prices of Common Shares as reported on the exchange on which it is listed as of such date, or if no such quotation is made on such date, the immediately preceding day on which there were quotations as reported in THE WALL STREET JOURNAL. (j) "Grant" means an award made to a Participant pursuant to the Plan and described in Paragraph 5. (k) "Incentive Stock Option" means an Option which satisfies all of the applicable requirements of Code Section 422. (l) "Initial Public Offering" means the underwritten public offering by the Company of its Common Shares pursuant to a registration statement (other than a registration statement relating solely to an employee benefit plan or 2 transaction covered by Rule 145 of the Securities Act) that has been filed under the Securities Act and declared effective by the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act. (m) "Non-Statutory Stock Option" means an Option which does not satisfy all of the applicable requirements of Code Section 422 or which by its terms is not intended to be treated as an Incentive Stock Option. (n) "Option" means an option to purchase Common Shares. (o) "Option Agreement" means an agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to a Grant. (p) "Participant" means a Senior Employee of the Company or one of its Affiliates, to whom one or more Grants have been made and such Grants have not all been forfeited or terminated under the Plan. (q) "Preferred Shares" means Preferred Shares as defined in the Amended and Restated Memorandum and Articles of Association of WH Holdings (Cayman Islands) Ltd. and known as the "12% Series A Cumulative Convertible Preferred Shares". (r) "Securities Act" means the Securities Act of 1933, as amended. (s) "Senior Employee" means any executive officer, in the regular full-time employment of the Company or one of its Affiliates who, in the opinion of the Committee, is, or is expected to be, primarily responsible for the management, growth or protection of some part or all of the business of the Company. (t) "Share" means a share of Common Shares. (u) "Shareholders' Agreement" means the shareholders' agreement, dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney V, L.P., Whitney Strategic Partners V, L.P., and WH Investments Ltd., and CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG GP Fund LLC, CCG Investment Fund-AI, LP, and CCG AV, LLC, and certain other persons who may, from time to time, become party to the agreement. (v) "Subsidiary" means any entity in an unbroken chain of entities beginning with the Company if each of the entities, or group of commonly controlled entities, other than the last entity in the unbroken chain then owns 50% or more of the total combined voting power of the other entities in such chain. (w) "Total Exercise Cost" means an amount equal to the Exercise Price multiplied by the number of Shares being purchased pursuant to the Option. 3 3. Administration of Plan. (a) The Plan will be administered by the Committee (in the absence of a Committee, the Board shall administer the Plan). The Committee may adopt its own rules of procedure. Action of a majority of the members of the Committee taken at a meeting, or action taken without a meeting by unanimous written consent, will constitute action by the Committee. The Committee will have the power and authority to administer, construe and interpret the Plan, to make rules for carrying it out and to make changes to such rules. (b) The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company, and the officers of the Company will be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon all Participants, the Company and all other interested persons. No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Grants, and all members of the Committee will be fully protected by the Company with respect to any such action, determination or interpretation. 4. Eligibility. Subject to Paragraph 5(a), the Committee may from time to time make Grants under the Plan to such Senior Employees of the Company or any of its Affiliates, and in such form and having such terms, conditions and limitations as the Committee may determine in its sole discretion. Prior to participation in the Plan, the Committee may require any Participant to execute a Release and Waiver to Rights to payments and benefits under certain plans of Herbalife International, Inc. Grants may be made singly, in combination or in tandem. The terms, conditions and limitations of each Grant under the Plan will be set forth in an Option Agreement, in a form or forms approved by the Committee; provided, however, that such Option Agreement will contain provisions dealing with the treatment of Grants in the event of the termination, death or disability of a Participant, and may also include provisions concerning the treatment of Grants in the event of a Change of Control of the Company. Notwithstanding the foregoing, Incentive Stock Options may only be granted to Senior Employees. 5. Grants. (a) The Committee may grant Incentive Stock Options only to Senior Employees of the Company or any "subsidiary corporation" within the meaning 4 of Code Section 424(f). The Plan provides for grants only to Senior Employees for both Incentive Stock Options and Non-Statutory Stock Options. (b) At the time of the Grant, the Committee will determine, and will include in the Option Agreement or other Plan rules, the Option exercise price and such other conditions and restrictions on the grant or exercise of the Option as the Committee deems appropriate. (c) In addition to any other restrictions contained in the Plan, an Option granted under the Plan may not be exercised more than 10 years after the date it is granted. An Incentive Stock Option may not have an exercise price of less than 100% of the Fair Market Value of a Share on the date the Option is granted. (d) If the aggregate Fair Market Value (determined on the date the Option is granted) of a Share subject to an Incentive Stock Option which is exercisable for the first time during any calendar year exceeds $100,000, then the portion of the Incentive Stock Option in excess of the $100,000 limitation will be treated as a Non-Statutory Stock Option. If an Incentive Stock Option is granted to a Participant who, at the time the Option is granted, is deemed to own more than 10% of the total combined voting power of all classes of shares of the Company or any "subsidiary corporation" of the Company (as more fully described in Code Section 422(b)(6)), then (i) the exercise price of the Option may not be less than 110% of the Fair Market Value of the Common Shares on the date the Option is granted, and (ii) such Option may not be exercisable after the expiration of five years from the date the Option is granted. (e) Payment of the Option price will be made in cash or, if subsequent to an Initial Public Offering, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the Option price, in accordance with the terms of the Plan, the Option Agreement and of any applicable guidelines of the Committee in effect at the time, and subject to increase for any applicable withholding requirements. 6. Limitations and Conditions. (a) The total number of Shares available for Grants under the Plan will be 18,717,546 reduced by any Shares granted under any future option plan adopted by the Company (excluding the WH Holdings (Cayman Islands) Ltd. Independent Directors Stock Option Plan), subject to adjustment in accordance with Paragraphs 7 or 8 hereof. If an Option expires, is canceled, forfeited or otherwise terminated without being exercised or settled, the Shares allocable to the unexercised portion of such Option shall remain available for grant under this Plan. 5 (b) No Grants will be made under the Plan more than 10 years after the date the Plan is adopted by the Board or is approved by the shareholders of the Company, whichever is earlier, but the terms of Grants made on or before the expiration of the Plan may extend beyond such expiration. At the time a Grant is made or amended or the terms or conditions of a Grant are changed, the Committee may provide for limitations or conditions on such Grant. (c) Nothing contained herein will affect the right of the Company to terminate any Participant's employment or services at any time or for any reason. (d) Other than as specifically provided with regard to the death of a Participant or as hereinafter provided, no benefit under the Plan will be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so will be void. No such benefit will, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. (e) Participants will not be, and will not have any of the rights or privileges of, equityholders of the Company in respect of any Shares purchasable in connection with any Grant unless and until certificates representing any such Shares have been issued by the Company to such Participants. Prior to an Initial Public Offering, each Participant will be required to enter into the Shareholders' Agreement with the Company, or execute a joinder to the Shareholders' Agreement in a form provided by the Company, upon the exercise of any Option under the Plan. (f) No election as to benefits or exercise of Options, or other rights may be made during a Participant's lifetime by anyone other than the Participant except by a legal representative appointed for or by the Participant. (g) Absent express provisions to the contrary, any Grant under the Plan will not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or its Subsidiaries and will not affect any benefits under any other benefit plan of any kind now or subsequently in effect under which the availability or amount of benefits is related to level of compensation. The Plan is not an "employee benefit plan" under Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended. (h) Unless the Committee determines otherwise, no benefit or promise under the Plan will be secured by any specific assets of the Company or any of its Subsidiaries, nor will any assets of the Company or any of its Subsidiaries be 6 designated as attributable or allocated to the satisfaction of the Company's obligations under the Plan. 7. Adjustments. In the event of any change in the outstanding Shares by reason of an acquisition, spin-off or reclassification, recapitalization or merger, combination or exchange of Shares or other corporate exchange, Change of Control or similar event, or as required under any Option Agreement, the Committee may adjust appropriately the number or kind of Shares or securities subject to the Plan and available for or covered by Grants and Option prices related to outstanding Grants and make such other revisions to outstanding Grants as it deems are equitably required. Any such adjustments for Incentive Stock Options must meet the requirements of Code Section 424(a). 8. Merger, Consolidation, Exchange, Acquisition, Liquidation or Dissolution. In its absolute discretion, and on such terms and conditions as it deems appropriate, coincident with or after the grant of any Option, the Committee may provide, with respect to the merger or consolidation of the Company into another corporation, the exchange of all or substantially all of the assets of the Company for the securities of another corporation, a Change of Control or the recapitalization, reclassification, liquidation or dissolution of the Company, either (a) that such Option cannot be exercised after such event, in which case the Committee may also provide (but will be under no obligation to provide), either by the terms of such Option or by a resolution adopted prior to the occurrence of such event, that for some period of time prior to such event, such Option will be exercisable as to all Shares subject thereto which are exercisable, or, by virtue of the event, become exercisable, notwithstanding anything to the contrary herein (but subject to the provisions of Paragraph 6(b)) or that the Option will be repurchased by the Company at a specific price and that, upon the occurrence of such event, such Option will terminate and be of no further force or effect, or (b) that even if the Option will remain exercisable after such event, from and after such event, any such Option will be exercisable only for the kind and amount of securities and/or other property, or the cash equivalent thereof, receivable as a result of such event by the holder of a number of Shares for which such Option could have been exercised immediately prior to such event, or that the Option will be repurchased by the Company at a specific price. In addition, in the event of a Change of Control, the Committee may, in its absolute discretion and on such terms and conditions as it deems appropriate, provide, either by the terms of such Option or by a resolution adopted prior to the occurrence of the Change of Control, that such Option will be exercisable as to all or any portion of the 7 Shares subject thereto, notwithstanding anything to the contrary herein (but subject to the provisions of Paragraph 6(b)). 9. Securities Law Requirements. Shares shall not be issued under the Plan unless the issuance and delivery of the Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange or other securities markets on which the Company's securities may then be traded. 10. Amendment and Termination. The Board will have the authority to make such amendments to any terms and conditions applicable to outstanding Grants as are consistent with the Plan provided that, except for adjustments under Paragraph 7 or 8, no such action will modify such Grant in a manner adverse to the Participant without the Participant's consent except as such modification is provided for or contemplated in the terms of the Grant. The Board may amend, suspend or terminate the Plan except that no such action, other than an action under Paragraph 7 or 8, may be taken which would, without shareholder approval (but only if such approval is necessary for exemption under Section 16(b) of the Exchange Act or to meet the applicable requirements of Code Section 422), increase the aggregate number of Shares available for Grants under the Plan, change the eligible class of individuals, decrease the price of outstanding Options, change the requirements relating to the Committee or extend the term of the Plan. 11. Withholding Taxes. The Company will have the right to deduct from any cash payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. The Participant must pay to the Company such amount as may be requested by the Company for the purpose of satisfying any liability for such withholding taxes before the obligation of the Company to deliver certificates for the Shares upon the exercise of an Option arises. Any Option Agreement may provide that the Participant may elect, in accordance with any conditions set forth in such Option Agreement, to pay a portion or all of such withholding taxes in Shares. 8 12. Governing Law. The Plan will be governed by and construed and enforced in accordance with the laws of the state of New York, without regard to the conflicts of laws principles thereof. 13. Effective Date and Termination Date. The Plan will be effective on July 31, 2002 and will terminate on July 31, 2012, subject to earlier termination pursuant to Paragraph 10. 9 EX-10.37 41 y65450a1exv10w37.txt FORM OF NON-STATUTORY STOCK OPTION AGREEMENT EXHIBIT 10.37 FORM OF NON-STATUTORY STOCK OPTION AGREEMENT AGREEMENT (this "Agreement") entered into as of the ____ day of _________ , ____ by and between WH Holdings (Cayman Islands) Ltd., a Cayman Islands company (the "Company"), and the undersigned employee (the "Employee") of the Company or its Subsidiaries. WHEREAS, pursuant to the WH Holdings (Cayman Islands) Ltd. Executive Officer Stock Option Plan (the "Plan"), the Committee designated under the Plan desires to grant to the Employee an option to acquire Common Shares, par value $0.001 per share, of the Company; and WHEREAS, the Employee desires to accept such option subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Employee, intending to be legally bound, hereby agree as follows: 1. Grant of Option. On the terms and conditions hereinafter set forth, the Company hereby grants to the Employee an option to purchase all (or any part) of ______ Shares (the "Option"). This Option is granted on ____________ , ____ (the "Grant Date"). The Option is a Non-Statutory Stock Option. This Option is granted pursuant to the Plan, and is governed by the terms and conditions of the Plan. All defined terms used herein, unless specifically defined in this Agreement, have the meanings assigned to them in the Plan. 2. Exercise Price. The exercise price (the "Exercise Price") for the Shares covered by the Option will be ______ per share. 3. Time of Exercise of Option. (a) The Option will become exercisable in quarterly 5% increments beginning on the last day of the calendar quarter during which the Grant Date occurs and each subsequent last day of each following calendar quarter until the Option becomes fully exercisable on the last day of the calendar quarter immediately preceding the fifth anniversary of the Grant Date. (b) Notwithstanding any provision in this Agreement or the Plan to the contrary, unless otherwise approved by a written resolution of the Committee prior to or contemporaneously with the closing of any such transaction, any portion of the Option (whether vested or unvested and whether or not then exercisable) which has not been exercised prior to or in connection with any merger or consolidation of the Company into another corporation, the exchange of all or substantially all of the assets of the Company for the securities of another corporation, a Change of Control or the recapitalization, reclassification, liquidation or dissolution of the Company or any other fundamental corporate transaction involving the Company or any of its Subsidiaries with the same or a similar purpose or effect (as determined by the Committee in its sole discretion) shall expire and be cancelled and of no further force and effect effective upon the closing of any such transaction. 4. Term of Options and Repurchase Rights. (a) The Option will expire 10 years from the date hereof, but will be subject to earlier termination as provided below. (b) Upon termination: (i) the unexercisable portion of the Option hereby granted will terminate on the date of such termination. (ii) the exercisable portion of the Option hereby granted will be treated as follows: (A) Subject in each case to the repurchase rights described in clause (c) below and the Shareholders' Agreement, if the Employee is terminated for any reason except for Cause, the exercisable portion of the Option hereby granted will be exercisable for thirty days following the termination, unless the Employee terminates employment on account of a disability as defined in Code Section 22(e) or if the Employee dies, in which case, such Employee, or such Employee's personal representative, respectively, may exercise the exercisable portion of the Option hereby granted for 90 days following the termination of employment on account of disability or the Employee's death. (B) If the Employee is terminated for Cause, the exercisable portion of the Option hereby granted will terminate on the date of such termination. (c) The Company has the right to repurchase the Shares acquired upon the exercise of Options for a period of 90 days after the Employee terminates employment or 90 days after the Shares for which the Option is exercised are acquired, whichever is later. Notwithstanding anything to the contrary in the Shareholders' Agreement, the purchase price per Share payable under Section 6(a) or (b) of the 2 Shareholder's Agreement where such Termination (as defined in the Shareholders' Agreement): (i) was due to resignation or for Cause shall be the amount equal to the lesser of: (A) the Fair Market Value at the time of such termination; or (B) the Exercise Price; (ii) was without Cause or because of death, retirement or disability shall be the amount equal to the greater of: (A) the Fair Market Value at the time of such termination; or (B) the Exercise Price. (d) For purposes of this Agreement, "Cause" shall have the meaning ascribed to such term in any written employment agreement between Employee and the Company or one or more of its Subsidiaries, as the same may be amended or modified from time to time, or if Employee and the Company or one or more of its Subsidiaries are not party to any such written employment agreement, then the Company and its Subsidiaries shall have "Cause" to terminate the Employee's services in the event of any of the following acts or circumstances: (i) commission of a felony, a crime of moral turpitude, dishonesty, breach of trust or unethical business conduct, or any crime involving the Company or any of its Subsidiaries; (ii) willful misconduct, willful or gross neglect, fraud, misappropriation or embezzlement; (iii) performance of the Employee's duties in a manner that is detrimental to the Company or any of its Subsidiaries, including, but not limited to that which results in, the severe deterioration of the financial performance of the Company or any of its Subsidiaries; (iv) failure to adhere to the directions of the Chief Executive Officer or the Board of Directors, to adhere to the Company's or any of its Subsidiary's policies or practices or to devote substantially all of the Employee's business time and efforts to the business of the Company and its Subsidiaries; (v) breach of any provision of any agreement, including an employment agreement, between the Company or any of its Subsidiaries, on the one hand, and the Employee which covers confidentiality or proprietary information, nonsolicitation or non-competition provisions; or (vi) breach in any material respect of the terms and provisions of the Employee's employment agreement, if any, or any agreement between the Company or any of its Subsidiaries, on the other hand, and the Employee. 5. Manner of Exercise of Option. The Option may be exercised by delivery, via first class mail, interoffice mail, fax or electronic mail of a Notice of Option Exercise and related forms to the Company stating the number of Shares with respect to which the Option is being exercised and accompanied by payment of the Total Exercise Cost in cash or by check, bank draft or money order payable to the order of the Company or, subsequent to an Initial Public Offering, through the delivery to the Company of an Authorization for Exercise of Options "Cashless" Exercise Form with irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the Total 3 Exercise Cost, subject to such limitations as the Committee may adopt from time to time or by any combination of the above methods of payment. 6. Non-Transferability. The right of the Employee to exercise the Option (as and when exercisable) may not be assigned or transferred by the Employee other than by will or the laws of descent and distribution. The Option may be exercised and the Shares may be purchased during the lifetime of the Employee only by the Employee (or the Employee's legal representative in the event that the Employee's employment is terminated due to "Disability" within the meaning of Code Section 22(e)). Any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the provisions hereof, or any levy of execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option, will in each instance be null and void. 7. Representation Letter and Investment Legend. (a) In the event that for any reason the issuance of the Shares to be issued upon exercise of an exercisable Option will not be effectively registered under the 1933 Act, upon any date on which the Option is exercised, the Employee (or the person exercising the Option pursuant to Paragraph 6) will give a written representation to the Company in the form attached hereto as Exhibit A, and the Company will place the legend described in Exhibit A, upon any certificate for the Shares issued by reason of such exercise. (b) The Company will be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issuance of Shares. 8. Adjustments of Shares and Options. Subject to Paragraph 7 of the Plan, in the event of any change in the outstanding Shares by reason of an acquisition, spin-off or reclassification, recapitalization or merger, combination or exchange of Shares or other corporate exchange, Change of Control or similar event, the Committee may adjust appropriately the number or kind of Shares or securities subject to the Option and exercise prices related thereto and make such other revisions to the Option as it deems are equitably required. 9. No Special Employment Rights. Nothing contained in this Agreement will be construed or deemed by any person under any circumstances to bind the Company or any of its Subsidiaries to continue the employment of the Employee for the period within which this Option may vest or for any other period. 4 10. Rights as a Shareholder. The Employee will have no rights as a shareholder with respect to any Shares which may be purchased upon the exercise of this Option unless and until a certificate or certificates representing such Shares are duly issued and delivered to the Employee. If at any time during the term of the Option, the Company is advised by its counsel that the Shares are required to be registered under the Securities Act or under applicable state securities laws, or that delivery of the Shares must be accompanied or preceded by a prospectus meeting the requirements of such laws, delivery of Shares by the Company may be deferred until a registration is effective or a prospectus is available or an appropriate exemption from registration is secured. 11. Withholding Taxes. The Employee hereby agrees, as a condition to any exercise of the Option, to provide to the Company an amount sufficient to satisfy its obligation to withhold certain federal, state and local taxes arising by reason of such exercise (the "Withholding Amount"), if any, by (a) authorizing the Company to withhold the Withholding Amount from the Employee's cash compensation, or (b) remitting the Withholding Amount to the Company in cash; provided that, to the extent that the Withholding Amount is not provided by one or a combination of such methods, the Company may at its election withhold from the Shares delivered upon exercise of the Option that number of Shares having a Fair Market Value as of the date immediately prior to the issuance of such Shares equal to the Withholding Amount. 12. Execution of Shareholders' Agreement and of Release and Waiver of Rights. The Employee acknowledges that, in connection with his or her prior or future purchase of Shares of the Company, he or she will execute and deliver the Shareholders' Agreement or a joinder or counterpart signature page thereto. The Employee further agrees that all Shares acquired by such Employee upon exercise of the Option will be subject to the terms and conditions of the Shareholders' Agreement as modified hereby. Prior to participation in the Plan, if the Committee requires, the Employee will execute a Release and Waiver to Rights to payments and benefits under certain plans of Herbalife International, Inc. 13. Lock-Up Agreements. The Employee agrees that notwithstanding anything to the contrary contained in this Agreement, in the event of an Initial Public Offering or any other offering of securities of the Company, except to the extent that: (a) the Employee sells his or her Shares obtained upon the exercise of the Option to the underwriters of the Company's securities in connection with such offering or (b) the underwriters do not request the following restrictions, such Employee shall not (i) offer, hedge, pledge, sell or contract to sell any such Shares, (ii) sell any option or contract to purchase any Shares, (iii) purchase any option or contract to sell any Shares, (iv) grant any option, right or warrant for the sale of any Shares, or (v) lend or otherwise dispose of or transfer any Shares during the longer of (A) any black-out period requested by the underwriters conducting any such offering of securities on behalf of the Company and 5 (B)during the seven days prior to and during the 180 day period beginning on the effective date of such initial public offering or other offering of securities; provided, however, that such Employee shall, in any event, be entitled to sell his or her Shares commencing on the expiration of the black-out period described in the aforementioned clause (A) or (B). 14. Delivery of Certificates. The Employee will have no interest in the Shares unless and until certificates for the Shares are issued following exercise of the Option. ********* [Signatures on Following Page] 6 OPTION AGREEMENT Counterpart Signature Page -------------------------- IN WITNESS WHEREOF, the Company has caused this Agreement to be executed, by its officer thereunto duly authorized, and the Employee has executed this Agreement, all as of the day and year first above written. WH HOLDINGS EMPLOYEE (CAYMAN ISLANDS) LTD. By: --------------------------- --------------------------------- Title: Address: - ------------------------------ (print name) Facsimile Number: --------------------------------- Social Security Number Email Address: 7 EXHIBIT A TO: WH HOLDINGS (CAYMAN ISLANDS) LTD. The undersigned hereby irrevocably exercises the right to purchase ______________ of the shares of Common Shares, par value $0.001 per share ("Common Shares") of WH Holdings (Cayman Islands) Ltd., a Cayman Islands company (the "Company"), evidenced by the attached Option, and herewith makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of said Option. 1. The undersigned hereby represents and warrants to and agrees with the Company as follows: (a) The undersigned understands and acknowledges that an investment in the Common Shares issuable upon exercise of this Option involves a high degree of risk and that there are limitations on the liquidity of the Common Shares issuable upon exercise of this Option. The undersigned is able to bear the economic risk of an investment in the Common Shares issuable upon exercise of this Option. The undersigned has adequate means of providing for the undersigned's current needs and contingencies; is able to afford to hold the Common Shares issuable upon exercise of this Option for an indefinite period; and has such knowledge and experience in financial and business matters such that the undersigned is capable of evaluating the merits and risks of the investment in the Common Shares issuable upon exercise of this Option; (b) The undersigned is acquiring the Common Shares issuable upon exercise of this Option for its own account for investment and not as a nominee and not with a present view to the distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"). The undersigned understands that the undersigned must bear the economic risk of this investment indefinitely unless such shares are registered pursuant to the 1933 Act and any applicable state securities laws, or an exemption from such registration is available. The undersigned has no plan or intention to sell the Common Shares issuable upon exercise of this Option at any predetermined time, and has made no predetermined arrangements to sell such shares; (c) The undersigned will not make any sale, transfer or other disposition of the shares of Common Shares issuable upon exercise of this Option in violation of (1) the 1933 Act, the Securities Exchange Act of 1934, as amended, any other applicable Federal or state securities laws or the rules and regulations of the Securities and Exchange Commission or of any state securities commissions or similar state authorities promulgated under any of the foregoing, or (2) any applicable securities laws of jurisdictions outside the United States and the rules and regulations thereunder. 2. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any of the Common Shares obtained on exercise of the Option, except in accordance with the provisions of the Option, and consents that the following legend may be affixed to the stock certificates for the Common Shares hereby subscribed for, if such legend is applicable: "THE SALE, TRANSFER OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDERS' AGREEMENT, DATED AS OF JULY 31, 2002 AMONG WH HOLDINGS (CAYMAN ISLANDS) LTD. AND CERTAIN HOLDERS OF ITS OUTSTANDING SHARE CAPITAL, AS SUCH AGREEMENT MAY BE AMENDED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF WH HOLDINGS (CAYMAN ISLANDS) LTD. IN ADDITION, THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY PROVINCIAL OR STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE PROVINCIAL OR STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT OR APPLICABLE PROVINCIAL OR STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER." 3. The undersigned requests that stock certificates for such shares be issued, and a new option agreement representing any unexercised portion hereof be issued in the name of the registered holder and delivered to the undersigned at the address set forth below: [Signature on the Following Page] 2 Dated: - ------------------------------ Signature of Registered Holder - ------------------------------ Name of Registered Holder (Print) 3 EX-10.38 42 y65450a1exv10w38.txt FORM OF INCENTIVE STOCK OPTION AGREEMENT Exhibit 10.38 FORM OF INCENTIVE STOCK OPTION AGREEMENT AGREEMENT (this "Agreement") entered into as of the ____ day of __________, ____ by and between WH Holdings (Cayman Islands) Ltd., a Cayman Islands company (the "Company"), and the undersigned employee (the "Employee") of the Company or its Subsidiaries. WHEREAS, pursuant to the WH Holdings (Cayman Islands) Ltd. Executive Officer Stock Option Plan (the "Plan"), the Committee designated under the Plan desires to grant to the Employee an option to acquire Common Shares, par value $0.001 per share, of the Company; and WHEREAS, the Employee desires to accept such option subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Company and the Employee, intending to be legally bound, hereby agree as follows: 1. Grant of Option. On the terms and conditions hereinafter set forth, the Company hereby grants to the Employee an option to purchase all (or any part) of ______ Shares (the "Option"). This Option is granted on ____________ , ____ (the "Grant Date"). The Option is intended to be an Incentive Stock Option; provided that in the event all or any portion of the Option fails to comply as an Incentive Stock Option, such portion shall be deemed to be a Non-Statutory Stock Option. This Option is granted pursuant to the Plan, and is governed by the terms and conditions of the Plan. All defined terms used herein, unless specifically defined in this Agreement, have the meanings assigned to them in the Plan. 2. Exercise Price. The exercise price (the "Exercise Price") for the Shares covered by the Option will be $ _____ per share (such price to be not less than the Fair Market Value of a Share of the Grant Date). 3. Time of Exercise of Option. (a) The Option will become exercisable in quarterly 5% increments beginning on the last day of the calendar quarter during which the Grant Date occurs and each subsequent last day of each following calendar quarter until the Option becomes fully exercisable on the last day of the calendar quarter immediately preceding the fifth anniversary of the Grant Date. (b) Notwithstanding any provision in this Agreement or the Plan to the contrary, unless otherwise approved by a written resolution of the Committee prior to or contemporaneously with the closing of any such transaction, any portion of the Option (whether vested or unvested and whether or not then exercisable) which has not been exercised prior to or in connection with any merger or consolidation of the Company into another corporation, the exchange of all or substantially all of the assets of the Company for the securities of another corporation, a Change of Control or the recapitalization, reclassification, liquidation or dissolution of the Company or any other fundamental corporate transaction involving the Company or any of its Subsidiaries with the same or a similar purpose or effect (as determined by the Committee in its sole discretion) shall expire and be cancelled and of no further force and effect effective upon the closing of any such transaction. 4. Term of Options and Repurchase Rights. (a) The Option will expire 10 years from the date hereof, but will be subject to earlier termination as provided below. (b) Upon termination: (i) the unexercisable portion of the Option hereby granted will terminate on the date of such termination. (ii) the exercisable portion of the Option hereby granted will be treated as follows: (A) Subject in each case to the repurchase rights described in clause (c) below and the Shareholders' Agreement, if the Employee is terminated for any reason except for Cause, the exercisable portion of the Option hereby granted will be exercisable for thirty days following the termination, unless the Employee terminates employment on account of a disability as defined in Code Section 22(e) or if the Employee dies, in which case, such Employee, or such Employee's personal representative, respectively, may exercise the exercisable portion of the Option hereby granted for 90 days following the termination of employment on account of disability or the Employee's death. (B) If the Employee is terminated for Cause, the exercisable portion of the Option hereby granted will terminate on the date of such termination. (c) The Company has the right to repurchase the Shares acquired upon the exercise of Options for a period of 90 days after the Employee terminates 2 employment or 90 days after the Shares for which the Option is exercised are acquired, whichever is later. Notwithstanding anything to the contrary in the Shareholders' Agreement, the purchase price per Share payable under Section 6(a) or (b) of the Shareholder's Agreement where such Termination (as defined in the Shareholders' Agreement): (i) was due to resignation or for Cause shall be the amount equal to the lesser of: (A) the Fair Market Value at the time of such termination; or (B) the Exercise Price; (ii) was without Cause or because of death, retirement or disability shall be the amount equal to the greater of: (A) the Fair Market Value at the time of such termination; or (B) the Exercise Price. (d) For purposes of this Agreement, "Cause" shall have the meaning ascribed to such term in any written employment agreement between Employee and the Company or one or more of its Subsidiaries, as the same may be amended or modified from time to time, or if Employee and the Company or one or more of its Subsidiaries are not party to any such written employment agreement, then the Company and its Subsidiaries shall have "Cause" to terminate the Employee's services in the event of any of the following acts or circumstances: (i) commission of a felony, a crime of moral turpitude, dishonesty, breach of trust or unethical business conduct, or any crime involving the Company or any of its Subsidiaries; (ii) willful misconduct, willful or gross neglect, fraud, misappropriation or embezzlement; (iii) performance of the Employee's duties in a manner that is detrimental to the Company or any of its Subsidiaries, including, but not limited to that which results in, the severe deterioration of the financial performance of the Company or any of its Subsidiaries; (iv) failure to adhere to the directions of the Chief Executive Officer or the Board of Directors, to adhere to the Company's or any of its Subsidiary's policies or practices or to devote substantially all of the Employee's business time and efforts to the business of the Company and its Subsidiaries; (v) breach of any provision of any agreement, including an employment agreement, between the Company or any of its Subsidiaries, on the one hand, and the Employee which covers confidentiality or proprietary information, nonsolicitation or non-competition provisions; or (vi) breach in any material respect of the terms and provisions of the Employee's employment agreement, if any, or any agreement between the Company or any of its Subsidiaries, on the other hand, and the Employee. 5. Manner of Exercise of Option. The Option may be exercised by delivery, via first class mail, interoffice mail, fax or electronic mail of a Notice of Option Exercise and related forms to the Company stating the number of Shares with respect to which the Option is being exercised and accompanied by payment of the Total Exercise Cost in cash or by check, bank draft or money order payable to the order of the Company 3 or, subsequent to an Initial Public Offering, through the delivery to the Company of an Authorization for Exercise of Options "Cashless" Exercise Form with irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the Total Exercise Cost, subject to such limitations as the Committee may adopt from time to time or by any combination of the above methods of payment. 6. Non-Transferability. The right of the Employee to exercise the Option (as and when exercisable) may not be assigned or transferred by the Employee other than by will or the laws of descent and distribution. The Option may be exercised and the Shares may be purchased during the lifetime of the Employee only by the Employee (or the Employee's legal representative in the event that the Employee's employment is terminated due to "Disability" within the meaning of Code Section 22(e)). Any attempted assignment or transfer, except as hereinabove provided, including without limitation any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition contrary to the provisions hereof, or any levy of execution, attachment, trustee process or similar process, whether legal or equitable, upon the Option, will in each instance be null and void. 7. Representation Letter and Investment Legend. (a) In the event that for any reason the issuance of the Shares to be issued upon exercise of an exercisable Option will not be effectively registered under the 1933 Act, upon any date on which the Option is exercised, the Employee (or the person exercising the Option pursuant to Paragraph 6) will give a written representation to the Company in the form attached hereto as Exhibit A, and the Company will place the legend described in Exhibit A, upon any certificate for the Shares issued by reason of such exercise. (b) The Company will be under no obligation to qualify Shares or to cause a registration statement or a post-effective amendment to any registration statement to be prepared for the purpose of covering the issuance of Shares. 8. Adjustments of Shares and Options. Subject to Paragraph 7 of the Plan, in the event of any change in the outstanding Shares by reason of an acquisition, spin-off or reclassification, recapitalization or merger, combination or exchange of Shares or other corporate exchange, Change of Control or similar event, the Committee may adjust appropriately the number or kind of Shares or securities subject to the Option and exercise prices related thereto and make such other revisions to the Option as it deems are equitably required. 4 9. No Special Employment Rights. Nothing contained in this Agreement will be construed or deemed by any person under any circumstances to bind the Company or any of its Subsidiaries to continue the employment of the Employee for the period within which this Option may vest or for any other period. 10. Rights as a Shareholder. The Employee will have no rights as a shareholder with respect to any Shares which may be purchased upon the exercise of this Option unless and until a certificate or certificates representing such Shares are duly issued and delivered to the Employee. If at any time during the term of the Option, the Company is advised by its counsel that the Shares are required to be registered under the Securities Act or under applicable state securities laws, or that delivery of the Shares must be accompanied or preceded by a prospectus meeting the requirements of such laws, delivery of Shares by the Company may be deferred until a registration is effective or a prospectus is available or an appropriate exemption from registration is secured. 11. Withholding Taxes. The Employee hereby agrees, as a condition to any exercise of the Option, to provide to the Company an amount sufficient to satisfy its obligation to withhold certain federal, state and local taxes arising by reason of such exercise (the "Withholding Amount"), if any, by (a) authorizing the Company to withhold the Withholding Amount from the Employee's cash compensation, or (b) remitting the Withholding Amount to the Company in cash; provided that, to the extent that the Withholding Amount is not provided by one or a combination of such methods, the Company may at its election withhold from the Shares delivered upon exercise of the Option that number of Shares having a Fair Market Value as of the date immediately prior to the issuance of such Shares equal to the Withholding Amount. 12. Execution of Shareholders' Agreement and of Release and Waiver of Rights. The Employee acknowledges that, in connection with his or her prior or future purchase of Shares of the Company, he or she will execute and deliver the Shareholders' Agreement or a joinder or counterpart signature page thereto. The Employee further agrees that all Shares acquired by such Employee upon exercise of the Option will be subject to the terms and conditions of the Shareholders' Agreement as modified hereby. Prior to participation in the Plan, if the Committee requires, the Employee will execute a Release and Waiver to Rights to payments and benefits under certain plans of Herbalife International, Inc. 13. Lock-Up Agreements. The Employee agrees that notwithstanding anything to the contrary contained in this Agreement, in the event of an Initial Public Offering or any other offering of securities of the Company, except to the extent that: (a) the Employee sells his or her Shares obtained upon the exercise of the Option to the underwriters of the Company's securities in connection with such offering or (b) the underwriters do not request the following restrictions, such Employee shall not (i) offer, 5 hedge, pledge, sell or contract to sell any such Shares, (ii) sell any option or contract to purchase any Shares, (iii) purchase any option or contract to sell any Shares, (iv) grant any option, right or warrant for the sale of any Shares, or (v) lend or otherwise dispose of or transfer any Shares during the longer of (A) any black-out period requested by the underwriters conducting any such offering of securities on behalf of the Company and (B)during the seven days prior to and during the 180 day period beginning on the effective date of such initial public offering or other offering of securities; provided, however, that such Employee shall, in any event, be entitled to sell his or her Shares commencing on the expiration of the black-out period described in the aforementioned clause (A) or (B). 14. Delivery of Certificates. The Employee will have no interest in the Shares unless and until certificates for the Shares are issued following exercise of the Option. ********* [Signatures on Following Page] 6 OPTION AGREEMENT Counterpart Signature Page -------------------------- IN WITNESS WHEREOF, the Company has caused this Agreement to be executed, by its officer thereunto duly authorized, and the Employee has executed this Agreement, all as of the day and year first above written. WH HOLDINGS EMPLOYEE (CAYMAN ISLANDS) LTD. By: --------------------------- --------------------------------- Title: Address: - ------------------------------ (print name) Facsimile Number: --------------------------------- Social Security Number Email Address: 7 EXHIBIT A TO: WH HOLDINGS (CAYMAN ISLANDS) LTD. The undersigned hereby irrevocably exercises the right to purchase ______________ of the shares of Common Shares, par value $0.001 per share ("Common Shares") of WH Holdings (Cayman Islands) Ltd., a Cayman Islands company (the "Company"), evidenced by the attached Option, and herewith makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of said Option. 1. The undersigned hereby represents and warrants to and agrees with the Company as follows: (a) The undersigned understands and acknowledges that an investment in the Common Shares issuable upon exercise of this Option involves a high degree of risk and that there are limitations on the liquidity of the Common Shares issuable upon exercise of this Option. The undersigned is able to bear the economic risk of an investment in the Common Shares issuable upon exercise of this Option. The undersigned has adequate means of providing for the undersigned's current needs and contingencies; is able to afford to hold the Common Shares issuable upon exercise of this Option for an indefinite period; and has such knowledge and experience in financial and business matters such that the undersigned is capable of evaluating the merits and risks of the investment in the Common Shares issuable upon exercise of this Option; (b) The undersigned is acquiring the Common Shares issuable upon exercise of this Option for its own account for investment and not as a nominee and not with a present view to the distribution thereof in violation of the Securities Act of 1933, as amended (the "1933 Act"). The undersigned understands that the undersigned must bear the economic risk of this investment indefinitely unless such shares are registered pursuant to the 1933 Act and any applicable state securities laws, or an exemption from such registration is available. The undersigned has no plan or intention to sell the Common Shares issuable upon exercise of this Option at any predetermined time, and has made no predetermined arrangements to sell such shares; (c) The undersigned will not make any sale, transfer or other disposition of the shares of Common Shares issuable upon exercise of this Option in violation of (1) the 1933 Act, the Securities Exchange Act of 1934, as amended, any other applicable Federal or state securities laws or the rules and regulations of the Securities and Exchange Commission or of any state securities commissions or similar state authorities promulgated under any of the foregoing, or (2) any applicable securities laws of jurisdictions outside the United States and the rules and regulations thereunder. 2. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any of the Common Shares obtained on exercise of the Option, except in accordance with the provisions of the Option, and consents that the following legend may be affixed to the stock certificates for the Common Shares hereby subscribed for, if such legend is applicable: "THE SALE, TRANSFER OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDERS' AGREEMENT, DATED AS OF JULY 31, 2002 AMONG WH HOLDINGS (CAYMAN ISLANDS) LTD. AND CERTAIN HOLDERS OF ITS OUTSTANDING SHARE CAPITAL, AS SUCH AGREEMENT MAY BE AMENDED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF WH HOLDINGS (CAYMAN ISLANDS) LTD. IN ADDITION, THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY PROVINCIAL OR STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT UNDER THE 1933 ACT AND APPLICABLE PROVINCIAL OR STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT OR APPLICABLE PROVINCIAL OR STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER." 3. The undersigned requests that stock certificates for such shares be issued, and a new option agreement representing any unexercised portion hereof be issued in the name of the registered holder and delivered to the undersigned at the address set forth below: [Signature on the Following Page] 2 Dated: - ------------------------------ Signature of Registered Holder - ------------------------------ Name of Registered Holder (Print) 3 EX-10.39 43 y65450a1exv10w39.txt AMENDMENT #1 TO CREDIT AGREEMENT Exhibit 10.39 AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment") dated as of December 18, 2002, among Herbalife International, Inc. ("BORROWER"); WH Holdings (Cayman Islands) Ltd. ("HOLDINGS"); WH Intermediate Holdings Ltd. ("PARENT"); WH Luxembourg Holdings S.a.R.L. ("LUXEMBOURG HOLDINGS"); WH Luxembourg Intermediate Holdings S.a.R.L. ("LUXEMBOURG INTERMEDIATE HOLDINGS") and WH Luxembourg CM S.a.R.L. ("LUXEMBOURG CM," and together with Luxembourg Holdings and Luxembourg Intermediate Holdings, the "LUXCOS"); each of the Subsidiary Guarantors listed on the signature pages hereto (together with Holdings, Parent and the LuxCos, the "GUARANTORS"); the Lenders party hereto; and UBS AG, Stamford Branch, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"). RECITALS WHEREAS, the Borrower, the Guarantors, the Lenders and the Administrative Agent entered into the Credit Agreement dated as of July 31, 2002 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, the Borrower desires to provide for a $40.0 million prepayment of the Term Loans on or before December 30, 2002, and and to provide for certain other amendments specified herein to be effective as of the date hereof, subject to satisfaction of each of the conditions precedent specified herein; WHEREAS, the Borrower, the Guarantors, the Lenders and the Administrative Agent have agreed to amend the Credit Agreement as provided herein. NOW, THEREFORE, in consideration of the premises made hereunder, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1. Definitions. Unless otherwise expressly defined herein, all capitalized terms used herein and defined in the Credit Agreement shall be used herein as so defined. Unless otherwise expressly stated herein, all Section and Article references herein shall refer to Sections and Articles of the Credit Agreement. Section 2. Amendment to Section 1.01 regarding definition of Senior Leverage Ratio and Excess Cash Flow. Section 1.01 is hereby amended as follows: (a) By adding the following new definition thereto in alphabetical: "SENIOR LEVERAGE RATIO" means, as of the last day of the most recently ended fiscal quarter or fiscal year end, as the case may be, of Parent for which financial statements shall have been delivered, the ratio (expressed as a fraction where appropriate) of: (a) Consolidated Indebtedness (less the Senior Subordinated Notes and any other subordinated indebtedness subordinated to the Loans on terms reasonably satisfactory to the Required Lenders) of Parent on such date to (b) Consolidated EBITDA of Parent computed for the period consisting of such fiscal quarter and each of the three immediately preceding fiscal quarters."; and (b) By deleting in its entirety clause (g) of the definition of Excess Cash Flow, and amending it to read as follows: "(g) permanent repayments of Indebtedness (other than subordinated indebtedness, including the Senior Subordinated Notes) made by Parent and its Consolidated Subsidiaries during such fiscal year (including payments of principal in respect of the Revolving Loans to the extent there is an equivalent reduction in the Revolving Commitments hereunder); but only to the extent such repayments are permitted hereunder and do not occur in connection with a refinancing of all or any portion of the Loans; minus" Section 3. Application of Prepayment. (a) Borrower hereby agrees to make an optional prepayment in the amount of $20.0 million (together with accrued interest thereon) on or before December 30, 2002. The parties hereby agree that such prepayment shall be deemed and treated for all purposes under the Credit Agreement as an optional prepayment of the Term Loans pursuant to Section 2.10(h). In connection therewith, the Borrower hereby requests and instructs that such principal amounts be applied to prepay the December 31, 2002 and March 31, 2003 amortization payments in full, and the balance of $5.0 million be applied toward the June 30, 2003 amortization payment. (b) Borrower hereby agrees to make an additional optional prepayment of $20.0 million (together with accrued interest thereon) on or before December 30, 2002. The parties hereby agree that such prepayment shall be deemed and treated for all purposes under the Credit Agreement as an optional prepayment of the Term Loans pursuant to Section 2.10(h). In connection therewith, such principal prepayment shall be applied pro rata against the remaining scheduled installments (after giving effect to clause (a) above) of principal due in respect of the Term Loans under Section 2.09. (c) Upon completion of the prepayments referenced in clauses (a) and (b) above, the parties agree that Annex I shall be automatically amended by deleting the same from the Credit Agreement, and replacing it with Annex I hereto (d) The parties hereby confirm and agree that upon completion of the above payments, the Borrower will have satisfied the Excess Cash Flow prepayments required by Section 2.10(g) (as amended hereby) with respect to the Borrower's fiscal year ended 2002, and hereby confirm that no further Excess Cash Flow payments shall be due in respect of the fiscal year ended 2002. Section 4. Amendment to Section 6.06(g) Regarding Monitoring Fees. Section 6.06(g) is hereby deleted in its entirety, and amended to read as follows: "(g) so long as no Default exists or would result therefrom, Borrower may pay, or cause to be paid, Monitoring Fees to the Principals and their Related Parties in accordance with the Monitoring Fee Agreements in an amount equal to (i) with respect to a base amount of Monitoring Fees, $2.5 million in any 12-month period (or in the case of 2002, $1.042 million representing the pro rated portion for the period of such fiscal year that the Monitoring Fees accrued), payable quarterly in equal installments, plus (ii) with respect to a supplemental amount of Monitoring Fees, (A) $1.042 million may be paid in respect of fiscal year 2002, which if paid shall be due and payable as of December 31, 2002, (B) $2.5 million may be paid in respect of fiscal year 2003, which if paid shall be due and payable during fiscal year 2003 in equal quarterly installments at the end of each quarter, (C) with respect to fiscal year 2004, and each fiscal year thereafter, up to $2.5 million may be paid out of the remaining 50% of Excess Cash Flow not required to be offered to the Lenders pursuant to Section 2.10(g) with respect to the prior fiscal year (e.g., the Excess Cash Flow determination required to be made by Borrower within 120 days after its 2003 fiscal year shall be used for purposes of determining if a supplemental Monitoring Fee may be paid for fiscal year 2004), such amounts to be paid in equal quarterly installments plus (iii) reasonable out-of-pocket expenses." Section 5. Amendment to Section 6.08(ii) regarding Subordinated Notes Buyback. Section 6.08(ii) is hereby deleted in its entirety, and amended to read as follows: "(ii) make (or give any notice in respect thereof) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Indebtedness outstanding under the Senior Subordinated Notes or the Holdings Senior Discount Notes, provided that, so long as no Default or Event of Default exists or would result therefrom, (A) Borrower may make prepayments on the Senior Subordinated Notes in accordance with the Senior Subordinated Note Documents to the extent of the remaining 50% of Excess Cash Flow referred to in Section 2.10(g) after application of Sections 2.10(g) and (j), and (B) Borrower may make prepayments on, or otherwise repurchase and retire, up to $25.0 million in aggregate principal amount of the Senior Subordinated Notes during the life of this Credit Agreement, provided that, at the time of any such prepayment or repurchase the Senior Leverage Ratio shall be less than 1.1 times;" Section 6. Waivers regarding Reorganization in Luxembourg. Borrower has informed the Administrative Agent that, in connection with its previously disclosed internal corporate reorganization, it requests limited waivers as follows: (i) a waiver of Section 6.10 solely to allow the issuance of preferred equity certificates by Luxembourg Intermediate Holdings to its parent, Luxembourg Holdings, which preferred equity certificates shall contemporaneously with their issuance be pledged under the Security Documents, (ii) a waiver of paragraph (n) of Article VIII of the Credit Agreement solely to allow the corporate reorganization outlined in Schedule I, to the extent the steps contemplated thereby would otherwise constitute a Change of Control, and to the extent the delay in implementing such internal corporate reorganization shall have constituted a Change of Control under clauses (d) and (e) of the definition of Change of Control (and any notice required under Section 5.02(a) thereof), (iii) a waiver of any prohibition on transferring pledged accounts to the extent necessary to allow Luxembourg Holdings to transfer a bank account with a balance not to exceed $20,000, to Luxembourg Intermediate Holdings, (iv) a waiver of any technical defaults not already contemplated by the foregoing clauses (i) through (iii), solely to the extent necessary to accomplish the interim steps of the corporate reorganization outlined in Schedule I, provided that, such additional waiver shall have been approved by the Administrative Agent in its sole discretion, and (v) a consent to amend or modify the Holdings Senior Discount Note Documents, solely to the extent necessary to allow for the corporate reorganization outlined in Schedule I, to the extent the steps contemplated thereby would otherwise constitute a Change of Control (as defined in the Holdings Senior Discount Note Agreement), and to the extent the delay in implementing such internal corporate reorganization shall have constituted a Change of Control (as defined in the Holdings Senior Discount Note Agreement). At the request of Borrower, the undersigned Lenders, constituting Requisite Lenders under the Credit Agreement, hereby agree to the limited waivers and consents specified in clauses (i) through (v) above, and hereby authorize the Administrative Agent to enter into such documentation reasonably acceptable to it in order to effectuate the foregoing. If the corporate reorganization outlined in Schedule I is not completed by March 31, 2003, the foregoing waivers, consents and authorizations set forth in this Section 6 shall expire. Section 7. Conditions Precedent. This Amendment shall become effective on the date hereof, provided that each of the following shall be satisfied on such date: (a) The Administrative Agent shall have received all of the following, in form and substance satisfactory to the Administrative Agent: (i) Amendment Documents. This Amendment and each other instrument, document or certificate required by the Administrative Agent to be executed or delivered by the Borrower or any other Person in connection with this Amendment, duly executed by such Persons (the "Amendment Documents"); (ii) Consent of Lenders. The execution of this Amendment by the Required Lenders; (iii) Additional Information. Such additional documents, instruments and information as the Administrative Agent may reasonably request to effect the transactions contemplated hereby; and (iv) Amendment Fee. An amendment fee, payable to the Administrative Agent for the account of each consenting Lender, in an amount equal to 0.125% times the sum of each such Lender's Revolving Commitment and the principal amount of its outstanding Term Loans, pro forma after giving effect to the prepayments in Section 3 hereof. (b) The representations and warranties contained herein and in the Credit Agreement shall be true and correct in all material respects as of the date hereof as if made on the date hereof (except for those which by their terms specifically refer to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date). (c) All corporate proceedings taken in connection with the transactions contemplated by this Amendment and all other agreements, documents and instruments executed and/or delivered pursuant hereto, and all legal matters incident thereto, shall be satisfactory to the Administrative Agent. (d) The Administrative Agent shall have received such documentation and confirming legal opinions as it shall have requested confirming the first priority security interests of the Lenders in connection with the internal corporate reorganization outlined in Section 6 above. (e) No Default or Event of Default shall have occurred and be continuing, after giving effect to this Amendment. Section 8. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that, as of the date hereof and after giving effect to this Amendment, (a) all representations and warranties set forth in the Credit Agreement and in any other Loan Document are true and correct in all material respects as if made again on and as of such date (except those, if any, which by their terms specifically relate only to an earlier date, in which case such representations and warranties are true and correct in all material respects as of such earlier date), (b) no Default or Event of Default has occurred and is continuing, and (c) the Credit Agreement (as amended by this Amendment), and all other Loan Documents are and remain legal, valid, binding and enforceable obligations in accordance with the terms thereof. Section 9. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by the Administrative Agent or the Lenders, or any closing, shall affect the representations and warranties or the right of the Administrative Agent and the Lenders to rely upon them. If any representation or warranty made in this Amendment is false in any material respect, then such shall constitute an Event of Default under the Credit Agreement. Section 10. Reference to Agreement. Each of the Loan Documents, including the Credit Agreement, and any and all other agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Credit Agreement, whether direct or indirect, shall mean a reference to the Credit Agreement as amended hereby. This Amendment shall constitute a Loan Document under the Credit Agreement. Section 11. Costs and Expenses. The Borrower shall pay on demand all reasonable costs and expenses of the Administrative Agent (including the reasonable fees, costs and expenses of counsel to the Administrative Agent) incurred in connection with the preparation, execution and delivery of this Amendment. Section 12. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Section 13. Execution. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. Section 14. Limited Effect. This Amendment relates only to the specific matters expressly covered herein, shall not be considered to be a waiver of any rights or remedies any Lender may have under the Credit Agreement or under any other Loan Document, and shall not be considered to create a course of dealing or to otherwise obligate in any respect any Lender to execute similar or other amendments or grant any waivers under the same or similar or other circumstances in the future. Section 15. Ratification By Guarantors. Each of the Guarantors hereby agrees to this Amendment and acknowledges that such Guarantor's Guaranty shall remain in full force and effect without modification thereto. [signature pages follow] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. HERBALIFE INTERNATIONAL, INC. By: /s/ Brian Kane ---------------------- Name: Brian Kane Title: Co-President Acknowledged and Agreed to by each of the Guarantors: WH HOLDINGS (CAYMAN ISLANDS) LTD., a Cayman Islands corporation, as a Guarantor By: /s/ Steven E. Rodgers ---------------------- Name: Steven E. Rodgers Title: WH INTERMEDIATE HOLDINGS LTD., a Cayman Islands corporation, as a Guarantor By: /s/ Steven E. Rodgers _______________________ Name: Steven E. Rodgers Title: WH LUXEMBOURG CM S.a.R.L., a Luxembourg corporation, as a Guarantor By: /s/ Fabrizio Suaria ______________________ Name: Fabrizio Suaria Title: WH LUXEMBOURG HOLDINGS S.a.R.L., a Luxembourg corporation, as a Guarantor By: /s/ Fabrizio Suaria ----------------------------- Name: Fabrizio Suaria Title: WH LUXEMBOURG INTERMEDIATE HOLDINGS S.a.R.L., a Luxembourg corporation, as a Guarantor By: /s/ Fabrizio Suaria ----------------------------- Name: Fabrizio Suaria Title: HERBALIFE INTERNATIONAL OF AMERICA, INC., a California corporation, as a Guarantor By: /s/ Brian Kane ______________________ Name: Brian Kane Title: Co-President HERBALIFE INTERNATIONAL OF EUROPE, INC., a California corporation, as a Guarantor By: /s/ Brian Kane ______________________ Name: Brian Kane Title: President HERBALIFE INTERNATIONAL COMMUNICATIONS, INC., a California corporation, as a Guarantor By: /s/ Brian Kane ---------------------- Name: Brian Kane Title: President HERBALIFE INTERNATIONAL DISTRIBUTION, INC., a California corporation, as a Guarantor By: /s/ Brian Kane ---------------------- Name: Brian Kane Title: President HERBALIFE TAIWAN, INC., a California corporation, as a Guarantor By: /s/ Brian Kane ---------------------- Name: Brian Kane Title: President HERBALIFE INTERNATIONAL (THAILAND), LTD., a California corporation, as a Guarantor By: /s/ Brian Kane ---------------------- Name: Brian Kane Title: President HERBALIFE CHINA, LLC, a Delaware limited liability company, as a Guarantor By: /s/ Brian Kane ______________________ Name: Brian Kane Title: Chairman of the Board of Members HERBALIFE INTERNATIONAL DO BRASIL LTDA., a corporation dually incorporated in Brazil and Delaware, as a Guarantor By: /s/ Brian Kane ______________________ Name: Brian Kane Title: President HERBALIFE INTERNATIONAL FINLAND OY, a Finnish corporation, as a Guarantor By: /s/ Fabrizio Suaria --------------------------- Name: Fabrizio Suaria Title: HERBALIFE INTERNATIONAL OF ISRAEL (1990) LTD., an Israeli corporation, as a Guarantor By: /s/ Brian Kane ______________________ Name: Brian Kane Title: President HERBALIFE SWEDEN AKTIEBOLAG, a Swedish corporation, as a Guarantor By: /s/ Fabrizio Suaria ------------------------- Name: Fabrizio Suaria Title: UBS AG, STAMFORD BRANCH, as Administrative Agent and a Lender By: /s/ Robert Reuter ------------------------- Name: Robert Reuter Title: Executive Director By: /s/ Lynne B. Alfarone ------------------------- Name: Lynne B. Alfarone Title: Associate Director Banking Products Services, US Denali Capital LLC managing member of DC Funding Partners, portfolio manager for DENALI CAPITAL CLO I LTD., or an affiliate as a Lender By: /s/ John P. Thacker ______________________ Name: John P. Thacker Title: Chief Credit Officer Denali Capital LLC, managing member of DC Funding Partners, portfolio manager for DENALI CAPITAL CLO II, LTD., or an affiliate as a Lender By /s/ John F. Thacker -------------------------------- Name: JOHN F. THACKER Title: CHIEF CREDIT OFFICER Sankaty Advisors, LLC as Collateral Manager for Castle Hill I - INGOTS, Ltd., as Term Lender By: /s/ Diane J. Exter -------------------------- Name: DIANE J. EXTER Title: MANAGING DIRECTOR PORTFOLIO MANAGER Sankaty Advisors, LLC as Collateral Manager for Castle Hill II - INGOTS, Ltd., as Term Lender By: /s/ Diane J. Exter -------------------------- Name: DIANE J. EXTER Title: MANAGING DIRECTOR PORTFOLIO MANAGER Sankaty Advisors, LLC as Collateral Manager for Great Point CLO 1999-1 LTD, as Term Lender By: /s/ Diane J. Exter ------------------------ Name: DIANE J. EXTER Title: MANAGING DIRECTOR PORTFOLIO MANAGER Sankaty Advisors, LLC as Collateral Manager for Race Point CLO, Limited, as Term Lender By: /s/ Diane J. Exter ___________________________ Name: Diane J. Exter Title: Managing Director Portfolio Manager Sankaty High Yield Partners III, LP By: /s/ Diane J. Exter _________________________ Name: Diane J. Exter Title: Managing Director Portfolio Manager PACIFICA PARTNERS I, L.P., as a Lender By: /s/ Tom Colwell _____________________ Name: Tom Colwell Title: VP Franklin Floating Rate Trust as a Lender By: /s/ Richard D'Addario ____________________________ Name: Richard D'Addario Title: Senior Vice President Franklin CLO I, LIMITED as a Lender By: /s/ Richard D'Addario ____________________________ Name: Richard D'Addario Title: Senior Vice President Franklin CLO II, Limited as a Lender By: /s/ Richard D'Addario ____________________________ Name: Richard D'Addario Title: Senior Vice President Franklin CLO III, Limited as a Lender By: /s/ Richard D'Addario ____________________________ Name: Richard D'Addario Title: Senior Vice President GoldenTree High Yield Opportunities I, LP By: GoldenTree Asset Management, LP as a Lender By: /s/ Frederick S. Haddad ____________________________ Name: Frederick S. Haddad Title: GoldenTree High Yield Opportunities II, L.P. By: GoldenTree Asset Management, LP as a Lender By: /s/ Frederick S. Haddad ____________________________ Name: Frederick S. Haddad Title: Golden Tree Loan Opportunities I, Limited By: GoldenTree Asset Management, LP as a Lender By: /s/ Frederick S. Haddad ____________________________ Name: Frederick S. Haddad Title: Reliance Standard Life Insurance Company By: GoldenTree Asset Management, LP as a Lender By: /s/ Frederick S. Haddad ____________________________ Name: Frederick S. Haddad Title: WF Foundation By: GoldenTree Asset Management, LP as a Lender By: /s/ Frederick S. Haddad ____________________________ Name: Frederick S. Haddad Title: SunAmerica Life Insurance Company as a Lender By: /s/ John G. Lapham, III _________________________ Name: John G. Lapham, III Title: Authorized Agent Venture CDO 2002, Limited By its investment advisor, Barclays Capital Asset Management Limited By its sub-advisor, Barclays Bank PLC, New York Branch. as a Lender By: /s/ Maria P. Cruz _________________________ Name: Maria P. Cruz Title: Manager Whitney Private Debt Fund, L.P., as a Lender By: /s/ Marc S. Diagonale ___________________________ Name: MARC S. DIAGONALE Title: AUTHORIZED SIGNATORY 1888 Fund, Ltd. as a Lender By: /s/ Todd Boehly ________________________ Name: Todd Boehly Title: Managing Director Harch CLO I. Ltd. as a Lender By: /s/ Michael E. Lewitt ___________________________ Name: Michael E. Lewitt Title: Authorized Signatory Venture II CDO 2002, Limited By its investment advisor, Barclays Bank PLC, New York Branch as a Lender By: /s/ Maria P. Cruz ____________________________ Name: Maria P. Cruz Title: Manager IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written (December 18, 2002). Seaboard CLO 2000 LTD By: ORIX Capital Markets, LLC Its Collateral Manager By /s/ Sheppard H.C. Davis, Jr. ----------------------------------- Name: Sheppard H.C. Davis, Jr. Title: Managing Director IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written (December 18, 2002). LONG LANE MASTER TRUST IV By Fleet National Bank as Trust Administrator By /s/ Kevin Kearns ----------------------------------- Name: Kevin Kearns Title: Managing Director GENERAL ELECTRIC CAPITAL CORPORATION (Merchant Banking Group), as Syndication Agent By: /s/ Matthew Colucci ------------------------------------ Name: Matthew Colucci Title: Its Authorized Signatory GE CAPITAL, CAPITAL FUNDING, INC. as a Lender By: /s/ James H. Kaufman ------------------------------- Name: James H. Kaufman Title: Authorized Signatory COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK INTERNATIONAL", NEW YORK BRANCH, as a Lender By: /s/ Andre Blorn ------------------------------------- Name: Andre Blorn Title: Managing Director Credit Risk Management By: /s/ Richard T. Kemme ------------------------------------- Name: Richard T. Kemme Title: Vice President ING PRIME RATE TRUST By ING Investments, LLC as its investment manager By: /s/ Michel Prince ____________________________ Name: MICHEL PRINCE, CFA Title: VICE PRESIDENT PILGRIM AMERICA HIGH INCOME INVESTMENTS LTD, By: ING Investments, LLC as its investment manager HARBOUR TOWN FUNDING LLC as a Lender By: /s/ Ann E. Morris ---------------------------- Name: ANN E. MORRIS Title: ASST VICE PRESIDENT Landmark CDO Ltd as a Lender By: /s/ Aladdin Capital Management ------------------------------ Name: T.G.,VP Title: Landmark II CDO Ltd. as a Lender By: /s/ Aladdin Capital Management ------------------------------ Name: T.G., VP Title: AMORTIZATION TABLE -------------------------------- ------------------------- DATE TERM LOAN AMOUNT -------------------------------- ------------------------- June 30, 2003 $2,177,419.35 -------------------------------- ------------------------- September 30, 2003 $6,532,258.06 -------------------------------- ------------------------- December 31, 2003 $6,532,258.06 -------------------------------- ------------------------- March 31, 2004 $6,532,258.06 -------------------------------- ------------------------- June 30, 2004 $6,532,258.06 -------------------------------- ------------------------- September 30, 2004 $6,532,258.06 -------------------------------- ------------------------- December 31, 2004 $6,532,258.06 -------------------------------- ------------------------- March 31, 2005 $6,532,258.06 -------------------------------- ------------------------- June 30, 2005 $6,532,258.06 -------------------------------- ------------------------- September 30, 2005 $6,532,258.06 -------------------------------- ------------------------- December 31, 2005 $6,532,258.06 -------------------------------- ------------------------- March 31, 2006 $6,532,258.06 -------------------------------- ------------------------- June 30, 2006 $6,532,258.06 -------------------------------- ------------------------- September 30, 2006 $6,532,258.06 -------------------------------- ------------------------- December 31, 2006 $6,532,258.06 -------------------------------- ------------------------- March 31, 2007 $6,532,258.06 -------------------------------- ------------------------- June 30, 2007 $6,532,258.06 -------------------------------- ------------------------- September 30, 2007 $6,532,258.06 -------------------------------- ------------------------- December 31, 2007 $6,532,258.06 -------------------------------- ------------------------- March 31, 2008 $6,532,258.06 -------------------------------- ------------------------- June 30, 2008 $8,709,677.51 -------------------------------- ------------------------- $135,000,000.00 -------------------------------- ------------------------- EX-23.1 44 y65450a1exv23w1.txt CONSENT OF DELOITTE & TOUCHE [DELOITTE & TOUCHE LLP LETTERHEAD] Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333-101188 of WH Intermediate Holdings Ltd. and Herbalife International, Inc. on Form S-4 of our reports on the consolidated financial statements of Herbalife International, Inc. dated February 19, 2002 (May 21, 2002 as to Note 11; November 11, 2002 as to Note 16) and the consolidated financial statements of WH Intermediate Holdings Ltd. dated October 30, 2002, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Los Angeles, California December 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----