DEF 14A 1 d684334ddef14a.htm DEF 14A DEF 14A
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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.         )

Filed by the Registrant þ

Filed by a Party other than the Registrant ¨

Check the appropriate box:

 

¨    Preliminary Proxy Statement
þ    Definitive Proxy Statement
¨    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨    Definitive Additional Materials
¨    Soliciting Material Pursuant to §240.14a-12

HERBALIFE LTD.

 

 

(Name of Registrant as Specified In Its Charter)

 

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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  (3)   

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  (4)   

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¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Table of Contents

 

 

LOGO

 

 

 


Table of Contents

 Herbalife Ltd. 

 

 2014 Proxy Statement  

 

 

Annual General Meeting of Shareholders

Our 2014 Annual General Meeting of Shareholders

will be held on Tuesday, April 29, 2014 at 10:30 a.m., Pacific Daylight Time, at:

800 W. Olympic Blvd., Suite 406

Los Angeles, CA 90015

Admission requirements

See Part 1 – “Information concerning solicitation and voting” for details on admission requirements to attend the Annual Meeting.

Proxy voting options

Your vote is important!

All shareholders are cordially invited to attend the Annual Meeting in person. However, in order to assure your representation at the Annual Meeting, you are urged to vote promptly. You may vote your shares via a toll-free telephone number or over the Internet or by completing, signing and mailing a proxy card or voting instruction card. Please follow the instructions on the enclosed proxy card or voting instruction form. If you received a paper copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided.

Proxies submitted by mail, the Internet or telephone must be received by 11:59 p.m., Eastern Time, on April 28, 2014.

Vote by Internet

www.envisionreports.com/HLF

24 hours a day / 7 days a week

Instructions:

 

1.   Go to: www.envisionreports.com/HLF

 

2.   Or scan the QR code with your smartphone

 

3.   Follow the steps outlined on the secure website

 

LOGO

Vote by telephone

1.800.652.VOTE (8683) via touch tone phone

toll-free 24 hours a day / 7 days a week

Instructions:

 

1.   Call toll-free 1.800.652.VOTE (8683).

 

2.   Follow the instructions provided by the recorded message.
 

 

LOGO


Table of Contents

Herbalife Ltd.

Notice of Annual General Meeting of Shareholders

 

Date:   Tuesday, April 29, 2014
Time:   10:30 a.m., Pacific Daylight Time
Place:  

800 W. Olympic Blvd., Suite 406

Los Angeles, CA 90015

Record date:   February 28, 2014
Proxy voting:  

All shareholders are cordially invited to attend the Annual Meeting in person. See Part 1 — “Information concerning solicitation and voting” for details on admission requirements to attend the Annual Meeting.

 

However, to assure your representation at the Meeting, you are urged to vote promptly. You may vote your shares via a toll-free telephone number or, over the Internet or by completing, signing and mailing a proxy card or voting instruction card. Please follow the instructions on the enclosed proxy card or voting instruction form.

Items of business:  

1. Elect the five directors named in the Proxy Statement;

 

2. Advise as to the Company’s executive compensation;

 

3. Adopt the Herbalife Ltd. 2014 Stock Incentive Plan;

 

4. Ratify the appointment of the Company’s independent registered public accountants for fiscal 2014; and

 

5. Act upon such other matters as may properly come before the Meeting.

  The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Only shareholders of record at the close of business on February 28, 2014 are entitled to notice of and to attend and vote at the Meeting and any subsequent adjournment(s) or postponement(s) thereof.
Virtual meeting:  

The Proxy Statement and Annual Report to Shareholders are available at

http://www.edocumentview/HLF.

NOTICE IS HEREBY GIVEN that the 2014 Annual General Meeting of Shareholders, or the Meeting, of Herbalife Ltd., a Cayman Islands exempted limited liability company, or the Company, will be held on Tuesday, April 29, 2014 at 10:30 a.m., Pacific Daylight Time, at 800 W. Olympic Blvd., Suite 406, Los Angeles, California 90015.

Sincerely,

 

LOGO

BRETT R. CHAPMAN

Chief Legal Officer and Corporate Secretary

Los Angeles, California

March 24, 2014


Table of Contents

 

Proxy summary

 

This summary highlights information contained elsewhere in this Proxy Statement. You should carefully read this Proxy Statement in its entirety prior to voting on the proposals listed below and outlined herein. This Proxy Statement is dated March 24, 2014, and is first being made available to shareholders of the Company on or about March 26, 2014.

Annual Meeting of Shareholders

 

Date:   Tuesday, April 29, 2014
Time:   10:30 a.m., Pacific Daylight Time
Place:  

800 W. Olympic Blvd., Suite 406

Los Angeles, CA 90015

Record date:   February 28, 2014
Voting:   Shareholders as of the record date are entitled to vote.

Admission to meeting: Proof of share ownership will be required to enter the Herbalife Ltd. Annual Meeting – see Part 1 – “Information concerning solicitation and voting” for details.

Meeting agenda

 

1.   Elect the five directors named in the Proxy Statement;

 

2.   Advise as to the Company’s executive compensation;

 

3.   Adopt the Herbalife Ltd. 2014 Stock Incentive Plan;

 

4.   Ratify the appointment of the Company’s independent registered public accountants for fiscal 2014; and

 

5.   Act upon such other matters as may properly come before the Meeting.

Voting matters and vote recommendation

 

 

     Matter   Board vote recommendation

Election of directors

  For each director nominee

Advisory vote on executive compensation

  For

Adoption of the Herbalife Ltd. 2014 Stock Incentive Plan

  For

Ratification of the Company’s independent registered public accountants for fiscal 2014

  For

Our Board of Directors unanimously recommends that you vote for each of the director nominees named herein, and for the approval of proposals 2, 3 and 4. YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Meeting, please take the time to vote. You may vote your shares via a toll-free telephone number or over the Internet or by completing, signing and mailing a proxy card or voting instruction card. Please follow the instructions on the enclosed proxy card or voting instruction form. If you received a paper copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided.

 

i    Proxy summary


Table of Contents

Proxy Statement table of contents

 

Part 1. Our annual general meeting of shareholders   

Information concerning solicitation and voting

     1   
Part 2. The board of directors   

Director independence

     3   

Board meetings

     3   

Board leadership

     3   

The board’s role in risk oversight

     4   

2013 director compensation

     5   

Shareholder communications with the board of directors

     7   

Committees of the board

     7   

Compensation committee interlocks and insider participation

     9   
Part 3. Proposals to be voted on at the meeting   

Proposal 1: The election of directors

     10   

Proposal 2: Advise as to the company’s executive compensation

     19   

Proposal 3: Adopt the Herbalife Ltd. 2014 Stock Incentive Plan

     20   

Proposal 4: Ratification of the appointment of independent registered public accountants

     26   

Change in independent accountants

     26   

Audit committee report

     27   

Fees to independent registered public accountants for fiscal 2012 and 2013

     28   

Pre-approval policy

     28   
Part 4. Executive compensation   

Compensation discussion and analysis

     29   

2013 Performance highlights and peer group performance

     29   

Executive summary of our compensation program

     31   

Program features

     31   

Things we do

     31   

Things we don’t do

     32   

Executive compensation program objectives

     32   

Compensation advisor

     32   

Establishing CEO compensation

     32   

Role of executive officers in executive compensation decisions

     33   

Purpose of compensation elements

     33   

Base salaries

     34   

Annual incentive awards & long term incentive program

     34   

General

     34   

Annual incentive awards

     34   

Targets and award determination

     35   

Long term incentive awards

     37   

Equity award grant policy

     39   

Hedging

     39   

Pledging

     39   

Clawback Policy

     39   

Stock ownership guidelines

     39   

Benefits and perquisites

     39   

Employment and severance agreements

     40   

Tax implications

     41   

Compensation committee report

     41   

Executive officers of the registrant

     42   

2013 Summary compensation table

     43   

2013 Grants of plan-based awards

     44   

Narrative disclosure to summary compensation table and grants of
plan-based awards

     44   

Outstanding equity awards at 2013 fiscal year-end

     46   

2013 Option exercises and stock vested

     47   

2013 Non-qualified deferred compensation table

     47   

Potential payments upon termination or change in control

     48   
 

 

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iii    Table of contents


Table of Contents

  Part 1

 

 

Our annual general meeting of
shareholders

 

Information concerning solicitation and voting

 

 

Place, time and date of meeting.    This Proxy Statement is being furnished to the Company’s shareholders in connection with the solicitation of proxies on behalf of our Board of Directors for use at the Meeting to be held on Tuesday, April 29, 2014, at 10:30 a.m., Pacific Daylight Time, and at any subsequent adjournment(s) or postponement(s) thereof, for the purposes set forth herein and in the accompanying Notice of Annual General Meeting of Shareholders. The Meeting will be held at 800 W. Olympic Blvd., Suite 406, Los Angeles, California, 90015. Our telephone number is (213) 745-0500.

Record date and voting securities.    Only shareholders of record at the close of business on February 28, 2014, or the Record Date, or duly authorized proxy holders of such shareholders of record, are entitled to notice of and to vote at the Meeting. The Company has one series of Common Shares outstanding. As of the Record Date 101,320,167 Common Shares were issued and outstanding and held of record by 695 registered holders.

Voting.    Each shareholder is entitled to one vote for each Common Share held on the Record Date on all matters submitted for consideration at the Meeting. A quorum, representing the holders of not less than a majority of the issued and outstanding Common Shares entitled to vote at the Meeting, must be present in person or by proxy at the Meeting for the transaction of business. Common Shares that reflect abstentions are treated as Common Shares that are present and entitled to vote for the purposes of establishing a quorum and for purposes of determining the outcome of any matter submitted to the shareholders for a vote. However, abstentions do not constitute a vote “for” or “against” any matter and thus will be disregarded in the calculation of a plurality.

“Broker non-votes” are Common Shares held in “street name” through a broker or other nominee over which the broker or nominee lacks discretionary power to vote and for which the broker or nominee has not received specific voting instructions. Thus, if you do not give your broker or nominee specific instructions, your Common Shares may not be voted on certain matters. Common Shares that reflect “broker non-votes” are treated as Common Shares that are present and entitled to vote for the purposes of

establishing a quorum. However, for the purposes of determining the outcome of any matter as to which the broker or nominee has indicated on the proxy that it does not have discretionary authority to vote, those Common Shares will be treated as not present and not entitled to vote with respect to that matter, even though those Common Shares are considered present and entitled to vote for the purposes of establishing a quorum and may be entitled to vote on other matters.

If you are a beneficial shareholder and your broker or nominee holds your Common Shares in its name, the broker or nominee is permitted to vote your Common Shares on matters such as the ratification of the appointment of independent registered public accountants, even if the broker or nominee does not receive voting instructions from you.

Directors are elected by a plurality, and the five nominees who receive the most votes will be elected. Abstentions and “broker non-votes” will not affect the outcome of the election. In respect of all other proposals, to be approved, any such proposal must receive the affirmative vote of a majority of the Common Shares present or represented by proxy and entitled to vote on such matter. In determining the outcome of such proposals, abstentions have the effect of a negative vote. “Broker non-votes” will not affect the outcome of any such proposals.

Majority vote policy.    Pursuant to our Principles of Corporate Governance, any current member of our Board of Directors that is a nominee in an uncontested election who does not receive a majority of votes cast “for” his or her election is required to tender his or her resignation promptly following the failure to receive the required vote. The Nominating and Corporate Governance Committee of the Board is then required to make a recommendation to the Board as to whether the Board should accept the resignation, and the Board is required to decide whether to accept the resignation and to disclose its decision-making process.

The results of the advisory vote on the Company’s executive compensation are not binding on the Board of Directors.

 

 

1    The annual general meeting of shareholders


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Revocability of proxies.    Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by either (a) delivering to the Corporate Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date, (b) granting a subsequent proxy through the Internet or telephone or (c) if you are a shareholder at the Record Date, by attending the Meeting and voting in person.

Proxy solicitation.    Proxies may be solicited by certain of our directors, officers, and regular employees, without additional compensation, in person, by telephone, facsimile, or electronic mail. We will, upon request, reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation material to the beneficial owners of Common Shares.

Meeting attendance.    Only shareholders of record as of February 28, 2014, authorized proxy holders of such shareholders, and invited guests of the Board may attend the Meeting.

If you are a shareholder of record, in order to be admitted to the meeting, you will need to produce picture identification (such as a valid driver’s license or passport) as well as copy of a form of proxy or voting instruction form or a Notice showing your name and address. If you are an authorized proxy holder of a shareholder of record, in order to attend the meeting, you will need both an admission ticket and picture identification (such as a valid driver’s license or passport). To obtain an admission ticket to the Meeting, please send your written request to Assistant Corporate Secretary, Herbalife International of America, Inc., 800 W. Olympic Boulevard, Suite 406, Los Angeles, California 90015. Your request must be received on or before April 17, 2014 and include a copy of a form of proxy or voting instruction form confirming your appointment as a proxy holder. In your request, please include the address where your admission ticket should be mailed, and any special assistance needs. The Board requests that persons attending the Meeting observe a professional business dress code.

Meaning of shareholder of record.    You will only be a shareholder of record if your name is recorded on the Company’s register of members. If your name is not recorded on the Company’s register of members, any shares you hold in the Company will be held beneficially. In this case you may still be entitled to direct the holder of your shares as to who should be appointed as proxy in respect of those shares and/or as to how to vote those shares on your behalf. If your shares are held beneficially and you wish to attend and vote at the meeting in person, you will need to attend as a proxy holder of the shareholder of record.

Shareholders who have purchased their shares on an exchange may hold those shares through a depository, in which case they will be beneficial shareholders and will not be shareholders of record. If you hold your shares in “street name” you will not be a shareholder of record.

If you wish to enquire as to whether or not you are a shareholder of record, please contact our Assistant Corporate Secretary at c/o Herbalife International of America, Inc., 800 W. Olympic Boulevard, Suite 406, Los Angeles, California 90015.

Additional information.    This Proxy Statement contains summaries of certain documents, but you are urged to read the documents themselves for the complete information. The summaries are qualified in their entirety by reference to the complete text of the document. In the event that any of the terms, conditions or other provisions of any such document is inconsistent with or contrary to the description or terms in this Proxy Statement, such document will control. Each of these documents, as well as those documents referenced in this Proxy Statement as being available in print upon request, are available upon request to the Company by following the procedures described under Part 7 —”Annual report, financial and additional information.”

 

 

 

The annual general meeting of shareholders      2   


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  Part 2

 

 

The board of directors

 

Director independence

 

 

Our Board of Directors has affirmatively determined that each of Messrs. Barnes, Bermingham, Carmona, Christodoro, Cozza, Dunn, Gary, Levitt, Lynn and Nelson and Mmes. Black, Nicholas and Otero is or was independent under section 303A.02 of the New York Stock Exchange, or the NYSE, Listed Company Manual and the Company’s Categorical Standards of Independence, which are included as part of our Principles of Corporate Governance that are available on our website at www.herbalife.com by following the links through “Investor Relations” to “Corporate

Governance.” The NYSE’s independence guidelines and the Company’s Categorical Standards include a series of objective tests, such as the person is not an employee of the Company and has not engaged in various types of business dealings involving the Company that would prevent the person from being an independent director. The Board of Directors has affirmatively determined that none of the foregoing directors had any relationship with the Company that would compromise his or her independence.

 

 

Board meetings

 

 

The Board of Directors met 15 times during 2013. All Board members attended at least 75% of the aggregate number of Board meetings and applicable committee meetings held while such individuals were serving on such committees. Each director is expected to dedicate sufficient time, energy and attention to ensure the diligent performance of his or her duties, including attending meetings of the shareholders of the Company, the Board of Directors and committees of which he or she is a member. All then-current members of the Board attended the 2013 Annual Meeting.

It is the policy of the Board of Directors to hold four regularly scheduled meetings, each of which includes an executive session of non-management directors without the presence of management as well as a session of only the independent directors. Additional meetings of the Board of Directors, executive sessions of non-management directors and sessions of independent directors may be held from time to time as required or determined to be necessary.

 

 

Board leadership

 

 

Currently Mr. Johnson serves as our Chairman and CEO. The Board has determined that a board leadership structure featuring a single leader as Chairman and CEO combined with a Lead Director best serves the interests of the Company and its shareholders. Combining the roles of Chairman and CEO makes clear that the individual serving in these roles has primary responsibility for managing the Company’s business, under the oversight and review of the Board. Under this structure, the Chairman and CEO chairs Board meetings, where the Board discusses strategic and business issues. The Board believes that this approach is appropriate because the CEO is the individual with primary responsibility for implementing the Company’s strategy, directing the work of other executive officers and leading implementation of the Company’s

strategic plans as approved by the Board. This structure results in a single leader being directly accountable to the Board and, through the Board, to shareholders, and enables the CEO to act as the key link between the Board and other members of management.

In addition, the Board believes this structure is appropriate for the Company as the CEO is the person most knowledgeable about the Company and its business and is therefore the individual best able to provide guidance for productive Board meetings. The unique nature of the Company’s direct selling business model requires that the Chairman and CEO forge a close relationship with, and obtain and maintain the trust of, the Company’s independent members.

 

 

3    The board of directors


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Because the Board also believes that strong, independent Board leadership is a critical aspect of effective corporate governance, the Board has established the position of Lead Director. The Lead Director is an independent director elected for a two year term by the independent directors. The Lead Director chairs the Board meetings during all executive sessions and when the Chairman and CEO is unable to participate in Board meetings, and is a contact point for major shareholders and third parties who may desire to contact the Board independently of the Chairman and CEO. Mr. Bermingham served as Lead Director during 2012 and until February 24, 2013. Mr. Levitt was elected Lead Director effective February 24, 2013. With Mr. Levitt’s Board service coming to an end, the independent directors will elect the next Lead Director prior to the Meeting. The responsibilities of the Lead Director include:

 

 

setting the agenda for and leading the regularly-held non-management and independent director sessions, and briefing the Chairman and CEO on any issues arising from those sessions;

 

 

coordinating the activities of the independent directors;

 

 

presiding at meetings of the Board at which the Chairman and CEO is not present, including executive sessions of the independent directors;

 

acting as the principal liaison to the Chairman and CEO for the views and any concerns and issues of the independent directors;

 

 

review development, revisions and implementation of strategic plans and initiatives and facilitating explanation and communication in these areas between the Board and management;

 

 

advising on the flow of information sent to the Board, and reviewing the agenda, materials and schedule for Board meetings;

 

 

being available for consultation and communication with major shareholders, as appropriate;

 

 

maintaining close contact with the chairperson of each standing committee; and

 

 

performing other duties that the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities.

The Board periodically reviews the structure of Board and Company leadership as part of the succession planning process.

 

 

The board’s role in risk oversight

 

 

The full Board of Directors has the ultimate responsibility for risk oversight regarding the Company. The Board oversees a Company-wide approach to risk management, designed to enhance shareholder value and to support the achievement of strategic objectives and to improve long-term organizational performance. The first aspect of the Board’s approach to risk management is to determine the appropriate level of risk for the Company generally, followed by an assessment of the specific risks the Company faces and the steps management is taking to manage those risks. The full Board’s involvement in setting the Company’s business strategy facilitates those assessments, culminating in the development of a strategic plan that reflects the Board’s and management’s consensus as to appropriate levels of risk as to specific aspects of the Company’s business and the appropriate measures to manage those risks. Additionally, the full Board of Directors participates in a periodic enterprise risk management assessment during its quarterly meetings. In this process, risk is assessed throughout the business, focusing on risks arising out of various aspects of the Company’s strategic plan and its implementation, including financial, legal/compliance, operational/strategic and compensation risks. The Board also assesses its role in

risk oversight throughout our business. In addition to the discussion of risk with the full Board at least once a year, the independent directors discuss risk management during executive sessions without management present with the Lead Director presiding.

While the full Board of Directors has the ultimate oversight responsibility for the risk management process, various Board committees also have responsibility for risk management in certain areas. In particular, the audit committee focuses on financial risk, including internal controls, and assesses the Company’s risk profile with the Company’s internal auditors. The internal controls risk profile drives the internal audit plan for the coming year. The audit committee also handles violations of the Company’s Code of Ethics and related corporate policies. Finally, the compensation committee periodically reviews compensation practices and policies to confirm that they do not encourage excessive risk taking. Management regularly reports on each such risk to the relevant committee or the full Board, as appropriate, and additional review or reporting on enterprise risks is conducted as needed or as requested by the Board or the relevant committee.

 

 

The board of directors      4   


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2013 Director compensation

 

The table below summarizes the compensation paid by the Company to non-management directors for the fiscal year ended December 31, 2013.

 

Name   Fees
earned  or
paid in cash
($)
    Equity
awards
(1) ($)
   

All

other

compensation

   

Total

($)

 
Leroy T. Barnes, Jr.     151,430        110,000               261,430   
Richard P. Bermingham     143,262        110,000               253,262   
Carole Black     98,000        110,000               208,000   
Pedro Cardoso     87,000        110,000        1,362,340 (2)      1,559,340   
Dr. Richard Carmona     18,484        110,000               128,484   
Jonathan Christodoro     55,664        110,000               165,664   
Keith Cozza     48,063        110,000               158,063   
Jeffrey T. Dunn     121,500        110,000               231,500   
Michael J. Levitt     140,471        380,859               521,330   
Colombe M. Nicholas     99,500        110,000               209,500   
Maria Otero     5,704        110,000               115,704   
John Tartol     89,146        110,000        3,044,611 (3)      3,243,757   

 

(1)   Amounts represent the aggregate grant date fair value of the relevant award(s) presented in accordance with ASC Topic 718, “Compensation—Stock Compensation.” See note 9 of the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 regarding assumptions underlying the valuation of equity awards.

 

(2)   Amount includes $20,400 in fees for speaking at Herbalife events, $7,200 in gifts and $1,334,740 in compensation under the Company’s Marketing Plan resulting from Mr. Cardoso’s activities as an Herbalife Member.

 

(3)   Amount includes $87,000 in fees for speaking at Herbalife events, $7,200 in gifts and $2,950,411 in compensation under the Company’s Marketing Plan resulting from Mr. Tartol’s activities as an Herbalife Member.

 

Each non-management director receives (i) $70,000 per year for services as a director and $5,000 for each Board committee on which the director served, an additional $20,000 per year for the Lead Director, an additional $15,000 per year for the chair of the audit committee, an additional $10,000 per year for the chair of the compensation committee and an additional $10,000 per year for the chair of the nominating and corporate governance committee, (ii) $1,500 for each Board meeting attended by the director in person or $1,000 per Board meeting attended telephonically, (iii) $2,500 for each audit committee meeting attended either in person or telephonically and (iv) $1,500 for each compensation committee and for each nominating and corporate governance committee meeting attended either in person or telephonically. Cash fees with respect to Board or committee membership or service as the Lead Director or a committee chair are paid ratably assuming twelve consecutive months of service from the date the particular membership or service commences. Cash fees for attending Board or committee meetings are paid in the month following the meeting date. Non-management directors also receive an annual equity grant pursuant to the Company’s Amended and Restated Non-Management Directors Compensation Plan, which is part of the Herbalife Ltd. Amended and Restated 2005 Stock Incentive Plan, in the form of stock-settled stock appreciation rights, or SARs, with a grant date fair value

(as determined for financial reporting purposes) of $110,000 (rounded down to the nearest whole unit).

In 2013, in recognition of the fact that the amount of time and effort required of our Lead Director had increased significantly, the Board increased the compensation payable to our Lead Director by an additional $125,000 per year paid in the form of an award of restricted stock units, or RSUs, that vest on continuation of service as Lead Director in ratable amounts over each quarter over the life of the award. Our Lead Director typically serves for a two-year term and the appointment is reconsidered biannually concurrently with our annual general meeting of shareholders. When Mr. Levitt was appointed our Lead Director on February 24, 2013, his award had a grant date fair value of $270,859, covering his incremental compensation for serving as Lead Director from February 2013 through the Meeting and for the normal two-year term that follows.

The Company has adopted stock ownership guidelines applicable to each non-management director. Specifically, each non-management director is encouraged to hold Common Shares and/or vested equity awards with a value equal to five times such director’s annual retainer within two years of such director’s appointment or election to the Board of Directors. As of the date of this Proxy Statement, all Board members who have served for two or more years are in compliance with our guidelines.

 

 

5    The board of directors


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The table below summarizes the equity-based awards held by the Company’s non-management directors as of December 31, 2013.

 

Name   Options/
Stock appreciation rights
    Stock unit awards         
   

Number of

securities

underlying

unexercised

options/SARs

(#)

exercisable

   

Number of

securities

underlying

unexercised

options/SARs

(#)

un-exercisable

    Number of
Shares or
units of
stock that
have not
vested
(#)
   

Market
value of
Shares or
units of

stock that
have not
vested
(1)
($)

   

Exercise

price

($)

   

Expiration

date

 
Leroy T. Barnes, Jr.     8,824                   6.82        02/27/2016   
Leroy T. Barnes, Jr.     13,064                   22.94        05/07/2017   
Leroy T. Barnes, Jr.     5,452                   53.29        05/18/2018   
Leroy T. Barnes, Jr.     7,503                   44.79        05/31/2019   
Leroy T. Barnes, Jr.     2,263        2,263            79.58        12/19/2020   
Richard P. Bermingham     30,000                   6.82        02/27/2016   
Richard P. Bermingham     7,503                   44.79        05/31/2019   
Richard P. Bermingham     2,263        2,263            79.58        12/19/2020   
Carole Black     5,452                   53.29        05/18/2018   
Carole Black     7,503                   44.79        05/31/2019   
Carole Black     2,263        2,263            79.58        12/19/2020   
Pedro Cardoso     13,064                   22.94        05/07/2017   
Pedro Cardoso     5,452                   53.29        05/18/2018   
Pedro Cardoso     7,503                   44.79        05/31/2019   
Pedro Cardoso     2,263        2,263            79.58        12/19/2020   
Richard Carmona     2,263        2,263            79.58        12/19/2020   
Jonathan Christodoro     2,263        2,263            79.58        12/19/2020   
Keith Cozza     2,263        2,263            79.58        12/19/2020   
Maria Otero     2,263        2,263            79.58        12/19/2020   
Jeffrey T. Dunn     4,170                   20.90        11/11/2016   
Jeffrey T. Dunn     13,064                   22.94        05/07/2017   
Jeffrey T. Dunn     5,452                   53.29        05/18/2018   
Jeffrey T. Dunn     7,503                   44.79        05/31/2019   
Jeffrey T. Dunn     2,263        2,263            79.58        12/19/2020   
Michael J. Levitt     5,452                   53.29        05/18/2018   
Michael J. Levitt     7,503                   44.79        05/31/2019   
Michael J. Levitt     2,263        2,263            79.58        12/19/2020   
Michael J. Levitt(1)         5,262        414,119        0.00        02/25/2020   
Colombe M. Nicholas     46,824                   6.82        02/27/2016   
Colombe M. Nicholas     13,064                   22.94        05/07/2017   
Colombe M. Nicholas     5,452                   53.29        05/18/2018   
Colombe M. Nicholas     7,503                   44.79        05/31/2019   
Colombe M. Nicholas     2,263        2,263                          79.58        12/19/2020   
John Tartol     13,064                   22.94        05/07/2017   
John Tartol     5,452                   53.29        05/18/2018   
John Tartol     7,503                   44.79        05/31/2019   
John Tartol     2,263        2,263                        79.58        12/19/2020   

 

(1)   Market value based on the closing price of a Common Share on the NYSE on December 31, 2013 of $78.70.

 

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Shareholder communications with the board of directors

 

 

Shareholders and other parties interested in communicating directly with the Board of Directors, non-management directors as a group or individual directors, including Michael Levitt in his capacity as the Lead Director, may do so by writing to Herbalife Ltd., c/o Assistant Corporate Secretary, 800 W. Olympic Blvd, Suite 406, Los Angeles, CA 90015, or by email at corpsec@herbalife.com, indicating to whose attention the communication should be directed. Under a process approved by the Board of Directors for handling communications received by the Company and addressed to non-management directors, the Corporate Secretary of the Company reviews all such correspondence and forwards to members of the audit committee a summary

and/or copies of any such correspondence that, in the opinion of the Corporate Secretary, deal with the functions of the Board of Directors or committees thereof, or that he otherwise determines requires their attention. Directors may at any time review a log of all communications received by the Company and addressed to members of the Board of Directors and request copies of any such correspondence. Concern relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s internal audit department and handled in accordance with procedures established by the audit committee with respect to such matters.

 

Committees of the board

 

 

Our Board of Directors has a standing audit committee, nominating and corporate governance committee, and compensation committee.

Audit committee

During 2013 the audit committee consisted of Messrs. Barnes, Bermingham and Levitt. Each director who served on the audit committee in 2013 is independent as discussed above under “— Director Independence.” As required by Rule 303A.07 of the NYSE Listed Company Manual, the Board of Directors has affirmatively determined that each of Messrs. Barnes, Bermingham and Levitt is financially literate, and that Mr. Bermingham is an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K. Mr. Barnes currently serves on the audit committee of four public companies. As required by Rule 303A.07 of the NYSE Listed Company Manual, the Board of Directors has affirmatively determined that Mr. Barnes’ simultaneous services on the audit committees of more than three public companies would not impair his ability to effectively serve on the Company’s audit committee.

The principal duties of the audit committee are as follows:

 

 

to monitor the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and reporting;

 

 

to monitor the independence and performance of the Company’s independent auditors and internal auditing department; and

 

to provide an avenue of communication among the independent auditors, management, the internal auditing department and the Board of Directors.

Our Board of Directors has adopted a written charter for the audit committee which is available on the Company’s website at www.herbalife.com by following the links through “Investor Relations” to “Corporate Governance,” and in print to any shareholder who requests it as set forth under Part 7 — ”Annual report, financial and additional information.” In 2013, the audit committee met eleven times.

Nominating and corporate governance committee

During 2013, the nominating and corporate governance committee consisted of Mme. Nicholas and Messrs. Barnes and Dunn. Each director who served on the nominating and corporate governance committee in 2013 is independent as discussed above under “— Director Independence.” The principal duties of the nominating and corporate governance committee are as follows:

 

 

to recommend to the Board of Directors proposed nominees for election to the Board of Directors both at annual general meetings and to fill vacancies that occur between annual general meetings; and

 

 

to review and make recommendations to the Board of Directors regarding the Company’s corporate governance matters and practices.

 

 

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In identifying candidates to serve on the Board, the nominating and corporate governance committee first determines the evolving needs of the Board taking into account such factors as it deems appropriate, including, among others, the current composition of the Board of Directors, the range of talents, experiences and skills that would best complement those already represented on the Board of Directors, the balance of management and independent directors and the need for financial or other specialized expertise, as discussed in greater detail below under Part 3 — “Proposal 1: The Election of Directors —Director Qualifications.” Applying these criteria, the nominating and corporate governance committee considers candidates for director suggested by its members and other directors, as well as by management and shareholders. The nominating and corporate governance committee also retains a third-party executive search firm on an ad-hoc basis to identify and review candidates upon request of the committee from time to time.

If the nominating and corporate governance committee decides, on the basis of its preliminary review, to proceed with further consideration, the committee members, as well as other directors as appropriate, interview the nominee. After completing this evaluation and interview, the nominating and corporate governance committee makes a recommendation to the full Board of Directors, which makes the final determination whether to nominate the candidate after considering the nominating and corporate governance committee’s report.

A shareholder who wishes to recommend a prospective nominee for the Board of Directors pursuant to the provisions of the Amended and Restated Memorandum and Articles of Association, or the Memorandum and Articles of Association, should notify the Corporate Secretary in writing with the appropriate supporting materials, as more fully described under Part 7 — “Shareholder nominations.”

The Board of Directors has adopted a written charter for the nominating and corporate governance committee, which is available on the Company’s website at www.herbalife.com by following the links through “Investor Relations” to “Corporate Governance” or in print to any shareholder who requests it as set forth under Part 7 — “Annual report, financial and additional information.” In 2013, the nominating and corporate governance committee met six times.

Compensation committee

From January 1, 2013 through July 27, 2013, the compensation committee consisted of Mme. Black and Messrs. Bermingham and Dunn. Since July 27, 2013, the compensation committee has consisted of Mme. Black and Messrs. Bermingham, Christodoro and Dunn. Each director who served on the compensation committee in 2013 is independent as discussed above under “— Director Independence.” The principal duties of the compensation committee are as follows:

 

 

to oversee and approve compensation policies and programs;

 

 

to review and approve corporate goals and objectives relevant to the compensation of the Company’s CEO and other executive officers;

 

 

to evaluate the performance of the CEO and recommend the compensation level of the CEO for approval by the independent members of the Board of Directors;

 

 

to evaluate the performance of certain executive officers and, considering the CEO’s recommendations, set the compensation level for such executive officers;

 

 

to administer existing incentive compensation plans and equity-based plans;

 

 

to oversee regulatory compliance with respect to executive compensation matters; and

 

 

to review the compensation of directors.

Among other duties, the compensation committee is responsible for making the initial risk assessment of the Company’s compensation programs and determining whether those programs require modification to remain consistent with the Board’s determinations as to the levels of risk that are appropriate for the Company. In its assessment, the compensation committee reviewed the Company’s compensation structure and noted numerous ways in which risk is potentially mitigated by practices and policies that include: the balanced mix between short- and long-term incentives; the use of multiple performance measures for the CEO’s annual incentive awards; strong internal controls; the use of stock ownership guidelines; and the existence of an anti-hedging policy. In light of its analysis, the committee believes that the architecture of the Company’s compensation programs provide various safeguards to protect against undue risk-taking.

 

 

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Our Board of Directors has adopted a written charter for the compensation committee which is available on the Company’s website at www.herbalife.com by following the links through “Investor Relations” to “Corporate

Governance” or in print to any shareholder who requests it as set forth under Part 7 — “Annual report, financial and additional information.” In 2013, the compensation committee met seven times.

 

 

Compensation committee interlocks and insider participation

 

 

During the fiscal year ended December 31, 2013, Mme. Black and Messrs. Bermingham, Christodoro and Dunn served on the compensation committee of the Board of Directors. During the fiscal year ended December 31,

2013, there were no relationships or transactions between the Company and any member of the compensation committee requiring disclosure hereunder.

 

 

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  Part 3

 

 

Proposals to be voted on at the
meeting

 

Proposal 1: The election of directors

 

 

Generally

Our Memorandum and Articles of Association presently provide for not less than one nor more than fifteen directors. The Board of Directors has, by resolution, presently fixed the number of directors at thirteen. The Memorandum and Articles of Association divide the Board of Directors into three classes, with the terms of office of each class of directors currently ending in different years. Currently the Board consists of four directors in Class I, four in Class II and five in Class III. The current terms of office of Class I directors end at the Meeting. The current terms of office of Class II and Class III directors end at the Company’s annual general meetings of shareholders in 2015 and 2016, respectively. The term of office of the Class I directors elected at the Meeting will end at the annual general meeting in 2016. Effective in 2016, and pursuant to an amendment to the Memorandum and Articles of Association approved at the 2013 annual general meeting, all Board members will serve one-year terms and these three classes will be consolidated into a single class.

On March 22, 2014, each of Mr. Levitt and Ms. Black informed the Board that they would decline to stand for re-election at the Meeting and Ms. Nicholas informed the Board that she would resign from her Class II directorship effective as of the Meeting. The Board has nominated each of Michael Johnson, John Tartol, Hunter Gary and Jesse Lynn for election as Class I directors to serve two year terms expiring at the 2016 annual general meeting. In addition, the Board has nominated Mr. James L. Nelson as a Class II director to serve the remainder of the term of the directorship vacated by Ms. Nicholas. The nominations of Messrs. Gary, Lynn and Nelson were made pursuant to that certain Amended and Restated Support Agreement, or the Support Agreement, dated March 23, 2014, by and between the Company and Carl C. Icahn, Icahn Partners Master Fund LP, Icahn Offshore LP, Icahn Partners LP, Icahn Onshore LP, Beckton Corp., Hopper Investments LLC, Barberry Corp., High River Limited Partnership, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P. and Icahn Enterprises G.P. Inc., or collectively, the Icahn Parties. A copy of the Support Agreement was filed by the Company on Form 8-K on March 24, 2014. The Support

Agreement provides that, among other things, the Company will nominate two designees of the Icahn Parties (Messrs. Gary and Lynn) for election to Class I directorships at the Meeting and one designee of the Icahn Parties (Mr. Nelson) to serve the remainder of the term of the Class II directorship being vacated. In consideration of these nominations, the Icahn Parties have agreed to vote their common shares in favor of the Board’s nominees for director at the Meeting and thereafter for so long as any Icahn Party designee is a member of the Board. The Icahn Parties beneficially own approximately 16.8% of our common shares. The Support Agreement also includes standstill and voting provisions applicable to the Icahn Parties’ ownership of Company common shares. The Company did not receive any shareholder nominations for director.

The persons named as proxies on the accompanying proxy card intend to vote the Common Shares as to which they are granted authority to vote for the election of the nominees listed above. The form of proxy card does not permit shareholders to vote for a greater number of nominees than five. Although the Board of Directors does not know of any reason why any nominee will be unavailable for election, in the event any nominee should be unavailable at the time of the Meeting, the proxies may be voted for a substitute nominee as selected by the Board of Directors.

Director qualifications

The Board believes that the Board, as a whole, should possess a combination of skills, professional experience and diversity of backgrounds necessary to oversee the Company’s business. In addition, the Board believes that there are certain attributes that every director should possess, as reflected in the Board’s membership criteria discussed below. Accordingly, the Board and the nominating and corporate governance committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.

 

 

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The nominating and corporate governance committee is responsible for developing and recommending Board membership criteria to the Board for approval. The criteria, which are set forth in the Company’s Principles of Corporate Governance, are available on the Company’s website, www.herbalife.com, by following the links through “Investor Relations” to “Corporate Governance,” and include business experience and skills, independence, judgment, integrity, the ability to commit sufficient time and attention to Board activities and the absence of potential conflicts with the Company’s interests. In addition, the nominating and corporate governance committee periodically evaluates the composition of the Board to assess the skills and experience that are currently represented on the Board, as well as the skills and experience that the Board will find valuable in the future, given the Company’s current situation and strategic plans. The nominating and corporate governance committee seeks a variety of occupational, educational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the Board in such areas as professional experience, geography, race, gender, ethnicity and age. While the nominating and corporate governance committee does not have a formal policy with respect to diversity, the nominating and corporate governance committee

believes that it is essential that Board members represent diverse viewpoints. This periodic assessment enables the Board to update the skills and experience it seeks in the Board as a whole, and in individual directors, as the Company’s needs evolve and change over time and to assess effectiveness of efforts at pursuing diversity. In identifying director candidates from time to time, the nominating and corporate governance committee may establish specific skills and experience that it believes the Company should seek in order to constitute a balanced and effective Board.

In evaluating director candidates, and considering incumbent directors for renomination to the Board, the nominating and corporate governance committee has considered a variety of factors. These include each nominee’s independence, financial literacy, personal and professional accomplishments and experience, each in light of the composition of the Board as a whole and the needs of the Company in general, and for incumbent directors, past performance on the Board. The process undertaken by the nominating and corporate governance committee in recommending qualified director candidates is described above under Part 2 — “Committees of the board — Nominating and corporate governance committee.”

 

 

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Set forth below is information about the five nominees and the directors whose terms of office continue beyond the Meeting, including each such person’s specific experience, qualifications, attributes and skills that led our Board of Directors to conclude that such nominee/director should serve on our Board of Directors.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” MICHAEL O. JOHNSON, JOHN TARTOL, HUNTER C. GARY, JESSE A. LYNN AND JAMES L. NELSON.

Class I nominees

 

LOGO  

Michael O. Johnson

Age 59

 

Class I

Director since 2003

Mr. Johnson is Chairman and Chief Executive Officer of the Company. Mr. Johnson joined the Company in April 2003 as Chief Executive Officer and became Chairman of the Board in May 2007. Mr. Johnson spent 17 years with The Walt Disney Company, where he most recently served as President of Walt Disney International, and also served as President of Asia Pacific for The Walt Disney Company and President of Buena Vista Home Entertainment. Mr. Johnson has also previously served as a publisher of Audio Times magazine, and has directed the regional sales efforts of Warner Amex Satellite Entertainment Company for three of its television channels, including MTV, Nickelodeon and The Movie Channel. Mr. Johnson formerly served as a director of Univision Communications, Inc., a television company serving Spanish-speaking Americans until March 2007, and on the Board of Regents for Loyola High School of Los Angeles. Mr. Johnson received his Bachelor of Arts in Political Science from Western State College.

Mr. Johnson’s qualifications to serve on our Board include his ten years of experience as our Chief Executive Officer, his six years of experience as our Chairman, and his significant experience in international business matters.

LOGO  

John Tartol

Age 62

 

Class I

Director since 2005

Mr. Tartol has been an independent Herbalife Member for 31 years and a member of the Company’s Chairman’s Club since 2000. He is active in training other Herbalife members all over the world and has served on various strategy and planning groups for Herbalife. He is also active on behalf of various charities in his community and worldwide on behalf of the Herbalife Family Foundation. He has a Bachelor’s degree in finance from the University of Illinois.

Mr. Tartol’s qualifications to serve on our Board include his 31 years of experience as an Herbalife Member, which brings a first-hand understanding of the function and specific needs of our independent Members, the ultimate drivers of our business, to the Board. His tenure as a Member also provides valuable insight into the Company’s growth and development over the 31-year period.

 

 

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LOGO

 

Hunter C. Gary

Age 39

 

Class I

Proposed New Director

Hunter C. Gary, age 39, has been a director of Cadus, a company focused on licensing yeast-based and other drug discovery technologies to third parties, since February 2014 and as President and Chief Executive Officer since March, 2014. He has served as Senior Vice President of Icahn Enterprises L.P. (a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion) since November 2010. Prior to that time, Mr. Gary has been employed by Icahn Associates Corporation, an affiliate of Icahn Enterprises L.P., in various roles since June 2003, most recently as the Chief Operating Officer of Icahn Sourcing LLC. From 1997 to 2002, Mr. Gary worked at Kaufhof Warenhaus AG, a subsidiary of the Metro Group AG, most recently as a Managing Director. Mr. Gary has been a director of: Federal-Mogul Corporation, a supplier of automotive powertrain and safety components, since October 2012; Viskase Companies Inc., a meat casing company, since August 2012; PSC Metals Inc., a metal recycling company, since May 2012; XO Holdings, a competitive provider of telecom services, since September 2011; Tropicana Entertainment Inc., a company that is primarily engaged in the business of owning and operating casinos and resorts, since March 2010; Tropicana Entertainment Cayman Holdings Co. Ltd. since January 2011; American Railcar Industries, Inc., a railcar manufacturing company, since January 2008; Voltari Corporation, a mobile data services provider, since October 2007; and WestPoint Home LLC, a home textiles manufacturer, since June 2007. Federal-Mogul, Viskase Companies, PSC Metals, XO Holdings, Tropicana Entertainment, American Railcar Industries and WestPoint Home each are indirectly controlled by Carl C. Icahn. Mr. Icahn also has a non-controlling interest in Voltari through the ownership of securities. Mr. Gary is married to Mr. Carl Icahn’s wife’s daughter. Mr. Gary received his B.S. with senior honors from Georgetown University as well as a certificate of executive development from Columbia Graduate School of Business. Mr. Gary’s qualifications to serve on our Board include his experience in corporate finance and his experience as a director of various public companies. Mr. Gary was recommended by the Icahn Parties pursuant to the Support Agreement.

 

Jesse A. Lynn

 

Class I

Proposed New Director

Jesse A. Lynn, age 43, has been Assistant General Counsel of Icahn Enterprises L.P. (a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion) since September 2004. From February 2000 until September 2004, Mr. Lynn worked as an associate in the New York office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in its business and finance department. From September 1996 until February 2000, Mr. Lynn was an associate in the corporate group at Gordon Altman Butowsky Weitzen Shalov & Wein. Mr. Lynn received a B.A. in 1992 from the University of Michigan and a J.D. in 1996 from the Boston University School of Law. Mr. Lynn was recommended by the Icahn Parties pursuant to the Support Agreement.

 

 

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Class II Nominee

 

LOGO  

James L. Nelson

 

Class II

Proposed New Director

James L. Nelson has served as a director and member of the audit committee of Icahn Enterprises GP (IEP) since June 2001. Mr. Nelson has served as a director and member of audit committees of the Viskase Companies, Inc. from April 2003 through April 2010, American Entertainment Properties Corp. from May 2005 until November 2007, and Atlantic Coast Entertainment Holdings, Inc. from May 2005 until November 2007. Mr. Nelson has been a director of Tropicana Entertainment Inc. since March 2010 and was a member of the audit committee from March 2010 until December 2013. Mr. Nelson was Chairman and Chief Executive Officer of Eaglescliff Corporation, a specialty investment banking, consulting and wealth management company from 1986 until 2009. From March 1998 through 2003, Mr. Nelson was Chairman and Chief Executive Officer of Orbit Aviation, Inc., a company engaged in the acquisition and completion of Boeing Business Jets for private and corporate clients. From August 1995 until July 1999, Mr. Nelson was Chief Executive Officer and Co-Chairman of Orbitex Management, Inc., a financial services company the mutual fund sector. From August 1995 until March 2001, he was on the Board of Orbitex Financial Services Group. From January 2008 through June 2008, Mr. Nelson served as a director and member of the audit committee of Shuffle Master, Inc., a gaming manufacturing company. From March 2008 until March 2010, Mr. Nelson was a director and served on the audit committee of Pacific Energy Resources Ltd., an energy producer. From April 2008 to November 2012, Mr. Nelson served as a director and as Chairman of the audit committee of the board of directors of Cequel Communications, an owner and operator of a large cable television system. From April 2010 through November 2013, Mr. Nelson served as a director and member of the audit committee of Take Two Interactive Software, Inc. a publisher, developer, and distributor of video games and video game peripherals. Since June 2011,. Mr. Nelson has served as a director and member of the compensation, governance and strategic alternatives committees of Voltari Corporation (f/k/a Motricity Inc.) and since January 2012, Chairman of its board of directors. Since May 2013, Mr. Nelson has served as a director of Single Touch Systems, Inc., a mobile media solutions provider. Since November 2013, Mr. Nelson has served as a director of VII Peaks Co-Optivist Income BDC II, Inc., an externally managed, closed-end

management investment company. Mr. Nelson brings to his service as a director his significant experience in leadership roles serving as Chief Executive Officer, Director and Chairman of audit committee’s. Mr. Nelson was recommended by the Icahn Parties pursuant to the Support Agreement.

 

 

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Continuing directors

 

LOGO  

Pedro Cardoso

Age 47

 

Class II

Director since 2009

 

Mr. Cardoso has been an independent Herbalife Member for 22 years and a member of the Company’s Chairman’s Club since 2005. Mr. Cardoso has built a successful organization of Herbalife independent Members in several countries. He has been active in training Herbalife Members around the world, and is a member of various strategy and planning groups for Herbalife. He is also an active volunteer for the Herbalife Family Foundation. Prior to joining Herbalife, Mr. Cardoso served as the Transportation Supervisor of the Avon Company from 1990 to 1992. He received his degree in applied mathematics from the Autonomous University of Lisbon.

Mr. Cardoso’s qualifications to serve on our Board include his 22 years of experience as an Herbalife Member, which brings a first-hand understanding of the function and specific needs of our independent Members, the ultimate drivers of our business, to the Board. His tenure as a Member also provides valuable insight into the Company’s growth and development over the 22-year period.

 

Jonathan Christodoro

Age 37

 

Class II

Director since 2013

 

Jonathan Christodoro has served as a Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, since July 2012. Mr. Christodoro is responsible for identifying, analyzing and monitoring investment opportunities and portfolio companies for Icahn Capital. Prior to joining Icahn Capital LP, from 2007-2012, Mr. Christodoro served in various investment and research roles at P2 Capital Partners, LLC, a privately owned hedge fund sponsor, and at Prentice Capital Management, LP and S.A.C Capital Advisors, LP. Mr. Christodoro began his career as an investment banking analyst at Morgan Stanley, where he focused on merger and acquisition transactions across a variety of industries. Mr. Christodoro has been a director of: Hologic, Inc., a supplier of diagnostic, medical imaging and surgical products, since December 2013; and Talisman Energy Inc., an independent oil and gas exploration and production company, since December 2013; Enzon Pharmaceuticals, Inc., a biotechnology company, since October 2013 (and has been Chairman of the Board of Enzon since November 2013). Carl C. Icahn has a non-controlling interest in Herbalife through the ownership of securities. Mr. Christodoro received an M.B.A from the University of Pennsylvania’s Wharton School of Business with Distinction, majoring in Finance and Entrepreneurial Management. Mr. Christodoro received a B.S. in Applied Economics and Management Magna Cum Laude with Honors Distinction in Research from Cornell University. Mr. Christodoro also served in the United States Marine Corps.

Mr. Christodoro’s qualifications to serve on our Board include his service on other boards as well as his extensive investment, research and investment banking experience in a variety of industries.

 

 

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LOGO

 

Keith Cozza

Age 35

 

Class II

Director since 2013

Keith Cozza has been the President and Chief Executive Officer of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion, since February 2014. Mr. Cozza has served as Chief Operating Officer of Icahn Capital LP, the subsidiary of Icahn Enterprises through which Carl C. Icahn manages investment funds, since February 2013. From February 2013 to February 2014, Mr. Cozza served as Executive Vice President of Icahn Enterprises. Mr. Cozza is also the Chief Financial Officer of Icahn Associates Holding LLC, a position he has held since 2006. Mr. Cozza served as Controller at Icahn Associates Holding LLC from 2004 to 2006. Prior to that Mr. Cozza was a senior assurance associate at Grant Thornton LLP. Mr. Cozza has been a director of: Tropicana Entertainment Inc., a company that is primarily engaged in the business of owning and operating casinos and resorts, since February 2014; PSC Metals Inc., a metal recycling company, since February 2014; Icahn Enterprises L.P., since September 2012; and XO Holdings, a competitive provider of telecom services, since August 2011. Mr. Cozza was previously a director of CVR Refining, LP, an independent downstream energy limited partnership, from January 2013 to February 2014; and MGM Holdings Inc., an entertainment company focused on the production and distribution of film and television content, from April 2012 to August 2012. CVR Refining, Icahn Enterprises, PSC Metals, Tropicana and XO Holdings are indirectly controlled by Carl C. Icahn. Mr. Icahn also has or previously had a non-controlling interest in Herbalife and MGM Holdings through the ownership of securities. Mr. Cozza holds a B.S. in Accounting from the University of Dayton.

Mr. Cozza’s qualifications to serve on our Board include his service on other public company boards as well as his significant corporate, finance, accounting and investment experience.

LOGO

 

Leroy T. Barnes, Jr.

Age 62

 

Class III

Director since 2004

Mr. Barnes is the retired Vice President and Treasurer of PG&E Corporation, a position he held from 2001 to 2005. From 1997 to 2001, Mr. Barnes was Vice President and Treasurer of Gap, Inc. Prior to that, Mr. Barnes held various executive positions with Pacific Telesis Group/SBC Communications. Earlier in his career, Mr. Barnes was a consultant at Touche, Ross & Co., a predecessor of Deloitte & Touche. Mr. Barnes received his Bachelor’s and Master’s degrees from Stanford University, and his MBA from Stanford Business School. Mr. Barnes is a member of the boards of directors of Principal Funds, Inc., Principal Variable Contracts, Inc., The McClatchy Company, a newspaper and Internet publisher, and Frontier Communications Corporation, a telecommunications-focused company, and was a member of the board of directors of Longs Drug Stores Corporation from February 2002 through October 2008.

Mr. Barnes’ qualifications to serve on our Board include his past professional financial experience, which provides the Board with valuable knowledge of financial matters, as well as his experience serving on other public company boards, which adds a depth of knowledge to our Board as to best practices in corporate governance.

 

 

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LOGO

 

Richard P. Bermingham

Age 74

 

Class III

Director since 2004

Mr. Bermingham is currently retired, and has over 40 years of business experience. From 1994 to 1997, Mr. Bermingham was the Vice Chairman of the Board of American Golf. Mr. Bermingham worked for Collins Food International, which was acquired by Sizzler International, Inc., from 1967 to 1994. He served as the Chief Executive Officer and a member of the board of directors of this publicly traded company for the period from 1987 to 1994. Mr. Bermingham currently serves on the board of Special Value Expansion Fund, LLC. Additionally, Mr. Bermingham served on the board of Ignite Restaurant Group, Inc. until December 31, 2013, the board of Interactive Health, Inc. until May 2011 and the board of EaglePicher Corp. until 2012. Mr. Bermingham was a certified public accountant and received his Bachelor of Science degree from the University of Colorado.

Mr. Bermingham’s qualifications to serve on our Board include his significant consumer marketing experience, which is relevant to the Company’s business operations in selling and manufacturing packaged food and nutritional supplement products; his past professional financial experience, which provides the Board with important knowledge regarding financial reporting rules; his prior service as a chief executive officer, which helps the Board better understand management’s day-to-day actions and responsibilities; and his service on other public company boards, which adds a depth of knowledge to our Board as to best practices in corporate governance.

LOGO  

Dr. Richard Carmona

Age 64

 

Class III

Director since 2013

Dr. Carmona has been Vice Chairman of Canyon Ranch, a life-enhancement company, since October 2006. He also serves as Chief Executive Officer of the Canyon Ranch Health division and president of the nonprofit Canyon Ranch Institute. He is also the first Distinguished Professor of Public Health at the Mel and Enid Zuckerman College of Public Health at the University of Arizona. Prior to joining Canyon Ranch, Dr. Carmona served as the 17th Surgeon General of the United States from August 2002 through July 2006. Previously, he was Chairman of the State of Arizona Southern Regional Emergency Medical System; a professor of surgery, public health, and family and community medicine at the University of Arizona; and surgeon and deputy sheriff of the Pima County, Arizona, Sheriff’s Department. Dr. Carmona served in the U.S. Army and the Army’s Special Forces. Dr. Carmona is a director of Taser International Healthline Networks, and Clorox.

Dr. Carmona’s qualifications include his extensive experience in public health and clinical sciences. His commitment to prevention as an effective means to improve public health and reduce health care costs brings valuable and significant insight to the Board, and his experience serving on other public company boards adds a depth of knowledge as to best practices in corporate governance.

 

 

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LOGO  

Jeffrey T. Dunn

Age 56

 

Class III

Director since 2009

Mr. Dunn has served as the President and Chief Executive Officer of Bolthouse Farms, a premier health and wellness company located in Bakersfield, California, since May 2008. Bolthouse Farms is the North American leader in growing/processing of fresh carrots as well as a growing national brand of super-premium juices and smoothies. From January 2006 through December 2007, Mr. Dunn served as the President and Chief Executive Officer of Ubiquity Brands, Inc., the parent company of Jay Foods, Inc., a Midwestern manufacturer and marketer of snacks, and prior to Ubiquity was the Managing Partner of Grassy Lakes Partners, an investment and consulting firm. From 1985 to 2004, Mr. Dunn held a variety of senior executive positions with The Coca-Cola Company, serving most recently as Executive Vice President, President and Chief Operating Officer of Coca-Cola North America and previously serving as President and Chief Operating Officer of Coca-Cola Americas. Mr. Dunn received his Bacherlor’s degree in business administration from the University of Georgia and his MBA from Pepperdine University. In 2010, Mr. Dunn was appointed to the advisory board of the U.S. Food Day Initiative for the Center for Science in the Public Interest.

Mr. Dunn’s qualifications to serve on our Board include his significant consumer marketing experience, which is relevant to the Company’s business operations in selling and manufacturing packaged food and nutritional supplement products; his significant knowledge and experience regarding international business matters, which is relevant to the Company in light of its operations across 91 countries worldwide; and his service as a chief executive officer, which helps the Board better understand management’s day-to-day actions and responsibilities.

LOGO  

Maria Otero

Age 63

 

Class III

Director since 2013

Maria Otero, age 63, currently serves on the Council on Foreign Relations and serves on the boards of Kresge Foundation, Public Welfare Foundation and Development Alternatives Inc. She has chaired the board of Bread for the World, and also served on the boards of the Calvert Foundation, U.S. Institute for Peace, the Inter-American Foundation and BRAC in Bangladesh. Ms. Otero also worked as an economist for Latin America and the Caribbean in the Women in Development Office of USAID. In 1986, Ms. Otero joined Accion, one of the first micro lending organizations in the world, as country director in Honduras. In 2000, President Clinton appointed Otero to the board of the United States Institute of Peace, where she served for eight years. In 2006 she was appointed by Secretary General Kofi Annan to the U.N. Advisors Group on Inclusive Financial Sectors. In June 2009, Otero was nominated to serve as undersecretary for Democracy and Global Affairs, which made her the highest ranking Hispanic official at the State Department, and the first Latina undersecretary in its history. On January 17, 2012, Secretary Clinton named Maria Otero as undersecretary for Civilian Security, Democracy, and Human Rights, a newly created office and position at the State Department. During her time at the Department of State, Under Secretary Otero also served as the President’s Special Coordinator for Tibetan Issues. Otero holds an M.A. in literature from the University of Maryland; an M.A. in international relations from the Paul H. Nitze School of Advanced International Studies (SAIS), at the Johns Hopkins University; and an honorary Doctorate of Humane Letters from Dartmouth College.

Ms. Otero’s qualifications include an expansive career focused on empowering those less fortunate around the world, and her leadership, extensive public service and microfinance experience which add a valuable breadth and depth of knowledge to the Board.

 

 

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Proposal 2: Advise as to the Company’s executive compensation

 

 

Our executive compensation program is intended to attract, motivate and retain a talented and high-performing executive team to lead the Company’s success selling food, dietary supplements and personal care products that are regulated at varying levels in the markets where we operate through a direct selling business channel. The Company’s executive compensation program is designed to incent and create long-term growth and enhanced value for shareholders and is simple in design. The vast majority of the compensation of the Company’s named executive officers — the officers identified in Part 4 — “Compensation discussion

and analysis” — is tied to Company operating and share price performance. Volume Point growth, operating income and earnings per share are used to determine executives’ annual incentive compensation. Long term incentives were provided to our named executive officers in 2013 in the form of an annual grant of SARs that are subject to performance and service criteria. These awards directly align the long-term interests of our executives with those of our shareholders.

 

 

The Board of Directors believes the compensation program for our named executive officers was instrumental in helping the Company achieve strong financial performance over the past several years. In 2013, the Company posted strong operating results in a challenging economic environment. These included Volume Point growth of 13% and increases in operating income and diluted earnings per share of 11% and 25%, respectively, as reflected below:

 

    2009     2010     2011     2012     2013     2013
Growth
  5-Year
average
growth
Volume Points (millions)     2,838        3,233        3,922        4,720        5,337      13%     14%  
Operating Income ($, millions)     296.0        387.5        562.3        661.4        735.3      11%     19%  
Earnings Per Share ($) (diluted)     1.60        2.32        3.32        3.94        4.91      25%     25%  

 

In addition, the management team accomplished major strategic objectives in 2013 that provided significant support for the Company’s continued growth and success, including:

 

 

expanding the global roll-out and member acceptance of daily consumption based sales methods;

 

 

regionalizing our sales and Member support activities to help penetrate deeper into existing markets;

 

 

launching and executing upon our “build it better” program, resulting in continuous improvement efforts throughout the Company;

 

 

increasing the Company’s vertical manufacturing capacity and capability for its key products; and

 

 

improving the number and effectiveness of our product access points and distribution facilities.

Additional information regarding the Company’s compensation program applicable to the named executive officers is described in the Part 4 — “Compensation discussion and analysis” and the related tables and

narrative disclosure. For the reasons discussed above, the Board of Directors unanimously recommends that shareholders vote in favor of the following resolution:

“Resolved, that the shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K and described in the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative disclosure, in the proxy statement.”

While the resolution is non-binding, the Board of Directors values the opinions that shareholders express in their votes and in any additional dialogue. It will consider the outcome of the vote and those opinions when making future compensation decisions. The next shareholder advisory vote on the Company’s executive compensation is expected to occur at the 2015 annual general meeting and the Company currently intends to offer shareholders this advisory vote on an annual basis.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY RESOLUTION ON THE COMPANY’S EXECUTIVE COMPENSATION.

 

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Proposal 3: Adopt the Herbalife Ltd. 2014 Stock Incentive Plan

 

 

On February 13, 2014, the Board of Directors approved and recommended for submission to the shareholders for their adoption the Herbalife Ltd. 2014 Stock Incentive Plan, or the Incentive Plan. The approval by an affirmative vote of a majority of the votes cast on the proposal (either in person or by proxy) is required for adoption.

The Board believes that the adoption of the Incentive Plan is desirable because it will promote and closely align the interests of employees, directors and consultants of the Company and its shareholders by providing the ability for the Company to award stock-based compensation and other performance-based compensation. The Board believes the Incentive Plan promotes the Company’s ability to drive performance, which the Board believes enhances long-term shareholder value; increases employee stock ownership; and enables the Company to attract and retain an outstanding employees, directors and consultants.

The Incentive Plan allows for awards that are intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code. In general, in order for the Company to be able to deduct compensation in excess of $1,000,000 paid in any one year to the Company’s chief executive officer or any of the Company’s three other most highly compensated executive officers (other than the Company’s chief financial officer), such compensation must qualify as “performance-based.” In order for awards under the Incentive Plan to be eligible to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, among other things, the material terms of the performance goals under which compensation may be paid must be disclosed to and approved by the Company’s shareholders. The material terms include (i) the employees eligible to receive compensation under the Incentive Plan, (ii) a description of the business criteria on which any performance goals are based for awards under the Incentive Plan that are intended to be “performance-based compensation” under Section 162(m) of the Code, and (iii) the maximum amount of compensation that can be paid to an employee under the Incentive Plan’s performance goals. Each of these aspects is discussed below, and approval of the Incentive Plan will constitute approval of the material terms of the performance goals.

A maximum of 5,000,000 Common Shares plus (i) any Common Shares that remained available for issuance under the Company’s Prior Plans (as defined below) as of April 29, 2014 and (ii) any Common Shares subject to outstanding awards under any Prior Plans as of April 29, 2014 that after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares), subject to adjustments as described below, will be

available for grants of awards under the Incentive Plan. As of February 28, 2014, the number of Common Shares that remain available for issuance under the Prior Plans is 1,886,911 and the number of Common Shares subject to outstanding awards is 12,068,274. The Board believes that this number of Common Shares represents a reasonable amount of potential equity dilution in light of the purposes of the Incentive Plan as described above. The 6,886,911 shares available under the Incentive Plan would represent approximately 6.06% of fully diluted Common Shares outstanding as of February 28, 2014. If the Company issues awards in amounts consistent with its three-year average burn rate described below, it is anticipated that the shares available under the Incentive Plan will meet the Company’s needs for at least three years. Assuming the Company’s shareholders approve the Incentive Plan at the Meeting, the Company will file a Registration Statement on Form S-8 to register the Common Shares available for issuance under the Incentive Plan under the Securities Act of 1933, as amended.

The following summary of the Incentive Plan is qualified in its entirety by reference to the complete text of the Incentive Plan as set forth in Appendix A to this Proxy Statement. You should read the complete text of the Incentive Plan for more details regarding the operation of the Incentive Plan.

Information regarding grants made under prior plans

The Company has historically granted equity awards under various plans, including most recently the Amended and Restated 2005 Stock Incentive Plan and the 2004 Stock Incentive Plans, which we refer to together as the Prior Plans. If the Incentive Plan is approved by the Company’s shareholders as proposed, no further awards will be made under the Prior Plans.

Information as of February 28, 2014, regarding overhang from awards outstanding under the Prior Plans is summarized in the following table:

 

Award   Number
Outstanding
    Weighted
Average
Exercise Price
    Weighted
Average
Remaining
Term
 
Options & SARs     11,878,643        $33.50        5.11 years   
Full Value Awards(1)     189,631        Not applicable        Not applicable   
Total Overhang     12,068,274                 

 

(1)   Full-value awards are awards other than stock options and SARs.
 

 

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One means of evaluating the long-term dilution from equity compensation plans is to monitor the number of equity awards granted annually, commonly referred to as “burn rate.” As shown in the following table, the

Company’s three-year average annual burn rate calculated using the methodology of ISS has been 1.63%, which is below the ISS burn rate threshold of 2.77% applied to our industry.

 

 

Year  

SAR

Options
Granted
(1)

 

Full-
Value
Shares
(RSUs)
Granted

  Total Granted(1)(2)   Weighted Average
Number  of
Common Shares
Outstanding
  Burn
Rates
(1)
2013   1,175,980   17,026   1,220,247   102,620,000
  1.18%
2012   2,109,449   0   2,109,449   112,359,006   1.88%
2011   2,099,845   24,978   2,164,787   117,540,000   1.83%
Three-Year Average           1.63%

 

(1)   Includes SARs classified as “performance” SARs under ISS methodology. There were 863,557 performance SARs granted in 2011, no performance SARs granted in 2012 and 440,735 performance SARs granted in 2013.

 

(2)   Total Granted calculation is based on the ISS methodology of weighing RSUs more heavily than SARs or stock options, using the 2.6:1 ratio found in our current 2005 Stock Incentive Plan.

 

Key features of the incentive plan

 

 

Limitation on shares requested. The maximum number of Common Shares available for grant under the Incentive Plan is 5,000,000 Common Shares, plus any Common Shares that remain available for issuance as of April 29, 2014 under, or are subject to, outstanding awards under the Prior Plans as of April 29, 2014 that after such date are canceled, expired, forfeited or otherwise not issued under the Prior Plans or settled in cash, in each case adjusted as described in the Incentive Plan.

 

 

Limitation on term of stock option grants. The term of each stock option will not exceed ten years.

 

 

Fungible share counting formula. Common Shares issued pursuant to stock options and SARs will count against the number of Common Shares available for issuance under the Incentive Plan on a one-for-one basis, whereas each Common Share issued pursuant to all other awards will count against the number of Common Shares available for issuance under the Incentive Plan as 2.13 shares.

 

 

Limitation on share recycling. Common Shares surrendered for the payment of the exercise price or withholding taxes under stock options or SARs, Common Shares subject to SARs not issued upon net settlement of such awards, and Common Shares repurchased in the open market with the proceeds of an option exercise, may not again be made available for issuance under the Incentive Plan.

 

 

No repricing or grant of discounted stock options. The Incentive Plan prohibits the repricing of options or SARs either by amending an existing award agreement or by substituting cash or a new award at a lower (or no) purchase price. The Incentive Plan prohibits the granting

   

of stock options or SARs with an exercise price less than the fair market value of a Common Share on the date of grant.

 

 

No evergreen provision. There is no “evergreen” feature pursuant to which the Common Shares authorized for issuance under the Incentive Plan can be increased automatically without shareholder approval.

Description of the incentive plan

Eligibility. Our non-employee directors, employees and consultants, and the employees and consultants of our subsidiaries, are eligible to participate in the Incentive Plan. As of February 28, 2014, we had 12 non-employee directors, approximately 7000 employees and several hundred consultants globally that were eligible to participate in the Incentive Plan. As a matter of practice, we limit plan participation among our employees to those that are director-level and above, and dramatically limit the participation of consultants. 

Administration. The Incentive Plan will be administered by the compensation committee or such other committee as designated by the Board, or the Committee. The Committee may grant awards to eligible persons and, to the extent permitted by applicable law, may delegate to (i) one or more subcommittees consisting of one or more directors and/or officers of the Company any of the authority of the Committee under the Incentive Plan or (ii) one or more officers, the right to grant awards in accordance with the terms of the Incentive Plan. The Committee may further designate or delegate to one or more additional officers or employees of the Company or any subsidiary, and/or to one or more agents, authority to assist the Committee in any or all aspects of the day-to-day administration of the Incentive Plan and/or of the

 

 

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awards granted under the Incentive Plan. The Committee has broad authority, as stated in the Incentive Plan, to interpret and administer the Incentive Plan and related agreements and documents and to take various other actions with respect thereto.

Common shares available under the Incentive Plan

Subject to adjustment as provided for in the Incentive Plan, the number of Common Shares subject to grants under the Incentive Plan will not exceed in the aggregate:

 

 

5,000,000 Common Shares,

 

 

any Common Shares that remained available for issuance under the Prior Plans as of April 29, 2014, and

 

 

any Common Shares that were subject to outstanding awards under the Prior Plans as of April 29, 2014 that are subsequently canceled, expired, forfeited or otherwise not issued under a Prior Plan or are settled in cash (such Common Shares to be added to the number of Common Shares issuable under the Incentive Plan as one Common Share if such Common Shares were subject to stock options or SARs under the Prior Plans and as 2.13 Common Shares if such Common Shares were subject to awards other than options or SARs under the Prior Plans).

These share authorizations are affected by various provisions in the Incentive Plan, as discussed below under “Share counting” and “Other provisions — Adjustments.” The Common Shares may be authorized and unissued Common Shares or Common Shares that were reacquired by the Company, including Common Shares purchased in the open market, or a combination of the foregoing. After the effective date of the Incentive Plan, no awards may be granted under the Prior Plans, although outstanding awards under the Prior Plans will continue to be administered pursuant to their terms.

Share counting

Under the Incentive Plan, each Common Share that is subject to a stock option or SAR counts against the aggregate Plan limit as one Common Share, and each Common Share that is subject to an award other than a stock option or SAR under the Incentive Plan counts against the aggregate Incentive Plan limit as 2.13 Common Shares. However, for each Common Share subject to an award that is forfeited, expires or is settled for cash (in whole or in part) under the Incentive Plan, one Common Share will be added back to the aggregate Incentive Plan limit for such Common Shares subject to a stock option or SAR, and 2.13 Common Shares will be added back to the aggregate Incentive Plan limit for such Common Shares subject to an award other than a stock option or SAR. The number of Common Shares available

for grant under the Incentive Plan will not be increased by the following:

 

 

any Common Shares tendered by a participant or withheld by the Company in full or partial payment of the exercise price of stock options or the full or partial satisfaction of a tax withholding obligation on any stock option or SAR under either the Incentive Plan or the Prior Plans;

 

 

any Common Shares subject to a SAR granted under either the Incentive Plan or the Prior Plans that is not issued when the SAR is exercised and settled in Common Shares; and

 

 

any shares of the Company’s common stock reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options granted either under the Incentive Plan or the Prior Plans.

Common Shares issued as substitution awards (as defined in the Incentive Plan) in connection with any merger with or acquisition of a company will not decrease the number of Common Shares available for grant under the Incentive Plan, but Common Shares subject to substitution awards will not be available for further awards under the Incentive Plan if the substitution awards are forfeited, expire or settled in cash. The Company may use Common Shares under a pre-existing, shareholder-approved plan of a company acquired by the Company for awards under the Incentive Plan, which Common Shares will not decrease the number of Common Shares available for grant under the Incentive Plan, but consistent with NYSE rules such Common Shares may only be used for grants of awards made prior to the expiration of the pre-existing plan and to persons who were not employees or directors of the Company or any subsidiary prior to such acquisition.

Award limitations

Subject to certain adjustments as provided for in the Incentive Plan:

 

 

No participant may be granted stock options, restricted stock units, performance shares or other share-based awards for more than 2,000,000 Common Shares during any 12-month period.

 

 

The maximum dollar value that may be earned by any participant for any 12-month performance period (as established by the Committee) with respect to performance awards that are denominated in cash and intended to qualify as “performance-based compensation” under Section 162(m) of the Code is $15,000,000.

As of February 28, 2014, the closing price of a Common Share was $66.61.

 

 

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Section 162(m) of the code

The Incentive Plan is designed to allow the Company to grant awards that satisfy the requirements for the “performance-based compensation” exclusion from the deduction limitations under Section 162(m) of the Code. The Board and the Committee believe that it is in the Company’s interests and the interests of the Company’s shareholders to maintain an equity and long-term cash compensation plan under which compensation awards made to the Company’s named executive officers (other than the chief financial officer) can qualify for deductibility for federal income tax purposes based on various performance criteria set forth in the Incentive Plan as described below. Accordingly, the Incentive Plan has been structured in a manner such that awards under it can satisfy the requirements for the “performance-based compensation” exclusion from the deduction limitations under Section 162(m) of the Code. However, the Company cannot guarantee that awards under the Incentive Plan will actually qualify as “performance-based compensation” under Section 162(m) and the Committee may determine to grant awards that do not qualify as performance-based compensation under Section 162(m).

Repricing prohibited

The Committee may not authorize the amendment of any outstanding stock option or SAR to reduce the exercise or base price, and no outstanding stock option or SAR may be cancelled in exchange for other awards, or cancelled in exchange for stock options or SARs having a lower exercise or base price, or cancelled in exchange for cash, without the approval of the Company’s shareholders. However, the foregoing provision does not apply in connection with an adjustment involving a corporate transaction or event as provided in the Incentive Plan.

Types of awards authorized under the incentive plan

Stock options and stock appreciation rights. The Committee may award stock options in the form of nonqualified stock options or incentive stock options, or SARs, each with a maximum term of ten years. The Committee will establish the vesting schedule for stock options and the method of payment for the exercise price, which may include cash, Common Shares, or other awards.

Restricted stock and stock units. The Committee may award restricted stock and restricted stock units and establish the applicable restrictions, including any limitation on voting rights or the receipt of dividends or dividend equivalents. The Committee will establish the manner and timing under which restrictions may lapse; provided, however, in general, if the vesting and/or settlement of any restricted stock or stock unit award is based on performance criteria and level of achievement versus such

criteria, such award will be subject to a performance period of not less than twelve months, and if the vesting and/or settlement of any restricted stock or stock unit award is based solely upon continued employment and/or the passage of time, such award will not vest or be settled in full prior to the twelfth month following its date of grant, other than in the event of the holder’s death, disability or attainment of retirement status or in the event of a change of control of the Company. The Committee may also use up to 5% of the aggregate number of Common Shares authorized for issuance under the Incentive Plan to grant restricted stock or stock unit awards that are not subject to the minimum vesting conditions described in the preceding sentence. The Committee may decide to include dividends or dividend equivalents as part of an award of restricted stock or stock units and may accrue dividends or dividend equivalents, as applicable, with or without interest, until the award is paid. However, in no event will dividends or dividend equivalents be paid during the performance period with respect to restricted stock or stock unit awards that are subject to performance-based vesting criteria.

Incentive bonuses. The Committee may establish performance criteria and level of achievement versus these criteria that shall determine the amount payable under an incentive bonus. Payment of the amount due under an incentive bonus may be denominated in cash or shares as determined by the Committee. Performance criteria mean any measures, as determined by the Committee, which may be used to measure the level of performance of the Company or a participant during a performance period.

Qualifying performance criteria

The Committee may specify that an award or a portion of an award is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code provided that the performance criteria for an award or portion of an award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be a measure based on one or more qualifying performance criteria selected by the Committee and specified at the time the award is granted. The performance criteria for any award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be any one or more of the following performance criteria, or derivations of such performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an

 

 

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absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee: (i) cash flow (before or after dividends), (ii) earnings per share (including earnings before interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity, (v) total shareholder return, (vi) return on capital (including return on total capital or return on invested capital), (vii) return on assets or net assets, (viii) market capitalization, (ix) economic value added, (x) debt leverage (debt to capital), (xi) revenue (including adjusted revenue, Volume Points, net sales and analogous financial measures), (xii) income or net income, (xiii) operating income, (xiv) operating profit or net operating profit, (xv) operating margin or profit margin, (xvi) return on operating revenue, (xvii) cash from operations, (xviii) operating ratio, (xix) operating revenue or (xx) customer service. To the extent consistent with Section 162(m) of the Code, the Committee may provide, at the time an award is granted or at any time during the first 90 days of the applicable performance period (or prior to the expiration of 25% of the performance period if the performance period is less than one year, or at such later time if permitted pursuant to Section 162(m)), that any evaluation of performance under a qualifying performance criteria shall include or exclude any of the following events that occurs during the applicable performance period: (a) the effects of charges for restructurings, discontinued operations, extraordinary items, (b) items of gain, loss or expense determined to be extraordinary or unusual in nature or related to the disposal of a segment of a business or related to a change in accounting principle, (c) the cumulative effect of accounting change, (d) asset write-downs, (e) litigation, claims, judgments, settlements or loss contingencies, (f) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (g) accruals for reorganization and restructuring programs and (h) accruals of any amounts for payment under the Incentive Plan or any other compensation arrangement maintained by the Company.

Other provisions

Limitations on transfer. Awards are not transferable other than by will or the laws of descent and distribution unless determined otherwise by the Committee. Awards may not be pledged or otherwise encumbered.

Amendments. The Board may alter, amend, suspend or terminate the Incentive Plan from time to time subject to approval by the Company’s shareholders if required by applicable law, including the rules and regulations of the NYSE. The Committee may waive conditions or amend the term of awards, or otherwise amend or suspend awards already granted subject to certain conditions.

Adjustments. In the event of certain corporate transaction or events affecting the number or type of outstanding Common Shares, including, for example, a dividend or other distribution (whether in cash or stock), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or issuance of warrants, the Committee will make adjustments as it deems appropriate. These adjustments include changing the number and type of shares to be issued under the Incentive Plan and outstanding awards; changing the per-participant limitations on awards and the grant, purchase or exercise price of outstanding awards; and changing the limitations on the total amount of restricted stock, stock units, performance awards or other stock-based award that may be granted. The Committee may also make adjustments in the terms of awards in connection with certain acquisitions, and make adjustments in performance award criteria or in the terms and conditions of other awards in recognition of unusual or nonrecurring events affecting the Company or its financial statements or of changes in applicable laws, regulations, or accounting principles.

Federal income tax consequences

This general discussion of the U.S. federal income tax consequences of stock options and other awards that may be awarded under the Incentive Plan is intended for the information of shareholders considering how to vote with respect to this proposal and not as tax guidance to participants in the Incentive Plan. Different tax rules may apply to specific participants and transactions under the Incentive Plan, particularly in jurisdictions outside the United States. In addition, this discussion does not address other federal or state tax issues that may be implicated by awards that may be granted under the Incentive Plan.

The grant of an option or SAR will create no U.S. federal income tax consequences for the participant or the Company. A participant will have no taxable income upon exercise of an incentive stock option, except that the alternative minimum tax may apply. Upon exercise of an option other than an incentive stock option, a participant generally must recognize ordinary income equal to the fair market value of the Common Shares acquired minus the exercise price. Upon a disposition of Common Shares acquired by exercise of an incentive stock option before the end of the applicable incentive stock option holding periods, the participant generally must recognize ordinary income equal to the lesser of (i) the fair market value of the Common Shares at the date of exercise minus the exercise price or (ii) the amount realized upon the disposition of the Common Shares minus the exercise price. Otherwise, a participant’s disposition of Common Shares acquired upon the exercise of an option (including an incentive stock option for which the incentive stock option holding periods are met) generally will result in only capital gain or loss. Other awards under the Incentive

 

 

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Plan, including non-qualified options and SARs, generally will result in ordinary income to the participant at the later of the time of delivery of cash, Common Shares, or other awards, or the time that either the risk of forfeiture or restriction on transferability lapses on previously delivered cash, Common Shares, or other awards. Except as discussed below, the Company generally will be entitled to a tax deduction equal to the amount recognized as ordinary income by the participant in connection with an option, SARs, or other award, but will be entitled to no tax deduction relating to amounts that represent a capital gain to a participant. Thus, the Company will not be entitled to any tax deduction with respect to an incentive stock option if the participant holds the Common Shares for the incentive stock option holding periods.

Section 162(m) of the Code generally allows the Company to obtain tax deductions without limit for “performance-based compensation.” The Incentive Plan is designed to permit the grant of options and SARs, and certain awards of stock units and contingent long-term performance awards that are intended to qualify as “performance-based compensation” not subject to Section 162(m)’s $1.0 million deductibility cap. The rules and regulations promulgated under Section 162(m) of the Code are complicated and subject to change, possibly with retroactive effect. In addition, a number of requirements must be met in order for particular awards to so qualify. As such, there can be no assurance that any compensation awarded or paid under the Incentive Plan will be fully deductible under all circumstances.

 

Information with respect to securities authorized for issuance under prior plans

The following table sets forth as of December 31, 2013, information with respect to (a) the number of securities to be issued upon exercise of outstanding options, warrants and rights, (b) the weighted average exercise price of outstanding options, warrants and rights and (c) the number of securities remaining available for future issuance under equity compensation plans.

 

    Number of  securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(2)
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of  securities
remaining available for
future issuance under
prior plans (excluding
securities in column
(a))(1)
 
    (a)     (b)     (c)  
Prior Plans (approved by security holders)     7,454,294        33.24        3,692,640   
Equity compensation Plans not approved by security holders                     
Total     7,454,294        33.24        3,692,640   

 

(1)   Includes 1.8 million Common Shares available for future issuance under the shareholder approved Employee Stock Purchase Plan implemented in February 2008.

 

(2)   Number of securities to be issued upon exercise of SARS was calculated using the closing price of a Common Share on the NYSE on December 31, 2013 of $78.70.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ADOPTION OF THE HERBALIFE LTD 2014 STOCK INCENTIVE PLAN.

 

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Proposal 4: Ratification of the appointment of independent registered public accountants

 

 

The audit committee has selected PricewaterhouseCoopers, or PwC, as the Company’s independent registered public accountants for the fiscal year ending December 31, 2014. Services provided to the Company and its subsidiaries by PwC in fiscal 2013 and 2012 are described below under “— Fees to independent registered public accountants for fiscal 2012 and 2013.” The circumstances under which PwC in 2013 was first retained as the Company’s independent accountants are described below under “Change in independent accountants.” Additional information regarding the audit committee is set forth in the “Audit committee report.”

The Memorandum and Articles of Association do not require that our shareholders ratify the selection of PwC as the Company’s independent registered public accountants. However, we are requesting ratification because we believe it is a matter of good corporate

practice. If the Company’s shareholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain PwC, but may, nonetheless, retain PwC as the Company’s independent registered public accountants. Even if the selection is ratified, the audit committee in its discretion may change the appointment at any time if it determines that the change would be in the best interests of the Company and its shareholders.

The Company has been advised that representatives of PwC will be present at the Meeting where they will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

In the event shareholders do not ratify the appointment of PwC, the appointment will be reconsidered by the audit committee and the Board of Directors.

 

 

Change in independent accountants

As previously disclosed, on April 8, 2013, KPMG notified the Company that KPMG resigned, effective immediately, as the Company’s independent registered public accounting firm. KPMG stated it had concluded it was no longer independent because of the then-alleged insider trading in the Company’s securities by one of KPMG’s former partners who, until April 5, 2013, was the KPMG engagement partner on the Company’s audit. KPMG advised the Company it resigned as the Company’s independent accountant solely due to the impairment of KPMG’s independence resulting from its now former partner’s unlawful activities and not for any reason related to the Company’s financial statements, its accounting practices, the integrity of the Company’s management or for any other reason. As a result of the then-alleged insider trading activity by its now former partner and KPMG’s resulting resignation on April 8, 2013, KPMG notified the Company its independence had been impaired and it had no option but to withdraw its audit reports on the Company’s financial statements for the fiscal years ended December 31, 2010, 2011 and 2012 and the effectiveness of internal control over financial reporting as of December 31, 2010, 2011 and 2012 and that such reports should no longer be relied upon as a result of KPMG’s lack of independence created by the circumstances described above.

On May 21, 2013, after considering a number of firms, the audit committee engaged PwC to serve as the Company’s new independent registered public accounting firm to audit the Company’s financial statements for its fiscal year ending December 31, 2013 and to re-audit the Company’s financial statements for the fiscal years ended December 31, 2010, 2011 and 2012, including the audit of the Company’s internal control over financial reporting as

of December 31, 2012 required by Section 404 of the Sarbanes-Oxley Act of 2002.

None of KPMG’s audit reports on the Company’s financial statements for the fiscal years ended December 31, 2010, 2011 and 2012 or KPMG’s audit reports on the effectiveness of internal control over financial reporting as of December 31, 2010, 2011 and 2012 contained an adverse opinion or a disclaimer of opinion, nor was any such report qualified or modified as to uncertainty, audit scope or accounting principles. In addition, at no point during the three fiscal years ended December 31, 2012 and the subsequent interim period through April 8, 2013 were there any (i) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreement(s), if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its reports, or (ii) “reportable events” as such term is defined in Item 304(a)(1)(v) of Regulation S-K.

Additionally, during the fiscal years ended December 31, 2011 and 2012, and the subsequent interim period through May 21, 2013, neither the Company, nor anyone on its behalf, consulted PwC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the Company’s consolidated financial statements, in connection with which either a written report or oral advice was provided to the Company that PwC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either

 

 

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the subject of a “disagreement” as such term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions or a “reportable event” as such term is defined in Item 304(a)(1)(v) of Regulation S-K.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF PwC AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR FISCAL 2014.

Audit committee report

 

The audit committee is responsible for monitoring our financial auditing, accounting and financial reporting processes and our system of internal controls, and selecting the independent registered public accounting firm on behalf of the Board of Directors. Our management has primary responsibility for our internal controls and reporting process. Our independent registered public accounting firm, PwC, is responsible for performing an independent audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing an opinion thereon. In this context, the audit committee met regularly and held discussions with management and PwC. Management represented to the audit committee that the consolidated financial statements for the fiscal year 2013 were prepared in accordance with U.S. generally accepted accounting principles.

The audit committee hereby reports as follows:

 

 

The audit committee has reviewed and discussed the audited consolidated financial statements for fiscal year 2013 and accompanying management’s discussion and analysis of financial condition and results of operations with our management and PwC. This discussion included PwC’s judgments about the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

 

 

The audit committee also discussed with PwC the matters required to be discussed by Auditing Standard No. 16, as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

PwC also provided to the audit committee the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications with the audit committee concerning independence, and the audit committee has discussed with PwC the accounting firm’s independence. The audit committee also considered whether non-audit services provided by PwC during the last fiscal year were compatible with maintaining the accounting firm’s independence.

Based on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2013, which have been filed with the SEC. The audit committee also selected PwC to serve as our independent registered public accounting firm for the year ending December 31, 2014.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Leroy T. Barnes, Jr., Chairman

Richard P. Bermingham

Michael J. Levitt

 

 

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Fees to independent registered public accountants for fiscal 2012 and 2013

The following fees were paid to PwC:

 

    2012     2013  
Audit fees (2013 Audit)       $4,911,000 (1) 
Audit-fees (2010-2012 re-audit and reviews)       $15,200,000 (2) 
Audit-related fees              
Tax fees(3)     $1,722,000        $1,288,000   
All other fees(4)     $250,000        $55,000   
Total     $1,972,000        $21,454,000   

 

1   Audit fees for 2013 consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, including the audit of internal controls required by Section 404 of the Sarbanes-Oxley Act of 2002, and the review of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements.

 

2   See “Change in independent accountants” above.

 

3   Tax fees were billed for tax compliance and tax guidance.

 

4   As previously disclosed in the Company’s Current Report on Form 8-K dated May 21, 2013, PwC provided non-audit services prior to PwC being engaged as the Company’s principal accountant. See “Change in independent accountants” above. All other fees consists of routine corporate and administrative legal advisory services, financial statement filing services, payroll and administrative services, secondment services, financial reporting and bookkeeping services.

 

Pre-approval policy

The audit committee has adopted pre-approval policies and procedures for audit and non-audit services which the Company’s independent auditors have historically provided. Pursuant to those policies and procedures, the Company’s external auditor cannot be engaged to provide the Company any audit or non-audit services to the Company unless the engagement is pre-approved by the audit committee in compliance with the Sarbanes-Oxley Act of 2002. All fees and services described in the table above were pre-approved pursuant to this policy.

 

 

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  Part 4

 

 

Executive compensation

 

Compensation discussion and analysis

 

This section explains the Company’s 2013 executive compensation program as it relates our “named executive officers”, or NEOs:

 

Michael O. Johnson    Chairman and Chief Executive Officer
Desmond Walsh    President
Richard P. Goudis    Chief Operating Officer
Brett R. Chapman    Chief Legal Officer and Corporate Secretary
John G. DeSimone    Chief Financial Officer

2013 Performance highlights and peer group performance

Since December 2012, our Company has been the victim of a “short” attack intended to drive down our share price through negative publicity. Responding to these misleading attacks has required a significant investment of the time and resources of our management team. Additionally, in April 2013 the Company’s independent public accountant firm resigned due to insider trading in our securities by a partner in that firm who served as engagement partner on the Company‘s audit, resulting in that firm’s withdrawal of its audit opinions for the Company’s 2010, 2011 and 2012 annual financial statements. The effort and resources required to complete the re-audit of those financial statements was extensive. In spite of these unprecedented distractions, in 2013 the Company reported record operating results in a challenging global economic environment. These included Volume Point growth of 13% and increases in operating income and diluted earnings per share of 11% and 25%, respectively, as reflected below.

 

    2009     2010     2011     2012     2013    

2013

Growth

 

5-Year

average

growth

Volume Points (millions)     2,838        3,233        3,922        4,720        5,337      13%      14%   
Operating Income ($, millions)     296.0        387.5        562.3        661.4        735.3      11%      19%   
Earnings Per Share ($) (diluted)     1.60        2.32        3.32        3.94        4.91      25%      25%   

 

At our 2013 annual general meeting, our shareholders expressed strong support for our 2012 executive compensation program, with over 87% of votes cast in favor of the advisory vote proposal. Our 2012 executive compensation program was modeled after our programs in 2011 and in 2010, both of which also received strong support from our shareholders. When designing our 2013 executive compensation program, the compensation committee of the Board of Directors, or the Committee, considered, among other things, our 2010-2012 financial performance and shareholder feedback, and after careful consideration, determined we could make some slight improvements to reflect current business trends in order to improve the design of our executive compensation program for 2013.

We believe that the Company’s financial performance is facilitated by the “pay for performance” design of our compensation program. Our program motivates our executives to deliver financial results, with the appropriate level of risk taking, against three performance metrics in a manner that ultimately results in the realized growth of shareholder equity value. Our executives have the opportunity to earn annual incentive awards provided that the Company achieves aggressive growth targets in Volume Points, operating income and earnings per share, or EPS.

Volume Points are point values assigned to each of our products. We assign a Volume Point value to a product when it is first introduced into a market, and that value is unaffected by subsequent exchange rate and price changes. As a result, we believe that Volume Points exhibit

 

 

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the most accurate available measure of organic growth or decline in the local demand for our products.

Incenting operating income growth ensures that Volume Point growth is achieved on a cost-effective basis and that cost efficiencies and productivity enhancements are achieved throughout the Company. Incenting EPS growth ensures that the favorable contribution from operating income growth is realized within a tax efficient capital structure. Equity awards — that comprise the potential for the most significant income opportunity for our executive officers — directly align our executives’ interests in creating enhanced shareholder value with those of our shareholders.

Our 2013 executive compensation program incorporates an important performance related enhancement intended to ensure the sustainability of our annual achievements in Volume Point, Operating Income and EPS growth, and we expect to retain this enhancement in 2014. As a company that sells nutrition products through the direct selling channel, the success of our Members engaged in product

resale, or our sales leaders, is critical to the financial success of our company as a whole. The 2013 annual equity awards issued to our NEOs — and to all of our Section 16 reporting executives — requires that, in order for the awards to vest, the Company must meet the additional performance criteria of achieving sales leader retention levels set by the Committee.

We believe that our 2013 executive compensation program aided in providing the appropriate incentives that led to our shareholder returns in 2013. The Committee reviews the executive compensation program of the “Herbalife Peer Group”, an industry peer group selected with the aid of the Committee’s compensation consultant, when making decisions regarding our executive compensation program. In 2013, these peer companies were within 50% and 200% of our annual revenues, market capitalization, or both. Our industry peer group median revenue of $5.8 billion and market capitalization of $9.1 billion were comparable to ours, particularly after considering our revenue and market capitalization growth rates.

 

 

Our one-year, three-year and five-year total shareholder returns in and as of 2013 compare favorably to most members of the Herbalife Peer Group, as reflected below:

 

Company  

12 month revenue

as of 12/31/13
($ millions)

   

Market capitalization
12/31/13

($ millions)

   

1 Year

TSR

 

3 Year

TSR

(Annualized)

   

5 Year

TSR

(Annualized)

 
Avon Products, Inc.     9,955                     7,469                   21%     -13%               -3%          
Church & Dwight     3,194                     9,211                   26%     27%               20%          
Clorox     5,654                     12,046                   31%     17%               15%          
Dr. Pepper Snapple Group     5,997                     9,646                   14%     15%               28%          
Energizer Holdings     4,387                     6,781                   38%     15%               16%          
The Hershey Company     7,146                     21,769                   37%     30%               26%          
International Flavors & Fragrances     2,953                     6,997                   32%     18%               26%          
Mead Johnson Nutrition     4,201                     16,920                   29%     12%               N/A          
McCormick & Co.     4,123                     9,035                   11%     16%               19%          
Monster Beverage Corp.     2,246                     11,306                   28%     37%               32%          
Nu Skin Enterprises     2,744                     8,086                   280%     69%               71%          
Perrigo     3,795                     20,518                   48%     35%               37%          
J.M. Smucker Company     5,810                     10,895                   23%     19%               22%          
Tupperware Brands     2,672                     4,827                   52%     29%               37%          
Weight Watchers International     1,724                     1,857                   -36%     -3%               4%          
GNC Holdings     2,630                     5,494                   78%     N/A               N/A          
Herbalife Ltd.     4,825                     7,972                   145%     35%               52%          

 

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In addition to financial success, the Company achieved key strategic accomplishments in 2013 that provided significant support for the Company’s continued growth and success. These include:

 

 

expanding the global roll-out and member acceptance of daily consumption based sales methods;

 

 

regionalizing our sales and Member support activities to help penetrate deeper into existing markets;

 

 

launching and executing upon our “build it better” program, resulting in continuous improvement efforts throughout the Company;

 

 

increasing the Company’s vertical manufacturing capacity and capability for our key products; and

 

 

improving the number and effectiveness of our product access points and distribution facilities.

Executive summary of our compensation program

Our executive compensation program is designed to attract, motivate and retain a talented and high-performing executive team to lead the Company’s global success selling food, dietary supplements and personal care products that are regulated at varying levels in the 91 markets where we operate through a direct selling business channel. The compensation program accomplishes this in a way that incents and creates long-term growth and enhanced value for our shareholders. The Committee has responsibility for establishing, developing and implementing these programs while ensuring an appropriate level of risk tasking.

Program features

The direct compensation of our NEOs in 2013 consisted of base salary, annual cash incentives, and grants of equity in the form of SARs. Due to the proportion of annual cash incentives and SARs, the vast majority of the total compensation of our NEOs is tied to the Company’s financial and share price performance. In setting target compensation, the Committee focuses on the total compensation opportunity for the executive. Although there is no targeted mix of compensation elements, the proportion of compensation designed to be delivered in variable pay versus base salary increases with the ability of the executive to influence overall Company financial results. For 2013, as reflected in the Summary Compensation Table, 82% of CEO compensation was provided in the form of annual and long-term incentives that are tied to the Company’s top line performance, EPS results and stock price. For the other NEOs as a group, 75.5% of total compensation was similarly comprised of performance-based compensation.

Several key operating performance measures that drive our share value — Volume Point growth, Operating Income and

EPS — are used in the annual incentive plans for our named executive officers. Each of these measures is more fully described in “Annual Incentive Awards — Targets and Award Determination,” below. Long-term incentives granted in 2013 in the form of SARs provide a direct alignment to long-term shareholder interests.

Things we do

Our executive compensation program is simple in design, and follows guidelines that have repeatedly proven effective in creating a “pay for performance” culture and has led us to sustained profitable growth. These include:

 

 

tying the vast majority of the income opportunity available to our executives to long term growth in shareholder value;

 

 

beginning in 2013, incorporating performance criteria relative to the vesting of annual equity awards for all Section 16 officers;

 

 

making annual incentive awards available only to the extent that key performance targets are met that ensure profitable and efficient business growth;

 

 

demanding growth in the relevant annual incentive program metrics relative to the expectations of our investors as well as the prevailing growth rates in the Herbalife Peer Group as a prerequisite to the receipt of any annual incentive award;

 

 

imposing caps on awards payable to each named executive officer under our annual incentive plan;

 

 

imposing an outside limit on amounts payable to all employees collectively under our annual incentive plan equal to 10% of operating income;

 

 

imposing an outside limit on the gross amount of bonus awards above targets of 20% of our operating income above budget;

 

 

the Committee retaining and regularly consulting with an independent compensation advisor;

 

 

the Committee reviewing current data regarding the Herbalife Peer Group when compensation decisions are made;

 

 

the scheduling of our annual equity grant effective dates during open trading window periods after the Company has disclosed all material information to the investing public, typically after the annual shareholder meeting;

 

 

prohibiting pledging, hedging and other types of securities transactions intended to lock in gain on share price appreciation;

 

 

subjecting our Section 16 officers to compensation “clawbacks” in the event of a financial misstatement per the Company’s clawback policy; and

 

 

providing limited perquisites that generally reinforce the Company’s strategy and culture of supporting healthy lifestyles.

 

 

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Things we don’t do

The Committee is committed to maintaining and adopting prevailing best practices with regard to executive compensation. As such, we DO NOT DO the following:

 

 

we do not provide tax gross ups to our NEOs (other than with respect to benefits payable to Mr. Johnson in the event of a change in control, pursuant to provisions that were grandfathered into his current employment agreement);

 

 

we do not guarantee our executives any annual incentive award amounts — all annual bonuses require financial performance as established by the Committee;

 

 

we do not re-price or back date equity awards;

 

 

we do not issue equity awards with below market exercise prices;

 

 

we do not spring-load, bullet-dodge or otherwise manipulate the effective date of our annual equity grant program; and

 

 

we do not provide supplemental retirement benefits.

Executive compensation program objectives

As a leader in nutritional products sold through a direct selling distribution channel, generating approximately 80% of our net sales outside the United States, we operate in an environment of challenging regulatory, economic and political uncertainty. Our success depends on the leadership of a highly-talented, adaptive and dedicated executive team. Our compensation program for our NEOs provides highly-competitive rewards to executives who contribute to our annual success in achieving superior growth in revenues and profitability, as well as increasing shareholder returns over time.

The Committee believes that shareholder interests are advanced if the Company assembles, motivates and rewards a high-performing management team. To promote this objective, the Committee was guided by the following underlying principles in developing its executive compensation program:

 

 

The program should be designed to attract and encourage a long-term commitment from talented executives necessary to lead our global nutrition business and advance shareholders’ interests in a manner consistent with our company value of “operating with integrity”.

 

 

Compensation opportunities should be highly competitive with the pay practices of companies that operate in highly regulated, global markets and require similar executive skills and capabilities.

 

 

A meaningful portion of total compensation should be at risk and tied to achievement of annual financial performance goals and improvement in long-term shareholder value.

 

Incentive compensation should provide superior pay for superior performance that meets or exceeds the expectations of our shareholders.

 

 

Incentive compensation should reflect a balanced time horizon between annual and long-term performance in order to promote sustainable growth in the value of the enterprise.

 

 

Long-term incentives should be provided in Company equity, where allowed by local law, to encourage executives to plan and act with the perspective of shareholders and the Company’s vision, mission and values in mind and to reward them for the successful implementation of our growth strategies.

Compensation advisor

The Committee retained Exequity LLP, or Exequity, through 2013 to assist in evaluating our executive compensation programs and in setting executive officer compensation. Exequity is a nationally recognized compensation consulting firm and provides an additional objective perspective as to the reasonableness of our executive compensation programs and practices and their effectiveness in supporting our business and compensation objectives. During 2013, Exequity regularly participated in Committee meetings and advised the Committee with respect to compensation trends and best practices, plan design, competitive pay levels, CEO long-term performance equity grants, individual pay decisions with respect to our named executive officers and other executive officers, and proxy statement disclosure. While Exequity regularly consults with management in performing work requested by the Committee, Exequity did not perform any separate services for management.

On February 12th, 2014, the Committee considered the following six factors with respect to Exequity: (i) the provision of other services to the Company by Exequity; (ii) the amount of fees received from the Company by Exequity as a percentage of the total revenue of Exequity; (iii) the policies and procedures of Exequity that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the Exequity consultant with a member of the Committee; (v) any stock of the Company owned by the Exequity consultant; and (vi) any business or personal relationship of the Exequity consultant or Exequity, as applicable, with any executive officer of the Company. After considering the foregoing factors, the Committee determined that Exequity was independent and that its work with the Committee for fiscal 2013 has not raised any conflict of interest.

Establishing CEO compensation

The Chair of the Committee, with input from the compensation advisor, recommends the CEO’s compensation to the Committee in an executive session not attended by the CEO. Once a recommendation has been

 

 

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established by the Committee, the CEO’s compensation is reviewed and approved by the independent members of the Board.

Role of executive officers in executive compensation decisions

The CEO reviews compensation data gathered from a group of peer companies approved by the Committee and described below under “— Peer Group”, or the Herbalife Peer Group, and general industry compensation surveys, considers each executive officer’s performance

and makes a recommendation to the Committee on changes to base salary, annual incentive awards and equity awards for each executive officer other than himself. The CEO participates in Committee meetings at the Committee’s request to provide background information regarding the Company’s strategic objectives and to evaluate the performance of and compensation recommendations for the other executive officers. The Committee utilizes the information provided by the CEO along with input from its compensation advisor and the knowledge and experience of its members in making compensation decisions.

 

 

Purpose of compensation elements

The compensation and benefits program for our named executive officers consists of and is designed to achieve the following:

 

Direct pay component   Purpose
Base salary   Provide a competitive foundation for total compensation to each executive in consideration of his job scope, demonstrated sustained performance, capabilities and experience
Annual cash incentives   Reward executives for the achievement of challenging annual financial targets and other operating objectives that should drive growth in shareholder value

Long-term incentives

(time and performance-based SARs)

  Incentive for executives to make decisions that will enhance shareholder value, rewards executives with participation in the creation of long-term shareholder value and encourages successful executives to remain with the Company
Indirect pay (benefits)    
Executive medical & wellness   Promote a healthy, active lifestyle among our executives through an annual health screening evaluation and an allowance for purchase of physical conditioning equipment, services and related resources
Financial planning   Encourage executives to engage knowledgeable experts to assist with personal financial and tax planning, which we believe facilitates greater focus on their Company duties
Retirement benefits   Encourage executives to build retirement resources by providing a match on deferred compensation in the Company’s 401(k) plan and Senior Executive Deferred Compensation Plan
Insurance benefits (life and disability)   Provide a competitive benefit in the event of death or disability of an executive
Severance benefits   Enable each executive to focus his or her full time and attention on meeting the financial and operating objectives set by the Committee without fear of the financial consequences of an unexpected termination of employment
Change in control benefits   Enable executives to focus on shareholder interests when considering strategic alternatives

 

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Base salaries

The Committee reviews base salaries of our NEOs annually. The salaries of all of our NEOs were unchanged for 2013, as compared to 2012.

 

Executive   2013  Salary  
Michael O. Johnson     $1,236,000   
Desmond Walsh     $656,000   
Richard P. Goudis     $656,000   
Brett R. Chapman     $621,500   
John G. DeSimone     $556,000   

 

Annual incentive awards & long term incentive program

General

Target annual incentive compensation, and equity grant values, are set as a percentage of each executive’s base salary. In setting target annual and long-term incentive compensation levels, the Committee focuses on the total compensation opportunity for each executive. Variations in compensation among our executive officers reflect differences in the scope and complexity of the functions they oversee, the contribution of those functions to our overall performance, their experience and capabilities, and individual performance. Although there is no targeted mix of compensation elements, the proportion of compensation designed to be delivered in variable pay vs. base salary increases with the ability of the executive to influence overall Company results. We also monitor the compensation practices of our peers to obtain a general understanding of competitive compensation practices and target metrics.

Annual incentive awards

Our annual cash incentive plan is designed to motivate and reward the achievement of annual financial targets and key operating goals that should create value for our shareholders. The Committee establishes financial performance targets and goals for our incentive plan each year that are consistent with the Company’s 5 year plan and also aligned with public investor expectations and that are competitive with those of the Herbalife Peer Group. The performance measures used for each named executive officer are based on the executive’s primary area of focus and the executive’s ability to affect the Company’s results. The criteria used for 2013 match those used in each of 2009-2012 and consist of targeted EPS which the Committee believes is an important measure of shareholder value creation that aligns the interest of our executives with the expectations of our investors, year-over-year Volume

Point growth, serving as a proxy for sales growth, and targeted Operating Income.

In addition to setting performance targets, the Committee has established two limitations, or guardrails, within the annual incentive plan that can affect the aggregate value of the awards. The first guardrail is the requirement that the aggregate payments made under the annual incentive plan cannot exceed 10% of the Company’s Operating Income for the year. The second guardrail is the requirement that, if performance targets are exceeded, the incremental incentive awards payable to the management team as a whole should not exceed 20% of the incremental Operating Income achieved in excess of targeted Operating Income.

Mr. Johnson’s target and maximum annual incentive as a percentage of his base salary was negotiated and is set forth in his employment agreement. The minimum target annual incentive as a percentage of base salary for each of Messrs. Goudis and Chapman was negotiated and is set forth in each of their respective employment agreements. Subject to those limits, target incentives for our executives are set by the Committee depending on the employee’s position, scope of responsibilities, ability to influence Company results, and competitive pay practices among the Herbalife Peer Group.

Mr. Johnson’s employment agreement provides for a “base” annual incentive award equal to 3/4 of his total annual incentive opportunity payable to the extent the Company achieves EPS targets set by the Committee. Mr. Johnson’s employment agreement also provides for a supplemental annual incentive award payable in the event of the achievement of an alternative performance target, or APT, equal to 1/4 of his total annual incentive opportunity. The APT incentive allows the Committee a degree of flexibility in incentivizing and rewarding him for the achievement of key strategic, as well as financial, targets. As in each of 2009-2012, Volume Point growth was used in 2013 to determine Mr. Johnson’s APT incentive in order to encourage a keen focus on the top-line growth valued by our investors.

 

 

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A summary of 2013 annual incentive plan performance measures and weightings in calculating annual incentives is presented in the table below.

 

Executive   Weight in determining
annual incentive
    EPS     Operating
Income
 

Volume
Point

Growth

Michael O. Johnson, Chairman and Chief Executive Officer     75%        25%  
Desmond Walsh, President     70%       30%  
Richard P. Goudis, Chief Operating Officer     70%       30%  
Brett R. Chapman, Chief Legal Officer & Corporate Secretary     50%      50%      
John G. DeSimone, Chief Financial Officer     50%      50%        

 

Targets and award determination

Performance targets are aligned to what we believe to be the expectations of our Board and investors at the time of the annual budget review, typically in October of the preceding year of the relevant performance period. Budget figures are built from the “bottom up” based on input from operating regions regarding trends in their respective markets, including the general economic environment, sale and consumption of our products, sales leader activity and retention, and the degree of risk in achieving forecasted revenue and expense levels. In setting performance targets, the Committee also considers the Company’s 5 year plan, Wall Street analysts’ financial expectations for the Company, and the performance targets of selected companies within the Herbalife Peer Group.

For purposes of our annual incentive plan, the performance measures are defined as follows:

 

 

EPS is the Company’s reported fully-diluted earnings per share calculated according to U.S. Generally Accepted Accounting Principles.

 

Volume Points are point values assigned to each of our products for use by the Company to determine a Member’s sales achievement level. We assign a Volume Point value to a product when it is first introduced into a market and that value is unaffected by subsequent exchange rate and price changes. The specific number of Volume Points assigned to a product, generally consistent across all markets, is based on a Volume Point to suggested retail price ratio for similar products in the market. Volume Points, which are unaffected by exchange rates or price changes, are used by management as a proxy for sales trends because, in general, an increase in Volume Points in a particular geographic region or country indicates an increase in our local currency net sales, while a decrease in Volume Points in a particular geographic region or country indicates a decrease in our local currency net sales.

 

 

Operating Income is the Company’s net sales less expenses, including royalty payments, costs of sales and general operating expenses.

 

 

The following table shows the performance targets set by the Committee in 2013 and the Company’s performance relative to those targets.

2013 Annual incentive plan performance targets

 

    Target   2013(1)
Results
  2013 Results
(% of  target)
Target      
EPS   $4.48   $4.97   111%       
Volume Point growth (CEO APT)   8.40%   13.06%   155%       
Volume Points (other NEOs)   5.118M   5.339M   104%       
Operating income (millions)   $711.8   $736.4   103%       

 

(1)   EPS and Operating Income are presented as adjusted, as discussed below.

 

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Annual incentive awards are payable only if and to the extent EPS, Volume Point growth and/or Operating Income meet and exceed the applicable performance target. Targets are set as part of the annual budget process, and generally require year-over-year growth in line with public investor expectations.

For 2013 Annual Incentive Plan performance purposes, our EPS and Operating Income were calculated consistent with our adjusted EPS presentations and earnings guidance provided to the investment community, specifically excluding (i) the 2013 Venezuelan Bolivar devaluation while adjusting Venezuelan results to the budgeted exchange rate of 10:1 (ii) the costs of re-auditing our 2010-2012 financial statements following KPGM’s withdrawal of its audit opinions and (iii) expenses arising from the Company’s defense against public attacks on its business model.

With the exception of the CEO’s APT bonus opportunity, target-level bonuses are awarded for results between 100% and 102.9% of the applicable target, and bonus awards increase on a prorated basis in steps for results from 103% to 106%. The CEO’s APT bonus is awarded for results equal to or in excess of 100% of the applicable Volume Point growth target in ratable increases following 100% of target achievement. This bonus scale is designed to encourage realistic target setting and prudent risk-taking while simultaneously creating a cap on the potential payout in order to avoid excessive incentive awards as compared to performance. For 2013, annual incentive opportunities as a percentage of base salary were established as follows:

 

 

2013 Annual incentive opportunities by executive and target

 

Performance target achievement — % of target  
Executive    Target   100%     103.0%     103.5%     104.0%     104.5%     105.0%     105.5%     106.0%  
                                                  Max  
Johnson   EPS     112.5%        112.5%        168.8%        191.3%        208.1%        213.8%        219.4%        225%   
  APT (volume point growth)     37.5%        56.25%        59.38%        62.5%        65.63%        68.75%        71.88%        75%   
Walsh/   Volume point growth     24%        27%        38.4%        42%        44.7%        45.6%        46.5%        48%   
Goudis   Operating income     56%        63%        89.6%        98%        104.3%        106.4%        108.5%        112%   
Chapman   Operating income     32.5%        36.56%        52%        56.875%        60.53%        61.75%        62.97%        65%   
  EPS     32.5%        36.56%        52%        56.875%        60.53%        61.75%        62.97%        65%   
DeSimone   Operating income     37.5%        42.19%        60%        65.625%        69.845%        71.25%        72.655%        75%   
    EPS     37.5%        42.19%        60%        65.625%        69.845%        71.25%        72.655%        75%   

 

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The following table shows the incentive eligible earnings (i.e., 2013 base salary), target and maximum incentive percentages and amounts, and 2013 incentive awards for each named executive officer. All 2013 awards to named executive officers were based solely on the calculated results to target performance levels.

2013 Incentive award calculation

 

Executive   Salary     Target
incentive
%
  Max
incentive
%
  Actual results — % of target   Award
%
  Award
amount
 
          EPS(1)   Volume
point
  Operating
income
(1)
   
Michael O. Johnson     $1,236,000                 
EPS (base) incentive     112.5   225   111       225     $2,781,000   
APT (volume point) incentive     37.5   75     155     75     $927,000   
Total     150.0   300         300     $3,708,000   
Desmond J. Walsh and
Richard P. Goudis
    $656,000                 
Volume point incentive     24   48     104     42     $275,520   
Operating income incentive     56   112       103   63     $413,280   
Total     80   160         105     $688,800   
Brett R. Chapman     $621,500                 
EPS incentive     32.5   65   111       65     $403,975   
Operating income incentive     32.5   65       103   36.57     $227,283   
Total               101.57     $631,258   
John G. DeSimone     $556,000                 
EPS incentive     37.5   75   111       75     $417,000   
Operating income incentive     37.5   75       103   42.19     $234,576   
Total                               117.19     $651,576   

 

(1)   EPS and Operating Income are presented as adjusted, as discussed above.

 

Long term incentive awards

The Company’s equity grants are intended to align executive officers’ interests with the interests of shareholders by incenting our executives to make decisions that will enhance long-term shareholder value while rewarding them with the ability to participate in the share price appreciation they create, thereby enabling us to attract, motivate and retain highly qualified individuals for key leadership positions. The Committee also believes that these long-term incentives foster teamwork among the executives as well as long-term executive decision making that is aligned with the interests of the majority of our shareholders. Each year, the Committee determines the form of equity grant. For 2013, the total grant value was made in the form of SARs. SARs provide an opportunity for executives to earn additional compensation only to the extent our share price increases over the share price on the grant date and are less dilutive to our shareholders than stock options, restricted stock units or other full value awards.

To frame our equity grant decisions, immediately prior to the targeted grant date, the Committee established guideline grant values for the named executive officers in consideration of individual performance, scope of job responsibilities, prior equity grants and competitive practices using published information regarding the Herbalife Peer Group compiled by Exequity. Using these guidelines, our Chairman and CEO proposed to the Committee equity grants for each of the named executive officers other than himself. At the same time, the Committee, separately and without the involvement of the Chairman and CEO, evaluated and proposed equity grants for the Chairman and CEO to the independent members of the Board of Directors for their approval. The number of SARs granted is calculated by dividing the grant value by the option value determined in accordance with financial accounting and disclosure rules under ASC Topic 718 “Share Based Payments” using our closing share price on the date of grant.

 

 

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2013 Long term incentive awards — annual grant program

 

Executive   SAR  grant
value
    SARs  awarded  
Michael O. Johnson     $5,000,000        151,331   
Desmond J. Walsh     $1,806,000        54,661   
Richard P. Goudis     $1,806,000        54,661   
Brett R. Chapman     $900,000        27,239   
John G. DeSimone     $1,500,000        45,339   

 

In 2013, SARs were granted with an exercise price equal to the closing price of our Common Shares on December 19, the grant date, when the option fair value was $33.04 and our closing share price was $79.58. The SARs awarded to our named executive officers in 2013 vest and become exercisable based upon continued Company service over three years at the rate of 20% in June 2014, 20% in June 2015, and 60% in June 2016, provided that, as explained in more detail below, the Company’s “sales leader” retention rate (Members engaged in the Company’s business opportunity) equals or exceeds 50%. For the first 20% tranche to vest in June 2014, the Company’s sales leader retention rate for fiscal 2013 must equal or exceed 50%, and for the second 20% tranche to vest in June 2015, the Company’s sales leader retention rate for fiscal 2014 must equal or exceed 50%. If either or both of the first two tranches do not vest as scheduled (in June 2014 and/or June 2015, respectively), that tranche or those tranches, and the remaining 60% tranche, will vest in June 2016 to the extent the Company’s average sales leader retention rate from fiscal 2013 through fiscal 2015 equals or exceeds 42%. Any portion of the award that is unvested as of June 2016 will be forfeited.

The Committee set the 50% sales leader retention performance target as an aspirational performance hurdle in light of the Company’s annual sales leader retention rates over fiscal years 2004 — 2011, during which the Company’s median annual sales leader retention rate was approximately 44% and a rate in excess of 45% was achieved only twice.

The following table illustrates the portions of the award that may vest if and to the extent these targeted sales leader retention rates are met.

 

Mandatory Sales Leader Retention
Targets in 2013 NEO SARs
 
Target   Vesting
Amount
 
FY’13 — 50% or more     20%   
FY’14 — 50% or more     20%   
FY ’13 — ’15 (3 yr average)  

50% or more

    100%*   

45% — 49.99%

    75%*   

42% — 44.99%

    50%*   

Less than 42%

    0%   

 

*   Percentages are of the unvested balance of the SAR award as of June 2016.

Vesting the greatest percentage of the award value in the third year of its vesting period further encourages executive retention. Executives may exercise vested SARs at any time while employed at the Company and for 30 days following termination of employment other than for cause, so long as any such exercise is no later than ten years following the date of grant, at which point in time they expire. At exercise, the gains on SARs are settled by issuing Common Shares. We encourage all Section 16

 

 

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officers to utilize a 10b-5 plan when exercising or selling any Herbalife equity.

Additional details of the 2013 equity awards made to our executives can be found in the tabular disclosure below under “— 2013 Grants of Plan-Based Awards.”

Equity award grant policy

Annual long term incentive grants of SARs were made to our named executive officers on December 19, 2013. It is the Company’s policy to make annual grants to our executive officers as of the third business day following our release of quarterly financial results after our annual shareholder meeting. In 2013, we were compelled to defer this grant date following KPMG’s withdrawal of its audit opinions with respect to our 2010-2012 annual financial statements as a result of insider trading activity by the engagement partner. The final grant date took place in mid-December, two days after the announcement of the completion of our reaudits by PriceWaterhouseCoopers LLP. We also follow a monthly grant approval process where awards are authorized for newly-hired employees, certain selected retention situations, and to newly promoted executives other than our executive officers. The policy provides that the exercise price of stock options and SARs granted to executive officers and other employees will be established as the closing share price on the grant date. All equity awards made to our named executive officers and other executives are made pursuant to our equity grant policy, which was approved by the Committee.

Hedging

Company policy prohibits executives from entering into hedging transactions with respect to the Company’s Common Shares.

Pledging

Company policy prohibits executives from pledging their Common Shares as collateral for a loan or for any other purpose.

Clawback policy

The Committee has adopted a policy that enables the Committee to clawback incentive compensation earned by our NEOs in periods that subsequently undergo a financial restatement.

Stock ownership guidelines

The Committee believes that named executive officers should be shareholders and maintain significant holdings of Common Shares. Because a significant portion of each named executive officer’s compensation is paid in the

form of equity-based incentive compensation awards, the Committee believes that the use of ownership guidelines is an appropriate and beneficial approach to providing additional motivation to act in the long-term best interests of shareholders.

Pursuant to our policy, the CEO is encouraged to acquire and hold Common Shares and/or vested equity awards with an aggregate value equal to five times his base salary. The other named executive officers are encouraged to acquire and hold Common Shares and/or vested equity awards with an aggregate value equal to two times their respective base salaries. As of February 28, 2014, all of our NEOs were in compliance with these guidelines. The Committee reviews progress toward these standards annually.

Benefits and perquisites

The Company’s U.S.-based employees, including the NEOs, participate in a variety of savings, health and welfare and paid time-off benefits typically provided by competitors for the services of the Company’s employees. Health and welfare and paid time-off benefits help ensure that Herbalife has a healthy, productive and focused workforce.

In addition, our named executive officers are eligible to participate in the following executive benefits and perquisites:

 

 

Executive Health Benefits — We value executive health and strive to support a healthy, active lifestyle among our named executive officers by providing the following health-related benefits:

 

   

Executive Physical — We provide our executives with an annual health screening evaluation. We have arranged services with the Executive Health Department at UCLA, although this program allows executives to use other qualified medical practitioners for the annual health screening. The services are voluntary and confidential. We provide for a reimbursement of up to $2,040 annually for each executive under this program.

 

   

Executive Wellness — We provide a $2,000 annual benefit to executives for the purchase of fitness training equipment, personal training services and other reasonable products or services that support physical conditioning.

 

 

Financial Planning — We reimburse our named executive officers for financial counseling and tax preparation. Mr. Johnson is eligible for up to $20,000 in reimbursement, while our remaining named executive officers are eligible for up to $15,000 in reimbursement. This benefit is intended to encourage executives to engage knowledgeable experts to assist with personal financial and tax planning, which we believe enables executives greater focus on their Company duties.

 

 

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Retirement Benefits — Our named executive officers participate in our tax-qualified 401(k) Plan and our Senior Executive Deferred Compensation Plan described in more detail under “— Non-Qualified Deferred Compensation Plans.” We maintain these plans for the purposes of providing a competitive benefit, allowing named executive officers an opportunity to defer compensation to encourage our named executive officers to save for retirement. The 401(k) plan provides an employer match on the first 1% of employee deferral at 100%. On the next 5% of employee deferral, the employer match is 50%. The annual maximum employee deferral is $17,500. Employer matching contributions vest 100% after two years of service.

 

 

Employee Stock Purchase Plan — Our named executive officers are eligible to participate in our broad- based Employee Stock Purchase Plan, or ESPP. The ESPP generally allows all U.S. based employees and officers to purchase Common Shares through payroll deductions of up to 10% of their annual, eligible compensation up to a maximum of $25,000 per year. The price of Common Shares purchased under the ESPP is equal to 85% of the fair market value of the Common Shares on the specified purchase date. We maintain the ESPP for the purpose of providing eligible employees of the Company and its subsidiaries with an opportunity to participate in the Company’s success by purchasing Common Shares through payroll deductions.

 

 

Life Insurance — We provide basic life insurance coverage of 200% of base salary up to a maximum of $1,000,000 to our executives and up to $600,000 to all other eligible employees. This is a fully insured benefit. Employees are taxed on their imputed income from this benefit on coverage exceeding $50,000.

 

 

Long Term Disability — We provide long term disability coverage to all eligible employees in order to provide replacement for lost income due to extended periods of a medical related leave of absence. The benefit after 90 days of disability is 60% of base salary up to a monthly maximum of $25,000. This is a fully insured benefit plan and is not taxable to the employee.

 

 

Company Purchased Event Tickets — We maintain season tickets at the Staples Center and at the Stub Hub Center in Southern California. Like our other employees, our named executive officers have the opportunity to use tickets not otherwise allocated for Company business purposes.

 

 

Security — Due to unfounded and misleading attacks on the Company’s business model commencing in 2012, several of our executives have received threats to their and their family’s physical well-being and have been the subject of other harassing and threatening conduct. In 2013, the Company provided our NEOs with security systems at their homes in an attempt to protect them and their families from these violent threats.

Employment and severance agreements

In order to attract highly qualified executives capable of leading the Company, we have previously entered into employment agreements with Mr. Johnson, Chairman and Chief Executive Officer, Mr. Goudis, Chief Operating Officer, and Mr. Chapman, Chief Legal Officer and Corporate Secretary. Those agreements establish the terms and conditions for the employment relationship each executive has with the Company and specifies compensation, executive benefits, severance provisions, change in control provisions, preservation of confidential and proprietary information, non-solicitation, non-disparagement, and other conditions. Only Mr. Johnson’s agreement provides for an excise tax gross-up in the event of the termination of his employment following a change in control of the Company.

The Company has also previously entered into a severance agreement with each of Messrs. Walsh and DeSimone. These agreements contain severance and change in control provisions similar to those found in the employment agreements of Messrs. Goudis and Chapman,

as detailed below. Neither agreement provides for an excise tax gross-up.

As a result of these agreements, each of the named executive officers is eligible for certain benefits and payments if his employment terminates for various reasons or as a result of a change in control of the Company. The Company has provided these benefits to the named executive officers to allow them to focus on the value of strategic alternatives to shareholders without concern for the impact on their continued employment, as each of their offices is at heightened risk of turnover in the event of a change in control. Separation benefits include cash payments and other benefits in an amount the Company believes is appropriate, taking into account the time it is expected to take a separated executive to find another job. Separation benefits are intended to ease the consequences to the executive of an unexpected termination of employment. The Company requires a general release with non-compete and non-solicitation provisions in connection with the individual separation agreements.

We consider it likely that it will take more time for higher-level employees to find new employment commensurate with their prior experience, and therefore senior management generally are paid severance for a longer period. Additional payments may be approved by the Committee in some circumstances as a result of negotiation with executives, especially where the Company desires particular non-disparagement, cooperation with litigation, non-competition and non-solicitation terms.

The employment agreement for each of Messrs. Johnson, Goudis and Chapman and the severance agreement for

 

 

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each of Messrs. Walsh and Mr. DeSimone specifically details various provisions for benefits and cash payments in the event of a separation. Generally, these agreements provide for certain benefits upon death, disability, resignation by the executive with good reason or termination by the Company without cause. They also provide for the acceleration of unvested equity awards in connection with a change in control.

The employment agreements and equity compensation awards granted to Messrs. Johnson, Goudis and Chapman contain change in control and termination provisions. In general, these arrangements provide for benefits upon a termination of such executive’s employment in connection with a change in control. These arrangements are intended to preserve morale and productivity and encourage retention in the face of the disruptive impact of a change in control of the Company. Based on a competitive analysis of the severance and change in control arrangements maintained by the corporations in the Herbalife Peer Group, the Committee believes that these benefits are customary among the Herbalife Peer Group for executives in similar positions as these three executives.

Please refer to the discussion below under “— Potential Payments Upon Termination or Change in Control” for a more detailed discussion of our severance and change in control arrangements.

Tax implications

Section 162(m) of the code

Section 162(m) of the Code, limits deductions for certain executive compensation in excess of $1,000,000 in any fiscal year. Certain types of compensation are deductible only if performance criteria are specified in detail and payments are contingent on stockholder approval of the compensation arrangement. We attempt to structure our compensation arrangements to achieve deductibility under Section 162(m), unless the benefit of such deductibility is outweighed by the need for flexibility or the attainment of other corporate objectives. Further, the application of Section 162(m) is complex and may change with time (with potentially retroactive effect). The Committee will continue to monitor issues concerning the

deductibility of executive compensation and will take appropriate action if and when it is warranted. Thus, deductibility will not be the sole factor used by the Committee in ascertaining appropriate levels or modes of compensation.

Section 280G of the code

Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on any person who receives excess parachute payments in connection with a change in control. Mr. Johnson, as part of his employment agreement entered into in March 2008, would be provided with tax gross-up payments in the event any change in control payments that may be payable under his agreement become subject to this excise tax. The Committee believes that the provision of tax gross-up protection is

appropriate and necessary for his retention. Please refer to the discussion under “— Potential Payments upon Termination or Change in Control” for more detail on the potential gross-up payments and lost tax deductions. The committee will reconsider the appropriateness of the gross-up for Mr. Johnson upon the negotiation of a new employment agreement, if any.

Compensation committee report

The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on its review and discussion with management, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

Richard P. Bermingham, Chairman

Carole Black

Jonathan Christodoro

Jeffrey T. Dunn

 

 

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Executive officers of the registrant

Set forth below is certain information as of the date hereof regarding each named executive officer.

 

Name    Age      Position with the company   Officer  since
Michael O. Johnson      59       Chief Executive Officer, Director, and Chairman of the Board   2003
Desmond Walsh      57       President   2006
Richard Goudis      52       Chief Operating Officer   2004
Brett R. Chapman      58       Chief Legal Officer and Corporate Secretary   2003
John G. DeSimone      47       Chief Financial Officer   2009

 

Michael O. Johnson is Chairman and Chief Executive Officer of the Company. Mr. Johnson joined the Company in April 2003 as Chief Executive Officer and became Chairman of the Board in May 2007. Before joining the Company Mr. Johnson spent 17 years with The Walt Disney Company, where he most recently served as President of Walt Disney International, and also served as President of Asia Pacific for The Walt Disney Company and President of Buena Vista Home Entertainment. Mr. Johnson has also previously served as a publisher of Audio Times magazine, and has directed the regional sales efforts of Warner Amex Satellite Entertainment Company for three of its television channels, including MTV, Nickelodeon and The Movie Channel. Mr. Johnson formerly served as a director of Univision Communications, Inc., a television company serving Spanish-speaking Americans, and served on the Board of Regents for Loyola High School of Los Angeles. Mr. Johnson received his Bachelor of Arts in Political Science from Western State College.

Desmond Walsh is the President of the Company and has held this position since January 2010. Mr. Walsh joined the Company in January 2004 as Senior Vice President, Worldwide Member Sales and was promoted to Executive Vice President for Worldwide Operations and Sales in April 2008. From 2001 to 2004, Mr. Walsh served as the Senior Vice President of the commercial division of DMX Music. Prior to DMX Music, Mr. Walsh spent five years as Vice President and General Manager of Supercomm, Inc., a subsidiary of the Walt Disney Company. Mr. Walsh also previously served in management positions at MovieQuik Systems, a division of The Southland Corporation (now 7-Eleven) and at Commtron Corporation, a leading consumer electronics and video distribution company. Mr. Walsh received his Bachelor of Laws degree from the University of London.

Richard Goudis is Chief Operating Officer of the Company and has held this position since January 2010. Mr. Goudis joined the Company in June 2004 as Chief Financial Officer after serving as the Chief Operating Officer, from 1998 to 2001, of Rexall Sundown, a Nasdaq 100 company that was sold to Royal Numico in 2000. After the sale to Royal Numico, Mr. Goudis had operations responsibility for all of Royal Numico’s U.S. investments, including

General Nutrition Centers, or GNC, Unicity International and Rexall Sundown. From 2002 to May 2004, Mr. Goudis was a partner at Flamingo Capital Partners, a firm he founded in 2002. Mr. Goudis also previously worked at Sunbeam Corporation and Pratt & Whitney. Mr. Goudis graduated from the University of Massachusetts with a degree in Accounting and he received his MBA from Nova Southeastern University.

Brett R. Chapman is Chief Legal Officer and Corporate Secretary of the Company and has held these positions since November 2012 and October 2003, respectively. Before joining the Company in October 2003 as General Counsel and Corporate Secretary, Mr. Chapman spent

thirteen years at The Walt Disney Company, most recently as its Senior Vice President and Deputy General Counsel, with responsibility for all legal matters relating to Disney’s Media Networks Group, including the ABC Television Network, the company’s cable properties including The Disney Channel and ESPN, and Disney’s radio and internet businesses. Prior to working at The Walt Disney Company, Mr. Chapman was an associate at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Chapman received his Bachelor of Science and Master of Science in Business Administration from California State University, Northridge and his Juris Doctorate from Southwestern University School of Law.

John G. DeSimone is Chief Financial Officer of the Company and has held this position since January 2010. Mr. DeSimone joined the Company in November 2007 as Senior Vice President — Finance and was promoted to the position of Senior Vice President — Finance & Member Operations in December 2008. From June 2004 through October 2007, Mr. DeSimone served as the Chief Executive Officer of Mobile Ventures, LLC (formerly known as Autoware, Inc.), an automotive aftermarket accessory member and retailer. Prior to working at Mobile Ventures, LLC, Mr. DeSimone served as the Controller, Vice President of Finance and Chief Financial Officer of [Rexall Sundown, Inc., a multinational manufacturer and distributor of nutritional supplements and sports nutrition products] that was publicly traded while Mr. DeSimone served as its Controller and Vice President of Finance. Mr. DeSimone received his Bachelor of Science in Business Administration from Bryant College (now known as Bryant University).

 

 

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2013 Summary compensation table

The following table sets forth the total compensation for the fiscal years ended December 31, 2013, 2012 and 2011, of the Company’s Chairman and Chief Executive Officer, Chief Financial Officer, and each of the three other most highly compensated executive officers.

 

Name  and

principal  position

  Year    

Salary

($)

    Bonus
($)
  Stock
awards
($)
(1)
 

Option
awards

($)(1)

    Non-equity
incentive plan
compensation
($)
(2)
    All other
compensation
($)
(3)
    Total
($)
 
Michael O. Johnson     2013        1,236,000            4,999,976        3,708,000        558,236        10,502,212   
Chairman and Chief     2012        1,235,769            4,999,987        3,708,000        357,849        10,301,605   
Executive Officer     2011        1,230,000            19,549,982        3,690,000        100,543        24,570,525   
Desmond Walsh     2013        656,000            1,805,999        688,800        45,678        3,196,477   
President     2012        655,769            1,805,997        1,049,600        54,891        3,566,257   
    2011        650,000            1,252,994        1,040,000        56,151        2,999,145   
Richard Goudis     2013        656,000            1,805,999        688,800        53,805        3,204,604   
Chief Operating     2012        655,769            1,805,997        1,049,600        64,886        3,576,252   
Officer     2011        650,000            1,252,994        1,040,000        71,813        3,014,807   
Brett R. Chapman     2013        621,500            899,977        631,258        53,524        2,206,259   
Chief Legal Officer and     2012        621,269            899,994        615,285        63,471        2,200,019   
Corporate Secretary     2011        615,500            900,007        609,345        60,485        2,185,337   
John G. DeSimone     2013        556,000            1,499,983        651,576        29,869        2,737,428   
Chief Financial     2012        551,603            1,211,994        650,520        47,547        2,461,664   
Officer     2011        525,000            900,007        519,750        43,300        1,988,057   

 

(1)   Amounts represent the aggregate grant date fair value of the relevant award(s) presented in accordance with ASC Topic 718, “Compensation — Stock Compensation.” See note 9 of the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 regarding assumptions underlying valuation of equity awards.

 

(2)   Incentive plan amounts determined as more specifically discussed under “— Compensation Discussion and Analysis — Annual Incentive Awards — Targets and Award Determination.”

 

(3)   Individual breakdowns of amounts set forth in “All Other Compensation” for 2013 are as follows:

 

Name    Deferred
compensation
plan matching
contributions
$
    

Aircraft
usage
(A)

$

    

Medical and
dental
insurance

$

    

Financial

planning
services

$

     Other
benefits
(B)
$
     Total all other
compensation
$
 
Michael O. Johnson      26,415         375,637         15,253         20,000         120,931         558,236   
Desmond Walsh      13,564                 5,434         15,000         11,680         45,678   
Richard Goudis      9,228                 15,253         15,000         14,324         53,805   
Brett R. Chapman      8,881                 15,253         15,000         14,390         53,524   
John G. DeSimone      4,266                 15,253                 10,350         29,869   

 

  (A) To ensure his personal security and to enable him to further Company business while in transit, the Board determined to provide Mr. Johnson with the use of chartered aircraft at the Company’s expense for his personal travel. Mr. Johnson’s spouse and dependent children are also entitled to use Company-provided aircraft when they accompany Mr. Johnson. Amounts recorded represent the incremental out-of-pocket cost paid by the Company for such perquisite.

 

  (B) “Other Benefits” includes Company contributions with respect to each named executive officer under the Company’s Executive Long-Term Disability Plan, Executive Life Insurance Plan, Executive Health Benefits program and 401(k) Tax-Sheltered Savings Plan. In the case of Mr. Johnson, “Other Benefits” include the premium of $108,581 paid to procure a ten-year fixed premium term life insurance policy as required by his employment agreement.

 

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2013 Grants of plan-based awards

The following table sets forth all grants of plan-based awards made to the named executive officers during the fiscal year ended December 31, 2013. For further discussion regarding the grants see “— Compensation Discussion and Analysis —Annual Incentive Awards — Long Term Incentive Awards.”

 

Name   Grant  Date    

Estimated future
payouts under

non-equity incentive
plan awards

   

Estimated Future
Payouts Under Equity
Incentive Plan Awards

 

All other
option awards:

number of
securities
underlying

SARs ($)

 

Exercise or
base price of
SAR Awards

($/sh)

 

Grant date
fair value of
SAR Awards

($)

 
         

Target

($)

    Maximum
($)
    Threshold  (#)   Target  (#)
     
Michael O. Johnson       $1,854,000        $3,708,000             
    12/19/2013          75,665   151,331   151,331   79.58     4,999,976   
Desmond Walsh       524,800        1,049,600             
    12/19/2013          27,330   54,661   54,661   79.58     1,805,999   
Richard Goudis       524,800        1,049,600             
    12/19/2013          27,330   54,661   54,661   79.58     1,805,999   
Brett R. Chapman       403,975        807,950             
    12/19/2013          13,619   27,239   27,239   79.58     899,977   
John G. DeSimone       417,000        834,000             
      12/19/2013                      22,669   45,339   45,339   79.58     1,499,983   

 

(1)   All equity grants reflected in this table were made under the Company’s Amended and Restated 2005 Stock Incentive Plan, or the 2005 Plan.

 

Narrative disclosure to summary

compensation table and grants of

plan-based awards

We have entered into employment agreements with each of Messrs. Johnson, Goudis and Chapman, certain terms of which are summarized below. A more detailed description of payments that would be due to the named executive officers in connection with certain terminations or a change in control of the Company is set forth under “— Potential Payments Upon Termination or Change in Control.”

Michael O. Johnson. We and one of our subsidiaries, Herbalife International of America, Inc., or Herbalife America, entered into an executive employment agreement with Mr. Johnson effective as of March 27,

2008, or the Johnson Employment Agreement, pursuant to which he serves as the Company’s Chairman and Chief Executive Officer.

Pursuant to the Johnson Employment Agreement, Mr. Johnson currently receives an annual salary of $1,236,000. Mr. Johnson is also eligible to receive an annual cash bonus with a target bonus level of 150% of his annual base salary and a maximum bonus of 300% of his base salary that may become payable based on the achievement of performance targets that are established

annually by the Board of Directors. In addition to his salary and bonus, Mr. Johnson is also entitled to participate in or receive benefits under each benefit plan or arrangement made available to the Company’s senior executives on terms no less favorable than those generally applicable to senior executives of Herbalife America.

Richard Goudis. We and Herbalife America have also entered into an amended and restated executive employment agreement with Mr. Goudis effective January 1, 2010 and as amended on December 28, 2010, or the Goudis Employment Agreement. Pursuant to the Goudis Employment Agreement, Mr. Goudis serves as Herbalife America’s Chief Operating Officer. Mr. Goudis’ base salary is $656,000. Pursuant to the Goudis Employment Agreement, should the Company achieve certain financial targets established by the compensation committee, Mr. Goudis shall be entitled to a target bonus of no less than 80% of his annual salary for the year in question. Mr. Goudis is entitled to participate in the Company’s employee benefit plans and arrangements made available to the Company’s most senior executives excluding the Chief Executive Officer, as well as the Company’s long-term incentive plan for senior executives excluding the Chief Executive Officer.

 

 

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Brett R. Chapman. We and Herbalife America have also entered into an amended and restated executive employment agreement with Mr. Chapman effective as of July 28, 2010 and as amended on December 26, 2010, or the Chapman Employment Agreement. Pursuant to the Chapman Employment Agreement, Mr. Chapman serves as Herbalife America’s Chief Legal Officer and Corporate Secretary. Mr. Chapman’s base salary is $621,500. Pursuant to the Chapman Employment Agreement, should the Company achieve certain financial targets established

by the compensation committee, Mr. Chapman shall be entitled to a target bonus of no less than 55% of his annual salary for the year in question. Mr. Chapman is entitled to participate in the Company’s employee benefit plans and arrangements made available to the Company’s most senior executives, including the Chief Operating Officer but excluding the Chief Executive Officer, as well as the Company’s long-term incentive plan for senior executives, including the Chief Operating Officer but excluding the Chief Executive Officer.

 

 

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Outstanding equity awards at 2013 fiscal year-end

The following table sets forth equity awards of the named executive officers outstanding as of December 31, 2013.

 

Name   Options/SAR awards     Stock
awards
 
    Number of
securities
underlying
unexercised
options/
SARs
(#)
exercisable
    Number of
securities
underlying
unexercised
options/
SARs
(#)
un-exercisable
    Equity  incentive
plan awards:
number of
securities
underlying
unexercised
unearned
options/SARs
(#)
    Exercise
price
($)
    Grant
date
    Expiration
date
    Number of
shares or
units of
stock that
have not
vested
(1)
(#)
 
Michael O. Johnson     1,000,000            7.75        12/01/2004        12/01/2014 (2)        33,355 (8)   
    250,000            7.50        04/27/2005        04/27/2015 (2)     
    280,000            16.40        03/23/2006        03/23/2016 (2)     
    290,000            20.13        05/29/2007        05/29/2017 (2)     
    240,000            21.57        02/28/2008        02/28/2018 (2)     
    727,340            24.32        03/27/2008        03/27/2015 (2),(4)     
    792,240            24.32        03/27/2008        03/27/2015 (2),(4)     
    240,000            6.82        02/27/2009        02/27/2019 (2)     
    166,667        83,333          6.82        02/27/2009        02/27/2019 (5)     
    132,416            22.94        05/07/2010        05/07/2020 (2)     
    84,259        126,389          53.29        05/18/2011        05/18/2021 (3)     
        863,557        57.98        08/04/2011        08/03/2018 (6)     
    65,573        262,295          44.79        05/31/2012        05/31/2022 (3)     
        151,331        79.58        12/19/2013        12/19/2023 (7)     
Desmond Walsh     35,000            16.40        03/23/2006        03/23/2016 (2)        20,014 (9)   
    32,236            20.13        05/29/2007        05/29/2017 (2)     
    30,000            21.57        02/28/2008        02/28/2018 (2)     
    30,000            19.38        06/30/2008        06/30/2018 (2)     
    100,000        50,000          6.82        02/27/2009        02/27/2019 (5)     
    40,000        80,000          20.67        01/04/2010        01/04/2020 (5)     
    66,366            22.94        05/07/2010        05/07/2020 (2)     
    23,203        34,806          53.29        05/18/2011        05/18/2021 (3)     
    23,685        94,741          44.79        05/31/2012        05/31/2022 (3)     
        54,661        79.58        12/19/2013        12/19/2023 (7)     
Richard P. Goudis     41,666        41,667          6.82        02/27/2009        02/27/2019 (5)        16,677 (10)   
    40,000        80,000          20.67        01/04/2010        01/04/2020 (5)     
    53,093            22.94        05/07/2010        05/07/2020 (2)     
    23,203        34,806          53.29        05/18/2011        05/18/2021 (3)     
    23,685        94,741          44.79        05/31/2012        05/31/2022 (3)     
        54,661        79.58        12/19/2013        12/19/2023 (7)     
Brett R. Chapman     33,333        33,333                 6.82        02/27/2009        02/27/2019 (5)        13,342 (11)   
    30,466            22.94        05/07/2010        05/07/2020 (2)     
    16,666        25,001          53.29        05/18/2011        05/18/2021 (3)     
    11,803        47,213          44.79        05/31/2012        05/31/2022 (3)     
        27,239        79.58        12/19/2013        12/19/2023 (7)     
John G. DeSimone     25,000        25,000          6.82        02/27/2009        02/27/2019 (5)        10,007 (12)   
    26,667        53,333          20.67        01/04/2010        01/04/2020 (5)     
    30,466            22.94        05/07/2010        05/07/2020 (2)     
    16,666        25,001          53.29        05/18/2011        05/18/2021 (3)     
    15,895        63,580          44.79        05/31/2012        05/31/2022 (3)     
                      45,399        79.58        12/19/2013        12/19/2023 (7)           

 

(1)   The number of shares includes dividend equivalent units that have accrued through December 31, 2013.

 

(2)   These Options/SARS were fully vested as of December 31, 2013.

 

(3)   SARs vest annually, 20% on the first anniversary, 20% on the second anniversary and 60% on the third anniversary of the grant date subject to the satisfaction of the performance conditions.

 

(4)   These SARs were granted to Mr. Johnson in connection with his entry into the Johnson Employment Agreement in March 2008.

 

(5)   SARs vest in equal installments on the third, fourth and fifth anniversary of the grant date.

 

(6)  

This award is referred to in this Proxy Statement as the 2011 SARs. The number of 2011 SARs that may ultimately vest and become exercisable will be determined by the extent to which the Company meets certain Volume Point performance targets with respect

 

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  to fiscal 2014 as determined by the compensation committee. In addition, notwithstanding the Company’s complete or partial achievement of those performance targets, for any of the 2011 SARs to vest, the average closing price of the of the Company’s Common Shares during the month of December 2014 must be at least $69.49. If these targets are met, these 2011 SARs will vest and become exercisable on December 31, 2014, subject to Mr. Johnson’s continued employment as an executive officer of the Company through that date.

 

(7)   Provided that the applicable sales leader retention performance criteria are met, these SARs vest annually, 20% in June 2014, 20% in June 2015 and 60% in June 2016.

 

(8)   Consists of 33,355 RSUs that represent the remaining unvested balance of an equity award granted on February 27, 2009. These remaining RSUs will vest on February 27, 2014.

 

(9)   Consists of 20,014 RSUs that represent the remaining unvested balance of an equity award granted on February 27, 2009. These remaining RSUs will vest on February 27, 2014.

 

(10)   Consists of 16,677 RSUs that represent the remaining unvested balance of an equity award granted on February 27, 2009. These remaining RSUs will vest on February 27, 2014.

 

(11)   Consists of 13,342 RSUs that represent the remaining unvested balance of an equity award granted on February 27, 2009. These remaining RSUs will vest on February 27, 2014.

 

(12)   Consists of 10,007 RSUs that represent the remaining unvested balance of an equity award granted on February 27, 2009. These remaining RSUs will vest on February 27, 2014.

2013 Option exercises and stock vested

The following table sets forth information with respect to Common Shares acquired upon the exercise of stock options and the vesting of stock awards of the named executive officers during the fiscal year ended December 31, 2013.

 

Name   Option awards     Stock awards  
    Number of
shares
acquired on
exercise
(#)
    Value
realized
on
exercise
($)
    Number  of
shares
acquired on
vesting
(#)
  Value
realized  on
vesting
($)
 
Michael O. Johnson                 51,842     2,048,254   
Desmond Walsh                 29,202     1,147,125   
Richard Goudis                 25,943     1,025,102   
Brett R. Chapman                 18,572     726,219   
John G. DeSimone                 15,314     604,237   

2013 Non-qualified deferred compensation table

The following table sets forth all non-qualified deferred compensation of the named executive officers for the fiscal year ended December 31, 2013 pursuant to the Herbalife International of America, Inc. Senior Executive Deferred Compensation Plan, effective January 1, 1996, or the Senior Executive Plan.

 

Name   Executive
contributions  in
last FY
($)
  Company
contributions  in
last FY
($)
(1)
  Aggregate
earnings  in
last FY
($)
  Aggregate
withdrawals/
distribution
($)
  Aggregate
balance at
last FYE
($)
(2)
 
Michael O. Johnson   49,440   26,415   37,773       1,166,864   
Desmond Walsh   551,040   13,564   256,614   576,336     1,468,453   
Richard Goudis   32,800   9,228   90,338       480,425   
Brett R. Chapman   21,752   8,881   4,694       774,667   
John DeSimone   27,800   4,266   62,878   63,987     386,789   

 

(1)   All amounts are also reported as compensation in “All Other Compensation — Deferred Compensation Plan Matching Contributions” in the “2013 Summary Compensation Table.”

 

(2)  

The following amounts, which are included in the Aggregate Balances at Last FYE, have been included in the Summary Compensation Table of the Company’s previously filed proxy statements: $864,495 for Mr. Johnson for the reported years 2003 to

 

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  2012; $1,881,788 for Mr. Walsh for the reported years 2008 to 2012; $330,000 for Mr. Goudis for the reported years 2006 to 2012; $115,833 for Mr. Chapman for the reported years 2010 to 2012 and $322,997 for Mr. DeSimone for the reported years 2010 to 2012. Mr. Chapman’s Aggregate Balance at Last FYE also include the value of 7,840 restricted units with deferred settlement dates valued using the closing price of a Common Share on the NYSE on December 31, 2013 of $78.70.

 

Non-qualified deferred compensation plans.    We maintain the Senior Executive Plan, which is applicable to eligible employees at the rank of Senior Vice President and higher. The Senior Executive Plan was amended and restated effective January 1, 2001.

The Senior Executive Plan is unfunded and benefits are paid from the Company’s general assets, except that the Company has contributed amounts to a “rabbi trust” whose assets will be used to pay benefits if we remain solvent, but can be reached by our creditors if we become insolvent. The Senior Executive Plan allows eligible employees, who are selected by the administrative committee that manages and administers the plan, or the Deferred Compensation Committee, to elect annually to defer up to 75% of their annual base salary and up to 100% of their annual bonus for each calendar year, or the Annual Deferral Amount. We make matching contributions on behalf of each participant in the Senior Executive Plan, which matching contributions are 100% vested at all times.

Effective January 1, 2002, the Senior Executive Plan was amended to provide that the amount of the matching contributions is to be determined by us in our discretion. Effective January 1, 2010, the matching contribution was set to 3.5% of a participant’s annual base salary. Effective January 1, 2013, the matching contribution changed to 3.5% of a participants annual base salary in excess of $255,000 and the amount by which deferrals reduce 401(k) eligible pay below the IRS limit.

Each participant in the Senior Executive Plan may determine how his or her Annual Deferral Amount and 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 Senior Executive Plan, however, does not require us to actually acquire or hold any investment fund or other assets to fund the Senior Executive Plan. The entire interest of each participant in the Senior Executive Plan is always fully vested and non-forfeitable.

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 matching contributions, if any, attributable thereto plus earnings, and shall be payable two or more years from the first day of the year in which the Annual Deferral Amount is actually deferred. As of January 2004, the Senior Executive Plan was amended to allow for deferral of the short-term payout date if the deferral is made within the time period specified therein. 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 Senior Executive Plan 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.

Potential payments upon termination or change in control

The information below describes certain compensation that would have become payable under existing plans and contractual arrangements assuming a termination of employment and/or change in control had occurred on December 31, 2013 based upon the closing price of a Common Share on the NYSE on December 31, 2013 of $78.70, given the named executive officers’ compensation and service levels as of such date. In addition to the benefits described below, upon any termination of employment, each of the named executive officers would also be entitled to the amount shown in the column labeled “Aggregate Balance at Last FYE” in the “2013 Non-Qualified Deferred Compensation” table.

As of December 31, 2013, the Company had entered into employment agreements with each of Messrs. Johnson, Goudis and Chapman and a severance agreement with each of Messrs. Walsh and DeSimone, each as described in more detail below. In addition to the employment agreements with Messrs. Johnson, Goudis and Chapman, the Company has also entered into award agreements governing the equity-based compensation awards (including stock options, SARs and RSUs) granted to each of Messrs. Johnson, Goudis and Chapman.

Michael O. Johnson

Pursuant to the Johnson Employment Agreement, upon termination of Mr. Johnson’s employment by Herbalife America for Cause, or by Mr. Johnson without Good Reason, each as defined below, Mr. Johnson would be entitled to his then current accrued and unpaid base salary through the effective date of termination as well as 100% of any accrued and unpaid bonus for any years preceding the year of termination, but not for the year of termination. Mr. Johnson would also be entitled to any rights that may exist in his favor to payment of any amount under any employee benefit plan or arrangement of Herbalife America, other than those set forth in the Johnson Employment Agreement, in accordance with the terms and conditions of any such employee benefit plan or arrangement.

 

 

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For the term of the Johnson Employment Agreement, we provide a ten-year fixed premium term life insurance policy in the amount of $10 million. Mr. Johnson designates both the owner and beneficiary of this policy. After the expiration of the term, Mr. Johnson may elect to continue coverage under such policy at his own cost.

If Mr. Johnson dies or if his employment is terminated as a result of his Disability, as defined below, in addition to his accrued benefits, he will be entitled to receive a pro rata bonus payment for the year of termination based on the Company’s actual results for the entire year. In addition, following a termination of employment by reason of Mr. Johnson’s death or Disability, Mr. Johnson and/or his spouse will be eligible to receive retiree medical benefits until the age of 65.

Upon termination of Mr. Johnson’s employment by Herbalife America without Cause, or by Mr. Johnson for Good Reason, in addition to the benefits described in the preceding paragraph, Mr. Johnson would also be entitled to an additional amount equal to two times the sum of his then-current salary and “bonus level” (defined as two times his then-current salary), which in total as of December 31, 2013 was equal to $7,416,000, payable in a lump sum due within 60 days of termination. If the effective date of such termination without Cause or resignation for Good Reason occurs during a “trading blackout” or “quiet period” with respect to the Company’s Common Shares or if the Company determines, upon the advice of legal counsel, that Mr. Johnson may not trade in the Company’s Common Shares on the effective date of such termination due to his possession of material non-public information, and in each case the restriction or prohibition continues for a period of at least twenty consecutive calendar days, Mr. Johnson will be paid an additional lump sum amount equal to $250,000. Mr. Johnson will also be eligible to receive outplacement services for up to six months paid for by the Company in an amount not to exceed $20,000. As a precondition to the Company’s obligation to pay the amounts described above, Mr. Johnson must execute a general release of claims. In addition, if Mr. Johnson is terminated for any reason other than for Cause, Mr. Johnson and his spouse will be entitled to continued medical benefits under a Company-provided medical plan until they reach age 65.

Upon the occurrence of a Change of Control, as defined below, 50% of all unvested stock options, SARs and RSUs granted to Mr. Johnson (other than the 2011 SARs) shall immediately vest; however, the compensation committee may, in its sole discretion, accelerate the vesting of additional stock options, SARs and RSUs upon the occurrence of a Change of Control. Should Mr. Johnson’s employment be terminated for any reason other than for Cause or resignation without Good Reason within the 90-day period preceding a Change of Control or at any time after a Change of Control, then all of his unvested stock options, SARs and RSUs (other than the 2011 SARs) shall

vest as of the effective date of the termination. If Mr. Johnson’s employment is terminated as a result of his death or Disability, all unvested stock options, SARs and RSUs (other than the 2011 SARs) will vest as of the date of such termination. Except as set forth above, all unvested stock options, SARs and RSUs (other than the 2011 SARs) shall be forfeited upon the termination of Mr. Johnson’s employment with the Company.

The 2011 SARs are subject to full vesting acceleration upon the occurrence prior to December 31, 2014 of a Change of Control or a termination of Mr. Johnson’s employment by the Company without Cause, by Mr. Johnson for Good Reason or as a result of Mr. Johnson’s death or Disability, in each case, subject to the achievement by the Company prior to such event (or, with respect to a Change of Control, as a result of such event) of an alternate Volume Point performance target determined by the compensation committee.

The Johnson Employment Agreement includes provisions that were initially negotiated in connection with Mr. Johnson’s 2003 employment agreement (superceded by the Johnson Employment Agreement) while the Company was privately held. Accordingly, pursuant to both the Johnson Employment Agreement and that superceded 2003 agreement, in the event that Mr. Johnson becomes entitled to payments and/or benefits under the Johnson Employment Agreement that are subject to excise tax pursuant to Section 4999 of the Code, the Company shall pay Mr. Johnson additional amounts so as to bear the full burden of that excise tax.

Desmond Walsh

Pursuant to our severance agreement with Desmond Walsh, or the Walsh Severance Agreement, if Mr. Walsh is terminated by the Company without Cause or resigns for Good Reason, each as defined below, he is entitled to be paid a lump sum amount equal to two times his then-current annual salary, which lump sum amount as of December 31, 2013 was equal to $1,312,000, in addition to all other accrued but unpaid entitlements. The Company will also provide Mr. Walsh with outplacement services for up to six months by a provider selected and paid for by the Company in an amount not to exceed $20,000. In the event that Mr. Walsh is qualified for and elects COBRA coverage under the Company’s health plans after a termination without Cause or a resignation for Good Reason, the Company will continue to pay its share of the cost of premiums under such plans until Mr. Walsh is reemployed, or for a period of two years, whichever occurs first. If Mr. Walsh is terminated by the Company without Cause, resigns for Good Reason, or retires, dies, or resigns as a result of a disability, he will be entitled to receive a pro rata bonus payment, at such time bonuses are paid to the Company’s other senior executives, based on the number of months worked in the applicable year. As a precondition to the Company’s obligation to pay the

 

 

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amounts described above, Mr. Walsh must execute a general release of claims.

Upon the occurrence of a Change of Control, as defined below, 100% of all unvested stock options, SARs and RSUs granted to Mr. Walsh shall immediately vest. If Mr. Walsh’s employment is terminated as a result of his death or disability, all unvested stock options, SARs and RSUs will vest as of the date of such termination. Except as set forth above, all unvested stock options, SARs and RSUs shall be forfeited upon the termination of Mr. Walsh’s employment with the Company.

Richard Goudis

Pursuant to the Goudis Employment Agreement, if Mr. Goudis is terminated by the Company without Cause or resigns for Good Reason, each as defined below, he is entitled to be paid a lump sum amount equal to two times his then-current annual salary, which lump sum amount as of December 31, 2013 was equal to $1,312,000, in addition to all other accrued but unpaid entitlements. The Company will also provide Mr. Goudis with outplacement services for up to six months by a provider selected and paid for by the Company in an amount not to exceed $20,000. In the event that Mr. Goudis is qualified for and elects COBRA coverage under the Company’s health plans after a termination without Cause or a resignation for Good Reason, the Company will continue to pay its share of the cost of premiums under such plans until Mr. Goudis is reemployed, or for a period of two years, whichever occurs first. If Mr. Goudis is terminated by the Company without Cause, resigns for Good Reason, or retires, dies, or resigns as a result of a disability, he will be entitled to receive a pro rata bonus payment, at such time bonuses are paid to the Company’s other senior executives, based on the number of months worked in the applicable year. As a precondition to the Company’s obligation to pay the amounts described above, Mr. Goudis must execute a general release of claims.

Upon the occurrence of a Change of Control, 100% of all unvested stock options, SARs and RSUs granted to Mr. Goudis shall immediately vest. Should Mr. Goudis’ employment be terminated for any reason other than for Cause or resignation without Good Reason and at the time of such termination Mr. Michael O. Johnson is no longer serving as the Company’s Chief Executive Officer, then 50% of Mr. Goudis’s unvested stock options, SARs and RSUs shall vest immediately prior to such termination. If Mr. Goudis’s employment is terminated as a result of his death or disability, all unvested stock options, SARs and RSUs will vest as of the date of such termination. Except as set forth above, all unvested stock options, SARs and RSUs shall be forfeited upon the termination of Mr. Goudis’s employment with the Company.

Brett R. Chapman

Pursuant to the Chapman Employment Agreement, if Mr. Chapman is terminated by the Company without Cause or resigns for Good Reason, he is entitled to be paid a lump sum amount equal to two times his then-current annual salary, which lump sum amount as of December 31, 2013 was equal to $1,243,000, in addition to all other accrued but unpaid entitlements. The Company will also provide Mr. Chapman with outplacement services for up to six months by a provider selected and paid for by the Company in an amount not to exceed $20,000. In the event that Mr. Chapman is qualified for and elects COBRA coverage under the Company’s health plans after a termination without Cause or a resignation for Good Reason, the Company will continue to pay its share of the cost of premiums under such plans until Mr. Chapman is reemployed, or for a period of two years, whichever occurs first. If Mr. Chapman is terminated by the Company without Cause, resigns for Good Reason, or retires, dies, or resigns as a result of a disability, he will be entitled to receive a pro rata bonus payment, at such time bonuses are paid to the Company’s other senior executives, based on the number of months worked in the applicable year. As a precondition to the Company’s obligation to pay the amounts described above, Mr. Chapman must execute a general release of claims.

Upon the occurrence of a Change of Control, as defined below, 100% of all unvested stock options, SARs and RSUs granted to Mr. Chapman shall immediately vest. Should Mr. Chapman’s employment be terminated for any reason other than for Cause or resignation without Good Reason and at the time of such termination Mr. Michael O. Johnson is no longer serving as the Company’s Chief Executive Officer, then 50% of Mr. Chapman’s unvested stock options, SARs and RSUs shall vest immediately prior to such termination. If Mr. Chapman’s employment is terminated as a result of his death or disability, all unvested stock options, SARs and RSUs will vest as of the date of such termination. Except as set forth above, all unvested stock options, SARs and RSUs shall be forfeited upon the termination of Mr. Chapman’s employment with the Company.

John G. DeSimone

Pursuant to our severance agreement with John DeSimone, or the DeSimone Severance Agreement, if Mr. DeSimone is terminated by the Company without Cause or resigns for Good Reason, each as defined below, he is entitled to be paid a lump sum amount equal to two times his then-current annual salary, which lump sum amount as of December 31, 2013 was equal to $1,112,000,

in addition to all other accrued but unpaid entitlements. The Company will also provide Mr. DeSimone with outplacement services for up to six months by a provider

 

 

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selected and paid for by the Company in an amount not to exceed $20,000. In the event that Mr. DeSimone is qualified for and elects COBRA coverage under the Company’s health plans after a termination without Cause or a resignation for Good Reason, the Company will continue to pay its share of the cost of premiums under such plans until Mr. DeSimone is reemployed, or for a period of two years, whichever occurs first. If Mr. DeSimone is terminated by the Company without Cause, resigns for Good Reason, or retires, dies, or resigns as a result of a disability, he will be entitled to receive a pro rata bonus payment, at such time bonuses are paid to the Company’s other senior executives, based on the number of months worked in the applicable year. As a precondition to the Company’s obligation to pay the amounts described above, Mr. DeSimone must execute a general release of claims.

Upon the occurrence of a Change of Control, as defined below, 100% of all unvested stock options, SARs and RSUs granted to Mr. DeSimone shall immediately vest. If Mr. DeSimone employment is terminated as a result of his death or disability, all unvested stock options, SARs and RSUs will vest as of the date of such termination. Except as set forth above, all unvested stock options, SARs and RSUs shall be forfeited upon the termination of Mr. DeSimone’s employment with the Company.

Definitions

For the purposes of the Johnson Employment Agreement, the following terms have the following definitions:

 

 

The Company shall have “Cause” to terminate Mr. Johnson in the event of any of the following circumstances: (i) Mr. Johnson’s conviction of a felony or entering a plea of guilty or nolo contendere to any crime constituting a felony (other than a traffic violation or by reason of vicarious liability); (ii) Mr. Johnson’s substantial and repeated failure to attempt to perform his lawful duties as contemplated in the Johnson Employment Agreement, except during periods of physical or mental incapacity; (iii) Mr. Johnson’s gross negligence or willful misconduct with respect to any material aspect of the business of the Company or any of its affiliates, which negligence or misconduct has a material and demonstrable adverse effect on the Company; or (iv) any material breach of the Johnson Employment Agreement or any material breach of any other written agreement between Mr. Johnson and the Company’s affiliates governing his equity compensation arrangements (i.e., any agreement with respect to Mr. Johnson’s stock and/or stock options of any of the Company’s affiliates); provided, however, that Mr. Johnson shall not be deemed to have been terminated for Cause in the case of clauses (ii), (iii) or (iv) above, unless any such breach is not fully corrected prior to the expiration of the thirty (30) calendar day period following delivery to Mr. Johnson of the

   

Company’s written notice of its intention to terminate his employment for Cause describing the basis therefore in reasonable detail.

 

 

“Disability” shall mean Mr. Johnson’s inability to perform his duties for the Company on a full-time basis for 180 days (whether or not consecutive) in any twelve (12) month period.

 

 

Mr. Johnson will be deemed to have a “Good Reason” to terminate his employment if, without Mr. Johnson’s consent, any of the following circumstances occur, unless such circumstances are fully corrected prior to the expiration of the thirty (30) calendar day period following delivery to the Company of Mr. Johnson’s notice of intention to terminate his employment for Good Reason describing such circumstances in reasonable detail: (i) an adverse change in Mr. Johnson’s title as CEO of Herbalife America or the Company, Mr. Johnson’s involuntary removal from the Board, or failure of Mr. Johnson to be elected to the Board at any time during the term of the Johnson Employment Agreement; (ii) a substantial diminution in Mr. Johnson’s duties, responsibilities or authority for the Company, taken as a whole (except during periods when Mr. Johnson is unable to perform all or substantially all of his duties or responsibilities as a result of his illness (either physical or mental) or other incapacity); (iii) a change in location of the Company’s chief executive office to a location more than 50 miles from its current location; (iv) any other material breach of the Johnson Employment Agreement; or (v) the failure by any successor to the Company to assume in writing the Company’s obligations under the Johnson Employment Agreement. Mr. Johnson shall be deemed to have waived his rights to terminate his services hereunder for circumstances constituting Good Reason if he shall not have provided to the Company a notice of termination within sixty (60) calendar days immediately following his knowledge of the circumstances constituting Good Reason.

For the purposes of the Goudis and Chapman Employment Agreements and the Walsh and DeSimone Severance Agreements, the following terms have the following definitions:

 

 

The Company shall have “Cause” to terminate the executive in the event of any of the following acts or circumstances: (i) the executive’s conviction of a felony or entering a plea of guilty or nolo contendere to any crime constituting a felony (other than a traffic violation or by reason of vicarious liability); (ii) the executive’s substantial and repeated failure to attempt to perform the executive’s lawful duties as contemplated in the agreement, except during periods of physical or mental incapacity; (iii) the executive’s gross negligence or willful misconduct with respect to any material aspect of the business of the Company or any of its affiliates, which gross negligence or willful misconduct has a material and demonstrable adverse effect on the

 

 

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Company; (iv) the executive’s material violation of a Company policy resulting in a material and demonstrable adverse effect to the Company or an affiliate, including but not limited to a violation of the Company’s Code of Business Conduct and Ethics; or (v) any material breach of the executive’s agreement or any material breach of any other written agreement between the executive and the Company’s affiliates governing the executive’s equity compensation arrangements (i.e., any agreement with respect to the executive’s stock and/or stock options of any of the Company’s affiliates); provided, however, that the executive shall not be deemed to have been terminated for Cause in the case of clause (ii), (iii), (iv) or (v) above, unless any such breach is not fully corrected prior to the expiration of the thirty (30) calendar day period following delivery to the executive of the Company’s written notice of its intention to terminate his employment for Cause describing the basis therefore in reasonable detail.

 

 

The executive will be deemed to have a “Good Reason” to terminate his employment in the event of (i) a material diminution of Executive’s duties, (ii) the failure by any successor of the Company to assume in writing the Company’s obligations under the agreement, (iii) the breach by the Company in any respect of any of its obligations under the agreement, and, in any such case (but only if correction or cure is possible), the failure by the Company to correct or cure the circumstance or breach on which such resignation is based within 30 days after receiving notice from the executive describing such circumstance or breach in reasonable detail, (iv) the relocation of the executive’s primary office location of more than 50 miles that places the primary office farther from the executive’s residence than it was before, or (v) the imposition by the Company of a requirement that the executive report to a person other than the Chief Executive Officer of the Company or the Chairman of the Board. The executive shall not have a Good Reason to resign if the Company suspends the executive due to an indictment of the executive on felony charges, provided that the Company continues to pay the executive’s salary and benefits.

For the purposes of the summaries of the Johnson, Goudis and Chapman Employment Agreements and the

Walsh and DeSimone Severance Agreements, as well as the 2005 Plan:

 

 

a “Change of Control” means: (i) an acquisition (other than directly from the Company after advance approval by a majority of the directors comprising the Board of Directors as of the effective date of the 2005 Plan, or the incumbent board) of Common Shares or other voting securities of the Company by any person (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), other than the Company, any subsidiary of the Company, any employee benefit plan of the Company or any subsidiary of the Company, or any person in connection with a transaction described in clause (iii) of this definition, immediately after which such person has beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the then outstanding Common Shares or the combined voting power of the Company’s then outstanding voting securities; (ii) members of the incumbent board cease for any reason during any 24-month period to constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s shareholders, of any new director was approved by a vote of at least a majority of the incumbent board, such new director shall, for purposes of the 2005 Plan, be considered as a member of the incumbent board; or (iii) the consummation of: (A) a merger, consolidation or reorganization with or into the Company, unless the voting securities of the Company, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least 50% of the combined voting power of the outstanding voting securities of the entity resulting from such merger or consolidation or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation or reorganization; (B) a complete liquidation or dissolution of the Company; or (C) the sale, lease, transfer or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a subsidiary of the Company).

 

 

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The table below sets forth the estimated value of the potential payments to each of our named executive officers, assuming the executive’s employment had terminated on December 31, 2013 and/or that a change in control of the Company had also occurred on that date. Amounts are reported without any reduction for possible delay in the commencement or timing of payments.

 

Name  

Termination
without cause or
with good reason
not in connection with

a change of control

    Termination
without cause or
with good reason
in connection with
a change of control
    Termination
without cause or
with good reason
when Mr. Johnson is
no longer CEO
    Change
in control
(without
termination)
    Death or
disability
 
                               
Michael O. Johnson          

Severance(1)

    $7,416,000        $7,416,000                        

Bonus(2)

    $3,708,000        $3,708,000                      $3,708,000   

Equity acceleration(3)

           $38,613,884               $28,253,392        $38,613,884   

Outplacement service

    $20,000        $20,000                        

Medical coverage

    $170,719        $170,719                      $170,719   

Trading blackout payment(4)

    $250,000        $250,000                        

Excise tax gross-up(5)

                                  

Life insurance

                                $11,000,000   
Desmond Walsh
    Severance
(1)
    $1,312,000        $1,312,000                        

Bonus(2)

    $688,800        $688,800                      $688,800   

Equity acceleration(3)

           $13,908,990               $13,908,990        $13,908,990   

Outplacement service

    $20,000        $20,000                        

Medical coverage

    $9,722        $9,722                        

Life insurance

                                $1,000,000   
Richard P. Goudis          

Severance(1)

    $1,312,000        $1,312,000        $1,312,000                 

Bonus(2)

    $688,800        $688,800        $688,800               $688,800   

Equity acceleration(3)

           $13,047,392        $6,523,696        $13,047,392        $13,047,392   

Outplacement service

    $20,000        $20,000        $20,000                 

Medical coverage

    $27,046        $27,046        $27,046                 

Life insurance

                                $1,000,000   
Brett R. Chapman          

Severance(1)

    $1,243,000        $1,243,000        $1,243,000                 

Bonus(2)

    $631,258        $631,258        $631,258               $631,258   

Equity acceleration(3)

           $5,682,260        $2,841,130        $5,682,260        $5,682,260   

Outplacement service

    $20,000        $20,000        $20,000                 

Medical coverage

    $27,046        $27,046        $27,046                 

Life insurance

                                $1,000,000   
John G. DeSimone          

Severance(1)

    $1,112,000        $1,112,000                        

Bonus(2)

    $651,576        $651,576                      $651,576   

Equity acceleration(3)

           $8,471,005               $8,471,005        $8,471,005   

Outplacement service

    $20,000        $20,000                        

Medical coverage

    $27,046        $27,046                        

Life insurance

                                $1,000,000   

 

(1)   Based on salary as of December 31, 2013.

 

(2)   Represents bonus amounts earned in 2013, as disclosed in the “Non-Equity Incentive Plan Compensation” column of the “2013 Summary Compensation Table.” Per the terms of his employment agreement or his severance agreement, as the case may be, as described above, upon a termination of his employment by the Company without Cause or by him with Good Reason, or due to death or disability, each of Messrs. Johnson, Walsh, Goudis, Chapman and DeSimone is entitled to a pro rata bonus for the year in which the termination occurs based on the Company’s actual results for the entire year. Messrs. Goudis and Chapman are also entitled to a pro rata bonus upon a termination due to retirement.

 

(3)   Accelerated vesting of stock awards were based on the closing price of a Common Share on the NYSE on December 31, 2013 of $78.70, and, for SARs, the difference between $78.70 and the exercise or base price of the award.

 

(4)   Payment made if termination occurs during a “trading blackout” or a “quiet period” with respect to Common Shares.

 

(5)   If the “parachute payment” (including any termination payments and the value of accelerated equity) is greater than three times the average W-2 reported compensation for Mr. Johnson for the preceding five years, then an “excise tax” is imposed on the portion of the parachute payment that exceeds one times such average W-2 reported compensation. Under the Johnson Employment Agreement, Mr. Johnson will be entitled to reimbursement for any excise taxes imposed as well as a gross-up payment equal to any income, payroll and excise taxes payable by him as a result of the reimbursement for the excise taxes. For purposes of computing the excise tax and gross-up payments, base amount calculations are based on taxable wages for the years 2008 through 2012. In addition, Mr. Johnson was assumed to be subject to the maximum federal and state income and other payroll taxes.

 

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  Part 5

 

 

Security ownership of certain beneficial
owners and management

 

Beneficial ownership

 

The following table sets forth the beneficial ownership of Herbalife Common Shares as of February 28, 2014, of (1) each director or director nominee, (2) each of the named executive officers, (3) all directors and executive officers as a group and (4) each person or entity known to Herbalife to beneficially own more than five percent (5%) of Herbalife’s outstanding Common Shares. The Common Shares are the Company’s only class of voting securities that are issued and outstanding.

 

Name of beneficial owner   Amount and
nature of
beneficial
ownership
    Percentage
ownership
(1)
 
Non-management directors and nominees    
Leroy T. Barnes, Jr.(2)     20,030        *   
Richard P. Bermingham(3)     41,384        *   
Carole Black(4)     11,046        *   
Pedro Cardoso(5)     12,110        *   
Dr. Richard Carmona            *   
Jonathan Christodoro            *   
Keith Cozza            *   
Jeffrey T. Dunn(6)     18,271        *   
Hunter C. Gary            *   
Michael Levitt(7)     16,763        *   
Jesse A. Lynn            *   
Colombe M. Nicholas(8)     47,177        *   
Maria Otero