This Employment
Agreement (“Agreement”), dated as of October 10,
2006 is made and entered into by BRETT R. CHAPMAN
(“Executive”) and HERBALIFE INTERNATIONAL OF AMERICA,
INC., a Nevada corporation (“Company”). The parties to
this Agreement agree as follows:
1.
Employment At-Will . The Company and Executive acknowledge
and agree that each can terminate the employment relationship at
any time upon written notice to the other, with or without prior
notice, for any reason or for no reason. Executive has received no
promise of continued employment or employment for any specific
period of time, and no employee of the Company, including without
limitation the Company’s officers, has the authority to alter
the at-will nature of the employment relationship except in a
written employment contract signed by an authorized Company
executive and by Executive.
2.
Duties . Executive shall serve in the Los Angeles,
California area as General Counsel of the Company, with all of the
authority, duties, and responsibilities commensurate with such
position. Executive shall report only to the Chief Executive
Officer or Chairman of the Company. Executive’s service on
any outside board of directors, including any non-profit board,
shall be subject to joint approval by the Chief Executive Officer
and the Company’s Board of Directors (the
“Board”); provided, however, the board set forth in
Schedule A attached hereto is deemed approved.
3.
Compensation and Related Matters .
(a)
Salary . Executive shall receive a salary at the per annum
rate of Five Hundred Thousand Dollars ($500,000), payable in
accordance with the Company’s payroll practices for Senior
Executives (as defined in Section 3(b) below). Executive’s
salary shall be subject to an annual review and adjustment in the
discretion of the Chief Executive Officer, subject to approval by
the Board’s Compensation Committee. In the event that the
Chief Executive Officer’s salary is increased, then
Executive’s salary shall be increased the same percentage;
provided, however, that if Executive accepts a higher percentage
increase in base salary than the Chief Executive Officer in any
period, then from that day forward, increases in Executive’s
salary will no longer be tied to increases in the Chief Executive
Officer’s salary. Executive’s salary shall be subject
to a reduction of not more than ten percent in the event that the
Company adopts an across-the-board reduction for Senior Executives
and the Chief Executive Officer, in which event such percentage
reduction shall not exceed the smallest percentage reduction
imposed on any Senior Executive or the Chief Executive
Officer.
(b) Employee
Benefits . Executive and Executive’s qualified dependents
shall be entitled to participate in or receive benefits under each
benefit plan or arrangement made available by the Company to its
most senior executives (including its President and Chief Operating
Officer but specifically excluding its Chief Executive Officer
(“Senior
Executives”)) including, without
limitation, those relating to group medical, dental, vision,
long-term disability, D&O, accidental death and dismemberment,
and life insurance, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and
subject to the Company’s right to modify, amend or terminate
any such plan or arrangement with or without prior notice.
Executive shall be eligible to participate in the Company’s
401K program and the Company’s Deferred Compensation program.
Executive shall be entitled to reimbursement of reasonable business
expenses in accordance with the Company’s practices and
procedures. Executive shall be entitled to paid vacation in
accordance with Company policy.
(c)
Bonus . If the Company shall achieve the applicable bonus
target set annually by the Board’s Compensation Committee
(the “Performance Target”), then the Company shall pay
Executive a cash bonus in an amount equal to one hundred percent
(100%) of Executive’s Target Bonus (as defined below)
calculated in accordance with the Company’s then current
bonus plan in effect for its Senior Executives. The Performance
Target utilized for calculating Executive’s bonus shall be
the same as that utilized in calculating the primary bonus (and not
the APT bonus) for its Chief Executive Officer. Executive’s
“Target Bonus” shall be in an amount no less than fifty
percent of Executive’s annual salary for the year with
respect to which the bonus is to be paid. Any bonus will be paid
following the completion of the relevant calendar year at such time
bonuses are paid to the Company’s other Senior
Executives.
(d)
Long-Term Incentives . Executive shall be eligible to
participate in the Company’s long-term incentive plan for
Senior Executives, if any. The size, form, and timing of grants, if
any, shall be consistent with competitive practice, internal
position responsibilities, and subject to the joint approval of the
Chief Executive Officer and the Board’s Compensation
Committee.
(a) Although nothing in this Section 4
shall be construed to alter the at-will nature of employment as set
forth in Section 1 above, if Executive is terminated by the
Company without Cause or resigns for Good Reason, Executive will be
paid a lump sum amount equal to two times Executive’s
then-current annual salary (the “Salary Severance”), in
addition to all other accrued entitlements such as unpaid salary
and accrued vacation, if any. If Executive is terminated by the
Company without Cause or resigns for Good Reason, the Company will
also provide Executive 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; Executive shall not be entitled to
cash in lieu of outplacement services. If Executive is terminated
by the Company without Cause, resigns for Good Reason, retires,
dies, or resigns as a result of a disability, Executive 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 fiscal year of the
Company (the “Bonus Severance”). Executive will have no
duty to mitigate. As a precondition to the Company’s
obligation to pay Executive severance of two years of salary and a
pro rata bonus, Executive agrees to execute and deliver to the
Company a fully effective general release in the form attached to
this Agreement as Attachment A.
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Company shall
pay Executive the Salary Severance on the date which is the later
of ten days after the date on which it receives the signed release
or six months after the date of separation from service, and the
Company shall pay the Bonus Severance on the date which is the
later of ten days after the date on which it receives the signed
release, the date on which Company pays bonuses to Company’s
Senior Executives for the applicable year, or the date that is six
months after the date of separation from service. Executive
understands and agrees that Executive shall not be entitled to any
other severance benefit not set forth in this Section 4, and
accordingly Executive expressly acknowledges that the Company will
not be obligated to make 401(k) contributions following the
termination of Executive’s employment.
(b) In the
event that Executive 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
Executive is reemployed, or for a period of two years, whichever
occurs first. Upon a termination for Cause and upon a resignation
without Good Reason (other than due to death, disability or
retirement), except as set forth in Section 4(a) above and/or one
or more separate written agreements between Company and Executive,
all unearned compensation, benefits and unvested options shall be
forfeited.
(c) If
Executive is terminated by the Company without Cause or resigns for
Good Reason, and on the effective date of such termination
Executive is subject to 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 on the effective date of such termination
Executive may not to trade in the Company’s common shares due
to Executive’s possession of material non-public information,
in each case, which restriction or prohibition continues for a
period of at least twenty consecutive calendar days, Executive will
be paid an additional lump sum amount equal to $100,000 (the
“Blackout Period Severance”). Company shall pay
Executive the Blackout Period Severance on the same date that the
Salary Severance is paid.
(d) For
purposes of this Agreement, the Company shall have
“Cause” to terminate the Executive’s services in
the event of any of the following acts or circumstances: (i)
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) Executive’s substantial and repeated failure to
attempt to perform Executive’s lawful duties as contemplated
in Section 2 of this Agreement, except during periods of
physical or mental incapacity; (iii) 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 Company;
(iv) 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 this Agreement or any material
breach of any other written agreement between Executive and the
Company’s affiliates governing Executive’s equity
compensation arrangements (i.e., any agreement with respect to
Executive’s stock and/or stock options of any of the
Company’s affiliates);
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provided,
however, that 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 Executive of the Company’s written
notice of its intention to terminate his employment for Cause
describing the basis therefore in reasonable detail.
(e) Executive will be deemed to have a
“Good Reason” if Executive terminates his employment
because of (i) a material diminution of Executive’s
duties as General Counsel, (ii) the failure by any successor
of the Company to assume in writing the Company’s obligations
under this Agreement, (iii) the breach by the Company in any
respect of any of its obligations under this 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 Executive describing such circumstance or breach in
reasonable detail, (iv) the relocation of Executive’s
primary office location of more than 50 miles that places the
primary office farther from Executive’s residence than it was
before, or (v) the imposition by the Company of a requirement
that Executive report to a person other than the Chief Executive
Officer of the Company or the Chairman of the Board. Executive
shall not have a Good Reason to resign if the Company suspends
Executive due to an indictment of Executive on felony charges,
provided that the Company continues to pay Executive’s salary
and benefits.
5.
Adjustment to Payments Triggering Excise Tax . In the event
that any amount or benefit that may be paid or otherwise provided
to or in respect of the Executive by the Company or any affiliated
company, whether pursuant to this Agreement or otherwise
(collectively, “Covered Payments”), is or may become
subject to the tax imposed under Section 4999 of the Internal
Revenue Code of 1986, as amended (or any successor provision)
(“Excise Tax”), the Company shall pay to the Executive
a “Reimbursement Amount,” defined as an amount, which
when added to the Covered Payments and after taking into account
any federal, state or local tax resulting from the Covered Payment
and the Reimbursement Amount will provide Executive with after tax
net income equal to the amount Executive would have earned had no
Excise Tax been imposed on the Covered Payments.
6.
Confidential and Proprietary Information .
(a) The
parties agree and acknowledge that during the course of
Executive’s employment, Executive will be given and will have
access to and be exposed to trade secrets and confidential
information in written, oral, electronic and other forms regarding
the Company and its affiliates (which includes but is not limited
to all of its business units, divisions and affiliates) and their
business, equipment, products and employees, including, without
limitation: the identities of the Company’s and its
affiliates’ distributors and customers and potential
distributors and customers (hereinafter referred to collectively as
“Distributors”), including, without limitation, the
identity of Distributors that Executive cultivates or maintains
while providing services at the Company or any of its affiliates
using the Company’s or any of its affiliates’ products,
name and infrastructure, and the identities of contact persons with
respect to those Distributors; the particular preferences, likes,
dislikes and needs of those Distributors and
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contact persons
with respect to product types, pricing, sales calls, timing, sales
terms, rental terms, lease terms, service plans, and other
marketing terms and techniques; the Company’s and its
affiliates’ business methods, practices, strategies,
forecasts, pricing, and marketing techniques; the identities of the
Company’s and its affiliates’ licensors, vendors and
other suppliers and the identities of the Company’s and its
affiliates’ contact persons at such licensors, vendors and
other suppliers; the identities of the Company’s and its
affiliates’ key sales representatives and personnel and other
employees; advertising and sales materials; research, computer
software and related materials; and other facts and financial and
other business information concerning or relating to the Company or
any of its affiliates and their business, operations, financial
condition, results of operations and prospects. Executive expressly
agrees to use such trade secrets and confidential information only
for purposes of carrying out his duties for the Company and its
affiliates as he deems appropriate in his good faith judgment, and
not for any other purpose, including, without limitation, not in
any way or for any purpose that could reasonably be foreseen to be
detrimental to the Company or any of its affiliates; provided,
Executive shall be permitted to disclose such trade secrets and
confidential information to third parties in the course of
performing his duties for the Company and its affiliates as he
deems appropriate in his good faith judgment provided that prior to
such disclosure Executive causes the intended recipient of such
information to sign a confidentiality agreement. Executive shall
not at any time, either during the course of his employment
hereunder or after the termination of such employment, use for
himself or others, directly or indirectly, any such trade secrets
or confidential information, and, except as required by law or as
permitted hereunder, Executive shall not disclose such trade
secrets or confidential information, directly or indirectly, to any
other person or entity. Trade secret and confidential information
hereunder shall not include any information which (i) is
already in or subsequently enters the public domain, other than as
a result of any unauthorized direct or indirect disclosure by
Executive, (ii) becomes available to Executive on a
non-confidential basis from a source other than the Company or any
of its affiliates, provided that Executive has no knowledge that
such source is subject to a confidentiality agreement or other
obligation of secrecy or confidentiality (whether pursuant to a
contract, legal or fiduciary obligation or duty or otherwise) to
the Company or any of its affiliates or any other person or entity
or (iii) is approved for release by the Chief Executive
Officer or the board of directors of the Company or any of its
affiliates or which the Chief Executive Officer or the board of
directors of the Company or any of its affiliates makes available
or authorizes Executive to make available to third parties without
an obligation of confidentiality.
(b) All
physical property and all notes, memoranda, files, records,
writings, documents and other materials of any and every nature,
written or electronic, which Executive shall prepare or receive in
the course of his employment with the Company and which relate to
or are useful in any manner to the business now or hereafter
conducted by the Company or any of its affiliates are and shall
remain the sole and exclusive property of the Company and its
affiliates, as applicable. Executi
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