Item 1.01.
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Entry into a Material Definitive Agreement.
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FTC Consent Order
On July 15, 2016, Herbalife Ltd. (the Company) entered into a proposed Stipulation to Entry of Order for Permanent Injunction and Monetary
Judgment (the Consent Order) with the Federal Trade Commission (the FTC). The Consent Order was lodged with the United States District Court for the Central District of California (the Court) and is subject to
final approval by the Court before becoming effective. Once effective, the Consent Order will resolve the FTCs multi-year investigation of the Company. Pursuant to the Consent Order, under which the Company neither admitted nor denied the
FTCs allegations (except as to the Court having jurisdiction over the matter), the Company agreed to make, through its wholly owned subsidiary Herbalife International of America, Inc., a $200 million payment to the FTC within seven days of
entry of the Consent Order. Additionally, pursuant to the Consent Order, the Company has agreed to implement certain new procedures and enhance certain existing procedures in the U.S, certain of which are outlined below and most of which the Company
will have 10 months to implement.
Among other things, in the Consent Order, the Company agreed to categorize all existing and future members as either
(i) discount customers, who are those members who join as customers to obtain a discount only and who do not have the right to sell goods or services, recruit others into the business or receive compensation from such customers
participation in the business (each, a Preferred Member), or (ii) business opportunity participants, who are those members who participate in the business and are not Preferred Members (each, a Distributor), and require
certain affirmative steps by a member before he or she can move from one category to the other. Distributors will also be required to complete a Company-sponsored training program as detailed in the Consent Order before being eligible to receive
compensation. Further, Distributors must wait at least 12 consecutive months after becoming a Distributor, participate in further Company-sponsored training and submit a business plan to the Company for its review before he or she may open a
Nutrition Club or any other similar physical business location.
The Company also agreed in the Consent Order to certain matters in respect of Distributor
compensation. The compensation paid to Distributors must be based on documented and tracked U.S. retail sales, which may include sales to Preferred Members and purchases for a Distributors permitted personal consumption. In addition, such
personal consumption purchases for which compensation may be paid will be subject to a cap as set forth in the Consent Order. The Company also agreed to take all reasonable steps, including both random and targeted audits, to monitor U.S. retail
sales to prevent attempts to manipulate the Companys compensation plan and, in respect of U.S. retail sales on which compensation may be paid, to ensure such sales are appropriately documented in accordance with the Consent Order. The Consent
Order also provides that if the total eligible U.S. retail sales on which compensation may be paid falls below 80% of the Companys total U.S. sales for a given year, compensation payable to Distributors on eligible U.S. retail sales will be
capped at 10% above the current compensation levels.
The Company also agreed in the Consent Order to (i) extend the time period during which a
member may return an initial membership pack to at least 12 months, (ii) prohibit auto-shipment of products and (iii) pay for (or refund) costs associated with any products returned within 12 months of purchase. Effective immediately, the
Company and its affiliates and Distributors are also prohibited from misrepresenting or making misleading claims regarding, among other things, income and lavish lifestyles.
The Consent Order also requires the appointment of an independent compliance auditor who will be mutually selected by the Company and the FTC. The independent
compliance auditor will serve at the Companys expense and, for a period of seven years, will monitor the Companys compliance with certain aspects of the Consent Order. The independent compliance auditor shall have the right to inspect
Company records and to engage professionals in effecting its duties, as set forth in greater detail in the Consent Order. The Company and certain affiliates are also required under the Consent Order to submit a compliance report to the FTC one year
after the entry of the Consent Order. The Company is also required to create certain records specified by the Consent Order for a period of nine years following entry of the Consent Order, and retain such records for a period of five years from the
date such records are created.
The foregoing summary of the Consent Order is not complete and is qualified in its entirety by reference to the complete
text of the Consent Order, a copy of which is attached hereto as Exhibit 10.1, and incorporated herein by reference.
Second Amended and Restated
Support Agreement
On July 15, 2016, the Company entered into a Second Amended and Restated Support Agreement (the New Support
Agreement) with 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 GP Inc. (collectively, the Icahn Parties). The New Support Agreement amends and restates the Amended and Restated Support Agreement entered into between the Company and the Icahn Parties
on March 23, 2014 (the Prior Support Agreement). The amendments to the original Support Agreement include, among other things:
1. Board Nominees. The Companys board of directors (the Board) will nominate for re-election
to the Board at the Companys 2017 annual general meeting of shareholders (the 2017 Annual Meeting) the same five members of the Board previously designated by the Icahn
Parties pursuant to the Prior Support Agreement or the initial Support Agreement between the Company and the
Icahn Parties dated February 28, 2013, as applicable: Jonathan Christodoro, Keith Cozza, Hunter C. Gary, Jesse A. Lynn and James L. Nelson. Mr. Christodoro, Mr. Cozza, Mr. Gary and Mr. Lynn (collectively, the Icahn
Designees) are employees of Icahn Enterprises L.P.
2. Voting. The Icahn Parties will vote in favor
of all directors nominated for the Board for the 2017 Annual Meeting so long as the 2017 Annual Meeting is held no later than May 31, 2017.
3. Standstill. The standstill provision included in the New Support Agreement terminates on the later to occur
of (i) the first date after the date of the New Support Agreement on which no Icahn Designee is a member of the Board and (ii) the earlier of (x) the completion of the 2017 Annual Meeting and (y) May 31, 2017. Further, the
standstill was amended to permit the Icahn Parties to acquire up to 34.99% of the Companys outstanding common shares, as calculated pursuant to the terms of the New Support Agreement.
The foregoing summary of the New Support Agreement is not complete and is qualified in its entirety by reference to the complete text of the New Support
Agreement, a copy of which is attached hereto as Exhibit 10.2, and incorporated herein by reference.