1180262--2/28/2006--HERBALIFE

related topics

{regulation, change, law}

{product, market, service}

{customer, product, revenue}

{property, intellectual, protect}

{operation, international, foreign}

{stock, price, operating}

{personnel, key, retain}

{system, service, information}

{control, financial, internal}

{provision, law, control}

{debt, indebtedness, cash}

{cost, regulation, environmental}

{financial, litigation, operation}

Since we cannot exert the same level of influence or control over our independent distributors as we could were they our own employees, our distributors could fail to comply with our distributor policies and procedures, which could result in claims against us that could harm our financial condition and operating results. Adverse publicity associated with our products, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results. Our failure to appropriately respond to changing consumer preferences and demand for new products or product enhancements could significantly harm our distributor and customer relationships and product sales and harm our financial condition and operating results and cause the loss or reduction in the value of your investment in our common shares. Due to the high level of competition in our industry, we might fail to retain our customers and distributors, which would harm our financial condition and operating results. We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints both domestically and abroad and our failure or our distributors failure to comply with these restraints could lead to the imposition of significant penalties or claims, which could harm our financial condition and operating results. Our network marketing program could be found to be not in compliance with current or newly adopted laws or regulations in one or more markets, which could prevent us from conducting our business in these markets and harm our financial condition and operating results. A substantial portion of our business is conducted in foreign markets, exposing us to the risks of trade or foreign exchange restrictions, increased tariffs, foreign currency fluctuations and similar risks associated with foreign operations. Our expansion in China is subject to general, as well as industry-specific, economic, political and legal developments in China, and requires that we utilize a different business model from that we use elsewhere in the world. If we fail to further penetrate existing markets or successfully expand our business into new markets, then the growth in sales of our products, along with our operating results, could be negatively impacted and investors could lose all or part of their investment in our common shares. Our contractual obligation to sell our products only through our Herbalife distributor network and to refrain from changing certain aspects of our marketing plan may limit our growth. We depend on the integrity and reliability of our information technology infrastructure, and any related inadequacies may result in substantial interruptions to our business. Since we rely on independent third parties for the manufacture and supply of our products, if these third parties fail to reliably supply products to us at required levels of quality, then our financial condition and operating results would be harmed. If we fail to protect our trademarks and tradenames, then our ability to compete could be negatively affected, which would harm our financial condition and operating results. If our distributors fail to comply with labeling laws, then our financial condition and operating results would be harmed. If our intellectual property is not adequate to provide us with a competitive advantage or to prevent competitors from replicating our products, or if we infringe the intellectual property rights of others, then our financial condition and operating results would be harmed. Since one of our products constitutes a significant portion of our retail sales, significant decreases in consumer demand for this product or our failure to produce a suitable replacement should we cease offering it would harm our financial condition and operating results. If we lose the services of members of our senior management team, then our financial condition and operating results would be harmed. The covenants in our existing indebtedness limit our discretion with respect to certain business matters, which could limit our ability to pursue certain strategic objectives and in turn harm our financial condition and operating results. If we do not comply with transfer pricing and similar tax regulations, then we may be subjected to additional taxes, interest and penalties in material amounts, which could harm our financial condition and operating results. We may be held responsible for certain taxes or assessments relating to the activities of our distributors, which could harm our financial condition and operating results. We may incur material product liability claims, which could increase our costs and harm our financial condition and operating results. A few of our shareholders will collectively exert significant influence over us and have the power to cause the approval or rejection of all shareholder actions and may take actions that conflict with your interests. We are subject to, among other things, the attestation requirements regarding the effectiveness of internal control over financial reporting. These requirements have increased our compliance costs, and failure to comply in a timely manner could adversely affect the value of our securities. Holders of our common shares may face difficulties in protecting their interests because we are incorporated under Cayman Islands law. Provisions of our articles of association and Cayman Islands corporate law may impede a takeover or make it more difficult for shareholders to change the direction or management of the Company, which could adversely affect the value of our common shares and provide shareholders with less input into the management of the Company than they might otherwise have.

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1180262--2/28/2006--HERBALIFE_LTD.