Exhibit 5.8
OPINION
RE: ACQUISITION OF HERBALIFE INTERNATIONAL. INC. AND FINANCIAL
ASSISTANCE PROVIDED BY TWO UK SUBSIDIARIES
1 TRANSACTION OVERVIEW:
This transaction involved the acquisition by WH Holdings (Cayman Islands)
Limited (the "Acquirer") of the entire issued share capital in Herbalife
International, Inc., (a US corporation) ("Herbalife International"). The
acquisition was partially financed through the issuance of 11-3/4% Series
A Senior Subordinated Notes due 2010 (the "Series A Notes") issued by
Herbalife International. The obligations under the Series A Notes were
guaranteed by certain subsidiaries and parent companies of Herbalife
International, including Herbalife (UK) Limited and Herbalife Europe
Limited (together, the "UK Subsidiaries"). In connection with the Series A
Notes, the following New York law governed documents were executed: (i) an
Indenture, dated as of June 27, 2002 (the "Indenture"); (ii) a Purchase
Agreement, dated as of June 21, 2002 (the "Purchase Agreement"); and (iii)
a Registration Rights Agreement dated as of June 27, 2002 (the
"Registration Rights Agreement"). The UK Subsidiaries became a party to
each of these agreements (i)-(iii) by executing, respectively, (a) a
Supplemental Indenture, dated as of July 31, 2002; (b) a Joinder to the
Purchase Agreement; dated as of July 31, 2002 (the "Joinder to the
Purchase Agreement"); and (c) a Joinder to the Registration Rights
Agreement dated as of July 31, 2002 (all of which documents are governed
by New York law). The UK Subsidiaries also executed (d) a New York law
governed Guarantee, dated as of July 31, 2002, (the "Guarantee") with
respect to the obligations of Herbalife International under the Series A
Notes pursuant to the Indenture. Pursuant to the Registration Rights
Agreement, Herbalife International is now offering to exchange 11-3/4%
Series B Senior Subordinated Notes due 2010 (the "Series B Notes") for an
equal principal amount of outstanding Series A Notes. The Series B Notes
will be issued on substantially the same terms as the Series A Notes, and
the terms of the Indenture provide that the Guarantee extends to the
Series B Notes. A prospectus will be filed with the Securities and
Exchange Commission on Form S-4 (the "Registration Statement (No.
333-101188)") for the purpose of registering the Series B Notes and, inter
alia, the guarantee by the UK Subsidiaries of Herbalife International's
obligations under the Series B Notes under the Securities Act of 1933, as
amended. The UK Subsidiaries will become Co-Registrants in relation to
their Guarantee in connection with the aforesaid exchange offering.
2 ALTERNATIVE ANALYSES:
2.1 Two analyses as to the application of s.151 Companies Act 1985 to
financial assistance granted by the UK Subsidiaries in relation to the
acquisition of shares in its foreign parent are possible.
2.2 First, Section 151(1) Companies Act 1985 provides, "Subject to the
following provisions of this Chapter, where a person is acquiring or is
proposing to acquire shares in a company (i.e. Herbalife International),
it is not lawful for the company (i.e. Herbalife International) or any of
its subsidiaries (i.e. Herbalife (UK) Limited and Herbalife Europe
Limited) to give financial assistance (eg granting guarantees to support
the Series A Notes or the Series B Notes) directly or indirectly for the
purpose of that acquisition (i.e. the acquisition by WH Holdings (Cayman
Islands) Limited of the entire issued share capital in Herbalife
International) before or at the same time as the acquisition takes place".
For s.151 to apply, the acquisition must be of shares in a "company'.
Section 735(1) defines "company" to mean "a company formed and registered
under this Act". Section 735(4) provides that "the definitions in this
section apply unless the contrary intention appears. So on a literal
interpretation of the Act and on the basis that no "contrary intention"
appears on the face of the legislation, financial assistance for the
acquisition of shares in a company incorporated outside Great Britain
appears to be outside the ambit of s.151. On this analysis Herbalife (UK)
Limited and Herbalife Europe Limited, being the subsidiaries of a foreign
(US) parent could give financial assistance for the purchase of shares in
its (ultimate) parent, Herbalife International without requiring the
exempting procedure set out in Section 155 Companies Act.
2.3 An alternative interpretation of s.151 can be made on the basis that a
contrary intention under s.735(4) is possible so that "company" is
interpreted to mean any company, including foreign companies. Section
151(1) in addition to referring to "company" also refers to
"subsidiaries". The normal definition of "subsidiaries" is contained in
s.736, which provides "a company is a "subsidiary" of another company, its
"holding company", if that other company.. .(c) is a member of it and
controls a majority of the voting rights in it, or if it is a subsidiary
of a company which is itself a subsidiary of that other company."
Herbalife (UK) Limited and Herbalife Europe Limited could fall within the
definition of "subsidiary" in s.736(1) so making Herbalife International
its "holding company". Sub-section 736(3) provides "in this section
"company" includes any body corporate." Section 740 provides, "references
in this Act to a body corporate.. .include a company incorporated
elsewhere than in Great Britain".
In the case of Arab Bank Plc v. Merchantile Holdings Limited and another
[1994] 1 BCLC 330 Millett J. held (although in relation to a case having
differing facts involving shares being acquired in a UK parent company,
with financial assistance proposed to be given by its foreign subsidiary
company) that s.151 did not prohibit a foreign subsidiary from giving
financial assistance for the acquisition of shares in its English parent
company on the basis that any of its subsidiaries" in s.151 must be
construed as limited to those subsidiaries which are English companies.
Millet J did however look at the mischief which s.151 was to address and
in that case remarked (however only as non-binding obiter) that, "the
primary class of persons which the section [s. 151] was designed to
protect must, in my judgment, be the creditors of the assisting company;
and they are equally prejudiced by the extraction of its assets for the
purpose of financing the acquisition of shares in its parent company
whether that parent company is English or foreign. I can see no possible
reason or justification for excluding such a case from a prohibition and,
if this was indeed the result of the recasting of the statutory language
in 1981, I think that it must have been inadvertent".
There does therefore appear to be an argument that looking at the mischief
which section 151(1) is designed to protect against and in the context of
s.736(4), there is a possible contrary intention which applies the
s.736(3) definition of company rather than s.735, where the company doing
the actions which would be financial assistance is a UK company.
3 OPINION AND REASONS:
3.1 I have previously advised that the granting of financial assistance by the
two UK subsidiaries was permitted such that no exempting procedure was
required. My reasons for this conclusion, which I am pleased to reconfirm,
are that:
3.1.1 Reading the judgement of MiIlett J in Arab Bank v Mercanti!e
Holdings [1994] 1 BCLC 330, one can see that Millett J. considered
and compared the language of section 54 of the Companies Act 1948
and the changes made by section 151 of the Companies Act 1985 (which
re-enacted in similar terms the changes made by sections 42 to 44 of
the Companies Act 1981). The primary change is that the prohibition
now starts with the company whose shares are to be acquired (the
target company) and prohibits the target company or `any of its
subsidiaries' from giving financial assistance for the purchase of
the shares in the target company. This is to be contrasted with the
prohibition contained in section 54 of the Companies Act 1948, which
was directed to the company which provided the financial assistance
and declared it unlawful for that company to provide financial
assistance in connection with the acquisition of its own shares or
shares in its holding company.
3.1.2 Millet J observed, "it is difficult to believe that this change,
which is primarily one of style, was intended to make any alteration
in the substantive law, particularly when the opening words of
section 153 refer back to section 151 as if it were still cast in
the old form; and in an entirely domestic situation it does not do
so. But because of the statutory definitions of `company' (which
prima facie means an English company) and `subsidiary' (which does
not) it appears to have made at least one change and may have made
two".
3.1.3 Millett J continued in his judgement, "Formerly, the assisting
company had to be a `company', i.e. an English company; but the
target company did not: it was sufficient if it was the assisting
company's holding company. Now, however, it is the target company
which has to be `a company'; the assisting company does not: it is
sufficient if it is one of the target company's subsidiaries. The
new requirement that the target company must be `a company' means
that the giving of financial assistance by the English subsidiary of
a foreign parent company for the acquisition of shares in that
company appears to be no longer prohibited." It is clear from this
passage that this is the one change which Millett J believes the
recasting of the 1948 Companies Act appears to make. The second
change which the "recasting" may have made in the passage at
paragraph 3.1.2 was thus a reference to the possibility that is
rendered illegal for a foreign subsidiary of an English target
company to give financial assistance for the acquisition of shares
in the English target company.
3.1.4 The actual legal question which Millett J had to decide was whether
section 151 made it unlawful for a foreign subsidiary of an English
parent company to give financial assistance for the purpose of
acquisition of shares of its parent company (i.e. the second
possible change). He stated, "The defendants submit that if the
mischief sought to be prevented was the extraction of assets from
the subsidiary, then the section would have prohibited an English
subsidiary of a foreign parent from giving financial assistance for
the purchase of shares of the parent company. This would be a
formidable argument if I were persuaded that the failure to cover
this case, covered in the 1948 Act, was deliberate; but I am not.
The primary class of persons which this section was designed to
protect must, in my judgment, be the creditors of the assisting
company; and they are equally prejudiced by the extraction of its
assets for the purpose of financing the acquisition of shares in its
parent company whether that parent company is English or foreign. I
can see no possible reason or justification for excluding such a
case from the prohibition and, if this was indeed the result of the
re-casting of the statutory language in 1981, I think that it must
have been inadvertent". Millett J did not answer the question of
whether this was the effect of the re-casting of the statutory
language - all he was saying is that if this was indeed the result
of the re-casting, it was not deliberate in his view. Indeed to
consider that this change had not occurred would be inconsistent
with the view which Millet J appears to have expressed earlier in
his judgement regarding the interpretation of the changes to
the 1948 Companies Act which appear to have been made requiring the
target company to be an English company before the statutory
prohibition operated. Ultimately, Millett J did not have to decide
the point of whether or not the law had changed on this point as he
was not required to do so. The actual decision of Millett J was that
for the purposes of Section 151 the expression "such subsidiaries"
was, notwithstanding Section 736, confined to English companies.
3.1.5 When reading section 151, the definition of `company' as it appears
in the first line (in relation to shares being acquired or proposed
to be acquired in a company) is governed by section 735, despite
references to `any body corporate' in section 736 defining the
expressions "subsidiary" and "holding company" (which section
Millett J also considers in his judgement). A section 735 `company'
is a company formed and registered under the Companies Act. In the
present situation there is a US parent target and UK subsidiaries so
the critical question is whether that foreign (US) parent company is
a `company' for the purposes of section 151. This is answered by
reading the section 735 definition of `company'. Section 735 is
subject to any contrary intention as per section 735(4) but, in my
opinion, none are apparent and so, the target company must be a UK
company. Indeed, when Millet J refers to `company' in quotation
marks when discussing sections 735 and 736, the meaning he clearly
intended is that contained in section 735.
3.1.6 I do not consider that it is relevant to the present issue to turn
to section 736, which defines holding company and subsidiary for
this purpose - despite the provision in section 736(3) that this
company includes any body corporate i.e. including overseas
companies (by section 740).
3.1.7 Buckley on the Companies Act at 151.22, states that section 151 does
not apply where a subsidiary registered in Great Britain gives
financial assistance for the purpose of the acquisition of shares in
a holding company which is not incorporated in Great Britain. There
is, however, a footnote stating that, in Arab Bank, "Millett J (at
337) was not convinced that the result stated in the text was the
effect of section 151. He said that if it was the result it must
have been inadvertent". It is in my opinion clear from the text that
the editors take the view that whether Millett J was right or wrong
about the change being inadvertent, that it is indeed the effect of
section 151.
Gore-Browne on Companies (Boyle and Potts) at 13.9.1 expresses the
same view providing, with regard to the Arab Bank case, "nor it
seems does it (Arab Bank) prohibit the giving of financial
assistance by an English subsidiary to acquire shares in its foreign
parent". Tolleys Company Law at F4003/2 also follows this line of
reasoning. (I do acknowledge that Penningtons Company Law at page
454 considered the giving of financial assistance by a UK subsidiary
to a foreign holding company to be financial assistance under the
1985 Act. Palmer's Company Law does not actually appear to express
any firm conclusion one way or the other.)
3.1.8 I also consider that it would be curious if the giving of financial
assistance by a UK subsidiary for the purpose of assisting an
acquisition of shares in its foreign parent were prohibited
financial assistance having regard to section 155. Section 155(1)
exempts from Section 151 the giving of financial assistance by a
"private company". That expression is defined by Section 1(3) as a
"company", i.e. an English company which is not a "public company".
However, the exemption only operates where the shares are shares in
the private company itself or are shares in another private company
(i.e. a "company" which is the holding company of the first
company). It would be very curious for the exempting procedure not
to be available where the holding company is a foreign company. I
think the reason why the example does not extend to financial
assistance given for the purpose of the acquisition of shares in a
foreign holding company is that such assistance does not fall within
Section 151 at all and thus there is no necessity for the exempting
procedure to cover such a case.
4 REFERENCES:
In the foregoing references to any sections are to sections of the
Companies Act 1985 unless expressly stated to the contrary.
5 CONFIRMATION
5.1 I am pleased to confirm my opinion previously given (in particular in so
far as it extends to the Series B Notes exchange offer for Series A Notes)
by signing this Opinion to the effect that the granting of financial
assistance by the two UK Subsidiaries was permitted such that no exempting
procedure was required. I note this Opinion will be relied upon by
Chadbourne & Parke LLP and Chadbourne & Parke, London, in connection with
the exchange offer referred to above and I consent to the filing of this
Opinion as an exhibit to the S-4 Registration Statement No. 333-101188 for
the exchange offer of $165,000,000 of outstanding Series A Notes for the
registered Series B Notes.
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Robin Potts QC
Erskine Chambers
Lincolns Inn
London
Date: 4 December 2002