13. Professional Fees and Other Expenses

In late 2012, a hedge fund manager publicly raised allegations regarding the legality of the Company’s network marketing program and announced that the hedge fund manager had taken a significant short position regarding the Company’s common shares, leading to intense public scrutiny and significant stock price volatility. The Company believes that the hedge fund manager’s allegations are inaccurate and misleading. The Company has engaged legal and advisory firms to assist with responding to the allegations and to perform other related services in connection to these recent events. The Company recognizes the related expenses as a part of selling, general & administrative expenses within its consolidated statement of income. For the three and six months ended June 30, 2013, the Company recorded approximately $8.1 million and $17.6 million, respectively, of professional fees and other expenses related to this matter.

Of the approximately $8.1 million and $17.6 million in expenses incurred during the three and six months ended June 30, 2013, respectively, discussed above, approximately $1.5 million and $3.0 million, respectively, were recognized for advisory retainer fees. The minimum guaranteed retainer fees were approximately $7.0 million as of June 30, 2013 and the expense recognition of these fees could accelerate based on certain conditions.

The Company also had a cash settlement liability award, or the Liability Award, outstanding as of June 30, 2013, which is tied to the Company’s stock price and which only vests if certain conditions are met relating to the above matter. The fair value of the Liability Award will be revalued each quarter until settlement and the Company will recognize and adjust the expense over the expected requisite service period. The expense recognized during the three and six months ended June 30, 2013, relating to the Liability Award was approximately $0.3 million and $1.3 million, respectively, and are included in the approximately $8.1 million and $17.6 million expense described above. The remaining unrecognized expense relating to the Liability Award was approximately $2.5 million as of June 30, 2013, based on the fair value of the Liability Award as of that date. The recognition of the unrecognized expense relating to the Liability Award could accelerate and change based on certain conditions.